Nil - Nil Notes (Hizon)

NOTES ON NEGOTIABLE INSTRUMENTS LAW
Kenneth and King C. Hizon ___________________________________________________________________________________________________________

UNIVERSITY OF SANTO TOMAS
Faculty of Civil Law
A.Y. 2013-2014
First Semester
MERCANTILE LAW REVIEW 1:

LAW ON NEGOTIABLE INSTRUMENTS
INTRODUCTION cash amounting to 2M, negotiable instruments may be

GENERAL CONSIDERATIONS used as a substitute for money
Q: What is the governing law on negotiable instruments? 2. It is a credit instrument
A: Act No. 2031 (Negotiable Instruments Law). Ex: Pedro has money to pay for the raw materials but
would like to use his cash to make his store bigger; he
NOTE: The provisions of the Code of Commerce on negotiable may obtain the raw materials from supplier by signing
instruments were impliedly repealed by the NIL, save for some and delivering a promissory note in favor of his
provisions: supplier. Therefore, there are more transactions that
can be undertaken. Pedro can buy his raw materials
Ex: Provisions on crossed-checks. and expand his store at the same time
Q: When does the NIL apply? Q: What are its functions?
A: Only to negotiable instruments. If the instrument is not A:

negotiable, the instrument is not governed by the provisions of
the NIL. 1. It is a substitute for money
2. It is a medium of exchange
History 3. It is a credit instrument which increases credit
circulation
Copied from American Uniform Negotiable Instruments Law 4. It increases purchasing power in circulation
which is based largely on the Bills of Exchange Act of 1882 of 5. It is proof of transactions
England.
Q: Are negotiable instruments legal tender?
Definition
A: No. R.A. 7653 provides that only notes and coins issued by the
Q: What is a negotiable instrument? BSP are considered legal tender.
A: Q: What are the consequences of the rule that negotiable

a. It is a written contract for the payment of money instruments are not legal tender?
b. Which is intended as a substitute for money
c. And passes from one person to another as money, in A:
such a manner as to give a holder in due course the
right to hold the instrument free from defenses 1. Delivery of negotiable instruments does not even
available to prior parties produce the effect of payment. Obligations are deemed
paid only when the instrument is encashed
Functions of a negotiable instrument 2. The creditor may refuse to accept negotiable
instruments
Q: What are the 2 main functions of a negotiable instrument?
Negotiable v. Non-Negotiable instrument
A:
Negotiable Non-Negotiable
1. A substitute for money As to fulfillment of the requisites under Sec.1
Contains all the requisites Does not contain
Ex: Pedro, a manufacturer, wants to buy raw materials of Sec. 1
for his production: it would be risky for him to bring As to governing law
NIL The NIL does not apply
Facultad de Derecho Civil 1

except by analogy Inland bill Drawn and payable in the Philippines
As to Manner of transfer Foreign bill Does not purport to be both drawn and
1. Negotiation 1. Assignment payable in the Philippines
2. Assignment Banker’s A time draft across the face of which
As to the Right of the transferee acceptance the drawee which is a bank has written
He can be a holder in due Can never be a holder in the word “accepted”
course due course Clean Bill of No document is attached when
As to defenses exchange presentment for payment or
The transferee who as HDC The transferee is subject to acceptance is made
is not subject to all all defenses of prior parties Documentary A document is attached when
defenses, only real bill of presentment for payment or
defenses exchange acceptance is made
Bills in set One bill of exchange drawn in a set,
Features of a negotiable instrument each part of the set being numbered
and containing a reference to the other
Q: What are the features of a negotiable instrument? parts, the whole of the parts constitutes
one bill
A:
Kinds of promissory notes
1. Negotiability
2. Accumulation of secondary contracts- the indorsers Certificate of A written acknowledgement of a bank
become secondarily liable not only to their immediate deposit of its receipt of a sum certain with a
transferees but also to any holder promise to repay the same
Bonds Certificate or evidence of a debt on
KINDS OF NEGOTIABLE INSTRUMENTS which the issuing company or
governmental body promises to pay the
Q: What are the 2 kinds of negotiable instrument? bondholders a specified amount of
interest for a specified time, and to
A: repay the loan on the expiration date
Debanture A bond or promissory note backed by
PROMISSORY NOTE BILL OF EXCHANGE the general credit of a corporation and
a. An unconditional i. An unconditional usually not secured by a mortgage or
promise order lien on any specific property
b. in writing ii. in writing
c. made by one person iii. addressed by one Q: In what instances may a bill of exchange (BOE) be treated as
to another, person to another, a promissory note?
d. signed by the maker, iv. signed by the person
e. engaging to pay on giving it, A:
demand, or at a fixed v. requiring the person
future time, to whom it is 1. when the drawer and the draweee of the BOE are the
f. a sum certain in addressed same person
money vi. to pay on demand or 2. the drawee is a fictitious person
g. to order or to bearer. at a fixed or 3. drawee has no capacity to contract
determinable future 4. the instrument is so ambiguous that there is doubt
time whether it is a bill or a note
vii. a sum certain in
money Parties
viii. to order or to bearer
Also known as draft in Q: Who are the parties to a promissory note?
other countries
A:
Kinds of bill of exchange
1. maker- the person who promises to pay the amount
Check Drawn on a bank payable on demand stated in the PM
Time draft Draft payable at a fixed time 2. payee- the person who is supposed to be paid by the
Sight or Draft payable when the holder presents maker
demand draft it for paymebt
Trade Used in contracts of sale whereby the January 10, 2004
acceptance seller as drawer orders the buyer (as
drawee) to pay a sum certain to the I promise to pay Leona or order, the sum of P100 on
same seller (payee) January 5, 2006.
Draft Used in documentary exchange
Ex: letters of credit transaction Sgd. Carlo

NOTE: Promissory Note v. Bill of Exchange

Maker- Carlo
Payee- Leona Promissory Note Bill of Exchange
Contains an unconditional Contains an unconditional
Q: Who are the parties to a bill of exchange? promise order
There are 2 parties on its There are 3 parties on its
A: face: face:
1. maker 1. drawer
1. drawer- the person who draws and signs the 2. payee 2. drawee
instrument; he orders the drawee to pay 3. payee
2. drawee- the person who is being ordered to pay; while The person who signs is the The person who signs is the
he appears to be a party on the face of the bill, he is not maker drawer
yet liable until he accepts The maker is primarily The drawer is secondarily
3. acceptor- the drawee who already accepted the BOE liable liable
4. paye- the one to whom payment should be made by The maker is primarily The acceptor is primarily
the acceptor liable liable
There is only 1 There are 2 presentments:
January 2, 2004 presentment for payment 1. for acceptance
2. for payment
Pay to the order of Joshua P100,000.00 on or before
January 2, 2006 Bill of Exchange v. Check
Sgd. Justin Bill of Exchange Check

As to drawee
To: Lauren
The drawee may or may not Drawee is always a bank
be a bank
NOTE:
When payable
May be payable: Always payable on
Drawer- Justin
1. on demand demand
Drawee- Lauren
2. at a fixed
Payee- Joshua
3. determinable
future time
Account Name: Bebeng
Presence of deposit or checking account
No. 123456A Date: June 3, 2001
Not necessarily drawn on a Necessarily drawn on a
deposit or checking account deposit or checking
PAY TO THE ORDER OF Ayel P1,000,000.00 One million
account
only PESOS
Effect of death of drawer
MARZAN BANK Death of drawer, with Death of drawer, with
Ayala Branch Sgd: Jed Mark knowledge of the bank, does knowledge of the bank,
Makati City not revoke the authority of revokes the authority of
the banker to pay the banker to pay
NOTE:
Incidents in the life of a negotiable instrument
Drawer- Bebeng
Drawee- Marzan Bank 1. Preparation and signing
Payee- Ayel 2. Issuance
(Jed Mark, in this example, has a current -first delivery of the instrument to the payee
checking account with Marzan Bank) 3. Negotiation
-transfer from one person to another so as to constitute
5. indorsers- persons who transfer or negotiate an the transferee a holder
instrument by indorsement completed by delivery 4. Presentment for acceptance
6. holder- 5. Acceptance
a. the payee or indorsee of a bill or note who is in -written assent of the draweee to the order
possession of a bill or note payable to order, or 6. Dishonor by non-acceptance
b. the bearer of a note or bill payable to bearer 7. Presentment for payment
7. bearer- the person in possession of a bill or note which 8. Dishonor by non-payment
is payable to bearer 9. Notice of dishonor
- notice to the persons secondarily liable that the maker
or the drawee/acceptor refused to pay or to accept the
instrument
10. Protest (in some cases)
11. Discharge

a. The maker must sign the PN and the drawer must sign the
BOE
FORM AND INTERPRETATION Q: How shall it be signed?
Sec 1. Form of negotiable instruments. - An instrument to be A: It may be in their handwriting, printed, engraved,
negotiable must conform to the following requirements: lithographed, or photographed so long as they are adopted as the
(a) It must be in writing and signed by the maker or signature of the signer.
drawer;
(b) Must contain an unconditional promise or order Q: What are the contents of the signature?
to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or A: The signature may consist of the signer’s complete name,
determinable future time; initials, or symbol or any other mark that is intended as the
(d) Must be payable to order or to bearer; and maker or drawer’s signature.
Where the instrument is addressed to a drawee, he must be b. Location

named or otherwise indicated therein with reasonable
certainty. Q: Where should it be found?
Q: How is negotiability determined? A: It is usually placed at the bottom right corner of the
instrument. However, negotiability is not affected although the
A: By ascertaining if all the requirements of Section 1 appear on signature is placed on any other part of the face of the
the face of the instrument. instrument such as on its body.
Q: What are the factors to be considered? Ex:
A: Manila, Philippines
January 15. 2012
1. The whole of the instrument shall be considered
2. Only what appears on the face of the instrument shall I, Janette Lim Napoles, promise to pay to the order of Paloma
be considered Pineda the sum of P20,000.00
3. Sec.1 shall be applied
2. Must contain an unconditional promise or order to pay a
NOTE: The negotiability is not determined by looking at a sum certain in money
separate instrument
Promissory Note Bill of Exchange
REQUISITES UNDER SEC.1 Contains an unconditional Contains an unconditional
promise order
1. It must be in writing
Q: What is a condition?
a. The writings may be printed, in ink or in pencil
A: A condition is an event which may or may not happen.
Q: May it be written using a pencil?
Q: What is the effect of the presence of a condition on the face
A: The use of pencil must be avoided because such writing is not of the instrument?
as durable as ink and is an invitation to alteration by forgery.
A: It renders the instrument non-negotiable because it affects the
b. It may be written in any material that substitutes paper like free transferability of the instrument.
cloth, leather, or parchment
NOTE: The subsequent happening of the condition does not cure
Q: May it be written on a wall? such defect
A: Since negotiable instruments are intended for circulation, they Examples:

should not be written on an immovable object, such as wall
1. Conditional promise
Q: May it be written on a stone tablet?
January 10, 2004
A: It cannot be written on a stone tablet because it cannot be
written on an object, which though movable, may make it I promise to pay Leona or order, the sum of P100,000.00, if she
inconvenient for the parties to circulate wins the Miss Philippines-Universe title this coming May.
Signed by the maker or drawer Sgd. Carlo

NOTE: The condition of the promise in the example is: if she wins
the Miss Philippines-Universe title this coming May. Even if Leona Q: How about mere request?
wins said title, the instrument remains non-negotiable. However,
Leona can demand payment from Carlo since the instrument is A: No. It will render the instrument non-negotiable.
valid and she can enforce it as an ordinary contract.
Ex: Please let the bearer have….
2. Conditional order
NOTE: However, mere words of civility such as “Mr. Walter
January 10, 2004 Warren will oblige himself by paying…” do not make the
instrument non-negotiable.
Pay Leona or order the sum of P100,000.00, if she wins the Miss
Philippines-Universe title this coming May. Q: What stipulations make the promise or order conditional?
Sgd. Carlo A:
To: Winnie Wagner 1. An indication of an account or fund out of which

payment shall be made
Promise to pay and its equivalent
February 28, 2011
NOTE: The word “promise” need not be used. A “promise” may
be implied from the language used. Pay to the order of Maya Dela Rosa the sum of P15,000.00 out
of my funds in your possession
Examples: Sgd. Richard Lim
a. I agree to pay 2. When payment is made to depend upon a contingency

b. I shall pay
c. I oblige myself to pay Q: What stipulations do not make the promise or order
d. Good to the order of P conditional?
e. Due to P or order payable on demand
A:
Q: Is mere acknowledgment of a debt without a promise to pay
enough? 1. An indication of a particular fund out of which
reimbursement is to be made
A: No.
February 28, 2011
Examples:
Pay to the order of Maya Dela Rosa the sum of P15,000.00 and
1. I acknowledge my debt to Bebeng for P10,000.00 charge my payroll account
2. Borrowed P10,000 from Bebeng
3. Due Bebeng the sum of P10,000.00 Sgd. Richard Lim
NOTE: The words “payable” and “to be paid” signify an intention 2. An indication of a particular account to be debited
to pay: with the amount
3. A statement of the transaction which gives rise to the
1. I acknowledge my debt to Bebeng or order for instrument
P10,000.00 payable on December 1, 2012
2. I acknowledge my debt of P10,000.00 to Bebeng or Q: Distinguish “fund for reimbursement” and “fund for
order to be paid on demand payment.”
Order to pay and its equivalent A:
NOTE: Usually, the word order is used. However, what is FUND FOR REIMBURSEMENT FUND FOR PAYMENT
important is that a command is given to the drawee to pay. 2 Process of payment: There is only 1 step and that is
that payment is to be made
The word “order” in the second requisite should not be confused 1. Drawee pays out of his directly out of a particular
with the same word in the fourth requisite which has another own funds fund.
function: that of designating the another instrument as payable 2. He reimburses himself
“to order” (or “to bearer”) for purposes of negotiability. from the particular fund
indicated or debits the
Q: Is mere authorization enough? account stated in the
instrument
A: No. It gives the drawee the discretion to pay or not to pay Negotiable Not negotiable because the
payment will be dependent
Ex: I authorize you to pay….
upon the sufficiency or Ex: This is improper: designate the drawee as the person who
availability of the fund and not always wears a yellow t-shirt in his office in the City Hall of
on the general credit of the Dumaguete City.”
maker or drawer
Particular fund indicated is not Particular fund indicated is the Q: If the instrument is addressed to 2 or more drawees, will it
the direct source of the direct source of the payment be acceptable?
payment but only the source of
reimbursement A: Yes.
Order to pay a sum certain in money Ex: To Mr. X and Mr. Y.
Q: Why should it be paid in money? Q: What if the instrument is addressed to 2 or more drawees in
the alternative?
A: Money is the standard of value in business. It remains the
same notwithstanding the rise and fall in value of other A: This indication of drawees is not valid.
commodities.
Ex: To Mr. X or Mr. Y
NOTE: If the instrument is payable in foreign currency, the
particular kind of current money should be indicated. Q: What if the instrument is addressed to 2 or more drawees in
succession?
Q: When is the amount considered as “certain”?
A: This indication of drawees is not valid.
A: When the holder can determine it from the instrument itself
with any necessary computation at the time the instrument is Ex: To Mr. X or in his absence or failure to pay Mr. Y
payable.
Q: Give examples of non-negotiable instruments.
3. Must be payable on demand, or at a fixed or determinable
future time A:
Examples: 1. Treasury warrants- an order in check form drawn on

the treasury of the government on which the treasury
1. Payable on a fixed date disbursements are paid. This is conditional
Ex: I promise to pay Mr. X or order P300,000 on January 2. Letter of credit- there is no unconditional promise to
2, 2012 pay; it is addressed to a specified person
3. Certificate of stock- written evidence of shareholdings
2. Payable on demand of a person in a corporation; no promise or order to pay
Ex: I promise to pay Mr. X or order P300,000 on money
demand 4. Bill of lading- it represents goods rather than a promise
or order to pay money
3. Payable at a determinable future time 5. Warehouse receipt- it represents goods rather than a
Ex: I promise to pay Mr. X or order on or before January promise or order to pay money
2, 2012 6. Postal money order- there are restrictions imposed on
them by postal laws
4. Must be payable to order or to bearer
NOTE: An instrument that is payable to a specified person or

entity is not negotiable. An instrument is intended to pass freely Sec. 2. What constitutes certainty as to sum. - The sum payable
from one hand to another, to circulate in commerce as a is a sum certain within the meaning of this Act, although it is to
substitute for money. be paid:
(a) with interest; or
5. Identification of the drawee: Where the instrument is (b) by stated installments; or
addressed to a drawee, he must be named or otherwise (c) by stated installments, with a provision that,
indicated therein with reasonable certainty. upon default in payment of any installment or of
interest, the whole shall become due; or
This requisite applies only to bill of exchange, and not to PM. (d) with exchange, whether at a fixed rate or at the
current rate; or
Q: What is the ratio for this requirement? (e) with costs of collection or an attorney's fee, in
case payment shall not be made at maturity.
A: It is indispensable that any person who will take the BOE must
know the person who will be primarily responsible under the Payable in money
instrument.
The instrument is still negotiable even if the amount to be paid is
expressed in currency that is not legal tender so long as it is
expressed in money.
starting September
The promise or order to pay in goods is not negotiable. An
instrument is also not negotiable if what is to be paid is money Sgd. Budoy
and/or another thing at the option of the maker or acceptor or
anybody who is supposed to pay. Ratio: The amount of each installment and the dates of each
installments are not fixed.
Q: When is the amount considered “sum certain”?
Acceleration clause
A: If the amount that is to be unconditionally paid by the maker
or drawee can be determined on the face of the instrument. Q: What is an “acceleration clause”?
NOTE: An instrument is not certain if what is supposed to be paid A: Payment of sum in stated installments with a provision that
is a sum certain plus another undetermined amount. the whole shall become due in case of default in the payment of
an installment or of interest. It is one which hastens the maturity
Ex: I promise to pay P1000 plus all the profits that the maker’s of the instrument. Nevertheless, it does not affect the
bakery will earn in the month of December 2005 negotiability of the instrument.
Interest Example:
Stipulations like payment of interest do not affect the certainty of April 23, 2010
the sum to be paid.
I promise to pay to the order of Ayel the sum of P100,000.00 in
Ex: Pay to the order of Mr. X P2000 with interest at 20% per ten equal monthly installments the first installment being due
annum and payable on May 1, 2010 and the succeeding installments on
the first day of each month thereafter until fully paid.
In this case, there is absolute obligation to pay a fixed amount of
P2000. The interest is just an addition to the sum that is payable. In case of default in the payment of any installment on its due
date, all remaining installments shall become due and payable at
Installment Payments once.
Q: To be valid, what are the requirements? Sgd. Sarah
A: Payment with exchange
1. the dates of each installment must be fixed or at least This provision refers only to foreign bill of exchange.
determinable
2. the amount to be paid for each installment must also Q: What is exchange?
be stated or at least determinable
A: It refers to the interchange of valuables and especially of bills
Examples: of exchange or money of different countries with an allowance
for differences in value. The negotiability of the instrument is not
March 2, 2004 affected because the principal sum is still certain.
I promise to pay Bebeng or order P8000.00 in four equal Examples:

installments or P2000.00 per installment, the first installment to
th
be paid on December 5, 2005, and every 5 day of the succeeding April 23, 2012
months until fully paid.
I promise to pay Mr. X or order $8000.00 United States currency
Sgd. Budoy payable in Philippine Pesos on January 10, 2013 at the rate of 1
Peso per Dollar (1:2)
Invalid example (not payable in stated installments):
Sgd. Mr. M
March 2, 2004
April 23, 2012
I promise to pay Bebeng or order P8000.00 in four equal
installments or P2000.00 per installment. I promise to pay Mr. X or order $8000.00 United States currency
payable in Philippine Pesos on January 10, 2013 at current rate of
Sgd. Budoy exchange at the time of payment
Ratio: The dates of each installment is not fixed Sgd. Mr. M
March 2, 2004
I promise to pay Bebeng or order P8000.00 in every month

New York City Reference to transaction

March 31, 2011
The statement of the transaction that gives rise to the obligation
Pay to the order of Pacita Paez the sum of US $20,000.00 with covered by the note or the bill does not destroy the negotiability
exchange at the current rate at Citibank, Makati City, Philippines. of the instrument.
Sgd. Robert Rotschild April 23, 2004
To: Wilma Watson I promise to pay Bebeng or order P8000.00 representing my

rental for March 2012
Payment with attorney’s fees and collection costs Sgd. Budoy
Q: What is the effect of this stipulation? April 2, 2004
A: This does not render the instrument non-negotiable. I promise to pay Bebeng or order P8000.00 to apply on the
purchase price of goods that I bought from him last March 2004
Q: Why is it not rendered non-negotiable? Sgd. Budoy
A: Even if the sum payable is uncertain, such uncertainty occurs Q: Is the instrument below negotiable?
after maturity when the instrument is no longer negotiable in its
commercial sense, i.e., the transferee will no longer be March 24, 2004
considered a holder in due course because he acquires it after the
instrument becomes overdue. All that the law requires for the I promise to pay Bebeng or order P8000.00 on or before April 23,
instrument to be negotiable is for the sum at maturity be certain. 2004 subject to the terms and conditions of the Contract of Sale
executed by the parties.
Example: Sgd. Budoy
March 2, 2011 A: No. The statement that the promise or order is dependent
upon the terms of a separate agreement makes the promise or
For value received, I promise to pay to the order of Paloma the order conditional and negates negotiability.
sum of P100,000.00 on or before December 12, 2011, with costs
of collection and attorney’s fees if payment is not made at Q: Is the instrument below negotiable?
maturity.
March 24, 2004
Sgd. Dei
I promise to pay Bebeng or order P8000.00 on or before April 23,
2004. This Note is secured by a chattel mortgage and is subject to
the terms and conditions thereof.
Sec. 3. When promise is unconditional. - An unqualified order or Sgd. Budoy
promise to pay is unconditional within the meaning of this Act
though coupled with: A: Not negotiable because the note is subject to or restricted by
(a) An indication of a particular fund out of which the mortgage.
reimbursement is to be made or a particular
account to be debited with the amount; or
(b) A statement of the transaction which gives rise to
the instrument. Sec. 4. Determinable future time; what constitutes. - An
But an order or promise to pay out of a particular fund is not instrument is payable at a determinable future time, within the
unconditional. meaning of this Act, which is expressed to be payable:
(a) At a fixed period after date or sight; or
Q: What is a condition? (b) On or before a fixed or determinable future time
specified therein; or
A: It is a future and uncertain event, or past event unknown to (c) On or at a fixed period after the occurrence of a
the parties, the happening (positive) or non-happening (negative) specified event which is certain to happen,
of which may either give rise to an obligation or may extinguish though the time of happening be uncertain.
existing ones. An instrument payable upon a contingency is not
negotiable, and the happening of the event does not cure the
SUSPENSIVE RESOLUTORY defect.
The happening or non- The happening or non-
happening of the event will happening of the event will
give rise to an obligation extinguish existing obligations

At a fixed period after date or sight; or April 23, 2004
April 23, 2004 I promise to pay Bebeng or order P8000.00 thirty (30) days after
she passes the CPA Licensure Examination
I promise to pay Ayel or order P8000.00 thirty (30) days after due Sgd. CJ
date
Sgd. CJ
On or before a fixed or determinable future time specified Sec. 5. Additional provisions not affecting negotiability. - An
therein instrument which contains an order or promise to do any act in
addition to the payment of money is not negotiable. But the
April 23, 2004 negotiable character of an instrument otherwise negotiable is
not affected by a provision which:
I promise to pay Ayel or order P8000.00 on or before June 30, (a) authorizes the sale of collateral securities in case
2004 the instrument be not paid at maturity; or
Sgd. CJ (b) authorizes a confession of judgment if the
instrument be not paid at maturity; or
February 23, 2004 (c) waives the benefit of any law intended for the
advantage or protection of the obligor; or
I promise to pay Ayel or order P8000.00 on Good Friday of the (d) gives the holder an election to require something
year 2004 to be done in lieu of payment of money.
Sgd. CJ But nothing in this section shall validate any provision or
stipulation otherwise illegal.
On or at a fixed period after the occurrence of a specified event
which is certain to happen, though the time of happening be Q: What is the effect of provisions in addition to order to pay a
uncertain sum of money?
April 23, 2004 A:
I promise to pay Maria or order P8000.00 on the death of her GR: Renders the instrument non-negotiable
father
Sgd. CJ Ratio: While that part pertaining to payment of a sum of money
could be negotiated, the part relating to the performance of the
April 23, 2004 other act would have to be assigned.
I promise to pay Maria or order P8000.00 thirty (30) days after Provisions not affecting negotiability
the death of her father
Sgd. CJ 1. Collateral
However, the following instrument is not negotiable because the February 23, 2004
instrument is payable at a fixed period before the occurrence of a
specified event which is certain to happen. By the time that its I promise to pay Ayel or order P8000.00 on January 10, 2006. This
maturity date is curtained, the instrument is already overdue. note is secured by a chattel mortgage and the holder is
authorized to sell the mortgaged property if I fail to pay at
April 23, 2004 maturity date
Sgd. CJ
I promise to pay Maria or order P8000.00 thirty (30) days before
the death of her father 2. Confession of judgment
Sgd. CJ
Q What is a warrant of attorney?
Payable upon contingency
A: It is a provision in the instrument that allows a person or
These are non-negotiable: attorney in advance to appear in court and “confess” judgment---
admit the liability sought to be enforced in a future case.
April 23, 2004
Q: What is the note embodying this provision?
I promise to pay Bebeng or order P8000.00 upon the
consummation of the sale of my lot in Tagaytay City A: It is called “judgment note” or “cognovits note.”
Sgd. CJ
Q: Is this valid? Will it affect the negotiability of the instrument?

A: It is a void stipulation because it enlarges the field for fraud; (b) does not specify the value given, or that any
the promissory bargains away his right to a day in court; and the value had been given therefor; or
effect of the instrument is to strike down the right to appeal (c) does not specify the place where it is drawn or
accorded by statute. But, it does not affect the negotiability of the place where it is payable; or
the instrument sine on the face of the note, the act of confession (d) bears a seal; or
is to be made after maturity. (e) designates a particular kind of current money in
which payment is to be made.
February 23, 2004 But nothing in this section shall alter or repeal any statute
requiring in certain cases the nature of the consideration to be
I promise to pay Ayel or order P8000.00 on January 10, 2006. If stated in the instrument.
case will be filed to collect this amount, I hereby authorize the
holder to appear in court in my behalf with authority to confess Omission of date
judgment and admit liability under this note.
Sgd. CJ GR: Negotiability is not affected
3. Waiver by obligor If the instrument is not dated, it will be considered to be dated as

of the time it was issued.
February 23, 2004
XPNS:
I promise to pay Ayel or order P8000.00 on January 10, 2006.
Presentment for payment waived. 1. Where the date is necessary to fix the maturity date or
Sgd. CJ to make the maturity date determinable
February 23, 2004 Example:

February 23, 2004
I promise to pay Ayel or order P8000.00 on January 10, 2006.
Exemption under homestead laws waived. I promise to pay Ayel or order P8000.00 sixty (60) days from date.
Sgd. CJ Sgd. CJ
4. Gives the option to holder 2. To determine when interest is to run

3. To fix period of prescription
Q: Why is it that it does not affect the negotiability of the
instrument? Value given
A: If the holder has the option, he can require the payment of February 23, 2004
money, thus satisfying that the instrument must be payable in a
sum certain in money. For value received, I promise to pay Ayel or order P8000.00 on
June 1, 2004
Q: What is the purpose of this alternative act? Sgd. CJ
A: It gives the holder a hedge against inflation, making the NOTE: The omission of the words For value received does not
instrument more attractive or marketable. render the instrument non-negotiable because every NI is
deemed prima facie to have been issued for a valuable
February 23, 2004 consideration. However, the nature of the consideration should
be stated in the instrument if any statute requires.
I promise to pay Ayel or order P8000.00 or 50 sacks of rice at the
option of the holder. Place of issuance or it is payble
Sgd. CJ
Manila, Philippines
However, the following is not negotiable: February 23, 2004
February 23, 2004 I promise to pay Ayel or order P8000.00 on June 1, 2004 at the
Philippine National Bank, Aurora Blvd. Branch, Cubao, Quezon
I promise to pay Ayel or order P8000.00 or 50 sacks of rice. City.
Sgd. CJ Sgd. CJ
Q: What are the rules if the place of payment is not stated?

Reason: It does not state that the holder has the option.
A: The same shall be:
Sec. 6. Omissions; seal; particular money. - The validity and 1. Address of the person to make payment if stated in the
negotiable character of an instrument are not affected by the instrument
fact that: 2. His usual place of business or residence
(a) it is not dated; or 3. Wherever he may be found or his last known place of
business or residence, in the order given (Sec. 73)
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must
Sec. 7. When payable on demand. - An instrument is payable on be named or otherwise indicated therein with reasonable
demand: certainty.
(a) When it is so expressed to be payable on
demand, or at sight, or on presentation; or Q: What is “order”?
(b) In which no time for payment is expressed.
A: The maker of the PM empowers the payee to demand payment
Where an instrument is issued, accepted, or indorsed when from him (maker) or to direct him (maker), through the process of
overdue, it is, as regards the person so issuing, accepting, or negotiation, to pay a designated person. In case of a BOE, the
indorsing it, payable on demand. drawer orders a named drawee to pay the designated payee, or to
pay a third person designated by the payee, if the instrument is
When it is so expressed to be payable on demand, or at sight, negotiated.
or on presentation
Q: What are the 2 ways by which an instrument is made payable
February 23, 2004 to order?
I promise to pay Ayel or order P8000.00 on call A:

Sgd. CJ
1. Payable to the order of a specified person
February 23, 2004
March 31, 2011
I promise to pay Ayel or order P8000.00 at any time called for.
Sgd. CJ Pay to the order of Pacita Paez the sum of P20,000.00 .
Sgd. Robert Rotschild
February 23, 2004
To: Wilma Watson
I promise to pay Ayel or order P8000.00.
Sgd. CJ 2. To a specified person or his order
Q: Give other instances when the instrument is payable on March 31, 2011
demand.
Pay to Pacita Paez or order the sum of P20,000.00 .
A: Sgd. Robert Rotschild
1. As regards the drawer, the instrument is deemed To: Wilma Watson

payable on demand when it is issued after it has
become overdue. However, the following are non-negotiable:
June 23, 2004 March 31, 2011
I promise to pay Ayel or order P8000.00 on May 4, 2004. Pay to Pacita Paez the sum of P20,000.00 .
Sgd. CJ Sgd. Robert Rotschild
To: Wilma Watson

2. As regards the acceptor, the instrument is deemed
payable on demand when he accepts it after it has Reason: Only the person named as payee can receive payment
become overdue.
3. As regards an indorser, the instrument is deemed March 31, 2011
payable on demand when he indorses it after it has
become overdue. Pay to Pacita Paez or his agent the sum of P20,000.00 .
Sgd. Robert Rotschild
To: Wilma Watson

Sec. 8. When payable to order. - The instrument is payable to
Reason: An agent is merely an extension of the personality of
order where it is drawn payable to the order of a specified
the principal.
person or to him or his order. It may be drawn payable to the
order of:
To whose order may an instrument be made payable
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
A payee who is not maker
(c) The drawee; or
(d) Two or more payees jointly; or

June 23, 2004 To the order of One or some of several payees
I promise to pay Ayel or order P8000.00 on May 4, 2004. June 23, 2004
Sgd. CJ
I promise to pay to the order of Bebeng or Ayel P8000.00 on May
A payee who is not drawer or drawee 4, 2004.
Sgd. CJ
June 23, 2004
June 23, 2004
Pay Ayel or order P8000.00 on May 4, 2004.
Sgd. CJ I promise to pay to the order of Bebeng or Ayel, or any of two of
To: Bebeng them P8000.00 on May 4, 2004.
Sgd. CJ
To the order of the drawer
To the order of The holder of an office for the time being
June 23, 2004
June 23, 2004
Pay to the order of myself the sum of P8000.00 on May 4, 2004.
Sgd. CJ I promise to pay to the order of the Rector of the UST P8000.00
To: Bebeng on May 4, 2004.
Sgd. CJ
June 23, 2004
Sec. 9. When payable to bearer. – The instrument is payable to
Pay to the order Bebeng the sum of P8000.00 on May 4, 2004. bearer:
Sgd. Bebeng (a) When it is expressed to be so payable; or
To: CJ (b) When it is payable to a person named therein or
bearer; or
To the order of the maker (c) When it is payable to the order of a fictitious or
non-existing person, and such fact was known to
June 23, 2004 the person making it so payable; or
(d) When the name of the payee does not purport to
I promise to pay to the order of myself P8000.00 on May 4, 2004. be the name of any
Sgd. CJ person; or
When the only or last indorsement is an indorsement in
June 23, 2004 blank.
I promise to pay to the order of CJ P8000.00 on May 4, 2004. When it is expressed to be so payable
Sgd. CJ
June 23, 2004
NOTE: There must be indorsement here.
Pay to the bearer the sum of P8000.00 on May 4, 2004.
To the order of the drawee Sgd. Bebeng
To: CJ
June 23, 2004
When it is payable to a person named therein or bearer
Pay to the order of yourself the sum of P8000.00 on May 4, 2004.
Sgd. Bebeng June 23, 2004
To: CJ
Pay to Jed Mark or bearer the sum of P8000.00 on May 4, 2004.
June 23, 2004 Sgd. Bebeng
To: CJ
Pay to the order of CJ the sum of P8000.00 on May 4, 2004.
Sgd. Bebeng When it is payable to the order of a fictitious or non-existing
To: CJ person, and such fact was known to the person making it so
payable
To the order of Two or more payees jointly
June 23, 2004
June 23, 2004
Pay to the order of Prinsipe Abante the sum of P8000.00 on May
I promise to pay to the order of Bebeng and Ayel P8000.00 on 4, 2004.
May 4, 2004. Sgd. Bebeng
Sgd. CJ To: CJ

June 23, 2004 cannot be determined on the basis of other documents nor even
on contemporaneous acts of the parties.
Pay to the order of Prince Charles the sum of P8000.00 on May 4,
2004.
Sgd. Bebeng
To: CJ Sec. 11. Date, presumption as to. - Where the instrument or an
acceptance or any indorsement thereon is dated, such date is
When the name of the payee does not purport to be the name deemed prima facie to be the true date of the making, drawing,
of any person acceptance, or indorsement, as the case may be.
June 23, 2004 NOTE: The negotiability of the instrument is not affected if the
instrument is not dated.
Pay to the order of CASH the sum of P8000.00 on May 4, 2004.
Sgd. Bebeng Q: What is the effect of an “erroneous date”?
To: CJ
A: None. The negotiability of the instrument is not affected.
When the only or last indorsement is an indorsement in blank However, Where the instrument or an acceptance or any
indorsement thereon is dated, such date is deemed prima facie to
June 23, 2004 be the true date of the making, drawing, acceptance, or
indorsement. In law, a prima facie presumption may be rebutted
I promise to pay to the order of Bebeng and Ayel P8000.00 on by proof to the contrary. Thus, if the date appearing in the
May 4, 2004. instrument is the wrong date, the party who is questioning the
Sgd. CJ date or who is alleging that the date is wrong may prove the true
date.
Back:
Example:
Sgd. Bebeng
November 5, 2010
NOTE: This is applicable to cases where originally, the
instrument is an order instrument. Thirty days after date, I promise to pay to the order of Pablo
Perdon the sum of P100,000.00
INSTRUMENTS PAYABLE TO INSTRUMENTS PAYABLE TO Sgd. Miguel Manansala
ORDER BEARER
The payee must be named or The payee need not be NOTE: November 5 is deemed prima facie to be the true date of
indicated with reasonable indicated, it is enough that it the making of the instrument. Accordingly, the date of maturity
certainty is expressed to be so payable counting from such date is December 5, 2010.
to bearer
This is negotiated by: Negotiated by delivery even Sec. 12. Ante-dated and post-dated. - The instrument is not
1. Indorsement coupled if specially endorsed invalid for the reason only that it is ante-dated or post-dated,
with provided this is not done for an illegal or fraudulent purpose.
2. Delivery The person to whom an instrument so dated is delivered
Instruments originally payable A bearer instrument is always acquires the title thereto as of the date of delivery.
to order can be converted to a bearer instrument
bearer through blank Q: What do you mean by ante-dated?
instrument
A: An instrument is considered ante-dated if it is dated earlier
than the date of issue, such as a check dated earlier April 1, 2011
is issued on May 1, 2011.
Sec. 10. Terms, when sufficient. - The instrument need not
Q: What do you mean by post-dated?
follow the language of this Act, but any terms are sufficient
which clearly indicate an intention to conform to the
A: An instrument is considered post-dated if it is dated ahead of
requirements hereof.
the issue, such as a check dated May 1, 2011 is issued on April 1,
2011.
NOTE: The language of the law need not be used. Preferably, the
language of the law should be used in the instrument as to avoid
Q: What is the reason for post-dating?
any uncertainty or doubt as to its negotiability. Nonetheless, the
law allows the use of equivalent words without affecting the
A: A person may post date an instrument, usually a check, when
negotiability of the instrument.
he has no sufficient funds at the time that he is drawing the
check, but intends to deposit sufficient funds to cover its amount
The intention of the parties must be determined
by the date appearing thereon. He may also post-date a check to
protect himself when some act is to be performed by the payee
Unlike ordinary contracts, the intent of the parties must be
before the date of the check. The payee’s non-performance of
determined only based on what is stated in the instrument. It

such act before the date of the check will enable him to stop its (no date)
payment particularly if check is for deposit to the payee’s account
only. Thirty days after date, I promise to pay to the order of Pablo
Perdon the sum of P100,000.00
Q: What is the reason for ante-dating? Sgd. Miguel Manansala
A: It may be ante-dated to evidence a pre-existing debt. For

b. Where the acceptance of an instrument payable at a fixed
example, on November 1, 2010, M obtained a 60-day loan of
period after sight is undated
P10,000.00 from P with promise that he will immediately issue a
promissory note for such debt. However, M forgot to issue the
note immediately until he remembered if after a week. So on
November 8, M issues a note to evidence the pre-existing debt Thirty days after sight, I promise to pay to the order of Pablo
placing on the instrument November 1, 2010, the date when it Perdon the sum of P100,000.00
was supposed to have been issued. Sgd. Miguel Manansala
Q: What is the effect of ante-dating or post-dating? To: Wendell Wagner
A: Accepted. (No date)

