DISCLAIMER: This material is NOT FOR SALE.
You’re free to pass this on to anybody whom you think might need this. This is intended to be used as a supplement to your own
personal readings. The authors do not guarantee that this reviewer is 100% error-free. Please feel free to correct any part of this reviewer that you may deem
erroneous or improperly presented. The comments are not intentionally inserted to offend, dishonor or disrespect any person or institution. Good luck and happy studying!
NEGOTIATION
Sec. 30. What constitutes negotiation. — An instrument is
negotiated when it is transferred from one person to another
in such manner as to constitute the transferee the holder
thereof. If payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the indorsement of the
holder completed by delivery.
• When an instrument is transferred from one person to
another in such manner as to constitute the transferee
the holder thereof. Negotiation makes it possible for the
transferee to acquire a better right to a negotiable
instrument that the transferor had.
• Negotiation is the mode and effect of the transfer of a
NI. Thus, there is no negotiation of the transfer does not
make the transferee the holder of the instrument.
• Transfer is the process by which property is delivered by
one person to another.
Example: If I gave you a check for the purpose of showing you
what a check looks like, there’s no negotiation there because
although there is transfer from one hand to another, there was
no intention to let the person who ran away as a person as a
holder. You will only have negotiation if the intention is
to constitute the transferee as a holder.
Methods of Transferring A Negotiable Instrument
1. Issue — the first delivery of the instrument, complete in
form, to a person who takes it as holder. It is the first
transfer of an instrument to a payee, where the legal life
of the instrument begins.
2. Negotiation — ordinarily involves indorsement (if order
instrument), so both terms are often used
interchangeably. Negotiation makes it possible for the
transferee to acquire a better right to a NI that the
transferor had.
3. Assignment — the less usual method, which may or may
not involve an indorsement. Here, the assignee acquires
the instrument subject to the rules applicable to a non-
negotiable paper.
Methods of Negotiation
• The method of negotiation depends on the type of
negotiable instruments, whether it is a promissory note or
a bill of exchange, and whether it is a bearer or order
instrument.
Type of Instrument Method of Negotiation
Order Instrument Mere delivery
Bearer Instrument Indorsement + Delivery
1. Instrument Payable to Order
• Negotiated by indorsement coupled with delivery.
• Where the instrument is payable to order, there are two
steps required for its negotiation:
➢ first, an indorsement by the payee of present holder,
and
➢ secondly, its delivery to the next holder.
Important: Under Section 74, the instrument must be
exhibited when presented for payment to the person from
whom payment is demanded. The party paying may thus judge
the genuineness of the indorsements and of the right of the
holder to receive payment.
2. Instrument Payable to Bearer
• If the instrument is payable to bearer, it is negotiated by
mere delivery without the need for an indorsement.
• Bearer is the person in possession of a bill or note which is
payable to bearer.
• Delivery means transfer of possession actual or
constructive, from one person to another.
• While a thief or finder cannot acquire title to the
instrument, by virtue of the theft, he can transfer title to
a subsequent innocent purchaser, and the delivery to the
latter can constitute negotiation.
Payment of instrument by drawee is not negotiation
• The payment of a check or other bill by the drawee bank
is not a negotiation and does not make the bank a
holder within Section 30.
• Payment effects a discharge of the instrument, not a
transfer of title thereto.
• Here, the drawee bank is neither the payee nor the
indorsee. The check is thus extinguished and cannot be
put in circulation again so as to bind the drawer or
indorser.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
Comment:
• The writing of the name of the holder on the back of the
check before surrendering the same for payment to the
drawee bank is not an indorsement. It merely serves as a
receipt for the money.
Effect of delivery of order instrument without
indorsement
• There is no negotiation, thus, the transferee would not be
the holder of the instrument.
• The transfer operates merely as an ordinary
assignment and the assignee is merely placed in the
position of the assignor, subject to all defenses, real and
personal, available against the assignor.
• The lack of any indorsement does not preclude the
assignee’s right to enforce the note.
• It merely prevents him from obtaining the status of
the holder, but he can still seek to collect from the maker
as an assignee and owner of the note.
What is the remedy of the assignee?
• To secure the indorsement of the assignor (Sec. 49).
• When such indorsement is subsequently obtained, the
transfer operates as a negotiation only as of the time
the indorsement is made.
Assignment
• A transfer of the title to the instrument, with the assignee
generally taking only such title as his assignor has, subject
to all defenses available against his assignor.
• A bill or note, whether negotiable or non-negotiable,
may be transferred by assignment.
Negotiation vs. Assignment
• Negotiation is strictly the transfer of a negotiable
instrument to a holder.
• While a NI may be either negotiated or assigned, a
non-negotiable instrument can only be assigned, not
negotiated.
Negotiation Assignment
Refers only to negotiable Refers generally to an ordinary
instruments contract
The transferee is a holder Transferee is an assignee
HDC is subject only to real Assignee is subject to both real
defenses and personal defenses
HDC may acquire a better title or An assignee merely steps into
greater right under the the shoes of the assignor
instrument than those possessed
by the transferor or prior party
Assignor does not warrant the
General indorser warrants the solvency of prior parties, unless
solvency of prior parties expressly stipulated or the
insolvency is known to him
Indorser is not liable unless there Assignor is liable even without
be presentment and notice of notice of dishonor
dishonor
Governed by the NIL Governed by the Civil Code
(Arts 1624-1635)
Comments:
• The distinction between negotiation and assignment
is not material if there is no defense to the obligation
and only the maker is sought to be held.
• But whether the transfer of a bill or note is by negotiation
or assignment, the transfer may constitute a sale,
exchange, pledge or gift.
• Payment using an instrument merely conditional (not a
legal tender). Whether the act involved is negotiation or
assignment, payment by means of PNs or BOEs and other
negotiable instruments is merely conditional – subject to
the condition that they be converted into cash at maturity.
• Take note: The rule is different in insurance, because
acceptance of a PN or check in payment of the premium
by the insurer renders the policy immediately operative,
where the policy is silent as to the mode of payment.
How Indorsements Is Made (Sec. 31, 32, 40, 41, & 50)
Sec. 31. Indorsement; how made. — The indorsement must
be written on the instrument itself or upon a paper attached
thereto. The signature of the indorser, without additional
words, is a sufficient indorsement.
• Indorsement is the act of writing the signature of
the indorser at the back of the instrument (Generally
at the back of the instrument but can be anywhere).
Comments:
• The only requirement is the signature of indorser.
1|Page
• That is why there are indorsements classified as blank and
classified as special, because, at the very least, a signature
of an indorser is needed.
• An indorsee can indorse the instrument to someone else
and, thus, become an indorser as well.
• The indorsement must be written on the instrument
itself or on a paper attached thereto (allonge).
• The signature of the indorser, without additional words, is
sufficient indorsement. (Sec. 31)
• Indorsement alone without delivery conveys no title
and creates no holder. It must be indorsed coupled with
delivery. It applies to both bills and notes.
Parties to an Indorsement
1. Indorser — the payee by signing or indorsing the
instrument and delivering it to another becomes an
indorser.
2. Indorsee — the person who receives the indorsement
instrument.
