More than Reading.. understand.. more than understanding.. Learn..

-dorsey-

signed by the maker engaging to pay on

I. NEGOTIABLE
INSTRUMENTS LAW
(NIL)
NEGOTIABLE INSTRUMENT (NI)- a written
contract for the payment of money which
complies with the requirements Sec. 1 of the
NIL, which by its form and on its face, is
intended as a substitute for money and passes
from hand to hand as money, so as to give the
holder in due course (HDC) the right to hold the
instrument free from defenses available to prior
parties.
demand or at a fixed or determinable future
time, a sum certain in money to order or to
bearer. (Sec. 184, NIL)
2. BILL OF EXCHANGE (BE)- 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 (Sec. 126, NIL)
3. CHECK- a bill of exchange drawn on a bank
payable on demand (Sec. 185, NIL).
DISTINCTIONS:

TWO DISTINCTIVE FEATURES OF NI: A.

1. NEGOTIABILITY- it is that attribute or Negotiable Negotiable
property whereby a bill or note or check may Instruments Documents of
pass from hand to hand similar to money, so Title
as to give the holder in due course the right 1. The subject is 1. The subject is
to hold the instrument and to collect the sum money goods
payable for himself free from defenses.
2. ACCUMULATION OF SECONDARY 2. Is itself the property 2. The document is a
CONTRACTS- secondary contracts are with value mere evidence of title
picked up and carried along with Negotiable – the things of value
Instruments as they are negotiated from one being the goods
person to another; or in the course of mentioned in the
negotiation of negotiable instruments, a documents
series of juridical ties between the parties
3. Has all the 3. Does not have
thereto arise either by law or by privity. The
requisites of Sec 1 of these requisites
indorsers become secondarily liable to the
NIL
holder.
4. A holder of NI may 4.Intermediate parties
DISTINCTIONS: run after the are not secondarily
NEGOTIABLE NON-NEGOTIABLE secondary parties for liable if the document
INSTRUMENTS INSTRUMENTS payment if dishonored is dishonored
by the party primarily
liable
1. must contain all 1. does not contain all
requisites of sec. 1 requisites of sec.1
5. A holder, if HDC, 5. A holder can never
2. transferable by 2. transferable by may acquire rights acquire rights to the
negotiation and assignment not over the instrument document better than
assignment. negotiation better than his his predecessors
predecessor
3. HDC can have 3. a transferee
rights better than his acquires no better
transferor right than his
B.
transferor
PROMISSORY BILL OF
4. prior parties warrant 4. prior parties do not NOTE EXCHANGE
payment warrant payment 1. unconditional 1. unconditional
(secondarily liability). but merely the promise order
legality of his title 2. involves 2 parties 2. involves 3 parties
3. maker primarily liable 3. drawer is only
secondarily liable
4. only one 4. two presentments:
presentment: for for acceptance and
CLASSES OF NI: payment for payment
1. PROMISSORY NOTE (PN)- unconditional
promise in writing by one person to another
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-

OTHER FORMS OF NEGOTIABLE

INSTRUMENTS:
1. Certificate of deposit issued by banks,
payable to the depositor or his order, or to
bearer
2. Trade acceptance
3. Bonds, which are in the nature of promissory
C.
notes
BILLOF CHECK 4. Drafts, which are bills of exchange drawn by
EXCHANGE
1. Not necessarily 1. It is necessary that one bank upon another
drawn on a deposit. a check is drawn on a NOTE: All these must comply with Sec. 1
The drawer need not bank deposit. Hence,
be a bank drawer is always a LEGAL TENDER
bank  that kind of money which the law compels a
creditor to accept in payment of his debt when
tendered by the debtor in the right amount. (See
2. Death of a drawer 2. Death of the drawer
Central Bank Law)
of a BOE with the of a check, with the
NOTE: A negotiable instrument although
knowledge of the knowledge by the
intended to be a substitute for money, is
bank, does not revoke bank, revokes the
generally not legal tender. Thus, a creditor is not
the author of the authority of the banker
bound to accept commercial papers, like a
banker to pay. to pay.
check, in satisfaction of his demand, because a
3. May be presented 3. Must be presented check, even if good when offered, does not meet
for payment within a for payment within a the requirements of a legal tender.
reasonable time after reasonable time after
its last negotiation its issue.
REQUISITES OF NEGOTIABILITY
because it may be
further negotiated. (SEC. 1):
1. Must be in writing and signed by the maker
4. May or may not be 4. Always payable on
or drawer;
payable on demand demand
2. Must contain an unconditional promise or
order to pay a sum certain in money;
D. 3. Must be payable on demand, or at a fixed or
NEGOTIABLE NEGOTIABLE determinable future time;
INSTRUMENT WAREHOUSE 4. Must be payable to order or to bearer;
RECEIPT 5. When the instrument is addressed to a
If originally payable to If payable to bearer, it drawee, he must be named or otherwise
bearer, it will always will be converted into a indicated therein with reasonable certainty.
remain so payable receipt deliverable to
regardless of manner order, if indorsed UNCONDITIONAL PROMISE OR ORDER -
of indorsement. specifically where the promise or order is made to depend
on a contingent event, it is conditional, and the
A holder in due course The indorsee, even if instrument involved is non-negotiable. The
may obtain title better holder in due course, happening of the event does not cure the defect.
than that of the one obtains only such title
who negotiated the as the person who The unconditional nature of the promise or
instrument to him caused the deposit order is not affected by:
had over the goods. a) An indication of a particular fund out of
which reimbursement is to be made, or a
ASSIGNMENT VS. NEGOTIATION particular account to be debited with the
1. Assignment pertains to contracts in general; amount; or
Negotiation pertains to negotiable b) A statement of the transaction which gives
instruments. rise to the instrument (Sec. 3, NIL)
2. One who takes an instrument by assignment - But an order or promise to pay out of a
takes the instrument subject to the defenses particular fund is NOT unconditional.
obtaining among the original parties;
whereas a person who takes the instrument DISTINCTIONS:
by negotiation, who is a HDC, takes it free Fund for Particular Fund for
from personal defenses available among the Reimbursement Payment
parties. 1. Drawee pays the 1. There is only one
payee from his act- the drawee
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-

