NEGOTIABLE INSTRUMENT LAW c) Certificate of Deposit – a form of promissory note

Functions: which is a written acknowledgement of a bank of its An instrument which contains AN ORDER or
1. as a substitute for money in payment for property or receipt of a certain sum with a promise to repay the PROMISE to do any act in addition to the payment of
services; same money is not negotiable, EXCEPT
2. as a means of creating and transferring credit 1. authorizes the sale of collateral securities in case
3. to facilitate the sale of goods REQUISITES OF NEGOTIABILITY the instrument be not paid at maturity;
4. increases the purchasing medium in circulation I. Signature 2. authorizes a confession of judgment if the
a. one who signs in a trade or assumed name will be instrument be not paid at maturity (not recognized
Requisites of Negotiability liable to the same extent as if he had signed in his in our jurisdiction)
1. it must be in writing and signed by the maker or drawer own name 3. waives the benefit of any law intended for the
2. must contain an unconditional promise or order to pay b. if by agent, no particular form of appointment is advantage or protection of the obligor
a sum certain in money necessary and maybe established as in other 4. gives the holder an election to require something to
3. must be payable on demand, or at a fixed or cases of agency be done in lieu of the payment of money.
determinable future time c. biding whether it is in one’s hand writing, or printed,
4. must be payable to order or to bearer; and engraved, lithographed, or photographed, so long a. an authorization which empowers the holder to sell
5. where the instrument is addressed to a drawee, he as it is intended or adopted as the signature of the the collateral before the maturity of the note
must be named or otherwise indicated therein with signer or made with his authority renders it non-negotiable because it would in effect
reasonable certainty. d. In case of doubt, it is deemed an indorser grant the holder an option to accelerate the
maturity of the instrument, thus rendering the time
Promissory Note – an unconditional promise in writing II. Writing - includes print or typed of payment uncertain.
made by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable III. Unconditional order or promise to pay Delivery – transfer of possession, actual or
future time, a sum certain in money to order or to bearer A Promise is Unconditional even if coupled with constructive from one person to another.
(maker and the payee) 1. an indication of a particular fund out of which
reimbursement is to be made, or a particular Other stipulations not affecting negotiability
If a payee = maker, it is not complete until indorsed by him account to be debited with the amount; or a. it is not dated
2. a statement of the transaction which gives rise to the b. does not specify the value given, or that any value
Bill of Exchange – an unconditional order in writing instrument has been given therefor
addressed by one person to another, signed by the person c. does not specify the place where it is drawn or the
giving it, requiring the person to whom it is addressed to a. a mere acknowledgement of a debt is not a place where it is payable
pay on demand or at a fixed or determinable future time a promissory note d. bears a seal
sum certain in money to order or to bearer (drawer, drawee b. an order to pay out of a particular fund is not e. designates a particular kind of current money in
[usually a bank], payee) unconditional (trust fund, proceeds of a future which payment is to be made
sale)
Kinds of Promissory Notes c. whenever a bill of exchange contains a IV. Sum Certain
a) Bond – a certificate or evidence of a debt on which reference to some EXTRINSIC CONTRACT in A Sum is certain although it is paid
the issuing company or governmental body promises to such a way as TO MAKE IT SUBJECT TO THE 1. with interest; or
pay the bondholders a specified amount of interest for TERMS OF THE CONTRACT, it destroys 2. by stated installments; or
a specified length of time and to repay the loan on the negotiability; 3. by stated installments with a provision that upon
expiration date. As distinguished from a reference importing default in payment of any installment or of the
b) Debenture – a promissory note or bond backed by merely that the extrinsic agreement was the interest, the whole shall become due; or
the general credit of a corporation and usually not origin of the transaction, or constitutes the 4. with exchange, whether at a fixed rate or at the
secured by a mortgage or lien on any specific property consideration of the bill or note current rate; or
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 5. with the costs of collection or an attorney’s fee, in 2. insecurity clauses – provisions which Bill = Promissory Note
case payment shall not be made at maturity allow the holder to accelerate payment if he deems a. when the drawer = drawee
himself insecure. The instrument is rendered NON- b. the drawee is a fictitious person or a person not
a. Test: Can it be computed without looking beyond NEGOTIABLE having capacity to contract
the instrument 3. Extension Clauses. An instrument is
b. Amount that is to be fixed by the court, for payable at a definite time if by its terms it is payable the holder may treat it at his option
attorney’s fees, does not make the instrument non- at a definite time subject to extension at the option
negotiable of the holder or to extension to a further definite VIII. Construction where Instrument is Ambiguous
c. An instrument which contains an order or promise time at the option of the maker or acceptor or a. Sum; words  numbers, words prevail
to do an act in addition to the payment of money is automatically upon or after a specified act or event. b. Date of interest; the date of the instrument, if
not negotiable undated, from the issue thereof
d. A note was non-negotiable because of the promise VI. PAYABLE TO ORDER OR BEARER (P 45) c. Date of Instrument; if not dated, the date of issue
to furnish additional security to the satisfaction of a. Payable to order – where it is drawn payable to the d. Written v. Printed; Written prevails (typewritten =
the payee order of a specified person or to him or his order printed)
1. to the order of the payee who is not a party to e. As to whether it is a bill or a note; the holder
V. TIME OF PAYMENT the transaction decides
a. Payable on demand 2. to the order of the drawer/maker f. Signature; Doubt of capacity; presumed as an
1. where it is expressed to be payable on 3. to the drawee indorser
demand, or at sight, or on presentation 4. order of 2 or more payees jointly g. 2 Drawers/makers who signed; presumed to be
2. in which no time for payment is expressed 5. order of 1 or several payees joint and severally liable
3. when it is already overdue 6. order of the holder of an office for the time
b. Determinable Future Time being TRANSFER
1. at a fixed period after date or sight b. A postal money order is not a negotiable a. Every contract on a negotiable instrument is
2. on or before a fixed or determinable future time instrument. Or when “or bearer” printed on a check incomplete and revocable until delivery of the
specified therein are cancelled by the drawer, the instrument cannot instrument.
3. on or at a fixed period after the occurrence of a be considered negotiable. b. Once the instrument is no longer in the possession of
specified event which is certain to happen c. Payable to Bearer the person who has signed it, a valid delivery by him is
though the time of happening be uncertain 1. when it is expressed to be so payable presumed
2. when it is payable to a person named therein or c. The first delivery of the instrument complete in form, to
a) an instrument payable upon a contingency is bearer a person who takes it as a holder is called THE ISSUE
not negotiable, and the happening of the even 3. when it is payable to the order of a fictitious or or ISSUANCE of the instrument
does not cure the defect non-existing person, and such fact was known
b) a note is not negotiable if the holder can cause to the person making it so payable Transfer without Indorsement
the note to mature at any time 4. when the name of the payee does not purport 1. the transfer vests in the transferee such title as the
to be the name of any person transferor had therein and the right to have the
Date: if marked, it is the presumed date. In case of 5. when the only or last indorsement is an indorsement of the transferor.
doubt, the date it was issued. indorsement in black 2. Is not a holder in due course UNTIL the actual
Clauses Affecting Negotiability VII. PARTIES MUST BE DESIGNATED WITH indorsement is made. He has the right to an
1. Acceleration clauses – a stipulation that CERTAINTY Unqualified Indorsement unless contrary is proven.
upon default in payment of any installment or of Drawee – a bill can be addressed to 2 or more
interest, the whole shall become due DOES NOT drawees JOINTLY but not ALTERNATIVE or IN Negotiation
affect negotiability SUCCESSION When it is transferred from one person to another in such a
manner as to constitute the transferee the holder there of.
