PARTIES: Promissory Note: benefit of: 1. The holder; and 2.

All parties subsequent to

Maker – person who makes the promissory note
Payee – person who is to receive payment from the maker
Bills of Exchange
Drawer – person who draws the BOE and orders the
acceptor to pay sum of certain money
Payee – person who is to receive payment from the maker
or who is authorized to negotiate the instrument
Q: What is notice of dishonor?
A: Given by the holder to the parties secondarily liable,
drawer and each indorser, that the instrument was
dishonored by non‐payment or non‐acceptance by the
drawee/maker.   Note: Persons primarily liable need not be
given notice of dishonor because they are the ones who
dishonored the instrument.
the party to whom notice is given (Sec. 93).
What is the form and contents of a notice of dishonor?
A:   1. Oral; or 2. In writing 3. It may be given by personal
delivery, or by mail (Sec. 96) 4. Must contain the
following: a. Description of the instrument; b. Statement
that it has been presented for payment or for acceptance and
that it has been dishonored (If protest is necessary, notice
must also contain a statement that it has been protested). c.
Statement that the party giving the notice intends to look for
the party addressed for payment. Note: A written notice
need not be signed, and an insufficient notice may be
supplemented or 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. 95)

Q:  What are the purposes for requiring notice of When may waiver of notice be given? A:   1. Before the
dishonor? time of giving notice has arrived; or 2. After the omission to
A: 1. To inform parties secondarily liable that the maker or give due notice. (Sec. 109)
acceptor has failed to meet his engagement. 2. To advise
them that they are required to make payment.   Q: What are the ways to give a waiver of notice? A: It
can either be: 1. Express; or 2. Implied (e.g. Payment by
Q:  When is a PN considered dishonored? an indorser after he learns of the default of the maker
A: 1. If not accepted 2. Not paid when presented; or 3. admission of liability after dishonor). (Sec. 109)
Where presentment is excused, instrument is overdue and
unpaid. (Sec. 83) Q: Who are affected by the waiver of notice? A:   1. All
parties (if embodied on the face of the instrument); or 2.
Q: What is the liability of person secondarily liable Particular indorser (if written above the signature of such
when instrument dishonored?   A: After the necessary indorser) (Sec. 110)
proceedings for dishonor had been duly taken, an
immediate right of recourse to all parties secondarily liable When is notice of dishonor not necessary?   A:    1.
thereon accrues to the holder. (Sec. 84) Waiver of notice. (Sec. 109) 2. Waiver of protest. (Sec.
111) 3. When after due diligence, notice cannot be given.
To whom must notice be given? A: Notice of dishonor (Sec. 112) 4. Drawer in cases under Sec. 114 5. Indorser in
should be given to: 1. The drawer; or    2. His agent (Sec. cases under Sec. 115; and 6. Where due notice of dishonor
97) 3. Where party is dead – to a personal representative or by non‐ acceptance has been given (notice of dishonor by
sent to the last residence or last place of business of the non‐payment not necessary). (Sec. 116)
deceased (Sec. 98) 4. When the parties to be notified are
partners – notice to any one partner though there has been a Q:  With regard to the drawer, when can a notice of
dissolution (Sec. 99) 5. Notice to joint parties who are not dishonor be dispensed with? A: 1. When drawer and
partners must be given to each of them (Sec. 100) 6. Where drawee is the same person 2. Drawee is fictitious or does
a party has been adjudged a bankrupt – to the party himself not have the capacity to contract 3. Drawer is person to
or to his trustee or assignee (Sec. 101) whom the instrument is presented for payment (he is the
one who dishonored the instrument) 4. Drawer has no right
The instrument was dishonored in the hands of the to expect or require that the drawee or acceptor will honor
agent.   To whom and when may he give notice?   A: 1. the instrument. 5. Drawer has countermanded the payment
To the parties secondarily liable – Within the time fixed by (e.g. stop payment order) (Sec.114)
Secs. 102‐104, and 107, otherwise, they are discharged 2.
To his principal – The principal must give notice to parties Q: Juben issued to Y 2 post‐dated checks as security for
secondarily liable as if he were the holder. (Sec. 94) pieces of jewelry to be sold. Y negotiated the check to S.
When Juben failed to sell the jewelry he withdrew all his
Who gives the notice? A:   1. Holder 2. Another in behalf funds from the drawee bank. After dishonor, Juben
of the holder 3. Any party to the instrument who may be contends that the holder failed to give her a notice of
compelled to pay and who, upon taking it up, would have a dishonor. Is notice of dishonor necessary?
right to reimbursement from the party to whom notice is
given. (Sec. 90) A:    He was responsible for the dishonor of his checks,
hence, there was no need to serve him notice of dishonor.
Q: What is the effect of notice of dishonor if given by or (State Investment House, Inc. v. CA, G.R. No. 101163, Jan.
on behalf of the holder? A: Notice of dishonor inures to 11, 1993)
the benefit of: 1. All holders subsequent to the holder who
has given notice; and 2. All parties prior to the holder but Q:  With regard to the indorser, when is it not necessary
subsequent to the party to whom notice has been given and to give a notice of dishonor? A: 1. Drawee is   fictitious or
against whom they may have a right of recourse. (Sec. 92) has no capacity to contract, and indorser was aware of these
facts at the time he indorsed the instrument; 2. Indorser is
Q: What is the effect of notice of dishonor if given by person to whom the instrument is presented for payment; or
party entitled thereto? A: Notice of dishonor inures to the
3. Instrument was made or accepted for his accommodation
(Sec. 115) Q:   What is the duty of the holder where bill is not
accepted? A:  The person presenting it must treat the bill as
Q:  What is the effect of omission of a previous holder to dishonored by non‐acceptance or he loses the right of
give notice of dishonor by non‐ acceptance? A:  It does recourse against the drawer and indorsers. (Sec. 150)