own funds; pays directly from c) On or at a fixed period after the occurrence
afterwards, the the particular fund of a specified event, which is certain to
drawee pays indicated. Payment happen, though the time of happening is
himself from the is subject to the uncertain.
particular fund condition that the
indicated. fund is sufficient. PAYABLE TO ORDER (Sec. 8, NIL)
2. Particular fund 2. Particular fund  The instrument is payable to order where it is
indicated is NOT indicated is the drawn payable to the order of a specified person
the direct source direct source of or to him or to his order.
of payment but payment.
only the source of PAYABLE TO BEARER (Sec. 9, NIL):
reimbursement.  The instrument is payable to bearer:
3. Indication in the 3. Indication in the a) When it is expressed to be so payable; or
instrument does instrument makes b) When it is payable to a person named
not affect the the promise or therein or to bearer; or
unconditional order conditional. c) When it is payable to the order of a fictitious
nature of the or non-existing person, and such fact was
promise or order. known to the person making it so payable;
or
CERTAINTY OF SUM (Sec. 2, NIL): d) When the name of the payee does not
The instrument is still negotiable although it is purport to be the name of any person; or
to be paid: e) When the only or last indorsement is an
a) with interest; or indorsement in blank.
b) by stated installments; or
c) by stated installments with an acceleration NOTE: An instrument originally payable to
clause; bearer can be negotiated by mere delivery even
d) with exchange; or if it is indorsed specifically. If it is originally a
e) with cost of collection or attorney’s fees. BEARER instrument, it will always be a
BEARER instrument.
ACCELERATION CLAUSE- renders whole debt As opposed to an original order
due and demandable upon failure of obligor to instrument becoming payable to bearer, if the
comply with certain conditions. same is indorsed specifically, it can NO
LONGER be negotiated further by mere
PAYABLE IN MONEY delivery, it has to be indorsed.
General Rule: If some other act is required
other than or in addition to payment of money, CONSTRUCTION OF NEGOTIABLE
the instrument is not negotiable (Sec. 5, NIL). INSTRUMENTS (Sec. 17, NIL)
Exception: An option is given to creditor/holder a) When there is a discrepancy between
to choose another in lieu of money. the amount in figures and that in words- the
words prevail, but if the words are ambiguous,
PAYABLE ON DEMAND (Sec. 7, NIL) reference will be made to the figures to fix the
 An instrument is payable on demand: amount;
a) where expressed to be payable on demand, b) When instrument not dated- considered
at sight or on presentation; dated on the date of issue;
b) where no period of payment is stated; c) Conflict between written and printed
c) where issued, accepted, or indorsed after provisions, written provisions prevail;
maturity (only as between immediate d) Interest provided for but no starting date
parties). specified, starting date is the date of the NI, in
absence, from the date of issue;
DETERMINABLE FUTURE TIME (Sec. 4, e) When the NI is ambiguous that there is
NIL) doubt whether it is a bill or note, the holder may
 An instrument is payable at a determinable treat it as either at his election;
future time when payable: f) Where a signature is so placed upon the
instrument that it is not clear in what capacity the
person making the same intended to sign, he is
deemed an indorser.
From the ANSWERS
TO BAR EXAMINATION QUESTIONS in POLITICAL LAW by the UP LAW COMPLEX and PHILIPPINE ASSOCIATION OF LAW SCHOOLS.docx
a) At a fixed period after date  The validity and negotiable character of a
or sight; negotiable instrument are not affected by the
b) On or before a fixed or determinable future fact that:
time specified therein; or a) it is not dated;
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-

