Hand Outs For Revalida

NEGOTIABLE INSTRUMENTS LAW
PRESENTMENT FOR PAYMENT
Sec. 70. - Effect of want of demand on principal debtor. - Presentment for

payment is not necessary in order to charge the person primarily liable on the
instrument; but if the 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 willingness are
equivalent to a tender of payment upon his part. But except as herein otherwise
provided, presentment for payment is necessary in order to charge the drawer
and indorsers.
Q: What is the concept of presentment for payment?

A: It is the production of a bill of exchange to the drawee or acceptor for payment, or of
a promissory note to the party liable for the payment of the same.
Necessity of presentment for payment
1. As against persons primarily liable

Not necessary.
2. As against persons secondarily liable
Presentment for payment to the person primarily liable is necessary to charge the
drawer and indorsers.
XPNS: The drawer and indorsers are liable even without presentment for payment in
the following cases:
a. Drawer- when he has no right to expect or require that the drawee or acceptor will
pay the instrument
b. Indorser- where the instrument was made or accepted for his accommodation and he
has no reason to expect that the instrument will be paid if presented
c. When prersentment for payment is dispensed with in the following cases:
1. When it cannot be made after the exercise of reasonable diligence
2. When the drawee is a fictitious person
3. By waiver of presentment, express or implied
d. When a bill is dishonored by non-acceptance, an immediate right of recourse against
the drawer and indorsers accrues to the holder and no presentment for payment is
necessary
Q: M issued a PN to the order of P. P negotiated the instrument to A by

indorsement coupled with delivery. A indiorsed the instrument to B, the present
holder. On maturity date, B did not present the instrument to M for payment.
Later, B went to court and sued M, P, and A. Will the case prosper?
A: The case against M will prosper because presentment for payment is not necessary
to charge the person primarily liable. The cases against P and A will not prosper
because the 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 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 accpeptance. B did not also present the bill for
payment on maturity date. Later, B sued DW, DR, P and A. Will the case against
them prosper?
A: No, the case against all of them will not prosper. It will not prosper against DW
because DW is not yet liable on the instrument which was not presented for
acceptance. The drawee is not liable on the bill unless he accepts the same.
Payable at a special place
If the instrument is by its terms payable at a special place, and a person primarily liable
is able and willing to pay it there at maturity, such ability and willingness are equivalent
to a tender of payment upon his part. It means only that the person primarily liable
cannot be considered in default and is not liable for any interest for delay. The special
place does not include a city, province or municipality.
Q: What is the special place referred to under Sec. 70?

A: It means a house, bank, counting room, store or place of business, where the holder
can present a note, where the maker can deposit or provide funds to meet it, and where
a legal offer to pay can be made (Hutchinson v. Crutcher).
Sec. 72. What constitutes a sufficient presentment. - Presentment for payment, to

be sufficient, must be made: a. By the holder, or by some person authorized to
receive payment on his behalf; b. At a reasonable hour on a business day; c. At a
proper place as herein defined; d. To the person primarily liable on the
instrument, or if he is absent or inaccessible, to any person found at the place

where the presentment is made.
What constitutes a sufficient presentment
Q: Who shall make the presentment for payment?

A: By the holder, or by some person authorized to receive payment on his behalf.
Q: When should the instrument 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 caused by circumstances beyond the
control of the holder. When the cause of delay ceases, presentment for payment must
be made with reasonable diligence.
a. At a reasonable hour on a business day
b. Where the instrument is payable at a bank, presentment for payment must be made
during banking hours, unless the person to make payment has no funds there to meet it
at any time during the day, in which case presentment at any hour before the bank is
closed on that day is sufficient.
Q: When should be the date of presentment?
A: a. If the instrument is payable on demand
1. In case of PN, presentment for payment must be made within a reasonable time after
the issuance
2. In case of BOE, presentment for payment must be made within a reasonable time
after the last negotiation.
NOTE: If the day falls on a Saturday, the holder has the option to present the instrument
for payment: i. On the succeeding business day, or ii. Before 12 nn on that Saturday,
when that entire day is not a holiday
If the day falls on a Sunday, presentment for payment must be made the succeeding
business day.
b. If the instrument is not payable on demand It must be made on the day it falls due. If
it falls on a Saturday, Sunday or holiday, presentment for payment must be made on the
succeeding business day.
Q: How is presentment made?

A: The instrument must be exhibited to the person from whom payment is demanded,
and when it is paid, must be delivered up to the party paying it.
Q: Where should it be presented?
A: a. Where a place of payment is specified in the instrument and it is there presented;
b. Where no place of payment is specified but the address of the person to make
payment is given in the instrument and it is there presented;
c. Where no place of payment is specified and no address is given and the instrument is
presented at the usual place of business or residence of the person to make payment;
d. In any other case if presented to the person to make payment wherever he can be
found, or if presented at his last known place of business or residence.
Q: To whom should it be presented?
A: The instrument must be presented for payment to the person primarily liable on the
instrument, or if he is absent or inaccessible, to any person found at the place where the
presentment is made.
RULES:
1. If the principal is dead
a. If the place is specified, presentment must be made at such place
b. Presentment for payment must be made to his personal representative, if such there
be, and if, with the exercise of reasonable diligence, he can be found.
2. If the principal debtors are partners
b. Presentment for payment may be made to any one of them, even though there has
been a dissolution of the firm.
3. If the principal debtors are joint debtors
b. If no place is specified, presentment for payment musy be made to all joint debtors
except if one is authorized by the others to receive presentment
Sec. 73. - Place of presentment. - Presentment for payment is made at the proper
place: (a) Where a place of payment is specified in the instrument and it is there
presented; (b) Where no place of payment is specified but the address of the
person to make payment is given in the instrument and it is there presented; (c)
Where no place of payment is specified and no address is given and the
instrument is presented at the usual place of business or residence of the person
to make payment; (d) In any other case if presented to the person to make
payment wherever he can be found, or if presented at his last known place of
business or residence.
At the specified place specified in the instrument
I promise to pay Bebeng or order the sum of P10,000.00 on January 20, 2011 at Suite
345, Avenue Towers, Rizal Ave., Manila Sgd. Ayel
If no place is specified, the address of the person to make payment is given in the
instrument and it is there presented
I promise to pay Bebeng or order the sum of P10,000.00 on January 20, 2011. Sgd.
Ayel No. 1155 B Marzan St, Sampaloc, Manila
Where no place of payment is specified and no address is given and the

instrument is presented at the usual place of business or residence of the person
to make payment;
Thus, if the usual place of business of Jed Mark is No. 123 C.M. Recto Ave, while his
residence is at Suite 65 Cattleya Condominium, Mandaluyong City, presentment must
be made at either place.
In any other case if presented to the person to make payment wherever he can be
found, or if presented at his last known place of business or residence
Thus, there is proper presentment for payment if made at Suite 45 Manila Hotel, if the
maker or acceptor can be found at such place.
Sec. 74. - Instrument must be exhibited. - The instrument must be exhibited to the
person from fhom payment is demanded, and when it is paid, must be delivered
up to the party paying it.
Q: How is the instrument to be presented?

A: The instrument must be exhibited to the person from fhom payment is demanded,
and when it is paid, must be delivered up to the party paying it.
Q: What are the reasons for requiring exhibition of the instrument?
A: 1. To give the maker or the acceptor the chance to determine if the instrument is
genuine
2. To facilitate the surrender of the instrument/ to reclaim immediate possession of the
instrument upon paying its amount
NOTE: Hence, presentment cannot be made by telephone or by mere demand letter, or

telegram.
Sec. 75. - Presentment where instrument payable at bank. - Where the instrument
is payable at a bank, presentment for payment must be made during banking
hours, unless the person to make payment has no funds there to meet it at any
time during the day, in which case presentment at any hour before the bank is
closed on that day is sufficient.
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 account of the principal debtor thereon.
Example:
On demand, I promise to pay Jed Mark or order the sum of P120,000.00 at BDO-SM
San Lazaro Sgd. Sam
NOTE: Banking hours for most banks are from 9:00 a.m. to 3:00 p.m. from Monday-
Friday. Presentment for payment must be made within such time and days. Otherwise,
presentment for payment is not sufficient and will discharge the persons secondarily
liable.
If presentment is made at 10:00 a.m., the person to make payment does not have funds
at such time, presentment for payment in such case is premature because he has up to
3:00 p.m. to make payment. However, if the person to make payment has no funds to
meet it before the close of the banking hours, then the presentment made earlier is
sufficient and will not discharge parties secondarily liable.
Sec. 76. - Presentment where principal debtor is dead. - Where the person
primarily liable on the instrument is dead and no place of payment is specified,
presentment for payment must be made to his personal representative, if such
there be, and if, with the exercise of reasonable diligence, he can be found.
NOTE: Presentment must be made:

b. Presentment for payment must be made to his personal representative, if such there
be, and if, with the exercise of reasonable diligence, he can be found.
NOTE: If a person dies, an administrator may be appointed by the court to administer
the estate of the deceased, that is, to handle his properties, to pay for his debts, and to
divide the properties among the heirs. If there is no administrator, the heirs are
supposed to represent the estate of the deceased, hence, presentment can be made to
them.
Sec. 77. - Presentment to persons liable as partners. - Where the persons

primarily liable on the instrument are liable as partners and no place of payment
is specified, presentment for payment may be made to any one of them, even
though there has been a dissolution of the firm.
NOTE: Presentment must be made:

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 persons, not
partners, primarily liable on the instrument and no place of payment is specified,
presentment must be made to them all.
Presentment for payment if the principal debtors are joint debtors
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 for payment must be made to all
joint debtors, except if one is authorized by the others to receive payment.
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 debtors, Mr. Ayel and Mr. Bebeng and the total
obligation is P1,000.00, Mr. Ayel is payable only for P500.00 while Mr. Bebeng is liable
only for P500.00.
Applying the rule, if there are two or more makers or acceptors, each maker or acceptor
is liable only for their share in the obligation, hence presentment must be made to all of
them.
Sec. 79. - When presentment not required to charge the drawer. - Presentment for
payment is not required in order to charge the drawer where he has no right to
expect or require that the drawee or acceptor will pay the instrument.
When DR liable although no presentment for payment was made
Presentment to the DE is useless if the DE is sure to dishonor the instrument.

Presentment for payment cannot be expected if it is an exercise in futility. That is the
reason why presentment for payment is not required in order to charge the DR if he has
no right to expect or require the DE or acceptor to pay the instrument. This is an
exception to Sec. 70.
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 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 expect
that the DE or acceptor will honor the instrument. The bill in such case need not be
presented for payment to the DE or acceptor for payment in order to charge the DR.
E.g: Mr. DR, issued a check to Mr. P drawn against the DE bank. After the issuance of
the check, Mr. DR closed his account with the DE bank. Hence, even if the check is
presented, DE bank is sure to dishonor the instrument. Thus, presentment for payment
is not necessary in order to charge the DR.
Sec. 80. - When presentment not required to charge the indorser. - Presentment is
not required in order to charge an indorser where the instrument was made or
accepted for his accommodation and he has no reason to expect that the
instrument will be paid if presented.
Requisites:
1) The party is an indorser
2) He indorsed the instrument as an accommodation party
3) The accomodaiton party has no reason to expect that the instrument will be paid if
presented
RATIO: The accommodated payee/indorsee is the real debtor; unjust enrichment.
When indorser liable although no presentment for payment was made
Presentment for payment is not required in order to charge an indorser where the
instrument was made or accepted for his accommodation and he has no reason to
expect that the instrument will be paid if presented.
If the instrument was issued for accommodation of the indorser, the person primarily
liable is, in effect, only his surety.
E.g: M, in order to accommodate P, executed a promissory payable to the order of P
without receiving any value therefor. P thereafter discounted the note with H. Here,
presentment for payment need not be made by H to M in order to charge P, indorser,
who has no right to expect that M will pay the instrument since it was made for his (P’s)
accommodation.
Sec. 81. - . When delay in making presentment is excused. - Delay in making

presentment for payment is excused when the delay is caused by circumstances
beyond the control of the holder and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate, presentment must be
made with reasonable diligence.
Doctrine of Fortuitous Events
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could
not be foreseen, or which, though foreseen, were inevitable.
Requisites: (Nakpil vs. CA)

1. The cause of the unforeseen and unexpected occurrence, or the failure to comply
with his obligations, must be independent of the human will
2. It must be impossible to foresee the event which constitute the caso fortuito, or if it
can be foreseen, it must be impossible to avoid
3. The occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner
4. The obligor must be free from any participation in the aggravation of the injury
resulting to the creditor. GR: When a debtor is unable to fulfill his obligation because of
a fortuitous event or force majeure, he cannot be held liable for damages or non-
performance.
XPNs:
1. When the law so provides (i.e. Article 1165);
2. When there is express stipulation;
3. Fortuitous event yields to contrary stipulation;
4. When the nature of the obligation requires the assumption of risk (i.e. insurance
contracts)
When delay in making presentment excused
Thus, when presentment cannot be made on the day the instrument falls due because
the place of the maker is isolated by landslides, the delay in making presentment for
payment is excused. Yet, when the place of the MR becomes accessible, presentment
for payment must be made to him with reasonable diligence. Here, only the delay in
making presentment is excused but not presentment for payment which is still required
to be made.
All that is required of the holder is due diligence in complying with the requirements in
presenting the instrument for payment on time. Hence, if he was late in presenting the
instrument for payment due to circumstances beyond his control, delay in presentment
in payment may be excused.
Sec. 82. - When presentment for payment is excused. - Presentment for payment
is excused: (a) Where, after the exercise of reasonable diligence, presentment, as
required by this Act, cannot be made; (b) Where the drawee is a fictitious person;
(c) By waiver of presentment, express or implied.
Reasonable diligence
If circumstances beyond the control of the holder not only delayed the presentment but
also made it impossible, then the holder is excused from making the presentment. The
situation contemplated in Sec. 81 is different from Sec. 82 because Sec.81
contemplated mere delay. Due diligence means that the holder must actually exert effort
to locate the MR so that he can present the instrument for payment.
Fictitious DE
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 then be useless for the holder to look for the DE. In
such case, the person who is principally liable is the DR. On the other hand, the
indorser cannot likewise expect that the instrument will be honored by the non-existent
DE
Waiver
Waiver of presentment may be express or implied. There is an express waiver if the

negotiable instrument itself provides that presentment for payment is waived.
e.g. “Presentment waived”
Implied waiver may occur if the action of the parties lead the holder to believe that
presentment is unnecessary as when the indorser knows that the maker cannot pay and
led the holder to believe the presentment is useless and not necessary.
Summary of Rules: When presentment is excused

1. Presentment is excused to charge the DR in the following cases:
a. Where the DR has no right to expect or require that the DE will pay the instrument;
b. Where the holder exercised reasonable diligence to present the instrument but it
cannot ne made;
c. Where the DE is a fictitious person;
d. Where there is waiver of presentment; and
e. Where there is waiver of protest, in instances when protest is necessary.
2. Presentment is not necessary in order to charge an indorser in the following
cases:
a. Where the instrument was made or accepted for the indorser’s accommodation and
he has no reason to expect that it will be honored;
b. Where the holder exercised reasonable diligence to present the instrument but it
cannot be made;
c. When the DE is a fictitious person;
d. When there is waiver of presentment; and
e. When there is waiver of protest, in instances when protest is necessary.
Sec. 83. - When instrument dishonored by non-payment. - The instrument is

dishonored by non-payment when: (a) It is duly presented for payment and
payment is refused or cannot be obtained; or (b) Presentment is excused and the
instrument is overdue and unpaid.
Fact of dishonor is necessary because this fact fixes when immediate recourse is
allowed against the persons secondarily liable provided that the required proceeding on
dishonor is met.
a. It is duly presented for payment and payment is refused or cannot be obtained
Requisites:
1. There was due presentment for payment; and
2. Payment is refused or cannot be obtained.