not prejudice the rights of a holder in due course subsequent
to the omission to present the instrument to the drawee for Q: What are the rules when a bill is dishonored by non‐
acceptance and notify the drawer and indorsers if acceptance? A: 1. Right of recourse against all secondary
acceptance is refused. (Sec. 117) party accrues to the holder 2. No presentment for payment
is necessary since dishonor of the instrument by non‐
Q:  When should the notice be given? A: 1. GR: As soon payment is to be expected 3. If the instrument is accepted
as instrument was dishonored (Sec. 102) – Party is allowed after it has been dishonored by non‐acceptance presentment
one entire day for the purpose of giving notice. XPN: Delay for payment is necessary upon maturity; and 4. In case of
is excused (Sec. 113) Note: An instrument cannot be non‐payment, holder must give the corresponding notice of
dishonored by non‐payment until after the maturity 2. dishonor; otherwise, secondary parties are discharged.  
Parties reside in the same place   a. Place of business –
Before close of business hours on the day following b. Discharge
Residence – Before the usual hours of rest on the day
following c. By mail – Deposited in the post office in time Q: What is discharge? A: It is the release of all parties,
to reach him in the usual course on the day following (Sec. whether primary or secondary, from the obligations arising
103) 3. Parties reside in different places   a. By mail – thereunder. It renders the instrument without force and
Deposited in the post office in time to go by mail (actual effect, and consequently, it can no longer be negotiated.
departure in the course of mail from the post office in
which the notice was deposited) the day following the day Q: What are the methods for discharge of instrument?
of dishonor. b. If no mail – At a convenient hour (of the A:    1. Payment by principal debtor: a. By or on behalf of
sender) on that day, by the next mail thereafter c. Other than principal debtor b. At or after its maturity c. To the holder
by post office (e.g. personal messenger) – Within the time thereof d. In good faith and without notice that the holder’s
that notice would have been received in due course of mail, title is defective 2. Payment by accommodated party 3.
if it has been deposited in the post office within the time Intentional cancellation of instrument by the holder (by
specified in (a) (Sec. 104) 4. Time of notice to antecedent expressly stating it in the instrument or when the instrument
parties – Same time for giving notice that the holder has is torn up, burned or destroyed) 4. Any act which
after the dishonor (Sec. 107) Note: Actual receipt of the discharges a simple contract for the payment of money
party within the time specified by law is sufficient though under Art. 1231 of the NCC specifically remission,
not sent in the places specified above. (Sec. 108) novation, and merger. Note: Loss of the negotiable
instrument will not extinguish liability; compensation is not
Q:  What is the effect of failure to give notice of available so long as an obligation is evidenced by a
dishonor? A:    GR: Any person to whom such notice is negotiable instrument. (Commercial Law Review,
not given is discharged, but he will still be liable for breach Villanueva, 2009ed) 5. Reacquisition by principal debtor in
of warranties pertaining to the instrument. XPN:   1. his own right. Reacquisition must be: a. By the principal
Waiver. (Sec. 109) 2. Notice is dispensed with. (Sec. 112) debtor b. In his own right   c. At or after date of maturity
3. Not necessary to drawer. (Sec. 114) 4. Not necessary to (instrument is discharged; if made before, it may be
indorser. (Sec. 115) renegotiated) (Sec. 119)
The order is referred to as stop payment order. It is useful
when a check is lost or when the drawee does not receive Q: What are the methods of discharge of secondary
the value he expected when he issued the check. Only the parties? A:    1. Any act which discharges the instrument;
drawer has the right to stop payment. A drawer may not 2. Intentional cancellation of his signature by the holder 3.
stop payment on a certified check, Discharge of prior party which may be made when
signature is stricken out 4. Valid tender of payment by a
Q: What is the effect of lack of notice of dishonor on the prior party; 5. Release of the principal debtor, unless holder
instrument which is payable in installments? A: 1. No expressly reserves his right of recourse against the said
acceleration clause – Failure to give notice of dishonor on subsequent parties 6. Extension of time of payment, unless:
a previous installment does not discharge drawers and a. Extension is consented to by such party b. Holder
indorsers as to succeeding installments. 2. With expressly reserves his right of recourse against such party.
acceleration clause – It depends upon whether the clause is (Sec. 120)
automatic or optional. a. Automatic – failure to give notice
of dishonor as to a previous installment will discharge the Q: What are the effects of payment by persons
persons secondarily liable as to the succeeding installments; secondarily liable? A: 1. Instrument is not discharged 2. It
b. Optional – if not exercised, the rule would be the same only cancels his own liability and that of the parties
as if there is no acceleration clause. If exercised, the rule subsequent to him 3. GR: Instrument may be renegotiated
would be the same as if the installment contains an XPN: a. Where it is payable to the order of a third person,
automatic acceleration clause. (Town Savings Bank v. CA, and has been paid by the drawer; and b. Where it is paid by
G.R. No. 106011, June 17, 1993) the accommodated party Note: (a) and (b) has the same
effect as payment by the party primarily liable. 4. Person
Q: When is a bill dishonored by non‐acceptance? A: 1. paying is remitted to his former rights (as regards prior
When it is duly presented for acceptance and such an parties) and he may strike out his own and all subsequent
acceptance is refused or cannot be obtained; or 2. When indorsements. (Sec. 121)
presentment for acceptance is excused, and the bill is not
accepted. (Sec. 149)
Q:  What is renunciation? A:  The act of surrendering a (International Corporate Bank vs. CA, G.R. No. 141968,
claim or right with or without recompense (a personal Feb. 12, 2001)