b) it does not specify the value given or that 10. Negotiation under circumstances that
any value has been given; amount to fraud;
c) it does not specify the place where it is 11. Mistake;
drawn or where it is payable; 12. Intoxication (according to better authority);
d) it bears a seal; 13. Ultra vires acts of corporations where the
e) it designates a particular kind of current corporation has the power to issue
money in which payment is to be made. negotiable paper but the issuance was not
(Sec. 6, NIL) authorized for the particular purpose for
which it was issued;
REAL DEFENSES - those that attach to the 14. Want of authority of agent where he has
instrument and are available against all holders, apparent authority;
whether in due course or not. 15. Insanity where there is no notice of insanity
on the part of the one contracting with the
insane person; and
EXAMPLES OF REAL DEFENSES:
16. Illegality of contract where the form or
1. Alteration;
consideration is illegal.
2. Want of delivery of incomplete instrument;
3. Duress amounting to forgery;
4. Fraud in factum or fraud in esse contractus; EFFECTS OF DEFENSES:
5. Minority; A. EFFECTS OF INCOMPLETE BUT
6. Marriage in the case of a wife; DELIVERED NI (SEC. 14, NIL):
7. Insanity where the insane person has a 1. Holder has prima facie authority to fill up the
guardian appointed by the court; instrument.
8. Ultra vires acts of a corporation, where the 2. Completion within reasonable time and
corporation is absolutely prohibited by its according to authority; and
charter or statute from issuing any 3. HDC can enforce such despite deficiency.
commercial paper under any circumstances;
9. Want of authority of agent; B. EFFECTS OF INCOMPLETE AND
10. Execution of instrument between public UNDELIVERED NI (SEC. 15, NIL):
enemies;  If completed and delivered without authority,
11. Illegality of contract where it is the contract not a valid contract against a person who has
or instrument itself which is expressly made signed before delivery of the contract even in the
illegal by statute; and hands of HDC but subsequent indorsers are
12. Forgery. liable.

PERSONAL DEFENSES (or equitable C. EFFECTS OF COMPLETE BUT

defenses) – those which are available only UNDELIVERED NI (SEC. 16, NIL):
against the holder not in due course who stands 1. Between immediate parties and remote
in privity with the party who is entitled to set it up parties not a HDC, must be an authorized
or those who are not or do not have the rights of delivery.
a holder in due course. 2. As to HDC, all prior deliveries are
conclusively presumed valid; and
EXAMPLES OF PERSONAL DEFENSES: 3. If instrument is not in the hands of
1. Absence or failure of consideration, drawer/maker, valid and intentional delivery
partial or total; is presumed.
2. Want of delivery of complete instrument;
3. Insertion of wrong date in an instrument, *FOR A COMPARISON OF SECTIONS
where it is payable at a fixed period after 14, 15, AND 16 OF THE NIL, SEE ANNEX
date and it is issued undated or where it is A.
payable at a fixed period after sight and the
acceptance is undated;
4. Filling up of blank contrary to authority given D. EFFECT OF ABSENCE OR
or not within reasonable time, where the FAILURE OF CONSIDERATION (SEC. 28,
instrument is delivered; NIL):
5. Fraud in inducement;  Personal defense to the prejudiced party and
6. Acquisition of instrument by force, duress, or available against any person not HDC.
fear;
7. Acquisition of the instrument by unlawful E. FORGERY:
means;  counterfeit making or fraudulent alteration of
8. Acquisition of the instrument for an illegal any writing, which may consist of:
consideration; 1. signing of another name with intent to
9. Negotiation in breach of faith; defraud; or
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-
2. alteration of an instrument in the name,
amount, name of payee, etc. with intent to
defraud.
EFFECTS OF FORGERY (SEC. 23, NIL):
 signature (not instrument itself and
subsequent indorsers) is wholly inoperative, and
no right to retain the instrument, or to give a
discharge therefor, or to enforce payment
thereof against any party to it, is acquired
through or under such signature UNLESS the
party against whom it is sought to enforce such
right is precluded from setting up the forgery or
want of authority.
 Persons precluded from setting up forgery:
1. those who warrant or admit the genuineness
of the signature in question. This includes
indorsers, persons negotiating by delivery
and acceptors.
2. Those who by their acts, silence, or
negligence, are estopped from setting up the
defense of forgery.
F. MATERIAL ALTERATION:
 any change in the instrument which affects or
changes the liability of the parties in any way.
EFFECTS OF ALTERATION:
1. Alteration by a party
 Material alteration by the holder is to
discharge the instrument and all prior parties
thereto who did not give their consent to
such alteration.
NOTE: Since no distinction is made, it does
not matter whether it is favorable or
unfavorable to the party making the
alteration. The intent of the law is to
preserve the integrity of the negotiable
instruments.
2. Alteration by a stranger (spoliation)
3. The right of holder in due course
 A material alteration avoids the
instrument in the hands of one who is not a
holder in due course as against any prior
party who has not assented to the alteration.
 If an altered instrument is negotiated to a
HDC, he may enforce payment thereof
according to its original tenor regardless of
whether the alteration was innocent or
fraudulent.
 avoids the instrument except as against the
party who made, authorized, or assented to the
alteration and subsequent indorsers. HDC can
enforce it accordingly to its original tenor.
CHANGES IN THE FOLLOWING
CONSTITUTE MATERIAL ALTERATIONS:
1. date;
2. sum payable, either for principal or interest;
3. time or place of payment;
4. number or relations of the parties;
5. medium or currency in which payment is to
be made;
6. that which adds a place of payment where
no place of payment is specified; and
7. any other change or addition which alters
the effect of the instrument in any respect.
PRESUMPTION OF CONSIDERATION:
Every NI is deemed prima facie to have been
issued for a valuable consideration. Every
person whose signature appears thereon is
presumed to have become a party thereto for
value. (Sec. 24, NIL)
VALUABLE CONSIDERATION:
In general, it is said to consist either in
some right, interest, profit or benefit, accruing to
the party who makes the contract, or some
forbearance, detriment, loss, responsibility, act,
labor, or service on the other side.
ACCOMMODATION
 legal arrangement under which a person
called the accommodation party, lends his name
and credit to another called the accommodated
party without any consideration.
REQUISITES OF ACCOMMODATION
(SEC. 29, NIL):
1. the accommodation party must sign as
maker, drawer, acceptor, or indorser;
2. no value is received by the accommodation
party from the accommodated party; and
3. the purpose is to lend the name or credit.
EFFECTS OF ACCOMMODATION (SEC.
29, NIL):
 the person to whom instrument thus executed
is subsequently negotiated has a right of
recourse against the accommodation party in
spite of the former’s knowledge that no
consideration passed between the
accommodation and accommodated parties.
NOTE: A corporation cannot act as an
accommodation party. The issuance or
indorsement of negotiable instrument by a
corporation without consideration and for the
accommodation of another is ultra vires.
(Crisologo vs. CA, 117 SCRA 594).
RIGHTS AND LEGAL POSITION OF
ACCOMMODATION PARTY:
1. AP is generally regarded as a surety for the
party accommodated;
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-