Where there is no signature of indorser but name of
indorser is placed
• There is no valid indorsement because what is required is
the signature of the indorser as provided under Sec. 31.
An indorsement is not only a mode of transfer
• It involves a new contract and an obligation on the
part of the indorser — an implied guaranty that the
instrument will be duly paid according to the terms
thereof.
• By his indorsement, the indorser becomes a party to
the instrument and may be held liable for its
payment even without receiving any consideration
therefor.
• Each indorsement generates an additional contract
between the indorser and all subsequent holders.
An indorsement involves the certainty of two things:
1. The identity of the indorser (as being the payee or true
owner)
2. The genuineness of his signature
Comments:
• It is the duty of a person cashing or paying on an
instrument to ascertain both before paying.
• Important: But the acceptor does not admit the
genuineness of the indorser’s signature.
An indorser generally enters into two contracts (Implied
contracts by Indorser):
1. Sale or transfer of instrument
2. To pay instrument in case of default of maker
Comment:
• Indorsement must be of entire instrument.
• It can’t be indorsement of only a part of amount
payable, nor can it be to two or more indorsees
severally, but it is okay to indorse residue of partially paid
instrument) (Sec. 32)
Effect of a Blank Indorsement
• In an order instrument, when the only or last indorsement
is an indorsement in blank, it will convert the instrument
to a bearer instrument.
Does an indorsement have to contain words of
negotiability?
• No, it does not need to contain words of Negotiability.
• Words of negotiability are only required on the face
of the instrument. When making indorsement, there is
no need to add words of negotiability. Negotiability of an
instrument is to be determined merely on the face of the
instrument (Caltex case)
• In fact, an instrument which does not contain words
of negotiability on its face is not cured by the fact
that the indorsement contains words of
negotiability.
Where should the indorsement be placed?
1. On the instrument itself
• Indorsement is derived from the Latin word “indorsa”
which literally means “writing on the back”. However, it
may also be written on the face thereof. The place is not
essential.
2. Upon a paper attached thereto
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
• Where indorsement is on a slip of paper physically
attached to the instrument so as to become part of it —
the paper is known as ALLONGE.
• It is possible to indorse the instrument not just at the
back of the said instrument but on another piece of
paper (allonge)
➢ Instrument and allonge have to be attached,
otherwise parties to the instrument will not know who
caused some indorsement on such instrument
Can an allonge be used if there is still room on the
instrument to write one’s indorsement?
• Yes. It is immaterial whether there is still room or not.
• Remember: When it is not clear in what capacity a
person intended to sign, he shall be deemed an indorser.
Instrument Payable to Two or More Persons
Sec. 41. Indorsement where payable to two or more
persons. - Where an instrument is payable to the order of two
or more payees or indorsees who are not partners, all must
indorse unless the one indorsing has authority to indorse for
the others.
An instrument may be payable to the order of:
• Two or more payees jointly (and)
• One or some of several payees
How will this be negotiated?
• All must indorse to effect negotiation.
• If only one indorses, his indorsee would have no right of
action for said instrument.
Illustration:
I promise to pay to the order of A or B P10,000.
Sgd. Y
(Note: This is the INSTRUMENT, not the INDORSEMENT)
• This is a negotiable instrument according to Section 8 of
the NIL tells us that there can be one or more/several
payees. How will this be negotiated?
➢ Negotiated by indorsement by either A or B
because clearly one is authorized to act in behalf
of another because of the conjunction “OR.”
➢ Note that Sec. 41 says that it should be negotiated by
A “and” B through both their indorsements,
UNLESS they are partners or the one indorsing
has authority to indorse for others.
➢ In this case, this obviously can be negotiated by either
A or B because there is clearly authority to indorse for
either, as noted by the conjunction “or”.
Joint and Solidary Indorsements
Pay to D or C.
Sgd. A
(Note: This is the INDORSEMENT, not the INSTRUMENT)
• This is NOT A VALID indorsement (even if originally
payable to two payees).
• There can be two or more PAYEES, but there cannot
be joint and several (solidary) INDORSEES. You can
only have joint (not the conjunction “OR,” just the
conjunction “AND”) indorsements
• Why is it not allowed (there can no longer be
solidary indorsements subsequent to the original)?
a. To avoid multiplicity of suits (discourage more division
of causes of action)
b. To discourage indorsement of partial amounts
Pay to D and C.
Sgd. A
(Note: This is the INDORSEMENT, not the INSTRUMENT)
• This is now a VALID indorsement (even if not
originally payable to two payees).
• What is contemplated is what if it is indorsed by one by
the several indorsees and the other solidary indorsee does
not agree. That would cause one to sue the other. It cannot
happen that D and C will have different indorsees because
both of them have to indorse to one or more persons as
long as it is joint.
Why will disallowing “or” and allowing “and” prevent
multiplicity of suits?
• What the law might have probably contemplated is what if
the instrument was indorsed by one of the solidary
indorsee and the other solidary indorsees does not agree
(if you indorse as OR), thus resulting into suits between
2|Page
 the solidary insdorsees, as compared to “AND” na both of
them have to indorse, so naay concurrence na.
How come solidary payees (using “OR”) is allowed, but
not indorsements?
• They just allowed this because this is just the initial stage
and it may be manageable. If ever this will lead to certain
causes of action, it is only the payees who are
involved.
• If you allow further that there be more than one indorsee,
there may be more than one who will sue on the
subsequent indorsements.
Can you address a BOE to severally liable drawees or
drawees in the alternative?
• It cannot be addressed to several drawees. It will
cause confusion as to when the instrument is
actually dishonored.
Can there be joint drawees?
• There may be JOINT drawees. There is no confusion.
• One can represent both or the two of them have to accept
the instrument (one can act for the other).
Comment:
• BOTTOMLINE: There can be joint (conjunction AND)
payees, indorsees, and drawees; likewise, there can be
solidary (conjunction OR) payees, but NOT solidary
indorsees and drawees.
Indorsement Must Be of Entire Instrument
Sec. 32. Indorsement must be of entire instrument.
— The indorsement must be an indorsement of the entire
instrument. An indorsement which purports to transfer to the
indorsee a part only of the amount payable, or which purports
to transfer the instrument to two or more indorsees severally,
does not operate as a negotiation of the instrument. But where
the instrument has been paid in part, it may be indorsed as to
the residue.
• General Rule: Indorsement must be for the full amount.
You cannot indorse an instrument partially.
• Exception: Partial indorsement is allowed provided the
instrument is already paid partially, as in an
instrument paid in installments. Because it can be paid in
installments, the instrument can be indorsed partially,
provided the indorsed amount is also the same as in the
face of the instrument.
Example: If the instrument is for the amount of P1 million, you
cannot indorse it for the amount of P400k, P500k or P600k. It
has to be for the full P1 million, except when the instrument is
to be paid on stated installments.
Example: An instrument is payable in 12 months’ time. During
the second month, 20% has already been paid. The remaining
80% can just be endorsed. It will not require the indorsement
of the full amount since a part of it has already been paid for.
Example: The indorsement reads:
Pay to D P5,000 and C P5,000.
Sgd. A
Is this a valid indorsement?