Sgd. Wendell Wagner
1. The validity and negotiability of the instrument is not
affected Who may insert date
XPN: When it is done for an illegal or fraudulent
purpose The a.) payee or b.) any holder of the instrument may insert the
true date of issue or acceptance.
NOTE: Although the implication of Sec. 12 is that the
instrument is rendered invalid if the ante-dating and Q: What is the effect of insertion of wrong date?
post-dating of the check is done for an illegal purpose,
the invalidity affects holders not in due course. In case A:
of a holder-in-due-course, his right to recover the
amount of the instrument cannot be barred by any a. In the hands of a holder-in-due-course, the date so
party on the ground that the instrument was ante- inserted, even though it is wrong is to be regarded as the
dated or post-dated for an illegal or fraudulent true date
purpose. b. In the hands of a holder who is not a holder-in-due-course:
1. As against parties before the wrongful insertion, the
2. If the instrument is a check, its post-dating has the instrument is avoided
effect of converting it from a demand instrument to a 2. As against the party guilty of the wrongful insertion and
time instrument because it is an order to pay a parties subsequent to him, the instrument is not
specified amount at the future date indicated thereon. avoided
Accordingly, it cannot be cashed with the bank against
which it is drawn or be deposited before the date Sec. 14. Blanks; when may be filled. - Where the instrument is
stated on the check. wanting in any material particular, the person in possession
thereof has a prima facie authority to complete it by filling up
Q: When is title to ante-dated or post-dated instrument the blanks therein. And a signature on a blank paper delivered
acquired? by the person making the signature in order that the paper may
be converted into a negotiable instrument operates as a prima
A: The person to whom an ante-dated or post-dated instrument facie authority to fill it up as such for any amount. In order,
is delivered acquires the title thereto not as of the date written however, that any such instrument when completed may be
thereon but as of the date of its delivery to him. enforced against any person who became a party thereto prior
to its completion, it must be filled up strictly in accordance with
Sec. 13. When date may be inserted. - Where an instrument the authority given and within a reasonable time. But if any
expressed to be payable at a fixed period after date is issued such instrument, after completion, is negotiated to a holder in
undated, or where the acceptance of an instrument payable at a due course, it is valid and effectual for all purposes in his hands,
fixed period after sight is undated, any holder may insert and he may enforce it as if it had been filled up strictly in
therein the true date of issue or acceptance, and the instrument accordance with the authority given and within a reasonable
shall be payable accordingly. The insertion of a wrong date does time.
not avoid the instrument in the hands of a subsequent holder in
due course; but as to him, the date so inserted is to be regarded Mechanically incomplete but delivered instrument
as the true date.
Q: When does this section apply?
When date may be inserted
A: This refers to an instrument which is wanting in a material
a. When an instrument expressed to be payable at a fixed particular such as the amount of the instrument, and it is
period after date is issued undated delivered to another for him to fill the blank or blanks and he

negotiates it either for his own benefit or that of the person NOTE: This presumption is conclusive in case of a holder-in-due-
making the person. course. Filling up the blanks not in accordance with the authority
given is only a personal defense.
Q: What are the rules under Sec. 14?
Signed blank piece of paper
A:
Q: What is the rule in case of a signed blank piece of paper
1. A person in possession of an instrument that is wanting delivered to another person for the purpose of converting the
in a material particular has prima facie authority to same into a negotiable instrument?
complete it by filling up the blanks therein strictly in
accordance with the authority given and within a A: If a person delivers a blank paper to another person containing
reasonable time. his signature for the purpose of converting it into a negotiable
2. If a person delivers a blank paper to another person instrument, the person to whom the instrument is delivered has
containing his signature for the purpose of converting it prima facie authority to fill it up for any amount.
into a negotiable instrument, the person to whom the
instrument is delivered has prima facie authority to fill Q: What are the requisites?
it up for any amount
3. If the holder of the instrument, after it was filled up is a A:
holder in due course, the holder may enforce the
instrument as if it has been filled up strictly in 1. There must be delivery of a paper to another person
accordance with the authority given and within a 2. The paper that was delivered was a blank paper
reasonable time. containing the signature of the person who will deliver
3. The delivery was for the purpose of converting it into a
Material Particular negotiable instrument
Q: What are the matters mentioned in Sec. 25 which involves Examples:

material alteration?
1. If Mr. M signs his name on a blank paper and delivers
A: the said blank paper to Mr. P for the purpose of
providing Mr. P a specimen of signature. Mr. M will not
1. Date be liable to Mr. P if the latter converted the blank paper
2. Sum payable, either for principal or interest to a negotiable instrument;
3. The time and place of payment 2. If Mr. P negotiated the instrument to Mr. A who in turn
4. The member or the relations of the parties negotiated the instrument to Mr. B, the present holder
5. The medium or currency in which payment is to be is not a holder-in-due-course. In such a situation, the
made purported maker is also not liable to Mr. B because
6. Which adds a place of payment where no place of there was no authority to convert the paper into a
payment is specified, or any other changes or addition negotiable instrument.
which alters the effect of the instrument in any respect
Q: What are the requisites in order to hold liable a person who
Prima facie authority on incomplete but delivered instrument became a party to the instrument prior to completion?
Q: What are the 2 kinds of prima facie which exists in a A:

mechanically incomplete but delivered instrument?
1. The blank must be filled up strictly in accordance with
A: the authority given
2. The same must be filled up within reasonable time
1. Prima facie authority to fill up the blanks
2. Prima facie authority to fill up the instrument for any Q: What are the rights and obligations of parties in case of
amount, provided the following facts concur: wrongful completion?
a. There is a signature on the blank
b. The person who signed the instrument in blank A:
delivers it to another in order that it may be
converted into a negotiable instrument HOLDER-IN-DUE-COURSE HOLDER-NOT-IN-DUE-COURSE
He may enforce the instrument He can enforce the instrument
Q: What do you mean by “the payee is deemed to have a prima as if it had been filled up as completed against:
facie authority to fill it up”? strictly in accordance with the 1. The party guilty of
authority given and within a the wrongful
A: The moment the instrument is completed, the presumption is reasonable time against: completion
that the instrument was completed with prior authority from the 1. The parties prior to 2. The parties
maker or the drawer and that the person who completed the the wrongful subsequent to the
instrument did not exceed his authority. completion wrongful completion
2. The party guilty of
the wrongful
completion This refers to an instrument which is wanting in a material
3. The parties particular, such as the amount of the instrument or the name of
subsequent to the the payee, and it is undelivered.
wrongful completion
Q: What are the important circumstances under this situation?
Q: Is the last sentence applicable to a HDC?
A:
A: Yes, because under Sec. 14 “if any such instrument, after
completion, is negotiated to a holder in due course, it is valid and 1. The instrument is incomplete
effectual for all purposes in his hands, and he may enforce it as if 2. The incomplete instrument has not been delivered
it had been filled up strictly in accordance with the authority
given and within a reasonable time.” NOTE: In Sec. 14, there was prima facie authority to fill up the
incomplete instrument because there was delivery, in Sec. 15,
Contra view: The HDC cannot recover from the purported maker there is no such presumption.
because there was no intention on the part of the said maker to
issue the instrument. Fraud in factum is a real defense which is Q: What is the effect if a mechanically incomplete instrument is
available even against a HDC. completed and delivered without authority?
Nature of defense A: The instrument shall not be valid in the hands of any holder, as
against any person whose signature was placed thereon before
1. If there was intention on the part of the person whose delivery.
signature appears on the blank paper to convert it into
a negotiable instrument but the instrument is Q: What are the rights and obligations of the parties if a
wrongfully completed, the wrongful completion is only mechanically incomplete instrument is completed and delivered
a personal defense. Such defense is referred to a “want without authority?
or lack of authority to complete instrument”
2. If there was no intention on the part of the person A:
whose signature appears on the blank paper to convert
it into a negotiable instrument but the instrument, the a. As against a party whose signature was placed on the
wrongful completion is a real defense referred to as instrument before delivery
“fraud in factum” (fraud in factum) or fraud in esse
contractus (fraud in the essence of the contract). He cannot be held liable because want or lack of delivery of an
instrument is a real defense.
Q: Brad was in desperate need of money to pay his debt to Pete,
a loan shark. Pete threatened to take Brad’s life if he failed to b. As against a party who signed the instrument after
pay. Brad and Pete went to see Señorita Isobel, Brad’s rich completion and delivery
cousin, and asked her if she could sign a promissory note in his
favor in the amount of P10,000.00 to pay Pete. Fearing that Pete The instrument can be enforced against the guilty party, as well
would kill Brad, Señorita Isobel acceded to the request. She as those subsequent to him.
affixed her signature on a piece of paper with the assurance of
Brad that he will just fill it up later. Brad then filled up the blank Sec. 16. Delivery; when effectual; when presumed. - Every
paper, making a promissory note for the amount of contract on a negotiable instrument is incomplete and
P100,000.00. He then indorsed and delivered the same to Pete, revocable until delivery of the instrument for the purpose of
who accepted the note as payment of the debt. What defense giving effect thereto. As between immediate parties and as
or defenses can Señorita Isobel set up against Pete? Explain. regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or
A: The defense (personal defense) which Señorita Isobel can set under the authority of the party making, drawing, accepting, or
up against Pete is that the amount of P100,000.00 is not in indorsing, as the case may be; and, in such case, the delivery
accordance with the authority given to her to Brad (in the may be shown to have been conditional, or for a special
presence of Pete) and that Pete was not a holder in due course purpose only, and not for the purpose of transferring the
for acting in bad faith when accepted the note as payment property in the instrument. But where the instrument is in the
despite his knowledge that it was only 10,000.00 that was hands of a holder in due course, a valid delivery thereof by all
allowed. parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer
Sec. 15. Incomplete instrument not delivered. - Where an in the possession of a party whose signature appears thereon, a
incomplete instrument has not been delivered, it will not, if valid and intentional delivery by him is presumed until the
completed and negotiated without authority, be a valid contract contrary is proved.
in the hands of any holder, as against any person whose
signature was placed thereon before delivery. Mechanically complete but undelivered instrument
Mechanically incomplete and undelivered instrument Q: What is the nature of the contract in case of mechanically
complete but undelivered instrument?

A: An instrument though complete in form is an incomplete and
revocable contract until the same is delivered for the purpose of A: The defense of “want or lack of authority to complete
giving effect thereto. Delivery is needed in order to make the instrument” or that the delivery was conditional or for special
contract on the instrument complete. Before delivery, the maker purpose only and not for the purpose of transferring the property
or drawer may cancel the instrument. in the instrument, is only a personal defense and may be availed
of by any party against a holder-not-in-due-course.
Need for delivery
Examples:
Q: What is “delivery”?
a. Want of delivery of complete instrument
A: It means the transfer of possession of the negotiable
instrument by one person to another with the intention to Q: M executed a PN payable to the order of P for P10,000.00. He
transfer title to the instrument. This involved: then placed the instrument in his safe. Without the consent of
M, P took the instrument and indorsed it to A, then A to B, B to
a. Issue- first delivery of the instrument from the maker or C, and C to H, holder. Is H an immediate party? What are H’s
drawer to the payee (or bearer) rights?
b. Negotiation- transfer from one person to another that
constitutes the transferee the holder of the instrument A: If H was aware that P took the instrument without M’s
authority, H is an immediate party although he may be physically
Q: Who makes the delivery? remote from M, the maker. If H is a HDC, he can enforce the
instrument against any party including M, because a valid
A: delivery of the instrument by all parties prior to him so as to
make them liable to him is conclusively presumed. In addition, P,
1. Personally by the person who is supposed to transfer A, B and C are liable as endorsers. If H is not a HDC, he cannot
like the maker, drawer, or indorser enforce the instrument against M. However, he can enforce it
2. Authorized agent or representative against , P, A, B and C, who are liable on their warranty as
endorsers.
NOTE: If the employee is not authorized to deliver the
instrument, the contract of transfer is still incomplete. b. Conditional delivery
Presumptions of valid delivery Q: M executed a PN payable to the order of P for P10,000.00

payable to the order of P and delivered the same to P. M and P
1. In the hands of a holder-in-due-course agreed that the note shall become binding on M only after M
has secured the approval of his loan from the bank. Without M’s
A valid delivery of the instrument by all parties prior to him so as authority and before M has obtained the required bank
to make them liable to him is conclusively presumed. approval, P indorsed the note to A, then A to B, B to C, and C to
H, holder. What are the rights and liabilities of the parties?
2. As between immediate parties and as regards a remote
party other than a holder-in-due-course A: If H was a HDC, He can enforce the instrument against any
party including M, because a valid delivery of the instrument by
A valid and intentional delivery by the party sought to be charged all parties prior to him so as to make them liable to him is
is presumed until the contrary is proved. The presumption of conclusively presumed. In addition, P, A, B and C are liable as
valid delivery is disputable. endorsers. If H is not a HDC, he cannot enforce the instrument
against M. For M, the non-fulfillment of the condition is a valid
The party sought to be charged (maker, drawer, acceptor, or defense against H. However, he can enforce it against , P, A, B
endorser), in order to escape liability, may prove: and C, who are liable on their warranty as endorsers.
1. That he made no delivery of the instrument c. Delivery for a special purpose

2. That if there was delivery, he did not authorize the
same Ex: delivery for safe-keeping only
3. That if he authorized or made the delivery, the same
was conditional or for special purpose only and not for Q: Jun was about to leave for a business trip. He signed several
the purpose of transferring the property in the blank checks. He instructed Ruth, his secretary, to fill them as
instrument. payment for his obligations. Ruth filled one check with her
name as payee, placed P30,000.00 thereon, endorsed and
Q: Who is an “immediate party”? delivered it to Marie. She accepted the check in good faith as
payment for goods she delivered to Ruth. Eventually, Ruth
A: One who, in relation to another party, may be physically regretted what she did and apologized to Jun. Immediately he
remote, but is considered an immediate party by reason of his directed the drawee bank to dishonor the check. When Marie
knowledge of the conditions or limitations placed upon the encashed the check, it was dishonored.
delivery of the instrument, or the fact that the instrument has not a. Is Jun liable to Marie?
been delivered.
Q: What is the nature of the defense?

b. Supposing the check was stolen while, filled the blank instrument but the
check, endorsed and delivered it to Marie.is Jun liable instrument, the
to Marie if the check is dishonored? wrongful completion
is a real defense
referred to as “fraud
A: in factum” (fraud in
factum) or fraud in
a. Yes. This covers the delivery of an incomplete esse contractus (fraud
instrument, under Section 14 of the Negotiable in the essence of the
Instruments Law, which provides that there was prima contract).
facie authority on the part of Ruth to fill-up any of the
material particulars thereof. Having done so, and when
it is first completed before it is negotiated to a holder in
due course like Marie, it is valid for all purposes, and Section 17. Construction where instrument is ambiguous. -
Marie may enforce it within a reasonable time, as if it Where the language of the instrument is ambiguous or there
had been filled up strictly in accordance with the are omissions therein, the following rules of construction
authority given. apply:
b. No. Even though Marie is a holder in due course, this is (a) Where the sum payable is expressed in words and also
an incomplete and undelivered instrument, covered by in figures and there is a discrepancy between the two, the sum
Section 15 of the Negotiable Instruments Law. Where denoted by the words is the sum payable; but if the words are
an incomplete instrument has not been delivered, it will ambiguous or uncertain, reference may be had to the figures
not, if completed and negotiated without authority, be to fix the amount;
a valid contract in the hands of any holder, as against (b) Where the instrument provides for the payment of
any person, including Jun, whose signature was placed interest, without specifying the date from which interest is to
thereon before delivery. run, the interest runs from the date of the instrument, and if
the instrument is undated, from the issue thereof;
BASIC RULES (c) Where the instrument is not dated, it will be
considered to be dated as of the time it was issued;
SECTION 14 SECTION 15 SECTION 16 (d) Where there is a conflict between the written and
Refers to an Refers to an Refers to a printed provisions of the instrument, the written provisions
incomplete but incomplete and complete prevail;
delivered undelivered instrument but (e) Where the instrument is so ambiguous that there is
instrument instrument delivered doubt whether it is a bill or note, the holder may treat it as
The defense that is The defense The defense that is either at his election;
available is a available to the available is a (f) Where a signature is so placed upon the instrument
personal defense payor is a real personal defense that it is not clear in what capacity the person making the
that is available defense that can be that is available same intended to sign, he is to be deemed an indorser;
only against a set up even against only against a Where an instrument containing the word "I promise to pay" is
holder-not-in-due- a HDC holder-not-in-due- signed by two or more persons, they are deemed to be jointly
course course and severally liable thereon.
NOTE: Soriano’s view: Q: When is this provision applicable?

1. If there
A: When the instrument is ambiguous or vague or there are
was intention on the
part of the person omissions therein. The rules on interpretation are intended to
whose signature deal with the problems enumerated therein and how they are to
appears on the blank be resolved.
paper to convert it
into a negotiable Rules
instrument but the
instrument is Where the sum payable is expressed in words and also in
wrongfully
figures and there is a discrepancy between the two, the sum
completed, the
wrongful completion denoted by the words is the sum payable
is only a personal
defense. Such defense Ratio: The sum in words is considered to have been more
is referred to a “want carefully written. Also, the sum in words is more difficult to
or lack of authority to alter.
complete instrument”
If the words are ambiguous or uncertain, reference may be had
2. If there
to the figures to fix the amount
was no intention on
the part of the person
whose signature Instrument provides for the payment of interest, without
appears on the blank specifying the date from which interest is to run
paper to convert it
into a negotiable
1. If the instrument is dated, the interest runs from such
date JOINT LIABILITY SOLIDARY OR JOINT AND
2. If instrument is undated, interest runs from the date of SEVERAL LIABILITY
its issue 2 or more persons are bound 2 or more persons are bound
to pay only their to and can be made to comply
proportionate share in the with the entire obligation
I promise to pay to the order of Patricia Palermo the sum of obligation
P50,000 on June 30, 2011 with 12% interest. a. when the obligation
Sgd. Marisa Hernandez expressly so states
b. when the law
Thus, if the foregoing note is issued on May 10, 2011, then the c. when the nature of
interest runs from such date. the obligation
requires
If the instrument is not dated, it will be considered to be dated
as of the time it was issued Presumption under the law: Art.1207 of the NCC, the
presumption is that the liability of the debtors is joint.
If there is conflict between the written and printed provisions of
the instrument, the written provisions prevail. I promise to pay to the order of Potia Palomares the sum of
P10,000.00
Ratio: The written provisions are deemed to have been Sgd. Martha Martin Sgd. Mary Milan
made at a later time and will be considered an
amendment of the printed provisions Either Martin or Milan can be held liable by the holder for the
whole amount of P10,000.00 since their liability is joint and
Where the instrument is so ambiguous that there is doubt several, i.e., solidary. However, if note uses the words “we
whether it is a bill or note, the holder may treat it as either at promise to pay,” Martin and Milan can each be held liable only
his election for P5,000.00 since their liability is only joint.
I promise to pay to the order of Portia Palomares the sum of

P100,000.00
Sgd. Martha Martin
To: Webster Ong
The instrument makes a promise and yet it contains a drawee REFERENCES:

which is a party in a bill of exchange.
 SORIANO, FIDELITO R., Negotiable Instruments: Law
Q: In what instances may a bill of exchange (BOE) be treated as and Application for Business Students, 2011 Edition,
a promissory note? GIC Enterprises & Co., Inc.
 AUSTRIA SALVADOR E., and AQUINO, TIMOTEO B.,
A: Fundamentals of Negotiable Instruments Law, 2004
Edition, Central Book Supply Inc.
1. when the drawer and the draweee of the BOE are the
same person
2. the drawee is a fictitious person
3. drawee has no capacity to contract
4. the instrument is so ambiguous that there is doubt
whether it is a bill or a note
Where a signature is so placed upon the instrument that it is

not clear in what capacity the person making the same
intended to sign, he is to be deemed an indorser
GR: liable as indorser
XPN: He indicates the capacity he is signing
NOTE: The maker, drawer, or acceptor must indicate in what

capacity they are signing.
Where an instrument containing the word "I promise to pay" is

signed by two or more persons, they are deemed to be jointly
and severally liable thereon

Any person who accepts for cash checks made payable to a
corporation, which can act only by its agents, without making
any inquiry as to the authority of an individual to exchange
Section 18. Liability of person signing in trade or assumed checks belonging to said payee-corporation, does so at his own
name. - No person is liable on the instrument whose signature peril if agent is without authority.
does not appear thereon, except as herein otherwise expressly
provided. But one who signs in a trade or assumed name will Section 20. Liability of person signing as agent, and so forth. -
be liable to the same extent as if he had signed in his own Where the instrument contains or a person adds to his
name. signature words indicating that he signs for or on behalf of a
principal or in a representative capacity, he is not liable on the
Liability of persons whose signature does not appear on an instrument if he was duly authorized; but the mere addition of
instrument words describing him as an agent, or as filling a representative
character, without disclosing his principal, does not exempt
GR: A person whose signature does not appear on an him from personal liability.
instrument is not liable thereon.
Liability of an agent
RATIO: A person must sign the negotiable instrument before he
can be made liable under the same instrument. A person signing an instrument as an agent is not liable thereon
provided the following requisites are present:
XPNs:
a. He must be duly authorized;
1. Where a person signs under a trade name or assumed b. Must act within the scope of his authority;
name; c. Must disclose his principal;
E.g. If Pauleen Alcaraz signs a promissory note he issues d. Must add words to his signature describing himself as an
with “Binay Entreprises,” his trade name. he shall be agent or that he is acting in a representative capacity.
liable on the instrument to the same extent as if he has
signed his own name. Otherwise, the agent is deemed to be signing the instrument as
2. Where an authorized agent signs for and on behalf of his personal obligation and not that of another.
his principal, the latter is liable (Sec. 20) although his
signature does not appear thereon. Examples:
3. Where a person forges the signature of another, the
forger is liable (Sec.23); E.g.
4. Where a person negotiates an instrument by mere
delivery (Sec. 65); Joy Binay
5. Where the acceptor accepts the instrument on a paper By: (Sgd.) Arwin Cabanting
other than the bill itself (Sec. 134). The separate paper Agent
which must be attached to the instrument is called
allonge;
6. Where a person promises to accept in writing a bill Sgd. Constanza Brillantes
before it is drawn (Sec. 135); As agent of Carmela Brillantes
7. Where a person destroys a bill or refuses within 24
hours to return the bill accepted or not accepted
(constructive acceptance) (Sec. 137). Sgd. Dominic De Alban
8. Incapacitated persons who sign through their legal For: GV De Leon
guardians;
Section 19. Signature by agent; authority; how shown. - The Where an officer of a corporation or other organization signs for
signature of any party may be made by a duly authorized the latter, his representative capacity is sufficiently shown by his
agent. No particular form of appointment is necessary for this signature followed by the title of his office and the name of the
purpose; and the authority of the agent may be established as corporation or organization. Thus:
in other cases of agency.
Sgd. Saki De Leon
Form of agent’s authority President
Maranan-De Leon Corporation
The signature of any party may be made by duly authorized
agent. The authority may be oral or written as no particular
form is required by law. a written authority may be made on a Section 21. Signature by procuration; effect of. - A signature by
separate power of attorney or on the instrument itself although "procuration" operates as notice that the agent has but a
the latter is not required for the regularity of the signature or limited authority to sign, and the principal is bound only in
the indorsement of the agent. case the agent in so signing acted within the actual limits of his
authority.
Jai-Alai Corp of the Philippines vs. Bank of the Philippine
Islands Signature by procuration

Q: What is procuration? Where the indorsement or assignment made by a corporation is
ultra vires, title to the instrument likewise passes although the
A: It is the act of appointing another as one’s agent or attorney. corporation may incur no liability thereon.
The appointment must be made on the instrument itself or on a
separate power of attorney. Negotiation by a corporation through its officer effectively
transfers title but the corporation itself may invoke the absence
Effect of signature by procuration of capacity.
It operates as a notice that the agent has but limited authority Examples:
to sign and the principal is bound only in case the agent so
signing acted within the actual limits of his authority. 1. Ms. Ei Medina (M) makes a PN payable to the order of
Ms. Jemae Nadonga (P). Ei issues the same to Jemae
Accordingly, it is incumbent upon the person dealing with an who indorses it to Mr. Vins Platon (A), a minor. Vins
agent to inquire into the agent’s authority since the principal is indorses the note to Mr. Anthony Robles (B), Robles to
liable only if the agent by procuration acted within the scope of Ms. Juzzy Sulit (C), Sulit to Mr. Akira Vargas (D), and
his authority. Vargas to Em Maranan (H), holder.
Section 22. Effect of indorsement by infant or corporation.- a. Q: May Em (H) collect from Ei and Jemae, parties
The indorsement or assignment of the instrument by a before Vins?
corporation or by an infant passes the property therein,
notwithstanding that from want of capacity, the corporation or A: Em, whether a holder in due course or not may
infant may incur no liability thereon. collect from Ei and Jemae who cannot raise the
defense that Vins is a minor because Vins’
Capacity of infant (minor) or corporation indorsement passes title.
A minor is incapable of giving consent to a contract (Art. 1327, b. Q: May Em (H) collect from Anthony, Juzzy and
NCC). Any contract entered into by him is voidable (Art. 1390). Akira, parties after Vins?
On the other hand, it is unenforceable if both parties are
minors. A: Em, whether a holder in due course or not, may
collect from Anthony, Juzzy and Akira because as
Under the NIL, the transfer of title by a minor is effective indorsers, they warrant “that all prior parties had
although he is incapacitated. However, the minor can still use as capacity to contract (Sec. 65 and 66);
a defense that he is a minor. Thus, the minor can still refuse to
pay on the ground of minority. c. Q: May Em (H) collect from Vins?
E.g. Mr. Omar Deloso (DR), issued a negotiable BOE to the A: Em, whether a holder in due course or not may
payee, Ms. Lyra Gonzaga. The instrument is payable to the not collect from Vins because Vins’ minority is a
order of Ms. Gonzaga who in turn negotiated the instrument by real defense.
indorsing and delivering it to Ms. Kristine Liu (A) who is a minor.
Ms. Liu then negotiated the instrument by indorsement and 2. Maam Mendoza (M) makes a promissory note payable
delivery to Mr. William Malang (B) who in turn negotiated the to the order of Diwa Bontuyan (P),a minor. Maan issues
instrument to Ms. Em Maranan (C) in the same manner. There is the note to Diwa who indorses it to Karlo Silva (A), Karlo
an effective transfer to Mr. Justin Matibag and Ms. Maranan but to Nicole Atienza (B). Nicole to Angela Paguio (C),
Ms. Liu can invoke minority as a defense. Mr. Matibag, Ms. Angela to Lisettle Mandocdoc (D), Lisette to Anthony
Gonzaga and Mr. William cannot invoke the defense of minority (H).
of Ms. Liu.
a. Q: May Anthony collect from Maan?
In case of corporations, they cannot perform acts beyond those A: Yes. First, Maan, by making the instrument
that they can lawfully exercise. Such acts are ultra vires (Sec. 45, admits the existence of the payee and his then
Corporation Code) which are deemed voidable. capacity to indorse (Sec. 60). Second, the
indorsement of Diwa although he is a minor passes
Effect of indorsement or assignment of minor or corporations title (Sec. 22).
performing ultra vires act b. Q: May Anthony collect from Karlo, Ico, Angela
and Lisette?
a. Minor A: Yes. They are are indorsers who are liable on
their warranty that all prior parties had the
The indorsement made by a minor passes title to the instrument. capacity to contract.
Yet, the minor does not incur any liability on the instrument even c. Q: May Anthony collect from Diwa?
to a holder in due course because the lack of capacity is a real or A: No. Diwa is not liable because minority is a real
complete defense. defense.
b. Corporation Section 23. Forged signature; effect of. - When a signature is

forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right
to retain the instrument, or to give a discharge therefor, or to Aljon without the latter’s knowledge and consent to
enforce payment thereof against any party thereto, can be make it appear that he signed the PN.
acquired through or under such signature, unless the party
against whom it is sought to enforce such right is precluded 2. Signature without authority
from setting up the forgery or want of authority.
Ms. Bel Lacsina signed a bill of exchange for and in
Application of Sec. 23 behalf of the drawer Ms. Monique Salazar without the
knowledge and consent of Monique.
1. Where the signature on the instrument is forged; and
2. Where the signature is made without the authority of 3. Duress amounting to forgery
the person whose signature it purports to be.
3. It can also be applied in cases involving irregularities Mr. Arwin Cabanting through force made Ms. Binay, the
that amount to forgery. These include the presence of: maker, sign the PN by holding her hand and by forcing
i. Duress amounting to forgery; Joy to sign the instrument.
ii. Alteration amounting to forgery; and
iii. Fraud in factum. 4. Alteration amounting to forgery
NOTE: In these cases, the persons involved do not have the The instrument is payable to Ms. Irish Pullante or her
intention to be bound or to sign a negotiable instrument. order but Mr. Diwa Bontuyan stole the instrument and
replaced the name of Irish with his anme as the payee
Forgery and then thereafter indorse the instrument. The altered
instrument now shows Diwa as the payee although the
It is the counterfeit making or fraudulent alteration of any writing real payee is Irish.
and may consist in the signing of another’s name, or the
alteration of an instrument in the name, amount, description of 5. Fraud in factum
the person and the like, with the intent to defraud.
Ei asked Britney, a singer-actress, for an autograph on a
Sec. 23 applies only to a signature that is forged or made without piece of paper. Later, without the knowledge of
the authority of the person whose signature it purports to be. Britney, Ei converted the paper into a BOE.
Effect of forgery ILLUSTRATIONS OF FORGERY
a. The signature that is forged or made without authority is 1. Forgery of maker’s signature in a promissory note payable
wholly inoperative; to order
b. GR: No right to retain the instrument or to give a discharge
therefor or to enforce payment thereof against any party Pau (P) makes a PN payable to her own order placing the name of
thereto, can be acquired through or under such signature. Raffa (M) as maker and forging the signature of Raffa. Thereafter
Pau indorses the note to Sarah (A), Sarah to Maika (B), Maika to
XPNs: Ben (C), and Ben to Anthony (holder).
1. When the party against whom it is sought to enforce a. Anthony cannot hold Raffa liable because the forged
such right is precluded from setting up the forgery or signature of Raffa is wholly inoperative as to him. This is
want of authority, including the following: true whether he is a HDC or nor because forgery is a
real defense.
i. Those who by their acts, silence, inaction or b. Anthony can hold Pau criminally liable for forging the
negligence are stopped from setting up the signature of Raffa. He can also hold Pau liable as
defense of forgery; indorser on his warranty.
ii. Those who warrant or admit the genuineness of c. Anthony can hold Sarah, Maika and Ben liable on their
the signature in question: warranty that the instrument is genuine and in all
a. The acceptor (Sec. 62); respects what it purports to be.”
b. Indorsers (Sec. 65 and 66);
c. Those negotiating by mere delivery, who PARTY BEFORE THE FOREGERY PARTY AFTER THE FORGERY
warrant that the instrument is genuine and in Forgery is a real defense which Cannot use the forgery as a
all respects what it purports to be (Sec. 65). is available even against a defense
holder-in-due-course
2. Where the forged signature is not necessary to the title
of the holder (Sec, 48). 2. Forgery of an indorsement in a PN payable to order
Examples: Cons (M) makes a note payable to the order of Carmela (P).
Carmela indorses the note to Arwin (A). The note is stolen from
1. Forgery Arwin by Dominic (F) who negotiates the same to GV (B) by
forging Arwin’s signature. GV then indorses the note to Saki (C),
Mr. Ben Mabulac prepares a PN specifying Mr. Aljon De Saki to Omar (D), and Omar to Lyra (H).
Guzman as the maker and then copies the signature of
Chami (P) executes a BOE payable to his own order placing
a. Lyra, whether she is a HDC or not cannot hold Cons, thereon the name of Monica (R) as drawer and forging the
Carmela and Arwin (whose indorsement was forged) latter’s signature. Chami presents the bill to Crissy (W), drawee,
liable because the forged indorsement cuts them off who accepts the same. Thereafter Chami indorses the bill to
from the claim of parties subsequent to the forgery. James (A), James to Daisy (B), Daisy to Oya (C), and Oya to Tuggy
Since the instrument is payable to order, an (H), holder.
indorsement is necessary for its negotiation. Yet, since
such indorsemnt is forged, it is wholly inoperative a. Tuggy can hold W liable because by accepting the bill.
against Arwin and prior parties. W admitted the genuineness of R’s signature.
b. Lyra can hold Dominic criminally and civilly liable for the b. W can hold P criminally and civilly liable for the forgery.
forgery. c. W cannot debit the account of R because the signature
c. Lyra can hold GV, Saki, and Omar liable in their of R is wholly inoperative against him. Besides, W owes
warranty. They cannot thus raise the defense of forgery R the contractual duty of knowing the latter’s signature.
even if they were not aware of it. d. Should W dishonor the bill by non-payment, H can go
after A, B, and C who are liable on their warranty. H can
3. Forgery of maker’s signature in a promissory note payable also hold P criminally and civilly liable for the forgery. In
to bearer addition to P’s liability on his warranty as indorser.
Kristine (P) makes a PN payable to bearer by placing the name of Q: Suppose W did not accept the bill but paid the same, what
William (M) as maker and forging the signature of William. are the liabilities of the parties?
Thereafter, Kristine delivers the note to Em (A), Em to Justin (B),
Justin to Ei (C), and Ei to Jemae (H), holder. A:
a. Jemae whether a HDC or not cannot hold William liable 1. W cannot collect from R or charge the latter’s account.
because the forged signature of William is wholly As drawee, he owes R the contractual duty of knowing
inoperative as to him. the latter’s signature.
b. Jemae can hold Kristine criminally and civilly liable for 2. W can hold P criminally and civilly liable for the forgery.
forging the signature of William.
c. Jemae can hold Ei liable on his warranty as a person 6. Forgery of indorser’s signature in a BOE (check)
negotiating be mere delivery. She cannot hold Em and
Justin liable since the liability of a person negotiating by Great Eastern Life Insurance Co. v. HSBC (1922)
mere delivery is only to the immediate transferee.
Thus, Em is liable to Justin but not to Ei and Jemae. Dimayuga Insurance Co. is the DR of check for 2k
Justin is liabe to Ei but not to Jemae Sec. 65) payable to the order of Art (P). Divina Bank is the drawee with
whom Dimayuga Insurance had an account. Thomas (F), forger,
4. Forgery of an indorsement in PN payable to bearer fraudulently obtained possession of the check, forged Art’s
signature as an indorser, and then personally indorsed and
Irish (M) makes a note payable to bearer and delivers it to Vins presented it to Jaysan Bank (collecting bank) where the amount
(P). Vins indorses the note to Juzzy (A). The note is stolen from of the check was placed to his credit. Jaysan Bank paid the check
Juzzy by Akira (F) who negotiates the same to Maan (B) by forging and on the next day, it indorsed the check to Ryan Bank, which
Juzzy’s signature. Maan, thereafter indirses the note to Ico (C), paid it, and charged the amount of the check to the account of
Ico to Monique (D), and Monique to Lisette (H), holder. Dimayuga Insurance Co,
a. Lisette can collect from Irish, Vins, and Juzzy if Lisette is Q: What are the rights and liabilities of the parties?
a HDC. Irish, Vins and Juzzy cannot raise the defense of
forgery because the forged indorsement is not A:
necessary for the negotiation of the instrument payable
to bearer since an instrument payable to bearer on its a. Drawer (Dimayuga Insurance)
face remains a bearer instrument even if specially
indorsed, and thus may be negotiated by mere delivery. It is not liable on the check. It drew the check payable
b. Lisette cannot collect from Irish, Vins, and Juzzy if she is to the order of Art (P). It did not authorize or direct
not a HDC. Yet, the defense that may be raised by Irish, Ryan Bank to pay the check to any other person than
Vins and Juzzy is not forgery but “want or lack of Art or his order.
delivery of complete instrument since the note was
taken away from Juzzy by theft. b. Drawee Bank (Ryan Bank)
c. Lisette can hold Akira criminally and civilly liable.
d. Lisette can collect from Maan, Ico and Monique who i. DE is liable to the drawer for the amount of
cannot raised the defense of forgery since they are the check that it charged to the latter’s
liable on their warranty. account. The DE has the contractual duty to
pay the check only to the person to whom it
5. Forgery of the DR’s signature was made payable or upon his genuine
indorsement. Thus, the DE has to credit back
the amount of the check to the account of the
DR.
knowledge thereof and the chance to stop payment by
A DE should charge to the DR’s account only drawee
the payables authorized by the latter; 3. Persons who ratified forgery
otherwise, the DE will be violating the Ex: the indorser was informed that his signature was
instructions of the DR and shall be liable for forged but either expressly approved it thereafter or he
the amount charged to the DR’s account. did not bother to do anything about it.
ii. The DE may recover from Jaysan Bank, Q: Placido, a bank depositor, left his checkbook on his desk at
against whom it may hold liable under the his house. Unknown to him, a visitor at the time, noticing the
warranties of an indorser. same, took a check therefrom, filled it up in the amount of
P3,000.00 and succeeded in encashing the check on the same
c. Payee (Art) day. Placido’s account was thereby debited in the same amount.
Discovering the erroneous debit, Placido demanded that the
iii. Art can demand payment from Dimayuga bank credit him with a like amount. The bank refused on the
Insurance (DR) since he has not been paid of ground that Placido was negligent in leaving his checkbook on
his claim; his desk so that he could not put up the defense of forgery or
iv. He cannot be held liable on the check since want of authority under the NIL. The Facts disclose that even to
his signature was forged. The forged the naked eye, there were marked differences between
signature is wholly inoperative against him. Placido’s signature and the one in the check forged by the
visitor. As between Placido and the bank, who should bear the
d. Collecting Bank (Jaysan Bank)’ loss? Explain.
i. Collecting bank is liable to the DE. As indorser, A: The bank should bear the loss. A drawee bank must exercise
he warranted that the check was “genuine the highest diligence in safeguarding the accounts of its client-
and in all respects what it purported to be” depositors. The bank is also charged with genuineness of the
(Sec. 65 and 66). As collecting bank, it had the signatures of its current account holders. But what can be more
duty to know that the check was duly striking is that there were marked differences between Placido’s
indorsed by the original payee. Having cashed signature and the one in the check forged by the visitor.
the check despite the forged indorsement, Certainly, Placido was not negligent in leaving his checkbook in
the loss must fall upon him. his own desk.
A collecting bank where a check is deposited