On Dec. 1, 2010, M issued a promissory note amounting to 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 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 pay but he did not have
enough money or promised that payment would be made at some future date, the
instrument is likewise dishonored since payment could not be obtained on the maturity
date of the instrument.
b. Presentment is excused and the instrument is overdue and unpaid
Requisites:
1. Presentment for payment is excused;
2. Instrument is already overdue; and
3. Instrument is still unpaid.
I promise to pay Bebeng or order P10,000.OO on Dec. 31, 2010. Presentment for
payment waived. Sgd. Ayel
The following note need not be presented for payment because of the waiver for
presentment. If such note is not paid on Dec. 31, 2010, it is overdue the following day,
January 1, 2011. Such note is thus dishonored since it is overdue and unpaid. This is
true although no presentment for payment was wade on Dec. 31, 2010
Sec. 84. - Liability of person secondarily liable, when instrument dishonored. -

Subject to the provisions of this Act, when the instrument is dishonored by non-
payment, an immediate right of recourse to all parties secondarily liable thereon
accrues to the holder.
When the instrument is dishonored by non-payment, an immediate right of recourse to

all parties secondarily liable thereon accrues to the holder. Yet, the holder must give a
notice of dishonor in cases required by law to the persons secondarily liable before he
can proceed against them. This is consistent with the engagement of a general indorser
under Sec. 66 and the engagement of the DR under Sec. 61 of the NIL.
Sec. 85. - Time of maturity. - Every negotiable instrument is payable at the time
fixed therein without grace. When the day of maturity falls upon Sunday or a
holiday, the instruments falling due or becoming payable on Saturday are to be
presented for payment on the next succeeding business day except that
instruments payable on demand may, at the option of the holder, be presented for
payment before twelve o'clock noon on Saturday when that entire day is not a
holiday.
Time of maturity
a. If instrument is not payable on demand

If the instrument is not payable on demamd, i.e., at a fixed or determinable future time,
presentment for payment must be made on the day it falls due (Sec. 71). If the date of
maturity falls on a Saturday, Sunday or holiday, presentment for payment must be made
on the succeeding business day.
b. If the instrument is payable on demand
i. If a PN, presentment for payment must be made within a reasonable time after
issuance;
ii. If a BOE, presentment for payment must be made within a reasonable time after the
last negotiation.
If the last day falls on a Saturday, the holder has the option to present the instrument for
payment:
a.1 On the succeeding day, or
a.2 Before 12:00 noon on that Saturday, when that entire day is not a holiday.
If the day falls on Sunday, presentment for payment must be made on the succeeding
business day.
Examples:
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 payable on September 9,2010 without grace. Hence, it must be
presented for payment on such date. Otherwise, the parties secondarily liable are
discharged.
b. If the note is due on September 10, 2010, a Friday which is a holiday the instrument
is payable on Monday, September 13, 2010, unless such day is a holiday. Hence, it
must be presented for payment on such day, September 13, 2010.
c. If the note is due on September 11, 2010 (which is a Saturday) or September 12,
2010 (which is a Sunday), then the note must be presented for payment on September
13, 2010, unless such day is a holiday.
d. If the note is payable on demand, and the due date is September 9, 2010, then it
must be presented for payment on that day without grace.
e. If the due date is September 10,2010, a Friday which is a holiday, the holder has the
option to present it for payment on September 11, 2010, a Saturday, before 12:00 noon,
or September 13, 2010, the succeeding business day. The same rule will be observed if
the due date itself is September 11, 2010.
f. If the instrument is payable on demand, the instrument may, at the option of the
holder, be presented for payment before 12:00 noon on a Saturday when the entire day
is not a holiday.
Sec. 86. - Time; how computed. - When the instrument is payable at a fixed period
after date, after sight, or after that happening 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 including the date of payment.
Computation of time of maturity
If an instrument is payable at a fixed period after date, after sight, or after the happening
of a specified event, the date of maturity is determined by excluding the day from which
the time is to run, and by including the date of payment.
Examples:
1. A PN dated October 25,2010 which is payable thirty days after date will have its date
of maturity on November 24,2010 determined as follows:
Remaining days of October (31 less 25) 6
Number of days in November to Complete 30 days 24
Total number of days 30
Or exclude October 25 and start counting with October 26 as the first day and ending
with November 24 as the thirtieth day, the date of payment.
2. The instrument is payable 12 months from date and the date appearing on the
instrument is December 8,2004. Using Sec. 86, the instrument should be payable on
December 8,2005 not December 7,2005 because December 8,2004 is not included in
the computation.
3. If the instrument is payable ten (10) days after sight or presentment for acceptance
and the instrument was presented for acceptance on December 3,2004, the instrument
is payable on December 13, 2004. In determining the 10 day period, December 3,2004
shall be excluded and the last day, December 13,2004 shall be included.
Sec. 87. - Rule where instrument payable at bank. - Where the 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 principal debtor thereon.
This should be read with together with Section 127 which provides:
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 the hands of the drawee available
for the payment thereof, and the drawee is not liable on the bill unless and until
he accepts the same
Similarly, Sec. 187 provides:
Sec. 187. Certification of check; effect of. - Where a check is certified by the bank
on which it is drawn, the certification is equivalent to an acceptance.
Accordingly, a check itself does not operate as assignment of any 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 certifies the check.
Yet, even if there is no assignment of funds, the statement in the instrument that is
payable at a bank is equivalent to an order to the bank to pay the same for the account
of the principal debtor thereof. Thus, a PN made to MR which states that it is payable at
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 bank.
Sec. 88. What constitutes payment in due course. - Payment is made in due
course when it is made at or after the maturity of the payment to the holder
thereof in good faith and without notice that his title is defective.
Payment in due course
Q: What are the requisites for payment in due course?

A: 1. Payment must be made by the person primarily liable;
2. It must be made at or after maturity; Thus, payment before maturity is not payment in
due course and will not discharge the instrument. In this case, the payor can reissue or
renegotiate the instrument.
3. It must be made to the holder of the instrument;
4. It must be made in good faith and without notice that the holder’s title is defective.
Payment by the indorser without presentment for payment to the maker is not payment
in due course because the indorser is not a person primarily liable.
Payment by the MR on December 10,2004 is not payment in due course if the
instrument is payable on December 15,2005.
Payment is premature and earlier than the due date. Payment to a person who is not
authorized by the holder is also 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 course. In
the same manner, if the payee already negotiated the 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.
Place of Payment (2000)
Q: PN is the holder of a negotiable promissory note within the meaning of the

Negotiable Instruments Law (Act 2031). The note was originally issued by RP to
XL as payee. XL indorsed the 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
corporate secretary of PX Bank during banking hours. ON maturity date, RP was
at the aforesaid office ready to pay the 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 suit prosper? Explain. (5%)
A: Yes. The suit will prosper as far as the face value of the note is concerned, but not
with respect to the interest due subsequent to the maturity of the note and the costs of
collection. RP was ready and willing to pay the note at the specified place of payment
on the specified maturity date, but PN did not show up. PN lost his right to recover the
interest due subsequent to the maturity of the note and the costs of collection.
CHAPTER VII NOTICE OF DISHONOR
Sec. 89. To whom notice of dishonor must be given. - Except as herein otherwise
provided, when a negotiable instrument has been dishonored by non-acceptance
or non-payment, notice of dishonor must be given to the drawer and to each
indorser, and any drawer or indorser to whom such notice is not given is
discharged.
Notice of dishonor must be given to the DR and each of the indorser when a negotiable
instrument is dishonored for nonacceptance or non-payment.
Q: What is notice of dishonor?
A: It is the bringing, either verbally or in writing, to the knowledge of the drawer or the
indorser of an instrument, the fact that a specified negotiable instrument, upon proper
proceedings taken, has not been accepted, or has not been paid, and that the party
notified is expected to pay it.
Q: What must be stated in the notice of dishonor?
A: 1. Sufficient description of the bill or note;
2. Statement that the instrument has been dishonored upon presentment fir acceptance
or for payment;
3. Statement that the instrument has been protested if protest is required; and
4. An announcement of the intention to look to the party addressed for payment.
Q: What is the purpose of notice of dishonor?
A: It is to enable the party to be charged to preserve and protect his rights against prior
parties.
Q: What are the grounds for giving of notice of dishonor?
A: 1. Non-acceptance of the instrument (for the BOE); and
2. Non-payment of the instrument (for both BOE and PN).
Necessity of giving of notice of dishonor
a. As against a party primarily liable

Notice of dishonor need not be given to the party primarily liable because he is the very
person who dishonored the instrument. Thus, notice of dishonor need not be given to
the MR (whether joint or accommodation MR) or guarantor of a note nor the acceptor of
a BOE.
b. As against a party secondarily liable
Notice of dishonor must be given to the DR and to each indorser to make them liable.
XPNs:
1. In case of waiver (Sec. 109,110,111);
2. When notice is dispensed with (Sec. 112);
3. As regards the DR in the following cases (Sec. 114):
Sec. 114. When notice need not be given to drawer. - Notice of dishonor is not
required to be given to the drawer in either of the following cases: (a) Where the
drawer and drawee are the same person; (b) When the drawee is fictitious person
or a person not having capacity to contract; (c) When the drawer is the person to
whom the instrument is presented for payment; (d) Where the drawer has no right
to expect or require that the drawee or acceptor will honor the instrument; (e)
Where the drawer has countermanded payment.
4. As regards the indorser in the following cases (Sec.115):
Sec. 115. When notice need not be given to indorser. — Notice of dishonor is not
required to be given to an indorser in either of the following cases: (a) When the
drawee is a fictitious person or person not having capacity to contract, and the
indorser was aware of that fact at the time he indorsed the instrument; (b) Where
the indorser is the person to whom the instrument is presented for payment; (c)
Where the instrument was made or accepted for his accommodation.
5. When notice of dishonor by non-acceptance was previously given (Sec.116);

6. As regards a holder in due course without notice (Sec. 117).
Q: What is the effect of failure to give notice of dishonor?
A: Any DR or Indorser to whom notice is not given is discharged (Sec. 89).
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 instrument who might be compelled to pay it
to the holder, and who, upon taking it up, would have a right to reimbursement
from the party to whom the notice is given.
Requisites of notice of dishonor
a. By whom notice is given

1. By the holder or on behalf of the holder; and
2. By or on behalf of any party to the instrument who might be compelled to pay it to the
holder, and who, upon taking it up, would have the right to reimbursement from the
party to whom notice is given.
Example: M makes a PN payable to the order of P. P indorses the note to A, A to B, B
to C, C to D, and D to H, holder. H presents the note to M for payment but dishonors it:
a. H, the holder, can give notice of dishonor to P, A, B, C and D.
b. S, stranger, can give notice in behalf of H. S, as agent, may give notice of dishonor in
his own name or in the name of H, whether H is his principal of not.
c. A, B, C and D can give notice of dishonor because any of them may be compelled by
H to pay provided that H has given them a notice of dishonor. Thus, A can give notice
only to P whom he can hold liable, but not to B, C and D, whom he cannot hold liable. B
can give notice to P and A. C can give notice to P, A and B. D can give notice to P, A,
B, and C.
d. T, a stranger, can give notice in behalf of A, B, C or D to the parties to whom each
can give notice.
e. If H gives notice only to C, C cannot give notice to D because C, upon taking up the
note, has no right to reimbursement from D. D will be discharged and will become a
stranger and as such cannot give notice in his own behalf
f. M, the maker, and D, after discharge, can give notice in behalf of those entitled to give
notice such as H, holder, or C, an indorser, if C was previously notified by H.
b. How notice is given; To whom notice is given

Q: What should be the form of notice?
A: 1. Oral
2. Written
Q: How is notice served?
A: 1. By personal delivery
2. By registered mail
Q: To whom should notice be given?
A: Notice may be given to the party himself or to his agent in that behalf subject to the
following rules:
Where party is dead a. When any party is dead, and his death is
known to the party giving notice, the notice
may be given to his personal
representative, if there be one, and if with
reasonable diligence, he can be found
b. If there by no personal representative,
notice may be sent to the last residence or
last place of business of the deceased
Where the parties are present Notice to any partner is notice to the firm
even if there has been a dissolution
Where parties are joint but not partners Notice may be given to each of them,
unless one of them has authority to receive
such notice for others
Where party has been adjudged a Notice may be given to the party himself or
bankrupt or an insolvent or has made an to his trustee or assignee
assignment for the benefit of creditors
c. When notice must be given

Q: When must notice be given?
A: Notice may be given as soon as the instrument is dishonored, unless delay is
excused subject to the following rules:
Where parties are in the same place a. If given at the place of business of the
person to receive notice, it must be given
before the close of business hours on the
day following;
b. If given at his residence, it must be
given before the usual hours of rest on the
day following
c. If sent by mail, it must be deposited in
the post-office in time to reach him in usual

course on the day following
Where the parties reside in different a. If sent by mail, it must be deposited in
places the post office in time to go by mail the day
following the day of dishonor, or if there be
no mail at a convenient hour on last day,
by the next mail thereafter.
b. If given otherwise than through the post
office, then within the time that notice
would have been received in due course of
mail, if it had been deposited in the post
office within the time specified in the last
subdivision.
d. Where notice must be sent

Q: Where must notice be given?
A: 1. Where a party has added an address to his signature notice of dishonor must be
sent to that address;
2. If he has not given such address, notice must be sent as follows: a. Either to the post-
office nearest to his place of residence or to the post-office where he is accustomed to
receive his letters b. If he lives in one place, and has his place of business in another,
notice may be sent to either place c. If he is sojourning in another place, notice may be
given to the place where he is so sojourning.
NOTE: But where the notice is actually received by the party within the time specified in
the proceeding rules, it will be sufficient though not sent in accordance with the
requirements aforementioned.
Sec. 91. Notice given by agent. - Notice of dishonor may be given by any agent
either in his own name or in the name of any party entitled to given notice,
whether that party be his principal or not.
NOTE: Notice of dishonor may be given by an agent and it is not necessary that the
agent be authorized by the principal.
Notice may be given by him:
1. In the name of any party entitled to give notice such as the holder, or an indorser to
whom notice was given; or
2. In his (the agent’s) own name.
Sec. 92. Effect of notice on behalf of holder. - Where notice is given by or on

behalf of the holder, it inures to the benefit of all subsequent holders and all prior
parties who have a right of recourse against the party to whom it is given.
Q: If notice was given by or on behalf of the holder, who will benefit the notice?
A: 1. All subsequent holders
2. All prior parties who has a right of recourse against the party to whom notice is given
Example: M makes a PN payable to the order of P. P indorses the note to A, A to B, B
to C, and C to H, holder. H presents the note to M for payment but M dishonors it. a. H
notifies P, A, B and C. The notice given by H to P inures to the benefit of A, B and C.
Thus A, B and C can hold P liable even if they themselves did not give notice 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 of C. b. Assuming that after giving notice, H, holder, further
negotiates the note to I, then I to J, and J to K. The notice given by H inures to the
benefit of I, J and K; hence, they need not give another notice of dishonor to P, A, B and
C.
Q: What do you mean be “benefit”?
A: The right to charge the person secondarily liable who received notice. The party to
whom this benefit inures can charge the party receiving notice of dishonor, even if he
himself did not give notice.
Sec. 93. Effect where notice is given by party entitled thereto. - Where notice is
given by or on behalf of a party entitled to give notice, it inures to the benefit of
the holder and all parties subsequent to the party to whom notice is given.
NOTE: Notice of dishonor given by or on behalf of a party entitled to give notice inures
to the benefit of the holder and parties subsequent to the party to whom notice is given.
Q: If the notice is given to a prior party from whom he can ask for reimbursement
by a person who may be compelled to pay, who will benefit from the notice?
A: 1. The holder
2. Parties subsequent to the party to whom notice is given
Example: M issued an order instrument to P. P negotiated the instrument to A through
indorsement and delivery. A negotiated the instrument through indorsement and
delivery to B, who in turn negotiated the instrument to C, the present holder. M

dishonored the instrument and C gave notice of dishonor to B but he did not give notice
of dishonor to P and A.
B, the indorser who was given notice of dishonor by C, can give notice of dishonor to
the indorser from whom he can claim reimbursement if he is compelled by C to pay to P
and A.
If B will give notice of dishonor to P and A, the notice to them will benefit C and C can
compel P and A to pay even if he did not personally give notice of dishonor. In addition,
the notice given by B to P will benefit A in the sense that if A is compelled to pay, he can
claim reimbursement from P even if he did not personally give notice of dishonor.
Sec. 94. When agent may give notice. - Where the instrument has been
dishonored in the hands of an agent, he may either himself give notice to the
parties liable thereon, or he may give notice to his principal. If he gives notice to
his principal, he must 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 time for giving
notice as if the agent had been an independent holder.
NOTE: The agent may give notice either:

a. To the parties liable on the instrument
b. To his principal
If he gives notice to his principal he must 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 time for
giving notice to the drawer and indorsers as if the agent had been an independent
holder.
Examples:
1. Big Mama commissioned Karl “The Nail Cutter Man” to look for a suitable Big Papa.
After introducing Toti to Big Mama, the latter gave The Nail Cutter Man a note in
exchange of his services (delivery of Big Papa [aside from the usual manicure and
pedicure fee of course]). Thereafter, The Nail Cutter Man delivered the note to Chikiti
China, who then indorsed it to Big Boy Ramby. Lito the self-proclaimed “Babe Killer” of
2B and Big Boy Ramby’s agent, makes a presentment for payment to Big Mama,
maker, on 20 October 1998.
a. Under Section 104, notice must be given within the next day following, 21 October
1998. Babe Killer can give notice of dishonor to The Nail Cutter Man, and Chikiti China
directly, after dishonor and within 21 October 1998.
b. But Babe Killer can give notice to his principal Big Boy Ramby. Such notice must be
given after dishonor and within 21 October 1998.
c. Big Boy Ramby, holder, has in turn until 22 October 1998, the next day following 21
October 1998 (the day he was given notice) to give notice to The Nail Cutter Man, and
Chikiti China.
2. R drew payable to the order of P a BOE which is due on 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 the bill to W for payment but W dishonored it. X may give notice only to H. X
may give notice of dishonor to R, P and A, or he may give notice only to H. If X gives
only a notice of dishonor to H, he may do so within the time provided by law as if he
were the holder, and H, upon the receipt of such notice, has himself the same time for
giving notice as if X had been an independent holder. Thus, if the parties reside in the
same place, X must give notice to H not later than November 1, 2010. H, in turn, has
until November 2, 2010 to give notice to R, P and A.
Sec. 95. When notice sufficient. - A written notice need not be signed and an
insufficient written notice may be supplemented and validated by verbal
communication. A misdescription of the instrument does not vitiate the notice
unless the party to whom the notice is given is in fact misled thereby.
Sec. 96. Form of notice. - The notice may be in writing or merely oral and may be
given in any terms which sufficiently identify the instrument, and indicate that it
has been dishonored by non-acceptance or non-payment. It may in all cases be
given by delivering it personally or through the mails.
Form of notice of dishonor
Q: What must be the form of the notice of dishonor?

A: 1. Oral
2. Written NOTE: Thus, notice of dishonor may be given by landline or mobile phone, or
by personally telling the party to be notifed of the dishonor of the instrument.
Q: Should the written notice be signed?
A: No. Also, an insufficient notice may be supplemented and validated by verbal
communication.
Q: What is the effect of misdescription?
A: A misdescription of the instrument does not vitiate the notice unless the party to
whom the notice is given is misled thereby.
Q: What are the contents of the notice?
A: 1. The notice, whether oral or written, must sufficiently describe the instrument
dishonored.
NOTE: This is important for the proper identification of the instrument.
2. It must also indicate that the instrument has been dishonored by non-acceptance or
non-payment.
3. Statement that the instrument has been protested if the protest is required 4. An
announcement of the intention to look to the party addressed for payment.
Q: How is notice served?
A: 1. By personal delivery
2. By registered mail
NOTE: In a personal service, the evidence must show either actual personal service, or
an ordinary intelligent, diligent effort to make personal service upon the indorser at his
place of business during business hours or at his residence if he has no place of
business. But if he be absent, it is not necessary to call a 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 there, then giving notice is deemed to be waived.
Sec. 97. To whom notice may be given. - Notice of dishonor may be given either
to the party himself or to his agent in that behalf.
To whom notice may be given

A: 1. To the party himself
2. To the agent of such party, in that behalf
NOTE: If the notice is given to an agent of a party, such agent must be duly authorized
to receive the notice of dishonor as the law says “in that behalf.” Otherwise, the notice is
not valid.
Sec. 98. Notice where party is dead. - When any party is dead and his death is
known to the party giving notice, the notice must be given to a personal
representative, if there be one, and if with reasonable diligence, he can be found.
If there be no personal representative, notice may be sent to the last residence or
last place of business of the deceased.