2. When AP makes payment to holder of the (iii) admits the existence of the
note, he has the right to sue the payee and his capacity to indorse.
accommodated party for reimbursement.
2. PARTIES SECONDARILY LIABLE
LIABILITY OF ACCOMMODATION a. DRAWER (Sec. 61, NIL)
PARTY: (i) Admits the existence of the
 liable on the instrument to a holder for value payee and his capacity to indorse;
notwithstanding such holder at the time of the (ii) Engages that the instrument will
taking of the instrument knew him to be only an be accepted or paid by the party
accommodation party. primarily liable; and
(iii) Engages that if the instrument is
RIGHTS OF ACCOMMODATION PARTY dishonored and proper
proceedings are brought, he will
AGAINST EACH OTHER:
pay to the party entitled to be paid.
1. may demand reimbursement from the
principal debtor of the amount which he had paid
b. GENERAL INDORSER (Sec. 66, NIL)
on the promissory note;
(i) warrants ---
2. may demand contribution from his co-
(1) genuineness of the
accommodation party without first directing his
instrument;
action against the principal debtor provided:
(2) his good title to it;
a. he made the payment by virtue of
(3) capacity to contract of prior
judicial demand; or
parties; and
b. the principal debtor is insolvent.
(4) instrument is valid and
subsisting.
LIABILITY OF PERSON SIGNING AS (ii) engages that the instrument will
AGENT (Sec. 20, NIL): be accepted or paid by the party
 Where the negotiable instrument contains or primarily liable; and
a person adds to his signature words indicating (iii) engages that if the instrument is
that he signs for or on behalf of a principal, he is dishonored and proper
not liable on the instrument if he was duly proceedings are taken he will pay
authorized. But mere addition of words to the party entitled to be paid.
describing him as agent without disclosing his
principal does not exempt him from personal c. IRREGULAR INDORSER – one who
liability. affixes his signature in blank on an
 A signature by “procuration” operates as instrument before delivery. (Sec. 64,
notice that the agent has but a limited authority NIL)
to sign, and the principal is bound only in case (i) instrument payable to the order
the agent in so signing acted within the actual of a 3rd person
limits of his authority. (Sec. 21, NIL) -liable to payee and subsequent parties
 Indorsement or assignment of the NI by a (ii) instrument payable to maker or
corporation or by an infant passes the property drawer
therein, notwithstanding that from want of -liable to all parties subsequent to the
capacity, the corporation or infant may incur no maker or drawer.
liability thereon. (Sec. 22, NIL) (iii) irregular indorser signs for
accommodation of payee.
LIABILITIES OF PARTIES:
1. PARTIES PRIMARILY LIABLE 3. PARTIES WITH LIMITED LIABILITY (Sec.
a. MAKER (Sec. 60, NIL) 65, NIL; METROPOL FINANCING VS.
(i) engages to pay according to the SAMBOK, 120 SCRA 864).
tenor of the instrument; and a. QUALIFIED INDORSER - warrants that
(ii) admits the existence of the (i) instrument is genuine and in all
payee and his capacity to indorse. respects what it purports to be;
(ii) he has good title to it;
b. ACCEPTOR OR DRAWEE (Sec. 62, (iii) all prior parties had capacity to
NIL) contract;
(i) engages to pay according to the (iv) he has no knowledge of any fact
tenor of his acceptance; which would impair the validity of
(ii) admits the existence of the the instrument or render it
drawer, the genuineness of his valueless.
signature and his capacity and b. PERSONS NEGOTIATING BY
authority to draw the instrument; DELIVERY
and
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-