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May either be Significance of Indorsement e. Partial Indorsements. An indorsement must be an
(a) for value a. it constitutes a transfer or sale of the instrument to the indorsement of the entire instrument.
(b) gratuitous indorsee or transferee Exception: when the instrument has been paid in part,
b. it signifies the agreement of the indorser to answer for it may be indorsed as to the residue
Non-Negotiable Instruments the amount represented by the instrument in case of (e.g. Note is payable by installments, where some
4. money order – it is governed by postal rules default of the maker or the party primarily liable installments have been paid, the instrument may still
and regulations which may be inconsistent with the NIL Provided that be negotiated for the remaining unpaid installments)
and it can only be negotiated once 1. there is notice of dishonor for local bill of exchange
5. warehouse receipt – same reason as BOL 2. there is dishonor and protest for foreign bill of The indorsement of a part of the instrument is NOT
6. bill of lading – it represents goods, not exchange VOID. It remains valid, not as a negotiation, but as a
money mere assignment.
7. pawn ticket – it does not represent money Liability of an Indorser
but the pawned articles a. perfects a contract of sale or assignment of the Kinds of Indorsement
8. treasury warrant – being payable out of a instrument a. Special or Blank
particular fund b. perfects a contract to pay the instrument if the maker is (future method of negotiation)
9. trust receipt – it is an evidence of unable to pay on maturity. Special – specifies the person to whom, or to whose order,
ownership of goods, not money the instrument is to be payable; and the indorsement of
Liabilities such indorsee is necessary to the further negotiation of the
Bearer Instrument: by delivery Assignee instrument.
Bearer – the person in possession of a bill or note which is a. subject to all defenses existing among prior
payable to bearer parties. Blank – specifies no indorsee, and an instrument so
a. one who negotiates by delivery, although he assumes b. No secondary Liability indorsed is payable to bearer, and may be negotiated by
the liabilities of a seller or transferor of the note or bill, Holder delivery
does NOT warrant that he will pay in case the primary a. must bring all prior indorsers as party to the case Blank to Special: by writing over, the name of the person,
party fails to pay Negotiates by mere delivery above the signature of the indorser in blank
Liable only to his immediate transferee
An order Instrument can be a Bearer Instrument BUT a Special Indorser b. Restrictive or Qualified
Bearer Instrument CANNOT be an Order Instrument. Order Instrument: Liable to subsequent holders (the kind of title transferred)
Bearer Instrument: makes the indorser specially liable the restrictive indorsement constitutes the indorsee as an
Order Instrument: by indorsement of the holder as indorser to only such holders as make title through agent of the indorser and can vest the former with the
completed by deliver. his indorsement. rights of a holder in due course, if the principal is. If the
Holder – the payee or indorsee of a bill or note, who is in principal is not, then neither is the restrictive indorsee.
possession of it, or the bearer thereof Requisites of Indorsements Rights of Restrictive Indorsee
a. a mere signature will suffice 1. to receive payment of the instrument
General Rule: If an instrument is transferred without b. ALLONGE; can only be validly used only when there is 2. to bring any action thereon that the indorser could
negotiation, the transfer is a mere assignment which no longer any room on the instrument for further bring
constitutes the transferee as a mere assignee not a holder. indorsements 3. to transfer his right as such indorsee where the
Examples c. Joint Payees. If Joint (“and”), an indorsement by one form of the indorsement authorizes him to do so
a. delivered without indorsement will only be valid only if authorized. If alternative (“or”),
b. where the indorsement is not made property as either one may validly negotiate the same. c. Qualified or unqualified
required by law (use of an allonge even if there is still d. Mispelled name. He may sign as the wrong name then (scope of the liability assumed by the indorser)
room in the instrument) indicate his right name as the person indorsed. constitutes the indorser a mere assignor of the title of the
instrument. (e.g. “without recourse”)
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Effect of a Qualified Indorsement 3. that he has no knowledge of any fact which would d. Instrument drawn/indorsed to a person as “cashiers” or
1. to relieve the qualified indorser of his liability to pay the impair the validity of the instrument or renders it other fiscal officer; presumed to be payable to the bank
instrument should the maker be unable to pay at valueless or corporation of which he is such officer.
maturity
2. he does not guarantee solvency of the maker, but
merely his legal title to the instrument Warranty of General Indorser Extinguishment of Negotiability of an Instrument
1. that the instrument is genuine and in all respects a. restrictively indorsed
d. Conditional and unconditional what it purports to be b. discharged by payment
(the presence or absence of express limitations but by the 2. that he has good title to it
indorser upon the primary obligor’s privileges of paying the 3. that all prior parties had capacity to contract HOLDER IN DUE COURSE
holder) 4. that the instrument is, at the time of the Requisites
One where an additional condition is annexed to the endorsement, valid and subsisting a. that it is complete and regular upon its face
indorser’s liability. (Note: It is only the liability of the b. that he became the holder of it before it was overdue,
particular indorser which is conditional) Negotiation by Joint or Alternative Payees/Indorsees and without notice that it had been previously
If payable to 2 or more payees/indorsers who are not dishonored, if such was the fact
As to the Original Maker: He may disregard the condition of partners, ALL MUST INDORSE, unless the one indorsing c. that he took it in good faith and for value
the subsequent indorser has authority d. that at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or defect in the
As to the Last Holder: will hold the same, or the proceeds Cancellation of Indorsements title of the person negotiating it.
thereof, subject to the rights of the person indorsing General Rule: The holder may at any time strike out any
conditionally indorsement which is not necessary to his title. Rights of a Holder in Due Course
Effect: Relieved from liability on the instrument. a. free from any defect of title of prior parties
e. Restrictive Indorsement b. free from defenses available to prior parties among
1. prohibits the further negotiation of the instrument In case of Special Indorsements: themselves
2. constitutes the indorsee the agent of the indorser General Rule: all indorsements are necessary c. may enforce payment of the instrument for the full
3. vests the title in the indorsee in trust for or the use of Exception: when one of the prior parties REACQUIRE the amount thereof against all parties liable thereon
some other person instrument, then he may cancel those not necessary to his d. is not affected when the holder’s acquisition of the
title. defect is AFTER he has taken the instrument
Effects of Restrictive Indorsement (rights of the Indorsee)
1. to receive payment of the instrument In case of Blank indorsements. Rights of a Transferor
2. to bring any action thereon that the indorser could bring a. First View. All indorsements after the blank a. not a holder in due course
3. to transfer his rights as such indorsee, where the form indorsements can be stricken out. b. when he became a holder after the maturity date
of the indorsement authorizes him to do so. b. Second View. The last indorsement controls the c. a negotiable instrument is subject to the same
method of further negotiation. defenses as if it were non-negotiable
All subsequent indorees as mere assignor of the rights of d. the fact that a holder is not in due course will in no way
the first restricted indorsee Special Incidents affect the negotiability of the instrument. It only affects
a. Indorsement by an Agent; Liability remains with the such holder’s rights, and does not necessarily prevent
Warranty of Qualified indorser and Persons principal subsequent holders from acquiring the status of due
negotiating by delivery b. Time of Indorsement; presumed to be made before the course holder.