A: 1. When the person to be given notice of dishonor is dead, notice must be given to
his personal representative, provided that:
a. his death is known to the party giving notice;
b. there is a personal representative; and
c. if with reasonable diligence he could be found
2. if there be no personal representative, notice may be sent to the last residence or last
place of business of the deceased, provided that:
a. his death is not known to the party giving notice; or
b. although his death is known to the party giving notice but there is no personal
representative; or
c. if there be one but he cannot be found with reasonable diligence, then notice may be
sent to the last residence or last place of business of the deceased.
Sec. 99. Notice to partners. - Where the parties to be notified are partners, notice
to any one partner is notice to the firm, even though there has been a dissolution.
NOTE: Notice may be given to any partner. Such notice is notice to the partnership
even if there has been a dissolution.
Sec. 100. Notice to persons jointly liable. - Notice to joint persons who are not
partners must be given to each of them unless one of them has authority to
receive such notice for the others.
Q: To whom should notice be given if parties are jointly liable?

A: Notice must be given to each of them, unless one has been authorized to receive
such notice for the others.
Q: When does Sec. 100 apply?
A: This section applies to joint parties other than joint payees and joint indorsees who
indorse, such as, to drawers who sign a bill jointly, or to joint accommodation indorsers
who are not jointly and severally liable under Section 68 as they are neither payees nor
indorsees.
This section do not apply to joint payees or joint indorsees who indorse as, under
Section 68 of the Negotiable Instruments Law, such joint indorsers are deemed jointly
and severally liable, and joint indorsers to whom notice of dishonor has been given are
not discharged by reason of failure to given notice to the other joint indorsers.
Sec. 101. Notice to bankrupt. - Where a party has been adjudged a bankrupt or an
insolvent, or has made an assignment for the benefit of creditors, notice may be
given either to the party himself or to his trustee or assignee.
Notice to bankrupt
Q: What are the 2 situations contemplated under Sec. 101?

A: 1. the party to whom notice should be given is declared by a court as bankrupt or
insolvent
2. the party to whom notice should be given has made an assignment for the benefit of
creditors
A: 1. to the party himself
2. to his trustee or assignee
Sec. 102. Time within which notice must be given. - Notice may be given as soon
as the instrument is dishonored and, unless delay is excused as hereinafter
provided, must be given within the time fixed by this Act.
Q: May notice of dishonor be given before the date of maturity?

A: No, because an instrument cannot be said to be dishonored for non-payment unless
presented, and presentment must be made on the date of maturity.
Notice of dishonor can be given only after the instrument has been actually dishonored,
and notice given before the paper becomes due is premature and insufficient,
regardless of the indorser’s knowledge that the maker was in default.
May notice of dishonor be given on the date of maturity?

A: Yes, provided that the instrument has been presented for payment and it has been
dishonored. But if the instrument is payable at a bank, it is not dishonored if the maker
deposits the amount of the instrument before the close of banking hours. Hence, notice
of dishonor must be given after the close of banking hours on the date of maturity.
Q: When is notice of dishonor not required to be given to the drawer?
A: Notice of dishonor is not required to be given to the drawer in any of the following
cases:
a. Where the drawer and drawee are the same person;
b. When the drawee is a fictitious person or a person not having capacity to contract;
c. When the drawer is the person to whom the instrument is presented for payment; d.
Where the drawer has no right to expect or require that the drawee or acceptor will
honor the instrument; e. Where the drawer has countermanded payment (Sec 114 NIL)
Q: What is the effect if the notice is not given within the period?
A: If not given to the drawer or indorsers, they are discharged from secondary liability.
However, the liability of the drawer under a separate contract may remain although no
notice of dishonor is given to him. The absence of notice of dishonor affects the
drawer’s secondary liability but it does not affect the liability of the drawer under a
separate source of obligation. Thus, if the drawer issued the BOE to the payee in
payment of the obligation, the bill was dishonored by the drawee when it was presented
for acceptance and no notice of dishonor was given to the drawer, the drawer is no
longer secondarily liable.
However, the drawer is still liable based on the breach of contract of sale. The drawer,
in effect, failed to pay the price and is therefore still liable to pay such price despite the
absence of notice of dishonor.
Sec. 103. Where parties reside in same place. - Where the person giving and the
person to receive notice reside in the same place, notice must be given within the
following times: (a) If given at the place of business of the person to receive
notice, it must be given before the close of business hours on the day following.
(b) If given at his residence, it must be given before the usual hours of rest on the
day following. (c) If sent by mail, it must be deposited in the post office in time to
reach him in usual course on the day following.
Q: What is meant by “same place”?

A: The corporate limits of a town or city where the presentment is made or where the
holder resides.
Notice when parties reside in the same place
Example: One time, Tacklessang Trina saw Prim and Proper Pia’s new ballroom
dancing shoes and she liked them. Since Prim and 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 Proper Pia just volunteered to buy the shoes for Tacklessang Trina. For that,
Tacklessang Trina issued Prim and Proper Pia a bill, who in turn indorsed it to Jolly Jo,
who then indorsed it to Audacious Aileen. Both Audacious Aileen and Prim and Proper
Pia reside in Quezon City. The instrument was dishonored on 15 July 1998. Under
Section 103:
1. If given at the place of business of Prim and Proper Pia, the notice must be given
after dishonor but not later than 16 July 1998, before the close of business hours on that
day. Otherwise, notice would be too late.
2. If given at Prim and Proper Pia’s residence, notice must be given after dishonor but
not later than 16 July 1998 before the usual hours of rest on that day.
3. If sent by mail, the notice must be deposited at the mailbox at such time as would
enable Prim and Proper 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 not reach the party to be given notice on the day following
the day of dishonor, the notice would still be considered on time.
Example: Assume that an instrument is dishonored on Dec. 1, 2010, with H, the party
giving notice, and P, the party to be notified, both residing in Manila.
a. If the notice is to be given at the place of business of P, notice must be given before
the close of business hours on December 2, 2010
b. If given at the residence of P, notice must be given before the usual hours of rest on
December 2, 2010
c. If sent by mail to P, notice must be deposited in the post-office in time to reach P in
the usual course on December 2, 2010.
Sec. 104. Where parties reside in different places. - Where the person giving and
the person to receive notice reside in different places, the notice must be given
within the following times: (a) If sent by mail, it must be deposited in the post
office in time to go by mail the day following the day of dishonor, or if there be no
mail at a convenient hour on last day, by the next mail thereafter. (b) If given
otherwise than through the post office, then within the time that notice would
have been received in due course of mail, if it had been deposited in the post
office within the time specified in the last subdivision.
Notice when parties reside in different places
Example: In the above example, if Audacious Aileen lived in Quezon City and Prim and
Proper Pia lived in Manila, and the instrument was dishonored on 15 July 1998, under
Section 104:
1. If sent by mail, the notice need not reach Prim and Proper Pia on 16 July 1998, but
the notice must be deposited in the mails not later than 16 July 1998, the day following
the day of dishonor. But if there is no mail at a convenient hour on 16 July 1998, the
notice may be deposited in the mails by the next mail thereafter. Thus, suppose that
there is no mail on 16 July 1998, or 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 any time of the day on 16 July
1998, in time for the 3:00 A.M. mail on 17 July 1998.
2. If sent otherwise than by mail, as by personal messenger, the notice must be sent at
such time as to enable Prim and Proper Pia to receive the notice within 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 received by her on 18 July
1998. The personal messenger must deliver the notice to her not later than 18 July
1998, otherwise, the notice would be too late.
Example: Assume that an instrument is dishonored on Dec. 1, 2010, with H, the party
giving notice residing in Manila, and P, the party to be notified, residing in Batangas.
1. If the notice is sent by mail, it must be deposited in the post-office to go by mail on
December 2, 2010. Thus, if the mail on December 2, 2010 is 10 am, the notice must be
deposited before such time. However, if the mail departure is at 5am, daily, then the
notice must be deposited in the post-office in time to go by mail on December 3, 2010.
2. If sent otherwise than by mail, such as by personal delivery, the notice must be
delivered within such time that P would have received the notice by mail. Thus, if the
notice had been deposited in the post-office on December 2, 2010 before 10 am would
have been received by P in Batangas on December 5, 2010, the personal delivery must
be effected so that the notice would be received by P on December 5, 2010.
Sec. 105. When sender deemed to have given due notice. - Where notice of
dishonor is duly addressed and deposited in the post office, the sender is
deemed to have given due notice, notwithstanding any miscarriage in the mails.
Q: When is the sender deemed to have given notice?

A: The sender is deemed to have given notice of dishonor if sent through the office,
even if there is a miscarriage in the mails, if the following requisites are present:
a. The notice of dishonor is duly addressed
NOTE: Thus, if the drawer or an indorser has added an address to his signature but the
notice has been mailed to a different address, the notice is not deemed given. The
drawer or indorser is discharged from liability.
b. The notice must be deposited in the post-office
NOTE: Thus, the notice is not deemed served if the notice was deposited in a mail box
which is not under the control of the post-office department.
Sec. 106. Deposit in post office; what constitutes. - Notice is deemed to have
been deposited in the post-office when deposited in any branch post office or in
any letter box under the control of the post-office department.
Q: Under Sec. 106, where should the notice be mailed?

A: 1. Post-office
2. Branch post office
3. Letter box under the control of the post-office department
Sec. 107. Notice to subsequent party; time of. - Where a party receives notice of
dishonor, he has, after the receipt of such notice, the same time for giving notice
to antecedent parties that the holder has after the dishonor.
Time for giving notice to antecedent party
Where a party receives notice of dishonor, he has, after the receipt of such notice, the
same time for giving notice to antecedent parties that the holder has after the dishonor.
An indorser who receives a notice of dishonor is entitled to give notice to persons from
whom he can ask reimbursement. These include the DR or prior indorsers who are
referred to in Sec.107 as antecedent parties.
Q: Who are considered as “antecedent parties”?
A: They refer to those who precede the one giving notice in the order of the becoming a
party to the instrument and upon whom he can demand reimbursement should he pay
to any party subsequent to him or to the holder.
E.g: M is the maker of PN payable to the order of P. P indorses the note to A, A to B, B
to C, and C to H. H presents the note to M for payment on December 1,2010. M
dishonors it. H, a resident of Manila, gives a notice of dishonor to C, also a resident of
Manila, 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 notice.
Sec. 108. Where notice must be sent. - Where a party has added an address to his
signature, notice of dishonor must be sent to that address; but if he has not given
such address, then the notice must be sent as follows: (c) Either to the post-
office nearest to his place of residence or to the post-office where he is
accustomed to receive his letters; or (d) If he lives in one place and has his place
of business in another, notice may be sent to either place; or (e) If he is
sojourning in another place, notice may be sent to the place where he is so
sojourning. But where the notice is actually received by the party within the time
specified in this Act, it will be sufficient, though not sent in accordance with the
requirement of this section.
The notice of dishonor must be sent to the address of the indorser of the drawer
indicated in the instrument itself. It is only when there is no address specified in the
instrument that the notice may be sent to the places mentioned in paragraphs a, b and c
of 108.
Yet, it is also stated that strict compliance is not necessary. It is no absolutely necessary
that the notice is sent in the places mentioned in paragraphs a, b, and c of Sec.108. it is
enough that notice is actually received on time or within the time prescribed under
Sections 103 and 104 by the person who is supposed to receive notice even if he
received the same in a different place.
Thus, if the indorser personally received the notice of dishonor the day following the
dishonor, the same is valid even if he received it whole he was in a restaurant eating his
lunch. Still, there must be proof of actual receipt of the notice of dishonor.
Where notice must be sent
a. Where a party has added an address to his signature, notice of dishonor must be
sent to that address.
b. If he has not given such address, notice must be sent as follows:
i. Either to the post-office nearest to his place of residence or to the post-office where he
is accustomed to receive his letters; or
ii. If he lives in one place and has his place of business in another, notice may be sent
to either place; or
iii. If he is sojourning in another place, notice may be sent to the place where he is so
sojourning.
Q: What is sojourning?
A: It signifies a temporary residence of a party where he may be notified.
Sec. 109. Waiver of notice. - Notice of dishonor may be waived either before the
time of giving notice has arrived or after the omission to give due notice, and the
waiver may be expressed or implied.
Sec. 110. Whom affected by waiver. - Where the waiver is embodied in the
instrument itself, it is binding upon all parties; but, where it is written above the
signature of an indorser, it binds him only.
Q: What do you mean by waiver?

A: It means the person who is making the waiver renounces the benefit of the act or
matter in his favor. Thus, the rule on giving of notice of dishonor is for the benefit of the
DR or the indorsers. If no notice is given, they are discharged. If the indorsers or the
drawer waive the benefit of the notice of dishonor, they will still be liable as a
consequence despite the absence of such notice.
Waiver of notice
The DR and the indorsers are liable even without notice of dishonor in case of waiver of
the giving of notice.
Q: What are the types of waiver?
A: 1. Waiver of notice of dishonor may either be: express or implied;
a. Express- this may be done orally or in writing. The waiver may be made on the face
of the instrument itself, or written above the signature of an indorser.
b. Implied- this may be inferred from the conduct of the party himself, such as when an
indorser who was not given notice and therefore discharged, manifested his willingness
to pay if the drawer or maker does not pay the instrument.
2. Written waiver may either be: written in the instrument itself or written above the
signature of the indorser;
3. Waiver may be: before the time of giving of notice or after the failure to give notice
Q: To whom is the waiver binding?
A: a. If the waiver is written on the instrument itself— binding on all parties;
b. If the waiver is written above the signature of the indorser—binding only on the
indorser and he is the only one who is deemed to have made the waiver.
A waiver of protest whether in the case of a foreign bill of exchange or other negotiable
instrument, is deemed to be a waiver not only of a formal protest but also of
presentment and notice of dishonor.
Examples: a. Bebeng (R) draws a BOE in favor of Ayel (P) as follows:

Pay to the order of Ayel (P) P50,000.00. Notice of dishonor waived.
(Sgd.) Bebeng (R)
To: Mickey
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 it. In this case, H need not give a notice of
dishonor to R, P, A, B and C, who are all bound by the waiver that is embodied in the
instrument.
b. Bebeng draws a BOE in favor of Ayel (P) as follows:
Pay to Ayel or order P 50,000.00.
(Sgd.) R
To: W
The back of the instrument shows the following indorsements:

Pay to A.
(Sgd.) P
Pay to B. Notice of dishonor waived.
(Sgd.) A
Pay to C.
(Sgd.) B
Pay to H.
(Sgd.) C
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 indorsement, waived the giving of notice of
dishonor and is the only one bound by it. However, H must give a notice of dishonor to
P, B and C.
c. Assume that A’s waiver in (b) above is as follows:
Pay to B. Protest waived.
(Sgd.) A
The waiver of protest made by A is deemed to include a waiver of notice of dishonor.

Hence, A will be liable although he is not given a notice of dishonor
Sec. 111. Waiver of protest. - A waiver of protest, whether in the case of a foreign
bill of exchange or other negotiable instrument, is deemed to be a waiver not only
of a formal protest but also of presentment and notice of dishonor.
Protest
Q: What do you mean by protest?

A: It is a formal statement in writing made by a notary public at the instance of the
holder declaring that the instrument has been presented for payment or for acceptance
but the same was dishonored.
Protest is indispensable only in a foreign bill of exchange. However, this instrument may
also be subject to waiver. Waiver of protest has the following effects.
a. Protest itself is waived;
b. Presentment for payment or acceptance is also deemed waived;
c. Notice of dishonor or also deemed waived.
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 charged.
Q: When is notice of dishonor dispensed with?

A: a. It cannot be given to the party who is sought to be held liable;
Thus, notice of dishonor is dispensed with if it cannot 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.
b. It does not reach the party who is sought to be held laible.
The holder or the person giving notice must exercise reasonable diligence in giving of
notice within the time and in the place 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.
If due diligence is exercised but notice of dishonor cannot be given or if it did not reach
the party sought to be charged then notice of dishonor is dispensed with.
Sec. 113. Delay in giving notice; how excused. - Delay in giving notice of dishonor
is excused when the delay is caused by circumstances beyond the control of the
holder and not imputable to his default, misconduct, or negligence. When the
cause of delay ceases to operate, notice must be given with reasonable diligence.
When delay in giving notice is excused
Delay in giving notice of dishonor is excused when the delay is caused by

circumstances beyond the control of the holder, and not imputable to his default,
misconduct or negligence. When the cause of delay ceases to operate, notice must be
given with reasonable diligence.
E.g: When notice of dishonor cannot be given because the place of the party to be
notified is isolated by landslides, the delay in giving notice of dishonor is excused.
However, when the place of the party becomes accessible, notice of dishonor must be
given to him with reasonable diligence. Here, only the delay in giving of dishonor is
excused, but not the giving of notice of dishonor.
Sec. 114. When notice need not be given to drawer. - Notice of dishonor is not
required to be given to the drawer in either of the following cases:
(a) Where the drawer and drawee are the same person;
(b) When the drawee is fictitious person or a person not having capacity to
contract;
(c) When the drawer is the person to whom the instrument is presented for
payment;
(d) Where the drawer has no right to expect or require that the drawee or acceptor
will honor the instrument;
(e) Where the drawer has countermanded payment.
Q: When notice of dishonor need not be given to the DR?