• No. See Sec. 32. This will now change/alter the nature
of the obligation as an originally indivisible
obligation will now be transformed into a divisible
negotiation.
• Also, this will encourage subsequent partial negotiations .
• This alteration actually is a material alteration, so this
should not be allowed by law.
Comments:
• The transferee of an instrument with a partial
indorsement is merely an assignee.
• He would not be considered a holder. Consequently, he
would be subject to all defenses available between
the original parties.
Illustration (NI payable by stated installments):
I promise to pay to the order of A P10,000 as follows:
1/2/2020 -P4,000.
2/2/2020 – P6,000.
(INSTRUMENT) Sgd. Y
It was indorsed as follows:
Pay to D P6,000
Sgd. A
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
Is this a valid indorsement?
• We must first qualify when the instrument was
negotiated or partially paid to determine whether or
not the indorsement was valid.
• If it is negotiated after January 2, 2020, it is a valid
indorsement presupposing the P4,000 has been
paid. What remains is the P6,000.
• You cannot make an indorsement partially anytime
because the instrument is payable in installments. It is
allowed only once there is partial payment.
• But if it is negotiated before January 2, 2020, this is
not a valid indorsement!
Kinds of Indorsement
Sec. 33. Kinds of indorsement. - An indorsement may be
either special or in blank; and it may also be either restrictive
or qualified or conditional.
Kinds of Indorsement
1. Special
2. Blank
3. Restrictive
4. Qualified
5. Conditional
1. Special Indorsement
Sec. 34. Special indorsement; indorsement in blank. — A
special indorsement specifies the person to whom, or to whose
order, the instrument is to be payable, and the indorsement of
such indorsee is necessary to the further negotiation of the
instrument. An indorsement in blank specifies no indorsee, and
an instrument so indorsed is payable to bearer, and may be
negotiated by delivery.
Special Indorsement
• One where the name of the payee is specified. If the
name of the person to whom the instrument is indorsed is
present along with the signature of the Indorser.
• It is also known as specific indorsement or
indorsement in full.
• Special — specifies the person to whom/to whose order
the instrument is to be payable; indorsement of such
indorsee is necessary to further negotiation.
• A special indorser is liable to all subsequent holders,
unless the instrument is an originally bearer
instrument, in which case he is liable only to those
who take title through his indorsement (Sec 40, NIL)
• Special and blank indorsements are “unqualified
indorsements”.
Two Forms of Special Indorsement
1. One that specifies the person to whom the
instrument is payable (Pay to A)
2. One that specifies the person to whose order the
instrument is to be payable. (Pay to the order of A)
TN: In either case, the indorsement must be followed by the
signature of the indorser.
No Need for Words of Negotiability
• It is not necessary to use the words of negotiability (i.e.
“or order” or “to the order of” and their omission does not
affect the negotiability of an instrument which is
negotiable on its face.
• Once an instrument has become negotiable because it has
complied with Sec. 1, it will continue to be negotiable,
unless:
➢ Restrictively indorsed or
➢ Discharged by payment or otherwise
• In fact, any indorsement cannot affect the negotiability of
the instrument (except restrictive indorsement which
prohibits further negotiation of instrument).
Comments:
• It is wrong to simply say “paid” or “payment” because an
instrument can still be negotiable even if paid. It has to be
discharged by payment or otherwise.
• So, for example, a person who is not primarily liable
paid for the instrument, it does not result to a
discharge of the instrument.
Example: The special indorsement might state:
To : B To: C
Sgd. A Sgd. B
Blank and Special Indorsements
• If the instrument is an order instrument and the LAST
indorsement was in blank, the instrument may be
3|Page
 negotiated by mere delivery (transformed into a bearer
instrument.)
• Subsequent special indorsements revert the
document to an order instrument. (Subject to the right
of the person in possession of the instrument to strike out
the subsequent indorsements)
2. Blank Indorsement
Sec. 35. Blank indorsement; how changed to special
indorsement. — The holder may convert a blank indorsement
into a special indorsement by writing over the signature of the
indorser in blank any contract consistent with the character of
the indorsement.
Blank Indorsement
• The indorsement does not contain the name of any
indorsee.
• An order instrument may be converted into a bearer
instrument by means of a blank indorsement.
• An indorsement is in blank if only the signature of the
indorser is shown on the instrument.
• Blank — specifies no indorsee, the instrument so indorsed
becomes payable to bearer, and may be negotiated by
delivery.
• A person who negotiates by mere delivery is liable only to
his immediate transferee.
• The holder may later convert a blank indorsement
into a special indorsement by writing over the
signature of the indorser in blank any contract
consistent with the character of the indorsement
(adding the person to whom it was transferred in
conformity with the intent of the indorser).
• BUT a bearer instrument remains as such whether it
has been indorsed specially or in blank. It is the
liability of the indorser which is affected.
Effect of a Blank Indorsement
• An instrument indorsed in blank becomes payable to
bearer. Thus, it may be negotiated by mere delivery
regardless of whether the instrument is originally payable
to bearer or not.
Subsequent special indorsement of an instrument
previously indorsed in blank
• Done by writing above the signature of the indorser a
contract consistent with the intention of the indorser.
• Effect: Instrument is reverted to its original nature which
is an order instrument from a bearer instrument
Comments:
• As a rule, an instrument made payable to order becomes
payable to bearer if the only or last indorsement is in
blank.
• However the holder may protect himself from liability by
changing the blank indorsement to a special indorsement.
Example:
To: Z _____
Sgd. X Sgd. Z
• In this case if A receives the instrument from Z, A can put
“To: A” before Z’s signature to make the contract
consistent with the intention of the indorser.
• Thus, this indorsement is now considered a special
indorsement.
• A, as the holder, would want to write a contract consistent
with the intention of Z - indorsement to A, being the
holder. A does this in order to turn the instrument from a
bearer instrument to an order instrument.
Why would the holder want to convert it back to an order
instrument by specially indorsing it?
• Because, since it will be converted into a bearer
instrument, it can merely be negotiated by delivery. So
this is what is being avoided, to lessen the risk of losing
it or it being stolen, then you would want to specially
indorse it.
• To prevent you from incurring any liability from delivering
the instrument IF the last indorsement is in blank.
3. Restrictive Indorsement
Sec. 36. When indorsement restrictive. — An indorsement
is restrictive which either:
a) Prohibits the further negotiation of the instrument; or
b) Constitutes the indorsee the agent of the indorser; or
c) Vests the title in the indorsee in trust for or to the use of
some other persons.
But the mere absence of words implying power to negotiate
does not make an indorsement restrictive.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
• It is an indorsement which limits the further
negotiation of the instrument, in a way by
completely disallowing further negotiation, or limit
the rights of the subsequent holder by limiting who will
be the next indorsee or to whose trust the indorsement is
to be made.
• Special indorsements are NOT restrictive indorsements. It
requires words which will limit payment to B, otherwise
known as words of exclusivity.
• Only letter A of section 36 prohibits further
negotiation.
• Paragraphs B and C merely restrict the negotiation to
whatever was the authority provided by the
indorser. Subsequent negotiations are allowed.