(i) warranties same as those of 1. upon no other condition than failure of

qualified indorsers; and prior parties to do so;
(ii) warranties extend to immediate 2. upon due notice to him of such failure.
transferee only.
D. CONDITIONAL INDORSEMENT - right of
DISTINCTIONS: the indorsee is made to depend on the
Negotiating by General Indorser happening of a contingent event. Party required
mere delivery or by to pay may disregard the conditions (Sec. 39,
Qualified Indorsement NIL)
1. No secondary 1. With secondary
liability; liability; E. RESTRICTIVE INDORSEMENT - limits the
right of indorsee by restricting further
2. Warrants that he has 2. Warrants that negotiation; giving the indorsee lesser right than
no knowledge of any the instrument those under a general indorsement when an
fact which would is, at the time of instrument negotiable by delivery is indorsed to
impair the validity of his indorsement holder --- becomes liable as indorsee (Sec. 36-
the instrument or valid and 37, NIL).
render it valueless. subsisting.  An indorsement is restrictive, when it either:
a) prohibits further negotiation of the
instrument; or
NEGOTIATION – the transfer of a NI from one b) constitutes the indorsee the agent of the
person to another as to constitute the transferee indorser; or
the holder thereof. If the NI is payable to bearer, c) vests the title in the indorsee in trust for
it can be negotiated by delivery; if it is payable to or to the use of some other person. But
order, it is negotiated by the indorsement of the
mere absence of words implying power
holder completed by delivery. (Sec. 30, NIL) to negotiate does not make an
indorsement restrictive.
INDORSEMENT- legal transaction effected by
the writing of one's own name at the: F. QUALIFIED - made by adding to the
a. back of the instrument indoser's signature words like "sans recourse,”
b. upon a paper (allonge) “without recourse", "indorser not holder", "at the
attached thereto with or without indorser's own risk", etc.
additional words specifying the
person to whom or to whose order G. JOINT - indorsement payable to 2 or more
the instrument is to be payable persons (Sec. 38, NIL)
whereby one not only transfers one H. SUCCESSIVE
legal title to paper transferred but I. IRREGULAR
likewise enters into an implied J. FACULTATIVE
guaranty that the instrument will be
duly paid (Section 31, NIL) REQUISITES BEFORE SECONDARY
LIABILITY ATTACHES:
General Rule: Indorsement must be of the
1. Presentment for payment in notes and
entire instrument
presentment for acceptance and/or payment
Exception: Where instrument has been paid
in bills of exchange;
in part, it may be indorsed as to the residue
2. Dishonor by non-payment in notes and
(Sec. 32, NIL).
dishonor by non-acceptance and/or non-
KINDS OF INDORSEMENT: payment in bills of exchange; and
A. SPECIAL INDORSEMENT - specifies the 3. Notice of dishonor to secondary parties.
person to whom or to whose order the  KEY: P, D, N
instrument is to be payable (Sec. 34, NIL)
RECOURSE - resort to a person secondarily
liable after default of person primarily liable.
B. BLANK INDORSEMENT - specifies no
indorsee:
1. may be negotiated by delivery STRIKING OUT INDORSEMENT
2. may be converted to special  The holder may at any time strike out any
indorsement by writing over the indorsement which is not necessary to his title.
signature of indorser in blank any The indorser whose indorsement is struck out,
contract consistent with character of and all indorsers subsequent to him, are thereby
indorsement (Secs. 34 and 35, NIL) relieved from liability on the instrument. (Sec.
48, NIL)
C. ABSOLUTE INDORSEMENT - one by which
indorser binds himself to pay: HOLDER IN DUE COURSE (SEC. 52, NIL):
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-
1. Instrument is complete and regular upon its
face;
2. Became a holder before it was overdue and
had no notice that it has been previously
dishonored;
3. For value and in good faith; and
4. At the time he took it, he had no notice of
any infirmity in the instrument nor defect in
the title of the person negotiating it.
PRESENTMENT – the production of a bill of
exchange to the drawee for his acceptance, or
to the drawee or acceptor for payment or the
production of a PN to the party liable for the
payment of the same. (Section 70, NIL)
 Presentment for payment consists of:
1. personal demand for payment at the proper
place; and
2. readiness to exhibit the instrument if
required, and to receive payment and to
surrender the instrument if the debtor is
willing to pay.
WHEN PRESENTMENT SHOULD BE
MADE (Section 71, NIL):
1. Demand instrument within reasonable time
after its issue;
2. Bill of exchange payable on demand: within
reasonable time after its last negotiation;
3. Instrument payable on a specified date: on
the date it falls due.
WHAT CONSTITUTES A SUFFICIENT
PRESENTMENT:
1. made by the holder or any person
authorized to receive payment on his behalf;
2. at a reasonable hour on a business day;
3. at a proper place;
4. to the person primarily liable or if he is
absent or inaccessible, to any person found
at the place where the presentment is made.
PRESENTMENT FOR PAYMENT IS MADE
AT A PROPER PLACE WHERE:
1. it is presented at the place specified;
2. no place is specified, and the address of the
person to make payment is given, and it is
there presented;
3. no place specified, no address is given,
presentment may be made at the usual
place of business or residence of the
person to make payment;
4. 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. (Section 73, NIL)
PURPOSE OF EXHIBITION IS TO
ENABLE THE DEBTOR TO :
1. determine the genuineness of the instrument
and the right of the holder to receive
payment; and
2. to enable him to reclaim possession upon
payment. (Section 74, NIL)
WHEN EXHIBITION EXCUSED:
1. when debtor does not demand to see the
instrument but refuses payment on some
other grounds, and
2. when the instrument is lost or destroyed.
 Instrument payable at a bank must be made
during banking hours unless there are no funds
to meet it at any time during the day,
presentment at any hour before the bank is