A: a. Where the drawer and drawee are the same person
The instrument in such a case is treated as a promissory note. Notice to the DR, like
notice to the maker is not necessary. If the DE is the DR, then the Dr is actually already
aware of the dishonor.
b. When the drawee is fictitious person or a person not having capacity to
contract;
If the DE is a fictitious person or one incapable of entering into a 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 liability. As a maker, notice of dishonor need not be given to him
(Sec.89).
Notice of dishonor need not be given because it is actually the DR 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 honor the instrument.
c. When the drawer is the person to whom the instrument is presented for
payment;
This is true when the DE is absent or inaccessible and the DR is the person found at the
place where presentment for payment is to be made and he dishonors it (Sec.72).
This contemplates a situation where the DR is not the DE but the person to whom the
instrument was presented in behalf of the DE is the DR. For example, if the DR is the
authorized agent or representative of the DE who dishonored the instrument then notice
of dishonor need not be given to the DR.
E.g: R draws a BOE payable to the order of P. W is the DE. The bill is payable at the
office of R. P indorses the bill to A, A to B, B to H, holder. H presents the bill for
payment at R’s office. W is not there but R is there. So H presents the bill for payment
at R’s office. W is not there but R is there. So H presents the bill for 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 drawer, since he already knows of the dishonor.
d. Where the drawer has no right to expect or require that the drawee or acceptor
will honor the instrument;
Thus, the drawer of a check need not be notified of the dishonor if he was aware that he
had no sufficient funds in his bank account to cover the check. Here, he has no right to
expect that the bank will honor the check.
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.
Sec. 115. When notice need not be given to indorser. — Notice of dishonor is not
required to be given to an indorser in either of the following cases: (a) When the
drawee is a fictitious person or person not having capacity to contract, and the
indorser was aware of that fact at the time he indorsed the instrument; (b) Where
the indorser is the person to whom the instrument is presented for payment; (c)
Where the instrument was made or accepted for his accommodation.
When notice need not be given to indorser
a. Fictitious DE
It is essential that the indorser had knowledge that the DE was a fictitious person or one
incapable of giving consent to a contract 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
paid.
An indorser does not admit the existence of the DE when he 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 may not be aware that the DE was fictitious at the time he
took 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 presented for payment
1. R draws a BOE payable to the order of P. W is the DE. The bill is payable at the
office of B. P indorses the bill to A, A to B, B to C and C to H, holder. H presents the bill
for payment at B’s office. W is not there but B is there. So H presents the bill for
payment to B who is at the place of presentment but B dishonors. In this case, H need
not give a notice of dishonor to B, an indorser, since he already knows of the dishonor.
H, however, must give a notice of dishonor to R, P, A and C. Otherwise, they will be
discharged.
2. If the indorser is the authorized agent or representative of the DE who dishonored the
instrument, then notice of dishonor need not be given to the indorser. This is possible
for instance if the indorser is the bank teller who dishonored the check in behalf of the
DE bank.
c. Indorser is accommodated party
If the MR is an accommodated party and the person who accommodated him is the
indorser, the MR is the surety of the indorser who is, in effect, the principal. Since the
indorser is the principal, he cannot really expect the accommodation maker to pay.
This is also true if the indorser is the accommodated party and the acceptor is the
accommodation party because the acceptor only lent his name to the indorser.
E.g. P wants to borrow money from H and is willing to issue a PN to cover any amount
loaned. H, however, does not want to accept P’s note but one coming from M, P’s
businessman friend. 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 payment, but M dishonors
it. Here, H need not give a notice of dishonor to P to charge him.
Sec. 116. Notice of non-payment where acceptance refused. - Where due notice of
dishonor by non-acceptance has been given, notice of a subsequent dishonor by
non-payment is not necessary unless in the meantime the instrument has been
accepted.
NOTE: Notice of dishonor by non-payment is no longer necessary if the BOE was

already dishonored by non-acceptance and notice of such dishonor by non-acceptance
was previously given. The moment notice of dishonor by non-acceptance was given, the
indorser and the drawer are already liable. Hence, it is no longer necessary to give
another notice to the drawer or the indorser.
However, if the drawee initially refused to accept the BOE but later changed his mind
and accepted the same BOE, the holder (or any other person who is supposed to give
notice) must give notice if the acceptor dishonored the instrument and refused to pay
the same.
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 acceptance. W dishonors it. H gives notice of dishonor by nonacceptance to R,
P, A and B. On due date, H presents the bill to W for payment. W dishonors it. Here, H
need not give a notice of dishonor by non-payment to R, P, A and B.
Assume that W dishonors the bill by non-acceptance. H gives notice of dishonor to R,
R, P, A and B. Before the lapse of the 30- day period, W accepts the bill. On due date,
when H presents the bill for payment, W dishonors it. H must give notice of dishonor by
non-payment to R, P, A and B.
Sec. 117. Effect of omission to give notice of non-acceptance. - An omission to

give notice of dishonor by non-acceptance does not prejudice the rights of a
holder in due course subsequent to the omission.
Subsequent HDC not prejudiced by omission to give notice of dishonor by non-

acceptance
NOTE: An omission to give notice of dishonor by non-acceptance does not prejudice

the rights of a HDC subsequent to the omission.
Example: R draws a bill payable to the order of P. P presents the bill to W, drawee, for
acceptance. W refuses to accept it. Without giving a notice of dishonor to R, P indorses
the bill to H under circumstances that make H a HDC. P’s omission to give notice of
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 R and recover from him.
Sec. 118. When protest need not be made; when must be made. - Where any
negotiable instrument has been dishonored, it may be protested for non-
acceptance or non-payment, as the case may be; but protest is not required
except in the case of foreign bills of exchange.
Q: When is protest made?

A: 1. When a negotiable instrument has been dishonored by non-acceptance
NOTE: This applies to a bill of exchange
2. When a negotiable instrument has been dishonored by non-payment
NOTE: This applies to a bill of exchange or promissory note
Q: When is protest required?
A: Protest is required only in the case of foreign bills of exchange. In the case of an
inland bill of exchange or a promissory note, protest is not required. However, it is
advantageous to protest any negotiable instrument since the certificate of notary is a
prima facie evidence of the facts of presentment, demand, nonpayment and notice of
dishonor.
DISCHARGE OF NEGOTIABLE INSTRUMENTS
Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged: a.

By payment in due course by or on behalf of the principal debtor; b. By payment
in due course by the party accommodated, where the instrument is made or

accepted for his accommodation; c. By the intentional cancellation thereof by the
holder; d. By any other act which will discharge a simple contract for the payment
of money; e. When the principal debtor becomes the holder of the instrument at
or after maturity in his own right.
Q: When is payment considered made in due course?

A: 1. It must be made at or after maturity
2. It must be made to the holder of the instrument
3. It must be made in good faith and without notice that the holder’s title is defective
4. It must be made by or in behalf of the principal debtor or the accommodated party
where the instrument is made or accepted for his accommodation.
NOTE: The party accommodated is actually the principal debtor of the instrument
Examples:
1. M made a PN in order to accommodate P. P discounted the note with H. Payment
made in due course by P, the party accommodated, will discharge the note. If M, the
accommodation maker, made the payment, the note will not be discharged because M
can go after P for reimbursement.
2. R draws a BOE payable to the order of P. P, however, does not want to receive the
note unless it is first accepted by W. W thus accepts the bill in order to accommodate R.
After having obtained W’s acceptance, P indorses the note to H. At maturity, R pays in
due course. Such payment by R, for whose accommodation W accepted the bill,
discharges the instrument. If W is the one making the payment, the instrument is not
discharged because W can still ho after R for reimbursement.
Cancellation
Q: How is “cancellation” made?

A: 1. By writing or stamping “cancelled,” “paid,” or any similar word on, by drawing a
cross across the face of the instrument
2. By burning, tearing, or otherwise destroying the instrument
Intentional cancellation is presumed

When an instrument appears to have been cancelled, the burden of proof lies on the
party who alleges that the cancellation of the instrument was made unintentionally or
under mistake or without authority. A cancellation made unintentionally, or under
mistake or without authority is inoperative and will not discharge the instrument.
Q: Discharge of the instrument can also be made by any other act which
discharges a simple contract for the payment of money. What are the modes of
extinguishing an obligation under Art. 1232?
A: 1. Compensation- takes place when 2 persons in their own right are debtors and
creditors of each other
2. Novation- this takes place when an obligation is extinguished a. By changing the
object or the principal condition b. By substituting the person of the debtor c. By
subrogating a 3rd person in the rights of the creditor
3. Renunciation, remission, or condonation
Q: What are the modes of extinguishing an obligation under Art. 1231?
A: 1. Payment or performance
2. Loss of the thing due
3. Condonation or remission of the debt
4. Confusion or merger of the rights of creditor and debtor
5. Compensation
6. Novation
7. Annulment or rescission
8. Fulfillment of resolutory condition
9. Prescription
When the principal debtor becomes the holder of the instrument at or after
maturity in his own right
This simply means that the principal debtor must not become the holder as agent of
another or in representative capacity. Thus, M is the maker of a PN payable to the order
of P. P indorses the note to A, A to B, B to M, with B making the following indorsement
at or after maturity:
Payment to M, for collection

Sgd. B
In the above indorsement, M becomes the holder not in his own right but as agent of B.
Hence, the instrument is not discharged. however, if the indorsement was “Pay to M
Sgd. B,” at maturity, the instrument is discharged because M becomes the holder in his
own right.
Example: M is the maker of a PN payable to the order of P. P 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. A paid H, but M obtained possession of the note without having paid it.
Instrument here is not discharged because M did not become the holder in his own
right.
Sec. 120. When persons secondarily liable on the instrument are 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 holder; 3. By the discharge of a prior party; 4. By a valid
tender or payment made by a prior party; 5. By a release of the principal debtor
unless the holder's right of recourse against the party secondarily liable is
expressly reserved; 6. By any agreement binding upon the holder to extend the
time of payment or to postpone the holder's right to enforce the instrument
unless made with the assent of the party secondarily liable or unless the right of
recourse against such party is expressly reserved.
Q: What is the effect of discharge by prior party?

A: When a prior party is discharged, parties subsequent to him will likewise be
discharged because they lose their right of recourse against such prior party.
Example: M makes a note payable to the order of P. P indorses the note to A, A to B, B
to C and C to H, holder. If H renounces his right against A, A is discharged. Such
renunciation likewise discharges B and C, parties subsequent to A, since they lose their
right of recourse to go after A.
NOTE: For subsequent parties to be discharged of a prior party, such prior party should
not have been discharged by operation of law. Thus, if such prior party is discharged
because the holder failed to give him a notice of dishonor, or the cause of discharge of
such prior party in his being adjudged a bankrupt, the parties subsequent to him will not
be discharged.
Discharge by a valid tender of payment by prior party
NOTE: This refers to a valid tender of payment made by a prior party which was refused
by the holder without justifiable reason. Such tender would not only discharge the party
who made it, but also those subsequent to him since they have no one to proceed
against upon the discharge of the prior party.
Q: What is “tender of payment”?
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 which he considers and admits to be due, in
satisfaction of such claim or demand without any stipulation or condition.
Q: Is this rule fair?
A: Yes, because it is the fault of the holder that he did not receive payment. If he
accepted the tender of payment by a prior party, the subsequent party would have been
discharged.
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 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
amounting to P10,000 consisting of 1,000 pieces of P1.00 coins. H refuses to accept
payment demanding that he paid in bills.
The refusal of H to receive the payment is not valid since P1.00 coins are legal tender
only up to P1,000.00. A, B and C will not be discharged. If the payment being tendered
by A amounts to P10,000.00 consisting of 100 pieces of P100.00 bills and H refused to
accept the payment, the tender of payment is valid since all bills are legal tender up to
any amount. Thus, the tender which was refused will discharge not only A, but also B
and C, parties subsequent to him.
Discharge by release of principal debtor
The release of the principal debtor discharges the parties secondarily liable since they
lose their right of recourse to proceed against the principal debtor. The release of the
principal debtor must be for value.
If the holder reserves his right to go after the parties secondarily liable when he releases
the principal debtor, the parties secondarily liable are not discharged. The effect of the
reservation is the implied reservation of their right of recourse against the maker.
However, while the holder can no longer go after the principal debtor because of the
release he made, this reservation to proceed against the parties secondarily liable gives
the latter the right to proceed against the principal debtor.
Discharge by extension of time of payment
Q: What is the reason for the discharge in this case?

A: The agreement to extend the time of payment varies the original undertaking of the
secondary parties. The rule is similar to the rule in guaranty and suretyship.
NOTE: In order that a party secondarily liable is discharged, the agreement that is
binding upon the holder to extend the time of payment, or to postpone the holder’s right
to enforce the instrument, must be one between the holder and the principal debtor.
However, a party secondarily liable is not discharged by such agreement in the
following cases:
1. When the extension of time for payment is assented to by the party secondarily liable
2. When the right to proceed against the parties secondarily liable has been expressly
reserved.
Sec. 121. Right of party who discharges instrument. - Where the instrument is
paid by a party secondarily liable thereon, it is not 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 and all subsequent indorsements and against negotiate the
instrument, except: (a) Where it is payable to the order of a third person and has
been paid by the drawer; and (b) Where it was made or accepted for
accommodation and has been paid by the party accommodated.
Q: What are the effects of payment by party secondarily liable?

A: 1. Instrument is not discharged
2. Party alleging is remitted to his former rights as regards all prior parties
3. He may strike out his own indorsement and all subsequent indorsements
4. He may again negotiate the instrument, except in the following:
a. Where it is payable to the order of a third person and has been paid by the drawer
b. Where it was made or accepted for accommodation and has been paid by the party
accommodated
Example: M, the maker. Issued an order instrument to P, the payee. P indorsed the
instrument to A who indorsed it to B. B 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 his
original position; it his as if he went back to the earlier situation when the instrument
was negotiated to him by P. Consequently, his subsequent indorsement to A after he
took the 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 payment by the accommodated party?
A: It will discharge the instrument because the accommodated party is the principal in
the cases contemplated by the second paragraph of Sec. 122. The person who made or
accepted the instrument is only a surety if the accommodated party.
Q: How about payment by the drawer?
A: It will discharge the instrument under Sec. 121. If the instrument is payable to the
order of a 3rd person, the drawer is the person who is ultimately liable on the instrument
even if he acceptor will pay the payee.
Sec. 122. Renunciation by holder. - The holder may expressly renounce his rights
against any party to the instrument before, at, or after its maturity. An absolute
and unconditional renunciation of his rights against the principal debtor made at
or after the maturity of the instrument discharges the instrument. But a
renunciation does not affect the rights of a holder in due course without notice. A
renunciation must be in writing unless the instrument is delivered up to the
person primarily liable thereon.
Renunciation
Q: What is renunciation?
A: It refers to the act of the holder of renouncing or abandoning his claim against the
principal debtor or of any party secondarily liable on the instrument.
RULES:
How made 1. Express and in writing

2. By the delivery of the instrument to the party
primarily liable thereon if made orally
When made 1. Before maturity
2. At a maturity
3. After maturity
In whose favor 1. The principal debtor
2. Party secondarily liable
Q: What are the requisites to discharge instrument?

A: 1. It must be absolute and unconditional
2. It must be made in favor of the principal debtor
3. It must be made at or after maturity

Q: What are the requisites for renunciation in favor of a person secondarily
liable?
A: 1. It may be made before, at or after maturity
2. The party in whose favor the renunciation is made and all parties subsequent to him
are discharged from liability
Q: What is the effect of renunciation on the rights of the HDC without notice?
A: None. It does not affect the rights of subsequent HDC without notice thereof.
However, the renunciation should not be made after maturity because by then, if the
instrument is still negotiated, the holder will no longer be considered a HDC.
Examples: 1. M makes a PN payable to the order of P. P indorses the note to A, A to B
and B to H, holder. At maturity, H renounces his claim on the note (without surrendering
it to M) in favor of M. The note, as well as M, P, A and B, is discharged. But supposing
that on the same date (date of maturity), H indorses the note to X, a HDC who was not
aware of the renunciation. In this case, X can still collect on the note from M, P, A and B
and even H.
If H, after the renunciation at maturity, indorses the mote to X the day following the date
of maturity, X can no longer collect from M, P, A and B. Here, X is no longer a HDC
because he became the holder after the notice has become overdue. However, X can
collect from H.
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 H. At maturity, H renounces his claim against A. A, as well
as B and C, parties subsequent to him, is discharged. However, if H negotiates the note
on the same date to X who is a HDC without notice of the renunciation, A, B and C can
still be held liable by X.
Sec. 123. Cancellation; unintentional; burden of proof. - A cancellation made

unintentionally or under a mistake or without the authority of the holder, is
inoperative but where an instrument or any signature thereon appears to have
been cancelled, the burden of proof lies on the party who alleges that the
cancellation was made unintentionally or under a mistake or without authority.
Cancellation
Q: What is cancellation?
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, burning, erasing, or destroying the instrument in a similar manner.

Cancellation of a signature, on the other hand, includes crossing out or erasing the
signature of a party.
Presumption of intentional cancellation
The cancellation of an instrument or any signature thereon is presumed intentional.

Thus, the burden of proof lies on the party who alleges that the cancellation was made
unintentionally, or under a mistake or without authority. So, if the holder cancelled a PN
mistaking it to be another paper, such cancellation is unintentional. However, since the
presumption is that such cancellation is intentional, the burden of proof is with the
holder to establish the contrary.
Q: What is the effect if the cancellation of the instrument or signature is
unintentional?
A: A cancellation made unintentionally, or under a mistake or without the authority of the
holder, is inoperative. Accordingly, it does not discharge the instrument or the party
whose signature is cancelled.
Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is

materially altered without the assent of all parties liable thereon, it is avoided,
except as against a party who has himself made, authorized, or assented to the
alteration and subsequent indorsers. But when an instrument has been materially
altered and is in the hands of a holder in due course not a party to the alteration,
he may enforce payment thereof according to its original tenor.
Sec. 125. What constitutes a material alteration. Any alteration which changes: 1.
The date; 2. The sum payable, either for principal or interest; 3. The time or place
of payment; 4. The number of the relations of the parties; 5. The medium or
currency in which payment is to be made; Or which adds a place of payment
where no place of payment is specified, or any other change or addition which
alters the effect of the instrument in any respect, is a material alteration
Q: What is alteration?
A: 1. Date- It includes alteration of the date of issue, or the date of maturity, which may
either be hastened or postponed, or an alteration of the date which may shorten or
lengthen the period during which interest may be computed.
2. Sum payable, either for principal or for interestincrease or reduction of the
principal or of the interest rate constitutes a material alteration of the instrument
3. Time or place of payment
4. Number or the relations of the parties- adding a comaker to a note, or making a

guarantor of the instrument as co-maker, or making the liability of the parties as solidary
when the nature of the debt is only joint all constitute a material alteration of the
instrument
5. Medium or currency in which payment is to be made
6. Any alteration which adds a place of payment where no place of payment is
specified
7. Any other change or addition which alters the effect of the instrument in any
respect- thus, there is material alteration when an instrument is payable to “order” is
changed to make it payable to “bearer.”
Effect of material alteration
Q: What is the effect of material alteration?