and which indorses the check upon
presentment with the DE bank, is an indorser. CONSIDERATION
The collecting bank or last indorser generally
suffers the loss because it has the duty to Section 24. Presumption of consideration. - Every negotiable
ascertain the genuineness of all prior instrument is deemed prima facie to have been issued for a
indorsements considering that the act of valuable consideration; and every person whose signature
presenting the check for payment to the DE is appears thereon to have become a party thereto for value.
an assertion that the party making the
presentment has done its duty to ascertain Q: What is “consideration”?
the genuineness of the indorsements.
ii. Whatever loss it suffers, the collecting bank A: It is the cause of the contract; it is the essential reason why a
can recover from the forger Thomas, whom it party enters into a contract. It refers to what one party gets in
may hold criminally and civilly liable. return for transferring his right or agreeing to comply with an
obligation.
e. Forger (Thomas)
As an applied in negotiable instruments, the consideration refers
The forger is criminally and civilly liable for the forgery. to the cause why the maker or drawer issued and why the
indorser transferred the instrument or what they got in return for
Persons who cannot invoke forgery issuing or transferring as the case may be.
Q: Who are the persons who cannot invoke forgery? NOTE: The NIL does not only require that there is consideration.
There must be a “valuable consideration.”
A:
Q: What are the 2 presumptions under this section?
1. Persons who extend warranties- those who warrant
and admit the genuineness of signatures A:
Ex: the acceptor admits the genuineness of the
signature of the drawer 1. Every negotiable instrument is deemed prima facie to
2. Persons who were negligent have been issued for a valuable consideration
Ex: the drawer’s negligence facilitated the commission 2. Every person whose signature appears on the
of the forgery and the drawer did not immediately call instrument is presumed to have become a party
the attention of the drawee to the forgery despite thereto for value.
Section 25. Value, what constitutes. — Value is any camera which Ayel delivered to CJ. Ayel is a holder for
consideration sufficient to support a simple contract. An value because he has given a valuable consideration
antecedent or pre-existing debt constitutes value; and is (camera)
deemed such whether the instrument is payable on demand or 3. M issues a PM payable to the order of P for P5000
at a future time. without valuable consideration. P indorses that note to
A, A to B, and B to H who gives P5,000 for the note
Q: What is “value”? indorsed to him. H is a holder for value not only with
respect to B to whom he gave a valuable consideration
A: It is any consideration sufficient to support a simple contract. but also with respect to M, P and A.
4. M issues a PM payable to the order of P for P5000. P
Q: What may consist of “valuable consideration”? indorses that note to A, A to B, and B to C who is known
to have given value to B for the note indorsed to him.
A: It consists of some right, interest, profit or benefit accruing to Later C indorsed the note to H as gift. As regards M, P, A
the party who makes the contract, or some forbearance, and B, H is a holder for value because they became
detriment, loss, responsibility, act, labor or service, on the other parties to the note prior to the time that value has been
side. It is an obligation to do, or not to do in favor of the party given by C to B. As regards C, H is not a holder for value
who makes the contract, such as the maker or indorser. because he received the note as a gift and thus did not
give any consideration therefor.
Onerous consideration only
Q: Is a bank a holder for value?
NOTE: Consideration founded on love, affection or gratitude is
not a valuable consideration – cannot be enforced between the A: No, a bank is not a holder for value. The bank deposits are
original parties. governed by the provisions on simple loan. As creditor-depositor,
one does not expect to receive identical money in return but an
Q: Should consideration be adequate? identical sum.
A: Valuable consideration need not be adequate as long as it is a Section 27. When lien on instrument constitutes holder for
valuable one – inadequacy is a personal defense (Sec58, NIL). value. — Where the holder has a lien on the instrument arising
either from contract or by implication of law, he is deemed a
Q: Can antecedent debt be considered as a valuable holder for value to the extent of his lien.
consideration? Why?
Q: What is lien?
A: Antecedent or Pre-existing debt is a valuable consideration but
it must be shown that the holder has given up the pre-existing A: It is a right to retain the possession of the property of another
debt or the right to sue. until the owner pays his debt to the holder. It is a charge against
or interest in property to secure payment of a debt or
Reasons: performance of an obligation.
1. Creditor realizes or secures his debt and holds a
prolonged or forbear from taking any legal steps to Q: Is lien a valuable consideration?
enforce his rights
2. Debtor has the advantage of making his negotiable A: Yes. Where the holder has a lien on the instrument either
instrument of equivalent value to cash arising from contract or by implication of law, he is deemed a
holder for value to the extent of his lien.
Section 26. What constitutes holder for value. - Where value has
at any time been given for the instrument, the holder is deemed Q: M issues a promissory note to the order of P for P10,000.
a holder for value in respect to all parties who become such Later, P indorses the whole amount to the note to H to secure
prior to that time. by way of pledge his debt P8,000 to the latter. H is a holder for
value to the extent of his lien of P8,000. At maturity, how much
Q: What is the concept of “holder for value”? may H collect from M?
A: A holder for value is one who has given valuable consideration A:

for an instrument issued or negotiated to him. Where value has
at any time been given for the instrument, the holder is also 1. If M has no defense against P, H can collect from M
deemed a holder for value with respect to all parties who become P10,000. However, he has the obligation to give the
such prior to that time. surplus of P2,000 to P.
2. If M has a personal defense against P, H can collect only
Examples: P8,000 since H is a holder in due course only for the
said amount
1. Bebeng issued a promissory note for P8000 payable to 3. If M has a real defense against P, H cam collect nothing
the order of CJ for a cellphone which CJ delivered to from M.
Bebeng. CJ is a holder for value because he has given a
valuable consideration. Section 28. Effect of want of consideration. - Absence or failure
2. Bebeng, maker; CJ, payee of an order promissory note of consideration is a matter of defense as against any person
for P10,000. The note is indorsed by CJ to Ayel for a not a holder in due course; and partial failure of consideration is
a defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise. An accommodation party is one who has signed the instrument
as a MR, DR, AP or IR, without receiving the value therefor and
Want of consideration for the purpose of lending his name to some other person (Sec.
29). He becomes a party to a negotiable instrument to add
There is want or absence of consideration if no consideration was strength to it for the benefit of another party to the instrument
intended to pass, such as when a fake ring was given for a known as the accommodated party. He lends his name to the
promissory note. latter to obtain credit or raise money but he is not a direct
beneficiary of the value given for the instrument.
Failure of consideration
Requisites of accommodation party
There is failure of consideration if consideration was intended to
pass but there was inability to have it performed or given, such as 1. Signs the instrument as MR, DR, AR or IR;
when land was the promised consideration but the title thereof 2. He does not receive value by virtue of the instrument.
could not be transferred because there are persons claiming its
ownership. The accommodation party receives no part of the consideration
for the instrument but assumes liability to the other parties
Partial failure of consideration thereto. Yet, it is also possible that the accommodation party
received consideration from the accommodated party but only
The consideration here was not completely given or performed, for lending his name.
such as when the consideration agreed upon was P10,000 but
only P7,000 was given. The defense is pro tanto or only “for so 3. He signs the instrument for the purpose of lending his
much” which is the literal meaning. name to some other person.
NOTE: The above are only personal defenses which are available Surety of accommodated party
against a holder not in due course.
An accommodation party is liable on the instrument to a holder
Examples: for value, notwithstanding that such holder, at the time of taking
the instrument, knew him only to be an accommodation party.
1. Korina (M) issued a PN payable to the order of Mel (P) The accommodation party cannot raise the defense of absence of
for 10k for a ring which Mel said was made of pure gold consideration against such holder.
but which was only gold plated. Subsequently, Mel
indorsed the note to Doris (H). The accommodation party is in effect a surety of the
accommodated party. His liability is primary and unconditional to
Q: On due date, how much, if any, may Doris collect a holder for value, even if the accommodated party receives an
from Korina. extension of the period for payment without the consent of the
accommodation party. He will still be liable for the whole
A: If Doris is a HDC, he may collect the whole amount of obligation and such extension does not release him because as
10k from Korina. But if Doris is not a HDC, he may far as a holder for value is concerned, he is solidary co-debtor.
collect nothing because Korina can raise the defense of
want or absence of consideration. Liability among themselves
2. Noli (M) issued a PN payable to the order of Ted (P) for Solidary accommodation party may seek reimbursement from
10k for merchandise he purchased from the latter. Ted the accommodation party or other accommodation parties
however was able to deliver the merchandise worth 7k subject to the following rules:
only. Later, Ted indorsed the note to Mike (H).
1. A joint and several accommodation party such as an
Q: At maturity, how much may Mike collect from Noli? accommodation maker may demand from the principal
debtor reimbursement for the amount that he paid to
A: If Mike is a HDC, he may collect the whole amount of the payee;
10k. But if Mike is not a HDC, he may collect only 7k 2. When one of the joint and several accommodation
from Noli who can raise the defense of partial failure of makers pays the said PN, he may directly demand
consideration amounting to 7k. Noli here is raising a reimbursement from his co-accommodation maker
defense pro tanto. without first directing his action against the principal
debtor provided that:
Section 29. Liability of accommodation party. - An
accommodation party is one who has signed the instrument as a. He made the payment by virtue of a judicial
maker, drawer, acceptor, or indorser, without receiving value demand or
therefor, and for the purpose of lending his name to some other b. A principal debtor is insolvent
person. Such a person is liable on the instrument to a holder for
value, notwithstanding such holder, at the time of taking the NOTE: A corporation, unless expressly authorized in its AOI
instrument, knew him to be only an accommodation party. cannot be an accommodation party.
Accommodation party
Effect of payment of the instrument position of the assignor and acquires no greater right than that of
the assignor.
a. By the party accommodated
By operation of law
Payment in due course by the party accommodated if the
instrument was made or accepted for his accommodation 1. By the death of the holder, where the title vests in his
discharges the instrument (Sec. 119) because he is the principal personal representative;
debtor. He has no recourse against the accommodation party 2. By the bankruptcy of the holder, where the title vests in
who may validly raise the defense of absence of consideration the transferee;
against him. 3. Upon the death of joint payee or indorsee, in which
case, the general rule is that the title vests at once in
b. By the accommodation party the surviving payee or transferee.
Payment of the instrument by the accommodation party does not By negotiation

discharge the instrument (Sec. 119) because he is not the
principal debtor. Payment by him can be recovered from the Negotiation is the transfer of a negotiable instrument from one
party accommodated since the relation of the parties is that of person to another in such a manner as to constitute the
principal and surety, the accommodation party being the surety. transferee the holder of the instrument.
Rights of Accommodation Party Q: How is negotiation made?
Q: What are the rights of accommodation party? A:
A: 1. If the instrument is payable to order, negotiation may

be made by indorsement completed by delivery;
1. Right to revoke the accommodation – may be revoked NOTE: Both must be done and without doing one, the
by cancellation or notice to those interested at any time negotiation is incomplete.
before the instrument has been negotiated for value; 2. If the instrument is payable to bearer, negotiation may
once negotiated, accommodation party is liable be made by:
2. Right to reimbursement from accommodated party
(accommodated party is the real debtor) – implied a. Mere delivery; or
contract of reimbursement b. Indorsement completed by delivery.
3. Right to contribution from other solidary
accommodation maker – implied promise between NOTE: The instrument can also be negotiated by placing a
them to share equally the burden arising from the person’s indorsement coupled with delivery. While mere delivery
execution of the note (joint gurantors of the principal is sufficient, indorsement is not prohibited and has certain effects
debtor) provided for in Sec. 40.
Negotiation as defined in Sec. 191 of the NIL as the transfer of the

instrument from one person to another so as to constitute the
transferee the holder thereof.
NEGOTIATION
It is a transfer of right.
Sec. 30. What constitutes negotiation. - An instrument is
negotiated when it is transferred from one person to another in
Q: Distinguish between negotiation and assignment.
such manner as to constitute the transferee the holder thereof.
If payable to bearer, it is negotiated by delivery; if payable to
A:
order, it is negotiated by the indorsement of the holder and
completed by delivery.
NEGOTIATION ASSIGNMENT
Q: What are the different modes of negotiable instrument?
Applies only to negotiable Applies to contracts in
A: instruments general
1. By assignment Transferee is a holder Transferee is a mere

2. By operation of law assignee
3. By negotiation
Holder in due course is Assignee is subject to all
subject only to real defenses defenses, real or personal,
By assignment
obtaining among the original
parties
It is a mode of transferring a negotiable instrument other than by
indorsement if the instrument is payable to order, or by delivery
Holder in due course may Assignee merely steps into
where payable to bearer, whereby the assignee is placed in the
acquire a better title than the shoes of the assignor
the prior party (ex. Indorsee
subsequent to the forgery) 66). By indorsing an instrument, the indorser makes
himself liable if the person primarily liable defaults in
General indorser warrants Assignor does not warrant his payment.
the solvency of prior parties the solvency of prior parties 3. The form of the indorsement determines subsequent
UNLESS expressly stipulated negotiations or transfers of an instrument:
or insolvency is known to
him i. Special indorsement;
ii. Blank indorsement; and
Indorser is not liable unless Assignor is liable even iii. Restrictive indorsement
there is presentment and without notice of dishonor
notice of dishonor Location of indorsement
Governed by Negotiable Assignment is governed by a. On the instrument itself

Instruments Law Arts 1624 – 1635, NCC
Normally, the indorsement appears at the back of the instrument
or what is sometimes referred to as dorsal portion of the
Q: What are the stages in the life of Negotiable Instruments: negotiable instrument. Yet, it may be written or made on the face
of the instrument itself although this would entail the risk of
A: being held liable as a co-maker (PN) or a co-drawer (BOE) if the
location of the signature suggests it to be.
1. Preparation of the instrument complete with all the
requirements of section 1; b. On a separate paper which must be attached to the
2. Issuance- first delivery by the MR or DR to the payee (or instrument to make such paper an integral part of the
bearer in a bearer instrument); instrument. This separate paper is called allonge.
3. Transfer- instrument is transferred to another to make
the transferee the owner of the instrument. This can be Indorsement on a separate paper is resorted to if an instrument
through assignment or through negotiation. has been transferred so many times that there is no more space
on it to further indorsements. The paper should be firmly affixed
to the instrument as to become a part of it.
Sec. 31. Indorsement; how made. - The indorsement must be Sec. 32. Indorsement must be of entire instrument. - The
written on the instrument itself or upon a paper attached indorsement must be an indorsement of the entire instrument.
thereto. The signature of the indorser, without additional An indorsement which purports to transfer to the indorsee a
words, is a sufficient indorsement. part only of the amount payable, or which purports to transfer
the instrument to two or more indorsees severally, does not
Indorsement (In dorsa) operate as a negotiation of the instrument. But where the
instrument has been paid in part, it may be indorsed as to the
It means writing at the back. residue.
It is the act of signing one’s name on a negotiable instrument Scope of indorsement

payable to order, indicating the intent to transfer ownership of
the instrument to another. The law does not require that An indorsement must be of the whole instrument. The following
indorsements be made on a particular side of the instrument, but indorsements do not operate as negotiation of the instrument:
they are usually written at the back for purposes of convenience.
a. An indorsement which purports to transfer to the
In a bearer instrument, an instrument is not required for its indorsee a part only of the amount payable. Yet, If the
negotiation but the transferee may demand that it be indorsed instrument has been paid in part, it may be indorsed as
for purposes of security and the identification of the transferor of to the residue or balance.
the instrument. b. An indorsement which purports to transfer the
instrument to two or more indorsees severally. This is
Significance of indorsements to prevent multiplicity of suits.
1. Indorsements are necessary for further negotiation of The implication however is that there can be
an instrument payable to order; indorsement to 2 or more indoresses but it should not
be “severally.”
If a note is payable on its face “to Bamboo,” Bamboo
must indorse it before it can be further negotiated. Examples:
2. It creates a contract between the indorser and the The face of a PN made by Sarah Geronimo shows the following:
indorsee;
I promise to pay to the order of Lea Salonga the sum of
Negotiation by indorsement creates contractual P10,000.00.
obligations on the part of the indorser. These
obligations come in the form of warranties (Sec. 65 and
3. Restrictive (Sec.36)
(Sgd.) Sarah Geronimo 4. Qualified (Sec.37)
5. Conditional (Sec.39)
a. Indorsement of the whole instrument 6. Absolute- the indorser binds himself to pay under no
other condition that the default of prior parties, and
Payable to Bamboo P10,000.00 due notice to him of such default;
7. Joint (Sec.41)-this is an indorsement which takes place
(Sgd.) Lea Salonga when an instrument is made payable to 2 or more
persons not partners, in which case, all must indorse,
This is a valid indorsement because it is an indorsement of the unless the one indorsing is authorized to indorse for the
whole instrument. others;
8. Successive (Sec. 68)- this refers to indorsements in
b. Partial indorsement succession by several indorsers who, as respects one
another, are liable prima facie in the order in which
Pay to Bamboo P8,000.00.. they indorse;
9. Irregular or anomalous (Sec. 64);
(Sgd.) Lea Salonga 10. Regular- an indorsement which takes place after
delivery;
This is not a valid indorsement since it purports to transfer to the 11. Facultative (Sec. 111)- indorsement in which the
indorsee only a part of the amount payable. Yet, if Sarah has paid indorser enlarges his liability by writing over his
P2,000.00 to Lea Salonga on the note, then such partial signature a waiver of the usual demand and notice of
indorsement constitutes a valid negotiation of the instrument. non-payment.
c. Indorsement to 2 or more indorsees jointly Sec. 34. Special indorsement; indorsement in blank. - A special
indorsement specifies the person to whom, or to whose order,
Pay to Bamboo and Apl the instrument is to be payable, and the indorsement of such
indorsee is necessary to the further negotiation of the
(Sgd.) Lea Salonga
instrument. An indorsement in blank specifies no indorsee, and
an instrument so indorsed is payable to bearer, and may be
This is a valid indorsement. Should they wish to negotiate the
negotiated by delivery.
instrument further, Bamboo and Apl must both indorse it unless
they are partners or one is authorized to indorse for both of them
Special indorsement
(Sec. 41), in which case, only one of then may indorse.
Q: What is a special indorsement?
d. Indorsement to 2 or more indorsees severally
A: It is one that specifies the person to whom, or to whose order,
Pay to Bamboo P8,000.00 and to Apl P2,000.00.
the instrument is to be so payable (Sec. 34).
(Sgd). Lea Salonga
Q: How is this negotiatetd?
This is not a valid indorsement because it transfers the
instrument to 2 persons separately.
A:
e.
a. If the instrument is originally payable to order, the
indorsement of the indorsee is necessary for the further
Pay to Bamboo or Apl negotiation of the instrument.
(Sgd.) Lea Salonga
b. If the instrument is originally payable to bearer, it may
be further negotiated by indorsement or even by mere
This type of indorsement is still negotiable. delivery because such instrument remains a bearer
instrument even if specifically indorsed.
Sec. 33. Kinds of indorsement. - An indorsement may be either
special or in blank; and it may also be either restrictive or Blank indorsement
qualified or conditional.
Is one that specifies no indorsee, and may be made by the payee
Q: What are the kinds of indorsement? or indorsee by his mere placing his signature at the back of the
instrument.
A:
In this case, the payee may indorse the instrument in blank
1. Special (Sec.34)-specifies the person to whom, or to simply by writing his signature at the back of the instrument.
whose order, the instrument is to be payable and the
indorsement of such indorsee is necessary to the Q: What are the effects of blank indorsement?
further negotiation of the instrument.
2. Blank (Sec.34)- specifies no indorsee and an instrument A:
so indorsed is payable to bearer and may be negotiated
by delivery.

1. If the instrument is an order instrument on its face, and
the only or last indorsement is an indorsement in blank, Pay to Kathryn Bernardo for collection.
the instrument is converted to a bearer instrument;
2. If the instrument is a bearer instrument on its face, any (Sgd.) Daniel Padilla
indorsement does not change the character as a bearer
instrument. Pay to Jessica Soho for deposit to my account at
GMA Bank
Q: How is the instrument further negotiated? (Sgd.) Vice Ganda
A: It may be negotiated by mere delivery or by indorsemennt c. Indorsement that vests title in the indorsee in trust for or to
completed by delivery. Yet, an order instrument which is specially the use of some other person.
indorsed after the blank indorsement reacquires its status as an
order instrument. This is the trust type of restrictive indorsement. This
transfers title to the indorsee not for himself but in trust or
Sec. 35. Blank indorsement; how changed to special for the benefit of another person including the indorser. The
indorsement. - The holder may convert a blank indorsement indorsee cannot negotiate the instrument for his own
into a special indorsement by writing over the signature of the benefit but for the beneficial owner.
indorser in blank any contract consistent with the character of
the indorsement. Pay to Claudine in trust for Sabina
(Sgd.) Raymart
This is done by writing appropriate words over the signature of
the indorser in blank. The indorsee cannot add to the Pay to Judy Ann for the use of Yohan
indorsement any contract that is inconsistent with the character (Sgd.) Ryan
of the indorsement. The insertion of unauthorized contracts in
such cases constitutes material alteration of the instrument and
Pay to Sunshine for my personal use.
avoids the indorsement (Sec. 124 and 125). (Sgd.) Cesar
Sec. 36. When indorsement restrictive. - An indorsement is
Sec. 37. Effect of restrictive indorsement; rights of indorsee. - A
restrictive which either:
restrictive indorsement confers upon the indorsee the right:
a. Prohibits the further negotiation of the instrument; or
a. to receive payment of the instrument;
b. Constitutes the indorsee the agent of the indorser; or
b. to bring any action thereon that the indorser could
c. Vests the title in the indorsee in trust for or to the use
bring;
of some other persons.
c. to transfer his rights as such indorsee, where the form
of the indorsement authorizes him to do so.
But the mere absence of words implying power to negotiate
does not make an indorsement restrictive.
But all subsequent indorsees acquire only the title of the first
indorsee under the restrictive indorsement.
Restrictive indorsement
Rights of indorsee in restrictive indorsement
One which specifies the purpose of the indorsement or the use to
be made of the instrument. It restrains the negotiability of the
A restrictive indorsement confers upon the indorsee the right:
instrument for the purpose or to the person stated therein.
a. to receive payment of the instrument;
Kinds of restrictive indorsement
b. to bring any action thereon that the indorser could
bring;
a. Indorsement that prohibits the further negotiation of the
c. to transfer his rights as such indorsee, where the form
instrument;
of the indorsement authorizes him to do so.
The indorsee can no longee negotiate the instrument. The
Indorsee in restrictive indorsement has right to sue
negotiability of the instrument ceases (Sec. 47).
An indorser has the right to receive payment of the instrument
Pay to Kim Chiu only
and in the exercise of such right can sue in his own name.
However, any defense available against his indorser is also
(Sgd.) Maja Salvador
available against him.
Right to transfer instrument

b. Indorsement that constitutes the indorsee the agent of the
indorser; and
Restrictive indorsee has the right to transfer the instrument if the
This is known as the agency type of restrictive indorsement. form of the instrument authorizes him to do so. However, all
The agent does not acquire title to the instrument. He holds subsequent indorsees acquire only the title of the first indorsee
the instrument as an agent of the principal, the restrictive under the restrictive indorsement.
indorser.
Sec. 38. Qualified indorsement. - A qualified indorsement a. Forgery
constitutes the indorser a mere assignor of the title to the b. Lack of good title to the instrument indorsed
instrument. It may be made by adding to the indorser's c. Lack of capacity to contract on the part of
signature the words "without recourse" or any words of similar prior parties
import. Such an indorsement does not impair the negotiable d. Instrument was valueless or not valid at the
character of the instrument. time of the indorsement which fact was
known to him
Q: What are the 2 kinds of contracts that an indorser enters into 3. Negotiability of the instrument is not affected – a mere
when he places his indorsement in the instrument? precaution since there is danger that the principal
debtor might become insolvent
A:
Warranties of a qualified indorser
1. contract for the assignment or transfer of his right over
the instrument Q: What are the warranties of a qualified indorser?
2. the secondary contract where he assumes secondary
liability A:
Q: What is “Absolute Indorsement”? 1. that the instrument is genuine and in all respects what
it purports to be
A: One by which the indorser binds himself to pay upon no other 2. that he has good title to it
condition than the failure of prior parties to do so, and of due 3. that all prior parties had capacity to contract
notice to him of such failure. 4. that he has no knowledge of any fact which would
impair the validity of the instrument or render it
Q: What is “qualified indorsement”? valueless
A: It is one which makes the indorser a mere assignor of the title Q: What is the effect of qualified indorsement on the
to the instrument, i.e., he does not warrant the solvency of prior negotiability of the instrument?
parties.
A: None. However, the routine use of a qualified indorsement
Q: Give words implying qualified indorsement. undermines or reduces the marketability of the instrument
because it suggests the existence of more risk than there is.
A:
Sec. 39. Conditional indorsement. - Where an indorsement is
a. “Without recourse” conditional, the party required to pay the instrument may
b. “Sans recourse” disregard the condition and make payment to the indorsee or
c. “At indorsee’s own risk” his transferee whether the condition has been fulfilled or not.
d. “Indorser not holder” But any person to whom an instrument so indorsed is
e. “I hereby transfer and assign all my right, title, and negotiated will hold the same, or the proceeds thereof, subject
interest” – similar to without recourse since it limits the to the rights of the person indorsing conditionally.
right acquired by the transferee to those which the
transferor had Conditional indorsement
NOTE: Here, the transferee recognizes that the transferor is not a Q: What is Conditional indorsement?
party to the transaction and therefore should not be asked to
vouch for the payment of the instrument. In other words, A: This is an indorsement which is subject to the happening of a
through a qualified indorsement, the indorser transfers his title condition.
over the instrument but he is not secondarily liable.
NOTE: The party required to pay the instrument may disregard
Example: the condition and make payment to the indorsee or his
transferee whether the condition had been fulfilled or not. But
Pay to Bebeng. Without recourse. any person to whom an instrument so indorsed is negotiated will
Sgd. Pancho hold the same, or the proceeds thereof, subject to the rights of
the person indorsing conditionally.
Effects of Qualified Indorsement
Example:
Q: What are the effects of Qualified Indorsement?
Mario makes a note payable to Pablo or order for P10,000.00.
A: Pablo indorses the note to Antonio as follows:
1. Indorser a mere assignor – title is transferred without Pay to the order of Antonio if he passes the CPA Board
guaranteeing payment by the primary party Examination this May 2011.
2. Indorser’s liability limited – secondarily liable to breach Sgd. Pablo
of warranties as an indorser; liable only for dishonor by
non-acceptance or non-payment due to:
Q: Why is the party required to pay allowed to disregard the indorsements. H, of course, can hold D liable not only
condition? for his indorsement but also because D is his immediate
transferor.
A: The maker may pay the promissory note since he is bound to
pay it according to its tenor. For the acceptor, he may pay the Sec. 41. Indorsement where payable to two or more persons. -
instrument according to the tenor of his acceptance. He maker or Where an instrument is payable to the order of two or more
acceptor is not bound by any condition in any condition in any payees or indorsees who are not partners, all must indorse
indorsement since he is not a party to such contract. unless the one indorsing has authority to indorse for the others.
Q: What are the effects of a conditional indorsement? Indorsement if the instrument is payable to 2 or more persons
A: a. Two or more payees or indorsees jointly
1. Has no effect on the further negotiation of the All payees or indorsees must indorse the instrument except as
instrument – person who received payment will hold follows:
the proceeds subject to the right of the conditional
indorser 1. If the joint payees or indorsees are partnerst
2. Condition in the indorsement does not destroy 2. If one of them is authorized to indorse for the others.
negotiability
Example:
Sec. 40. Indorsement of instrument payable to bearer. - Where
an instrument, payable to bearer, is indorsed specially, it may I promise to pay to the order of Pablo and Pedro the sum of
nevertheless be further negotiated by delivery; but the person P10,000.00
indorsing specially is liable as indorser to only such holders as Sgd. Mario Manuel
make title through his indorsement.
At the back of the note, if Pablo and Pedro wish to indorse to
NOTE: A negotiable instrument originally payable to bearer may Antonio, both of them must indorse, (unless only one may
be negotiated by mere delivery. Indorsement is not necessary. indorse under any of the exceptions), as follows:
Q: What is the effect if the same is indorsed? Pay to Antonio.
A: The liability of the indorsers is the same as the liability of the Sgd. Pablo Sgd. Pedro
indorsers of instruments that is payable to order.
If the instrument has been indorsed to 2 or more indorsees
Q: What is the liability of the person indorsing specially? jointly, all indorsees must likewise indorse. Thus, if the
instrument was indorsed “Pay to Antonio and Benito,” both
A: A person indorsing specially is liable as indorser to only such Antonio and Benito must indorse, unless one may indorse under
holders as make title through his indorsement. The holder can any of the exceptions.
hold liable the indorser to whom he can trace his title through a
chain of unbroken indorsements. b. Two or more payees severally
Q: Does a special indorsement convert the instrument into an

Any one may indorse the instrument.
order instrument?
I promise to pay to the order of Pablo and Pedro the sum of
A: No. The instrument can still be negotiated by mere delivery
P10,000.00
despite the special indorsement.
Sgd. Mario Manuel
Examples:
Either Pablo or Pedro may indorse to Antonio as follows
1. M makes a note payable to P or bearer. P indorses the
note to A specially. A may negotiate the instrument by Pay to Antonio.
mere delivery Sgd. Pablo
2. M makes a note payable to P or bearer. P indorses note
to A, A to B, B to C; then C delivers the note to D; D Q: Is this indorsement valid?
delivers the note to H. P is liable to A, B, C, but not D
and H. A is liable to B and C, but not D and H. B is liable Pay to Antonio or Albert
to C, but not to D and H. C is liable to D, but not H. D is Sgd. Pablo
liable to H.
3. P is the payee of a note payable to bearer. The note is A: There are 2 views:
successfully indorsed by P to A, A to B, B to C, C to D,
and D to H, all indorsements being special 1. Valid. The position of the indorsees is the same as the
endorsements. Although the note is payable to bearer, position of 2 or more payees to whom the instrument is
H can hold liable P, A, B and C since he can trace his title payable severally on the face of the instrument. Either
to all of them through the chain of unbroken Antonio or Albert may indorse the instrument

2. Not valid. Under this view, the indorsement purports to Indorsement in representative capacity
transfer the instrument to 2 or more indorsees
severally which is not a valid indorsement under Sec. A person indorsing in representative capacity may indorse in such
32. terms as to negative personal liability.
Sec. 42. Effect of instrument drawn or indorsed to a person as NOTE: Section 20. Liability of person signing as agent, and so
cashier. - Where an instrument is drawn or indorsed to a person forth. - Where the instrument contains or a person adds to his
as "cashier" or other fiscal officer of a bank or corporation, it is signature words indicating that he signs for or on behalf of a
deemed prima facie to be payable to the bank or corporation of principal or in a representative capacity, he is not liable on the
which he is such officer, and may be negotiated by either the instrument if he was duly authorized; but the mere addition of
indorsement of the bank or corporation or the indorsement of words describing him as an agent, or as filling a representative
the officer. character, without disclosing his principal, does not exempt him
from personal liability.
Q: What is the effect of instrument drawn or indorsed to a
person as cashier or other fiscal officer of a bank or coporation? Sec. 45. Time of indorsement; presumption. - Except where an
indorsement bears date after the maturity of the instrument,
A: It is deemed prima facie to be payable to the bank or every negotiation is deemed prima facie to have been effected
corporation of which he is such officer. before the instrument was overdue.
Q: How is the instrument further negotiated? Q: Why is the date of indorsement important?
A: A: The holder who acquires the instrument after its maturity date
can no longer be a holder-in-due-course. It would be ideal then if
1. Indorsement of the officer the indorsement bears a date.
2. Through any other authorized officer of the bank or
corporation. Time of negotiation or indorsement, presumption
Sec. 43. Indorsement where name is misspelled, and so forth. - GR: Every negotiation is deemed prima facie to have been
Where the name of a payee or indorsee is wrongly designated effected before the instrument was overdue
or misspelled, he may indorse the instrument as therein
described adding, if he thinks fit, his proper signature. XPN: Where the indorsement bears a date after the maturity of
the instrument.
NOTE: The mistake in the spelling or designation of the indorsee
or even the payee does not affect the negotiability of the Q: What is the importance of the presumption?
instrument or the validity or effectivity of the indorsement.
A: The presumption is important in determining whether or not a
Ex: The real name is “Juan dela Cruz” but the indorsement states: holder is a holder-in-due-course because he cannot be
considered as one if the instrument is already overdue.
Pay to Huwan dela Cruz
Sgd. Mr. P Sec. 46. Place of indorsement; presumption. - Except where the
contrary appears, every indorsement is presumed prima facie to
Q: How is indorsement made if the name of the payee or have been made at the place where the instrument is dated.
indorsee is misspelled?
NOTE: Every indorsement is presumed prima facie to have been
A: made at the place where the instrument is dated, except where
the contrary appears.
1. The payee or indorsee may indorse the instrument as
therein described Q: What is the importance of the presumption?
2. He may also add to the misspelled name his proper or
correct signature A: An indorsement creates a contract between the indorser and
the indorsee. The contract in such a case is governed by the laws
Ex: An instrument is executed payable to the order of Paulo of the place where it was entered into.
Person whose correct name is Paolo Perdon. Paolo Perdon may
indorse the instrument as follows: For instance, the instrument states:
Sgd. Paulo Perdon January 20, 2004

Or
Sgd. Paulo Perdon Sgd. Paolo Perdon The indorsements on the instrument are presumed to have been
made also in Manila.
Sec. 44. Indorsement in representative capacity. - Where any
person is under obligation to indorse in a representative NOTE: The indorsement is sometimes governed by the law of the
capacity, he may indorse in such terms as to negative personal country where it was made.
liability. robles virtual law library

1. If the instrument is an order instrument on its face

Sec. 47. Continuation of negotiable character. - An instrument a. If there are blank as well as special indorsements,
negotiable in its origin continues to be negotiable until it has the holder may strike out any indorsement
been restrictively indorsed or discharged by payment or immediately following a blank indorsement
otherwise. b. If there are only special indorsements, the holder
may not strike out any indorsement since he must
Q: What are the 2 ways where a negotiable instrument can be race his title through all indorsements
rendered non-negotiable? XPN: If the instrument is negotiated to prior party,
such prior party may strike out his own
A: indorsement and those of intervening parties.
1. When the instrument is restrictively indorsed under 2. Instrument is a bearer instrument

Sec. 36 paragraph (a)-or one which prevents further
negotiation of the instrument The holder may strike out any indorsement, whether
the same is in blank or special indorsement, since an
NOTE: Only the first type of restrictive indorsement indorsement is not necessary to his title. An instrument
which prohibits the further negotiation of the which is bearer instrument on its face preserves its
instrument will make the instrument no longer character as such even if there are indorsements
negotiable. thereon.
2. When the instrument is discharged by payment or Q: What are the effects of striking out indorsements?
otherwise
A:
NOTE:
1. The indorser whose indorsement is struck out is
Sec. 119. Instrument; how discharged. - A negotiable relieved from his liability on the instrument
instrument is discharged: 2. All indorsers subsequent to the indorser whose
a. By payment in due course by or on behalf of the indorsement was struck out are likewise relieved from
principal debtor; liability on the instrument
b. By payment in due course by the party
accommodated, where the instrument is made or Sec. 49. Transfer without indorsement; effect of. - Where the
accepted for his accommodation; holder of an instrument payable to his order transfers it for
c. By the intentional cancellation thereof by the holder; value without indorsing it, the transfer vests in the transferee
d. By any other act which will discharge a simple contract such title as the transferor had therein, and the transferee
for the payment of money; acquires in addition, the right to have the indorsement of the
When the principal debtor becomes the holder of the transferor. But for the purpose of determining whether the
instrument at or after maturity in his own right transferee is a holder in due course, the negotiation takes effect
as of the time when the indorsement is actually made.
Transfer without indorsement

Sec. 48. Striking out indorsement. - The holder may at any time
This provision is applicable only to an instrument which is payable
strike out any indorsement which is not necessary to his title.
to order on its face. It does not apply to a bearer instrument. It
The indorser whose indorsement is struck out, and all indorsers
governs cases where an order instrument is delivered to another
subsequent to him, are thereby relieved from liability on the
for the purpose of transferring title but no indorsement was
instrument.
made.
Q: Discuss the concept of “striking our indorsement.”
The instrument is in effect merely assigned to the transferee, it is
only at the time of indorsement that the transferee acquires all
A: It means crossing out an indorsement so as to show the intent
the rights of a holder.
of the holder that such instrument is no longer a part of the
negotiation of the instrument.
The requisites of a holder in due course must be present at the
time of such indorsement and not at the time of delivery. This
Rules on which indorsement may be struck out
means that any knowledge about infirmity in the instrument,
acquired after delivery but before indorsement will prevent the
The holder of a negotiable instrument may at anytime strike out
transferee from becoming a holder in due course.
any indorsement not necessary to his title.
Q: What are the effects of transfer for value without
Q: In determining whether an indorsement is necessary to the
indorsement?
holder’s title or not for the purpose of striking out
indorsements, what are the rules?
A:
A:

1. The transfer vests in the transferee such title as the Example: R draws a bill of exchange in favor of P and against W,
transferor had in the instrument drawee. P indorsers the bill to A, A to B, B to C, C to D, and D to H.
R pays H. R, being the drawer, can no longer reissue or
Thus, the transferee can sue on the instrument since renegotiate the bill.
this is a right that pertains to the transferor. Any
defense that may be raised against the transferor may
be raised against the transferee since the latter is
merely an assignee. RIGHTS OF THE HOLDER
2. Transferor acquires the right to have the indorsement Sec. 51. Right of holder to sue; payment. - The holder of a
of the transferor negotiable instrument may to sue thereon in his own name; and
payment to him in due course discharges the instrument.
The transferor may demand that the transferor indorse
the instrument to him. However, to determine whether Q: Who is a “holder”?
the transferee is a holder in due course, the negotiation
takes effect as of the time when the indorsement was A: A holder is the payee or the indorsee of a bill or note who is in
made and not at the time the instrument was first possession of it or the bearer thereof.
delivered to him without any indorsement. a. If the instrument is payable to order, the holder is
either the payee or any subsequent indorsee who is in
Sec. 50. When prior party may negotiate instrument. - Where an possession of the instrument
instrument is negotiated back to a prior party, such party may, b. If the instrument is payable to bearer, the holder is the
subject to the provisions of this Act, reissue and further bearer.
negotiable the same. But he is not entitled to enforce payment
thereof against any intervening party to whom he was Q: What are the rights of a holder, whther a holder in due
personally liable. course or not?
Effect if instrument is negotiated to prior party A:
Q: What are the Effects if instrument is negotiated to prior 1. To sue in his own name
party?
NOTE: The holder may sue on the instrument in his own
A: name although it may have been indorsed to him “for
collection” or “in trust for X” or he is the pledgee or
1. Such prior party may reissue or renegotiate the same mortgagee of the instrument
XPNS: 2. To receive payment

a. Where the instrument is payable to the order of a a. at or after the maturity of the instrument
specified person and has been paid by the drawer b. to the holder
b. Where it was made or accepted for c. good faith without notice
accommodation and has been paid by the party 3. To transfer his right through negotiation or assignment
accomodated
HOLDER IN DUE COURSE v. NOT HOLDER IN DUE COURSE
2. He cannot enforce payment against any intervening
party HOLDER IN DUE COURSE NOT HOLDER IN DUE COURSE
3. He may strike out his indorsement and those of All the requisites under Sec. 52 One or some or all of the
intervening parties are present requistes under Sec. 52 is/are
4. Intervening parties enjoy a temporary defense while absent
prior party is the holder. If prior party renegotiates the His rights can be defeated by: His rights can be defeated by:
instrument to another person, the latter can go after a. Real defenses a. Real defenses
intervening parties. b. Personal defenses
He has right to: He has right to:
Example: M executes a promissory note payable to the order of
1. To sue in his own 1. To sue in his own
P. P indorses the note to A, A to B, B to C, C to D, and D back to A. name name
2. To receive payment 2. To receive payment
1. A may renegotiate the note, say to E. 3. To negotiate the 3. To negotiate the
2. A cannot enforce payment against B, C and D, who are
instrument instrument
intervening parties. Once the instrument is indorsed by
A to another person, say to E, E can go after such
NOTE: Hierarchy of Rights (ascending order)
intervening parries.
3. A may strike out his own indorsement to B, B to C, C to
a. Holder (Sec 51)
D, and D to him (A) since they are not necessary to A’s
b. Holders for Value (Sec 26)
title.
c. Holders in Due Course (Sec 52, 57)

KINDS OF HOLDER a. If the instrument is not payable on demand, the date of
maturity may be determined from the face of the
Holder for value One who has given value for an instrument instrument itself; from the date of its acceptance; or
issued or negotiated to him from or on the happening of a certain event
Holder in due Has taken the instrument as part of a b. If the instrument is payable on demand and it is a
course regular, normal business routine—in due promissory note, the date of maturity is a reasonable
course. The law gives him a preferred time after its issue, or if it is a bill of exchange, it will be
standing by protecting him from certain reasonable time after the last negotiation
defenses when he sues on the instrument
for collection. This protection is given to Q: What is reasonable time?
make the instrument more marketable by
conferring upon him an immunity not A: The following must be considered:
possessed by an ordinary holder or assignee. 1. Nature of the instrument
Holder not in due One or some or all of the requistes under 2. Usage of trade or business
course Sec. 52 is/are absent 3. Facts of the particular case
Sec. 52. What constitutes a holder in due course. - A holder in That he took it in good faith and for value
due course is a holder who has taken the instrument under the
following conditions: Q: What is “good faith”?
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, A: It refers to a state of mind which is manifested in the act of the
and without notice that it has been previously individual concerned. It consists of the honest intention to
dishonored, if such was the fact; abstain from taking an unconscionable and unscrupulous
(c) That he took it in good faith and for value; advantage of another. Knowledge of the exact truth is not
(d) That at the time it was negotiated to him, he had no required.
notice of any infirmity in the instrument or defect in
the title of the person negotiating it. NOTE: Value includes money given, goods delivered, or services
performed or a pre-existing credit. An unperformed promise to
Q: What are the Rights of A Holder in Due Course? give money, deliver goods or perform services does not
constitute value for the purpose of making one a holder-in-due-
A: course.
1. Right to Sue A holder who has taken an instrument as a gift does not qualify as
2. Right to receive payment a holder in due course because he is not a holder for value.
3. Holds the instrument free from any defect of title of
prior parties That at the time it was negotiated to him, he had no notice of
4. Holds the instrument free from defenses available to any infirmity in the instrument or defect in the title of the
parties among themselves person negotiating it
5. Enforce payment of the instrument
Q: When is a person considered with notice of infirmity or
That it is complete and regular upon its face defect?
a. A person cannot be considered a holder in due course if A: When:

the instrument contains a facial irregularity, such as an
obvious alteration on its amount. 1. He has actual knowledge of the infirmity or defect
b. One who receives an instrument that is blank in a 2. He has knowledge of such facts that his action in taking
material particular is not a holder in due course the instrument amounted to bad faith
COMPLETE REGULAR Q: May a payee be a holder in due course?