1. that the instrument is genuine and in all respects instrument is overdue
what it purports to be; that he has good title to it c. Place of Indorsement; Presumed to have been made at For Value
2. that all prior parties had capacity to contract the place where the instrument is dated. (p 119) a. presumed for valuable consideration

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b. value is any consideration sufficient to support a simple b. mere failure to affix revenue stamps as required by law
contract Examples does not render the instrument incomplete
c. may be less than the full amount PROVIDED that the a. the amount in the check does not correspond to the c. an instrument payable “within-days after date” is not
intention of the transferor is to transfer the full amount value of the debt paid by the debtor complete and regular on its face
represented by the instrument. b. 2nd indorsed checks were accumulated for one d. neither is it complete where it is blank as to the payee,
d. When value is given, the holder is deemed a holder for payment although the holder can sue on said instrument without
value in respect to ALL PARTIES who became such c. the act of crossing the check serves as a warning to filling in the payee’s name
prior to that time the holder that the check has been issued for a definite e. Instrument Executed in Blank: if filled up without
e. When he has a lien on the instrument purpose so that he must inquire if he has received the knowledge of the first holder that it is blank, he is a
f. Every signature is presumed to be for value check pursuant to that purpose, OTHERWISE he is not HDIC. If he knows that it was blank even though it was
g. If payment for value was on installment, and he a holder in due course subsequently filled up, he is not a HDIC.
receives notice of any defect, he will be deemed a d. Personal Defenses between prior parties, like such as f. Apparent and Material Alteration
holder in due course ONLY to the extent of the amount lack of consideration, are available to holders not in
theretofore paid by him. due course. Alteration of Instrument
e. Without the words “or order” or “to the order of”, the a. material alteration – void, except as against a party
When Title Defective instrument is payable only to the person designated who has himself made
a. when he obtained the instrument, or any signature therein and is therefore non-negotiable. Any b. material alterations in an instrument in the hands of a
thereto, by FRAUD, DURESS, or FORCE and FEAR, subsequent purchaser thereof will not enjoy the holder in due course, he may enforce payment thereof
or other UNLAWFUL means advantages of being a holder of a negotiable according to its original tenor
b. for an illegal consideration instrument, but will merely “step into the shoes” of the c. if both apparent and material, the instrument is entirely
c. when he negotiates it in breach of faith or under such person designated in the instrument and will thus be void
circumstances as amount to a fraud open to all defenses available against the latter.
f. When the party actively participates in a transaction Modes of Dishonor (Bill of Exchange)
Notice to the Defect deeply, it cannot be regarded as a holder in due course a. when it is not accepted
a. the person to whom it is negotiated must have had g. If the instrument is purchased at a heavy discount, this b. not paid
actual knowledge of the infirmity or defect, fact TOGETHER with other facts, may be taken into
1. it is not necessary to prove that the defendant knew account in deciding the issue of purpose in good faith. Not a Holder in Due course when
the exact fraud, it being sufficient to show that the a. when the payable on demand is negotiated an
defendant had notice that there was something Accommodation Party / Surety of the Principal Debtor unreasonable length of time
wrong about his assignor’s acquisition of title One who has signed the instrument as maker, drawer, b. acceleration clause. the ultimate date of maturity is
2. although the holder had paid value for the acceptor, or indorser, WITHOUT receiving value therefor, the date of maturity for the purpose of determining
instrument, yet, if he received it under and for the purpose of lending his name to some other whether a purchaser is a purchaser in due course. If it
circumstances which ought to have exited the person. Such person is liable on the Instrument to a holder is overdue, hence he will not be a holder in due course
suspicions of a prudent and careful man, he could for value. (Solidary) c. installments. The transferee is a holder in due course
not recover Note: a corporation CANNOT act as an accommodation for the future payments and not to the previous ones.
3. notice to an agent is chargeable against the party. Such act without consideration and for the
principal accommodation of another is ultra vires. Rules
a. Antedated or Postdated: Does not affect the holder
b. knowledge of such facts that his action in taking the UNLESS it is done for an illegal or fraudulent purpose.
instrument amounts to bad fait Examples on Complete and Regular b. Qualified Indorsement. Does not affect a holder.
c. Gross Negligence in itself would not constitute notice a. if the purchaser of the negotiable paper takes prior to c. Conditional indorsement. By itself would not deprive
since it is not the equivalent of bad faith nor actual completion or contemporaneously with the act of the conditional indorsee or any subsequent holder of
knowledge completion, he is not a holder in due course the rights of a holder in due course.
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d. Restrictive Indorsement. If it violates the restriction, he itself and generally disclose an absence of one of the In case of Indorsements, it passes the property despite
is not a holder in due course. essential elements of a contract or where the admitted of the incapacity. Notice of minority does not amount
contract is void for all purposes for reasons of public policy to notice of “defect” or “infirmity”
A Payee is included in the term Holder in Due Course. c. fraud in the execution
Personal – defenses can be raised only against holders d. some types of duress and vicious force or violence
Rights of a PURCHASER from a HIDC not in due course; those wherein a true contract appears, e. lack of delivery of an incomplete instrument
A holder who but where for some reason, such as fraud, the defendant is f. material alteration
a. derives his title through a holder in due course, and excused from the obligation to perform g. illegality
b. who is not himself a party to any fraud or illegality h. prescription – 10 years from the date the cause of
affecting the instrument Claims of Ownership action accrued
has all the rights of such former holder in respect of all 1. Legal – may recover possession thereof even from i. discharge in insolvency
parties prior to the latter. a holder in due course
2. Equitable title – may not recover its possession
Restrictions from a holder in due course BUT may do so from a Personal Defenses
a. if the holder is a reacquirer and previously knew of the holder not in due course a. want of consideration or illegality of consideration
defenses of a prior party although he was not a party to although characterized as void contracts, nevertheless,
fraud or illegality affecting the instrument because his Rights of a Holder in Due Course it is void only as between immediate parties and not to
act in negotiating the instrument to a holder in due a. free from defect of title of prior parties Holders in due course
course was indispensable to the cutting off of the b. free from defenses available to prior parties among b. incompleteness of the instrument
maker’s defense. themselves c. lack of delivery of a completed instrument
c. may enforce payment of the instrument against all d. conditional delivery of complete instrument
Presumption: Holder in due course (applies only to parties liable thereon e. fraud in inducement
present holders) f. filling up blank not within authority
When it is shown that the title of any person who has Real Defenses g. duress or intimidation
negotiated the instrument was, the burden of proof is on a. Forgery h. filliping up blank beyond reasonable time
the holder. 1. where the signature on the instrument is affixed by i. transfer in breach of faith
one who purports to be an agent but who does not j. mistake
have the authority to bind the alleged principal k. insertion of wrong date
Holder in Due Course 2. where the signature is affixed by one who does not l. ante-dating or postdating for illegal or fraudulent
One who has take the instrument under the following claim to act as an agent and who has no authority purpose
conditions to bind the apparent signer
a. it is complete and regular upon its fact 3. Ultra vires act of a corporation Liabilities of an Acceptor; admits that
b. he became the holder of it before it was overdue, and Generally: subsequent parties cannot acquire any right a. the existence of the drawer, the genuineness of his
without notice that it had been previously dishonored, if against any party prior to the forgery. It does not avoid signature and his capacity and authority to draw the
such was the fact the instrument but only the forged signature instrument
c. he took it in good faith and for value b. the existence of the payee and his then capacity to
d. that at the time it was negotiated to him, he had no EXCEPTIONS indorse
notice of any infirmity in the instrument or defect in the 1. a general indorser warrants the instrument to be
title of the person negotiating it. genuine Notes
a. Acceptance means an acceptance completed by
DEFENSES AND EQUITIES b. incapacity / Minority delivery or notification. It implies subsequent
Real – those available against all holders, including negotiation of the instrument.