closed on that day is sufficient.
 If the person liable is dead, presentment may
be made to his personal representative.
PRESENTMENT FOR PAYMENT IS NOT
REQUIRED:
1. in order to charge the drawer where he has
no right to expect or require that the drawee
or acceptor will pay the instrument;
2. in order to charge an indorser when the
instrument was made or accepted for his
accommodation and he has no reason to
expect that the instrument will be paid if
presented.
WHEN DELAY IN MAKING
PRESENTMENT OR OF GIVING NOTICE
IS EXCUSED:
1. when caused by circumstances beyond the
control of the holder; and
2. not imputable to his default, misconduct, or
negligence.
WHEN PRESENTMENT FOR PAYMENT
IS EXCUSED:
1. after exercise of reasonable diligence, it
cannot be made;
2. drawee is a fictitious person;
3. express or implied waiver.
THE INSTRUMENT IS DISHONORED BY
NON-PAYMENT WHEN:
1. It is duly presented for payment and
payment is refused or cannot be obtained;
2. Presentment is excused and the instrument
is overdue and unpaid.
 When instrument is dishonored by non-
payment, there is an immediate right of recourse
by the holder against persons secondarily liable.
However, notice of dishonor is generally
required.
 Every negotiable instrument is payable at the
time fixed therein without grace.
MATURITY OF NEGOTIABLE
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-
INSTRUMENT:
 Every negotiable instrument is payable at the
time fixed without grace. When the day of
maturity falls upon Sunday or a holiday, the
instrument is payable on the next succeeding
business day. Instruments falling due or payable
on Saturday are also to be presented for
payment on the next succeeding business day,
except that instrument payable on demand may,
at the option of the holder, be presented for
payment before 12:00 noon on Saturday when
that entire day is not a holiday. (Sec. 85, NIL)
REQUISITES OF PAYMENT IN DUE
COURSE:
1. Payment must be made at or after maturity.
2. Payment must be made to the holder.
3. Payment must be made in good faith and
without notice that the holder’s title is
defective.
 Good faith refers to the maker or acceptor
and not to the holder.
NOTICE OF DISHONOR - notice given by
holder or his agent to party or parties
secondarily liable that instrument was
dishonored by non-acceptance by drawee of a
bill, or by non-payment by acceptor of a bill or by
non-payment by maker of a note. (Sec. 89, NIL).
REQUISITES OF NOTICE OF DISHONOR:
1. Given by holder or his agent, or by any party
who may be compelled by the holder to pay
(Sec. 90, NIL).
2. Given to secondary party or his agent (Sec.
97, NIL).
3. Given within the periods provided by law
(Sec. 102, NIL); and
4. Given at the proper place (Sec. 103, 104,
NIL).
WHEN NOTICE OF DISHONOR IS
DISPENSED WITH:
1. when party to be notified knows about the
dishonor, actually or constructively (Secs.
114-117, NIL);
2. if waived (Sec. 109, NIL); and
3. when after due diligence, it cannot be given
(Sec. 112, NIL).
How given:
1. by bringing verbally or
2. by writing to the knowledge of
the person liable the fact that a specified
instrument, upon proper proceedings
taken, has not been accepted or has not
been paid, and that the party notified is
expected to pay it.
To whom given:
1. Non-acceptance (bill)–to
persons secondarily liable, namely, the
drawer and indorsers as the case may
be.
2. Non-payment (both bill and
note)– indorsers.
NOTE: Notice must be given to persons
secondarily liable. Otherwise, such parties are
discharged. Notice may be given to the party
himself or to his agent.
WHERE INSTRUMENTS PAYABLE IN
INSTALLMENTS:
1. No acceleration clause – failure to give
notice of dishonor on a previous installment
does not discharge drawers and indorsers
as to succeeding installments.
2. With acceleration clause – failure to give
notice as to previous installment will
discharge the persons secondarily liable as
to the succeeding installments.
By whom given:
1. the holder
2. another on behalf of the holder
3. any party to the instrument who may be
compelled to pay it to the holder, and who
would have a right to reimbursement from
the party to whom the notice is given.
 Notice of dishonor given by or on behalf of a
holder inures to the benefit of:
1. all parties prior to the holder, who have
a right of recourse against the party to
whom the notice is given; and
2. all holders subsequent to the holder
giving notice.
 Notice of dishonor given by or on behalf of a
party entitled to give notice inures to the
benefit of:
1. the holder; and
2. all parties subsequent to the party to
whom notice is given.
 Where an instrument is dishonored in the
hands of an agent, he can do either of the
following:
1. directly give notice to persons
secondarily liable thereon; or
2. give notice to his principal. In such
case, he must give notice within the time
allowed by law as if he were a holder.
 A party giving notice is deemed to have given
due notice where:
1.the notice of dishonor is duly addressed,
and
2.deposited in the post-office, even when
there is miscarriage of mail.
 Notice is deemed to have been deposited in
the post office when deposited in any branch
post-office or in any letterbox under the control
of the post office department.
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-
 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.
 Notice may be waived either before the time
of giving notice, or after the omission to give due
notice. Waiver may be expressed or implied.
 As to who are affected by an express waiver
depends on where the waiver is written.
1. if it appears in the body or on the face
of the instrument, it binds all parties; but
2. if it is written above the signature of an
indorser, it binds him only.
PROTEST - the formal instrument executed
usually by a notary public certifying that the legal
steps necessary to fix the liability of the drawee
and the indorsers have been taken.
 Where protest is waived, presentment and
notice of dishonor are also deemed waived. But
where the notice of dishonor is waived,
presentment is not waived.
 Notice is dispensed with when, after the