When it contains all the An instrument is not regular on
requisites of negotiability its face if it contains material A: There are conflicting views:
alteration. 1. He has knowledge of any defense arising from the
issuance of the instrument
That he became the holder of it before it was overdue, and 2. A holder in due course refers to one to whom, after the
without notice that it has been previously dishonored, if such completion and delivery, the instrument has been
was the fact negotiated.
Q: When is the instrument considered overdue? The weight of authority is that a payee may be a holder in due
course.
A: An instrument is overdue after the date of its maturity.
Rules and Requirements
NOTE:
REQUIREMENTS BASIC RULES
1. Must be a 1. If the instrument is payable to order,
holder the holder is either the payee or any
subsequent indorsee who is in Sec. 54. Notice before full amount is paid. - Where the
possession of the instrument] transferee receives notice of any infirmity in the instrument or
2. If the instrument is payable to defect in the title of the person negotiating the same before he
bearer, the holder is the bearer. has paid the full amount agreed to be paid therefor, he will be
2. Must take Notice exists if an instrument is so deemed a holder in due course only to the extent of the amount
the instrument incomplete, bears such visible evidence therefore paid by him.
complete and of forgery or alteration, or is so irregular
regular upon its that a reasonable person would be put on Notice of infirmity before full amount is paid
face notice from examination or from facts
surrounding the transaction. NOTE: A transferee is a holder in due course to the extent of the
3. Must take Holder gives value: amount paid by him before he receives notice of any infirmity in
for value a. To the extent agreed upon the instrument or defect in the title of the person negotiating it.
consideration which is sufficient to
support contract has been paid or It is not uncommon that a transferor agrees to receive an amount
security interest or lien acquired that is less than the face of the instrument, i.e., at a discount. The
b. By payment of or as security for an transferee in such a case becomes a holder in due course for the
antecedent claim face value, i.e., the discount is not deducted. However, if he
c. By giving a negotiable instrument or receives notice of any infirmity or defect before he has paid in full
irrevocable commitment as payment the agreed amount to be paid therefor, he becomes a holder in
4. Must take Good faith is present of honesty in fact in due course only to the extent of the amount paid by him.
in good faith the conduct or transaction concerned or
if he has knowledge of circumstances that Example: M makes a PN payable to the order of P for P10,000.00
will show that taking amounts to bad for a certain brand-new cell phone that the former purchased. P
faith later negotiated the note to H at a discounted amount of
5. Must take 1. Instrument payable on specified P9,000.00. Here, H has given value and is considered a holder in
without notice that: dates are overdue the moment after due course for the full payment of the note for P10,000.00.
due date for payment
a. Instrument is 2. Demand instruments are overdue If H initially pays P the amount of P7,200.00 of the agreed
over-due after a reasonable time has lapsed amount of P9,000.00. Later, H discovers that P’s title is defective
b. Instrument has from issue because P gave a secondhand cell phone to M before H has paid
been 3. In instruments with acceleration the balance of P1,800.00 to P. In such case, H is a holder in due
dishonored clause, the instrument is overdue if course only to the extent of P8,000.00. As to the balance of the
c. Knowledge of any cause for acceleration of a time note of P2,000.00, he is not a holder in due course even if he
infirmity in the instrument has taken place. subsequently pays P the amount of P1,800.00, the balance of the
instrument or agreed consideration with P.
defect of title
of prior parties Sec. 55. When title defective. - The title of a person who
negotiates an instrument is defective within the meaning of this
Sec. 53. When person not deemed holder in due course. - Act when he obtained the instrument, or any signature thereto,
Where an instrument payable on demand is negotiated on an by fraud, duress, or force and fear, or other unlawful means, or
unreasonable length of time after its issue, the holder is not for an illegal consideration, or when he negotiates it in breach
deemed a holder in due course. of faith, or under such circumstances as amount to a fraud.
Q: When does this provision apply? Title of a Person is Defective under Sec 55
A: It is applicable only to an instrument which is payable on 1. Acquisition – Fraud, duress, force ,fear, other unlawful
demand on its face. means, illegal acts and consideration
Q: What is the effect of an instrument negotiated on an 2. Negotiation – When the holder negotiates in breach of
unreasonable time after issue? faith equivalent to fraud
A: Where an instrument payable on demand is negotiated on an Q: What are the circumstances which will make the title
unreasonable length of time after its issue, the holder is not defective?
deemed a holder in due course.
A:
Q: What are the criteria to determine whether there is a time is
reasonable or not? 1. Where the party obtained the instrument or any
signature by fraud
A:
R draws a check payable to the order of P as payment
1. Nature of the instrument for a ring which P pays is adorned with diamond. In
2. Usage of trade or business, if any reality, however, P knows all along that the ring is
3. Facts of the particular time
adorned with ordinary glass. P’s title is defective Ex: A crossed-check that is accepted renders the taking of the
because he obtained the check through fraud. instrument as amounting to bad faith. If he took the crossed
check he should have investigated why the crossed check was
2. Where the party obtained the instrument or any negotiated to him instead of being deposited as the nature of the
signature thereon by duress or force check dictates.
M executed a PN payable to the order of P because P Sec. 57. Rights of holder in due course. - A holder in due course
threatened to burn M’s house. P’s title is defective holds the instrument free from any defect of title of prior
because he obtained the note or the signature of M parties, and free from defenses available to prior parties among
through fear. themselves, and may enforce payment of the instrument for the
full amount thereof against all parties liable thereon.
3. Where the party obtained the instrument or any
signature thereon by fear Rights of holder in due course
4. Where the party obtained the instrument or any Q: What are the rights of a holder-in-due-course?
signature thereon through any other lawful means
A:
NOTE: Payee’s title is defective if he stole the PN from
the maker 1. Right to Sue
2. Right to receive payment
5. Where the party obtains the instrument through an 3. Holds the instrument free from any defect of title of
illegal consideration prior parties
4. Holds the instrument free from defenses available to
NOTE: R draws a check in favor of P so that P will not parties among themselves
testify in a criminal case that he was filed against R. P’s 5. Enforce payment of the instrument
title is defective because the consideration is unlawful.
KINDS OF DEFENSES OF PARTIES TO NEGOTIABLE INSTRUMENTS
6. Where the party obtained the instrument or any
signature thereon through any other means that PERSONAL or EQUITABLE REAL or LEGAL or ABSOLUTE
amount to fraud. DEFENSES DEFENSES
Refer to the acts or Those that attach to the
7. When he negotiates it through any of the following circumstances leading to the instrument itself and can be
means: issuance of the instrument used as reasons against
rather than to the instrument payment of a negotiable
a. With breach of faith itself. They affect the instrument to any holder,
agreement for which the including a HDC or a person
Thus, indorser’s title is defective if he negotiates a instrument was issued; they do who has rights of a HDC
note which was given to him as a mere security or not affect the validity of the
if he negotiates an instrument which was already instrument which is
paid acknowledged to be valid.
b. Under such circumstances as amount to a fraud. They are personal defenses

because they are available only
Payee’s title is defective when he still negotiates a against that person or
promissory note to another despite having subsequent holder who stands
obtained knowledge that the maker has no in privity with him, i.e., holder
intention to honor it. not in due course. They are not
available against a bona fide
Sec. 56. What constitutes notice of defect. - To constitutes holder in due course
notice of an infirmity in the instrument or defect in the title of Examples: Examples:
the person negotiating the same, the person to whom it is
negotiated must have had actual knowledge of the infirmity or 1. Insertion of wrong date 1. Want of delivery of
defect, or knowledge of such facts that his action in taking the (Sec. 13) incomplete instrument
instrument amounted to bad faith. 2. Want or lack of authority (Sec. 15)
to complete instrument 2. Minority or other form or
Q: When is a person considered to have notice of defect or (Sec. 14), i.e., filling up the incapacity (Sec. 22)
infirmity? blank/s not in accordance 3. Forgery (Sec. 22)
with the authority given 4. Fraud in factum or esse
A: He must either: and within a reasonable contractus
a. Actual knowledge of the infirmity or defect time 5. Want of authority (Sec.
b. Knowledge of such facts that his action in taking the 3. Want or lack of delivery of 23)
instrument amounted to bad faith complete instrument, or 6. Discharge at or after
that the delivery of the maturity
complete instrument was 7. Illegality of contract,
conditional or for a special where the instrument or
purpose only (Sec. 16) contract itself is expressly Q: What is the effect of the Shelter Rule?
4. Absence or failure of declared illegal by statute
consideration (Sec. 28) 8. Duress amounting to A: Any holder after a HDC succeeds to all the rights of a HDC even
5. Acquisition of the forgery though he does not meet all the qualifications to be considered
instrument or signature 9. Material alteration (Sec. as one. This also protects the HDC because it provides for the
thereon by fraud, duress, 124) greater marketability of the instrument.
force and fear, or other 10. Negotiation is an ultra
lawful means, or for an vires act of the Example:
illegal consideration (Sec. corporation
55) 11. Insanity 1. P induced M by means of fraud to issue a PN payable to
6. Negotiation of the order of P. P indorsed the instrument to A who
instrument in breach of acquires I as a HDC. Thereafter A indorsed the note to H
faith, or under such who acquired it with knowledge that P obtained the
circumstances as amount note from M by means of fraud. Although not a HDC, H
to a fraud (Sec. 55) may collect from M because he acquired the rights of A,
7. Fraud in inducement a HDC, and he himself was not a party to the fraud
8. Discharge by payment or employed by P.
renunciation or release 2. M was induced by P through unlawful means to issue a
before maturity PN payable to the latter’s own order. Thereafter, P
9. Illegality of contract if it indorsed the note to A, and A to H, a HDC from whom P
refers to the manner of later repurchases the note. P here does not acquire the
the execution or because rights of a HDC because he was a party to an illegality or
of unlawful consideration fraud with respect to the instrument.
10. Ante-dating or post-dating
for illegal or fraudulent Sec. 59. Who is deemed holder in due course. - Every holder is
purpose (Sec. 12) deemed prima facie to be a holder in due course; but when it is
shown that the title of any person who has negotiated the
Q: Differentiate the 2 kinds of fraud. instrument was defective, the burden is on the holder to prove
that he or some person under whom he claims acquired the title
A: as holder in due course. But the last-mentioned rule does not
apply in favor of a party who became bound on the instrument
FRAUD IN FACTUM SIMPLE FRAUD / FRAUD IN prior to the acquisition of such defective title.
INDUCEMENT
A person without negligence, Relates to the quantity or Liability of avalista
has signed the instrument quality, value or character of
which was in fact a negotiable the consideration of the Q: What is an “aval”? Describe the liability of avalista.
instrument but was deceived instrument. There is intention
by the character of the to be bound on the part of the A: Aval is a written contract of guaranty for the payment of a bill
instrument. The party of the person in the obligation but of exchange independent of the liability of the drawer, acceptor
bill had no intention to be there is misrepresentation with or indorser. It is a contract, not found in the Negotiable
bound by the kind of regards to the value of the Instruments Law, but is based on commercial customs. It is
instrument he signed and is transaction, thus is a personal applicable only to a bill of exchange and not to a promissory note.
thus, a real defense. defense. There is no oral aval. The person who guarantees payment in
writing is called the avalista.
Sec. 58. When subject to original defense. - In the hands of any
holder other than a holder in due course, a negotiable Presumption of a holder being a HDC
instrument is subject to the same defenses as if it were non-
negotiable. But a holder who derives his title through a holder NOTE: Every holder is presumed to be a HDC. Accordingly, the
in due course, and who is not himself a party to any fraud or holder does not have to prove that he is a HDC. Any person
illegality affecting the instrument, has all the rights of such claiming otherwise must prove that the holder is not a HDC.
former holder in respect of all parties prior to the latter.
Q: When is the burden of proof shifted to the holder?
GR: If a holder is not a HDC, he is subject to the defenses as if it
was non-negotiable. A: When it is shown that the title of any person who has
negotiated the instrument is defective, the burden is on the
XPN: “Shelter Rule” holder to prove:
1. That he is a HDC
Requisites: 2. If he is not a HDC, that the person under whom he
claims acquired the title as a HDC.
1. A holder who is not a HDC but he derived title from a
HDC XPN: The burden of proof is not shifted to the holder in favor of
2. He himself is not a party to any fraud or illegality those who became bound on the instrument prior to the
affecting the instrument acquisition of defective title.
Q: What are the steps to charge the persons secondarily liable?
Q: M issued a PN payable to the order of P. P indorsed the note
to A for a ring which A knew all along was embellished with an A:
ordinary glass and not emerald as he claimed it to be. Because
he acquired the note by means of fraud, A’s title is defective. A Steps in PROMISSORY NOTE Steps in BILL OF EXCHANGE
indorsed the note to B, B to C, C to H, holder. 1. Presentment for payment 1. Presentment for
must be made within the acceptance:
a. Is H a HDC? required period to the a. Where the bill is
b. Suppose H demands payment from P but P is able to maker payable after sight,
prove that A’s title is defective because A acquired the 2. Notice of dishonor should or in any other case,
note from P by means of fraud, what must H do? be given, if PN is where presentment
dishonored by non- is necessary in order
A: payment by the maker to fix the maturity of
a. Yes. H is a HDC because every holder is presumed to be the instrument
a HDC. b. Where the bill
b. H has now to prove to P that H is a HDC or that C from expressly stipulates
whom he acquired the instrument was a HDC. The that it shall be
burden of proof is with H because P did not become presented for
bound on the instrument before but at the same time acceptance
as the acquisition by A of defective title. c. Where the bill is
drawn payable
elsewhere than at
the residence or
LIABILITIES OF PARTIES place of business of
the drawee
Sec. 60. Liability of maker. - The maker of a negotiable 2. If dishonored by non-
instrument, by making it, engages that he will pay it according acceptance:
to its tenor, and admits the existence of the payee and his then a. Notice of dishonor
capacity to indorse. should be given to
the indorsers and
Q: What are the classifications of parties according to liability? drawers
b. If the bill is a foreign
A: bill, there must be
protest for dishonor
PARTY WITH PRIMARY PARTY WITH SECONDARY by non-acceptance
LIABILITY LIABILITY 3. If the bill is accepted:
One who by terms of the One whose liability is a. Presentment for
instrument is absolutely conditioned on the timely payment to the
required to pay it presentment of the instrument acceptor should be
for payment or for acceptance made
to the person who is supposed b. If the bill is
to pay it and the proper notice dishonored upon
of dishonor if such person presentment for
dishonors the instrument. He payment:
binds himself to pay upon i. Notice of dishonor
default of the person primarily must be given to
liable and upon proper the person
proceedings duly taken secondarily liable
1. Maker of a PN 1. Drawer of a BOE ii. If the bill is a foreign
2. Acceptor of a BOE 2. Indorser bill, protest for
3. Certifier of check 3. Person negotiating dishonor by non-
by mere delivery acceptance must be
made
Q: What are the liabilities of the maker?
Sec. 61. Liability of drawer. - The drawer by drawing the
A: instrument admits the existence of the payee and his then
capacity to indorse; and engages that, on due presentment, the
1. The maker engages that he will pay the instrument instrument will be accepted or paid, or both, according to its
according to its tenor tenor, and that if it be dishonored and the necessary
2. He admits: proceedings on dishonor be duly taken, he will pay the amount
a. The existence of the payee thereof to the holder or to any subsequent indorser who may be
b. The capacity of the payee to indorse compelled to pay it. But the drawer may insert in the
instrument an express stipulation negativing or limiting his own
liability to the holder.
his account with him or that the drawer is
Liability of the drawer incapable of giving consent.
Q: What are the liabilities of the drawer? NOTE: There is an opinion to the effect that a drawee who paid
the instrument without accepting it is also liable for breach of the
A: warranties of the acceptor. Even if the drawee is not an acceptor,
he is also deemed to have extended the same warranties under
1. He admits the existence of the payee Sec. 62 if he paid.
2. He admits the payee’s capacity to indorse
3. He engages that on due presentment, the bill will be Q: Distinguish acceptance and payment.
accepted or both that if it be dishonored, he shall pay
the bill to the holder or to any subsequent indorse who A:
may be compelled to pay it to the holder when the ff.
conditions are present: ACCEPTANCE PAYMENT
a. The bill is presented to the drawee for acceptance Promise to perform Actual performance of
or for payment obligation/act obligation/Act
b. The drawee dishonors the bill either by non-
payment or non-acceptance Sec. 63. When a person deemed indorser. - A person placing his
c. The proceedings on dishonor have been duly signature upon an instrument otherwise than as maker, drawer,
taken, such as the giving to him of a notice of or acceptor, is deemed to be indorser unless he clearly indicates
dishonor, and protest and notice of protest in case by appropriate words his intention to be bound in some other
of a foreign BOE capacity.
Q: How may the drawer limit his liability? Q: When is a person deemed an indorser?
A: The instrument may be drawn “without recourse” on the A: The following requisites must be present:
drawer.
1. He places his signature upon an instrument other than
Sec. 62. Liability of acceptor. - The acceptor, by accepting the as maker, drawer or acceptor
instrument, engages that he will pay it according to the tenor of 2. He does not indicate by appropriate words that he is
his acceptance and admits: bound in some other capacity
(a) The existence of the drawer, the genuineness of his Application of this provision
signature, and his capacity and authority to draw the
instrument; and The person referred to as indorser under this provision, is one
(b) The existence of the payee and his then capacity to indorse. whose signature is placed on the instrument after delivery. This
provision reiterates the rule on the interpretation of ambiguous
NOTE: It is only when the indorsee accepts the bill does he instruments under Sec. 17, par (f). If the signature is placed,
become an acceptor. Indorsee is not obligated by payee accept before delivery, the rule applicable is Sec. 64 where the indorser
the bill. No one but the drawee may accept the bill. is considered as an irregular or anomalous indorser.
Q: What are the liabilities of an acceptor? Sec. 64. Liability of irregular indorser. - Where a person, not
otherwise a party to an instrument, places thereon his signature
A: in blank before delivery, he is liable as indorser, in accordance
with the following rules:
1. He admits the existence of the payee
2. He admits the payee’s capacity to indorse (a) If the instrument is payable to the order of a third
3. He engages to pay the instrument according to the person, he is liable to the payee and to all subsequent
tenor of his acceptance parties.
4. He admits the following: (b) If the instrument is payable to the order of the maker
a. Existence of the drawer or drawer, or is payable to bearer, he is liable to all
b. The genuineness of the drawer’s signature parties subsequent to the maker or drawer.
(c) If he signs for the accommodation of the payee, he is
The acceptor is supposed to be familiar with the liable to all parties subsequent to the payee.
drawer’s signature so that it is incumbent upon
him before accepting the bill to determine if the Irregular or anomalous indorser
drawer’s signature is genuine.
Q: What is an “irregular or anomalous indorser”?
c. The capacity and authority of the drawer to draw
the instrument A: An indorser is irregular because his signature appears at a
place where it should not be such as when he is not the payee
He cannot escape liability by alleging that the but indorses before delivery to the payee and ahead of the
drawer gave no consideration or has overdrawn latter’s indorsement.

An irregular indiorser is a person who is not a party to the
instrument but he affixed his signature on the instrument before 3. If he signs for the accommodation of the payee, he is
its delivery. liable to all parties subsequent to the payee
Q: Differentiate an irregular indorser and a general indorser. Ex: M makes a note payable to the order of P. P wants
to negotiate the note to A but A does not want to
A: accept it unless it is first indorsed by X. Thus, after P
indorses the note, X accommodates P and signs the
IRREGULAR INDORSER GENERAL INDORSER note in blank before its delivery to A who, in turn,
Irregular Indorser is not a party While, a General Indorser indorses it to H. X is liable to A and H, but not to M and
to the instrument but he warrants that the instrument is P.
places his signature in blank genuine, that he has a good
before delivery. He is not a title to it, that all prior parties Sadaya v Sevilla Rules:
party but he becomes one had capacity to contract; that
because of his signature in the the instrument at the time of 1. a joint and several accommodation maker of a
instrument. Because his the indorsement is valid and negotiable promissory note may demand from the
signature he is considered an subsisting; and that on due principal debtor reimbursement for the amt. That he
indorser and he is liable to the presentment, the instrument paid to the payee
parties in the instrument. will be accepted or paid or 2. a joint and several accommodation maker who pays on
both accepted and paid the said promissory note may directly demand
according to its tenor, and that reimbursement from his co-accommodation maker
if it is dishonored, he will pay if without first directing his action vs. the principal debtor
the necessary proceedings for provided:
dishonor are made. a. he made the payment by virtue of a judicial
demand
Q: What are the requisites for an irregular or anomalous b. or the principal debtor is insolvent
indorser?
Sec. 65. Warranty where negotiation by delivery and so forth. —
A: Every person negotiating an instrument by delivery or by a
qualified indorsement warrants:
1. He is not otherwise a party to the instrument, i.e., he is
not the maker, drawer or acceptor a. That the instrument is genuine and in all respects
2. He indorses the instrument in blank what it purports to be;
3. He places his signature on the instrument before b. That he has a good title to it;
delivery c. That all prior parties had capacity to contract;
d. That he has no knowledge of any fact which would
NOTE: Indorsement is irregular because no indorsement is impair the validity of the instrument or render it
supposed to be present before delivery. Thus, before delivery to valueless.
the payee, only the drawer’s or the maker’s signature normally
appears in the instrument. The irregular indorser is usually an But when the negotiation is by delivery only, the warranty
accommodation party. extends in favor of no holder other than the immediate
transferee.
Q: What is the liability of an irregular indorser?
The provisions of subdivision (c) of this section do not apply to a
A: person negotiating public or corporation securities other than
bills and notes.
rd
1. If the instrument is payable to the order of a 3 person,
he is liable to the payee and to all subsequent parties Order of Liability among Indorsers
Ex: M makes a note payable to the order of P. P is not Q: What is the order of liability among indorsers?
willing to receive the note unless it is first indorsed by
X. So X indorses the note in blank before its delivery to A:
P. X here is an anomalous indorser. After receipt of the
note, P thereafter indorses the note to A, A to B, B to C, 1. Among themselves: liable prima facie in the order they
C to H, holder. X is liable to P, A, B, C, and H. However, X indorse, but proof of another agreement admissible
is not liable to M. 2. But holder may sue any of the indorsers, regardless of
order of indorsement
2. If the instrument is payable to the order of the maker 3. Joint payees/indorsees deemed to indorse jointly and
or the drawer, or is payable to bearer, he is liable to all severally
parties subsequent to the maker or drawer
NOTE:
Ex: M makes a note payable to P or bearer. X indorses
the note in blank before its delivery to P. X is liable to P 1. As respects one another, indorsers are liable prima
but not to M. facie in the order in which they indorse; but evidence is
admissible to show that, as between or among Sec. 66. Liability of general indorser. - Every indorser who
themselves, they have agreed otherwise. indorses without qualification, warrants to all subsequent
2. Joint payees or joint indorsees who indorse are deemed holders in due course:
to indorse jointly and severally. (a) The matters and things mentioned in subdivisions (a), (b),
3. The foregoing rule does not apply to a holder in due and (c) of the next preceding section; and
course to whom the indorsers are liable in any order. (b) That the instrument is, at the time of his indorsement, valid
4. Every indorser is liable to all indorsers subsequent to and subsisting;
him, but not those indoresers prior to him.
5. Before dishonor, the obligation of the indorser is only And, in addition, he engages that, on due presentment, it shall
subsidiary. be accepted or paid, or both, as the case may be, according to
6. After dishonor by non-payment, Sec. 84 provides that its tenor, and that if it be dishonored and the necessary
an immediate right of recourse to all parties secondarily proceedings on dishonor be duly taken, he will pay the amount
liable thereto accrues to the holder. Thus, the liability thereof to the holder, or to any subsequent indorser who may
of indorsers becomes principal and solidary. be compelled to pay it.
Q: When does this provision apply? Q: Discuss the application of this provision.
A: It applies to: A: It applies to the warranties of an indorser who indorses

without qualification, i.e., a general indorser
1. A person negotiating by mere delivery
2. A person negotiating by qualified indorsement Q: Who is a general indorser?
Q: Who is the liability of a qualified indorser? A: One who indorses the instrument without any qualification,
i.e., not qualified indorsement or conditional indorsement. He is
A: A qualified indorser and a person negotiating by mere delivery secondarily liable to the holder or any subsequent indorser who
are not secondarily liable. The indorsement in such case transfers may be compelled to pay the instrument on account of express
title without rendering the indorser or transferor secondarily engagement in Sec. 66.
liable. However, he is liable for his warranties to all subsequent
holders. Q: What are the warranties of a person negotiating by general
indorsement?
Q: What are the warranties of a person negotiating by mere
delivery or by qualified indorsement? A:
A: 1. That the instrument is genuine and in all respects what

it purports to be
1. That the instrument is genuine an in all respects what it 2. That he has good title to it
purports to be 3. That all prior parties had capacity to contract
2. That he has a good title to it 4. That the instrument is at the time of his indorsement
3. That all prior parties had capacity to contract valid and subsisting
4. That he has no knowledge of any fact which would
impair the validity of the instrument or render it Hence, a general indorsement is liable on the
valueless. instrument although he had no knowledge of the
following:
Q: Differentiate the extent of liability of a qualified indorser and
a person negotiating by mere delivery. a. That the person primarily liable is insolvent
b. That the instrument is invalid, or was issued
A: for an unlawful consideration
c. That no consideration was received by the
QUALIFIED INDORSER PERSON NEGOTIATING BY party primary liable for the issuance of the
MERE DELIVERY instrument.
Warrants to all subsequent Extends only in favor of his
holders immediate transferee Ex: M issued an instrument to P. P indorsed the instrument to A,
A to B, and B to C. C is the present holder who is a HDC and P, A,
Q: Should notice of dishonor be given to a qualified indorser or and B are general indorsers. P, A, and B are secondarily liable. P
a person negotiating by mere delivery? engages that M will honor the instrument if properly presented
for payment and if M dishonors it and the necessary proceeding
A: A general indorser must be given a notice of dishonor in order for dishonor is duly taken, P engages to pay C. P also engages to
to charge him. Although not provided under Sec. 65, persons pay A and B if they may be compelled by C to pay or if A may be
negotiating by mere delivery or qualified indorsers should compelled by B in proper cases.
likewise be notified if the instrument is dishonored for any
violation of the 4 warranties in order to charge them. Otherwise, P, A and B cannot refuse to pay or honor their secondary liability
they will be discharged from liability. on the ground that the instrument is fake or that the maker was
an insane person because that would be contrary to their
warranties. A and B cannot likewise refuse to make good their
secondary liability on the ground that the note was altered as Q: Distinguish an indorser from a drawer.
that would be contrary to their warranty under par. (a) of Sec. 66.
A:
Q: Distinguish Sec. 66 and Sec. 65.
INDORSER DRAWER
A: Indorser does not make any Makes an admission to the
admission to the existence of existence of the payee and his
SEC. 65 SEC. 66 the payee and his capacity to capacity to indorse
Applies to qualified indorser Applies to general indorser indorse
Warranties Has warranties None
a. That the instrument is a. That the instrument is Party to a bill or note Party to a bill only
genuine and in all genuine and in all
respects what it purports respects what it purports Sec. 67. Liability of indorser where paper negotiable by delivery.
to be; to be; — Where a person places his indorsement on an instrument
b. That he has a good title to b. That he has a good title to negotiable by delivery, he incurs all the liability of an indorser.
it; it;
c. That all prior parties had c. That all prior parties had Q: Discuss the application of this provision.
capacity to contract; capacity to contract;
d. That he has no knowledge d. That the instrument is, at A: This provision is applicable to an instrument payable to bearer
of any fact which would the time of his on its face.
impair the validity of the indorsement, valid and
instrument or render it subsisting Q: What is the liability of a person who indorses an instrument
valueless. negotiable by delivery?
As to effect of breach of warranty
There is no breach of warranty Will be liable for breach of A: When a person places his indorsement on an instrument
even if the instrument is warranty even if he is not negotiable by delivery, he incurs all the liabilities of an indorser.
actually impaired if the aware of the impairment of the Thus, he may be liable as a qualified indorser or a general
qualified indorser is not aware instrument indorser. If he indorses specially, he shall be liable as indorser to
of such fact only such holders as make title through his indorsement.
As to presence of engagement to pay after dishonor
No engagement to pay after There is an engagement to pay Ex: M issued a negotiable instrument payable to P or bearer. P
dishonor and after undertaking after dishonor and after specially indorsed and delivered the instrument to A, who
proper proceedings on undertaking proper specially indorsed and delivered the same to B. Later, B delivered
dishonor proceedings on dishonor the instrument to C, and C specially indorsed to D, D specially
indorsed the instrument to E who is the present holder. P and A
Q: To whom the warranties of a general indorser extend? are liable as general indorsers but their secondary liabilities do
not extend to E. The title of E cannot be traced to the
A: While Sec. 66 provides that a general indorser is liable to all indorsements of P and A because the delivery made by B. It is
subsequent holders in due course, the weight of authority is that only C and D who are secondarily liable to E.
the liability extends to all subsequent transferees, even if they
are not HDC. Sec. 68. Order in which indorsers are liable. - As respect one
another, indorsers are liable prima facie in the order in which
Liability in case of dishonor they indorse; but evidence is admissible to show that, as
between or among themselves, they have agreed otherwise.
Q: Discuss the liability of a general indorser in case of dishonor. Joint payees or joint indorsees who indorse are deemed to
indorse jointly and severally.
A: Regardless of the cause of dishonor, a general indorser is liable
on the instrument provided that the proceedings of dishonor NOTE:
have been duly taken.
a. The law does not prescribe the particular order of
Q: What are the requisites? liability among the indorsers as against the holder.
b. However, as respect one another, indorsers are liable
A: prima facie in the order in which they indorse. That
order is presumed to be the order in which their
1. The bill is presented to the drawee for acceptance or signatures appear on the instrument. This means an
for payment or to the maker for payment indorser is liable to all indorsers subsequent to him.
2. The drawee dishonors the bill either by non-payment or c. But evidence is admissible to show that, as between
non-acceptance, or the maker by non-payment among themselves, they have agreed otherwise.
3. The proceedings on dishonor have been duly taken, d. As against holder, he may enforce payment against any
such as the giving to him of a notice of dishonor, and one of the indorsers without regard to the order in
protest and notice of protest in case of a foreign bill of which such persons signed in the instrument or the
exchange. holder in which such person may be liable to each other
according to their agreement.

Ex: M makes a PN payable to the order of P. The note is Not necessary.
successively indorsed by P to A, A to B, B to C, C to D, and D to H,
holder. If M dishonors the note, H can proceed against any one of 2. As against persons secondarily liable
the indorsers in any order. If H goes after B and B pays the note, B
can proceed against A and P, who are liable to him. However, B Presentment for payment to the person primarily liable is
cannot go against either C or D to whom he is liable unless he had necessary to charge the drawer and indorsers.
an agreement with them that C or D would be liable to him.
XPNS: The drawer and indorsers are liable even without
Q: What is the liability of joint payees or joint indorsees who presentment for payment in the following cases:
indorse?
a. Drawer- when he has no right to expect or require that
A: Joint payees or joint indorsees who indorse are deemed to the drawee or acceptor will pay the instrument
indorse solidarily and not jointly. Hence, any of them can be held b. Indorser- where the instrument was made or accepted
liable for the whole amount due under the note. for his accommodation and he has no reason to expect
that the instrument will be paid if presented
Sec. 69. Liability of an agent or broker. - Where a broker or c. When prersentment for payment is dispensed with in
other agent negotiates an instrument without indorsement, he the following cases:
incurs all the liabilities prescribed by Section Sixty-five of this
Act, unless he discloses the name of his principal and the fact 1. When it cannot be made after the exercise of
that he is acting only as agent. reasonable diligence
2. When the drawee is a fictitious person
Q: Discuss the application of this provision. 3. By waiver of presentment, express or implied
A: This provision applies to a negotiation by delivery by an agent d. When a bill is dishonored by non-acceptance, an
or broker of an instrument payable to bearer on its face, or an immediate right of recourse against the drawer and
instrument originally payable to order and indorsed in blank to indorsers accrues to the holder and no presentment for
agent or broker who negotiates it thereafter by mere delivery. payment is necessary
Q: What is the liability of an agent or broker who negotiates by Q: M issued a PN to the order of P. P negotiated the instrument
mere delivery? to A by indorsement coupled with delivery. A indiorsed the
instrument to B, the present holder. On maturity date, B did not
A: present the instrument to M for payment. Later, B went to court
and sued M, P, and A. Will the case prosper?
GR: Agents or broker are liable for negotiat a bearer instrument
A: The case against M will prosper because presentment for
XPN: If the agent or broker: payment is not necessary to charge the person primarily liable.
1. discloses his principal and The cases against P and A will not prosper because the
2. the fact he is acting only as an agent. presentment for payment to the maker is necessary in order to
charge the persons secondarily liable.
Q: DR, the drawer, issued a BOE payable to the order of P. The

PRESENTMENT FOR PAYMENT bill was drawn against DW, the drawee. P negotiated the bill to
A, A to B, the holder. B did not present the instrument for
Sec. 70. Effect of want of demand on principal debtor. - accpeptance. B did not also present the bill for payment on
Presentment for payment is not necessary in order to charge maturity date. Later, B sued DW, DR, P and A. Will the case
the person primarily liable on the instrument; but if the against them prosper?
instrument is, by its terms, payable at a special place, and he is
able and willing to pay it there at maturity, such ability and A: No, the case against all of them will not prosper. It will not
willingness are equivalent to a tender of payment upon his part. prosper against DW because DW is not yet liable on the
But except as herein otherwise provided, presentment for instrument which was not presented for acceptance. The drawee
payment is necessary in order to charge the drawer and is not liable on the bill unless he accepts the same.
indorsers.
Payable at a special place
Q: What is the concept of presentment for payment?
If the instrument is by its terms payable at a special place, and a
A: It is the production of a bill of exchange to the drawee or person primarily liable is able and willing to pay it there at
acceptor for payment, or of a promissory note to the party liable maturity, such ability and willingness are equivalent to a tender
for the payment of the same. of payment upon his part. It means only that the person primarily
liable cannot be considered in default and is not liable for any
Necessity of presentment for payment interest for delay. The special place does not include a city,
province or municipality.
1. As against persons primarily liable
Q: What is the special place referred to under Sec. 70?