Sec. 37. Effect of restrictive indorsement; rights of
indorsee. — A restrictive indorsement confers upon the
indorsee the right:
a) to receive payment of the instrument;
b) to bring any action thereon that the indorser could bring;
c) to transfer his rights as such indorsee, where the form of
the indorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of the first
indorsee under the restrictive indorsement.
Restrictive Indorsement
• It is an indorsement that limits the further negotiation of
the instrument.
• It is true that the signature of the indorser without
additional words is a sufficient indorsement (blank
indorsement). However, appropriate words may be
added which prohibit or limit the further negotiation
of an instrument.
• Thus, a restrictive indorsement is one so worded that it
either:
1. Prohibits entirely the further negotiation of an
instrument
2. Restricts its further negotiation to a particular person
or for a particular purpose
3. Modifies the rights of the holders or the liabilities of
the indorser
Limits Rights of Indorsee
• A restrictive indorsement notifies all prospective
holders that the indorsee has only the authority to
deal with the instrument as thereby directed and that
the indorsee has only a restrictive title thereto.
a. Prohibits Further Negotiation
• Indorsee can no longer make a further order on the
instrument for negotiation
• Instrument becomes non-negotiable
• Rights provided in Section 37 do not apply as the
restriction in this case prohibits further negotiation
Example:
“Pay only to X” or “Pay to X solely”
• Can X make further negotiation? No.
Comments:
• The prohibition to transfer or negotiate must be
written in express words at the back of the
instrument, so that any subsequent party may be
forewarned that it ceases to be negotiable.
• All other types of restrictive indorsement do not have the
same result of causing the instrument to cease from being
negotiable.
• The other types of restrictive indorsement restrict the
negotiation of the instrument but only to the limited
extent.
b. Constitutes the Indorsee as Agent of the Indorser
• Instrument is not rendered non-negotiable
• Merely restricts the power of the indorsee to
negotiate the instrument
• Succeeding indorsers only get to negotiate based on the
authority given as the restriction trickles
• Has the rights provided in Section 37
Example:
To: X To: Z
For collection Sgd. X
Sgd. Y
• In this case, if X further negotiates the instrument to Z, all
subsequent indorsees hold such for collection of Y.
• Even if the indorsement just says that, the limitation in
the authority of X will still trickle down to Z
(subsequent indorsee) even if there are no words
4|Page
 indicating the restrictive indorsement in X’s
indorsement to Z.
• What Z acquires is only the right to collect for the
instrument in behalf of Y.
• Legal basis: Last paragraph of Sec 37 (“…But all
subsequent indorsees acquire only the title of the first
indorsee under the restrictive indorsement”). This of
course, only applies to Sec 36(b) and (c), not Sec
36(a) because Sec 36(a) makes the instrument non-
negotiable.
• Another example: “for safeguarding.”
Comments:
• Although, this instrument may be questioned, however. It
is not restricted to collection ONLY since there is no
word of exclusivity. If that were the intention, it must
have the restrictive word placed.
Another Example:
To: A, as an agent of B, for collection of P10,000.
Sgd. Kurt
• It is valid when Kurt signed it. It is addressed to A (as
agent of B) for collection.
• Further negotiation of the instrument is deemed restricted.
Where it is further negotiated, the restriction will attach to
the subsequent indorsees.
Assume that it was further indorsed as follows:
To: C
Sgd. B (since he is the principal of A)
• If it is further negotiated to C, C will act as an agent of
Kurt.
• Kurt is constituting the indorsee as his agent. When
B who was constituted by Kurt as an agent to C, C becomes
an agent of Kurt. Restricted in the sense that C can
only collect in behalf of Kurt.
In this case, must C still give valuable consideration to
the instrument considering that he is deemed as Kurt’s
agent?
• Yes, valuable consideration must still be given by C;
otherwise, it will defeat its character of
negotiability.
• It’s just that, it seems to be a runaround of the amount.
That’s the entire purpose of negotiable instruments. It
does not cease to be negotiable. You still have to give
consideration. C here, has to give B.
• Then again, it goes without saying that C and B can always
have an arrangement not to have value.
• If that arrangement will ever be questioned, C will not be
considered a holder in due course since the intention
supposedly is for C to give value to B.
• When Kurt negotiated to B, the purpose is for
collection, not negotiation. However, since the law
does not prohibit the same, it can still be further
negotiated. It will cause a runaround of the amount.
• When Kurt gave it to A for B, B gave value. When B
negotiated it to C, C gave value to Kurt, too. He is
collecting not for himself but for Kurt due to the restriction.
• However, he is not required to give money since he already
gave it to his indorser. When he acts, he acts for the
restrictive indorsement, not himself.
c. Title in the Indorsee in Trust for or to the use of some
other persons
• Limited to whatever it was restricted
• Instrument is not rendered non-negotiable
• Subsequent indorsees become trustees as the such
negotiation is limited by the restriction
• Has the rights provided in Section 37
Example:
To: X To: Z
In my trust Sgd. X
Sgd. Y
• In this case, if X will negotiate the instrument to Z,
then Z will become a trustee of Y.
• As an effect, the subsequent indorsees will still hold
the instrument in trust for Y.
• The limitation imposed upon X by Y will trickle down to the
subsequent indorsees of X, who is Z in this case.
• Whoever holds the instrument subsequent to the
restrictive indorsement, holds it subject to the authority of
the restriction given. Even if it doesn’t mention the
restriction, it still applies.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
Rights of an Indorsee Under Restrictive Indorsement
(under b and c ONLY)
1. He can receive payment
2. Sue thereon in his name
3. Negotiate the instrument except when it is prohibited in
the indorsement
The only kind of indorsement which stops the further
negotiation of an instrument is a restrictive indorsement (letter
a) which prohibits the further negotiation thereof.
Effect of Absence of Words of Negotiability
• Mere absence of words implying power to negotiate does
not make an indorsement restrictive. Thus, “Pay to A” is
the same as “Pay to order of A” or “Pay to A or order”.
• However, if a restrictive word such as “only” is
employed so as to prevent further negotiation, the
instrument is not only restrictively indorsed but it
also ceases to be negotiable.
4. Qualified Indorsement
Sec. 38. Qualified indorsement. — A qualified indorsement
constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser's
signature the words "without recourse" or any words of similar
import. Such an indorsement does not impair the negotiable
character of the instrument.
• A qualified indorsement does not impair the negotiable
character of the instrument unlike in the restrictive
indorsement.
Qualified Indorsement
• One which constitutes the indorser a mere assignor of the
title of the instruments.
• The indorser is merely an assignor because in this
type of indorsement, he does not engage to pay the
instrument in case the person primarily liable does
not pay.
• In other words, the indorser does not warrant
solvency of the person primarily liable, however, he
still warrants those under Sec. 65.
Sec. 65. Warranty where negotiation by delivery and so
forth. — Every person negotiating an instrument by delivery
or by a qualified indorsement warrants:
a. That the instrument is genuine and in all respects what it
purports to be;
b. That he has a good title to it;
c. That all prior parties had capacity to contract;
d. That he has no knowledge of any fact which would impair
the validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate
transferee.