holders in due court; those that attach to the instrument
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b. Certified Checks. Where a check is certified by the of the payee. REASON: the bank with which the check EXCEPT if such payment
bank on which it is drawn, the certification is equivalent was deposited has no right to pay the sum stated discharges a
to an acceptance. When a check is certified, it ceases therein to the forger or anyone else upon the forged LEGITIMATE debt of the
to possess the character, or to perform the functions of signature. drawer.
a check, and represents so much money on deposit, b. Any person taking checks made payable to a PROVIDED that it comes
payable to the holder on demand. corporation, which can act only by agents, does so at before the bank certifies
c. Merely stamping a check “Paid” upon its payment of a his peril, and must abide by the consequences if the or accept the check
forged or unauthorized indorsement is not an agent who indorses the same is without authority Forged indorsements Drawee can recover the
acceptance thereof so as to render the drawee bank c. Whenever any bank treats the signature at the back of amount paid out by him
liable to the true payee. the checks as endorsements and thus logically since he makes no
guarantees the same as such there can be no doubt warranty as to the
Payment by Mistake; BANKS said bank has considered the checks as negotiable genuineness of any
1. a bank is bound to know the signatures of its d. The collecting bank or last endorser generally suffers indorsement.
customers; and if it pays a forged check, it must be the loss because it has the duty to ascertain the EXCEPT if he knows or
considered as making the payment out of its own funds genuineness of all prior endorsements considering that learns of the forgery but
and cannot ordinarily charge the amount so paid to the the act of presenting the check for payments to the still pays
account of the depositor whose name was forged. (San drawee is an assertion that the party making the Not applicable if it is a
Carlos Milling v. BPI) presentment had done its duty to ascertain the Bearer Instrument
2. the drawee who paid an accepted as well as a non- genuineness of the endorsements Altered Instruments (not The bank can recover
accepted bill, cannot recover from the depositor’s e. Effects of negligence of the drawer in case of forged apparent) from the holder and not
account BUT only to the forger EVEN if the forgery is indorsements on check: if he does not notify the bank, from the drawer
not detected he may be properly charged Forged Indorsements Drawee bank can recover
3. The Drawee can recover from the FORGER or between Collecting and from collecting bank BUT
from one who bought from a known forger Payment by Mistake Drawee bank the collecting bank can
4. A holder cannot profit by a mistake which his Situations Drawee can recover recover from the Holder
negligent disregard of duty has contributed to induce from
the drawee to commit. The holder must refund, if by General Rule on Banks: it is free from liability if the The reason why negligence of the drawer constitutes
his negligence he has contributed to the consummation proximate cause of its wrongful payment is the no defense to the collecting bank are that
of the mistake on the part of the drawee by misleading negligence of the drawer. However, as between a. there is no PRIVITY between the drawer and the
him. collecting bank and Drawee bank, if both are collecting bank.
negligent, can be held liable for the loss pro rata their b. the drawer owes to that bank no duty of vigilance
Overdraft degree of negligence. c. negligence on the part of the drawer cannot create
An overdraft occurs when a check is issued for an amount Accepted or Paid based Forger only and Not the any liability from it to the collecting bank
more than what the drawer has in deposit with the bank. on a forged signature of Holder in due course d. the drawer thus is neither a necessary nor a
payee proper party to an action by the drawee bank
Stop Payment Order Overdraft Drawer only against such bank
One issued by the drawer of a check countermanding his Stop Payment Order Bank cannot deduct it
first order to the drawee bank to pay said check from the Drawer’s Material Alteration
account;. Generally: it is avoided except as against the party who
Forged Indorsements has himself made the alteration
a. it is the obligation of the collecting bank to Against the Holder in Due Course – he may enforce
REIMBURSE the drawee-bank the value of the checks payment thereof according to its original tenor
subsequently found to contain the forged indorsement
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 reasonably believes it to be something else other than Conditions must be Present before Presumption of
Any alteration which changes the a negotiable instrument Authority arise
a. date 1. delivery of the instrument
b. sum payable, either for principal or interest II. Fraud in inducement – personal defense 2. the delivery must have been for the purpose of
c. time or place of payment a. when the party is not sure, but with reasonable converting it into a negotiable instrument
d. number or the relations of the parties diligence, he can be sure, and signs anyway
e. medium or currency OR which adds a place of Burden of Proof: with the person questioning such authority
payment where no place is specified Factors in Determining the degree of Negligence
f. payee’s name a. the legal character of the instrument which the signer Blank Payee’s Name
thinks he is signing Generally: the first or subsequent holder may insert his
Material Alteration; When Real, when Personal b. the physical condition of the signer and his ability to own name or the name of the person to whom he
Real Personal read negotiates the instrument. UNLESS authorized, he cannot
When relied on to deny When used to deny c. whether the signer had the opportunity at the time of fill in a predecessor’s name.
liability according to the liability according to the signing, to ascertain the legal nature of the paper he is
altered terms original tenor of the executing Consideration: Personal Defense
instrument TOTAL absence of consideration is only a personal
Duress: Generally Personal; however, it is real if it is so defense. Partial failure of consideration means simply that
General Rule: the drawee bank has no right to charge serious that it will give rise to a real defense, because of part of the consideration did not materialize. It is a defense
against the drawer’s account the amount of an altered lack of contractual intent. pro tanto by B against A or a holder not in due course.
check That is, B is not liable to the extent of the price of the
Complete Incomplete Incomplete undelivered portion.
Exception: the drawer’s negligence, before or after the Instrument Instrument Not Instrument
alteration, may estop him from setting up such alteration as which is Delivered Delivered LIABILITY OF PARTIES
against an innocent drawee bank who has paid the check Undelivered Primary Parties
Personal Real Personal a. maker of the promissory note
Payment by the drawee bank of an altered check would Valid delivery No presumption the person in b. the acceptor of a bill
therefor indeed be a mistake, and should be effective only presumed if with possession has
to the extent of the original and not the altered tenor of the the Holder in the prima facie Parties Secondary Liable
instrument. Due Course authority to a. the indorsers of both a note and a bill
complete it by b. drawer of the bill
With respect to Defective Items, it must be returned by the filling up the
drawee not later than 4 PM. BUT as to altered checks and blanks Primary v. Secondary
checks with forged indorsements, it has to be returned Primary Secondary
within 24 hours from its discovery of the alteration or forged Incomplete instrument delivered. Unconditionally liable Conditionally liable
indorsement. (otherwise the collecting bank will not be Must be filled up strictly in accordance with the authority Duty bound to pay the Not duty bound to pay
liable to return the amount to the drawee bank.) given and within a reasonable time holder at the date of Unless the following have
maturity, whether or not been fulfilled
FRAUD Covers the holder demands a. due presentment
I. Fraud in Execution (fraud in factum) – a real defense a. incomplete instruments (any person has the prima payment from him
Instances facie authority to complete it)
a. when a party, without negligence, signs a document by b. a blank paper or a paper so far incomplete that it does
reason of fraud of another, and honestly and not constitute an instrument within the meaning of the
definition of this term, but signed.