defense).
Bills of Exchange an unconditional order in writing
Q:  How is renunciation by holder made? A:   1. Must be addressed by one person to another, signed by the person
written 2. If oral, the instrument must be surrendered to the giving it, requiring the person to whom it is addressed to
person primarily liable. (Sec. 122) pay on demand or at a fixed or determinable future time a
sum certain in money to order or to bearer (Sec. 126)
Q:  What are the effects of renunciation? A:   1. Made in
favor of principal debtor made at or after the maturity In bank drafts, drawer and drawee bank are liable to
(made absolutely and unconditionally) of the instrument – purchaser of draft for not complying with his instructions.
discharges the instrument (Sec. 122) 2. Made in favor of a A trade acceptance is a draft or bill of exchange with a
secondary party may be made by the holder before, at or definite maturity, drawn by a seller on a buyer for the
after maturity – discharges only the secondary parties and purchase price of goods, bearing across its face the
all subsequent to him (Sec. 122) 3. Renunciation does not acceptance of the buyer. It is usually payable to order. It is
affect the rights of a holder in due course without notice. used in a transaction where goods are bought from a
(Sec. 120) wholesaler and the latter, instead of taking the buyer’s
promissory note, executes a time bill on the buyer, who
Q:  What is the rule regarding cancellation of an writes “Acceptance” across the bill’s face and signs it. Its
instrument? A: It is presumed intentional. It is inoperative use is generally limited to domestic transactions.
if unintentional, or under a mistake or without the authority
of the holder. But where an instrument or any signature A draft or bill of exchange of which the acceptor is a bank
appears to have been cancelled, burden of proof lies on the or banker engaged generally in the business of granting
party who alleges that the cancellation was made banker’s acceptance credit. A banker’s acceptance is similar
unintentionally, or under a mistake or without authority. to a trade acceptance, the fundamental difference being that
(Sec. 123) the banker’s acceptance is drawn against a bank instead of
the buyer.
Q:  What is a material alteration? A:  Any change in the
instrument which affects or changes the liability of the LIABILITY OF DRAWEE Where the drawee has not
parties in any way. accepted the bill drawn against him, the holder cannot
enforce it against him, even if the drawer has sufficient
Q:  What constitutes a material alteration? A:  Any funds in the hands of the drawee to pay for the bill. Thus,
alteration which changes the: 1. Date 2. Sum payable, either an unaccepted draft cashed by a bank at the drawer’s
principal or interest; 3. Time or place of payment 4. request is not an assignment of the drawer’s funds in the
Number or relations of the parties 5. Medium or currency in hands of the drawee. And a holder in due course of a
which payment is to be made; or 6. Adds a place of dishonored bill has no cause of action against the drawee
payment when no place of payment is specified, or any either at law or in equity as an assignee of the drawer’s
other change or addition which alters the effect of the contractual rights underlying the bill.
instrument in any respect. (Sec. 125) Note: The change in
the date of indorsement is not material where the date is not BILLS DRAWN ON MULTIPLE DRAWEES : The
necessary to fix the maturity of the instrument. liability of two or more acceptors is joint and solidary. If
there are 2 or more acceptors, they cannot end up pointing
Q: What is the effect of material alteration which is not to each other kung sinong magbabayad and demand on one
apparent? A: 1. Avoids the instrument except against: a. A or either is a demand for the whole amount.
party who has made the alteration; b. A party who
authorized or assented to the alteration; or c. The indorsers A bill is foreign if, on its face, it purports (1) to be drawn in
who indorsed subsequent to the alteration (because of their the but payable outside thereof; or (2) to be payable in the
warranties) 2. If negotiated to a HIDC, he may enforce the Philippines but drawn outside thereof. Inland Bill a bill
payment thereof according to its original tenor against the which is, on its face purports to be, both drawn and payable
party prior to the alteration. He may also enforce payment within the Philippines.
thereof against the party responsible for the alteration for
the altered amount. 3. If negotiated to a NHIDC, he cannot When can a Foreign Bill an Inland bill - A bill which is in
enforce payment against the party prior to the alteration. He fact foreign may be treated by the holder as an inland bill
may however enforce payment according to the altered unless the contrary appears on its face. Thus, a bill drawn in
tenor from the person who caused the alteration and from New York and payable in the Philippines is a foreign bill
the indorsers. (Sec. 124) but the holder may treat it as an inland bill if on the face of
the bill it does not appear that it was drawn in New York.
Q: Is there material alteration when the serial number
of a check had been altered? A: No. An alteration is said BILL TREATED AS A NOTE - In all these cases, notice
to be material if it alters the effect of the instrument. It of dishonor need not be given to the drawer to charge him.
means an unauthorized change in an instrument that Treating the bill as a note would constitute the drawer, the
purports to modify in any respect the obligation of a party maker. Thus, the “drawer” would then be a party primarily
or an unauthorized addition of words or numbers or other liable on the instrument to whom notice of dishonor need
change to an incomplete instrument relating to the not be given. Futhermore, the holder need not prove
obligation of a party. The alteration of the serial number of presentment for payment or present the bill to the drawee
a check did not change the relations between the parties nor for acceptance.
the effect of the instrument. Hence, the alteration on the
serial number of a check is not a material alteration.
REFEREE - If the referee pays, he may recover the
amount from the drawer or indorser who has named him as
referee in case of need.