The provisions of subdivision (c) of this section do not apply to
a person negotiating public or corporation securities other than
bills and notes.
Comments:
• Actually, in a qualified indorsement, the indorser can
still be held liable if he commits a breach of his
warranties under Sec. 65, as when it is dishonored due
to:
1. Forgery
2. Lack of good title to the indorsed instrument
3. Lack of capacity to contract of prior parties
4. Fact that the instrument was valueless or not valid at
the time of the indorsement which fact was known to
him
• It just so happened that the easiest example to illustrate
this is to show that the indorser does not warrant the
solvency of the person primarily liable.
An indorsement may be qualified by adding to the
indorser’s signature the words like:
1. Without recourse
2. Sans recourse
3. At indorsee’s own risk
4. Indorser not holder
Comments:
• This is placed there so that parties subsequent to the
qualified indorsee would know that the indorser does not
intend to pay the instrument in case the person primarily
liable does not pay him
5|Page
Effects of Qualified Indorsement
1. It makes the indorser a mere assignor to the instrument
2. Limits the liability of the indorser
3. Does not impair the negotiable character of the instrument
Comments:
• The qualified indorser does not warrant the solvency
of the person primarily liable on the instrument
unless he knows of his insolvency.
• A qualified indorsement shows the unwillingness of the
indorser to be answerable for the solvency of prior
parties (a prudent precaution; especially so when the
note has a long time to run before it matures)
Purpose/Rationale:
• This is done when a person wants to transfer the
instrument only in relation to his right, and he doesn’t want
any other instances in which he may be required to pay.
• Once he lets go of the instrument, he should not be
required to pay for the instrument anymore.
• Otherwise known as “sans recourse” or “without
recourse”, meaning you cannot go after him if the
instrument is not paid in the future. BUT it’s not
absolute because you still continue to warrant as an
indorser under Sec. 65 (breach of warranty).
General Rule:
• A qualified indorser cannot be required to pay if the
reason for non-payment is insolvency.
Exception:
• He had knowledge of any fact that would impair the
validity of the instrument or render it valueless.
Section 65 vs. Section 66
• In Section 66, there is a guarantee of solvency. It warrants
that the person will pay.
• In Section 65, they do not warrant solvency.
• General Rule: “without recourse”
• qualified indorser does not warrant solvency of the
parties prior to him/her thus you cannot go to him for
payment
• persons negotiation by delivery also do not warrant
solvency
• Exception: Breach of warranties (Section 65) then you
can go after the qualified indorser, when it is dishonored
due to:
1. Forgery
2. Lack of good title to the indorsed instrument
3. Lack of capacity to contract of prior parties
4. Fact that the instrument was valueless or not valid at
the time of the indorsement which fact was known to
him
• Reason: Section 66 has an additional provision (not
found in Section 65 which covers qualified
indorsement and delivery) – “engages that on due
presentment, it shall be accepted or paid, or both, as
the case may be, according to its tenor, and that if it
be dishonored, and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof
to the holder, or to any subsequent indorser who may
be compelled to pay it.”
• At the time of qualified indorsement, it was
public knowledge that the indorser was
insolvent then the qualified indorser is liable
because there is a breach of warranty
✓ Section 65(d): That he has no knowledge of any
fact which would impair the validity of the
instrument or render it valueless
• At the time of qualified indorsement, the indorser
had actual knowledge of insolvency.
Comments:
• Under Sec 65 (qualified indorser), it requires knowledge
on the part of the indorser of a fact that would impair the
validity of the instrument for the indorser to breach his
warranty.
• In Sec 66 (general indorser), whether there is knowledge
or not, if the instrument is impaired or rendered valueless,
it is still a breach of the general indorser’s warranty.
• When the indorser has breached his warranty, whether as
a general or qualified indorser, he can be held liable for
such breach.
• When the qualified indorser knew of the insolvency of the
person primarily liable, then he is still liable.
• Basically, If you are a qualified indorser, you will not be
required to pay the amount of the instrument in case there
is insolvency on the part of the person who may be
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
required to pay the instrument UNLESS the qualified
indorser knew of the insolvency of the person liable
(knowledge of the insolvency is the breach of warranty
under Sec 65d)
• Additionally, the qualified indorser is also made liable
for non-payment when the dishonor is due to
forgery, lack of good title to the indorsed
instrument, and lack of capacity to contract of prior
parties.
• The qualified indorser can be liable for the amount for any
breach of warranty he made under Sec. 65.
Example:
A—B—C (made a qualified indorsement to D)—D—E
E went to A for payment, but A cannot pay because of
bankruptcy.
To whom should E go?
• E can go D because under Sec 66(b), the general indorser
(D) makes a warranty to E that D will pay E in case the
instrument is dishonored by the maker.
• D makes a promise to make payment in case the
instrument is not paid (as seen in Sec 66, last paragraph)
Can E go after C?
• No, E cannot go after C because C did not make a
warranty to make payment in case the person liable
to pay (A) cannot pay because of insolvency.
• C can only be held liable if the non-payment is due
to breach of warranties under Sec 65, but not
insolvency which the indorser did not know about.
What if A was publicly known to be insolvent, can E go
after C?
• Yes, under Sec 65(d), E can go after C because of C’s
breach of warranty that he has no knowledge of any fact
that impairs the validity of the instrument.
• Because A is publicly known to be insolvent, C is
presumed to have known of such fact.
• Thus, C is presumed to know such fact that impaired
the validity of the instrument.
• E can go after C not because of “sans recourse,” but
because C made that qualified indorsement despite the
public fact that A is insolvent.
What if A was not publicly known to be insolvent but C
knew A was insolvent?
• All the more C can be held liable. Now, C really has actual
knowledge of the insolvency of A.
• If in the previous example (A’s insolvency is public
knowledge), we just imputed knowledge on C to make him
liable, all the more that here C should be liable because he
personally knows of A’s insolvency.
5. Conditional Indorsement
Sec. 39. Conditional indorsement. — Where an indorsement
is conditional, the party required to pay the instrument may
disregard the condition and make payment to the indorsee or
his transferee whether the condition has been fulfilled or not.
But any person to whom an instrument so indorsed is
negotiated will hold the same, or the proceeds thereof, subject
to the rights of the person indorsing conditionally.
• In the face of an instrument, you cannot place any
condition on the promise or order made, but later on
you can place conditions as to the acquisition the
title of the instrument.
Absolute Indorsement
• One which the indorser binds himself to pay, upon no other
condition than the failure of prior parties to do so, and of
due notice to him of such failure.
Conditional Indorsement
• One by which the indorser imposes some other conditions
to his liability or on the indorsee’s right to collect the
proceeds of the instrument.
• Does not render the instrument non-negotiable because
the instrument is found on the indorsement and not on the
face of the instrument.
• Payee receives the amount subject to the condition.
• A conditional indorsee can further negotiate and
need not put a condition on the subsequent
indorsement, but the first indorsee with the
condition will have to answer to the indorser in case
the condition is not fulfilled.
6|Page
Comment:
• This will not affect the negotiability of the instrument.
However, the condition must be on the indorsement and
not on the instrument itself.