A:
In the hands of a Holder NOT in due In the hands of a HDC

course
The instrument is avoided, except as The holder is not avoided.

against:
1. As against any party prior to the
1. A party who has himself made, alteration, a HDC may enforce payment of
authorized or assented to the alteration the instrument according to its original
tenor. In this regard, material alteration is a
2. Subsequent indorsers
real defense to the extent altered
2. As against a party who has himself
made, authorized or assented to the
alteration or subsequent indorsers, a HDC
may enforce payment according to its
altered tenor by reason of their
participation in the alteration of their
warranties.
Example: A issued a PN in the amount of P10,000.00 payable to the order of B, payee.

B negotiated to C who convinced B that he be allowed to change the amount to
P40,000.00 so he can pay his debts to D. Therefater, C negotiated to D; D to E, holder.
a. E can go against D since the latter is a subsequent indorser. As such D warrants that
the instrument is what it purports to be and that it is valid and subsisting. Hence, D is
stopped from denying the validity of the instrument.
b. E can go against C since the latter was the one who altered the instrument, and also
because of his warranties as a general indorser
c. E can go against B since B assented to the alteration; and also because of his
warranties
d. As against A, it depends whether E is a HDC or not. If he is not a HDC, the
instrument is avoided as to him; hence, E cannot go against A. However, if E is a HDC,
E may enforce the instrument according to its original tenor; hence, E may go against A
but only for P10,000.00, the original tenor of the instrument.
e. If the instrument is a bill of exchange and the bill is addressed to X as drawee, X is
not liable as drawee because he is not a party to the instrument until he accepts
f. If X accepts, there are 2 schools of thoughts:
1. The acceptor X is liable only according to the original tenor of the instrument which is
P10,000.00
2. The acceptor X is liable according to the tenor of acceptance. Thus, if X accepted
prior to the alteration of the instrument, he would be liable for P10,000.00 because that
is the tenor of his acceptance. However, if X accepted after the alteration of the
instrument, he would be liable for P40,000.00 because that is the tenor of his
acceptance. For Dean Abad, the second view is the better view.
BILLS OF EXCHANGE FORM AND INTERPRETATION
Sec. 126. Bill of exchange, defined. - A bill of exchange is an unconditional order

in writing addressed by one person to another, signed by the person giving it,
requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer.
Kinds of bill of exchange
Q: What is a bill of exchange?

A: It is an unconditional order in writing addressed by one person to another, signed by
the person giving it, requiring the person to whom it is addressed to pay on demand or
at fixed or determinable future time a sum certain in money to order or to bearer.
check Drawn on a bank payable on demand
Time draft Draft payable at a fixed time

a. Time draft after sight- payable by the drawee within
the period of time indicated on the draft after he has
seen the draft and indicated his acceptance on its face
by writing “accepted” or any similar word, and adding
his signature and the date of his acceptance
Ex: Pay to the order of P the sum of P50,000.00 thirty
days after sight
b. Time draft after date- payable within a certain period
from its date
Ex: Pay to the order of P the sum of P50,000.00 thirty
days after date
Sight or demand draft Draft payable when the holder presents it for paymebt
Trade acceptance Used in contracts of sale whereby the seller as drawer
orders the buyer (as drawee) to pay a sum certain to
the same seller (payee)
draft Used in documentary exchange Ex: letters of credit
transaction
Inland bill Drawn and payable in the Philippines
Foreign bill Does not purport to be both drawn and payable in the
Philippines
Banker’s acceptance A time draft across the face of which the drawee which
is a bank has written the word “accepted”
Clean Bill of exchange No document is attached when presentment for
payment or acceptance is made
Documentary bill of A document is attached when presentment for
exchange payment or acceptance is made
Bills in set One bill of exchange drawn in a set, each part of the
set being numbered and containing a reference to the
other parts, the whole of the parts constitutes one bill
Documentary draft A draft or BOE to which various shipping documents
are attached
Commercial bill BOE drawn by an exporter directly on the importer

Documents against Time draft to which title documents arte attached. The
acceptance (D/A) draft documents are surrendered to the drawee when the
drawee has accepted the corresponding draft,
acknowledging the obligation to pay at the future date
Documents against A sight draft to which title documents are attached.
payment(D/ A) draft The documents are surrendered to the drawee only
when the drawee has paid the corresponding draft
Q: What are the uses of a BOE?

A: 1. To finance the sale of goods
2. To transfer credits from one community or country to another.
Q: Who are the Parties in a Bill of Exchange?
A: 1. Drawer – one who gives the order to pay money to a third party
2. Drawee – the person to whom the bill is addressed and ordered to pay; becomes
“acceptor” when he indicates a willingness to accept responsibility for the payment of
the bill
3. Payee – the party in whose favor the bill is drawn)
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 drawer being the party primarily interested in,
and benefited by, the transaction.
If drawee refuses to accept when he has funds for the purpose, he becomes liable to
the drawer for the resulting damages and the harm done to his credit. If drawer has
none, drawee must look to the drawer for reimbursement and not to a bona fide holder
RULES:
1. Drawee is not liable unless and until he accepts the bill; it is not an assignment of
funds in the hands of the drawee available for the payment thereof (§127)
2. Bill may be addressed to 2 or more drawees jointly (partners or not), but not in
alternative or in succession (§128)
Ratio: difficulty in determining the exact date of the dishonor of the bill.
3. A foreign bill payable in the Philippines may be treated by the holder as an inland bill
IF on its face it does not appear that it was drawn in another country / state (§129)
NOTE: A foreign bill may be protested while an inland bill need not be protested.
Purpose of distinction: To determine what law will govern the validity, interpretation, and
effect of the bill
4. In case bill is dishonored by non-acceptance or nonpayment, the drawer and any
indorser may insert on the bill a referee in case of need, person to whom the holder may
resort in case of need (Sec. 131)
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 the hands of the drawee available
for the payment thereof, and the drawee is not liable on the bill unless and until
he accepts the same
NOTE: The holder of a BOE that has not yet been accepted by the drawee cannot
enforce payment against the latter notwithstanding that the drawer may have funds in
the hands of the drawee that are sufficient to cover the bill. The drawing of the bill does
not operate as an equitable assignment of his funds in the hands of the drawee even if
the drawee may have expressly agreed to apply such funds for any bill drawn by the
drawer. The darwee becomes liable on the bill only when he accepts it.
Acceptance fixes the liability of the drawee and not the drawing of the instrument. If
drawee refuses to accept when he has funds for the purpose, he becomes liable to the
drawer for the resulting damages and the harm done to his credit. The drawee has no
contract with the payee or the holder.
Sec. 128. Bill addressed to more than one drawee. - A bill may be addressed to
two or more drawees jointly, whether they are partners or not; but not to two or
more drawees in the alternative or in succession.
Q: What are the 3 rules stated under Sec. 128?

A: 1. A bill may be addressed to 2 or more drawees jointly whether they are partners or
not
Ex: To A and B (instrument is negotiable)
2. A bill may not be addressed to 2 or more drawees in the alternative
Ex: To A or B (instrument is not negotiable)
3. The bill may not be addressed to 2 or more drawees in succession
Ex: To A or in his absence or failure to pay B (instrument is not negotiable)
Q: Why is the bill cannot be addressed to 2 or more drawees in the alternative or
in succession?
A: If the drawees are named in the alternative or in succession, the instrument is

rendered non-negotiable because the holder has no right to proceed against the drawer
and other parties secondarily liable until the bill is dishonored by all drawees.
Sec. 129. Inland and foreign bills of exchange. - An inland bill of 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 foreign bill. Unless the contrary appears on the
face of the bill, the holder may treat it as an inland bill.
Q: What is an “inland bill”?

A: A bill which, on its face, its both drawn and payable within the Philippines. Any other
bill is foreign, that is:
a. If it is drawn in the Philippines but payable abroad, or
b. The bill on its face purports to be drawn outside the Philippines but payable in the
Philippines
EXAMPLES:
INLAND BILL
Manila, Philippines
October 31, 2010
Pay to the order of Bebeng the sum of P200,000.00 at PNBEscolta, Manila
Sgd. Ayel
To: Jed Mark
FOREIGN BILL
Manila, Philippines
October 31, 2010
Pay to the order of Bebeng the sum of P200,000.00 at CitibankNew York City
Sgd. Aye
To: Jed Mark
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 the drawee is a fictitious
person or a person not having capacity to contract, the holder may treat the
instrument at his option either as a bill of exchange or as a promissory note.
Q: When may a bill be treated as promissory note?

A: 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
Sec. 131. Referee in case of need. - The drawer of a bill and any 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 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
holder to resort to the referee in case of need or not as he may see fit.
Referee in case of need
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 is, in case of dishonor by non-acceptance or
non-payment.
NOTE: The holder, at his option, may resort the referee in case of need as he may see
fit.
Q: What if the referee pays the holder?
A: He may recover the amount from the drawer or indorser who named him
Example:
Manila, Philippines
January 2, 2011
On demand, pay to the order of Ayel the sum of US $5,000.00, value received, and
charge the account of
Sgd. Bebeng
To: Sam
Suite 304 Avenue Towers
12 Fifth Avenue, New York City
In case of need, apply to Jed Mark, suite 306 Avenue Towers, 12 Fifth Avenue, New
York City
NOTE: Notwithstanding any stipulation on the referral to a referee in case of need, it is

optional on the part of the holder if he avails himself of such right. Thus, if Sam
dishonors the bill, Ayel may apply to Jed Mark for payment. However, he is not bound to
do so and, if he so desires, may look immediately to Bebeng for payment.
ACCEPTANCE
Sec. 132. Acceptance; how made, by and so forth. - The acceptance of a bill is the
signification by the drawee of his assent to the order of the drawer. The
acceptance must be in writing and signed by the drawee. It must not express that
the drawee will perform his promise by any other means than the payment of
money.
Q: What is “acceptance”?
A: It is the signification by the drawee of his assent to the order of the drawer.
Kinds of Acceptance
Q: What are the kinds of acceptance?

A: 1. actual acceptance
2. constructive acceptance
3. general acceptance
4. qualified acceptance
Actual Acceptance
Q: What are the requisites for actual acceptance?

A: 1. It must be in writing
2. It must be signed by the drawee

3. It must not express that the drawee will perform his promise by any other means that
the payment of money
4. There must be delivery or notification of the acceptance
Q: How is actual acceptance made?
A: By writing the word “Accepted,” “Good,” “Certified,” or “honor,” or any other words of
similar import on the face of the bill, followed by the signature of the drawee.
Q: What is the effect of acceptance?
A: Before acceptance, the drawee is a stranger to the BOE. Once he accepts, he
becomes primarily liable on the bill.
Q: What is the effect of payment of bill without previous acceptance?
A: The acceptor, by accepting the instrument, engages he will pay it according to the
tenor of his acceptance. His actual payment of the amount implies not only his assent to
the order of the drawer and a recognition of his obligation to pay the aforementioned
sum, but also, his clear compliance with his obligation. Actual 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. Gold Palace).
Naguiat vs. CA (2003)
The mere issuance of the checks did not result in the perfection of the contract of loan.
For the Civil Code provides that the delivery of bills of exchange and mercantile
documents such as checks shall produce the effect of payment only when they have
been cashed. It is only after the checks have produced the effect of payment that the
contract of loan may be deemed perfected.
Papa vs. A.U. Valencia & Co., Inc.
While it is true that the delivery of a check produces the effect of payment only when it
is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is
prejudiced by the creditor's unreasonable delay in presentment. The acceptance of a
check implies an undertaking of due diligence in presenting it 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 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 drawer cannot be held
liable irrespective of loss or injury unless presentment is otherwise excused.
This is in harmony with Article 1249 of the Civil Code under which payment by way of
check or other negotiable instrument is conditioned on its being cashed, except when
through the fault of the creditor, the instrument is impaired. The payee of a check would
be a creditor under this provision and if its non-payment is caused by his negligence,
payment will be deemed effected and the obligation for which the check was given as
conditional payment will be discharged.
Sec. 133. Holder entitled to acceptance on face of bill. - The holder of a bill
presenting the same for acceptance may require that the acceptance be written
on the bill, and, if such request is refused, may treat the bill as dishonored.
NOTE: The holder of a bill may require that the acceptance be written on the face of the
bill, and if such request is refused, he may treat the bill as dishonored.
Q: What are the requisites for acceptance?
A: 1. Must be made by or on behalf of the holder;
2. At a reasonable hour on a business day;
3. Before the bill is overdue; and
4. To the drawee or some person authorized to accept or refuse to accept on his behalf.
CERTIFICATION OF CHECKS
An agreement whereby the bank against whom a check is drawn, undertakes to pay it
at any future time when presented for payment.
Q: What are the effects of Certification?
A: a. Equivalent to acceptance (§187) and is the operative act that makes banks liable
b. Assignment of the funds of the drawer in the hands of the drawee (§189)
c. If obtained by the holder, discharges the persons secondarily liable thereon (§188)
NOTE: Where the holder of a check procures it to be accepted or certified, the drawer
and all indorsers are discharged from liability thereon.
Q: What if the drawee bank refuses to certify?
A: The holder has no action against the bank but he has a right of action against the
drawer. The drawer in turn has right of action against the bank based on the original
contact of deposit between them.
IRON CLAD RULE
Q: What is the iron clad rule?

A: This rule prohibits the countermanding of payment of certified checks.
NOTE: The holder must be a holder in due course before the stop payment order may
not be successfully invoked against him.
Sec. 134. Acceptance by separate instrument. - Where an acceptance is written

on a paper other than the bill itself, it does not bind the acceptor except in favor
of a person to whom it is shown and who, on the faith thereof, receives the bill for
value.
NOTE: The acceptance may either be written on:

1. Instrument itself
2. In a separate piece of paper
However, the holder may insist that the acceptance be written on the bill itself. If the
drawee refuses to place his acceptance on the bill itself, the holder may treat the
instrument as dishonored and can already give notice of dishonor.
Example: R draws a BOE against W, drawee, and payable to the 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 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 acceptance, H takes the bill for
value. W will be liable to H.
Sec. 135. Promise to accept; when equivalent to acceptance. - An unconditional

promise in writing to accept a bill before it is drawn is demed an actual
acceptance in favor of every person who, upon the faith thereof, receives the bill
for value.
Example: R writes W informing the latter that R will draw against him a bill of exchange
for P20,000.00 payable to the order of P. W writes back stating “I will accept your bill for
P20,000.00 payable to the order of P on January 31, 2011. Within reasonable time, R
draws a BOE against W in accordance with the description made 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 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 seen the written promise.
Q: Distinguish Sec. 134 and Sec. 135.
A:
SECTION 134 SECTION 135
The acceptor will be liable only in favor of The acceptor will be liable to every person
a person to whom such written acceptance who, upon faith of such unconditional
is shown, and who, on the faith thereof, promise to accept in writing, received the
received the bill for value bill for value. In other words, the acceptor
shall be liable to such person although the
latter has not been shown the written
promise to accept the bill
Sec. 136. Time allowed drawee to accept. - The drawee is allowed twenty-four
hours after presentment in which to decide whether or not he will accept the bill;
the acceptance, if given, dates as of the day of presentation.
NOTE: The drawee is allowed 24 hours after presentment to decide whether or not he
will accept the bill. The acceptance, if given, dates as of the day of the presentment.
Example:
Thirty days after sight, pay to the order of Bebeng the sum of P100,000.00
Sgd. Ayel
To: Sam
Here, Sam has 24 hours from acceptance within which to accept the bill. The maturity is
counted 30 days from 24 hours after the acceptance.
Sec. 137. Liability of drawee returning or destroying bill. - Where a drawee to

whom a bill is delivered for acceptance destroys the same, or refuses within
twenty-four hours after such delivery or within such other period as the holder
may allow, to return the bill accepted or non-accepted to the holder, he will be
deemed to have accepted the same.
Constructive Acceptance
Q: What are the 2 ways of constructive acceptance?

A: 1. The drawee destroys the bill
2. The drawee refuses within 24 hours after such delivery, or within such other period as
the holder may allow, to return the bill accepted or non-accepted, to the holder.
Q: How will you reconcile Sections 136 and 137?
A: Under Sec. 136, the drawee is deemed not to have accepted the bill if he does not do
so within the 24 hour period provided therein. However, the conflict is more apparent
than real. Sec. 136 makes no provision that the drawee is entitled to keep the bill while
he makes up his mind. The bill is at all times the 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 return before 24 hours, the drawee would be required to comply on pain of
being held as an acceptor; but return within 24 hours unaccepted would not be a
dishonor. The drawee could still accept by notification within 24 hours. Here, an
extrinsic acceptance, Sec. 136, would play an important part. If the drawee after
returning the bill still refused to act after the expiration of the time allowed, the holder
would be required to treat the bill as dishonored or lose rights against prior parties.
Sec. 138. Acceptance of incomplete bill. - A bill may be accepted before it has
been signed by the drawer, or while otherwise incomplete, or when it is overdue,
or after it has been dishonored by a previous refusal to accept, or by non
payment. But when a bill payable after sight is dishonored by nonacceptance and
the drawee subsequently accepts it, the holder, in the absence of any different
agreement, is entitled to have the bill accepted as of the date of the first
presentment.
Q: When may a bill be accepted?