A: It means a house, bank, counting room, store or place of Q: How is presentment made?
business, where the holder can present a note, where the maker
can deposit or provide funds to meet it, and where a legal offer A: The instrument must be exhibited to the person from whom
to pay can be made (Hutchinson v. Crutcher). payment is demanded, and when it is paid, must be delivered up
to the party paying it.
Sec. 72. What constitutes a sufficient presentment. -
Presentment for payment, to be sufficient, must be made: Q: Where should it be presented?
a. By the holder, or by some person authorized to
receive payment on his behalf; A:
b. At a reasonable hour on a business day;
c. At a proper place as herein defined; a. Where a place of payment is specified in the instrument
d. To the person primarily liable on the instrument, or if and it is there presented;
he is absent or inaccessible, to any person found at b. Where no place of payment is specified but the address
the place where the presentment is made. of the person to make payment is given in the
instrument and it is there presented;
What constitutes a sufficient presentment c. Where no place of payment is specified and no address
is given and the instrument is presented at the usual
Q: Who shall make the presentment for payment? place of business or residence of the person to make
payment;
A: By the holder, or by some person authorized to receive d. In any other case if presented to the person to make
payment on his behalf. payment wherever he can be found, or if presented at
his last known place of business or residence.
Q: When should the instrument be presented?
Q: To whom should it be presented?
A: It must be made for payment on the date fixed without grace,
unless delay in presentment for payment is excused when it is A: The instrument must be presented for payment to the person
caused by circumstances beyond the control of the holder. When primarily liable on the instrument, or if he is absent or
the cause of delay ceases, presentment for payment must be inaccessible, to any person found at the place where the
made with reasonable diligence. presentment is made.
a. At a reasonable hour on a business day RULES:

b. Where the instrument is payable at a bank,
presentment for payment must be made during 1. If the principal is dead
banking hours, unless the person to make payment has
no funds there to meet it at any time during the day, in a. If the place is specified, presentment must be made at
which case presentment at any hour before the bank is such place
closed on that day is sufficient. b. Presentment for payment must be made to his personal
representative, if such there be, and if, with the
Q: When should be the date of presentment? exercise of reasonable diligence, he can be found.
A: 2. If the principal debtors are partners

a. If the instrument is payable on demand
a. If the place is specified, presentment must be made at
1. In case of PN, presentment for payment must be such place
made within a reasonable time after the issuance b. Presentment for payment may be made to any one of
2. In case of BOE, presentment for payment must be them, even though there has been a dissolution of the
made within a reasonable time after the last firm.
negotiation.
3. If the principal debtors are joint debtors
NOTE: If the day falls on a Saturday, the holder has the option to
present the instrument for payment: a. If the place is specified, presentment must be made at
i. On the succeeding business day, or such place
ii. Before 12 nn on that Saturday, when that entire day is b. If no place is specified, presentment for payment musy
not a holiday be made to all joint debtors except if one is authorized
by the others to receive presentment
If the day falls on a Sunday, presentment for payment must be
made the succeeding business day. Sec. 73. Place of presentment. - Presentment for payment is
made at the proper place:
b. If the instrument is not payable on demand
(a) Where a place of payment is specified in the instrument and
It must be made on the day it falls due. If it falls on a Saturday, it is there presented;
Sunday or holiday, presentment for payment must be made on
the succeeding business day.

(b) Where no place of payment is specified but the address of NOTE: Hence, presentment cannot be made by telephone or by
the person to make payment is given in the instrument and it is mere demand letter, or telegram.
there presented;
(c) Where no place of payment is specified and no address is Sec. 75. Presentment where instrument payable at bank. -
given and the instrument is presented at the usual place of Where the instrument is payable at a bank, presentment for
business or residence of the person to make payment; payment must be made during banking hours, unless the person
(d) In any other case if presented to the person to make to make payment has no funds there to meet it at any time
payment wherever he can be found, or if presented at his last during the day, in which case presentment at any hour before
known place of business or residence. the bank is closed on that day is sufficient.
At the specified place specified in the instrument NOTE: Where the instrument is made payable at a bank, it is
equivalent to an order to the bank to pay the same for the
I promise to pay Bebeng or order the sum of P10,000.00 on account of the principal debtor thereon.
January 20, 2011 at Suite 345, Avenue Towers, Rizal Ave., Manila
Sgd. Ayel Example:
If no place is specified, the address of the person to make On demand, I promise to pay Jed Mark or order the sum of
payment is given in the instrument and it is there presented P120,000.00 at BDO-SM San Lazaro
Sgd. Sam
I promise to pay Bebeng or order the sum of P10,000.00 on
January 20, 2011. NOTE: Banking hours for most banks are from 9:00 a.m. to 3:00
Sgd. Ayel p.m. from Monday-Friday. Presentment for payment must be
No. 1155 B Marzan St, made within such time and days. Otherwise, presentment for
Sampaloc, Manila payment is not sufficient and will discharge the persons
secondarily liable.
Where no place of payment is specified and no address is given
and the instrument is presented at the usual place of business If presentment is made at 10:00 a.m., the person to make
or residence of the person to make payment; payment does not have funds at such time, presentment for
payment in such case is premature because he has up to 3:00
Thus, if the usual place of business of Jed Mark is No. 123 C.M. p.m. to make payment. However, if the person to make payment
Recto Ave, while his residence is at Suite 65 Cattleya has no funds to meet it before the close of the banking hours,
Condominium, Mandaluyong City, presentment must be made at then the presentment made earlier is sufficient and will not
either place. discharge parties secondarily liable.
In any other case if presented to the person to make payment Sec. 76. Presentment where principal debtor is dead. - Where
wherever he can be found, or if presented at his last known the person primarily liable on the instrument is dead and no
place of business or residence place of payment is specified, presentment for payment must
be made to his personal representative, if such there be, and if,
Thus, there is proper presentment for payment if made at Suite with the exercise of reasonable diligence, he can be found.
45 Manila Hotel, if the maker or acceptor can be found at such
place. NOTE: Presentment must be made:
Sec. 74. Instrument must be exhibited. - The instrument must be a. If the place is specified, presentment must be made at
exhibited to the person from fhom payment is demanded, and such place
when it is paid, must be delivered up to the party paying it. b. Presentment for payment must be made to his personal
representative, if such there be, and if, with the
Q: How is the instrument to be presented? exercise of reasonable diligence, he can be found.
A: The instrument must be exhibited to the person from fhom NOTE: If a person dies, an administrator may be appointed by the
payment is demanded, and when it is paid, must be delivered up court to administer the estate of the deceased, that is, to handle
to the party paying it. his properties, to pay for his debts, and to divide the properties
among the heirs. If there is no administrator, the heirs are
Q: What are the reasons for requiring exhibition of the supposed to represent the estate of the deceased, hence,
instrument? presentment can be made to them.
A: Sec. 77. Presentment to persons liable as partners. - Where the

persons primarily liable on the instrument are liable as partners
1. To give the maker or the acceptor the chance to and no place of payment is specified, presentment for payment
determine if the instrument is genuine may be made to any one of them, even though there has been a
2. To facilitate the surrender of the instrument/ to reclaim dissolution of the firm.
immediate possession of the instrument upon paying
its amount NOTE: Presentment must be made:

a. If the place is specified, presentment must be
made at such place
b. Presentment for payment may be made to any one
of them, even though there has been a dissolution
of the firm.
Q: What are the 2 requirements before presentment can be

made either of the partners primarily liable?
A:
1. The persons primarily liable must be partners

2. There is no place of payment that is specified

Sec. 78. Presentment to joint debtors. - Where there are several 3) The accomodaiton party has no reason to expect that
persons, not partners, primarily liable on the instrument and no the instrument will be paid if presented
place of payment is specified, presentment must be made to
them all. RATIO: The accommodated payee/indorsee is the real debtor;
unjust enrichment.
Presentment for payment if the principal debtors are joint
debtors When indorser liable although no presentment for payment was
made
1. If a place for presentment of payment is specified,
presentment must be made at such place;
2. If no place for presentment is specified, presentment Presentment for payment is not required in order to charge an
for payment must be made to all joint debtors, except if indorser where the instrument was made or accepted for his
one is authorized by the others to receive payment. accommodation and he has no reason to expect that the
instrument will be paid if presented.
E.g: If the debtors are joint debtors, each debtor is liable only for
their respective shares in the obligation. Thus, if there are two If the instrument was issued for accommodation of the indorser,
debtors, Mr. Ayel and Mr. Bebeng and the total obligation is the person primarily liable is, in effect, only his surety.
P1,000.00, Mr. Ayel is payable only for P500.00 while Mr. Bebeng
is liable only for P500.00. E.g: M, in order to accommodate P, executed a promissory
payable to the order of P without receiving any value therefor. P
Applying the rule, if there are two or more makers or acceptors, thereafter discounted the note with H. Here, presentment for
each maker or acceptor is liable only for their share in the payment need not be made by H to M in order to charge P,
obligation, hence presentment must be made to all of them. indorser, who has no right to expect that M will pay the
instrument since it was made for his (P’s) accommodation.
Sec. 79. When presentment not required to charge the drawer. -
Presentment for payment is not required in order to charge the Sec. 81. When delay in making presentment is excused. - Delay
drawer where he has no right to expect or require that the in making presentment for payment is excused when the delay
drawee or acceptor will pay the instrument. is caused by circumstances beyond the control of the holder and
not imputable to his default, misconduct, or negligence. When
When DR liable although no presentment for payment was the cause of delay ceases to operate, presentment must be
made made with reasonable diligence.
Presentment to the DE is useless if the DE is sure to dishonor the Doctrine of Fortuitous Events
instrument. Presentment for payment cannot be expected if it is
an exercise in futility. That is the reason why presentment for Art. 1174. Except in cases expressly specified by the law, or
payment is not required in order to charge the DR if he has no when it is otherwise declared by stipulation, or when the nature
right to expect or require the DE or acceptor to pay the of the obligation requires the assumption of risk, no person
instrument. This is an exception to Sec. 70. shall be responsible for those events which could not be
foreseen, or which, though foreseen, were inevitable.
Thus, where the DR’s funds in the hands of the DE are not
sufficient to cover bills drawn by the DR without the latter making Requisites: (Nakpil vs. CA)
any arrangement with the DE for him to honor bills drawn against
such funds even when they are insufficient, the DR has no right to 1. The cause of the unforeseen and unexpected occurrence, or
expect that the DE or acceptor will honor the instrument. The bill the failure to comply with his obligations, must be
in such case need not be presented for payment to the DE or independent of the human will
acceptor for payment in order to charge the DR. 2. It must be impossible to foresee the event which constitute
the caso fortuito, or if it can be foreseen, it must be
E.g: Mr. DR, issued a check to Mr. P drawn against the DE bank. impossible to avoid
After the issuance of the check, Mr. DR closed his account with 3. The occurrence must be such as to render it impossible for
the DE bank. Hence, even if the check is presented, DE bank is the debtor to fulfill his obligation in a normal manner
sure to dishonor the instrument. Thus, presentment for payment 4. The obligor must be free from any participation in the
is not necessary in order to charge the DR. aggravation of the injury resulting to the creditor.
Sec. 80. When presentment not required to charge the indorser. GR: When a debtor is unable to fulfill his obligation because of a
- Presentment is not required in order to charge an indorser fortuitous event or force majeure, he cannot be held liable for
where the instrument was made or accepted for his damages or non-performance.
accommodation and he has no reason to expect that the
instrument will be paid if presented. XPNs:
Requisites: 1. When the law so provides (i.e. Article 1165);

2. When there is express stipulation;
1) The party is an indorser 3. Fortuitous event yields to contrary stipulation;
2) He indorsed the instrument as an accommodation party 4. When the nature of the obligation requires the
assumption of risk (i.e. insurance contracts)
a. Where the DR has no right to expect or require
When delay in making presentment excused that the DE will pay the instrument;
b. Where the holder exercised reasonable diligence
Thus, when presentment cannot be made on the day the to present the instrument but it cannot ne made;
instrument falls due because the place of the maker is isolated by c. Where the DE is a fictitious person;
landslides, the delay in making presentment for payment is d. Where there is waiver of presentment; and
excused. Yet, when the place of the MR becomes accessible, e. Where there is waiver of protest, in instances
presentment for payment must be made to him with reasonable when protest is necessary.
diligence. Here, only the delay in making presentment is excused
but not presentment for payment which is still required to be 2. Presentment is not necessary in order to charge an
made. indorser in the following cases:
All that is required of the holder is due diligence in complying a. Where the instrument was made or accepted for
with the requirements in presenting the instrument for payment the indorser’s accommodation and he has no
on time. Hence, if he was late in presenting the instrument for reason to expect that it will be honored;
payment due to circumstances beyond his control, delay in b. Where the holder exercised reasonable diligence
presentment in payment may be excused. to present the instrument but it cannot be made;
c. When the DE is a fictitious person;
Sec. 82. When presentment for payment is excused. - d. When there is waiver of presentment; and
Presentment for payment is excused: e. When there is waiver of protest, in instances when
protest is necessary.
(a) Where, after the exercise of reasonable diligence,
presentment, as required by this Act, cannot be made; Sec. 83. When instrument dishonored by non-payment. - The
(b) Where the drawee is a fictitious person; instrument is dishonored by non-payment when:
(c) By waiver of presentment, express or implied.
(a) It is duly presented for payment and payment is refused or
Reasonable diligence cannot be obtained; or
(b) Presentment is excused and the instrument is overdue and
If circumstances beyond the control of the holder not only unpaid.
delayed the presentment but also made it impossible, then the
holder is excused from making the presentment. The situation Fact of dishonor is necessary because this fact fixes when
contemplated in Sec. 81 is different from Sec. 82 because Sec.81 immediate recourse is allowed against the persons secondarily
contemplated mere delay. Due diligence means that the holder liable provided that the required proceeding on dishonor is met.
must actually exert effort to locate the MR so that he can present
the instrument for payment. a. It is duly presented for payment and payment is refused or
cannot be obtained
Fictitious DE
Requisites:
If the DE is non-existent, the DE cannot expect that it will be
honored because there is no real person to honor it. It would 1. There was due presentment for payment; and
then be useless for the holder to look for the DE. In such case, the 2. Payment is refused or cannot be obtained.
person who is principally liable is the DR. On the other hand, the
indorser cannot likewise expect that the instrument will be On Dec. 1, 2010, M issued a promissory note amounting to
honored by the non-existent DE. P20,000.00 payable to the order of P on Dec. 31, 2010. The note
was indorsed by P to A and A to H, holder. On Dec. 31, 2010, H
Waiver presented the note to M for payment but M refused to pay. Here,
the instrument is dishonored by non-payment. If M was willing to
Waiver of presentment may be express or implied. There is an pay but he did not have enough money or promised that
express waiver if the negotiable instrument itself provides that payment would be made at some future date, the instrument is
presentment for payment is waived. likewise dishonored since payment could not be obtained on the
maturity date of the instrument.
e.g. “Presentment waived”
b. Presentment is excused and the instrument is overdue and
Implied waiver may occur if the action of the parties lead the unpaid
holder to believe that presentment is unnecessary as when the
indorser knows that the maker cannot pay and led the holder to Requisites:
believe the presentment is useless and not necessary.
1. Presentment for payment is excused;
Summary of Rules: When presentment is excused 2. Instrument is already overdue; and
3. Instrument is still unpaid.
1. Presentment is excused to charge the DR in the
following cases:
I promise to pay Bebeng or order P10,000.OO on Dec. 31, 2010.
Presentment for payment waived.
Sgd. Ayel a. On August 9, 2010, M issued a PN payable to the order

of P on September 9,2010. In this case, the note is
The following note need not be presented for payment because payable on September 9,2010 without grace. Hence, it
of the waiver for presentment. If such note is not paid on Dec. 31, must be presented for payment on such date.
2010, it is overdue the following day, January 1, 2011. Such note Otherwise, the parties secondarily liable are discharged.
is thus dishonored since it is overdue and unpaid. This is true b. If the note is due on September 10, 2010, a Friday
although no presentment for payment was wade on Dec. 31, which is a holiday the instrument is payable on
2010. Monday, September 13, 2010, unless such day is a
holiday. Hence, it must be presented for payment on
Sec. 84. Liability of person secondarily liable, when instrument such day, September 13, 2010.
dishonored. - Subject to the provisions of this Act, when the c. If the note is due on September 11, 2010 (which is a
instrument is dishonored by non-payment, an immediate right Saturday) or September 12, 2010 (which is a Sunday),
of recourse to all parties secondarily liable thereon accrues to then the note must be presented for payment on
the holder. September 13, 2010, unless such day is a holiday.
d. If the note is payable on demand, and the due date is
When the instrument is dishonored by non-payment, an September 9, 2010, then it must be presented for
immediate right of recourse to all parties secondarily liable payment on that day without grace.
thereon accrues to the holder. Yet, the holder must give a notice e. If the due date is September 10,2010, a Friday which is
of dishonor in cases required by law to the persons secondarily a holiday, the holder has the option to present it for
liable before he can proceed against them. This is consistent with payment on September 11, 2010, a Saturday, before
the engagement of a general indorser under Sec. 66 and the 12:00 noon, or September 13, 2010, the succeeding
engagement of the DR under Sec. 61 of the NIL. business day. The same rule will be observed if the due
date itself is September 11, 2010.
Sec. 85. Time of maturity. - Every negotiable instrument is f. If the instrument is payable on demand, the instrument
payable at the time fixed therein without grace. When the day may, at the option of the holder, be presented for
of maturity falls upon Sunday or a holiday, the instruments payment before 12:00 noon on a Saturday when the
falling due or becoming payable on Saturday are to be entire day is not a holiday.
presented for payment on the next succeeding business day
except that instruments payable on demand may, at the option Sec. 86. Time; how computed. - When the instrument is payable
of the holder, be presented for payment before twelve o'clock at a fixed period after date, after sight, or after that happening
noon on Saturday when that entire day is not a holiday. of a specified event, the time of payment is determined by
excluding the day from which the time is to begin to run, and by
Time of maturity including the date of payment.
a. If instrument is not payable on demand Computation of time of maturity
If the instrument is not payable on demamd, i.e., at a fixed If an instrument is payable at a fixed period after date, after sight,
or determinable future time, presentment for payment or after the happening of a specified event, the date of maturity
must be made on the day it falls due (Sec. 71). If the date of is determined by excluding the day from which the time is to run,
maturity falls on a Saturday, Sunday or holiday, and by including the date of payment.
presentment for payment must be made on the succeeding
business day. Examples:
b. If the instrument is payable on demand 1. A PN dated October 25,2010 which is payable thirty
days after date will have its date of maturity on
i. If a PN, presentment for payment must be made November 24,2010 determined as follows:
within a reasonable time after issuance;
ii. If a BOE, presentment for payment must be made Remaining days of October (31 less 25) 6
within a reasonable time after the last Number of days in November to
negotiation. Complete 30 days 24
Total number of days 30
If the last day falls on a Saturday, the holder has
the option to present the instrument for payment: Or exclude October 25 and start counting with October 26 as the
first day and ending with November 24 as the thirtieth day, the
a.1 On the succeeding day, or date of payment.
a.2 Before 12:00 noon on that Saturday,
when that entire day is not a holiday. 2. The instrument is payable 12 months from date and the
date appearing on the instrument is December 8,2004.
If the day falls on Sunday, presentment Using Sec. 86, the instrument should be payable on
for payment must be made on the December 8,2005 not December 7,2005 because
succeeding business day. December 8,2004 is not included in the computation.
3. If the instrument is payable ten (10) days after sight or
Examples: presentment for acceptance and the instrument was
presented for acceptance on December 3,2004, the Payment by the indorser without presentment for payment to
instrument is payable on December 13, 2004. In the maker is not payment in due course because the indorser is
determining the 10 day period, December 3,2004 shall not a person primarily liable.
be excluded and the last day, December 13,2004 shall
be included. Payment by the MR on December 10,2004 is not payment in due
course if the instrument is payable on December 15,2005.
Sec. 87. Rule where instrument payable at bank. - Where the Payment is premature and earlier than the due date.
instrument is made payable at a bank, it is equivalent to an
order to the bank to pay the same for the account of the Payment to a person who is not authorized by the holder is also
principal debtor thereon. not payment in due course. Thus, payment to an alleged agent of
the holder who is not really an agent is not payment in due
This should be read with together with Section 127 which course. In the same manner, if the payee already negotiated the
provides: instrument to Mr. A, who is a holder, payment to the payee who
is not authorized by Mr. A is not payment in due course.
Sec. 127. Bill not an assignment of funds in hands of drawee. - A
bill of itself does not operate as an assignment of the funds in Place of Payment (2000)
the hands of the drawee available for the payment thereof, and
the drawee is not liable on the bill unless and until he accepts Q: PN is the holder of a negotiable promissory note within the
the same. meaning of the Negotiable Instruments Law (Act 2031). The
note was originally issued by RP to XL as payee. XL indorsed the
Similarly, Sec. 187 provides: note to PN for goods bought by XL. The note mentions the place
of payment on the specified maturity date as the office of the
Sec. 187. Certification of check; effect of. - Where a check is corporate secretary of PX Bank during banking hours. ON
certified by the bank on which it is drawn, the certification is maturity date, RP was at the aforesaid office ready to pay the
equivalent to an acceptance. note but PN did not show up. What PN later did was to sue XL
for the face value of the note, plus interest and costs. Will the
Accordingly, a check itself does not operate as assignment of any suit prosper? Explain. (5%)
part of the funds to the credit of the drawer with the bank, and
the bank is not liable to the holder, unless and until it accepts or A: Yes. The suit will prosper as far as the face value of the note is
certifies the check. concerned, but not with respect to the interest due subsequent
to the maturity of the note and the costs of collection. RP was
Yet, even if there is no assignment of funds, the statement in the ready and willing to pay the note at the specified place of
instrument that is payable at a bank is equivalent to an order to payment on the specified maturity date, but PN did not show up.
the bank to pay the same for the account of the principal debtor PN lost his right to recover the interest due subsequent to the
thereof. Thus, a PN made to MR which states that it is payable at maturity of the note and the costs of collection.
BPI Escolta Branch is equivalent to an order to that specific bank
to pay the note for the account of Mr. M. However, there is no
order to the bank if the instrument only states that it is payable in
any bank in Negros Occidental without specifying a particular CHAPTER VII
bank. NOTICE OF DISHONOR
Sec. 88. What constitutes payment in due course. - Payment is Sec. 89. To whom notice of dishonor must be given. - Except as
made in due course when it is made at or after the maturity of herein otherwise provided, when a negotiable instrument has
the payment to the holder thereof in good faith and without been dishonored by non-acceptance or non-payment, notice of
notice that his title is defective. dishonor must be given to the drawer and to each indorser, and
any drawer or indorser to whom such notice is not given is
Payment in due course discharged.
Q: What are the requisites for payment in due course? Notice of dishonor must be given to the DR and each of the
indorser when a negotiable instrument is dishonored for non-
A: acceptance or non-payment.
1. Payment must be made by the person primarily liable; Q: What is notice of dishonor?
2. It must be made at or after maturity;
A: It is the bringing, either verbally or in writing, to the knowledge
Thus, payment before maturity is not payment in due of the drawer or the indorser of an instrument, the fact that a
course and will not discharge the instrument. In this specified negotiable instrument, upon proper proceedings taken,
case, the payor can reissue or renegotiate the has not been accepted, or has not been paid, and that the party
instrument. notified is expected to pay it.
3. It must be made to the holder of the instrument; Q: What must be stated in the notice of dishonor?
4. It must be made in good faith and without notice that
the holder’s title is defective. A:

1. Sufficient description of the bill or note; (b) Where the indorser is the person to whom the
2. Statement that the instrument has been dishonored instrument is presented for payment;
upon presentment fir acceptance or for payment; (c) Where the instrument was made or accepted for
3. Statement that the instrument has been protested if his accommodation.
protest is required; and
4. An announcement of the intention to look to the party 5. When notice of dishonor by non-acceptance was
addressed for payment. previously given (Sec.116);
6. As regards a holder in due course without notice (Sec.
Q: What is the purpose of notice of dishonor? 117).
A: It is to enable the party to be charged to preserve and protect Q: What is the effect of failure to give notice of dishonor?
his rights against prior parties.
A: Any DR or Indorser to whom notice is not given is discharged
Q: What are the grounds for giving of notice of dishonor? (Sec. 89).
A: Sec. 90. By whom given. - The notice may be given by or on

behalf of the holder, or by or on behalf of any party to the
1. Non-acceptance of the instrument (for the BOE); and instrument who might be compelled to pay it to the holder, and
2. Non-payment of the instrument (for both BOE and PN). who, upon taking it up, would have a right to reimbursement
from the party to whom the notice is given.
Necessity of giving of notice of dishonor
Requisites of notice of dishonor
a. As against a party primarily liable
a. By whom notice is given
Notice of dishonor need not be given to the party primarily liable
because he is the very person who dishonored the instrument. 1. By the holder or on behalf of the holder; and
Thus, notice of dishonor need not be given to the MR (whether 2. By or on behalf of any party to the instrument who
joint or accommodation MR) or guarantor of a note nor the might be compelled to pay it to the holder, and who,
acceptor of a BOE. upon taking it up, would have the right to
reimbursement from the party to whom notice is given.
b. As against a party secondarily liable
Example: M makes a PN payable to the order of P. P
Notice of dishonor must be given to the DR and to each indorser indorses the note to A, A to B, B to C, C to D, and D to H,
to make them liable. holder. H presents the note to M for payment but
dishonors it:
XPNs: a. H, the holder, can give notice of dishonor to P, A,
B, C and D.
1. In case of waiver (Sec. 109,110,111); b. S, stranger, can give notice in behalf of H. S, as
2. When notice is dispensed with (Sec. 112); agent, may give notice of dishonor in his own
3. As regards the DR in the following cases (Sec. 114): name or in the name of H, whether H is his
principal of not.
Sec. 114. When notice need not be given to drawer. - c. A, B, C and D can give notice of dishonor because
Notice of dishonor is not required to be given to the any of them may be compelled by H to pay
drawer in either of the following cases: provided that H has given them a notice of
(a) Where the drawer and drawee are the same dishonor. Thus, A can give notice only to P whom
person; he can hold liable, but not to B, C and D, whom he
(b) When the drawee is fictitious person or a person cannot hold liable. B can give notice to P and A. C
not having capacity to contract; can give notice to P, A and B. D can give notice to
(c) When the drawer is the person to whom the P, A, B, and C.
instrument is presented for payment; d. T, a stranger, can give notice in behalf of A, B, C or
(d) Where the drawer has no right to expect or require D to the parties to whom each can give notice.
that the drawee or acceptor will honor the e. If H gives notice only to C, C cannot give notice to
instrument; D because C, upon taking up the note, has no right
(e) Where the drawer has countermanded payment. to reimbursement from D. D will be discharged
and will become a stranger and as such cannot
4. As regards the indorser in the following cases (Sec.115): give notice in his own behalf
f. M, the maker, and D, after discharge, can give
Sec. 115. When notice need not be given to indorser. notice in behalf of those entitled to give notice
— Notice of dishonor is not required to be given to an such as H, holder, or C, an indorser, if C was
indorser in either of the following cases: previously notified by H.
(a) When the drawee is a fictitious person or person
not having capacity to contract, and the indorser was b. How notice is given; To whom notice is given
aware of that fact at the time he indorsed the
instrument; Q: What should be the form of notice?
places to go by mail the day following the
A: day of dishonor, or if there be no
mail at a convenient hour on last
1. Oral day, by the next mail thereafter.
2. Written b. If given otherwise than through
the post office, then within the
Q: How is notice served? time that notice would have been
received in due course of mail, if it
A: had been deposited in the post
office within the time specified in
1. By personal delivery the last subdivision.
2. By registered mail
d. Where notice must be sent
Q: To whom should notice be given?
Q: Where must notice be given?
A: Notice may be given to the party himself or to his agent in that
behalf subject to the following rules: A:
Where party is dead a. When any party is dead, and his 1. Where a party has added an address to his signature
death is known to the party giving notice of dishonor must be sent to that address;
notice, the notice may be given to 2. If he has not given such address, notice must be sent as
his personal representative, if follows:
there be one, and if with a. Either to the post-office nearest to his place of
reasonable diligence, he can be residence or to the post-office where he is
found accustomed to receive his letters
b. If there by no personal b. If he lives in one place, and has his place of
representative, notice may be sent business in another, notice may be sent to either
to the last residence or last place place
of business of the deceased c. If he is sojourning in another place, notice may be
Where the parties are Notice to any partner is notice to the given to the place where he is so sojourning.
present firm even if there has been a
dissolution NOTE: But where the notice is actually received by the party
Where parties are Notice may be given to each of them, within the time specified in the proceeding rules, it will be
joint but not partners unless one of them has authority to sufficient though not sent in accordance with the requirements
receive such notice for others aforementioned.
Where party has been Notice may be given to the party
adjudged a bankrupt himself or to his trustee or assignee. Sec. 91. Notice given by agent. - Notice of dishonor may be
or an insolvent or has given by any agent either in his own name or in the name of any
made an assignment party entitled to given notice, whether that party be his
for the benefit of principal or not.
creditors
NOTE: Notice of dishonor may be given by an agent and it is not
c. When notice must be given necessary that the agent be authorized by the principal.
Q: When must notice be given? Notice may be given by him:

1. In the name of any party entitled to give notice such as
A: Notice may be given as soon as the instrument is dishonored, the holder, or an indorser to whom notice was given; or
unless delay is excused subject to the following rules: 2. In his (the agent’s) own name.
Where parties are in a. If given at the place of business of Sec. 92. Effect of notice on behalf of holder. - Where notice is
the same place the person to receive notice, it given by or on behalf of the holder, it inures to the benefit of all
must be given before the close of subsequent holders and all prior parties who have a right of
business hours on the day recourse against the party to whom it is given.
following;
b. If given at his residence, it must be Q: If notice was given by or on behalf of the holder, who will
given before the usual hours of benefit the notice?
rest on the day following
c. If sent by mail, it must be A:
deposited in the post-office in time
to reach him in usual course on 1. All subsequent holders
the day following 2. All prior parties who has a right of recourse against the
Where the parties a. If sent by mail, it must be party to whom notice is given
reside in different deposited in the post office in time

Example: M makes a PN payable to the order of P. P indorses the time for giving notice as if the agent had been an independent
note to A, A to B, B to C, and C to H, holder. H presents the note holder.
to M for payment but M dishonors it.
a. H notifies P, A, B and C. The notice given by H to P NOTE: The agent may give notice either:
inures to the benefit of A, B and C. Thus A, B and C can a. To the parties liable on the instrument
hold P liable even if they themselves did not give notice b. To his principal
to P. The notice given by H to A inures to the benefit of
B and C. The notice given by H to B inures to the benefit If he gives notice to his principal he must do so within the same
of C. time as if he were the holder, and the principal upon the receipt
b. Assuming that after giving notice, H, holder, further of such notice has himself the same time for giving notice to the
negotiates the note to I, then I to J, and J to K. The drawer and indorsers as if the agent had been an independent
notice given by H inures to the benefit of I, J and K; holder.
hence, they need not give another notice of dishonor to
P, A, B and C. Examples:
Q: What do you mean be “benefit”? 1. Big Mama commissioned Karl “The Nail Cutter Man” to look
for a suitable Big Papa. After introducing Toti to Big Mama,
A: The right to charge the person secondarily liable who received the latter gave The Nail Cutter Man a note in exchange of his
notice. The party to whom this benefit inures can charge the services (delivery of Big Papa [aside from the usual manicure
party receiving notice of dishonor, even if he himself did not give and pedicure fee of course]). Thereafter, The Nail Cutter
notice. Man delivered the note to Chikiti China, who then indorsed
it to Big Boy Ramby. Lito the self-proclaimed “Babe Killer” of
Sec. 93. Effect where notice is given by party entitled thereto. - 2B and Big Boy Ramby’s agent, makes a presentment for
Where notice is given by or on behalf of a party entitled to give payment to Big Mama, maker, on 20 October 1998.
notice, it inures to the benefit of the holder and all parties a. Under Section 104, notice must be given within the
subsequent to the party to whom notice is given. next day following, 21 October 1998. Babe Killer can
give notice of dishonor to The Nail Cutter Man, and
NOTE: Notice of dishonor given by or on behalf of a party entitled Chikiti China directly, after dishonor and within 21
to give notice inures to the benefit of the holder and parties October 1998.
subsequent to the party to whom notice is given. b. But Babe Killer can give notice to his principal Big Boy
Ramby. Such notice must be given after dishonor and
Q: If the notice is given to a prior party from whom he can ask within 21 October 1998.
for reimbursement by a person who may be compelled to pay, c. Big Boy Ramby, holder, has in turn until 22 October
who will benefit from the notice? 1998, the next day following 21 October 1998 (the day
he was given notice) to give notice to The Nail Cutter
A: Man, and Chikiti China.
1. The holder 2. R drew payable to the order of P a BOE which is due on