• Any condition placed on the instrument will affect
negotiability since Sec. 1 requires an unconditional
promise or order to pay.
• Nothing special as it does not affect the instrument.
Effect of Conditional Indorsement
• It has no effect on the further negotiation of the
instrument.
• The party required to pay, if he chooses, may make
payment, disregarding the condition without
incurring any liability because he is expressly
authorized to do so under Section 39.
• However, the person who received payment will hold the
proceeds subject to the right of the conditional indorser.
Comments:
• In other words, if the party required to pay the
instrument decided to pay, the holder despite the
non-fulfillment of the condition, the holder will have
to hold the proceeds of the payment in trust of the
conditional indorser until the condition is fulfilled.
• Therefore, the parties may disregard the condition placed
on the indorsement.
Example: The indorsement says:
To: X when he passes the BAR. To: A
Sgd. Y Sgd. X
• In this case, if the party primarily liable still paid X
the amount, before passing the Bar, the effect is that
X will always hold the amount subject to the
condition until he passes the Bar.
• If the doesn’t pass the Bar, then he must return it to the
person who indorsed the instrument to him.
• However, if the instrument was instead negotiated by
X to A without a condition, A will be bound by the
condition upon acceptance from Y.
• If A presented the instrument to the maker who paid
it, but then X failed the Bar, Y (the one who placed
the conditional indorsement) can go to A and
demand reimbursement of the value of instrument
as A was merely holding it in trust, and A, in turn,
can demand reimbursement from X.
Comments:
• In essence, the condition may be disregarded upon
negotiation.
• However, the holder will have to hold the proceeds of
the payment in trust of the conditional indorser until
the condition is fulfilled.
Different Combinations of Indorsements
Special and restrictive “Pay to A only” (Sgd. P)
Special and qualified “Pay to A without recourse” (Sgd. P)
Special and conditional “Pay to A if he marries before he
reaches the age of 25” (Sgd. P)
Blank and restrictive “For collective only” (Sgd. A)
Blank and qualified “Without recourse” (Sgd. A)
Special, unrestrictive, “Pay to B” (Sgd. A)
unqualified
Indorsement Of Instrument Payable To Bearer
Sec. 40. Indorsement of instrument payable to bearer —
Where an instrument, payable to bearer is indorsed specially,
it may nevertheless be further negotiated by delivery; but the
person indorsing specially is liable as indorser to only such
holders as make title through his indorsement.
• Once a bearer instrument, always a bearer instrument.
• Article 40 applies only to instruments that are
originally bearer instruments. This cannot apply to an
instrument which WAS originally an order instrument that
became a bearer instrument.
• A bearer instrument is not converted into an
instrument payable to order by being indorsed
specially. Therefore, it can be negotiated even by
mere delivery only.
Liability of the Indorser
1. Liable only to those holders who can trace their title to the
instrument by a series of unbroken indorsements from
such special indorser.
2. His liability is that of a general indorser.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
Comments:
• Usually, in a bearer instrument, a transferor will not be
liable to all parties but only to parties of immediate
transferee because the transferor’s warranty only extends
to his immediate transferee.
• BUT if the bearer instrument is indorsed, the person
making the indorsement will be liable like any other
indorser, but only to parties who can trace their title
to the indorsement that was made.
Illustration (originally a bearer instrument):
Case 1:
X (delivered) - Y - (d) - A - (indorsed) - B - (i) - C – (i) – D
In this case, D goes to X for payment but X refuses to
pay because he is insolvent, can D go after A, B, and C?
• Yes, because D can trace his title through the
indorsements as there is a series of unbroken
indorsements.
Case 2:
X - (d) - Y - (d) - A - (i) - B - (d) - C – (i) – D
Can D go after A?
• No, because D can no longer trace his title to A as
there is already a break in the indorsements.
• The law in saying “the person indorsing specially is liable
as indorser to only such holders as make title through his
indorsement,” it contemplates a series of unbroken
indorsement.
Case 3:
B (i) – A (i) – C (i) – D (i) – E (d) – F
• From you as a holder down to the person you go after, it
must be in indorsements.
If B, the maker, does not pay, Can F run after A?
• F cannot run after A, C, and D since he did not get
his title through their indorsements (it was only
delivered to him by E).
• However, F can run after E, and when E pays F, E can
now run after A, C, and D, because he traced his title
to them through a series of unbroken indorsements.
How Indorsement is Made
• When someone made the indorsement, their indorsement
is extended to everyone subsequent to them. It doesn’t
matter whether that person received that by mere
delivery or by indorsement. Because you don’t put limit if
you are indorsing.
• Section 40 only applies to an instrument which is originally
a bearer instrument.
• Here, originally, the instrument is an order instrument but
was only converted to bearer instrument, you don’t apply
section 40. Since it is an indorsement, the warranty
extends to all.
• Only the means of negotiation was changed here but as to
the liability it stays the same.
• Though section 40 only talks of special indorsement,
however, it should include blank indorsement.
What if it was originally payable to order? Do we follow
the same rules?
Example:
Originally an order instrument
M– P– A– B (Blank Indorsement)– C (Delivered)– D (d)– E (i)–
F (Indorsed)– G (i)–> H
Can H go directly to A?
• Yes. If the instrument is originally an order instrument,
any indorser is liable to any subsequent party. The
extension of their warranty extends to all subsequent
parties.
• It doesn’t matter na there is a beak in series of
indorsements because this is originally an order
instrument.
Can H go to C?
• No, because C negotiated the instrument by mere delivery,
C only extended warranty to his immediate transferee, D.
If the instrument says, “Pay to the order of cash”, what
is the effect?
• Bearer instrument. H cannot go after P (Sec. 9). H can only
go after E, F and G.
Indorsement to a Person as Cashier (Sec. 42)
Sec. 42. Effect of instrument drawn or indorsed to a
person as cashier — Where an instrument is drawn or
indorsed to a person as “cashier” or other fiscal officer of a
bank or corporation, it is deemed prima facie to be payable to
7|Page
the bank or corporation, of which he is such officer, and may
be negotiated by either the indorsement of the bank or
corporation or the indorsement of the officer.
Indorsement where instrument drawn or indorsed to a
person as cashier
• The cashier of a bank, president of a corporation, or any
other administrative officer, as secretary or treasurer, may
be:
a. Expressly authorized to issue negotiable paper for
the corporation
b. May have such power from implication by reason
of having previously exercised the power.
• If indorsed to a cashier or fiscal officers of the bank or
corporation, it can be indorsed by the bank or corporation
or their representatives because the supposed
indorsement there is really the corporation being
represented by the officer.
• Example: Cashier of USC. This is an instrument to be
given to USC, just represented by the cashier. Also, it can
be negotiated by the cashier or any representative
by the USC because it is supposed to be owned by
the USC. The cashier merely represents the entity where
he or she is working. He or she is the agent.
Corporation
• Not to include cities and towns, so that no authority is
conferred upon a town treasurer to impose upon his town
the liability of an indorser.
Comments:
• If it is indorsed to a corporation, it can be indorsed to
the officer of the corporation. It can also be any other
authorized representative of the corporation.
• It is paid to the order of the corporation and
negotiated by the authorized representative.