If the instrument is not paid and indorser is being made to

pay and he cannot perform his liability, the holder has the
option to go to the person in case of need. Such person is
not obligated to pay because he did not affix his signature
on the instrument. But if the referee in case of need makes
good on the obligation of the indorser, the referee is
substituted to the rights of the indorser and may go after the
other indorsers or the maker.

Q: What is a promissory note? A: 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. (Sec. 184 NIL)

Q: What are the special types of promissory notes? A:  

1. Certificate of deposit – a written acknowledgment by a
bank of the receipt of money on deposit on which the bank
promises to pay to the depositor or to him or his order or to
some other person or to him or his order, or to a specified
person or bearer, on demand or on a fixed date, often with
interest. 2. Bonds – A promise, under seal, to pay money. a.
Registered bond – one payable only to the person whose
name appears on the face of the certificate. b. Coupon bond
– one to which are attached coupons which entitle the
holder to interest when due. 3. Bank Note – PN of issuing
bank payable to bearer on demand and intended to circulate
as money. 4. Due Bill  ‐  An instrument where one person
acknowledges his indebtedness to another 5. Mortgage
Note – an instrument secured by either a real or personal
property. 6. Title‐retaining Note – an instrument used to
secure the purchase price of goods 7. Collateral Note – it is
used when the maker pledges securities to the payee to
secure the payment of the amount of the note 8. Judgment
Note – this is a note to which a power of attorney is added
enabling the payee to take judgment against the maker
without the formality of a trial if the note is not paid on its
due date.