2. Parties subsequent to the party to whom notice is given October 31, 2010. W is the drawee. P indorsed it to A, A to
H, holder. On October 31, 2010, X, the agent of H, presented
Example: M issued an order instrument to P. P negotiated the the bill to W for payment but W dishonored it. X may give
instrument to A through indorsement and delivery. A negotiated notice only to H. X may give notice of dishonor to R, P and A,
the instrument through indorsement and delivery to B, who in or he may give notice only to H. If X gives only a notice of
turn negotiated the instrument to C, the present holder. M dishonor to H, he may do so within the time provided by law
dishonored the instrument and C gave notice of dishonor to B but as if he were the holder, and H, upon the receipt of such
he did not give notice of dishonor to P and A. notice, has himself the same time for giving notice as if X
had been an independent holder. Thus, if the parties reside
B, the indorser who was given notice of dishonor by C, can give in the same place, X must give notice to H not later than
notice of dishonor to the indorser from whom he can claim November 1, 2010. H, in turn, has until November 2, 2010 to
reimbursement if he is compelled by C to pay to P and A. give notice to R, P and A.
If B will give notice of dishonor to P and A, the notice to them will Sec. 95. When notice sufficient. - A written notice need not be
benefit C and C can compel P and A to pay even if he did not signed and an insufficient written notice may be supplemented
personally give notice of dishonor. In addition, the notice given by and validated by verbal communication. A misdescription of the
B to P will benefit A in the sense that if A is compelled to pay, he instrument does not vitiate the notice unless the party to whom
can claim reimbursement from P even if he did not personally the notice is given is in fact misled thereby.
give notice of dishonor.
Sec. 96. Form of notice. - The notice may be in writing or merely
Sec. 94. When agent may give notice. - Where the instrument oral and may be given in any terms which sufficiently identify
has been dishonored in the hands of an agent, he may either the instrument, and indicate that it has been dishonored by
himself give notice to the parties liable thereon, or he may give non-acceptance or non-payment. It may in all cases be given by
notice to his principal. If he gives notice to his principal, he must delivering it personally or through the mails.
do so within the same time as if he were the holder, and the
principal, upon the receipt of such notice, has himself the same Form of notice of dishonor
Q: What must be the form of the notice of dishonor? 1. To the party himself
2. To the agent of such party, in that behalf
A:
NOTE: If the notice is given to an agent of a party, such agent
1. Oral must be duly authorized to receive the notice of dishonor as the
2. Written law says “in that behalf.” Otherwise, the notice is not valid.
NOTE: Thus, notice of dishonor may be given by landline or Sec. 98. Notice where party is dead. - When any party is dead
mobile phone, or by personally telling the party to be notifed of and his death is known to the party giving notice, the notice
the dishonor of the instrument. must be given to a personal representative, if there be one, and
if with reasonable diligence, he can be found. If there be no
Q: Should the written notice be signed? personal representative, notice may be sent to the last
residence or last place of business of the deceased.
A: No. Also, an insufficient notice may be supplemented and
validated by verbal communication. Q: To whom should notice be given?
Q: What is the effect of misdescription? A:
A: A misdescription of the instrument does not vitiate the notice 1. When the person to be given notice of dishonor is dead,
unless the party to whom the notice is given is misled thereby. notice must be given to his personal representative,
provided that:
Q: What are the contents of the notice?
a. his death is known to the party giving notice;
A: b. there is a personal representative; and
c. if with reasonable diligence he could be found
1. The notice, whether oral or written, must sufficiently
describe the instrument dishonored. 2. if there be no personal representative, notice may be
sent to the last residence or last place of business of the
NOTE: This is important for the proper identification of the deceased, provided that:
instrument.
a. his death is not known to the party giving notice;
2. It must also indicate that the instrument has been or
dishonored by non-acceptance or non-payment. b. although his death is known to the party giving
3. Statement that the instrument has been protested if notice but there is no personal representative; or
the protest is required c. if there be one but he cannot be found with
4. An announcement of the intention to look to the party reasonable diligence, then notice may be sent to
addressed for payment. the last residence or last place of business of the
deceased.
Q: How is notice served?
Sec. 99. Notice to partners. - Where the parties to be notified
A: are partners, notice to any one partner is notice to the firm,
even though there has been a dissolution.
1. By personal delivery
2. By registered mail NOTE: Notice may be given to any partner. Such notice is notice
to the partnership even if there has been a dissolution.
NOTE: In a personal service, the evidence must show either
actual personal service, or an ordinary intelligent, diligent effort Sec. 100. Notice to persons jointly liable. - Notice to joint
to make personal service upon the indorser at his place of persons who are not partners must be given to each of them
business during business hours or at his residence if he has no unless one of them has authority to receive such notice for the
place of business. But if he be absent, it is not necessary to call a others.
second time, and the notice may, in that event, be left with
anyone left in charge, or if there be no one in charge, or no one Q: To whom should notice be given if parties are jointly liable?
there, then giving notice is deemed to be waived.
A: Notice must be given to each of them, unless one has been
Sec. 97. To whom notice may be given. - Notice of dishonor may authorized to receive such notice for the others.
be given either to the party himself or to his agent in that
behalf. Q: When does Sec. 100 apply?
To whom notice may be given A: This section applies to joint parties other than joint payees and
joint indorsees who indorse, such as, to drawers who sign a bill
Q: To whom should notice be given? jointly, or to joint accommodation indorsers who are not jointly
and severally liable under Section 68 as they are neither payees
A: nor indorsees.
c. When the drawer is the person to whom the
This section do not apply to joint payees or joint indorsees who instrument is presented for payment;
indorse as, under Section 68 of the Negotiable Instruments Law, d. Where the drawer has no right to expect or require that
such joint indorsers are deemed jointly and severally liable, and the drawee or acceptor will honor the instrument;
joint indorsers to whom notice of dishonor has been given are e. Where the drawer has countermanded payment (Sec
not discharged by reason of failure to given notice to the other 114 NIL)
joint indorsers.
Q: What is the effect if the notice is not given within the period?
Sec. 101. Notice to bankrupt. - Where a party has been
adjudged a bankrupt or an insolvent, or has made an A: If not given to the drawer or indorsers, they are discharged
assignment for the benefit of creditors, notice may be given from secondary liability.
either to the party himself or to his trustee or assignee.
However, the liability of the drawer under a separate contract
Notice to bankrupt may remain although no notice of dishonor is given to him. The
absence of notice of dishonor affects the drawer’s secondary
Q: What are the 2 situations contemplated under Sec. 101? liability but it does not affect the liability of the drawer under a
separate source of obligation. Thus, if the drawer issued the BOE
A: to the payee in payment of the obligation, the bill was
dishonored by the drawee when it was presented for acceptance
1. the party to whom notice should be given is declared by and no notice of dishonor was given to the drawer, the drawer is
a court as bankrupt or insolvent no longer secondarily liable. However, the drawer is still liable
2. the party to whom notice should be given has made an based on the breach of contract of sale. The drawer, in effect,
assignment for the benefit of creditors failed to pay the price and is therefore still liable to pay such price
despite the absence of notice of dishonor.
Q: To whom should notice be given?
Sec. 103. Where parties reside in same place. - Where the
A: person giving and the person to receive notice reside in the
same place, notice must be given within the following times:
1. to the party himself (a) If given at the place of business of the person to receive
2. to his trustee or assignee notice, it must be given before the close of business hours on
the day following.
Sec. 102. Time within which notice must be given. - Notice may (b) If given at his residence, it must be given before the usual
be given as soon as the instrument is dishonored and, unless hours of rest on the day following.
delay is excused as hereinafter provided, must be given within (c) If sent by mail, it must be deposited in the post office in time
the time fixed by this Act. to reach him in usual course on the day following.
Q: May notice of dishonor be given before the date of maturity? Q: What is meant by “same place”?
A: No, because an instrument cannot be said to be dishonored for A: The corporate limits of a town or city where the presentment
non-payment unless presented, and presentment must be made is made or where the holder resides.
on the date of maturity.
Notice when parties reside in the same place
Notice of dishonor can be given only after the instrument has
been actually dishonored, and notice given before the paper Example: One time, Tacklessang Trina saw Prim and Proper Pia’s
becomes due is premature and insufficient, regardless of the new ballroom dancing shoes and she liked them. Since Prim and
indorser’s knowledge that the maker was in default. Proper Pia did not want to reveal where she bought them, lest all
of 2B’s girls would be wearing the same pair in no time, Prim and
May notice of dishonor be given on the date of maturity? Proper Pia just volunteered to buy the shoes for Tacklessang
Trina. For that, Tacklessang Trina issued Prim and Proper Pia a
A: Yes, provided that the instrument has been presented for bill, who in turn indorsed it to Jolly Jo, who then indorsed it to
payment and it has been dishonored. But if the instrument is Audacious Aileen. Both Audacious Aileen and Prim and Proper
payable at a bank, it is not dishonored if the maker deposits the Pia reside in Quezon City. The instrument was dishonored on 15
amount of the instrument before the close of banking hours. July 1998. Under Section 103:
Hence, notice of dishonor must be given after the close of
banking hours on the date of maturity. 1. If given at the place of business of Prim and Proper Pia,
the notice must be given after dishonor but not later
Q: When is notice of dishonor not required to be given to the than 16 July 1998, before the close of business hours on
drawer? that day. Otherwise, notice would be too late.
2. If given at Prim and Proper Pia’s residence, notice must
A: Notice of dishonor is not required to be given to the drawer in be given after dishonor but not later than 16 July 1998
any of the following cases: before the usual hours of rest on that day.
a. Where the drawer and drawee are the same person; 3. If sent by mail, the notice must be deposited at the
b. When the drawee is a fictitious person or a person not mailbox at such time as would enable Prim and Proper
having capacity to contract; Pia to receive the notice not later than 16 July 1998 in
due course of mail. This means that even if, due to the
fault or other acts of postal authorities, the notice does 1. If the notice is sent by mail, it must be deposited in the
not reach the party to be given notice on the day post-office to go by mail on December 2, 2010. Thus, if
following the day of dishonor, the notice would still be the mail on December 2, 2010 is 10 am, the notice must
considered on time. be deposited before such time. However, if the mail
departure is at 5am, daily, then the notice must be
Example: Assume that an instrument is dishonored on Dec. 1, deposited in the post-office in time to go by mail on
2010, with H, the party giving notice, and P, the party to be December 3, 2010.
notified, both residing in Manila. 2. If sent otherwise than by mail, such as by personal
delivery, the notice must be delivered within such time
a. If the notice is to be given at the place of business of P, that P would have received the notice by mail. Thus, if
notice must be given before the close of business hours the notice had been deposited in the post-office on
on December 2, 2010 December 2, 2010 before 10 am would have been
b. If given at the residence of P, notice must be given received by P in Batangas on December 5, 2010, the
before the usual hours of rest on December 2, 2010 personal delivery must be effected so that the notice
c. If sent by mail to P, notice must be deposited in the would be received by P on December 5, 2010.
post-office in time to reach P in the usual course on
December 2, 2010. Sec. 105. When sender deemed to have given due notice. -
Where notice of dishonor is duly addressed and deposited in the
Sec. 104. Where parties reside in different places. - Where the post office, the sender is deemed to have given due notice,
person giving and the person to receive notice reside in notwithstanding any miscarriage in the mails.
different places, the notice must be given within the following
times: Q: When is the sender deemed to have given notice?
(a) If sent by mail, it must be deposited in the post office A: The sender is deemed to have given notice of dishonor if sent
in time to go by mail the day following the day of through the office, even if there is a miscarriage in the mails, if
dishonor, or if there be no mail at a convenient hour the following requisites are present:
on last day, by the next mail thereafter.
(b) If given otherwise than through the post office, then a. The notice of dishonor is duly addressed
within the time that notice would have been received
in due course of mail, if it had been deposited in the NOTE: Thus, if the drawer or an indorser has added an address to
post office within the time specified in the last his signature but the notice has been mailed to a different
subdivision. address, the notice is not deemed given. The drawer or indorser
is discharged from liability.
Notice when parties reside in different places
b. The notice must be deposited in the post-office
Example: In the above example, if Audacious Aileen lived in
Quezon City and Prim and Proper Pia lived in Manila, and the NOTE: Thus, the notice is not deemed served if the notice was
instrument was dishonored on 15 July 1998, under Section 104: deposited in a mail box which is not under the control of the
post-office department.
1. If sent by mail, the notice need not reach Prim and
Proper Pia on 16 July 1998, but the notice must be Sec. 106. Deposit in post office; what constitutes. - Notice is
deposited in the mails not later than 16 July 1998, the deemed to have been deposited in the post-office when
day following the day of dishonor. But if there is no mail deposited in any branch post office or in any letter box under
at a convenient hour on 16 July 1998, the notice may be the control of the post-office department.
deposited in the mails by the next mail thereafter.
Thus, suppose that there is no mail on 16 July 1998, or Q: Under Sec. 106, where should the notice be mailed?
if there is, it leaves at 3:00 A.M., and the next mail is
3:00 A.M. on 17 July 1998, the notice may be deposited A:
any time of the day on 16 July 1998, in time for the 3:00
A.M. mail on 17 July 1998. 1. Post-office
2. If sent otherwise than by mail, as by personal 2. Branch post office
messenger, the notice must be sent at such time as to 3. Letter box under the control of the post-office
enable Prim and Proper Pia to receive the notice within department
the time he would have received it had it been mailed.
Suppose that had the notice been mailed to her under
paragraph (i) herein, the notice would have been Sec. 107. Notice to subsequent party; time of. - Where a party
received by her on 18 July 1998. The personal receives notice of dishonor, he has, after the receipt of such
messenger must deliver the notice to her not later than notice, the same time for giving notice to antecedent parties
18 July 1998, otherwise, the notice would be too late. that the holder has after the dishonor.
Example: Assume that an instrument is dishonored on Dec. 1, Time for giving notice to antecedent party
2010, with H, the party giving notice residing in Manila, and P, the
party to be notified, residing in Batangas.
Where a party receives notice of dishonor, he has, after the b. If he has not given such address, notice must be sent as
receipt of such notice, the same time for giving notice to follows:
antecedent parties that the holder has after the dishonor.
i. Either to the post-office nearest to his place of
An indorser who receives a notice of dishonor is entitled to give residence or to the post-office where he is accustomed
notice to persons from whom he can ask reimbursement. These to receive his letters; or
include the DR or prior indorsers who are referred to in Sec.107 ii. If he lives in one place and has his place of business in
as antecedent parties. another, notice may be sent to either place; or
iii. If he is sojourning in another place, notice may be sent
Q: Who are considered as “antecedent parties”? to the place where he is so sojourning.
A: They refer to those who precede the one giving notice in the Q: What is sojourning?
order of the becoming a party to the instrument and upon whom
he can demand reimbursement should he pay to any party A: It signifies a temporary residence of a party where he may be
subsequent to him or to the holder. notified.
E.g: M is the maker of PN payable to the order of P. P indorses Sec. 109. Waiver of notice. - Notice of dishonor may be waived
the note to A, A to B, B to C, and C to H. H presents the note to M either before the time of giving notice has arrived or after the
for payment on December 1,2010. M dishonors it. H, a resident of omission to give due notice, and the waiver may be expressed
Manila, gives a notice of dishonor to C, also a resident of Manila, or implied.
on December 2,2010. If C gives a notice of dishonor to P, also a
resident of Manila, he has until December 3,2010, to give such Sec. 110. Whom affected by waiver. - Where the waiver is
notice. embodied in the instrument itself, it is binding upon all parties;
but, where it is written above the signature of an indorser, it
Sec. 108. Where notice must be sent. - Where a party has added binds him only.
an address to his signature, notice of dishonor must be sent to
that address; but if he has not given such address, then the Q: What do you mean by waiver?
notice must be sent as follows:
A: It means the person who is making the waiver renounces the
(c) Either to the post-office nearest to his place of benefit of the act or matter in his favor. Thus, the rule on giving
residence or to the post-office where he is accustomed of notice of dishonor is for the benefit of the DR or the indorsers.
to receive his letters; or If no notice is given, they are discharged. If the indorsers or the
(d) If he lives in one place and has his place of business in drawer waive the benefit of the notice of dishonor, they will still
another, notice may be sent to either place; or be liable as a consequence despite the absence of such notice.
(e) If he is sojourning in another place, notice may be sent
to the place where he is so sojourning. Waiver of notice
But where the notice is actually received by the party within the The DR and the indorsers are liable even without notice of
time specified in this Act, it will be sufficient, though not sent in dishonor in case of waiver of the giving of notice.
accordance with the requirement of this section.
Q: What are the types of waiver?
The notice of dishonor must be sent to the address of the
indorser of the drawer indicated in the instrument itself. It is only A:
when there is no address specified in the instrument that the
notice may be sent to the places mentioned in paragraphs a, b 1. Waiver of notice of dishonor may either be: express or
and c of 108. implied;
Yet, it is also stated that strict compliance is not necessary. It is a. Express- this may be done orally or in writing. The
no absolutely necessary that the notice is sent in the places waiver may be made on the face of the instrument
mentioned in paragraphs a, b, and c of Sec.108. it is enough that itself, or written above the signature of an
notice is actually received on time or within the time prescribed indorser.
under Sections 103 and 104 by the person who is supposed to b. Implied- this may be inferred from the conduct of
receive notice even if he received the same in a different place. the party himself, such as when an indorser who
was not given notice and therefore discharged,
Thus, if the indorser personally received the notice of dishonor manifested his willingness to pay if the drawer or
the day following the dishonor, the same is valid even if he maker does not pay the instrument.
received it whole he was in a restaurant eating his lunch. Still, 2. Written waiver may either be: written in the instrument
there must be proof of actual receipt of the notice of dishonor. itself or written above the signature of the indorser;
3. Waiver may be: before the time of giving of notice or
Where notice must be sent after the failure to give notice.
a. Where a party has added an address to his signature, Q: To whom is the waiver binding?
notice of dishonor must be sent to that address.
A:
(Sgd.) A
a. If the waiver is written on the instrument itself—
binding on all parties; The waiver of protest made by A is deemed to include a waiver of
b. If the waiver is written above the signature of the notice of dishonor. Hence, A will be liable although he is not given
indorser—binding only on the indorser and he is the a notice of dishonor.
only one who is deemed to have made the waiver.
Sec. 111. Waiver of protest. - A waiver of protest, whether in
A waiver of protest whether in the case of a foreign bill of the case of a foreign bill of exchange or other negotiable
exchange or other negotiable instrument, is deemed to be a instrument, is deemed to be a waiver not only of a formal
waiver not only of a formal protest but also of presentment and protest but also of presentment and notice of dishonor.
notice of dishonor.
Protest
Examples:
Q: What do you mean by protest?
a. Bebeng (R) draws a BOE in favor of Ayel (P) as follows:
A: It is a formal statement in writing made by a notary public at
Pay to the order of Ayel (P) P50,000.00. Notice of dishonor the instance of the holder declaring that the instrument has been
waived. presented for payment or for acceptance but the same was
dishonored.
(Sgd.) Bebeng (R)
Protest is indispensable only in a foreign bill of exchange.
To: Mickey However, this instrument may also be subject to waiver. Waiver
of protest has the following effects.
The above bill is indorsed by P to A, A to B, B to C and C to H,
holder. H presents the bill to W for acceptance but W dishonors a. Protest itself is waived;
it. In this case, H need not give a notice of dishonor to R, P, A, B b. Presentment for payment or acceptance is also deemed
and C, who are all bound by the waiver that is embodied in the waived;
instrument. c. Notice of dishonor or also deemed waived.
b. Bebeng draws a BOE in favor of Ayel (P) as follows: Sec. 112. When notice is dispensed with. - Notice of dishonor is
dispensed with when, after the exercise of reasonable diligence,
it cannot be given to or does not reach the parties sought to be
Pay to Ayel or order P 50,000.00. charged.
(Sgd.) R Q: When is notice of dishonor dispensed with?
To: W A:
The back of the instrument shows the following indorsements: a. It cannot be given to the party who is sought to be held
liable;
Pay to A. Thus, notice of dishonor is dispensed with if it cannot

(Sgd.) P be given to the party sought to be charged because of
the prevalence of a contagious disease, or there are
armed hostilities, in his place.
Pay to B. Notice of dishonor waived.
(Sgd.) A b. It does not reach the party who is sought to be held
laible.
Pay to C.
(Sgd.) B The holder or the person giving notice must exercise reasonable
Pay to H. diligence in giving of notice within the time and in the place
(Sgd.) C prescribed under the NIL. The person who is required to give
notice must do what a reasonable man would have done under
the same circumstances.
The bill presented for acceptance by H to H who dishonors it. In
this case, H need not give a notice of dishonor to A who, in his If due diligence is exercised but notice of dishonor cannot be
indorsement, waived the giving of notice of dishonor and is the given or if it did not reach the party sought to be charged then
only one bound by it. However, H must give a notice of dishonor notice of dishonor is dispensed with.
to P, B and C.
Sec. 113. Delay in giving notice; how excused. - Delay in giving
c. Assume that A’s waiver in (b) above is as follows: notice of dishonor is excused when the delay is caused by
circumstances beyond the control of the holder and not
Pay to B. Protest waived. imputable to his default, misconduct, or negligence. When the

cause of delay ceases to operate, notice must be given with This is true when the DE is absent or inaccessible and the DR is
reasonable diligence. the person found at the place where presentment for payment is
to be made and he dishonors it (Sec.72).
When delay in giving notice is excused
Delay in giving notice of dishonor is excused when the delay is This contemplates a situation where the DR is not the DE but the
caused by circumstances beyond the control of the holder, and person to whom the instrument was presented in behalf of the
not imputable to his default, misconduct or negligence. When the DE is the DR. For example, if the DR is the authorized agent or
cause of delay ceases to operate, notice must be given with representative of the DE who dishonored the instrument then
reasonable diligence. notice of dishonor need not be given to the DR.
E.g: When notice of dishonor cannot be given because the place E.g: R draws a BOE payable to the order of P. W is the DE. The bill
of the party to be notified is isolated by landslides, the delay in is payable at the office of R. P indorses the bill to A, A to B, B to H,
giving notice of dishonor is excused. However, when the place of holder. H presents the bill for payment at R’s office. W is not
the party becomes accessible, notice of dishonor must be given there but R is there. So H presents the bill for payment at R’s
to him with reasonable diligence. Here, only the delay in giving of office. W is not there but R is there. So H presents the bill for
dishonor is excused, but not the giving of notice of dishonor. payment to R who is at the place of presentment but R dishonors
it. In this case, H need not give a notice of dishonor to R, the
Sec. 114. When notice need not be given to drawer. - Notice of drawer, since he already knows of the dishonor.
dishonor is not required to be given to the drawer in either of
the following cases: d. Where the drawer has no right to expect or require that
the drawee or acceptor will honor the instrument;
(a) Where the drawer and drawee are the same person;
(b) When the drawee is fictitious person or a person not Thus, the drawer of a check need not be notified of the dishonor
having capacity to contract; if he was aware that he had no sufficient funds in his bank
(c) When the drawer is the person to whom the account to cover the check. Here, he has no right to expect that
instrument is presented for payment; the bank will honor the check.
(d) Where the drawer has no right to expect or require
that the drawee or acceptor will honor the e. Where the drawer has countermanded payment.
instrument;
(e) Where the drawer has countermanded payment. Thus, the DR need not be given a notice of dishonor if he gave a
“stop payment” order to the DE.
Q: When notice of dishonor need not be given to the DR?
Sec. 115. When notice need not be given to indorser. — Notice
A: of dishonor is not required to be given to an indorser in either of
the following cases:
a. Where the drawer and drawee are the same person
(a) When the drawee is a fictitious person or person not
The instrument in such a case is treated as a promissory note. having capacity to contract, and the indorser was aware of
Notice to the DR, like notice to the maker is not necessary. that fact at the time he indorsed the instrument;
(b) Where the indorser is the person to whom the instrument
If the DE is the DR, then the Dr is actually already aware of the is presented for payment;
dishonor. (c) Where the instrument was made or accepted for his
accommodation.
b. When the drawee is fictitious person or a person not
having capacity to contract; When notice need not be given to indorser
If the DE is a fictitious person or one incapable of entering into a a. Fictitious DE

contract, like a minor or insane, the holder may treat the bill as a
note. In such a case, the DR becomes the maker, with primary It is essential that the indorser had knowledge that the DE was a
liability. As a maker, notice of dishonor need not be given to him fictitious person or one incapable of giving consent to a contract
(Sec.89). at the time he indorsed the instrument. Being aware of such fact,
he has not right to expect that the instrument will be accepted or
Notice of dishonor need not be given because it is actually the DR paid.
who was at fault for placing a fictitious DE. On the other hand, if
the DE is a minor, the DR cannot also expect that the DE will An indorser does not admit the existence of the DE when he
honor the instrument. indorses a BOE. Yet, he has only himself to blame if he was aware
that the DE is not existing and he still indorsed the instrument. He
c. When the drawer is the person to whom the instrument is may not be aware that the DE was fictitious at the time he took
presented for payment; the instrument but he cannot expect that the instrument will be
honored in the hands of the subsequent holders if he was already
aware of such fact at the time of his indorsement.

b. Indorser is the person to whom the instrument is for payment. W dishonors it. Here, H need not give a notice of
presented for payment dishonor by non-payment to R, P, A and B.
1. R draws a BOE payable to the order of P. W is the DE. Assume that W dishonors the bill by non-acceptance. H gives
The bill is payable at the office of B. P indorses the bill notice of dishonor to R, R, P, A and B. Before the lapse of the 30-
to A, A to B, B to C and C to H, holder. H presents the day period, W accepts the bill. On due date, when H presents the
bill for payment at B’s office. W is not there but B is bill for payment, W dishonors it. H must give notice of dishonor
there. So H presents the bill for payment to B who is at by non-payment to R, P, A and B.
the place of presentment but B dishonors. In this case,
H need not give a notice of dishonor to B, an indorser, Sec. 117. Effect of omission to give notice of non-acceptance. -
since he already knows of the dishonor. H, however, An omission to give notice of dishonor by non-acceptance does
must give a notice of dishonor to R, P, A and C. not prejudice the rights of a holder in due course subsequent to
Otherwise, they will be discharged. the omission.
2. If the indorser is the authorized agent or representative
of the DE who dishonored the instrument, then notice Subsequent HDC not prejudiced by omission to give notice of
of dishonor need not be given to the indorser. This is dishonor by non-acceptance
possible for instance if the indorser is the bank teller
who dishonored the check in behalf of the DE bank. NOTE: An omission to give notice of dishonor by non-acceptance
does not prejudice the rights of a HDC subsequent to the
c. Indorser is accommodated party omission.
If the MR is an accommodated party and the person who Example: R draws a bill payable to the order of P. P presents the
accommodated him is the indorser, the MR is the surety of the bill to W, drawee, for acceptance. W refuses to accept it. Without
indorser who is, in effect, the principal. Since the indorser is the giving a notice of dishonor to R, P indorses the bill to H under
principal, he cannot really expect the accommodation maker to circumstances that make H a HDC. P’s omission to give notice of
pay. dishonor to R does not prejudice H, who may still present the bill
to W for acceptance, and in case of dishonor by W, give notice to
This is also true if the indorser is the accommodated party and R and recover from him.
the acceptor is the accommodation party because the acceptor
only lent his name to the indorser. Sec. 118. When protest need not be made; when must be made.
- Where any negotiable instrument has been dishonored, it may
E.g. P wants to borrow money from H and is willing to issue a PN be protested for non-acceptance or non-payment, as the case
to cover any amount loaned. H, however, does not want to may be; but protest is not required except in the case of foreign
accept P’s note but one coming from M, P’s businessman friend. bills of exchange.
So M makes a PN payable to order of P to accommodate P. P
discounts the note with H. Later, H presents the note to M for Q: When is protest made?
payment, but M dishonors it. Here, H need not give a notice of
dishonor to P to charge him. A:
Sec. 116. Notice of non-payment where acceptance refused. - 1. When a negotiable instrument has been dishonored by
Where due notice of dishonor by non-acceptance has been non-acceptance
given, notice of a subsequent dishonor by non-payment is not
necessary unless in the meantime the instrument has been NOTE: This applies to a bill of exchange
accepted.
2. When a negotiable instrument has been dishonored by
NOTE: Notice of dishonor by non-payment is no longer necessary non-payment
if the BOE was already dishonored by non-acceptance and notice
of such dishonor by non-acceptance was previously given. The NOTE: This applies to a bill of exchange or promissory note
moment notice of dishonor by non-acceptance was given, the
indorser and the drawer are already liable. Hence, it is no longer Q: When is protest required?
necessary to give another notice to the drawer or the indorser.
A: Protest is required only in the case of foreign bills of exchange.
However, if the drawee initially refused to accept the BOE but In the case of an inland bill of exchange or a promissory note,
later changed his mind and accepted the same BOE, the holder protest is not required. However, it is advantageous to protest
(or any other person who is supposed to give notice) must give any negotiable instrument since the certificate of notary is a
notice if the acceptor dishonored the instrument and refused to prima facie evidence of the facts of presentment, demand, non-
pay the same. payment and notice of dishonor.
Example: R is the drawer. W is the drawee. The bill is drawn

payable to the order of P and is payable after 30 days. P indorses
the bill to A, A to B, B to H. H presents the bill to W for DISCHARGE OF NEGOTIABLE INSTRUMENTS
acceptance. W dishonors it. H gives notice of dishonor by non-
acceptance to R, P, A and B. On due date, H presents the bill to W Sec. 119. Instrument; how discharged. - A negotiable instrument
is discharged:
mistake or without authority is inoperative and will not discharge
a. By payment in due course by or on behalf of the the instrument.
principal debtor;
b. By payment in due course by the party Q: Discharge of the instrument can also be made by any other
accommodated, where the instrument is made or act which discharges a simple contract for the payment of
accepted for his accommodation; money. What are the modes of extinguishing an obligation
c. By the intentional cancellation thereof by the holder; under Art. 1232?
d. By any other act which will discharge a simple contract
for the payment of money; A:
e. When the principal debtor becomes the holder of the
instrument at or after maturity in his own right. 1. Compensation- takes place when 2 persons in their own
right are debtors and creditors of each other
Q: When is payment considered made in due course? 2. Novation- this takes place when an obligation is
extinguished
A: a. By changing the object or the principal condition
b. By substituting the person of the debtor
rd
1. It must be made at or after maturity c. By subrogating a 3 person in the rights of the
2. It must be made to the holder of the instrument creditor
3. It must be made in good faith and without notice that 3. Renunciation, remission, or condonation
the holder’s title is defective
4. It must be made by or in behalf of the principal debtor Q: What are the modes of extinguishing an obligation under Art.
or the accommodated party where the instrument is 1231?
made or accepted for his accommodation.
A:
NOTE: The party accommodated is actually the principal debtor
of the instrument. 1. Payment or performance
2. Loss of the thing due
Examples: 3. Condonation or remission of the debt
1. M made a PN in order to accommodate P. P discounted 4. Confusion or merger of the rights of creditor and
the note with H. Payment made in due course by P, the debtor
party accommodated, will discharge the note. If M, the 5. Compensation
accommodation maker, made the payment, the note 6. Novation
will not be discharged because M can go after P for 7. Annulment or rescission
reimbursement. 8. Fulfillment of resolutory condition
2. R draws a BOE payable to the order of P. P, however, 9. Prescription
does not want to receive the note unless it is first
accepted by W. W thus accepts the bill in order to When the principal debtor becomes the holder of the
accommodate R. After having obtained W’s acceptance, instrument at or after maturity in his own right
P indorses the note to H. At maturity, R pays in due
course. Such payment by R, for whose accommodation This simply means that the principal debtor must not become the
W accepted the bill, discharges the instrument. If W is holder as agent of another or in representative capacity. Thus, M
the one making the payment, the instrument is not is the maker of a PN payable to the order of P. P indorses the
discharged because W can still ho after R for note to A, A to B, B to M, with B making the following
reimbursement. indorsement at or after maturity:
Cancellation Payment to M, for collection

Sgd. B
Q: How is “cancellation” made?
In the above indorsement, M becomes the holder not in his own
A: right but as agent of B. Hence, the instrument is not discharged.
however, if the indorsement was “Pay to M Sgd. B,” at maturity,
1. By writing or stamping “cancelled,” “paid,” or any the instrument is discharged because M becomes the holder in
similar word on, by drawing a cross across the face of his own right.
the instrument
2. By burning, tearing, or otherwise destroying the Example: M is the maker of a PN payable to the order of P. P
instrument indorsed the note to A, A to B, and B to H. At maturity, M
‘ requested A to pay the note with a promise that he would pay A.
Intentional cancellation is presumed A paid H, but M obtained possession of the note without having
paid it. Instrument here is not discharged because M did not
When an instrument appears to have been cancelled, the burden become the holder in his own right.
of proof lies on the party who alleges that the cancellation of the
instrument was made unintentionally or under mistake or Sec. 120. When persons secondarily liable on the instrument are
without authority. A cancellation made unintentionally, or under discharged. - A person secondarily liable on the instrument is
discharged:
1. By any act which discharges the instrument;
2. By the intentional cancellation of his signature by the If the payment being tendered by A amounts to P10,000.00
holder; consisting of 100 pieces of P100.00 bills and H refused to accept
3. By the discharge of a prior party; the payment, the tender of payment is valid since all bills are
4. By a valid tender or payment made by a prior party; legal tender up to any amount. Thus, the tender which was
5. By a release of the principal debtor unless the holder's refused will discharge not only A, but also B and C, parties
right of recourse against the party secondarily liable is subsequent to him.
expressly reserved;
6. By any agreement binding upon the holder to extend Discharge by release of principal debtor
the time of payment or to postpone the holder's right
to enforce the instrument unless made with the assent The release of the principal debtor discharges the parties
of the party secondarily liable or unless the right of secondarily liable since they lose their right of recourse to
recourse against such party is expressly reserved. proceed against the principal debtor. The release of the principal
debtor must be for value.
Q: What is the effect of discharge by prior party?
If the holder reserves his right to go after the parties secondarily
A: When a prior party is discharged, parties subsequent to him liable when he releases the principal debtor, the parties
will likewise be discharged because they lose their right of secondarily liable are not discharged. The effect of the
recourse against such prior party. reservation is the implied reservation of their right of recourse
against the maker. However, while the holder can no longer go
Example: M makes a note payable to the order of P. P indorses after the principal debtor because of the release he made, this
the note to A, A to B, B to C and C to H, holder. If H renounces his reservation to proceed against the parties secondarily liable gives
right against A, A is discharged. Such renunciation likewise the latter the right to proceed against the principal debtor.
discharges B and C, parties subsequent to A, since they lose their
right of recourse to go after A. Discharge by extension of time of payment
NOTE: For subsequent parties to be discharged of a prior party, Q: What is the reason for the discharge in this case?
such prior party should not have been discharged by operation of
law. Thus, if such prior party is discharged because the holder A: The agreement to extend the time of payment varies the
failed to give him a notice of dishonor, or the cause of discharge original undertaking of the secondary parties. The rule is similar
of such prior party in his being adjudged a bankrupt, the parties to the rule in guaranty and suretyship.
subsequent to him will not be discharged.
NOTE: In order that a party secondarily liable is discharged, the
Discharge by a valid tender of payment by prior party agreement that is binding upon the holder to extend the time of
payment, or to postpone the holder’s right to enforce the
NOTE: This refers to a valid tender of payment made by a prior instrument, must be one between the holder and the principal
party which was refused by the holder without justifiable reason. debtor. However, a party secondarily liable is not discharged by
Such tender would not only discharge the party who made it, but such agreement in the following cases:
also those subsequent to him since they have no one to proceed
against upon the discharge of the prior party. 1. When the extension of time for payment is assented to
by the party secondarily liable
Q: What is “tender of payment”? 2. When the right to proceed against the parties
secondarily liable has been expressly reserved.
A: It is the act by one which produces and offers to a person
holding a claim or demand against him the amount of money Sec. 121. Right of party who discharges instrument. - Where the
which he considers and admits to be due, in satisfaction of such instrument is paid by a party secondarily liable thereon, it is not
claim or demand without any stipulation or condition. discharged; but the party so paying it is remitted to his former
rights as regard all prior parties, and he may strike out his own
Q: Is this rule fair? and all subsequent indorsements and against negotiate the
instrument, except:
A: Yes, because it is the fault of the holder that he did not receive (a) Where it is payable to the order of a third person and has
payment. If he accepted the tender of payment by a prior party, been paid by the drawer; and
the subsequent party would have been discharged. (b) Where it was made or accepted for accommodation and
has been paid by the party accommodated.
Example: M is the maker of PN for P10,000.00 payable to the
order of P. The note is successively indorsed by P to A, A to B, B to Q: What are the effects of payment by party secondarily liable?
C, and C to H, holder. The note is dishonored by M. H gives a
notice of dishonor to P, A, B and C. A tenders payment to H A:
amounting to P10,000 consisting of 1,000 pieces of P1.00 coins. H
refuses to accept payment demanding that he paid in bills. 1. Instrument is not discharged
2. Party alleging is remitted to his former rights as regards
The refusal of H to receive the payment is not valid since P1.00 all prior parties
coins are legal tender only up to P1,000.00. A, B and C will not be 3. He may strike out his own indorsement and all
discharged. subsequent indorsements
4. He may again negotiate the instrument, except in the A:
following:
a. Where it is payable to the order of a third person 1. It must be absolute and unconditional
and has been paid by the drawer 2. It must be made in favor of the principal debtor
b. Where it was made or accepted for 3. It must be made at or after maturity
accommodation and has been paid by the party
accommodated Q: What are the requisites for renunciation in favor of a person
secondarily liable?
Example: M, the maker. Issued an order instrument to P, the
payee. P indorsed the instrument to A who indorsed it to B. B A:
negotiated the instrument to C. Later, C indorsed the instrument
to A. A is remitted to his former rights, meaning, it is as if he is in 1. It may be made before, at or after maturity
his original position; it his as if he went back to the earlier 2. The party in whose favor the renunciation is made and
situation when the instrument was negotiated to him by P. all parties subsequent to him are discharged from
Consequently, his subsequent indorsement to A after he took the liability
instrument from P as well as the indrosements of B and C are all
disregarded and can be stricken out. Q: What is the effect of renunciation on the rights of the HDC
without notice?
Q: What is the effect of payment by the accommodated party?
A: None. It does not affect the rights of subsequent HDC without
A: It will discharge the instrument because the accommodated notice thereof. However, the renunciation should not be made
party is the principal in the cases contemplated by the second after maturity because by then, if the instrument is still
paragraph of Sec. 122. The person who made or accepted the negotiated, the holder will no longer be considered a HDC.
instrument is only a surety if the accommodated party.
Examples:
Q: How about payment by the drawer?
1. M makes a PN payable to the order of P. P indorses the
A: It will discharge the instrument under Sec. 121. If the note to A, A to B and B to H, holder. At maturity, H
rd
instrument is payable to the order of a 3 person, the drawer is renounces his claim on the note (without surrendering
the person who is ultimately liable on the instrument even if he it to M) in favor of M. The note, as well as M, P, A and
acceptor will pay the payee. B, is discharged. But supposing that on the same date
(date of maturity), H indorses the note to X, a HDC who
Sec. 122. Renunciation by holder. - The holder may expressly was not aware of the renunciation. In this case, X can
renounce his rights against any party to the instrument before, still collect on the note from M, P, A and B and even H.
at, or after its maturity. An absolute and unconditional
renunciation of his rights against the principal debtor made at If H, after the renunciation at maturity, indorses the
or after the maturity of the instrument discharges the mote to X the day following the date of maturity, X can
instrument. But a renunciation does not affect the rights of a no longer collect from M, P, A and B. Here, X is no
holder in due course without notice. A renunciation must be in longer a HDC because he became the holder after the
writing unless the instrument is delivered up to the person notice has become overdue. However, X can collect
primarily liable thereon. from H.
Renunciation 2. M, maker; P, payee, of an order instrument. The note is

successively indorsed by P to A, A to B, B to C, and C to
Q: What is renunciation? H. At maturity, H renounces his claim against A. A, as
well as B and C, parties subsequent to him, is
A: It refers to the act of the holder of renouncing or abandoning discharged. However, if H negotiates the note on the
his claim against the principal debtor or of any party secondarily same date to X who is a HDC without notice of the
liable on the instrument. renunciation, A, B and C can still be held liable by X.
RULES: Sec. 123. Cancellation; unintentional; burden of proof. - A

cancellation made unintentionally or under a mistake or
How made 1. Express and in writing without the authority of the holder, is inoperative but where an
2. By the delivery of the instrument to the instrument or any signature thereon appears to have been
party primarily liable thereon if made cancelled, the burden of proof lies on the party who alleges that
orally the cancellation was made unintentionally or under a mistake
When made 1. Before maturity or without authority.
2. At a maturity
3. After maturity Cancellation
In whose 1. The principal debtor
favor 2. Party secondarily liable Q: What is cancellation?
Q: What are the requisites to discharge instrument? A: It includes the drawing of crisscross lines on the instrument,
stamping or writing thereon “Cancelled” or any similar word
showing the intention to cancel the instrument, or by tearing, 5. Medium or currency in which payment is to be made
burning, erasing, or destroying the instrument in a similar 6. Any alteration which adds a place of payment where
manner. Cancellation of a signature, on the other hand, includes no place of payment is specified
crossing out or erasing the signature of a party. 7. Any other change or addition which alters the effect of
the instrument in any respect- thus, there is material
Presumption of intentional cancellation alteration when an instrument is payable to “order” is
changed to make it payable to “bearer.”
The cancellation of an instrument or any signature thereon is
presumed intentional. Thus, the burden of proof lies on the party Effect of material alteration
who alleges that the cancellation was made unintentionally, or
under a mistake or without authority. So, if the holder cancelled a Q: What is the effect of material alteration?
PN mistaking it to be another paper, such cancellation is
unintentional. However, since the presumption is that such A:
cancellation is intentional, the burden of proof is with the holder
to establish the contrary. In the hands of a Holder NOT In the hands of a HDC
in due course
Q: What is the effect if the cancellation of the instrument or The instrument is avoided, The holder is not avoided.
signature is unintentional? except as against: 1. As against any party prior
1. A party who has himself to the alteration, a HDC
A: A cancellation made unintentionally, or under a mistake or made, authorized or may enforce payment of
without the authority of the holder, is inoperative. Accordingly, it assented to the alteration the instrument according
does not discharge the instrument or the party whose signature 2. Subsequent indorsers to its original tenor. In this
is cancelled. regard, material alteration
is a real defense to the
Sec. 124. Alteration of instrument; effect of. - Where a extent altered
negotiable instrument is materially altered without the assent 2. As against a party who has
of all parties liable thereon, it is avoided, except as against a himself made, authorized
party who has himself made, authorized, or assented to the or assented to the
alteration and subsequent indorsers. alteration or subsequent
But when an instrument has been materially altered and is in indorsers, a HDC may
the hands of a holder in due course not a party to the alteration, enforce payment
he may enforce payment thereof according to its original tenor. according to its altered
tenor by reason of their
Sec. 125. What constitutes a material alteration. Any alteration participation in the
which changes: alteration of their
1. The date; warranties.
2. The sum payable, either for principal or interest;
3. The time or place of payment; Example: A issued a PN in the amount of P10,000.00 payable to
4. The number of the relations of the parties; the order of B, payee. B negotiated to C who convinced B that he
5. The medium or currency in which payment is to be be allowed to change the amount to P40,000.00 so he can pay his
made; debts to D. Therefater, C negotiated to D; D to E, holder.
Or which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the a. E can go against D since the latter is a subsequent
effect of the instrument in any respect, is a material alteration indorser. As such D warrants that the instrument is
what it purports to be and that it is valid and subsisting.
Q: What is alteration? Hence, D is stopped from denying the validity of the
instrument.
A: b. E can go against C since the latter was the one who
altered the instrument, and also because of his
1. Date- It includes alteration of the date of issue, or the warranties as a general indorser
date of maturity, which may either be hastened or c. E can go against B since B assented to the alteration;
postponed, or an alteration of the date which may and also because of his warranties
shorten or lengthen the period during which interest d. As against A, it depends whether E is a HDC or not. If he
may be computed. is not a HDC, the instrument is avoided as to him;
2. Sum payable, either for principal or for interest- hence, E cannot go against A. However, if E is a HDC, E
increase or reduction of the principal or of the interest may enforce the instrument according to its original
rate constitutes a material alteration of the instrument tenor; hence, E may go against A but only for
3. Time or place of payment P10,000.00, the original tenor of the instrument.
4. Number or the relations of the parties- adding a co- e. If the instrument is a bill of exchange and the bill is
maker to a note, or making a guarantor of the addressed to X as drawee, X is not liable as drawee
instrument as co-maker, or making the liability of the because he is not a party to the instrument until he
parties as solidary when the nature of the debt is only accepts
joint all constitute a material alteration of the f. If X accepts, there are 2 schools of thoughts:
instrument
1. The acceptor X is liable only according to the drawee) to pay a sum certain to the
original tenor of the instrument which is same seller (payee)
P10,000.00 Draft Used in documentary exchange
2. The acceptor X is liable according to the tenor of Ex: letters of credit transaction
acceptance. Thus, if X accepted prior to the Inland bill Drawn and payable in the Philippines
alteration of the instrument, he would be liable for Foreign bill Does not purport to be both drawn and
P10,000.00 because that is the tenor of his payable in the Philippines
acceptance. However, if X accepted after the Banker’s A time draft across the face of which
alteration of the instrument, he would be liable for acceptance the drawee which is a bank has written
P40,000.00 because that is the tenor of his the word “accepted”
acceptance. For Dean Abad, the second view is the Clean Bill of No document is attached when
better view. exchange presentment for payment or
acceptance is made
Documentary A document is attached when
bill of presentment for payment or
BILLS OF EXCHANGE exchange acceptance is made
FORM AND INTERPRETATION Bills in set One bill of exchange drawn in a set,
each part of the set being numbered
Sec. 126. Bill of exchange, defined. - A bill of exchange is an and containing a reference to the other
unconditional order in writing addressed by one person to parts, the whole of the parts constitutes
another, signed by the person giving it, requiring the person to one bill
whom it is addressed to pay on demand or at a fixed or Documentary A draft or BOE to which various shipping
determinable future time a sum certain in money to order or to draft documents are attached
bearer. Commercial BOE drawn by an exporter directly on
bill the importer
Kinds of bill of exchange Documents Time draft to which title documents
against arte attached. The documents are
Q: What is a bill of exchange? acceptance surrendered to the drawee when the
(D/A) draft drawee has accepted the corresponding
A: It is an unconditional order in writing addressed by one person draft, acknowledging the obligation to
to another, signed by the person giving it, requiring the person to pay at the future date
whom it is addressed to pay on demand or at fixed or Documents A sight draft to which title documents
determinable future time a sum certain in money to order or to against are attached. The documents are
bearer. payment(D/ A) surrendered to the drawee only when
draft the drawee has paid the corresponding
Check Drawn on a bank payable on demand draft
Time draft Draft payable at a fixed time
a. Time draft after sight- payable by Q: What are the uses of a BOE?
the drawee within the period of
time indicated on the draft after A:
he has seen the draft and
indicated his acceptance on its 1. To finance the sale of goods
face by writing “accepted” or any 2. To transfer credits from one community or country to
similar word, and adding his another.
signature and the date of his
acceptance Q: Who are the Parties in a Bill of Exchange?
Ex: Pay to the order of P the sum A:

of P50,000.00 thirty days after
sight 1. Drawer – one who gives the order to pay money to a
third party
b. Time draft after date- payable 2. Drawee – the person to whom the bill is addressed and
within a certain period from its ordered to pay; becomes “acceptor” when he indicates
date a willingness to accept responsibility for the payment of
the bill
Ex: Pay to the order of P the sum 3. Payee – the party in whose favor the bill is drawn)
of P50,000.00 thirty days after
date NOTE: In a bill of exchange, the drawer has funds in the hands of
the drawee of which the drawer wishes to avail himself, the
Sight or Draft payable when the holder presents drawer being the party primarily interested in, and benefited by,
demand draft it for paymebt the transaction.
Trade Used in contracts of sale whereby the
acceptance seller as drawer orders the buyer (as