• The presumption in this section may be disproved by
sufficient evidence to the contrary.
• It may be shown that the instrument really belongs to the
cashier personally as the real creditor of the maker or
drawer.
How do we know who is an authorized representative?
• Supposedly every year, every corporation who has an
account with the bank must have a General
Information Sheet which shows all that are
authorized.
• The bank would know who is authorized. Even if it is under
the name of the corporation, it is only the person
authorized by management who gets to sign.
Indorsement Where Name Is Misspelled (Sec.43)
Sec. 43. Indorsement where name is misspelled, and so
forth. — Where the name of a payee or indorsee is wrongly
designated or misspelled, he may indorse the instrument as
therein described adding, if he thinks fit, his proper signature.
• As long as it can be inferred that there is intention to
negotiate the instrument to a particular person, but
there is just a typographical error in the writing of
the indorsement, then you can always correct.
• A person may correct a spelling error only if the
intention of the maker or drawer was that the
instrument should be payable to the person making
the correction.
• What really is important is that there is nothing wrong
in the face of the instrument.
Illustration:
To: Ay (supposed to be Aye)
Sgd. B
• When you indorse, you can correct the spelling with your
signature.
What about checks? Does the BSP have special rules?
• For checks, this is now inapplicable because any
mistake on the check will not be accepted by any
bank. If it involves other negotiable instruments, then it
is allowed.
• In the first place, now, you cannot do more than one
indorsement sa check.
Indorsement in Representative Capacity (Sec. 44)
Sec. 44. Indorsement in representative capacity. —
Where any person is under obligation to indorse in a
representative capacity, he may indorse in such terms as to
negative personal liability.
• Indorsement can be made by an agent.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
• In order for an agent not to be held personally liable,
the agent should sign, indicating the name of the
principal and in what capacity he is signing. This will
have the same effect, as if it was indorsed by the principal.
What must the agent do to not be bound principally?
How do you negate your personal liability?
• The person must add to his signature words indicating that
he signs in behalf of the principal or that he is acting in a
representative capacity.
• He must specify:
➢ The name of the principal; and
➢ The capacity of the agent must be indicated.
• Otherwise, he will be held personally liable.
Illustration:
(indorsement)
X Corp.
Sgd. X
• X may still be held personally liable since he did not
indicate his capacity in signing for the principal. Here, X
has to sign and indicate that he is merely an agent
of X Corp.
• Atty. Amago: Indicating his title (example: CEO) in the
corporation will not suffice. Even if you are the CEO or the
President, it doesn’t necessarily mean that you are
authorized.
Example: If Atty. Amago is an agent of Dean Largo and he
signs above her name without specifying his capacity for acting
as an agent, he will be personally liable.
Sec. 21. Signature by procuration; effect of. - A signature
by "procuration" operates as notice that the agent has but a
limited authority to sign, and the principal is bound only in
case the agent in so signing acted within the actual limits of
his authority.
Indorsement Per Procuration
• The indorsement is subject to a limited authority.
• The other party dealing with this type of
indorsement must inquire as to the scope of
authority of the indorser.
• It may be expressed as “per pro.” “per proc.” “P.P.” or
“PP.”
• If you indorse the instrument beyond the authority
given to you as an agent, it is not a valid
indorsement with respect to your principal and you
may be held personally liable.
Time of Indorsement (Sec. 45)
Sec. 45. Time of indorsement; presumption. — Except
where an indorsement bears date after the maturity of the
instrument, every negotiation is deemed prima facie to have
been effected before the instrument was overdue.
• Presumption: Indorsement is made before its
maturity. There is a presumption that the instrument is
negotiated before it became overdue.
• Note that this applies only if there is no date
indicated.
• Reason: To be consistent with the presumption that
every holder is a holder in due course. Otherwise, the
parties after negotiation cannot become holder in due
course.
• If he indorsed after maturity, then he can never be a
holder in due course (but note the application of the
shelter principle).
Place of Indorsement (Sec. 46)
Sec. 46. Place of indorsement; presumption. — Except
where the contrary appears, every indorsement is presumed
prima facie to have been made at the place where the
instrument is dated.
• In practice, the place is usually indicated before the
date. This is deemed to be the place of indorsement.
• Importance: It is the law of the place which will
govern the rights and obligations of the parties.
• The place of indorsement means where the
instrument was dated. Where the instrument is made,
that is the presumption of the place.
• This presumption only applies where there is no
place indicated.
Presumption as to place of indorsement
• Indorsement is presumed to have been made at the
place where the instrument is dated. However, said
presumption is rebuttable.
8|Page
• The place of indorsement becomes important where the
law in different countries varies.
• In such a case, an indorsement is governed by the law of
the state where it is made although the instrument is
executed in a different state.
Example:
Suppose a note is dated as follows: “Manila, December 10,
2018.”
• If it is subsequently indorsed by the payee without
indicating the place of indorsement, the presumption is
that, the indorsement was made in Manila.
• He who alleges otherwise has the burden of proof.
Comment:
• For purposes of the exam, the answer should be based on
what the law says, which is that the instrument is deemed
to be made where it is dated.
Continuation of Negotiable Character (Sec. 47)
Sec. 47. Continuation of negotiable character. — An
instrument negotiable in its origin continues to be negotiable
until it has been restrictively indorsed or discharged by
payment or otherwise.
When the instrument ceases to be negotiable:
1. If it is restrictively indorsed (only refers to Sec. 36(a)); or
2. If it is discharged by payment (payment in due course)
Continuation of negotiable character of originally
negotiable instrument
• General Rule: An instrument negotiable in origin is
always negotiable until paid.
• Important: This is true although the negotiable
instrument has been dishonored, or is already
overdue, but any holder who acquires the
instrument can no longer be a holder in dur course.
• An instrument indorsed after it becomes overdue is
considered payable on demand.
• Exceptions:
1. When the instrument has been restrictively indorsed
under Sec. 36(a), or
2. When it has been discharged by payment or otherwise
Comments:
• Not every restrictive indorsement prohibits the further
negotiation of the instrument.
• Thus, the words “restrictively indorsed” in this section
should be construed to refer only to such restrictive
indorsement as prohibits further negotiation of the
instrument.
How is 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.
Note: Mutilation of the instrument, if intentional, is a
form of discharge.
Striking Out Indorsement (Sec. 48)
Sec. 48. Striking out indorsement. — The holder may at
any time strike out any indorsement which is not necessary to
his title. The indorser whose indorsement is struck out, and all
indorsers subsequent to him, are thereby relieved from liability
on the instrument.
• You can strike out indorsements (whether special or
blank indorsements) that are not necessary to your
title. If it has already been stricken out, indorsers
subsequent to him will no longer be held liable.
When may a holder strike out an indorsement?
• This is only applicable where an instrument is
originally a bearer instrument or an order
instrument where there are subsequent
indorsements after a blank indorsement is made.
A. An instrument originally payable to bearer on its face
• May be negotiated by mere delivery without indorsement.
Notwithstanding a special indorsement, it remains a bearer
instrument and may be further negotiated by mere
delivery.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
• The holder may strike out all intervening
indorsements or any of them for none of them is
necessary to his title.