A: 1. Before it has been signed by the drawer
2. While it is still incomplete
3. When it is already overdue
4. After it has been previously dishonored by a refusal to accept, or by non-payment
NOTE: When a bill payable after sight is dishonored by nonacceptance and the drawee
subsequently accepts it, the holder, in the absence of any different agreement, is
entitled to have the bill accepted as of the date of first presentment.
Example: 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 by P to A, and A to H, holder. H
presents the bill to W on October 1. W dishonors it. On October 10, W decides to accept
the bill. Unless otherwise agreed, H is entitled to habe the bill accepted on October 1
when it was first presented. Accordingly, the date of maturity is October 31.
Sec. 139. Kinds of acceptance. - An acceptance is either general or qualified. A

general acceptance assents without qualification to the order of the drawer. A
qualified acceptance in express terms varies the effect of the bill as drawn.
Sec. 140. What constitutes a general acceptance. - An acceptance to pay at a

particular place is a general acceptance unless it expressly states that the bill is
to be paid there only and not elsewhere.
Sec. 141. Qualified acceptance. - An acceptance is qualified which is: (a)

Conditional; that is to say, which makes payment by the acceptor dependent on
the fulfillment of a condition therein stated; (b) Partial; that is to say, an
acceptance to pay part only of the amount for which the bill is drawn; (c) Local;
that is to say, an acceptance to pay only at a particular place; (d) Qualified as to
time; (e) The acceptance of some, one or more of the drawees but not of all.
General acceptance
Q: What is general acceptance?

A: A general acceptance assents without qualification to the order of the drawer. Here,
the drawee engages to pay according to the tenor of the BOE.
Example: “Accepted. Payable at PNB-Ermita, Manila” is a general acceptance.
Qualified acceptance
Q: What is qualified acceptance?

A: A qualified acceptance in express terms varies the effect of the bill as drawn.
Q: What are the kinds of qualified acceptance?
A: a. Conditional - makes payment by the acceptor dependent on the fulfillment of a
condition therein stated. Examples:
1. “Accepted. Payable if the payee delivers the items that Bebeng bought from him with
seals unbroken. Sgd. Ayel.”
2. “Accepted. Payable if the building is ready for occupancy. Sgd. Bebeng”
b. Partial - an acceptance to pay part only of the amount for which the bill is drawn.
Example: A BOE drawn by Bebeng against Ayel for P100,000.00 is accepted by the
latter as follows: “Accepted for P60,000.00. Sgd. Ayel.”
c. Local - an acceptance to pay only at a particular place. Example: “Accepted. Payable
at PNB, Ermita, Manila only. Sgd. Bebeng”
d. Qualified as to time- here, the acceptance varies the time of payment
Examples:
1. A bill payable “30 days after sight” is accepted by the drawee as follows: “Accepted.
Payable 60 days after sight. Sgd. Bebeng”
2. A bill payable on January 15, 2011 is accepted by the drawee as follows: “Accepted.
Payable on April 23, 2011. Sgd. Ayel.”
e. The acceptance of some one or more of the drawees but not of all.
Example: A bill drawn against Ayel and CJ is accepted as follows: “Accepted. Sgd.
Ayel”
Sec. 142. Rights of parties as to qualified acceptance. - The holder may refuse to
take a qualified acceptance and if he does not obtain an unqualified acceptance,
he may treat the bill as dishonored by non-acceptance. Where a qualified
acceptance is taken, the drawer and indorsers are discharged from liability on the
bill unless they have expressly or impliedly authorized the holder to take a
qualified acceptance, or subsequently assent thereto. When the drawer or an
indorser receives notice of a qualified acceptance, he must, within a reasonable
time, express his dissent to the holder or he will be deemed to have assented
thereto.
Q: What are the rights of parties as to qualified acceptance?

A: 1. The holder may refuse to take a qualified acceptance and if he does not obtain an
unqualified acceptance, he may treat the bill as dishonored by non-acceptance.
2. Where a qualified acceptance is taken, the drawer and indorsers are discharged from
liability on the bill unless:
a. they have expressly or impliedly authorized the holder to take a qualified acceptance,
or
b. when they subsequently assent thereto.
When the drawer or an indorser receives notice of a qualified acceptance, he must,
within a reasonable time, express his dissent to the holder or he will be deemed to have
assented thereto.
PRESENTMENT FOR ACCEPTANCE
Sec. 143. When presentment for acceptance must be made. - Presentment for
acceptance must be made: (a) Where the bill is payable after sight, or in any other
case, where presentment for acceptance is necessary in order to fix the maturity
of the instrument; or (b) Where the bill expressly stipulates that it shall be
presented for acceptance; or (c) Where the bill is drawn payable elsewhere than
at the residence or place of business of the drawee. In no other case is
presentment for acceptance necessary in order to render any party to the bill
liable.
Sec. 144. When failure to present releases drawer and indorser. - Except as herein
otherwise provided, the holder of a bill which is required by the next preceding
section to be presented for acceptance must either present it for acceptance or
negotiate it within a reasonable time. If he fails to do so, the drawer and all
indorsers are discharged.
Q: What is the concept of presentment for acceptance?

A: It is the exhibition of a BOE to the drawee for his acceptance.
Q: What are the requisites for presentment for acceptance?
A: 1. Must be made by or on behalf of the holder;
2. At a reasonable hour on a business day;
3. Before the bill is overdue; and
4. To the drawee or some person authorized to accept or refuse to accept on his behalf.
GR: Presentment for acceptance is not required
XPNs:
1. Where the bill is payable after sight, or when it is necessary in order to fix the maturity
of the instrument;
Manila, Philippines
September 12, 2010
Sixty days after sight, pay to the order of Bebeng the sum of P100,000.00.
Sgd. Ayel
To: CJ
2. Where the bill expressly stipulates that it shall be presented for acceptance;
Manila, Philippines
September 12, 2010
Pay to the order of Bebeng the sum of P100,000.00. Presentment for acceptance
required.
Sgd. Ayel
To: CJ
3. Where the bill is drawn payable elsewhere than at the residence or place of business
of the drawee
Manila, Philippines
September 12, 2010
Pay to the order of Bebeng the sum of P100,000.00 on P100,000.00 on March 1, 2011
at PNB, Ermita, Manila
Sgd. Ayel
To: CJ
Q: What is the advantage of presenting the bill for acceptance?

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 case the drawee dishonors the bill, an
immediate right of recourse accrues to him (holder) against the parties secondarily
liable thereon.
Q: What are the options when the bill is required to be presented for acceptance?
A: 1. Present it for acceptance within a reasonable time
2. Negotiate it within a reasonable time
Q: What is the effect of failure of holder to exercise the option?
A: It will discharge the drawer and indorsers.
The rule is intended to relieve the drawer or indorser from the obligation of assuming for
an indefinite length of time the risk of the drawee’s ability to pay.
Sec. 145. Presentment; how made. - Presentment for acceptance must be made
by or on behalf of the holder at a reasonable hour, on a business day and before
the bill is overdue, to the drawee or some person authorized to accept or refuse
acceptance on his behalf; and (a) Where a bill is addressed to two or more
drawees who are not partners, presentment must be made to them all unless one
has authority to accept or refuse acceptance for all, in which case presentment
may be made to him only; (b) Where the drawee is dead, presentment may be
made to his personal representative; (c) Where the drawee has been adjudged a
bankrupt or an insolvent or has made an assignment for the benefit of creditors,
presentment may be made to him or to his trustee or assignee.
Sec. 146. On what days presentment may be made. - A bill may be presented for
acceptance on any day on which negotiable instruments may be presented for
payment under the provisions of Sections seventy-two and eighty-five of this Act.
When Saturday is not otherwise a holiday, presentment for acceptance may be
made before twelve o'clock noon on that day.
NOTE: The following rules must be followed:

Presentment for acceptance must be made:
a. At a reasonable hour
b. On a business day
c. Before the bill is ovedue
Presentment for acceptance on a Saturday
1. If the instrument is payable on a Saturday the instrument may presented for payment
before 12nn on a Saturday when the entire day is not a holiday.
2. If Saturday is a holiday, presentment for acceptance cannot be made on that day.
Presentment for acceptance on a Sunday or a holiday
If the day presentment for acceptance is supposed to be made falls on a Sunday or a
holiday, the instrument is payable on the next succeeding business day
Presentment for acceptance distinguished from presentment for payment if
presentment is made on a Saturday
PRESENTMENT FOR ACCEPTANCE PRESENTMENT FOR PAYMENT
It can be made on a Saturday whether the Can be made on a Saturday only for
instrument is payable on demand or not. instruments payable on demand. If the
instrument is payable at a fixed or
determinable future time, presentment for
payment must be made on the next
succeeding business day
Sec. 147. Presentment where time is insufficient. - Where the holder of a bill
drawn payable elsewhere than at the place of business or the residence of the
drawee has no time, with the exercise of reasonable diligence, to present the bill
for acceptance before presenting it for payment on the day that it falls due, the
delay caused by presenting the bill for acceptance before presenting it for
payment is excused and does not discharge the drawers and indorsers.
Example:
Manila, Philippines
October 1, 2010
Pay to the order of Bebeng the sum of US $5,000.00 on October 3, 2010 at the BPI-
Laong Laan, Manila
Sgd. Ayel
To: Jed Mark
Berlin, Germany
In the foregoing bill, Bebeng is given only 2 days from the date of issue to present the
bill for acceptance to Jed Mark in Germany before he presents the bill for payment at
the BPI. Such period of 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 payment in Manila.
Accordingly, the delay caused in presenting the bill for acceptance before it is presented
for payment before it is presented for payment will be excused, and does not discharge
Ayel.
Sec. 148. Where presentment is excused. - Presentment for acceptance is

excused and a bill may be treated as dishonored by non-acceptance in either of
the following cases: (a) Where the drawee is dead, or has absconded, or is a
fictitious person or a person not having capacity to contract by bill. (b) Where,
after the exercise of reasonable diligence, presentment can not be made. (c)
Where, although presentment has been irregular, acceptance has been refused
on some other ground.
Q: When is presentment for acceptance excused?

A: a. Where the drawee is either:
1. dead, or
2. has absconded, or
3. is a fictitious person or
4. a person not having capacity to contract by bill
a. Where, after the exercise of reasonable diligence, presentment can not be made.
b. Where, although presentment has been irregular, acceptance has been refused on
some other ground.
Sec. 149. When dishonored by non-acceptance. - A bill is dishonored by non-

acceptance: (a) When it is duly presented for acceptance and such an acceptance
as is prescribed by this Act is refused or can not be obtained; or (b) When
presentment for acceptance is excused and the bill is not accepted.
Q: How is a bill dishonored by non-acceptance?

A: 1. When it is duly presented for acceptance and such an acceptance as is prescribed
by this Act is refused or can not be obtained; or
Requisites:
a. The instrument is duly presented for acceptance complying with all the requirements
under the NIL
b. The drawee refused to accept tor the acceptance cannot be obtained
c. When presentment for acceptance is excused and the bill is not accepted.
Requisites:
a. Presentment for acceptance is excused as provided for under Sec. 148
b. The BOE is not accepted
Sec. 150. Duty of holder where bill not accepted. - Where a bill is duly presented
for acceptance and is not accepted within the prescribed time, the person
presenting it must treat the bill as dishonored by nonacceptance or he loses the
right of recourse against the drawer and indorsers.
NOTE: 1. Notice of dishonor must be given to the drawer and each endorser 2. If the bill
is a foreign bill, the same must be protested
Sec. 151. Rights of holder where bill not accepted. - When a bill is dishonored by
nonacceptance, an immediate right of recourse against the drawer and indorsers
accrues to the holder and no presentment for payment is necessary.
NOTE: If a bill is dishonored by non-acceptance, an immediate right of recourse against

the drawer/indorsers accrues to the holder. He need not make any presentment for
payment
Example: A bill payable Feb. 2002. Presentment for acceptance made but was not
accepted by drawee today. Holder need not wait for Feb. 2002, He can immediately run
after the drawer/indorsers
PROTEST
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
not previously been dishonored by nonpayment, it must be duly protested for
nonpayment. If it is not so protested, the drawer and indorsers are discharged.
Where a bill does not appear on its face to be a foreign bill, protest thereof in
case of dishonor is unnecessary.
Sec. 153. Protest; how made. - The protest must be annexed to the bill or must
contain a copy thereof, and must be under the hand and seal of the notary
making it and must specify: (a) The time and place of presentment; (b) The fact
that presentment was made and the manner thereof; (c) The cause or reason for
protesting the bill; (d) The demand made and the answer given, if any, or the fact
that the drawee or acceptor could not be found.
Sec. 154. Protest, by whom made. - Protest may be made by: (a) A notary public;
or (b) By any respectable resident of the place where the bill is dishonored, in the
presence of two or more credible witnesses.
Sec. 155. Protest; when to be made. - When a bill is protested, such protest must
be made on the day of its dishonor unless delay is excused as herein provided.
When a bill has been duly noted, the protest may be subsequently extended as of
the date of the noting.
Sec. 156. Protest; where made. - A bill must be protested at the place where it is
dishonored, except that when a bill drawn payable at the place of business or
residence of some person other than the drawee has been dishonored by
nonacceptance, it must be protested for non-payment at the place where it is
expressed to be payable, and no further presentment for payment to, or demand
on, the drawee is necessary.
Q: What is protest?
A: It is a formal written statement made by a notary public at the request of a holder of
bill of exchange stating that he has demanded acceptance or payment of the bill, and
that it has been refused, with the reasons, if any, given by the drawee or acceptor for
the dishonor, whereupon, the notary public protests against all parties to such
instrument and declares that they will be held responsible for all loss or damage arising
from the dishonor of the bill.
Q: What is the purpose of protest?
A: It is required for uniformity in international transactions because most countries

require it. A protest reduces the difficulty of verifying the dishonor substantially because
the certificate of protest is admissible as evidence in court.
Q: When is protest required?
A: Only in foregn bills, except in certain cases. The omission of the protest when such
protest is required, will discharge the drawer and indorsers. Inland bills and notes may,
but need not, be protested to charge the persons liable thereon, except in certain cases.
Q: What are the instances when protest required?
A:
1. When a foreign bill is dishonored by non-acceptance (Sec. 152)
2. When a foreign bill has not been previously dishonored by non-acceptance is
dishonored by non-payment (Sec. 157)
3. Where a dishonored bill has been accepted for honor supra protest (Sec. 167)
4. Where a dishonored bill contains a referee in case of need, it must be protested for
non-payment before it is presented for payment to the acceptor for honor or referee in
case of need (Sec. 167)
5. Where the bill is dishonored by the acceptor for honor, it must be protested for non-
payment by him (Sec. 170)
Q: How is protest made?
A: 1. The protest must be annexed to the bill or must contain a copy thereof
2. It must be under the hand and seal of the notary making it
3. It must specify:
a. The time and place of presentment;
b. The fact that presentment was made and the manner thereof;
c. The cause or reason for protesting the bill;
d. The demand made and the answer given, if any, or the fact that the drawee or
acceptor could not be found.
Q: Who shall make the protest?
A: 1. By a notary public, or
2. By any respectable resident of the place where the bill is dishonored, in the presence
of 2 or more creditable witnesses.
When should protest be made
Q: When should protest be made?

A: When a bill is protested, such protest must be made on the day of its dishonor unless
delay is excused as herein provided. When a bill has been duly noted, the protest may
be subsequently extended as of the date of the noting.
“Noting”
Q: What is meant by “noting”?

A: It means the notary public writes a note on the bill or on a paper attached thereto, or
in his notarial register, consisting of his initials, the month, day, and year, the matters
required to be included in the protest together with the noting charges.
Once the noting has been made, the protest may be extended at anytime before a court
action is brought, or even during the trial, since such protest shall be antedated.
Hence, if the bill is dishonored on September 1, 2010, the noting must be made on such
date. If the trial has been set for October 1, 2010, the formal protest may be made on or
before such date after the noting.
Q: When is the delay in the noting excused?
A: Delay in noting or protesting is excused when delay is caused by circumstances
beyond the control of the holder and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate, the bill must be noted or
protested with reasonable diligence.
Where should the protest be made
Q: Where should the protest be made?

A:
GR: A bill must be protested at the place where it is dishonored,
XPN: When a bill drawn payable at the place of business or residence of some person
other than the drawee has been dishonored by nonacceptance, it must be protested for
nonpayment at the place where it is expressed to be payable, and no further
presentment for payment to, or demand on, the drawee is necessary.
Example: If a bill drawn in Los Angeles and addressed to a drawee in Paris but payable
at PNB-Malate, Manila, is dishonored by the drawee in Paris, the protest for non-
payment should be made in Manila.
Notice of protest
Q: What is a notice of protest?

A: It is a document sent by the notary public to all parties on the instrument informing
the latter that a specific instrument has been protested, and that the holder looks upon
them for payment of damages, interests, and costs. If the holder has sent the notice to
all parties, he is entitled to recover from such parties.
Sec. 157. Protest both for non-acceptance and non-payment. - A bill which has
been protested for non-acceptance may be subsequently protested for non-
payment.
Sec. 158. Protest before maturity where acceptor insolvent. - Where the acceptor
has been adjudged a bankrupt or an insolvent or has made an assignment for the
benefit of creditors before the bill matures, the holder may cause the bill to be
protested for better security against the drawer and indorsers..
Q: When is protest optional?

A: 1. When a bill has been previously protested for nonacceptance
2. In case of protest for better security
Grounds:
a. When the acceptor has been adjudged a bankrupt or insolvent
b. When the acceptor has made an assignment for the benefit of creditors
Q: When should protest be made?
A: After the bill has been accepted but before its maturity
Q: Against whom should it be protested?
A: 1. Drawer
2. Indorsers
Q: What is the reason for the protest?
A: To give notice to the drawer and the indorsers that in all probability, the acceptor, by
reason of his being adjudged as bankrupt or insolvent, would not be able to honor the
bill at maturity, so that they may make the necessary arrangements for its payment at
maturity if they do not want to be held liable thereon.
Sec. 159. When protest dispensed with. - Protest is dispensed with by any
circumstances which would dispense with notice of dishonor. Delay in noting or
protesting is excused when delay is caused by circumstances beyond the control
of the holder and not imputable to his default, misconduct, or negligence. When
the cause of delay ceases to operate, the bill must be noted or protested with
reasonable diligence.
Q: When is delay excused?