If drawee refuses to accept when he has funds for the purpose,
he becomes liable to the drawer for the resulting damages and 1. A bill may be addressed to 2 or more drawees jointly
the harm done to his credit. If drawer has none, drawee must whether they are partners or not
look to the drawer for reimbursement and not to a bona fide
holder. Ex: To A and B (instrument is negotiable)
RULES:
2. A bill may not be addressed to 2 or more drawees in
1. Drawee is not liable unless and until he accepts the bill; the alternative
it is not an assignment of funds in the hands of the
drawee available for the payment thereof (§127) Ex: To A or B (instrument is not negotiable)
2. Bill may be addressed to 2 or more drawees jointly
(partners or not), but not in alternative or in succession 3. The bill may not be addressed to 2 or more drawees in
(§128) succession
Ratio: difficulty in determining the exact date of the Ex: To A or in his absence or failure to pay B (instrument
dishonor of the bill. is not negotiable)
3. A foreign bill payable in the Philippines may be treated Q: Why is the bill cannot be addressed to 2 or more drawees in
by the holder as an inland bill IF on its face it does not the alternative or in succession?
appear that it was drawn in another country / state
(§129) A: If the drawees are named in the alternative or in succession,
the instrument is rendered non-negotiable because the holder
NOTE: A foreign bill may be protested while an inland has no right to proceed against the drawer and other parties
bill need not be protested. secondarily liable until the bill is dishonored by all drawees.
Purpose of distinction: To determine what law will Sec. 129. Inland and foreign bills of exchange. - An inland bill of
govern the validity, interpretation, and effect of the bill exchange is a bill which is, or on its face purports to be, both
drawn and payable within the Philippines. Any other bill is a
4. In case bill is dishonored by non-acceptance or non- foreign bill. Unless the contrary appears on the face of the bill,
payment, the drawer and any indorser may insert on the holder may treat it as an inland bill.
the bill a referee in case of need, person to whom the
holder may resort in case of need (Sec. 131) Q: What is an “inland bill”?
Sec. 127. Bill not an assignment of funds in hands of drawee. - A A: A bill which, on its face, its both drawn and payable within the
bill of itself does not operate as an assignment of the funds in Philippines.
the hands of the drawee available for the payment thereof, and
the drawee is not liable on the bill unless and until he accepts Any other bill is foreign, that is:
the same a. If it is drawn in the Philippines but payable abroad, or
b. The bill on its face purports to be drawn outside the
NOTE: The holder of a BOE that has not yet been accepted by the Philippines but payable in the Philippines
drawee cannot enforce payment against the latter
notwithstanding that the drawer may have funds in the hands of Examples:
the drawee that are sufficient to cover the bill. The drawing of
the bill does not operate as an equitable assignment of his funds Inland Bill
in the hands of the drawee even if the drawee may have
expressly agreed to apply such funds for any bill drawn by the Manila, Philippines
drawer. The darwee becomes liable on the bill only when he October 31, 2010
accepts it.
Pay to the order of Bebeng the sum of P200,000.00 at PNB-
Acceptance fixes the liability of the drawee and not the drawing Escolta, Manila
of the instrument. If drawee refuses to accept when he has funds Sgd. Ayel
for the purpose, he becomes liable to the drawer for the resulting
damages and the harm done to his credit. The drawee has no To: Jed Mark
contract with the payee or the holder.
Foreign bill
Sec. 128. Bill addressed to more than one drawee. - A bill may
be addressed to two or more drawees jointly, whether they are Manila, Philippines
partners or not; but not to two or more drawees in the October 31, 2010
alternative or in succession.
Pay to the order of Bebeng the sum of P200,000.00 at Citibank-
Q: What are the 3 rules stated under Sec. 128? New York City
Sgd. Ayel
A:
To: Jed Mark bound to do so and, if he so desires, may look immediately to
Bebeng for payment.
NOTE: A foreign BOE requires protest in case of dishonor
Sec. 130. When bill may be treated as promissory note. - Where

in a bill the drawer and drawee are the same person or where ACCEPTANCE
the drawee is a fictitious person or a person not having capacity
to contract, the holder may treat the instrument at his option Sec. 132. Acceptance; how made, by and so forth. - The
either as a bill of exchange or as a promissory note. acceptance of a bill is the signification by the drawee of his
assent to the order of the drawer. The acceptance must be in
Q: When may a bill be treated as promissory note? writing and signed by the drawee. It must not express that the
drawee will perform his promise by any other means than the
A: payment of money.
1. when the drawer and the draweee of the BOE are the Q: What is “acceptance”?
same person
2. the drawee is a fictitious person A: It is the signification by the drawee of his assent to the order
3. drawee has no capacity to contract of the drawer.
4. the instrument is so ambiguous that there is doubt
whether it is a bill or a note Kinds of Acceptance
Sec. 131. Referee in case of need. - The drawer of a bill and any Q: What are the kinds of acceptance?
indorser may insert thereon the name of a person to whom the
holder may resort in case of need; that is to say, in case the bill A:
is dishonored by non-acceptance or non-payment. Such person
is called a referee in case of need. It is in the option of the 1. actual acceptance
holder to resort to the referee in case of need or not as he may 2. constructive acceptance
see fit. 3. general acceptance
4. qualified acceptance
Referee in case of need
Actual Acceptance
The drawer and any indorser may insert on the bill the name of
any person to whom the holder may resort in case of need; that Q: What are the requisites for actual acceptance?
is, in case of dishonor by non-acceptance or non-payment.
A:
NOTE: The holder, at his option, may resort the referee in case of
need as he may see fit. 1. It must be in writing
2. It must be signed by the drawee
Q: What if the referee pays the holder? 3. It must not express that the drawee will perform his
promise by any other means that the payment of
A: He may recover the amount from the drawer or indorser who money
named him 4. There must be delivery or notification of the
acceptance
Example:
Q: How is actual acceptance made?
Manila, Philippines
January 2, 2011 A: By writing the word “Accepted,” “Good,” “Certified,” or
“honor,” or any other words of similar import on the face of the
On demand, pay to the order of Ayel the sum of US $5,000.00, bill, followed by the signature of the drawee.
value received, and charge the account of
Q: What is the effect of acceptance?
Sgd. Bebeng
A: Before acceptance, the drawee is a stranger to the BOE. Once
To: Sam he accepts, he becomes primarily liable on the bill.
Suite 304 Avenue Towers
12 Fifth Avenue, New York City Q: What is the effect of payment of bill without previous
acceptance?
In case of need, apply to Jed Mark, suite 306 Avenue Towers, 12
Fifth Avenue, New York City A: The acceptor, by accepting the instrument, engages he will pay
it according to the tenor of his acceptance. His actual payment of
NOTE: Notwithstanding any stipulation on the referral to a the amount implies not only his assent to the order of the drawer
referee in case of need, it is optional on the part of the holder if and a recognition of his obligation to pay the aforementioned
he avails himself of such right. Thus, if Sam dishonors the bill, sum, but also, his clear compliance with his obligation. Actual
Ayel may apply to Jed Mark for payment. However, he is not payment by the drawee is greater than his acceptance, which is
merely a promise in writing to pay (Far East Bank and Trust Co. v. a. Equivalent to acceptance (§187) and is the operative
Gold Palace). act that makes banks liable
b. Assignment of the funds of the drawer in the hands of
Naguiat vs. CA (2003) the drawee (§189)
c. If obtained by the holder, discharges the persons
The mere issuance of the checks did not result in the perfection secondarily liable thereon (§188)
of the contract of loan. For the Civil Code provides that the
delivery of bills of exchange and mercantile documents such as NOTE: Where the holder of a check procures it to be accepted or
checks shall produce the effect of payment only when they have certified, the drawer and all indorsers are discharged from
been cashed. It is only after the checks have produced the effect liability thereon.
of payment that the contract of loan may be deemed perfected.
Q: What if the drawee bank refuses to certify?
Papa vs. A.U. Valencia & Co., Inc.
A: The holder has no action against the bank but he has a right of
While it is true that the delivery of a check produces the effect of action against the drawer. The drawer in turn has right of action
payment only when it is cashed, pursuant to Art. 1249 of the Civil against the bank based on the original contact of deposit
Code, the rule is otherwise if the debtor is prejudiced by the between them.
creditor's unreasonable delay in presentment. The acceptance of
a check implies an undertaking of due diligence in presenting it IRON CLAD RULE
for payment, and if he from whom it is received sustains loss by
want of such diligence, it will be held to operate as actual Q: What is the iron clad rule?
payment of the debt or obligation for which it was given. It has,
likewise, been held that if no presentment is made at all, the A: This rule prohibits the countermanding of payment of certified
drawer cannot be held liable irrespective of loss or injury unless checks.
presentment is otherwise excused.
NOTE: The holder must be a holder in due course before the stop
This is in harmony with Article 1249 of the Civil Code under which payment order may not be successfully invoked against him.
payment by way of check or other negotiable instrument is
conditioned on its being cashed, except when through the fault of Sec. 134. Acceptance by separate instrument. - Where an
the creditor, the instrument is impaired. The payee of a check acceptance is written on a paper other than the bill itself, it
would be a creditor under this provision and if its non-payment is does not bind the acceptor except in favor of a person to whom
caused by his negligence, payment will be deemed effected and it is shown and who, on the faith thereof, receives the bill for
the obligation for which the check was given as conditional value.
payment will be discharged.
NOTE: The acceptance may either be written on:
Sec. 133. Holder entitled to acceptance on face of bill. - The 1. Instrument itself
holder of a bill presenting the same for acceptance may require 2. In a separate piece of paper
that the acceptance be written on the bill, and, if such request is
refused, may treat the bill as dishonored. However, the holder may insist that the acceptance be written on
the bill itself. If the drawee refuses to place his acceptance on the
NOTE: The holder of a bill may require that the acceptance be bill itself, the holder may treat the instrument as dishonored and
written on the face of the bill, and if such request is refused, he can already give notice of dishonor.
may treat the bill as dishonored.
Example: R draws a BOE against W, drawee, and payable to the
Q: What are the requisites for acceptance? order of P, payee. When informed of the existence of the bill
drawn against him, W writes to P stating that he accepts the bill
A: and he will pay it. P then negotiates the bill to H showing the
written acceptance of W to the latter. On seeing the written
1. Must be made by or on behalf of the holder; acceptance, H takes the bill for value. W will be liable to H.
2. At a reasonable hour on a business day;
3. Before the bill is overdue; and Sec. 135. Promise to accept; when equivalent to acceptance. -
4. To the drawee or some person authorized to accept or An unconditional promise in writing to accept a bill before it is
refuse to accept on his behalf. drawn is demed an actual acceptance in favor of every person
who, upon the faith thereof, receives the bill for value.
CERTIFICATION OF CHECKS
Example: R writes W informing the latter that R will draw against
An agreement whereby the bank against whom a check is drawn, him a bill of exchange for P20,000.00 payable to the order of P. W
undertakes to pay it at any future time when presented for writes back stating “I will accept your bill for P20,000.00 payable
payment. to the order of P on January 31, 2011. Within reasonable time, R
draws a BOE against W in accordance with the description made
Q: What are the effects of Certification? by W. R issues the bill to P, the payee, informing the latter of W’s
written promise to accept the bill. P receives the bill for valie on
A: the assurance of R that W has made a written promise to accept

the bill. Here, W will be liable to P although the latter had not bill while he makes up his mind. The bill is at all times the
seen the written promise. property of the holder, and he is entitled to have it when he
wants it, and Sec. 137 so provides. If the holder should demand
Q: Distinguish Sec. 134 and Sec. 135. return before 24 hours, the drawee would be required to comply
on pain of being held as an acceptor; but return within 24 hours
A: unaccepted would not be a dishonor. The drawee could still
accept by notification within 24 hours. Here, an extrinsic
SECTION 134 SECTION 135 acceptance, Sec. 136, would play an important part. If the drawee
The acceptor will be liable only The acceptor will be liable to after returning the bill still refused to act after the expiration of
in favor of a person to whom every person who, upon faith the time allowed, the holder would be required to treat the bill as
such written acceptance is of such unconditional promise dishonored or lose rights against prior parties.
shown, and who, on the faith to accept in writing, received
thereof, received the bill for the bill for value. In other Sec. 138. Acceptance of incomplete bill. - A bill may be accepted
value words, the acceptor shall be before it has been signed by the drawer, or while otherwise
liable to such person although incomplete, or when it is overdue, or after it has been
the latter has not been shown dishonored by a previous refusal to accept, or by non payment.
the written promise to accept But when a bill payable after sight is dishonored by non-
the bill acceptance and the drawee subsequently accepts it, the holder,
in the absence of any different agreement, is entitled to have
Sec. 136. Time allowed drawee to accept. - The drawee is the bill accepted as of the date of the first presentment.
allowed twenty-four hours after presentment in which to decide
whether or not he will accept the bill; the acceptance, if given, Q: When may a bill be accepted?
dates as of the day of presentation.
A:
NOTE: The drawee is allowed 24 hours after presentment to
decide whether or not he will accept the bill. The acceptance, if 1. Before it has been signed by the drawer
given, dates as of the day of the presentment. 2. While it is still incomplete
3. When it is already overdue
Example: 4. After it has been previously dishonored by a refusal to
accept, or by non-payment
Thirty days after sight, pay to the order of Bebeng the sum of
P100,000.00 NOTE: When a bill payable after sight is dishonored by non-
Sgd. Ayel acceptance and the drawee subsequently accepts it, the holder,
in the absence of any different agreement, is entitled to have the
To: Sam bill accepted as of the date of first presentment.
Here, Sam has 24 hours from acceptance within which to accept Example:
the bill. The maturity is counted 30 days from 24 hours after the
acceptance. R is the drawer of a BOE payable to the order of P. W is the
drawee. The bill is payable 30 days after sight. The bill is indorsed
Sec. 137. Liability of drawee returning or destroying bill. - by P to A, and A to H, holder. H presents the bill to W on October
Where a drawee to whom a bill is delivered for acceptance 1. W dishonors it. On October 10, W decides to accept the bill.
destroys the same, or refuses within twenty-four hours after Unless otherwise agreed, H is entitled to habe the bill accepted
such delivery or within such other period as the holder may on October 1 when it was first presented. Accordingly, the date of
allow, to return the bill accepted or non-accepted to the holder, maturity is October 31.
he will be deemed to have accepted the same.
Sec. 139. Kinds of acceptance. - An acceptance is either general
Constructive Acceptance or qualified. A general acceptance assents without qualification
to the order of the drawer. A qualified acceptance in express
Q: What are the 2 ways of constructive acceptance? terms varies the effect of the bill as drawn.
A: Sec. 140. What constitutes a general acceptance. - An

acceptance to pay at a particular place is a general acceptance
1. The drawee destroys the bill unless it expressly states that the bill is to be paid there only
2. The drawee refuses within 24 hours after such delivery, and not elsewhere.
or within such other period as the holder may allow, to
return the bill accepted or non-accepted, to the holder. Sec. 141. Qualified acceptance. - An acceptance is qualified
which is:
Q: How will you reconcile Sections 136 and 137? (a) Conditional; that is to say, which makes payment by the
acceptor dependent on the fulfillment of a condition therein
A: Under Sec. 136, the drawee is deemed not to have accepted stated;
the bill if he does not do so within the 24 hour period provided (b) Partial; that is to say, an acceptance to pay part only of the
therein. However, the conflict is more apparent than real. Sec. amount for which the bill is drawn;
136 makes no provision that the drawee is entitled to keep the
(c) Local; that is to say, an acceptance to pay only at a
particular place; Example: A bill drawn against Ayel and CJ is accepted as follows:
(d) Qualified as to time; “Accepted. Sgd. Ayel”
(e) The acceptance of some, one or more of the drawees but not
of all. Sec. 142. Rights of parties as to qualified acceptance. - The
holder may refuse to take a qualified acceptance and if he does
General acceptance not obtain an unqualified acceptance, he may treat the bill as
dishonored by non-acceptance. Where a qualified acceptance is
Q: What is general acceptance? taken, the drawer and indorsers are discharged from liability on
the bill unless they have expressly or impliedly authorized the
A: A general acceptance assents without qualification to the holder to take a qualified acceptance, or subsequently assent
order of the drawer. Here, the drawee engages to pay according thereto. When the drawer or an indorser receives notice of a
to the tenor of the BOE. qualified acceptance, he must, within a reasonable time,
express his dissent to the holder or he will be deemed to have
Example: “Accepted. Payable at PNB-Ermita, Manila” is a general assented thereto.
acceptance.
Q: What are the rights of parties as to qualified acceptance?
Qualified acceptance
A:
Q: What is qualified acceptance?
1. The holder may refuse to take a qualified acceptance
A: A qualified acceptance in express terms varies the effect of the and if he does not obtain an unqualified acceptance, he
bill as drawn. may treat the bill as dishonored by non-acceptance.
2. Where a qualified acceptance is taken, the drawer and
Q: What are the kinds of qualified acceptance? indorsers are discharged from liability on the bill unless:
a. they have expressly or impliedly authorized
A: the holder to take a qualified acceptance, or
b. when they subsequently assent thereto.
a. Conditional - makes payment by the acceptor
dependent on the fulfillment of a condition therein When the drawer or an indorser receives
stated. notice of a qualified acceptance, he must,
within a reasonable time, express his dissent
Examples: to the holder or he will be deemed to have
1. “Accepted. Payable if the payee delivers the items that assented thereto.
Bebeng bought from him with seals unbroken. Sgd.
Ayel.”
2. “Accepted. Payable if the building is ready for
occupancy. Sgd. Bebeng” PRESENTMENT FOR ACCEPTANCE
b. Partial - an acceptance to pay part only of the amount Sec. 143. When presentment for acceptance must be made. -
for which the bill is drawn. Presentment for acceptance must be made:
(a) Where the bill is payable after sight, or in any other case,
Example: A BOE drawn by Bebeng against Ayel for P100,000.00 is where presentment for acceptance is necessary in order to fix
accepted by the latter as follows: “Accepted for P60,000.00. Sgd. the maturity of the instrument; or
Ayel.” (b) Where the bill expressly stipulates that it shall be presented
for acceptance; or
c. Local - an acceptance to pay only at a particular place. (c) Where the bill is drawn payable elsewhere than at the
residence or place of business of the drawee.
Example: “Accepted. Payable at PNB, Ermita, Manila only. Sgd. In no other case is presentment for acceptance necessary in
Bebeng” order to render any party to the bill liable.
d. Qualified as to time- here, the acceptance varies the Sec. 144. When failure to present releases drawer and indorser.
time of payment - Except as herein otherwise provided, the holder of a bill which
is required by the next preceding section to be presented for
Examples: acceptance must either present it for acceptance or negotiate it
1. A bill payable “30 days after sight” is accepted by the within a reasonable time. If he fails to do so, the drawer and all
drawee as follows: “Accepted. Payable 60 days after indorsers are discharged.
sight. Sgd. Bebeng”
2. A bill payable on January 15, 2011 is accepted by the Q: What is the concept of presentment for acceptance?
drawee as follows: “Accepted. Payable on April 23,
2011. Sgd. Ayel.” A: It is the exhibition of a BOE to the drawee for his acceptance.
e. The acceptance of some one or more of the drawees Q: What are the requisites for presentment for acceptance?
but not of all.
A: Q: What is the effect of failure of holder to exercise the option?
1. Must be made by or on behalf of the holder; A: It will discharge the drawer and indorsers.
2. At a reasonable hour on a business day;
3. Before the bill is overdue; and The rule is intended to relieve the drawer or indorser from the
4. To the drawee or some person authorized to accept or obligation of assuming for an indefinite length of time the risk of
refuse to accept on his behalf. the drawee’s ability to pay.
GR: Presentment for acceptance is not required Sec. 145. Presentment; how made. - Presentment for
acceptance must be made by or on behalf of the holder at a
XPNs: reasonable hour, on a business day and before the bill is
overdue, to the drawee or some person authorized to accept or
1. Where the bill is payable after sight, or when it is refuse acceptance on his behalf; and
necessary in order to fix the maturity of the instrument; (a) Where a bill is addressed to two or more drawees who are
not partners, presentment must be made to them all unless one
Manila, Philippines has authority to accept or refuse acceptance for all, in which
September 12, 2010 case presentment may be made to him only;
(b) Where the drawee is dead, presentment may be made to his
Sixty days after sight, pay to the order of Bebeng the sum of personal representative;
P100,000.00. (c) Where the drawee has been adjudged a bankrupt or an
Sgd. Ayel insolvent or has made an assignment for the benefit of
creditors, presentment may be made to him or to his trustee or
To: CJ assignee.
2. Where the bill expressly stipulates that it shall be Sec. 146. On what days presentment may be made. - A bill may
presented for acceptance; be presented for acceptance on any day on which negotiable
instruments may be presented for payment under the
Manila, Philippines provisions of Sections seventy-two and eighty-five of this Act.
September 12, 2010 When Saturday is not otherwise a holiday, presentment for
acceptance may be made before twelve o'clock noon on that
Pay to the order of Bebeng the sum of P100,000.00. Presentment day.
for acceptance required.
Sgd. Ayel NOTE: The following rules must be followed:
To: CJ Presentment for acceptance must be made:
3. Where the bill is drawn payable elsewhere than at the a. At a reasonable hour
residence or place of business of the drawee b. On a business day
c. Before the bill is ovedue
Manila, Philippines
September 12, 2010 Presentment for acceptance on a Saturday
Pay to the order of Bebeng the sum of P100,000.00 on 1. If the instrument is payable on a Saturday the
P100,000.00 on March 1, 2011 at PNB, Ermita, Manila instrument may presented for payment
Sgd. Ayel before 12nn on a Saturday when the entire
day is not a holiday.
To: CJ 2. If Saturday is a holiday, presentment for
acceptance cannot be made on that day.
Q: What is the advantage of presenting the bill for acceptance?
Presentment for acceptance on a Sunday or a holiday
A: If the bill is accepted, he acquires the additional security of the
drawee who becomes liable thereon only if he accepts the bill. In If the day presentment for acceptance is
case the drawee dishonors the bill, an immediate right of supposed to be made falls on a Sunday or a
recourse accrues to him (holder) against the parties secondarily holiday, the instrument is payable on the next
liable thereon. succeeding business day
Q: What are the options when the bill is required to be Presentment for acceptance distinguished from presentment for
presented for acceptance? payment if presentment is made on a Saturday
A: PRESENTMENT FOR PRESENTMENT FOR PAYMENT

ACCEPTANCE
1. Present it for acceptance within a reasonable time It can be made on a Saturday Can be made on a Saturday
2. Negotiate it within a reasonable time whether the instrument is only for instruments payable
payable on demand or not. on demand. If the instrument
is payable at a fixed or Sec. 149. When dishonored by non-acceptance. - A bill is
determinable future time, dishonored by non-acceptance:
presentment for payment (a) When it is duly presented for acceptance and such an
must be made on the next acceptance as is prescribed by this Act is refused or can not be
succeeding business day obtained; or
(b) When presentment for acceptance is excused and the bill is
Sec. 147. Presentment where time is insufficient. - Where the not accepted.
holder of a bill drawn payable elsewhere than at the place of
business or the residence of the drawee has no time, with the Q: How is a bill dishonored by non-acceptance?
exercise of reasonable diligence, to present the bill for
acceptance before presenting it for payment on the day that it A:
falls due, the delay caused by presenting the bill for acceptance
before presenting it for payment is excused and does not 1. When it is duly presented for acceptance and such an
discharge the drawers and indorsers. acceptance as is prescribed by this Act is refused or can
not be obtained; or
Example:
Requisites:
Manila, Philippines a. The instrument is duly presented for
October 1, 2010 acceptance complying with all the
requirements under the NIL
Pay to the order of Bebeng the sum of US $5,000.00 on October b. The drawee refused to accept tor the
3, 2010 at the BPI-Laong Laan, Manila acceptance cannot be obtained
Sgd. Ayel
c. When presentment for acceptance is excused and the
To: Jed Mark bill is not accepted.
Berlin, Germany
Requisites:
In the foregoing bill, Bebeng is given only 2 days from the date of a. Presentment for acceptance is excused as
issue to present the bill for acceptance to Jed Mark in Germany provided for under Sec. 148
before he presents the bill for payment at the BPI. Such period of b. The BOE is not accepted
2 days is not sufficient for Bebeng to enable him to present the
bill for acceptance in Berlin, Germany and then to present it for Sec. 150. Duty of holder where bill not accepted. - Where a bill
payment in Manila. Accordingly, the delay caused in presenting is duly presented for acceptance and is not accepted within the
the bill for acceptance before it is presented for payment before prescribed time, the person presenting it must treat the bill as
it is presented for payment will be excused, and does not dishonored by nonacceptance or he loses the right of recourse
discharge Ayel. against the drawer and indorsers.
Sec. 148. Where presentment is excused. - Presentment for NOTE:

acceptance is excused and a bill may be treated as dishonored
by non-acceptance in either of the following cases: 1. Notice of dishonor must be given to the drawer and
(a) Where the drawee is dead, or has absconded, or is a each endorser
fictitious person or a person not having capacity to contract by 2. If the bill is a foreign bill, the same must be protested
bill.
(b) Where, after the exercise of reasonable diligence, Sec. 151. Rights of holder where bill not accepted. - When a bill
presentment can not be made. is dishonored by nonacceptance, an immediate right of recourse
(c) Where, although presentment has been irregular, acceptance against the drawer and indorsers accrues to the holder and no
has been refused on some other ground. presentment for payment is necessary.
Q: When is presentment for acceptance excused? NOTE: If a bill is dishonored by non-acceptance, an immediate
right of recourse against the drawer/indorsers accrues to the
A: holder. He need not make any presentment for payment
a. Where the drawee is either: Example: A bill payable Feb. 2002. Presentment for acceptance
1. dead, or made but was not accepted by drawee today. Holder need not
2. has absconded, or wait for Feb. 2002, He can immediately run after the
3. is a fictitious person or drawer/indorsers.
4. a person not having capacity to contract by
bill
a. Where, after the exercise of reasonable diligence,
presentment can not be made. PROTEST
b. Where, although presentment has been irregular,
acceptance has been refused on some other ground. Sec. 152. In what cases protest necessary. - Where a foreign bill
appearing on its face to be such is dishonored by
nonacceptance, it must be duly protested for nonacceptance, by
nonacceptance is dishonored and where such a bill which has A:
not previously been dishonored by nonpayment, it must be duly
protested for nonpayment. If it is not so protested, the drawer 1. When a foreign bill is dishonored by non-acceptance
and indorsers are discharged. Where a bill does not appear on (Sec. 152)
its face to be a foreign bill, protest thereof in case of dishonor is 2. When a foreign bill has not been previously dishonored
unnecessary. by non-acceptance is dishonored by non-payment (Sec.
157)
Sec. 153. Protest; how made. - The protest must be annexed to 3. Where a dishonored bill has been accepted for honor
the bill or must contain a copy thereof, and must be under the supra protest (Sec. 167)
hand and seal of the notary making it and must specify: 4. Where a dishonored bill contains a referee in case of
(a) The time and place of presentment; need, it must be protested for non-payment before it is
(b) The fact that presentment was made and the manner presented for payment to the acceptor for honor or
thereof; referee in case of need (Sec. 167)
(c) The cause or reason for protesting the bill; 5. Where the bill is dishonored by the acceptor for honor,
(d) The demand made and the answer given, if any, or the fact it must be protested for non-payment by him (Sec. 170)
that the drawee or acceptor could not be found.
Q: How is protest made?
Sec. 154. Protest, by whom made. - Protest may be made by:
(a) A notary public; or A:
(b) By any respectable resident of the place where the bill is
dishonored, in the presence of two or more credible witnesses. 1. The protest must be annexed to the bill or must contain
a copy thereof
Sec. 155. Protest; when to be made. - When a bill is protested, 2. It must be under the hand and seal of the notary
such protest must be made on the day of its dishonor unless making it
delay is excused as herein provided. When a bill has been duly 3. It must specify:
noted, the protest may be subsequently extended as of the date a. The time and place of presentment;
of the noting. b. The fact that presentment was made and the
manner thereof;
Sec. 156. Protest; where made. - A bill must be protested at the c. The cause or reason for protesting the bill;
place where it is dishonored, except that when a bill drawn d. The demand made and the answer given, if
payable at the place of business or residence of some person any, or the fact that the drawee or acceptor
other than the drawee has been dishonored by nonacceptance, could not be found.
it must be protested for non-payment at the place where it is
expressed to be payable, and no further presentment for Q: Who shall make the protest?
payment to, or demand on, the drawee is necessary.
A:
Q: What is protest?
1. By a notary public, or
A: It is a formal written statement made by a notary public at the 2. By any respectable resident of the place where the bill
request of a holder of bill of exchange stating that he has is dishonored, in the presence of 2 or more creditable
demanded acceptance or payment of the bill, and that it has witnesses.
been refused, with the reasons, if any, given by the drawee or
acceptor for the dishonor, whereupon, the notary public protests When should protest be made
against all parties to such instrument and declares that they will
be held responsible for all loss or damage arising from the Q: When should protest be made?
dishonor of the bill.
A: When a bill is protested, such protest must be made on the
Q: What is the purpose of protest? day of its dishonor unless delay is excused as herein provided.
When a bill has been duly noted, the protest may be
A: It is required for uniformity in international transactions subsequently extended as of the date of the noting.
because most countries require it. A protest reduces the difficulty
of verifying the dishonor substantially because the certificate of “Noting”
protest is admissible as evidence in court.
Q: What is meant by “noting”?
Q: When is protest required?
A: It means the notary public writes a note on the bill or on a
A: Only in foregn bills, except in certain cases. The omission of paper attached thereto, or in his notarial register, consisting of
the protest when such protest is required, will discharge the his initials, the month, day, and year, the matters required to be
drawer and indorsers. Inland bills and notes may, but need not, included in the protest together with the noting charges.
be protested to charge the persons liable thereon, except in
certain cases. Once the noting has been made, the protest may be extended at
anytime before a court action is brought, or even during the trial,
Q: What are the instances when protest required? since such protest shall be antedated.

Hence, if the bill is dishonored on September 1, 2010, the noting a. When the acceptor has been adjudged a
must be made on such date. If the trial has been set for October bankrupt or insolvent
1, 2010, the formal protest may be made on or before such date b. When the acceptor has made an assignment
after the noting. for the benefit of creditors
Q: When is the delay in the noting excused? Q: When should protest be made?
A: Delay in noting or protesting is excused when delay is caused A: After the bill has been accepted but before its maturity
by circumstances beyond the control of the holder and not
imputable to his default, misconduct, or negligence. When the Q: Against whom should it be protested?
cause of delay ceases to operate, the bill must be noted or
protested with reasonable diligence. A:
Where should the protest be made 1. Drawer

2. Indorsers
Q: Where should the protest be made?
Q: What is the reason for the protest?
A:
A: To give notice to the drawer and the indorsers that in all
GR: A bill must be protested at the place where it is dishonored, probability, the acceptor, by reason of his being adjudged as
bankrupt or insolvent, would not be able to honor the bill at
XPN: When a bill drawn payable at the place of business or maturity, so that they may make the necessary arrangements for
residence of some person other than the drawee has been its payment at maturity if they do not want to be held liable
dishonored by nonacceptance, it must be protested for non- thereon.
payment at the place where it is expressed to be payable, and no
further presentment for payment to, or demand on, the drawee Sec. 159. When protest dispensed with. - Protest is dispensed
is necessary. with by any circumstances which would dispense with notice of
dishonor. Delay in noting or protesting is excused when delay is
Example: If a bill drawn in Los Angeles and addressed to a drawee caused by circumstances beyond the control of the holder and
in Paris but payable at PNB-Malate, Manila, is dishonored by the not imputable to his default, misconduct, or negligence. When
drawee in Paris, the protest for non-payment should be made in the cause of delay ceases to operate, the bill must be noted or
Manila. protested with reasonable diligence.
Notice of protest Q: When is delay excused?
Q: What is a notice of protest? A: When delay is caused by circumstances beyond the control of
the holder and not imputable to his default, misconduct, or
A: It is a document sent by the notary public to all parties on the negligence. When the cause of delay ceases to operate, the bill
instrument informing the latter that a specific instrument has must be noted or protested with reasonable diligence.
been protested, and that the holder looks upon them for
payment of damages, interests, and costs. If the holder has sent Sec. 160. Protest where bill is lost and so forth. - When a bill is
the notice to all parties, he is entitled to recover from such lost or destroyed or is wrongly detained from the person
parties. entitled to hold it, protest may be made on a copy or written
particulars thereof.
Sec. 157. Protest both for non-acceptance and non-payment. - A
bill which has been protested for non-acceptance may be NOTE: Protest may be made on a copy or written particulars of a
subsequently protested for non-payment. bill in the following cases:
Sec. 158. Protest before maturity where acceptor insolvent. - 1. Loss of the bill
Where the acceptor has been adjudged a bankrupt or an 2. Destruction of the bill
insolvent or has made an assignment for the benefit of creditors 3. Wrongful detention from the person entitled to hold it.
before the bill matures, the holder may cause the bill to be
protested for better security against the drawer and indorsers. NOTE: The above instances, however, does not excuse demand
and protest since it does not change the contract of the parties.
Q: When is protest optional? Demand and protest may be made on a copy or written
particulars thereof.
A:
Q: Distinguish notice of dishonor and protest.
1. When a bill has been previously protested for non-
acceptance A:
2. In case of protest for better security
NOTICE OF DISHONOR PROTEST
Grounds: As to applicability
Applies to inland bills Does not apply to inland bills
but only to foreign bills
As to form A: An acceptance for honor is made to save credit of the drawer,
May be verbal or written Always in writing drawee, or indorser or somebody else. It enables a party liable on
Made by whom the bill to induce a stranger to intervene for the protection of the
Made by a holder or any Made by a notary public or a party’s credit.
person who may be compelled respectable resident
to pay Sec. 162. Acceptance for honor; how made. - An acceptance for
When made honor supra protest must be in writing and indicate that it is an
Required to be made usually Protest or noting should be acceptance for honor and must be signed by the acceptor for
within one day after dishonor made on the day of dishonor honor.
Where made
Not made or given in the place As a rule to be made in the Q: How is acceptance for honor made?
of dishonor but in the place of dishonor
residence of the parties and A:
other places mentioned in sec.
1. It must be in writing
103
2. It must indicate that it is an acceptance for honor
3. It must be signed by the acceptor for honor
Example:
ACCEPTANCE FOR HONOR
Accepted for the honor of Alicia
Sec. 161. When bill may be accepted for honor. - When a bill of Sgd. Betty
exchange has been protested for dishonor by non-acceptance or
protested for better security and is not overdue, any person not Sec. 163. When deemed to be an acceptance for honor of the
being a party already liable thereon may, with the consent of drawer. - Where an acceptance for honor does not expressly
the holder, intervene and accept the billsupra protest for the state for whose honor it is made, it is deemed to be an
honor of any party liable thereon or for the honor of the person acceptance for the honor of the drawer.
for whose account the bill is drawn. The acceptance for honor
may be for part only of the sum for which the bill is drawn; and Q: When is the acceptance for honor deemed for the drawer?
where there has been an acceptance for honor for one party,
there may be a further acceptance by a different person for the A:
honor of another party.
1. When the acceptance for honor expressly provides that
Q: What is acceptance for honor? it is being made for the honor of the drawer
2. When the acceptance for honor does not expressly
A: It is an acceptance made by a person who is not a party to the provide for whose honor it is made
bill, after the bill has been protested for non-acceptance or for
better security, and before it is overdue, for the honor of the Example: The acceptance states as follows:
drawer or of any one of the indorsers. Such acceptance is also
called “acceptance supra protest.” This is an exception to the rule “Accepted, S.P., sgd. X.” This example does not indicate the
that only the drawee may accept a bill.
person in whose favor X is accepting the instrument for honor,
hence, the same is deemed to be in favor of the drawer.
Q: What are the requisites?
Sec. 164. Liability of the acceptor for honor. - The acceptor for
A: honor is liable to the holder and to all parties to the bill
subsequent to the party for whose honor he has accepted.
1. bill of exchange has been protested for dishonor by
non-acceptance or protested for better security and
Example: R, drawer; P, payee, and W, drawee. The bill is indorsed
2. not overdue, a by P to A, A to B, B to C, and C to H, holder. H presents the bill to
3. the acceptance for honor must be made by a person
W for acceptance, but the latter refuses to accept it. H protests
who is not already a party liable on the bill, i.e., he must the bill. Before the date of maturity, S, a stranger to the bill,
be a stranger thereto. There may be several acceptors accepts the bill for the honor of A, indorser. S is liable not only to
supra protest for the honor of the different parties ro H, but also to B and C, parties subsequent to A for whose honor
the bill. he accepted the bill.
4. The holder must give his consent to the acceptance for
honor. Sec. 165. Agreement of acceptor for honor. - The acceptor for
honor, by such acceptance, engages that he will, on due
Q: Why is consent necessary? presentment, pay the bill according to the terms of his
acceptance provided it shall not have been paid by the drawee
A: The consent of the holder is necessary because there is a and provided also that is shall have been duly presented for
novation through a substitution of the debtor. payment and protested for non-payment and notice of dishonor
given to him.
Q: What is the acceptance for honor?