8
 Not relieved from liability b. demand to the consists in raising the liable for a HDC only as to However, if it is not accepted Before 24 hours, it is not
even if the instrument primary party for the amount payable under its original amount dishonored yet UNLESS the drawee returns the bill with a
should become overdue, payment or acceptance, the instrument statement of refusal to accept.
due to the failure of the its dishonor by such If he pays before He may recover the
holder to make such party, and taking the knowledge of the difference between the Central Bank Regulations declare checks which are not
demand proceedings required by alteration altered and original returned within the prescribed time will be deemed
law amount payment or acceptance of the check.
If the person receiving is The acceptor would be
Liability of the Maker not a HDC able to recover the whole Acceptance by a Separate Instrument
General Obligations: amount (124) Generally, it does not bind the acceptor EXCEPT in favor
a. to pay it according to its tenor ON Checks: The bank can charge the of a person to whom it is shown and who, on faith thereof,
b. admits the existence of the payee If the person who cashed drawer’s account BUT receives the bill for value.
c. capacity of the payee to indorse the check is a HDC only with the original, not
altered amount. The Promise to Accept = Acceptance if there is an
Defenses not available to the maker difference can be unconditional promise in writing to accept the bill before it
a. minority or insanity of the payee recovered by the bank is drawn.
b. ultra vires act of the payee-corporation from the last holder
If he is not a HDC The bank cannot charge Kinds of Acceptance
Drawee Acceptor the drawer’s account at all General Acceptance assents without qualification to the
The drawee is not liable on the bill unless and until he order of the drawer
accepts the same Formal Requisites of Acceptance An Acceptance to pay at a particular place is a general
“Acceptance” means Acceptance completed by delivery or acceptance UNLESS it expressly states that the bill is to be
The payment of the bank is voluntary and cannot be notification paid there only and not elsewhere.
recovered from a bona fide holder on the ground that the
drawer had previously countermanded payment Requisites Qualified Acceptance in express terms varies the
a. it must be in writing effect of the bill as drawn
The relation of the bank to its depositor is that of debtor b. it must be signed by the drawee a. conditional, which makes payment by the acceptor
and creditor, a bank may be held liable in tort to its c. it must not change the implied promise of the acceptor dependent on the fulfillment of a condition therein
depositor whose check it has wrongfully refused or failed to to pay only in money stated
pay. (Singson v. BPI) “will pay you as soon as proceeds of the sale of palay
Constructive Acceptance are available” since the condition does not qualify the
Liability of Acceptor; a. the drawee is allowed 24 hours after presentment. order to pay but only the acceptance
a. engages that he will pay it according to the tenor of his b. when the drawee destroys the bill
acceptance c. refuses within 24 hours after such delivery or within b. partial, an acceptance to part only of the amount for
b. admits the existence of the drawer, the genuineness of such period the holder may allow to RETURN the bill. which the bill is drawn
his signature and his capacity and authority to draw the (does not affect the negotiability of the instrument)
instrument If not accepted within 24 hours, the person presenting it c. local, an acceptance to pay only at a particular place
c. admits the existence of the payee and his then must treat the bill as dishonored by non-acceptance OR he d. qualified as to time
capacity to indorse loses the right of recourse against the drawer and “Accepted, payment to be made 6 months from date”
indorsers. e. acceptance of some one or more of the drawees, but
Rules on Alteration not of all
Where the alteration The acceptor would be

9
Effects of a Qualified Acceptance An acceptor admits everything essential to the validity of endorsements including the forged endorsement
a. discharges the indorsers from liability on the bill Unless the bill, and on this ground he cannot, for example, even itself, it should be held liable thereof.
they authorize the holder set up the defense of want of consideration between the 3. Drawee bank. Drawee-bank can
b. the indorsers, within reasonable time, express his parties. The acceptor cannot defend on the ground of want recover from the collecting bank.
dissent to the holder OR he will be deemed to have of consideration between the drawer and the payee.
assented thereto Check – a bill of exchange drawn on a bank payable on
Checks demand.
Rights of the Parties A check is a bill of exchange drawn on a bank payable on
The holder may refuse to take a qualified acceptance. If demand. Legal Character of Checks
he does not obtain a qualified acceptance, he may treat the Checks represents deposit money and DO NOT HAVE
Bill as DISHONORED LEGAL CONSEQUENCES WHEN A BANK HONORS A legal tender and power
FORGED CHECK
Draft – an open letter of request from, and an order by, a. Drawer’s Signature Forged. Equivalent to Delivery ONLY when it is cleared and
one person on another to pay a sum of money therein 1. Drawee-Bank. The drawee-bank credited to the account of the creditor
mentioned to a 3rd person, on demand or at a future time by accepting the check cannot set up the defense
therein specified. of forgery because by accepting the instrument, the Memorandum Check – one where the word
drawee bank admits the genuineness of signature “memorandum” or “memo” is written across its face,
Trade Acceptance – a draft or bill of exchange with a of drawer signifying that the drawer will pay the holder absolutely
definite maturity drawn by a seller on a buyer for the 2. Drawer. If he is negligent, he without need of presentment.
purchase price of goods, bearing across its face the may be precluded or estopped from setting up the
acceptance of the buyer defense of forgery as against the drawee bank Cashier’s Check – a bill of exchange drawn by a bank
upon itself, and is accepted by its issuance
Inland and Foreign Bill – an inland bill is a bill which is or b. Forged Payee’s Signature
on its face purports to be both drawn and payable within 1. Drawee-Bank. It must be Traveler’s Check – a negotiable instrument upon which
the Philippines. Any other bill is a foreign bill. considered as paying out of its funds and cannot the holder’s signature must appear twice on the instrument
charge the amount so paid to the account of the – first when it is issued and again when it is cashed.