exercise of reasonable diligence, it cannot be
given or does not reach the parties sought to be
charged.
 Notice of dishonor is not required to be
given to the drawer in any of the ff. cases:
1. drawer and drawee are the same;
2. drawee is a fictitious person or not
having the capacity to contract;
3. drawer is the person to whom the
instrument is presented for payment;
4. the drawer has no right to expect or
require that the drawee or acceptor will
honor the instrument;
5. where the drawer has countermanded
payment.
 Notice of dishonor is not required to be
given to an indorser in the ff. cases:
1. drawee is a fictitious person or does not
have the capacity to contract, and
indorser was aware of that fact at the
time he indorsed the instrument;
2. indorser is the person to whom the
instrument is presented for payment;
3. instrument was made or accepted for his
accommodation.
 If an instrument is not accepted by the
drawee, there is no sense presenting it again for
payment, and notice of dishonor must at once
be given. If there was acceptance, presentment
for payment is still required and if payment is
refused, there is a need for notice of dishonor.
 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.
 Protest is necessary only in case of foreign
bills of exchange which have been dishonored
by non-acceptance or non-payment, as the case
may be. If it is not so protested, the drawer and
indorsers are discharged.
FOREIGN BILL OF EXCHANGE:
1. Drawn in the Philippines but payable outside
the Philippines.
2. Payable in the Philippines but drawn outside
the Philippines.
ACCEPTANCE AND PRESENTMENT FOR
ACCEPTANCE (Secs. 132-151, NIL):
Acceptance of a bill is the signification by the
drawee of his assent to the order of the drawer.
It is the act by which the drawee manifests his
consent to comply with the request contained in
the bill of exchange directed to him and it
contemplated an engagement or promise to pay.
 Acceptance must be in writing and signed by
the drawee and must not express that the
drawee will perform his promise by any other
means than the payment of money. (Sec. 132,
NIL)
 The holder of the 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. (Sec. 133, NIL)
KINDS OF ACCEPTANCE:
1. GENERAL- assents without qualification to
the order of the drawer.
2. QUALIFIED- which in express terms varies
the effect of the bills as drawn.
a) Conditional- makes payment by the
acceptor dependent on the fulfillment of
a condition therein stated.
b) Partial- an acceptance to pay part only
of the amount for which the bill is drawn.
c) Local- 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.
WHEN PRESENTMENT FOR
ACCEPTANCE IS REQUIRED:
1. where the bill is payable after sight, or when
it is necessary in order to fix the maturity of
the instrument;
2. where the bill expressly stipulates that it
shall be presented for acceptance;
3. where the bill is drawn payable elsewhere
than at the residence or place of business of
the drawee.
NOTE: In all the above cases, the holder must
either present the bill for acceptance or
negotiate it within a reasonable time; otherwise,
the drawer and all indorsers are discharged.
FORM OF PRESENTMENT FOR
ACCEPTANCE:
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-
1. must be made by or no behalf of the holder;
2. at a reasonable hour or 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.
WHEN PRESENTMENT EXCUSED:
1. where the drawee is dead, or has
absconded, or is a fictitious person not
having capacity to contract by bill.
2. after exercise of reasonable diligence,
presentment cannot be made;
3. although presentment has been irregular,
acceptance has been refused on some other
ground.
WHERE BILL DISHONORED BY NON-
ACCEPTANCE:
1. when it is duly presented for acceptance and
such an acceptance is refused or cannot be
obtained; or
2. when presentment for acceptance is
excused, and the bill is not accepted.
 If bill is duly presented for acceptance and it
is not accepted within the prescribed time, the
person presenting it must treat the bill as
dishonored by non-acceptance or he loses the
right of recourse against the drawer and
indorsers.
 When a bill is dishonored by non-acceptance,
an immediate right of recourse against the
drawers and indorsers accrues to the holder and
no presentment for payment is necessary.
 There is implied acceptance if after 24 hours,
the drawee fails to return the instrument. He is
also deemed to have accepted the instrument
when he destroys the same.
PROTEST MAY BE MADE BY:
1. a notary public; or
2. any respectable resident of the place where
the bill is dishonored, in the presence of 2 or
more credible witnesses.
 Protest for better security is one made by
the holder of a bill after it has been accepted but
before it matures, against the drawer and
indorsers, where the acceptor has been
adjudged a bankrupt or an insolvent, or has
made an assignment for the benefit of the
creditors.
ACCEPTANCE FOR HONOR (Secs. 161-
170):
 an undertaking by a stranger to a bill after
protest for the benefit of any party liable thereon
or for the honor of the person for whose account
the bill is drawn which acceptance inures also to
the benefit of all parties subsequent to the
persons for whose honor it is accepted, and
conditioned to pay the bill when it becomes due
if the original drawee does not pay it.
REQUISITES OF ACCEPTANCE FOR
HONOR:
1. the bill must have been protested for
dishonor by non-acceptance or for better
security;
2. the acceptor for honor must be a stranger
and not a party already liable on the
instrument;
3. bill must not be overdue;
4. acceptance for honor must be with the
consent of the holder of the instrument.
FORMAL REQUISITES:
1. must be in writing;
2. must indicate that it is an acceptance for
honor;
3. signed by the acceptor for honor;
4. must contain an express or implied promise
to pay money;
5. the accepted bill for honor must be delivered
to the holder.
PAYMENT FOR HONOR (Secs.171-
177):
 payment made by a person, whether a party
to the bill or not, after it has been protested for
non-payment, for the benefit of any party liable