A: When delay is caused by circumstances beyond the control of the holder and not
imputable to his default, misconduct, or negligence. When the cause of delay ceases to
operate, the bill must be noted or protested with reasonable diligence.
Sec. 160. Protest where bill is lost and so forth. - When a bill is lost or destroyed
or is wrongly detained from the person entitled to hold it, protest may be made on
a copy or written particulars thereof.
NOTE: Protest may be made on a copy or written particulars of a bill in the following
cases:
1. Loss of the bill
2. Destruction of the bill 3. Wrongful detention from the person entitled to hold it.
NOTE: The above instances, however, does not excuse demand and protest since it
does not change the contract of the parties. Demand and protest may be made on a
copy or written particulars thereof.
Q: Distinguish notice of dishonor and protest.
A:
NOTICE OF DISHONOR PROTEST

AS TO APPLICABILITY
Applies to inland bills Does not apply to inland bills but only
to foreign bills
AS TO FORM
May be verbal or written Always in writing
MADE BY WHOM
Made by a holder or any person who Made by a notary public or a

may be compelled to pay respectable resident
WHEN MADE
Required to be made usually within one Protest or noting should be made on
day after dishonor the day of dishonor
WHERE MADE
Not made or given in the place of As a rule to be made in the place of
dishonor but in the residence of the dishonor
parties and other places mentioned in
sec. 103
ACCEPTANCE FOR HONOR
Sec. 161. When bill may be accepted for honor. - When a bill of exchange has
been protested for dishonor by non-acceptance or protested for better security
and is not overdue, any person not being a party already liable thereon may, with
the consent of the holder, intervene and accept the billsupra protest for the honor
of any party liable thereon or for the honor of the person 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 where there has been an acceptance for honor for one
party, there may be a further acceptance by a different person for the honor of
another party.
Q: What is acceptance for honor?

A: It is an acceptance made by a person who is not a party to the bill, after the bill has
been protested for non-acceptance or for better security, and before it is overdue, for
the honor of the drawer or of any one of the indorsers. Such acceptance is also called
“acceptance supra protest.” This is an exception to the rule that only the drawee may
accept a bill.
Q: What are the requisites?
A: 1. bill of exchange has been protested for dishonor by non-acceptance or protested
for better security and
2. not overdue, a
3. the acceptance for honor must be made by a person who is not already a party liable
on the bill, i.e., he must be a stranger thereto. There may be several acceptors supra
protest for the honor of the different parties ro the bill.
4. The holder must give his consent to the acceptance for honor.
Q: Why is consent necessary?
A: The consent of the holder is necessary because there is a novation through a
substitution of the debtor.
Q: What is the acceptance for honor?
A: : An acceptance for honor is made to save credit of the drawer, drawee, or indorser
or somebody else. It enables a party liable on the bill to induce a stranger to intervene
for the protection of the party’s credit.
Sec. 162. Acceptance for honor; how made. - An acceptance for honor supra
protest must be in writing and indicate that it is an acceptance for honor and
must be signed by the acceptor for honor.
Q: How is acceptance for honor made?

A: 1. It must be in writing
2. It must indicate that it is an acceptance for honor
3. It must be signed by the acceptor for honor
Example:
Accepted for the honor of Alicia
Sgd. Betty
Sec. 163. When deemed to be an acceptance for honor of the drawer. - Where an
acceptance for honor does not expressly state for whose honor it is made, it is
deemed to be an acceptance for the honor of the drawer.
Q: When is the acceptance for honor deemed for the drawer?

A: 1. When the acceptance for honor expressly provides that it is being made for the
honor of the drawer
2. When the acceptance for honor does not expressly provide for whose honor it is
made
Example: The acceptance states as follows:
“Accepted, S.P., sgd. X.” This example does not indicate the person in whose favor X is
accepting the instrument for honor, hence, the same is deemed to be in favor of the
drawer.
Sec. 164. Liability of the acceptor for honor. - The acceptor for honor is liable to
the holder and to all parties to the bill subsequent to the party for whose honor he
has accepted.
Example: R, drawer; P, payee, and W, drawee. The 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 the latter refuses
to accept it. H protests the bill. Before the date of maturity, S, a stranger to the bill,
accepts the bill for the honor of A, indorser. S is liable not only to H, but also to B and C,
parties subsequent to A for whose honor he accepted the bill.
Sec. 165. Agreement of acceptor for honor. - The acceptor for honor, by such
acceptance, engages that he will, on due presentment, pay the bill according to
the terms of his acceptance provided it shall not have been paid by the drawee
and provided also that is shall have been duly presented for payment and
protested for non-payment and notice of dishonor given to him.
Q: What are the requisites for liability of acceptor for honor?

A: 1. The bill must be presented for payment to the drawee at maturity
2. The drawee refuses to pay the bill
3. The bill must be protested for non-payment
4. Notice of dishonor by non-payment must be given to the acceptor for honor
Example: R, drawer; P, payee, and W, drawee. The bill, which is payable 30 days after
sight, is indorsed by P to A, A to B, B to C, and C to H, holder. On October 1, H
presents the bill to W for acceptance, but the latter refuses to accept it. After due protest
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 protest for the honor of A on October 6. In order to
hold S liable on his acceptance, H will have to wait until the maturity of the instrument
on October 31, when he must present it to W for payment, notwithstanding W’s previous
refusal to accept it. Upon the refusal of W to pay the bill, H must also protest the bill for
non-payment and give notice of dishonor by non-payment to S.
Sec. 166. Maturity of bill payable after sight; accepted for honor. - Where a bill
payable after sight is accepted for honor, its maturity is calculated from the date
of the noting for nonacceptance and not from the date of the acceptance for
honor
Example: The BOE is payable 10 days after sight. It was presented for acceptance on
March 10, 2004 but was not accepted. Later accepted for honor on March 12, 2004
after complying with all the requirements thereof. In this case, the maturity date is March
20, 2004 and not March 22, 2004.
Sec. 167. Protest of bill accepted for honor, and so forth. - Where a dishonored
bill has been accepted for honor supra protest or contains a referee in case of
need, it must be protested for non-payment before it is presented for payment to
the acceptor for honor or referee in case of need. Sec. 168. Presentment for
payment to acceptor for honor, how made. - Presentment for payment to the
acceptor for honor must be made as follows: (a) If it is to be presented in the
place where the protest for nonpayment was made, it must be presented not later
than the day following its maturity. (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 time
specified in Section one hundred and four.
Q: When is presentment of the bill for payment to acceptor for honor made?
A: 1. If it is to be presented in the place where the protest for non-payment was made, it
must be presented not later than the day following its maturity
2. If it is to be presented in some other place than the place where it was protested,
then it must be forwarded within the ff. times:
a. If sent by mail, it must be deposited in the post office in time to go by mail the day
following the day of dishonor, or if there be no mail at a convenient hour on last day, by
the next mail thereafter.
b. If given otherwise than through the post office, then within the time that notice would
have been received in due course of mail, if it had been deposited in the post office
within the time specified in the last subdivision.
Sec. 169. When delay in making presentment is excused. - The provisions of

Section eighty-one apply where there is delay in making presentment to the
acceptor for honor or referee in case of need.
Sec. 170. Dishonor of bill by acceptor for honor. - When the bill is dishonored by
the acceptor for honor, it must be protested for non-payment by him.
Q: Distinguish between acceptance for honor and ordinary acceptance.

A:
ACCEPTANCE FOR HONOR ORDINARY ACCEPTANCE
Protests is a requisite Protest is not a requisite

The person who accepts is a stranger The person who accepts is a party—the
drawee
There must be an express statement that it Any word indicating a acceptance is
is for honor enough
Consent of the holder is necessary Consent of the holder is not necessary
The liability of the acceptor for honor is The acceptor is primarily liable
secondary
Payment of the acceptor for honor will not Payment by the acceptor in due course
discharge the bill discharges the bill
Acceptance for honor may be in favor of Acceptance involves the entire instrument
only one or some of the parties
PAYMENT FOR HONOR
Sec. 171. Who may make payment for honor. - Where a bill has been protested for
non-payment, any person may intervene and pay it supra protest for the honor of
any person liable thereon or for the honor of the person for whose account it was
drawn.
Sec. 172. Payment for honor; how made. - The payment for honor supra protest,
in order to operate as such and not as a mere voluntary payment, must be
attested by a notarial act of honor which may be appended to the protest or form
an extension to it.
Sec. 173. Declaration before payment for honor. - The notarial act of honor must
be founded on a declaration made by the payer for honor or by his agent in that
behalf declaring his intention to pay the bill for honor and for whose honor he
pays.
Q: What is payment for honor?

A: It is the means of payment of a bill of exchange after it has been dishonored by non-
payment and protested for nonpayment, by any person, including one already a party to
the bill, for the honor of one, or all the parties to the bill.
Q: What are the requisites?
A: 1. The bill must have been protested for non-payment
2. The payment for honor must be attested by a notarial act of honor which may be
appended to the protest or form an extension of it. This is important so that the payment
will not operate as a mere voluntary payment
3. The notarial act of honor must be founded on a declaration made by the payer for
honor of his intention to pay the bill for honor and for whose honor he pays.
Q: State the procedure for payment of honor.
A: 1. The payer for honor goes before a notary public and makes a declaration of his
intention to pay the bill and for whose honor he is paying the bill
2. The notary public records the declaration either in the protest or in a separate
instrument
3. After the declaration, the payer for honor notifies the person for whose honor he is
making the payment within a reasonable time; otherwise, such party is not bound to
refund.
Sec. 174. Preference of parties offering to pay for honor. - Where two or more
persons offer to pay a bill for the honor of different parties, the person whose
payment will discharge most parties to the bill is to be given the preference.
Example: R, drawer; P, payee; W, drawee. The bill is indorsed by P to A, A to B, B to C,

C to H. The bill is dishonored by non-payment by W; hence, it is protested for non-
payment. X offers to pay the bill for the honor of R, the drawer, Y offers to pay it for the
honor of A, and Z offers to pay for the honor of B. Here, the offer of X is given
preference as it will discharge the most parties, i.e., P, A, B and C.
Sec. 175. Effect on subsequent parties where bill is paid for honor. - Where a bill
has been paid for honor, all parties subsequent to the party for whose honor it is
paid are discharged but the payer for honor is subrogated for, and succeeds to,
both the rights and duties of the holder as regards the party for whose honor he
pays and all parties liable to the latter.
Q: What is the effect when the bill is paid for honor?

A: 1. All partied subsequent to the party for whose honor the bill is paid are discharged
2. The payee for honor acquires the following rights:
a. He is subrogated for, and succeeds to, both both the rights and duties of the holder
as regards the party for whose honor he pays and all parties liable to the latter.
b. On payment of the amount of the bill and the notarial expenses incidental to dishonor,
he is entitled to receive the bill itself and the protest.
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 dishonored by non-payment by W; hence, it is
protested for nonpayment. X pays H for the honor of A. Here, B and C, parties
subsequent to A, are discharged. X is subrogated for and succeeds to the rights of H
against A, the party for whose honor he paid, and R and P, parties liable to A.
Sec. 176. Where holder refuses to receive payment supra protest. - Where the
holder of a bill refuses to receive payment supra protest, he loses his right of
recourse against any party who would have been discharged by such payment
NOTE: The holder has no choice but to accept the payment for honor.
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 right to hold liable B and C, parties subsequent
to A, who would have been discharged by the payment.
Sec. 177. Rights of payer for honor. - The payer for honor, on paying to the holder
the amount of the bill and the notarial expenses incidental to its dishonor, is
entitled to receive both the bill itself and the protest.
Q: Distinguish “acceptance for honor” and “payment for honor.”

A:
ACCEPTANCE FOR HONOR PAYMENT FOR HONOR

There must be prior protest for non- There must be protest for nonpayment
acceptance or for better security
The bill is not yet overdue The bill is already overdue
The acceptor must be a stranger The person who will pay may be a
stranger or may be a party
The consent of the holder is a requisite The consent of the holder is not necessary
and the holder who refuses to accept
payment loses his right of recourse against
any party who may be discharged by such
payment
Q: Distinguish “payment by person primarily liable” and “payment for honor.”

A:
PAYMENT BY PERSON PRIMARILY PAYMENT FOR HONOR

LIABLE
There is no need to protest for non- There must be protest for nonpayment
payment or nonacceptance
A notarial act is not necessary A notarial act is necessary
The person who will pay is a party--the The person who will pay may be a
maker or the drawee-acceptor stranger or may be a party
Payment in due course discharges the It cannot be payment in due course and
instrument payment discharges only the parties after
the party in whose favor payment for honor
is made
Payment is not in favor of the specific Payment for honor is in favor of a specified
parties person and the law requires that there is a
statement of the person for whose honor
payment is made
BILLS IN SET
Sec. 178. Bills in set constitute one bill. - Where a bill is drawn in a set, each part
of the set being numbered and containing a reference to the other parts, the
whole of the parts constitutes one bill.
Q: What is a bill in set?

A: It is one composed of several parts, each part of the set being numbered and
containing a reference to the other parts, the whole of the parts constitutes one bill.
Q: What is the purpose of bill in set?
A: It is to increase the probability of the bill reaching its tendered recipient. To achieve
this purpose, each part is transmitted through different conveyances. Thus, the drawer
sends each part separately to the payee, who may transmit each part also by different
conveyances to another holder, or to the drawee. This will insure that the bill is promptly
presented for acceptance and payment.
Examples:
First example
Manila, Philippines
October 1, 2010
First Exchange for P200,000.00 Thirty days after sight of this First Exchange (Second
Part Unpaid), pay to the order of Pamela Pamplona the sum of P200,000.00. Value
received and charge to the account of
Sgd. Rolando Robles
To: Winston Wallace
123 Avenue of the Stars
Los Angeles, CA
Manila, Philippines
October 1, 2010
Second Exchange for P200,000.00 Thirty days after sight of this Second Exchange
(First Part Unpaid), pay to the order of Pamela Pamplona the sum of P200,000.00.
Value received and charge to the account of
Sgd. Rolando Robles
To: Winston Wallace 123 Avenue of the Stars
Los Angeles, CA
SECOND EXAMPLE:
January 2, 2004
FIRST PART (of two parts)
Pay to the order of Bebeng P10,000.00 on or before January 2, 2005
Sgd. Ayel
To: Budoy
January 2, 2004
SECOND PART (of two parts)
Pay to the order of Bebeng P10,000.00 on or before January 2, 2005
Sgd. Ayel
To: Budoy
NOTE: This is common in letters of credit. When the exporter of the good will collect
from the bank the proceeds of the letters of credit, for the goods he sold to an importer,
he will draw a bill in set usually in 2 parts, e.g. first of two parts… and then second of
two parts. They will be mailed usually one week apart to provide for contingency that if
one is lost, the other part can, most probably, still be received and thus, there can still
be collection. This is the main idea behind bill in set: to provide for the 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. - Where two or
more parts of a set are negotiated to different holders in due course, the holder
whose title first accrues is, as between such holders, the true owner of the bill.
But nothing in this section affects the right of a person who, in due course,
accepts or pays the parts first presented to him.
If bills in set are negotiated to holders in due course, 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 the one who will be able to collect.
EXAMPLE:
A - Draws a Bill in Set payable to B ------ C------- E------ G
- Addressed to X -------- D--------- F --------- H
A with a bill in set, addressed X that bill is payable to B. B 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
have a better right. However, if D was able to go to X first and get the bill accepted, then
D will be the one who will be entitled to collect from X.
Sec. 180. Liability of holder who indorses two or more parts of a set to different
persons. - Where the holder of a set indorses two or more 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.
NOTE: Since the bills are only parts of one bill, the intention is to make only one person
the holder thereof.
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 endorser subsequent to him, as if each part were
separate bills. In the example, B will be liable to C and D as indorser. If ever C indorses
it to E, and E indorses it to G, C and E will be liable to G as indorsers. D and F will be

liable to H as indorsers
Sec. 181. Acceptance of bill drawn in sets. - The acceptance may be written on
any part and it must be written on one part only. If the drawee accepts more than
one part and such accepted parts negotiated to different holders in due course,
he is liable 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 parts, then he will be liable on both parts.
Well, that is his fault if he accepted both parts.
Sec. 182. Payment by acceptor of bills drawn in sets. - When the acceptor of a bill
drawn in a set pays it without requiring the part bearing his acceptance to be
delivered up to him, and the part at maturity is outstanding in the hands of a
holder in due course, he is liable to the holder thereon.
NOTE: If an acceptor of a bill drawn in set pays it without 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 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 not surrender to him the part
which contains his acceptance.
Just like any other instrument, the acceptor must retrieve the instrument from the
person presenting the instrument for payment. In the case of bills in set, the acceptor
must secure all parts of the bill that he accepted. If he will not get all the parts and the
other parts that he did not retrieve are negotiated to other HDC, the acceptor is still
liable.
Similarly, the acceptor is also liable to separate holders in due course if he accepted
two or more parts of the bills in set in the hands of different persons. He is supposed to
accept only one. Hence, he will be liable to 2 or more holders in due course for all parts
of the bills in set that he accepted.
Sec. 183. Effect of discharging one of a set. - Except as herein otherwise

provided, where any one part of a bill drawn in a set is discharged by payment or
otherwise, the whole bill is discharged.
NOTE: Where any one part (of a bill in set) is discharge by payment, the whole bill is
discharged because the different parts constitute only one bill. So that, if the acceptor
pays, he cannot 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 holder can still collect in the event
one part is lost.
The fact that there is only one bill in bills in set, discharge of one part discharges all.
This is however subject to certain exceptions:
Sec. 180. Liability of holder who indorses two or more parts of a set to different
persons. - Where the holder of a set indorses two or more 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.
Sec. 181. Acceptance of bill drawn in sets. - The acceptance may be written on
any part and it must be written on one part only. If the drawee accepts more than
one part and such accepted parts negotiated to different holders in due course,
he is liable on every such part as if it were a separate bill.
Sec. 182. Payment by acceptor of bills drawn in sets. - When the acceptor of a bill
drawn in a set pays it without requiring the part bearing his acceptance to be
delivered up to him, and the part at maturity is outstanding in the hands of a
holder in due course, he is liable to the holder thereon.
PROMISSORY NOTES AND CHECKS
Sec. 184. Promissory note, defined. - A negotiable promissory note within the
meaning of this Act is an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer. Where a
note is drawn to the maker's own order, it is not complete until indorsed by him.
Q: What is a promissory note?