Trade Acceptance Bill of Exchange depositor
It always states upon its Not required A check may be used for the exercise of the right of
face the transaction from c. Forged Indorsement redemption, the same being a right and not an obligation.
which it arose 1. Drawer. His account cannot be The tender of a check is sufficient to compel redemption
Confined to sale of goods May cover any kind of charged and if charged he can recover from the but is not in itself a payment that relieves the redemptioner
and has a fixed date of transaction and may be drawee-bank. He has no cause of action against from his liability to pay the redemption price.
maturity payable on demand or at the collecting bank.
a fixed or determinable 2. Collecting Bank. A collecting Crossed Check – means that the drawee should pay only
future time bank is not guilty of negligence over a forged with the intervention of that company
indorsement on checks for it has no way of
Banker’s Acceptance ascertaining the authority of the endorsement and Effects of Crossing a Check
A banker’s acceptance is a negotiable time draft or bill of when it caused the checks to pass through the a. the check may not be encashed but only deposited in
exchange drawn on and accepted by a commercial bank. clearing house before allowing withdrawal of the the bank
Trade Acceptance Banker’s Acceptance proceeds thereof. b. the check may be negotiated once – to one who has an
Accepted by the buyer drawn on and accepted HOWEVER, a collecting bank which endorses a account with a bank
by a bank check bearing a forged endorsement and presents c. the act of crossing serves as a warning to the holder
it to the drawee bank guarantees all prior that the check has been issued for a definite purpose
10
 so that he must inquire if he has received the check b. he has a good title to it Order of Liability among Indorsers
pursuant to the purpose c. all prior parties had capacity to contract Indorsers are liable prima facie in the order in which they
d. he has no knowledge of any fact which would impair indorse. Joint payees or joint indorsees who indorse are
Certification of Check the validity of the instrument or render it valueless deemed to indorse jointly and severally
Certification of a check is an agreement by which a bank
promises to pay the check at any time it is presented for Negotiation by delivery presupposes that no indorsement is Liability of Accommodation Party
payment. necessary because the instrument is payable to bearer and On who has signed the instrument as maker, drawer,
therefore refers to the holder who passes the instrument in acceptor or indorser, WITHOUT receiving value therefor,
a. the certification = acceptance the same condition in which he received it, making no and for the purpose of lending his name to some other
b. indorsers AFTER TIME OF CERTIFICATION are indorsement at all. person.
discharged from liabilities. The bank becomes the
solitary debtor Liability of the General Indorser An accommodation party, in lending his name to the
a. the instrument is genuine and in all respect what it accommodated party, is in effect a SURETY for the latter.
as in acceptance, certification must be in writing, but may purports to be Liable ONLY to a HOLDER IN DUE COURSE, even if the
be made on the check itself or on another instrument b. he has a good title to it latter knows him only as an accommodation party.
c. all prior parties had capacity to contract (Prudencio v. CA)
a. the secondary parties REMAIN liable if prior to the time d. the instrument is at the time of his indorsement valid
of certification and subsisting Rules
b. When the certification is obtained by the holder, a e. warrants that on due presentment, it shall be accepted a. a joint and several accommodation maker of a
personal defense of the drawer against the payee or paid negotiable promissory note may demand from the
would not be available to the bank even against f. incase it is not paid, he will pay the amount principal debtor reimbursement for the amount that the
holders not in due course. paid to the payee
c. A stop order given by the drawer where the check was Liability of Indorser where b. a joint and several accommodation maker who pays on
certified at the request of the holder is inoperative. a. Paper Negotiable by Delivery – he shall incur all the the said promissory not may directly demand
liabilities of an indorser reimbursement from his co-accommodation maker
It is possible that defects in a check cannot possibly be b. Payable to bearer – the person indorsing specially is without first directing his action against the principal
detected by the by the drawee bank until it has returned liable as an indorser to only such holders as make title debtor provided that
the cancelled check to the drawer and the latter has through his indorsement 1. he made the payment by virtue of a judicial
informed it of the defect. demand
A person placing his signature upon an instrument 2. the principal debtor is insolvent
Liability of the drawer; generally conditional otherwise as maker, drawer, or acceptor is deemed to be
a. there must be presentment an indorser Liability of Irregular Indorser
b. the dishonor of the instrument Person, not a party to an instrument, places his signature
c. the taking of necessary proceedings for dishonor Liability of the Restrictive Indorser before delivery
a. if it prohibits further negotiation – the instrument a. if the instrument is payable to order, he is liable to the
he warrants the existence of the payee. EXCEPTION when ceases to be negotiable payee and to all subsequent parties
a swindler induces him to issue the check to a fictitious b. liable to his immediate indorsee as an unqualified b. if the instrument is payable to the order of maker or
person without his knowledge indorser drawer, or bearer, he is liable to all parties subsequent
c. a restrictive indorsee is merely an AGENT of the to the maker or drawer
Liability of a Qualified Indorser or Negotiating by restrictive indorser, the former cannot acquire rights c. if he signs for the accommodation of the payee, he is
Delivery antagonistic to the restrictive indorser liable to all parties subsequent to the payee.
a. the instrument is genuine and in all respect what it
purports to be
11
Liability of an Agent Checks are NOT meant to be presented for acceptance or Implied Acceptance
Generally, he is not liable if he was duly authorized certification and if so presented and certification refused, 1. the bill was delivered to the drawee and the latter
He is liable when they will not be deemed dishonored. destroys the same
a. he does not identify himself as an agent – he is liable, 2. the bill was delivered to the drawee but the drawee
personally Presentment may be made on refuses within 24 hours or within such other period as
b. he does not disclose the identity of the principal – he is a. a reasonable hour on a business day; if it is a Saturday the holder may allow to return the bill accepted or non-
liable, personally not otherwise a holiday, before 12 noon accepted
c. he does not identify himself as an agent but b. before the bill is overdue
somewhere he disclosed the name of another person c. to the drawee Future Bill – an unconditional promise in writing to accept
who MIGHT be his principal – parol evidence is d. and a bill before it is drawn is deemed an actual acceptance in
admissible that he was signing as an agent 1. 2 or more drawees who are not partners, favor of every person who upon faith thereof, receives the
d. when he identified himself as an agent and somewhere presentment to all bill for value
he discloses anther person who MIGHT be his principal 2. drawee is dead – “may” his personal representative
– parol evidence may exonerate him 3. drawee is bankrupt – “may” his trustee or assignee Kinds of Express Acceptance
or the insolvent himself 1. Conditional – makes the payment by the acceptor
Liability of Person Signing in Trade or Assumed Name dependent on the fulfillment of a condition therein
One who signs in a trade or assumed name will be liable to If not made as outlined, Presentment would be irregular stated
the same extent as if he had signed in his own name and ineffective and the drawee’s refusal WILL NOT BE a 2. partial – an acceptance to pay part only of the
dishonor of a bill. amount for which the bill is drawn
Presentment for Acceptance 3. local – an acceptance to pay only at a particular
Presentment for Acceptance MUST be made Presentment is Excused (bill treated as dishonored) place
a. where the bill is payable after sight, or in any other a. upon death of drawee 4. qualified as to time
cases where presentment for acceptance is necessary b. drawee absconded 5. the acceptance of some, one or more of the
in order to fix the maturity of the instrument c. drawee is a fictitious person drawees but not of all
b. where the bill expressly stipulates that it shall be d. drawee is a person not having capacity to contract
presented for acceptance e. after exercising reasonable diligence, presentment Note: the holder may refuse to take a qualified acceptance
c. where the bill is drawn payable elsewhere than the cannot be made and he does not obtain one, he may treat the bill as
residence or place of business of the drawee f. where although presentment has been irregular, dishonored. IF HE ACCEPTS a qualified acceptance, the
acceptance has been refused on some other ground. drawer and indorsers are DISCHARGED from liability
The holder required to Present for Acceptance Must g. When the holder has no time to present the bill to be unless they have expressly or impliedly authorize the
a. present it for acceptance presented elsewhere other than the place of business holder to take the qualified acceptance.