thereon or for the benefit of the person for
whose account it was drawn.
REQUISITES OF PAYMENT FOR HONOR:
1. the bill has been dishonored by non-
payment;
2. it has been protested for non-payment;
3. payment supra protest (another term for
payment for honor because prior protest for
non-payment is required) is made by any
person, even by a party thereto;
4. the payment is attested by a notarial act of
honor which must be appended to the
protest or form an extension of it;
5. the notarial act must be based on the
declaration made by the payee for honor or
his agent of his intention to pay the bill for
honor and for whose honor he pays.
NOTE: If the above formalities are no complied
with, payment will operate as a mere voluntary
payment and the payer will acquire no right to
full reimbursement against the party for whose
honor he pays.
 In payment for honor, the payee cannot
refuse payment. If he refuses, he cannot
recover from the parties who would have been
discharged had he accepted the same. In
acceptance for honor, the holder’s consent is
necessary.
 The payer for honor is given the right to
receive both the bill and the protest obviously to
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-
enable him to enforce his rights against the
parties who are liable to him.
BILL IN SET - one composed of several parts,
each part being numbered and containing a
reference to the other parts, the whole of the
parts constituting but one bill.
 Purpose: It is usually availed of in cases
where a bill had to be sent to a distant place
through some conveyance. If each part is sent
by different means of conveyances, the chance
that at least one part of the set would reach its
destination would be greater.
 Rights of holders where parts are negotiated
separately:
1. if both are HDC, the holder whose title
first accrues is considered the true
owner of the bill.
2. But the person who accepts or pays in
due course shall not be prejudiced.
 Obligations of holder who indorses 2 or more
parts of the bill in set:
1. the person shall be liable on every
such part;
2. ever indorser subsequent to him is
liable on the part he has himself
indorsed, as if such parts were
separate bills.
BILLS OF EXCHANGE
 A bill 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. (Sec. 127, NIL)
he holder of the bill, at his option, may treat
the instrument either as a bill of exchange or a
promissory note if:
a) the drawer and the drawee are the same
person; or
b) drawee is a fictitious person; or
c) drawee does not have the capacity to
contract.(Sec. 130, NIL)
CHECKS
 A check must be presented for payment
within reasonable time after its issue or the
drawer will be discharged from liability thereon
to the extent of the loss caused by the delay.
(Sec. 186, NIL)
 Where a check is certified by the bank on
which it is drawn, the certification is equivalent to
an acceptance. And when the holder thereof
procures it to be accepted or certified, the
drawer and all indorsers are discharged from
liability. (Secs. 187-188, NIL)
 A check itself does not operate as an
assignment of any part of the funds to the credit
of the drawer with the bank. The bank is not
liable to the holder, unless and until it accepts or
certifies the check. (Sec. 189, NIL)
 A crossed check is a check which in addition
to the usual contents of an ordinary check
contains also the name of a certain banker or
business entity through whom it must be
presented for payment.
 The effects of crossing a check are:
a) That the check may not be encashed; it may
only be deposited with the bank;
b) That the check may be negotiated only once
to a person who has an account with the
bank; and
c) That it serves as a warning to the holder that
the check has been issued for a definite
purpose.
A holder who receives a crossed check
without inquiring into the purpose for which it
was issued cannot be a holder in due course.
DISCHARGE OF NEGOTIABLE
INSTRUMENT (Section 119, NIL):
 a release of all parties, whether primary or
secondary, from the obligations arising
thereunder. It renders the instrument without
force and effect and, consequently, it can no
longer be negotiated.
WHEN A NEGOTIABLE INSTRUMENT IS
DISCHARGED:
1. By payment in due course by or on behalf of
the principal debtor;
2. Payment by accommodated party;
3. Intentional cancellation by the holder;
4. By any act which will discharge a simple
contract for the payment of money;
5. When the principal debtor becomes the
holder of the instrument at or after maturity
in his own right.
WHEN A PERSON SECONDARILY
LIABLE IS DISCHARGED (Section 120,
NIL):
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 of payment made by a
prior party;
5. By the 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.
 In the following cases, the agreement to
extend the time of payment does not discharge
a party secondarily liable:
a) where the extension of time is
consented to by such party;
 More than Reading.. understand.. more than understanding.. Learn..
-dorsey-

b) where the holder expressly reserves his

right of recourse against such party.
 Payment at or after maturity by a party
secondarily liable does not discharge the
instrument. It only cancels his own liability and
that of the parties subsequent to him. (Section
121, NIL).

EFFECT OF RENUNCIATION (Section

122, NIL):
1. A renunciation in favor of a secondary party
may be made by the holder before, at or
after maturity of the instrument. The effect
is to discharge only such secondary party
and all parties subsequent to him but the
instrument itself remains in force.
2. A renunciation in favor of the principal
debtor may be effected at or after maturity.
The effect is to discharge the instrument and
all parties thereto provided the renunciation
is made unconditionally and absolutely.
NOTE: In either case, renunciation does not
affect the rights of a holder in due course
without notice.

 Cancellation of an instrument includes

tearing, erasure, obliteration, or burning. It is not
limited to writing of the word ‘cancelled”, or
“paid”, or drawing of criss-cross lines across the
instrument. (Section 123, NIL)