Q: What are the requisites for liability of acceptor for honor? a. If sent by mail, it must be deposited in the post
office in time to go by mail the day following the
A: day of dishonor, or if there be no mail at a
convenient hour on last day, by the next mail
1. The bill must be presented for payment to the drawee thereafter.
at maturity b. If given otherwise than through the post office,
2. The drawee refuses to pay the bill then within the time that notice would have been
3. The bill must be protested for non-payment received in due course of mail, if it had been
4. Notice of dishonor by non-payment must be given to deposited in the post office within the time
the acceptor for honor specified in the last subdivision.
Example: R, drawer; P, payee, and W, drawee. The bill, which is Sec. 169. When delay in making presentment is excused. - The
payable 30 days after sight, is indorsed by P to A, A to B, B to C, provisions of Section eighty-one apply where there is delay in
and C to H, holder. On October 1, H presents the bill to W for making presentment to the acceptor for honor or referee in
acceptance, but the latter refuses to accept it. After due protest case of need.
is made, S, a stranger to the bill, with the consent of H and for the
purpose of preserving the credit of A, accepts the bill supra Sec. 170. Dishonor of bill by acceptor for honor. - When the bill
protest for the honor of A on October 6. In order to hold S liable is dishonored by the acceptor for honor, it must be protested
on his acceptance, H will have to wait until the maturity of the for non-payment by him.
instrument on October 31, when he must present it to W for
payment, notwithstanding W’s previous refusal to accept it. Upon Q: Distinguish between acceptance for honor and ordinary
the refusal of W to pay the bill, H must also protest the bill for acceptance.
non-payment and give notice of dishonor by non-payment to S.
A:
Sec. 166. Maturity of bill payable after sight; accepted for
honor. - Where a bill payable after sight is accepted for honor, ACCEPTANCE FOR HONOR ORDINARY ACCEPTANCE
its maturity is calculated from the date of the noting for non- Protests is a requisite Protest is not a requisite
acceptance and not from the date of the acceptance for honor. The person who accepts is a The person who accepts is a
stranger party—the drawee
Example: The BOE is payable 10 days after sight. It was presented There must be an express Any word indicating a
for acceptance on March 10, 2004 but was not accepted. Later statement that it is for honor acceptance is enough
accepted for honor on March 12, 2004 after complying with all Consent of the holder is Consent of the holder is not
the requirements thereof. In this case, the maturity date is March necessary necessary
20, 2004 and not March 22, 2004. The liability of the acceptor for The acceptor is primarily liable
honor is secondary
Payment of the acceptor for Payment by the acceptor in
Sec. 167. Protest of bill accepted for honor, and so forth. - honor will not discharge the due course discharges the bill
Where a dishonored bill has been accepted for honor supra bill
protest or contains a referee in case of need, it must be Acceptance for honor may be Acceptance involves the entire
protested for non-payment before it is presented for payment in favor of only one or some of instrument
to the acceptor for honor or referee in case of need. the parties
Sec. 168. Presentment for payment to acceptor for honor, how PAYMENT FOR HONOR
made. - Presentment for payment to the acceptor for honor
must be made as follows:
Sec. 171. Who may make payment for honor. - Where a bill has
(a) If it is to be presented in the place where the protest for non- been protested for non-payment, any person may intervene and
payment was made, it must be presented not later than the day
pay it supra protest for the honor of any person liable thereon
following its maturity. or for the honor of the person for whose account it was drawn.
(b) If it is to be presented in some other place than the place
where it was protested, then it must be forwarded within the Sec. 172. Payment for honor; how made. - The payment for
time specified in Section one hundred and four.
honor supra protest, in order to operate as such and not as a
mere voluntary payment, must be attested by a notarial act of
Q: When is presentment of the bill for payment to acceptor for honor which may be appended to the protest or form an
honor made?
extension to it.
A:
Sec. 173. Declaration before payment for honor. - The notarial
act of honor must be founded on a declaration made by the
1. If it is to be presented in the place where the protest
payer for honor or by his agent in that behalf declaring his
for non-payment was made, it must be presented not intention to pay the bill for honor and for whose honor he pays.
later than the day following its maturity
2. If it is to be presented in some other place than the Q: What is payment for honor?
place where it was protested, then it must be
forwarded within the ff. times:

A: It is the means of payment of a bill of exchange after it has party for whose honor he pays and all parties
been dishonored by non-payment and protested for non- liable to the latter.
payment, by any person, including one already a party to the bill, b. On payment of the amount of the bill and the
for the honor of one, or all the parties to the bill. notarial expenses incidental to dishonor, he is
entitled to receive the bill itself and the protest.
Q: What are the requisites? Example: R draws a BOE against W and payable to the order of P.
P indorse the bill to A, A to B, B to C, and C to H, holder. The bill is
A: dishonored by non-payment by W; hence, it is protested for non-
payment. X pays H for the honor of A. Here, B and C, parties
1. The bill must have been protested for non-payment subsequent to A, are discharged. X is subrogated for and
2. The payment for honor must be attested by a notarial succeeds to the rights of H against A, the party for whose honor
act of honor which may be appended to the protest or he paid, and R and P, parties liable to A.
form an extension of it. This is important so that the
payment will not operate as a mere voluntary payment Sec. 176. Where holder refuses to receive payment supra
3. The notarial act of honor must be founded on a protest. - Where the holder of a bill refuses to receive payment
declaration made by the payer for honor of his supra protest, he loses his right of recourse against any party
intention to pay the bill for honor and for whose honor who would have been discharged by such payment.
he pays.
NOTE: The holder has no choice but to accept the payment for
Q: State the procedure for payment of honor. honor.
A: Assume that in the preceding example, H refuses to accept the

offer of X to pay for the honor of A. In such a case, H loses his
1. The payer for honor goes before a notary public and right to hold liable B and C, parties subsequent to A, who would
makes a declaration of his intention to pay the bill and have been discharged by the payment.
for whose honor he is paying the bill
2. The notary public records the declaration either in the Sec. 177. Rights of payer for honor. - The payer for honor, on
protest or in a separate instrument paying to the holder the amount of the bill and the notarial
3. After the declaration, the payer for honor notifies the expenses incidental to its dishonor, is entitled to receive both
person for whose honor he is making the payment the bill itself and the protest.
within a reasonable time; otherwise, such party is not
bound to refund. Q: Distinguish “acceptance for honor” and “payment for honor.”
Sec. 174. Preference of parties offering to pay for honor. - A:

Where two or more persons offer to pay a bill for the honor of
different parties, the person whose payment will discharge ACCEPTANCE FOR HONOR PAYMENT FOR HONOR
most parties to the bill is to be given the preference. There must be prior protest for There must be protest for non-
non-acceptance or for better payment
Example: R, drawer; P, payee; W, drawee. The bill is indorsed by P security
to A, A to B, B to C, C to H. The bill is dishonored by non-payment The bill is not yet overdue The bill is already overdue
by W; hence, it is protested for non-payment. X offers to pay the The acceptor must be a The person who will pay may
bill for the honor of R, the drawer, Y offers to pay it for the honor stranger be a stranger or may be a party
of A, and Z offers to pay for the honor of B. Here, the offer of X is The consent of the holder is a The consent of the holder is
given preference as it will discharge the most parties, i.e., P, A, B requisite not necessary and the holder
and C. who refuses to accept payment
loses his right of recourse
Sec. 175. Effect on subsequent parties where bill is paid for against any party who may be
honor. - Where a bill has been paid for honor, all parties discharged by such payment
subsequent to the party for whose honor it is paid are
discharged but the payer for honor is subrogated for, and Q: Distinguish “payment by person primarily liable” and
succeeds to, both the rights and duties of the holder as regards “payment for honor.”
the party for whose honor he pays and all parties liable to the
latter. A:
Q: What is the effect when the bill is paid for honor? PAYMENT BY PERSON PAYMENT FOR HONOR
PRIMARILY LIABLE
A: There is no need to protest for There must be protest for non-
non-payment or non- payment
1. All partied subsequent to the party for whose honor the acceptance
bill is paid are discharged
A notarial act is not necessary A notarial act is necessary
2. The payee for honor acquires the following rights:
The person who will pay is a The person who will pay may
a. He is subrogated for, and succeeds to, both both
party--the maker or the be a stranger or may be a party
the rights and duties of the holder as regards the
drawee-acceptor

Payment in due course It cannot be payment in due pay to the order of Pamela Pamplona the sum of P200,000.00.
discharges the instrument course and payment Value received and charge to the account of
discharges only the parties
after the party in whose favor Sgd. Rolando Robles
payment for honor is made To: Winston Wallace
Payment is not in favor of the Payment for honor is in favor 123 Avenue of the Stars
specific parties of a specified person and the Los Angeles, CA
law requires that there is a
statement of the person for Second example:
whose honor payment is made
January 2, 2004
FIRST PART
(of two parts)
BILLS IN SET
Pay to the order of Bebeng P10,000.00 on or before January 2,
Sec. 178. Bills in set constitute one bill. - Where a bill is drawn in 2005
a set, each part of the set being numbered and containing a Sgd. Ayel
reference to the other parts, the whole of the parts constitutes
one bill. To: Budoy
Q: What is a bill in set? January 2, 2004

SECOND PART
A: It is one composed of several parts, each part of the set being (of two parts)
numbered and containing a reference to the other parts, the
whole of the parts constitutes one bill. Pay to the order of Bebeng P10,000.00 on or before January 2,
2005
Q: What is the purpose of bill in set? Sgd. Ayel
A: It is to increase the probability of the bill reaching its tendered To: Budoy
recipient. To achieve this purpose, each part is transmitted
through different conveyances. Thus, the drawer sends each part NOTE: This is common in letters of credit. When the exporter of
separately to the payee, who may transmit each part also by the good will collect from the bank the proceeds of the letters of
different conveyances to another holder, or to the drawee. This credit, for the goods he sold to an importer, he will draw a bill in
will insure that the bill is promptly presented for acceptance and set usually in 2 parts, e.g. first of two parts… and then second of
payment. two parts. They will be mailed usually one week apart to provide
for contingency that if one is lost, the other part can, most
Examples: probably, still be received and thus, there can still be collection.
This is the main idea behind bill in set: to provide for the
First example contingency that one part is lost in the event there is miscarriage
in the mails.
Sec. 179. Right of holders where different parts are negotiated. -

Manila, Philippines Where two or more parts of a set are negotiated to different
October 1, 2010 holders in due course, the holder whose title first accrues is, as
between such holders, the true owner of the bill. But nothing in
First Exchange for P200,000.00 this section affects the right of a person who, in due course,
accepts or pays the parts first presented to him.
Thirty days after sight of this First Exchange (Second Part Unpaid),
pay to the order of Pamela Pamplona the sum of P200,000.00. If bills in set are negotiated to holders in due course,
Value received and charge to the account of the one whose title first accrues is the true owner. But, if the
other party is able to get acceptance or payment first, then he is
Sgd. Rolando Robles the one who will be able to collect.
To: Winston Wallace
123 Avenue of the Stars Example:
Los Angeles, CA C ------ E -------- G
A - Draws a Bill in Set payable to B

Manila, Philippines - Addressed to X D ------ F -------- H
October 1, 2010
Second Exchange for P200,000.00
A with a bill in set, addressed X that bill is payable to B. B
Thirty days after sight of this Second Exchange (First Part Unpaid), indorsed one part to C and the other part to B. If the

endorsement was first made to C, as between C and D, C will NOTE: Where any one part (of a bill in set) is discharge by
have a better right. However, if D was able to go to X first and payment, the whole bill is discharged because the different parts
get the bill accepted, then D will be the one who will be entitled constitute only one bill. So that, if the acceptor pays, he cannot
to collect from X. require the holder to produce all the parts. Precisely the bill is in
set for the contingency that one party may be lost so that the
Sec. 180. Liability of holder who indorses two or more parts of a holder can still collect in the event one part is lost.
set to different persons. - Where the holder of a set indorses
two or more parts to different persons he is liable on every such The fact that there is only one bill in bills in set, discharge of one
part, and every indorser subsequent to him is liable on the part part discharges all. This is however subject to certain exceptions:
he has himself indorsed, as if such parts were separate bills.
Sec. 180. Liability of holder who indorses two or more parts of a set to
NOTE: Since the bills are only parts of one bill, the intention is to different persons. - Where the holder of a set indorses two or more
make only one person the holder thereof. parts to different persons he is liable on every such part, and every
indorser subsequent to him is liable on the part he has himself indorsed,
as if such parts were separate bills.
The law says that if the holder of the bill in set indorses the parts
to different persons, he will be liable on each part and every Sec. 181. Acceptance of bill drawn in sets. - The acceptance may be
endorser subsequent to him, as if each part were separate bills. written on any part and it must be written on one part only. If the
In the example, B will be liable to C and D as indorser. If ever C drawee accepts more than one part and such accepted parts negotiated
indorses it to E, and E indorses it to G, C and E will be liable to G to different holders in due course, he is liable on every such part as if it
as indorsers. D and F will be liable to H as indorsers. were a separate bill.
Sec. 182. Payment by acceptor of bills drawn in sets. - When the

Sec. 181. Acceptance of bill drawn in sets. - The acceptance may
acceptor of a bill drawn in a set pays it without requiring the part
be written on any part and it must be written on one part only. bearing his acceptance to be delivered up to him, and the part at
If the drawee accepts more than one part and such accepted maturity is outstanding in the hands of a holder in due course, he is
parts negotiated to different holders in due course, he is liable liable to the holder thereon.
on every such part as if it were a separate bill.
NOTE: Acceptance may be written on any part, and should be

written on one part ONLY. Now, if the drawee ACCEPTS both PROMISSORY NOTES AND CHECKS
parts, then he will be liable on both parts. Well, that is his fault if
he accepted both parts. Sec. 184. Promissory note, defined. - A negotiable promissory
note within the meaning of this Act is an unconditional promise
Sec. 182. Payment by acceptor of bills drawn in sets. - When the in writing made by one person to another, signed by the maker,
acceptor of a bill drawn in a set pays it without requiring the engaging to pay on demand, or at a fixed or determinable future
part bearing his acceptance to be delivered up to him, and the time, a sum certain in money to order or to bearer. Where a
part at maturity is outstanding in the hands of a holder in due note is drawn to the maker's own order, it is not complete until
course, he is liable to the holder thereon. indorsed by him.
NOTE: If an acceptor of a bill drawn in set pays it without Q: What is a promissory note?
requiring the part, bearing his acceptance, to be delivered to him,
and that part is still out standing at maturity and it falls in the A:
hands of a holder in due course – then he (acceptor) can be held
liable. It is his fault for paying the holder although the holder did a. An unconditional promise
not surrender to him the part which contains his acceptance. b. in writing
c. made by one person to another,
Just like any other instrument, the acceptor must retrieve the d. signed by the maker,
instrument from the person presenting the instrument for e. engaging to pay on demand, or at a fixed future time,
payment. In the case of bills in set, the acceptor must secure all f. a sum certain in money
parts of the bill that he accepted. If he will not get all the parts g. to order or to bearer.
and the other parts that he did not retrieve are negotiated to
other HDC, the acceptor is still liable. NOTE: A PN drawn payable to the maker’s own order is not
complete until indorsed by him. It means the instrument must be
Similarly, the acceptor is also liable to separate holders in due delivered with an indorsement, otherwise, the transferee is not a
course if he accepted two or more parts of the bills in set in the holder because although he is in possession of the instrument, he
hands of different persons. He is supposed to accept only one. is not the indorsee. The transfer, however, is considered as an
Hence, he will be liable to 2 or more holders in due course for all assignment which will entitle the transferee to recover on the
parts of the bills in set that he accepted. notes as an ordinary contract from the maker.
Sec. 183. Effect of discharging one of a set. - Except as herein Q: What are the special types of promissory notes?
otherwise provided, where any one part of a bill drawn in a set
is discharged by payment or otherwise, the whole bill is A:
discharged.
Certificate of A written acknowledgement by a bank of the

deposit receipt of money on deposit which the bank payment of interest upon prior mortgages
promises to pay the depositor, bearer, to some Joint and A bond the principal and interest of which is
other person on order several bond guaranteed by 2 or more persons
Bond An evidence of indebtedness issued by a public Joint bond Bond secured by 2 or more obligors who must
or private corporation which promises to pay a be joined in any action on such bond
sum of money at a specified time in the future Mortgage Bond secured by mortgage on property
Bank note Issued by a bank which is payable to bearer or bond
demand and is intended to circulate as money
Due bill Whereby a person acknowledges his CHECKS
indebtedness to another such as “Due P,
P1000.00 payable to his order. Sgd. M” Sec. 185. Check, defined. - A check is a bill of exchange drawn on
Mortgage The maker constitutes, to secure the amount a bank payable on demand. Except as herein otherwise
note due, a real or chattel mortgage which the holder provided, the provisions of this Act applicable to a bill of
may foreclose if the maker defaults in the exchange payable on demand apply to a check.
payment of the sum due
Title A combination of PN and a conditional sales Q: What is a check?
retaining contract whereby the maker promises to pay the
note price of the goods he purchased from the payee, A: A check is a bill of exchange drawn on a bank payable on
but agrees that the title to the goods shall be demand. BOE. To be able to verify the identity of this particular
retained by the payee until the maker has paid type of BOE, you would CHECK the serial number. Most
the purchase price in full commercial transactions are done through checks.
Collateral A note whereby the maker pledges securities, Provisions of the law on Bills of Exchange are also applicable to
note such as stocks, bonds, or other security devices, checks. This is why AmJur says that the rule that - if the drawee
to secure payment of the amount due on the retains a BOE for 24 hour that amounts to acceptance, is also
note. The note gives the holder the power to applicable to checks. Therefore, if you don’t return the checks for
dispose of the security if the maker defaults in 24 hours, you have deemed accepted it.
the payment of the sum due
NOTE: In issuing a check, a drawer represents that he has
Q: What are the uses of promissory note? sufficient funds with the bank for its payment.
A: Q: What do you mean by ante-dated?
1. It is a means of borrowing money A: An instrument is considered ante-dated if it is dated earlier

2. It is a means of buying goods or services on credit than the date of issue, such as a check dated earlier April 1, 2011
3. It can be used as evidence of a pre-existing debt is issued on May 1, 2011.
Alternative answer: Q: What do you mean by post-dated?
1. It is safer and more convenient to carry checks than A: An instrument is considered post-dated if it is dated ahead of
currency the issue, such as a check dated May 1, 2011 is issued on April 1,
2. A check functions as a receipt for the payment made 2011.
once it has been declared by a bank
3. A check can serve as protection to the drawer who can Q: What is the reason for post-dating?
stop payment in certain situations, such as when the
payee failed to comply with his promise to deliver the A: A person may post date an instrument, usually a check, when
goods to the drawee of the check he has no sufficient funds at the time that he is drawing the
check, but intends to deposit sufficient funds to cover its amount
Q: What are the different kinds of bond? by the date appearing thereon. He may also post-date a check to
protect himself when some act is to be performed by the payee
A: before the date of the check. The payee’s non-performance of
such act before the date of the check will enable him to stop its
Bottomry bond Bonds secured by mortgage of ships payment particularly if check is for deposit to the payee’s account
Chattel Bonds secured by mortgage on chattels of only.
mortgage bond business
Chattel trust Bond secured by collateral deposited with a Q: What is the reason for ante-dating?
bond trustee
Convertible Bond that can at the option of the holder be A: It may be ante-dated to evidence a pre-existing debt. For
bond converted into stocks example, on November 1, 2010, M obtained a 60-day loan of
Coupon bond Bonds with interest coupons attached P10,000.00 from P with promise that he will immediately issue a
promissory note for such debt. However, M forgot to issue the
Guaranteed Bond which has interest or principal or both
bond guaranteed by a company other than the note immediately until he remembered if after a week. So on
November 8, M issues a note to evidence the pre-existing debt
issuer
placing on the instrument November 1, 2010, the date when it
Income bond Interest is payable only when earned after
was supposed to have been issued.
Traveler’s check Check used by traveler to supply him with
Q: What is the effect of ante-dating or post-dating? funds in lieu of cash. It is signed by the
holder upon the issuance, and
A: countersigned by him before it is paid.
Certified check Check which bears the word “certified” on
1. The validity and negotiability of the instrument is not its face, signifying that the check is
affected recognized and accepted by the bank as a
XPN: When it is done for an illegal or fraudulent valid appropriation of the amount specified
purpose thereon, and as drawn against funds held in
trust by the bank
NOTE: Although the implication of Sec. 12 is that the Crossed check Check which bears two paraller lines usually
instrument is rendered invalid if the ante-dating and drawn diagonally on the upper left portion
post-dating of the check is done for an illegal purpose, of its face
the invalidity affects holders not in due course. In case
of a holder-in-due-course, his right to recover the Q: Differentiate cashier’s from manager’s check.
amount of the instrument cannot be barred by any
party on the ground that the instrument was ante- A: In the headoffice, it is the cashier who signs it because it is
dated or post-dated for an illegal or fraudulent where the cashier holds office. But in the branches, it is the
purpose. manger who signs the check. The process for both is the same. It
is the officer of the bank who issues the check in behalf of the
2. If the instrument is a check, its post-dating has the bank payable to the payee drawn against the bank. This is why
effect of converting it from a demand instrument to a the SC says the drawer and the drawee are the same in these
time instrument because it is an order to pay a types of checks, thus they are not presented for acceptance.
specified amount at the future date indicated thereon.
Accordingly, it cannot be cashed with the bank against Crossed checks
which it is drawn or be deposited before the date
stated on the check. Q: How are checks crossed?
Q: When is title to ante-dated or post-dated instrument A:

acquired?
SPECIFICALLY GENERALLY
A: The person to whom an ante-dated or post-dated instrument The name of the bank or other No words are written or the
is delivered acquires the title thereto not as of the date written business institution appear words “& Co.” appear between
thereon but as of the date of its delivery to him. between two parallel diagonal the parallel diagonal lines. In
lines on the upper left portion this case, the drawee bank
Q: Is a check an assignment of funds? of the check. The drawee must should not cash the same but
pay the check only with the merely accept it for deposit
A: A check of itself does not operate as an assignment of any part intervention of such bank or
of the funds to the credit of the drawer with the bank, and the company
bank is not liable to the holder unless and until it accepts or
certifies the check. Q: What are the purposes of crossed checks?
Q: What are the different kinds of checks? A:
A: 1. To have the check deposited only to the account of the

payee
Memorandum A check which, across its face, is written the 2. To have the check paid only with the intervention of a
check word “Memorandum” or “memo.” It is particular banker when its name is placed between the
regarded as a contract whereby the drawer parallel lines crossing the check
engages to pay the bona fide holder 3. To obtain assurance that the check will be paid only to
absolutely and not upon a condition to pay the rightful person.
upon presentment and non-payment
Cashier’s check Check drawn by cashier of a bank in the Q: What are the effects of crossing a check as held in the case
name of the bank and against the bank itself Bataan Cigar vs. CA (GR No. 93048, March 3, 1994)?
rd
payable to a 3 person or order. It is really
the bank’s own check and may be treated as A:
a PN with a bank as maker. It becomes a
primary obligation of the bank which issues 1. It cannot be encashed over the counter, but must be
it and constitutes a written promise to pay deposited in a bank
on demand 2. Can be endorsed only once-to one who has an account
Manager’s check Check drawn by manager of a bank in the with a bank
name of the bank and against the bank itself 3. that the act of crossing the check serves as a warning to
rd
payable to a 3 person or order. Its effect the holder that the check has been issued for a definite
and use are the same as cashier’s check
purpose so that such holder must inquire if the check A:
has been received pursuant to that purpose, otherwise,
he is not a HDC Bill of Exchange Check
As to drawee
NOTE: To be a Holder in due course, the holder must The drawee may or may not Drawee is always a bank
inquire: be a bank
a. What is the nature of the title of the payee When payable
b. For what purpose did he acquire it May be payable: Always payable on
1. on demand demand
Q: Distinguish clearly (1) crossed checks from cancelled checks. 2. at a fixed
3. determinable
A: A crossed check is one with two parallel lines drawn diagonally future time
across its face or across a corner thereof. On the other hand, a Presence of deposit or checking account
cancelled check is one marked or stamped "paid" and/or Not necessarily drawn on a Necessarily drawn on a
"cancelled" by or on behalf of a drawee bank to indicate payment deposit or checking account deposit or checking
thereof. account
Effect of death of drawer
Q: Po Press issued in favor of Jose a postdated crossed check, in
Death of drawer, with Death of drawer, with
payment of newsprint which Jose promised to deliver. Jose sold knowledge of the bank, does knowledge of the bank,
and negotiated the check to Excel Inc. at a discount. Excel did
not revoke the authority of revokes the authority of
not ask Jose the purpose of crossing the check. Since Jose failed the banker to pay the banker to pay
to deliver the newsprint, Po ordered the drawee bank to stop
payment on the check. Efforts of Excel to collect from Po failed.
Stopping of payment
Excel wants to know from you as counsel: 1) What are the
effects of crossing a check? 2) Whether as second indorser and
NOTE: A check is a mere order on bank to pay money from the
holder of the crossed check, is it a holder in due course? 3)
drawer’s account. As such, it is subject to revocation by the
Whether Po’s defense of lack of consideration as against Jose is
drawer at any time before it is accepted. It also flows from the
also available as against Excel?
rule that the issuance of a check by itself is not an assignment of
funds by the drawee. If a bank pays after it has been notified stop
A:
payment, it pays on its own responsibility and will not be
permitted to charge the account.
1. The effects of crossing a check are:
Sec. 186. Within what time a check must be presented. - A check
a. The check is for deposit only in the account of the
must be presented for payment within a reasonable time after
payee
its issue or the drawer will be discharged from liability thereon
b. The check may be indorsed only once in favor of a
to the extent of the loss caused by the delay.
person who has an account with a bank
c. The check is issued for a specific purpose and the
PNB v. Sito
person who takes it not in accordance with said
purpose does not become a holder in due course and is
Q: What is the effect of delay in the presentation of the check?
not entitled to payment thereunder.
A: The SC said, if there is delay in presenting the check for
payment, the indorser is discharged. He need not prove that he
2. No. It is a crossed check and Excel did not take it in
is prejudiced. Prejudice is presumed. By the fact that there was
accordance with the purpose for which the check was
undue delay, the potential liability was unduly prolonged. So
issued. Failure on its part to inquire as to said purpose,
long as there is undue delay in the presentment of check for
prevented Excel from becoming a holder in due course,
payment, indorsers are discharged. But the drawer, according to
as such failure or refusal constituted bad faith.
this case will only be discharged to the extent he suffered the loss
3. Yes. Not being a holder in due course, Excel is subject to
because of the delay.
the personal defense which Po Press can set up against
Jose
This will only happen if the bank goes bankrupt such that if the
check were presented on time, the check would have been fully
Q: Is a crossed-check still negotiable?
paid, but because of the delay, the bank became bankrupt –
hence could only probably get 10 centavo per peso. If the bank
A: In the case of Chang Juan, the SC held that it is still negotiable.
did not go bankrupt, there is no prejudice.
A check was issued to Chang Juan, it was crossed. He presented
it for encashment over the counter, it was dishonored. He was
Jamal v. Estacio
running after the drawer. SC says that you cannot hold him
(drawer) liable because you (Chang Juan) did not make the
Jamal sold ladies underwear to Estacio. Estacio issued a check.
proper presentment of payment. The check is a crossed check, it
However, jamal never presented the check so it became stale. So
cannot be encashed over the counter. It must be deposited.
now he sued Estacio for payment.
Q: Distinguish checks from a BOE?

It there was delay in the presentment of the check, under the law When a customer makes a deposit to his account with the bank,
Estacio will be discharged only to the extent of the loss. He has the bank becomes the debtor. The contract is governed by simple
not shown that he has suffered loss because of the delay. loan, with the bank being a debtor of the customer
Sec. 187. Certification of check; effect of. - Where a check is If a customer deposits a check or other item for collection to his
certified by the bank on which it is drawn, the certification is account with the bank, the relationship of the parties as to that
equivalent to an acceptance. item is that of principal and agent, with the customer as principal
and the bank as agent.
Certification of check
Q: What is “certification”?
GENERAL PROVISIONS
A: It is an agreement whereby the bank which certifies a check
assumes absolute liability for its payment. It assures the payee or Sec. 190. Short title. - This Act shall be known as the Negotiable
any subsequent holder that the check is genuine and that the Instruments Law.
bank will honor it when the check is presented for payment. A
bank, however, is under no obligation to certify a check even if Sec. 191. Definition and meaning of terms. - In this Act, unless
the drawer has sufficient funds with it to cover the check. When the contract otherwise requires:
it certifies a check, the bank usually charges the account of the "Acceptance" means an acceptance completed by delivery or
drawer for the amount certified and shifts the money to a special notification;
account of the bank.
"Action" includes counterclaim and set-off;
Q: What should be the form of certification?
"Bank" includes any person or association of persons carrying
A: It is usually made by stamping or writing on the face of the on the business of banking, whether incorporated or not;
check the word “certified” and adding the date when the
certification was made. "Bearer" means the person in possession of a bill or note which
is payable to bearer;
Q: What are the effects of certification?
"Bill" means bill of exchange, and "note" means negotiable
A: promissory note;
1. Where a check is certified by the bank on which it is "Delivery" means transfer of possession, actual or constructive,
drawn, the certification is equivalent to an acceptance. from one person to another;
2. Where the holder of a check procures it to be accepted
or certified, the drawer and all indorsers are discharged "Holder" means the payee or indorsee of a bill or note who is in
from liability thereon. possession of it, or the bearer thereof;
3. It operates as an assignment of the funds of the drawer
in the hands of the drawee bank "Indorsement" means an indorsement completed by delivery;
Sec. 188. Effect where the holder of check procures it to be "Instrument" means negotiable instrument;
certified. - Where the holder of a check procures it to be
accepted or certified, the drawer and all indorsers are "Issue" means the first delivery of the instrument, complete in
discharged from liability thereon. form, to a person who takes it as a holder;
NOTE: The theory for such release is that the holder, by "Person" includes a body of persons, whether incorporated or
requesting such certification instead of payment, enters into a not;
new contract with the bank, and one not within the
contemplation of the drawer or prior indorser. The drawer and "Value" means valuable consideration;
the prior indorsers are expecting that the check will be presented
for payment only and not to be certified by the bank. "Written" includes printed, and "writing" includes print.
Sec. 189. When check operates as an assignment. - A check of Sec. 192. Persons primarily liable on instrument. - The person
itself does not operate as an assignment of any part of the funds "primarily" liable on an instrument is the person who, by the
to the credit of the drawer with the bank, and the bank is not terms of the instrument, is absolutely required to pay the same.
liable to the holder unless and until it accepts or certifies the All other parties are "secondarily" liable.
check.
Sec. 193. Reasonable time, what constitutes. - In determining
Nature of bank-customer relationship what is a "reasonable time" regard is to be had to the nature of
the instrument, the usage of trade or business with respect to
There is a dual relationship between a bank and its customer: such instruments, and the facts of the particular case.
that of a debtor and creditor, and that of a principal and agent.
Sec. 194. Time, how computed; when last day falls on holiday. -
Where the day, or the last day for doing any act herein required
or permitted to be done falls on a Sunday or on a holiday, the
act may be done on the next succeeding secular or business day.
Sec. 195. Application of Act. - The provisions of this Act do not

apply to negotiable instruments made and delivered prior to the
taking effect hereof.chanrobles law
Sec. 196. Cases not provided for in Act. - Any case not provided
for in this Act shall be governed by the provisions of existing
legislation or in default thereof, by the rules of the law
merchant.
Sec. 197. Repeals. - All acts and laws and parts thereof
inconsistent with this Act are hereby repealed.
Sec. 198. Time when Act takes effect. - This Act shall take effect
ninety days after its publication in the Official Gazette of the
Philippine Islands shall have been completed.
REFERENCES:
 SORIANO, FIDELITO R., Negotiable Instruments: Law

and Application for Business Students, 2011 Edition,
GIC Enterprises & Co., Inc.
 AUSTRIA SALVADOR E., and AQUINO, TIMOTEO B.,
Fundamentals of Negotiable Instruments Law, 2004
Edition, Central Book Supply Inc.
 UST Growling Notes, 2011.


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NOTES ON NEGOTIABLE INSTRUMENTS LAW

Kenneth and King C. Hizon ___________________________________________________________________________________________________________

MERCANTILE LAW REVIEW 1:

INTRODUCTION cash amounting to 2M, negotiable instruments may be

Q: What is the governing law on negotiable instruments? 2. It is a credit instrument

Q: When does the NIL apply? Q: What are its functions?

A: Only to negotiable instruments. If the instrument is not A:

A: Q: What are the consequences of the rule that negotiable

Facultad de Derecho Civil 1

Facultad de Derecho Civil 2

NOTE: Promissory Note v. Bill of Exchange

Sgd. Justin Bill of Exchange Check

Facultad de Derecho Civil 3

FORM AND INTERPRETATION Q: How shall it be signed?

Where the instrument is addressed to a drawee, he must be b. Location

Q: What are the factors to be considered? Ex:

A: Since negotiable instruments are intended for circulation, they Examples:

Signed by the maker or drawer Sgd. Carlo

Facultad de Derecho Civil 4

To: Winnie Wagner 1. An indication of an account or fund out of which

a. I agree to pay 2. When payment is made to depend upon a contingency

Order to pay and its equivalent A:

Order to pay a sum certain in money Ex: To Mr. X and Mr. Y.

Examples: 1. Treasury warrants- an order in check form drawn on

NOTE: An instrument that is payable to a specified person or

Q: To be valid, what are the requirements? Sgd. Sarah

A: Payment with exchange

I promise to pay Bebeng or order P8000.00 in four equal Examples:

Ratio: The dates of each installment is not fixed Sgd. Mr. M

I promise to pay Bebeng or order P8000.00 in every month

New York City Reference to transaction

Sgd. Robert Rotschild April 23, 2004

To: Wilma Watson I promise to pay Bebeng or order P8000.00 representing my

Q: What is the effect of this stipulation? April 2, 2004

Facultad de Derecho Civil 8

At a fixed period after date or sight; or April 23, 2004

April 23, 2004 A:

Facultad de Derecho Civil 9

3. Waiver by obligor If the instrument is not dated, it will be considered to be dated as

February 23, 2004 Example:

4. Gives the option to holder 2. To determine when interest is to run

Q: What are the rules if the place of payment is not stated?

I promise to pay Ayel or order P8000.00 on call A:

1. As regards the drawer, the instrument is deemed To: Wilma Watson

June 23, 2004 March 31, 2011

To: Wilma Watson

To: Wilma Watson

Facultad de Derecho Civil 11

Facultad de Derecho Civil 12

Facultad de Derecho Civil 13

A: It may be ante-dated to evidence a pre-existing debt. For

Q: What is the effect of ante-dating or post-dating? To: Wendell Wagner

A: Accepted. (No date)

Facultad de Derecho Civil 14

Q: What are the matters mentioned in Sec. 25 which involves Examples:

Q: What are the 2 kinds of prima facie which exists in a A:

Facultad de Derecho Civil 16

Presumptions of valid delivery Q: M executed a PN payable to the order of P for P10,000.00

1. That he made no delivery of the instrument c. Delivery for a special purpose

Q: What is the nature of the defense?

NOTE: Soriano’s view: Q: When is this provision applicable?

I promise to pay to the order of Portia Palomares the sum of

The instrument makes a promise and yet it contains a drawee REFERENCES:

Where a signature is so placed upon the instrument that it is