b. negotiate it within a reasonable time
ACCEPTANCE – the signification by the drawee of his Dishonor; a bill is dishonored by non-acceptance
Reasonable time – the usage of trade or business with assent to the order of the drawer. a. when it is duly presented for acceptance, and such an
respect to such instruments, and the facts of each acceptance as is prescribed is refused or cannot be
particular case Requisites of Acceptance obtained
1. the acceptance must be in writing b. when presentment for acceptance is excused and the
Presentment – the production or exhibition of the bill of 2. the written acceptance must be signed by the bill is not accepted
exchange to the drawee for the purpose of obtaining his drawee
acceptance or his assent to the order of the drawee. 3. the drawee must assent to the promise to pay a When Non-Accepted
sum certain in money and not by any other means a. the person presenting it must treat the bill as
dishonored by non-acceptance else he loses the right
of recourse against the drawer
12
b. an immediate right of recourse against the drawers and When Presentment for Payment Excused c. at a proper place as herein defined
indorsers accrues to the holder; NO PRESENTMENT a. where after the exercise of reasonable diligence d. to the person primarily liable
for payment is necessary presentment cannot be made
Excused. When the drawee bank is closed by the Time of Presentment
Requisites to charge the Drawer and Indorsers Government. Generally, during banking hours.
a. they must be given notice of dishonor to each of them Not Excused. When the drawee is insolvent Exception: when the person has no funds to meet it at the
if there is no notice of dishonor by non-acceptance, the b. where the drawee is a fictitious person said time, it can be made at any hour before the bank is
rights of a holder in due course subsequent to the c. by waiver of presentment, express or implied closed on that day.
omission is protected 1. when the drawer promises from time to time to pay
b. acceptance must be made within 24 hours the bill Place of Presentment (in order)
2. he makes payment knowing that it has not been a. place specified
Presentment for Payment presented to the drawee b. the address of the person
Presentment for payment is not necessary in order to 3. consent given by an indorser to the holder before c. usual place of business or residence
charge the person primarily liable on the instrument maturity that the time of payment may be extended d. wherever he can be found
4. a tender of a renewal not by an indorser
If instrument is payable at a special place: his willingness = A waiver of protest is deemed to be a waiver not only of a Whom Presentment MUST BE made
tender of payment; Effects formal protest, BUT also of presentment and notice of a. Persons PRIMARILY LIABLE
a. it relieves him from the payment of costs in case of suit dishonor. b. If dead, his personal representative AND if with
b. from payment of any interest accruing after maturity reasonable diligence he can be found
c. discharge of secondary parties Presentment; Instrument NOT payable on Demand on its c. Partners, to any one of them
maturity date WITHOUT grace period d. Joint debtors, to all of them
BUT presentment for payment is necessary in order to
charge the drawer and indorser If Payable on Demand – within reasonable time DISHONOR
Dishonor of Instrument for Payment
Presentment is NOT necessary when Date of Presentation of DEMAND BILLS OF a. if it is duly presented for payment and payment is
a. the drawer has no right to expect payment EXCHANGE – within a reasonable time after the last refused or cannot be obtained
b. nor the right to require the drawee to pay negotiation thereof. A promise to pay 5 days after presentment constitutes
c. Presentment is NOT required to charge an indorser if Where the instrument payable on demand is negotiated at a dishonor of the instrument
the instrument was made or accepted for his an unreasonable length of time after its issue, the holder is b. presentment is excused and the instrument is overdue
accommodation AND he has no reason to expect NOT a holder in due course. and unpaid
payment.
d. When presentment for payment is excused. Delay in Making Presentment is Excused when Notice of Dishonor
However, the accommodated indorser cannot be charged a. Is caused by circumstances beyond the control of the Either by non-acceptance or non-payment, NOTICES must
by the holder unless presentment is made to the drawee. holder and is not his default, misconduct, or negligence be given to the Drawer and to Each Indorser. Failure to
b. Fortuitous events notify, discharges the party.
Examples
a. where the drawer has no funds with the drawee Instrument MUST be EXHIBITED otherwise presentment Notice of dishonor is bringing either verbally or in
b. where his bank balance is less than the amount of his would be ineffective. writing to the knowledge of the
check a. drawer or
c. if he stopped payment thereof Sufficient Presentment MUST be made to b. the indorser of the instrument
d. where the drawee is known to be insolvent by the a. by the holder, or by some person authorized to receive c. accommodation parties
drawer at the time the check is issued payment of his behalf
b. at a reasonable hour on a business day
13
the fact that a specified negotiable instrument, upon proper b. post office where he is accustomed to receive his Waiver of Notice
proceedings taken, has NOT been accepted, or has NOT letters either BEFORE the time of giving notice has arrived OR
been paid, and that the party notified is EXPECTED to pay c. in his business address or residence AFTER the omission to give Notice
it.
On any other place: there must by PROOF of actual receipt Rules
Notice MUST a. Valid. a letter from the indorser to the holder admitting
a. identify the instrument Notices may be given by liability
b. make known the fact that it has been dishonored either a. the holder or his agent b. Valid. the indorsers procure the holder to CONSENT to
by non-acceptance or non-payment 1. holder even if he is not the owner an extension of time of payment and accept a renewal
It must be accompanied by language which will inform the 2. restrictive indorsee note
party addressed that the instrument had been duly 3. notaries and attorneys c. Limited. The drawer waives notice and presentment
presented. Given by Agents: DOES NOT apply to the indorsers EVEN if it appears
Notice MUST be given as soon as the instrument is He may notify the parties liable or to his principal and on the face of the instrument
dishonored. his principal shall notify the parties liable WITHIN the d. Limited. When the waiver is embodied in the
If they reside on the same place same time instrument itself, it is binding upon ALL parties; but
a. if given at his business address – before the close of b. drawee or indorser with a right to reimbursement when it is written above the signature of an indorser, it
the business hours of the following day binds him only.