A: a. An unconditional promise
b. in writing
c. made by one person to another,
d. signed by the maker,
e. engaging to pay on demand, or at a fixed future time,
f. a sum certain in money
g. to order or to bearer.
NOTE: A PN drawn payable to the maker’s own order is not complete until indorsed by
him. It means the instrument must be delivered with an indorsement, otherwise, the
transferee is not a holder because although he is in possession of the instrument, he is
not the indorsee. The transfer, however, is considered as an assignment which will
entitle the transferee to recover on the notes as an ordinary contract from the maker.
Q: What are the special types of promissory notes?
A:
Certificate of A written acknowledgement by a bank of the
deposit receipt of money on deposit which the bank promises to pay the
depositor, bearer, to some other person on order
bond An evidence of indebtedness issued by a public or private
corporation which promises to pay a sum of money at a
specified time in the future
Bank note Issued by a bank which is payable to bearer or demand and is
intended to circulate as money
Due bill Whereby a person acknowledges his indebtedness to another
such as “Due P, P1000.00 payable to his order. Sgd. M”
Mortgage note The maker constitutes, to secure the amount due, a real or
chattel mortgage which the holder may foreclose if the maker
defaults in the payment of the sum due
Title retaining note A combination of PN and a conditional sales contract whereby
the maker promises to pay the price of the goods he purchased
from the payee, but agrees that the title to the goods shall be
retained by the payee until the maker has paid the purchase
price in full
Collateral note A note whereby the maker pledges securities, such as stocks,
bonds, or other security devices, to secure payment of the
amount due on the note. The note gives the holder the power to
dispose of the security if the maker defaults in the payment of
the sum due
Q: What are the uses of promissory note?

A: 1. It is a means of borrowing money
2. It is a means of buying goods or services on credit
3. It can be used as evidence of a pre-existing debt Alternative answer:
1. It is safer and more convenient to carry checks than currency
2. A check functions as a receipt for the payment made once it has been declared by a
bank
3. A check can serve as protection to the drawer who can stop payment in certain
situations, such as when the payee failed to comply with his promise to deliver the
goods to the drawee of the check
Q: What are the different kinds of bond?
A:
Bottomry bond Bonds secured by mortgage of ships
Chattel mortgage Bonds secured by mortgage on chattels of business

bond
Chattel trust bond Bond secured by collateral deposited with a trustee

Convertible bond Bond that can at the option of the holder be converted into
stocks
Coupon bond Bonds with interest coupons attached
Guaranteed bond Bond which has interest or principal or both guaranteed by a
company other than the issuer
Income bond Interest is payable only when earned after payment of interest
upon prior mortgages
Joint and several A bond the principal and interest of which is guaranteed by 2
bond or more persons
Joint bond Bond secured by 2 or more obligors who must be joined in
any action on such bond
Mortgage bond Bond secured by mortgage on property
CHECKS
Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank payable
on demand. Except as herein otherwise provided, the provisions of this Act
applicable to a bill of exchange payable on demand apply to a check.
Q: What is a check?
A: A check is a bill of exchange drawn on a bank payable on demand. BOE. To be able

to verify the identity of this particular type of BOE, you would CHECK the serial number.
Most commercial transactions are done through checks. Provisions of the law on Bills of
Exchange are also applicable to checks. This is why AmJur says that the rule that - if
the drawee retains a BOE for 24 hour that amounts to acceptance, is also applicable to
checks. Therefore, if you don’t return the checks for 24 hours, you have deemed
accepted it.
NOTE: In issuing a check, a drawer represents that he has sufficient funds with the
bank for its payment.
Q: What do you mean by ante-dated?
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.
Q: What do you mean by post-dated?
A: An instrument is considered post-dated if it is dated ahead of the issue, such as a
check dated May 1, 2011 is issued on April 1, 2011.
Q: What is the reason for post-dating?
A: A person may post date an instrument, usually a check, when he has no sufficient
funds at the time that he is drawing the check, but intends to deposit sufficient funds to
cover its amount 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 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 payment particularly if check is for deposit to the payee’s account
only.
Q: What is the reason for ante-dating?
A: It may be ante-dated to evidence a pre-existing debt. For example, on November 1,
2010, M obtained a 60-day loan of 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 placing on the instrument November 1, 2010, the date
when it was supposed to have been issued.
Q: What is the effect of ante-dating or post-dating?
A: 1. The validity and negotiability of the instrument is not affected
XPN: When it is done for an illegal or fraudulent purpose
NOTE: Although the implication of Sec. 12 is that the instrument is rendered invalid if
the ante-dating and post-dating of the check is done for an illegal purpose, the invalidity
affects holders not in due course. In case of a holder-in-due-course, his right to recover
the amount of the instrument cannot be barred by any party on the ground that the
instrument was antedated or post-dated for an illegal or fraudulent purpose.
2. If the instrument is a check, its post-dating has the effect of converting it from a
demand instrument to a time instrument because it is an order to pay a specified
amount at the future date indicated thereon. Accordingly, it cannot be cashed with the
bank against which it is drawn or be deposited before the date stated on the check.
Q: When is title to ante-dated or post-dated instrument acquired?
A: The person to whom an ante-dated or post-dated instrument is delivered acquires the
title thereto not as of the date written thereon but as of the date of its delivery to him.
Q: Is a check an assignment of funds?
A: A check of itself does not operate as an assignment of any 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 certifies the check.
Q: What are the different kinds of checks?
A:
Memorandum check A check which, across its face, is written the word
“Memorandum” or “memo.” It is regarded as a
contract whereby the drawer engages to pay the
bona fide holder absolutely and not upon a
condition to pay upon presentment and non-
payment
Cashier’s check Check drawn by cashier of a bank in the name of the

bank and against the bank itself payable to a 3 rd
person or order. It is really the bank’s own check and
may be treated as a PN with a bank as maker. It
becomes a primary obligation of the bank which issues it
and constitutes a written promise to pay on demand
Manager’s check Check drawn by manager of a bank in the name of the
bank and against the bank itself payable to a 3rd person
or order. Its effect and use are the same as cashier’s
check
Traveler’s check Check used by traveler to supply him with funds in lieu
of cash. It is signed by the holder upon the issuance,
and countersigned by him before it is paid.
Certified check Check which bears the word “certified” on its face,
signifying that the check is recognized and accepted by
the bank as a valid appropriation of the amount

specified thereon, and as drawn against funds held in
trust by the bank
Crossed check Check which bears two paraller lines usually drawn
diagonally on the upper left portion of its face
Q: Differentiate cashier’s from manager’s check.

A: In the headoffice, it is the cashier who signs it because it is where the cashier holds
office. But in the branches, it is the 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 bank payable
to the payee drawn against the bank. This is why the SC says the drawer and the
drawee are the same in these types of checks, thus they are not presented for
acceptance.
Crossed checks
Q: How are checks crossed?

A:
SPECIFICALLY GENERALLY
The name of the bank or other business No words are written or the words “& Co.”
institution appear between two parallel appear between the parallel diagonal lines.
diagonal lines on the upper left portion of In this case, the drawee bank should not
the check. The drawee must pay the check cash the same but merely accept it for
only with the intervention of such bank or deposit
company
Q: What are the purposes of crossed checks?

A: 1. To have the check deposited only to the account of the payee
2. To have the check paid only with the intervention of a particular banker when its
name is placed between the parallel lines crossing the check
3. To obtain assurance that the check will be paid only to the rightful person.
Q: What are the effects of crossing a check as held in the case Bataan Cigar vs.
CA (GR No. 93048, March 3, 1994)?
A: 1. It cannot be encashed over the counter, but must be deposited in a bank
2. Can be endorsed only once-to one who has an account with a bank
3. that the act of crossing the check serves as a warning to the holder that the check
has been issued for a definite purpose so that such holder must inquire if the check has
been received pursuant to that purpose, otherwise, he is not a HDC
NOTE: To be a Holder in due course, the holder must inquire:
a. What is the nature of the title of the payee
b. For what purpose did he acquire it
Q: Distinguish clearly (1) crossed checks from cancelled checks.
A: A crossed check is one with two parallel lines drawn diagonally across its face or
across a corner thereof. On the other hand, a cancelled check is one marked or
stamped "paid" and/or "cancelled" by or on behalf of a drawee bank to indicate payment
thereof.
Q: Po Press issued in favor of Jose a postdated crossed check, in payment of
newsprint which Jose promised to deliver. Jose sold and negotiated the check to
Excel Inc. at a discount. Excel did not ask Jose the purpose of crossing the
check. Since Jose failed to deliver the newsprint, Po ordered the drawee bank to
stop payment on the check. Efforts of Excel to collect from Po failed. Excel wants
to know from you as counsel: 1) What are the effects of crossing a check? 2)
Whether as second indorser and holder of the crossed check, is it a holder in due
course? 3) Whether Po’s defense of lack of consideration as against Jose is also
available as against Excel?
A: 1. The effects of crossing a check are:
a. The check is for deposit only in the account of the payee
b. The check may be indorsed only once in favor of a person who has an account with a
bank
c. The check is issued for a specific purpose and the person who takes it not in
accordance with said purpose does not become a holder in due course and is not
entitled to payment thereunder.
2. No. It is a crossed check and Excel did not take it in accordance with the purpose for
which the check was issued. Failure on its part to inquire as to said purpose, prevented
Excel from becoming a holder in due course, as such failure or refusal constituted bad
faith. 3. Yes. Not being a holder in due course, Excel is subject to the personal defense
which Po Press can set up against Jose
Q: Is a crossed-check still negotiable?
A: In the case of Chang Juan, the SC held that it is still negotiable. A check was issued
to Chang Juan, it was crossed. He presented it for encashment over the counter, it was
dishonored. He was running after the drawer. SC says that you cannot hold him
(drawer) liable because you (Chang Juan) did not make the proper presentment of
payment. The check is a crossed check, it cannot be encashed over the counter. It must
be deposited.
Q: Distinguish checks from a BOE?
A:
Bill of Exchange Check
As to drawee
The drawee may or may not be a bank Drawee is always a bank

When payable
May be payable: Always payable on demand

1. on demand
2. at a fixed
3. determinable future time
Presence of deposit or checking account

Not necessarily drawn on a deposit or Necessarily drawn on a deposit or
checking account checking account
Effect of death of drawer
Death of drawer, with knowledge of the Death of drawer, with knowledge of the
bank, does not revoke the authority of the bank, revokes the authority of the banker
banker to pay to pay
Stopping of payment
NOTE: A check is a mere order on bank to pay money from the drawer’s account. As
such, it is subject to revocation by the drawer at any time before it is accepted. It also
flows from the 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 payment, it pays on its own
responsibility and will not be permitted to charge the account.
Sec. 186. Within what time a check must be presented. - A check must be
presented for payment within a reasonable time after its issue or the drawer will
be discharged from liability thereon to the extent of the loss caused by the delay.
PNB v. Sito
Q: What is the effect of delay in the presentation of the check?

A: The SC said, if there is delay in presenting the check for payment, the indorser is
discharged. He need not prove that he is prejudiced. Prejudice is presumed. By the fact
that there was undue delay, the potential liability was unduly prolonged. So long as
there is undue delay in the presentment of check for payment, indorsers are discharged.
But the drawer, according to this case will only be discharged to the extent he suffered
the loss because of the delay.
This will only happen if the bank goes bankrupt such that if the check were presented
on time, the check would have been fully paid, but because of the delay, the bank
became bankrupt – hence could only probably get 10 centavo per peso. If the bank did
not go bankrupt, there is no prejudice.
Jamal v. Estacio
Jamal sold ladies underwear to Estacio. Estacio issued a check. However, jamal never
presented the check so it became stale. So now he sued Estacio for payment.
It there was delay in the presentment of the check, under the law Estacio will be
discharged only to the extent of the loss. He has not shown that he has suffered loss
because of the delay.
Sec. 187. Certification of check; effect of. - Where a check is certified by the bank
on which it is drawn, the certification is equivalent to an acceptance.
Certification of check
Q: What is “certification”?
A: It is an agreement whereby the bank which certifies a check assumes absolute
liability for its payment. It assures the payee or any subsequent holder that the check is
genuine and that the bank will honor it when the check is presented for payment. A
bank, however, is under no obligation to certify a check even if the drawer has sufficient
funds with it to cover the check. When it certifies a check, the bank usually charges the
account of the drawer for the amount certified and shifts the money to a special account
of the bank.
Q: What should be the form of certification?
A: It is usually made by stamping or writing on the face of the check the word “certified”
and adding the date when the certification was made.
Q: What are the effects of certification?
A: 1. Where a check is certified by the bank on which it is drawn, the certification is
equivalent to an acceptance.
2. Where the holder of a check procures it to be accepted or certified, the drawer and all
indorsers are discharged from liability thereon.
3. It operates as an assignment of the funds of the drawer in the hands of the drawee
bank
Sec. 188. Effect where the holder of check procures it to be certified. - Where the
holder of a check procures it to be accepted or certified, the drawer and all
indorsers are discharged from liability thereon.
NOTE: The theory for such release is that the holder, by requesting such certification
instead of payment, enters into a new contract with the bank, and one not within the
contemplation of the drawer or prior indorser. The drawer and the prior indorsers are
expecting that the check will be presented for payment only and not to be certified by
the bank.
Sec. 189. When check operates as an assignment. - A check of itself does not
operate as an assignment of any 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
certifies the check
Nature of bank-customer relationship
There is a dual relationship between a bank and its customer: that of a debtor and
creditor, and that of a principal and agent.
When a customer makes a deposit to his account with the bank, the bank becomes the
debtor. The contract is governed by simple loan, with the bank being a debtor of the
customer
If a customer deposits a check or other item for collection to his account with the bank,
the relationship of the parties as to that item is that of principal and agent, with the
customer as principal and the bank as agent.
GENERAL PROVISIONS
Sec. 190. Short title. - This Act shall be known as the Negotiable Instruments Law.
Sec. 191. Definition and meaning of terms. - In this Act, unless the contract
otherwise requires: "Acceptance" means an acceptance completed by delivery or
notification; "Action" includes counterclaim and set-off; "Bank" includes any
person or association of persons carrying on the business of banking, whether
incorporated or not; "Bearer" means the person in possession of a bill or note
which is payable to bearer; "Bill" means bill of exchange, and "note" means
negotiable promissory note; "Delivery" means transfer of possession, actual or
constructive, from one person to another; "Holder" means the payee or indorsee
of a bill or note who is in possession of it, or the bearer thereof; "Indorsement"
means an indorsement completed by delivery; "Instrument" means negotiable
instrument; "Issue" means the first delivery of the instrument, complete in form,
to a person who takes it as a holder; "Person" includes a body of persons,
whether incorporated or not; "Value" means valuable consideration; "Written"
includes printed, and "writing" includes print.
Sec. 192. Persons primarily liable on instrument. - The person "primarily" liable
on an instrument is the person who, by the terms of the instrument, is absolutely
required to pay the same. All other parties are "secondarily" liable.
Sec. 193. Reasonable time, what constitutes. - In determining 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 such instruments, and the facts of the
particular case.
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.

Hand Outs For Revalida

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Hand Outs For Revalida

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NEGOTIABLE INSTRUMENTS LAW

PRESENTMENT FOR PAYMENT

Sec. 70. - Effect of want of demand on principal debtor. - Presentment for

Q: What is the concept of presentment for payment?

1. As against persons primarily liable

Q: M issued a PN to the order of P. P negotiated the instrument to A by

Payable at a special place

Q: What is the special place referred to under Sec. 70?

Sec. 72. What constitutes a sufficient presentment. - Presentment for payment, to

instrument, or if he is absent or inaccessible, to any person found at the place

What constitutes a sufficient presentment

Q: Who shall make the presentment for payment?

Q: How is presentment made?

At the specified place specified in the instrument

Where no place of payment is specified and no address is given and the

maker or acceptor can be found at such place.

Q: How is the instrument to be presented?

NOTE: Hence, presentment cannot be made by telephone or by mere demand letter, or

NOTE: Where the instrument is made payable at a bank, it is equivalent to an order to

NOTE: Presentment must be made:

Sec. 77. - Presentment to persons liable as partners. - Where the persons

NOTE: Presentment must be made:

Presentment for payment if the principal debtors are joint debtors

1. If a place for presentment of payment is specified, presentment must be made at

When DR liable although no presentment for payment was made

Presentment to the DE is useless if the DE is sure to dishonor the instrument.

When indorser liable although no presentment for payment was made

Sec. 81. - . When delay in making presentment is excused. - Delay in making

Doctrine of Fortuitous Events

Requisites: (Nakpil vs. CA)

When delay in making presentment excused

Waiver of presentment may be express or implied. There is an express waiver if the

Summary of Rules: When presentment is excused

Sec. 83. - When instrument dishonored by non-payment. - The instrument is

a. It is duly presented for payment and payment is refused or cannot be obtained

2. Payment is refused or cannot be obtained.

b. Presentment is excused and the instrument is overdue and unpaid

Sec. 84. - Liability of person secondarily liable, when instrument dishonored. -

When the instrument is dishonored by non-payment, an immediate right of recourse to

a. If instrument is not payable on demand

Computation of time of maturity

Similarly, Sec. 187 provides:

Payment in due course

Q: What are the requisites for payment in due course?

Place of Payment (2000)

Q: PN is the holder of a negotiable promissory note within the meaning of the

CHAPTER VII NOTICE OF DISHONOR

Necessity of giving of notice of dishonor

a. As against a party primarily liable

4. As regards the indorser in the following cases (Sec.115):

5. When notice of dishonor by non-acceptance was previously given (Sec.116);

Requisites of notice of dishonor

a. By whom notice is given

b. How notice is given; To whom notice is given

c. When notice must be given

the post-office in time to reach him in usual

d. Where notice must be sent

2. In his (the agent’s) own name.

Sec. 92. Effect of notice on behalf of holder. - Where notice is given by or on

delivery to B, who in turn negotiated the instrument to C, the present holder. M

NOTE: The agent may give notice either:

Form of notice of dishonor

Q: What must be the form of the notice of dishonor?