b. if given at his residence – before the usual hours of Notices
rest on the following day a dead party 1. to his personal Notice is NOT required
c. If sent by mail – must be deposited in the post-office in representative if can For the DRAWER
time to reach him in the usual course on the day be found with a. the drawer and drawee are the same person
following. reasonable diligence b. the drawee is a fictitious person or a person not having
2. or to the last the capacity to contract
If they do not reside on the same place residence or last c. the drawer is the person to whom the instrument is
a. if sent by mail – must be deposited in the post office in place of business presented for payment
time to go by mail the day following the day of dishonor Partners To any of them EVEN d. the drawer has no right to expect or require that the
b. if other mail carriers – the same time as if sent through though there has been a drawee or acceptor will honor the instrument
the post office dissolution 1. when the drawer has no account or no sufficient
Joint Parties If not partners, to EACH funds with the drawee
Constructive Receipt by Mail: when deposited in any of them 2. a course of dealing between the drawer and
branch of post-office or in any letter box under the control Bankrupt Party To himself, or to his drawee indicates he has no right to expect payment
of the post-office department. trustee or assignee e. the drawer has countermaded payment or a STOP
Excused if After the exercise of ORDER
Time to notify the other antecedent parties: SAME TIME as Reasonable diligence, it
the Holder notified the Immediate Party after dishonor cannot be given For the INDORSERS
a. where the drawee is a fictitious person or a person not
When Delay of NOTICE is EXCUSED: when the delay Notices given by a holder having the capacity to contract AND the indorser was
was caused by circumstances beyond the control of the a. INURES to the benefit of all prior parties who have a aware of the fact
holder and NOT imputable to his default, misconduct or right of recourse against the party notified b. the indorser is a person to whom the instrument is
negligence b. INURES to the benefit of subsequent Parties presented for payment
c. the instrument was made or accepted for his
Where notice must be sent accommodation
a. to the post office nearest to his place of residence
14
 The insolvency of the maker will NOT excuse notice to b. Any respectable resident in the Presence of 2 or more Payment for Honor
the indorser EVEN if the indorser knew of such fact. credible witness Where a bill has been protested for non-payment, any
person may intervene and pay it supra protest for the
Notices MUST be given to Requisites for a Valid Protest honor of any person liable thereon
a. the drawer a. made or noted on the day of dishonor
b. to EACH indorser b. protested at the place where it is dishonored Requisites for Payment for Honor
c. attached to the bill; if the bill is lost, protest may be 1. the bill has been dishonored by non-payment
the Omission DOES NOT prejudice the rights of a holder in made on a copy or written particulars thereof. 2. it has been protested for non-payment
due course SUBSEQUENT to the omission 3. payment supra protest is made by any person even
Waiver of Protest: deemed to be a waiver not only of a by a party thereto
A dishonor by NON-PAYMENT necessarily presupposes formal protest, But also of presentment and notice of 4. the payment is attested by a notarial act of honor
that the instrument has matured, and therefore, NO holder dishonor which must be appended to the protest or form an
subsequent thereto can be a holder in due course extension of it
ACCEPTANCE FOR HONOR 5. the notarial act must be based on the declaration
PROTEST Acceptance for Honor; when the bill is made by the payee for honor or his agent of his
The testimony of some proper person, usually a notary and a. protested for Dishonor by Non-acceptance intention to pay the bill for honor and for whose honor
usually in the form of an affidavit, that the regular legal b. protested for better security he pays
steps to fix the liability of the drawer and indorsers have Any person NOT being a party ALREADY liable thereon,
been taken with consent of the holder, INTERVENE and accept the bill Non-Compliance with the Requisites: payment will
supra protest for the honor of any party liable thereon. operate as a mere voluntary payment and the payer will
A Minute should be made ON THE DAY OF DISHONOR. acquire NO RIGHT TO FULL REIMBURSEMENT against
When the bill has been duly noted (minutes), the protest PURPOSE: to make the acceptor liable on the bill to the the party for whose honor he pays.
may be subsequently extended holder and all parties subsequent to the party for whose
honor he accepted Only a bill which has been
Protest is necessary only in case of a Foreign Bill, which is a. protested can be paid for honor and in order not to
a bill both drawn and payable outside of the Philippines Effect of Acceptance for Honor: the holder’s right operate as a mere voluntary payment,
against secondary parties are POSTPONED until b. it has to be made before a notary
A bill which has already been protested for non-acceptance a. presentment for payment to the drawee c. after a declaration by the payor of his intention to pay
need not be protested again for non payment. b. dishonory by such drawee for honor
c. notice of dishonor to the acceptor for honor and d. and for whose honor he pays
A protest shall be Annexed to the Bill with secondary parties
a. the time and place of presentment d. protest Liability of Party on Indorsement after Maturity
b. the fact that presentment was made and the manner e. presentment to the acceptor for honor When an instrument is issued, accepted or indorsed when
thereof f. dishonor by him overdue, It is to the indorser, Payable on demand.
c. the cause or reason for protesting the bill g. notice of dishonor to the secondary parties
d. the demand made and the answer given “New Bill” doctrine – the indorser, issuer or acceptor
the acceptor for honor, should he suffer damages due to AFTER maturity is considered to have drawn an entirely
PURPOSE: to furnish to the holder legal testimony of his acceptance, has a right of recourse against new bill
presentment, demand and notice of dishonor, to be used in a. the party for whose honor he accepted and
actions against the drawer and indorsers b. ALL parties against whom the latter would have Instrument Payable at Bank
recourse It is equivalent to an order to the bank to pay the same for
Protest shall be made by the account of the principal debtor. An instrument
a. the Notary Public equivalent to an order to the bank to pay the same DOES
15
NOT convert the maker or acceptor into a drawer. the instrument. And it is effective even without 2. reservation CANNOT be implied. It should be
Presentment for payment WOULD NOT be necessary to notice to the primary party Express
charge such maker or acceptor
d. by any other act which will discharge a simple f. by any agreement binding upon the holder to extend
Liability of Transferors or Assignors contract for the payment of money the time of payment, or to postpone the holder’s right to
Vendor in good faith shall be responsible for 1. novation enforce the instrument UNLESS
a. the existence and legality of the credit at the time of 2. rendition of services 1. made with the assent of the party secondarily liable
sale UNLESS it is sold as doubtful 3. transfer of property 2. or unless the right of recourse against such party is
a. Not responsible for the solvency of the debtor UNLESS 4. foreclosure of mortgaged property where the expressly reserved
he knows before the sale that the debtor was insolvent proceeds thereof are at least equal to the amount g. renunciation by Holder
of the instrument h. taking a qualified acceptance
The vendor in bad faith shall be liable for all expenses and 5. by acceptance of a part as full settlement of the i. failure to make due presentment
Damages note j. failure to give notice of dishonor
e. when the principal debtor becomes the holder of k. Certification of Check at instance of holder
the instrument at or after maturity in his own right l. Reacquisition by prior party
1. reacquisition must be at or after maturity, otherwise
DISCHARGE no discharge will be effected and the instrument
PRIMARY PARTY may be further negotiated
A negotiable instrument is discharged: f. Renunciation by the Holder
a. by payment in due course by or on behalf of the express renunciation before or after maturity by the
principal debtor holder
1. Payment is made in due course when it is made at Kinds
or after the maturity of the instrument to the holder 1. written declaration to that effect
thereof in good faith and without notice that his title 2. by surrender of the instrument to the primary party
is defective. g. Material Alteration
2. Payment must be made by or on behalf of the
principal debtor, otherwise it would constitute a SECONDARY PARTY
purchase or negotiation, and the instrument would a. by any act which discharges the instrument
remain outstanding. b. intentional cancellation of his signature by the holder
3. If the payor at the time he pays knows that the c. by the discharge of a prior party
holder’s title is defective, payment by him even at d. by a valid tender of payment made by a prior party
or after maturity will not be payment in due course 1. where an instrument is payable at a bank, the fact
that the maker had money on deposit in the bank at
b. by payment in due course by the party maturity is NOT sufficient to tender of payment to
accommodated, where the instrument is made or discharge an indorser, if NO evidence of the fact
accepted for accommodation was given to the holder.

c. by the intentional cancellation thereof by the holder e. by a release of the principal debtor, unless the holder’s
1. an unintentional cancellation under mistake or right of recourse against the party secondarily liable is
without authority is inoperative expressly reserved
2. cancellation need not be supported by 1. refers to a release of the debtor by the creditor and
consideration in order to operate as a discharge of not by operation of law

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