• The indorser whose indorsement is struck out, and all
indorsers subsequent to him, are thereby relieved
from liability on the instrument.
• So if you struck out the indorsement of the payee,
it’s as if the holder can only hold only the maker
liable on the instrument!
B. An instrument originally payable to order on its face
• May be negotiated only by the indorsement of the payee
completed by delivery.
a. When indorsement is special — the indorsement of
the special indorsee is necessary to the further
negotiation of the instrument.
b. When the indorsement is in blank — the
instrument becomes payable to bearer and may be
negotiated by mere delivery.
• An instrument originally payable to order becomes
payable to bearer when the only or last indorsement
is in blank.
➢ Hence, when a blank indorsement is followed by
special indorsements, and the holder strikes out
all indorsements subsequent to the blank
indorsement — the instrument would become
payable to bearer.
➢ The special indorsements are not necessary to the
holder’s title as even without them, he could have
acquired title to the instrument by mere delivery.
Illustration:
BEARER INSTRUMENT
M - P (I) - A(I) - B(BI) - C(D) - D(D) - E(I) - F(I) - G(I) – H
Legend: (I) Indorsement
(D) Mere Delivery
(BI) Blank Indorsement
Whose indorsements can H strike out?
• All indorsements can be stricken out because what is
necessary for D to have a title is the delivery of C to him.
• Note: When we say “all indorsements,” it excludes
transfers by delivery (because there is no indorsement in
transfers by delivery alone!) You can only strike out an
indorsement. There is nothing to strike out if it is
delivery since nothing was written there in the first place.
You can strike out all the indorsements, even the last one
to the holder.
• The indorsements which may be stricken out are: (P-A),
(A-B), (E-F), (F-G).
What is the effect of striking out the indorsements?
• Those who are struck out of the instrument are
relieved from their liability due to their indorsement.
• In this case, the parties who are relieved are P and
everyone after him.
• All the parties subsequent to the striking out of the
indorsements are relieved from liability. The moment you
strike out a particular party, ALL SUBSEQUENT PARTIES
are relieved from liability. Thus, H may only go after M
after striking out the indorsements.
• The only reason why you would do this is because you
think it is necessary. It is PERMISSIVE, meaning it is
up to the holder to strike it out or not.
What if unintentional striking out, as when it was done
by your daughter?
• If it is unintentional striking out, you must prove the
same.
• The law presumes an INTENTIONAL striking out.
Illustration:
ORDER INSTRUMENT WITH BLANK INDORSEMENT
M - P (SI) - A(SI) - B(BI) - C(D) - D(D) - E(SI) - F(BI) - G(D)
–H
Legend: (I) Indorsement
(D) Mere Delivery
(BI) Blank Indorsement
Whose indorsements can H strike out?
• The indorsements which may be stricken out are: (E-F)
and (F-G).
9|Page
• What is necessary for each to acquire title is only ONE
blank indorsement. The moment there is blank
indorsement, it allows delivery subsequently. This
should not have been indorsed anymore.
• The blank indorsement of B to C made it a bearer
instrument so it can now be negotiated by mere delivery,
hence their indorsement is no longer necessary.
• Subsequent to the blank indorsement, H would still be able
to receive it by mere delivery.
• Upon striking out the indorsements, H can no longer
hold liable E, F, and G.
What is the technique for order instrument and there is
delivery?
• FIND THE FIRST BLANK INDORSEMENT. After that, all
subsequent indorsements may be stricken out. If it is
all delivered after, there is nothing to strike out.
Transfer Without Indorsement (Sec. 49)
Sec. 49. Transfer without indorsement; effect of. —
Where the holder of an instrument payable to his order
transfers it for value without indorsing it, the transfer vests in
the transferee such title as the transferor had therein, and the
transferee acquires in addition, the right to have the
indorsement of the transferor. But for the purpose of
determining whether the transferee is a holder in due course,
the negotiation takes effect as of the time when the
indorsement is actually made.
• This applies to an ORDER instrument which is simply
delivered, without an indorsement. In such a case,
there is merely an assignment.
• If an instrument is an order instrument and
transferred without indorsement, it would just be a
mere assignment where the holder (transferee) is not
considered a holder in due course, but a mere assignee.
• HOWEVER, he acquires the right to have the
indorsement of the person who transferred to him,
but such must be the intention of the transferor.
• This section contemplates the instance where the
payee or indorsee delivers said instrument FOR
VALUE without however indorsing it.
• If it were delivered to you merely for safekeeping or
collateral, the transferor never intended for you to become
a holder. He just intended for you to become a transferee
or assignee.
• Although a situation for collaterals may still show up in
Section 49 since it may be foreclosed, only upon its
foreclosure can you demand its indorsement.
Effect:
• Equitable assignment and the transferee acquires
the instrument subject to defenses and equities
available among prior parties.
• He cannot negotiate the same.
• The special indorsee should likewise indorse it if he
wants to negotiate it further.
Rights of the assignee:
1. Rights of his transferor
2. If the transferor had legal title, transferee acquires such
title
3. Right to demand indorsement of the transferor in
order to complete the negotiation of the instrument
4. Right to maintain legal action against the maker or
acceptor or other party liable to the transferor
Comments:
• An assignee becomes a holder only at the time the
indorsement is made.
• This is important because during the supervening
period (between the delivery of the instrument to its
indorsement), the assignee might have knowledge
of any defect or infirmity which will make him a
holder not in due course.
• Before indorsement is made, transferee is not a
holder of the instrument. He is neither a holder
because he is not a payee or indorsee, nor a bearer
because the instrument is not payable to bearer. The
negotiation takes effect as of the time the
indorsement is actually made.
• Section 49 speaks of transfer without indorsement
of an instrument “FOR VALUE.”
• Thus, if the transfer is gratuitous, the donee-
transferee has no right to compel the donor-
transferor to make the indorsement, although as legal
owner, he has the right to sue thereon.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
Effect Of Indorsement After Transfer
• The indorsement converts the transfer into a
“negotiation” and makes the assignee a “holder”, the
indorsee of the instrument.
Time For Determining Whether Holder In Due Course
• As of the time of actual indorsement.
• Thus, if by that time, the holder already had notice of the
absence of consideration, he cannot be a holder in due
course.
Prior Party That Reaquires the Instrument
Sec. 50. When prior party may negotiate instrument. —
Where an instrument is negotiated back to a prior party, such
party may, subject to the provisions of this Act, reissue and
further negotiable the same. But he is not entitled to enforce
payment thereof against any intervening party to whom he was
personally liable.
• If a party re-acquires the instrument, the instrument
is still valid since it may be negotiated for as long as it is
before maturity.
• The prior party who reacquires the instrument will
only revert back to his original position.
• His status at the time he received the instrument for the
first time, will be his status as a holder.
• He cannot go after any intervening party to whom he
was liable.
• Section 50 refers to a reacquirer – a holder who
negotiates an instrument and then subsequently
reacquires it.
Effect if a prior party reacquires an instrument before
maturity
• He may negotiate the same further.
• But after paying the holder, he may not claim payment
from any of the intervening parties.
• The law, to avoid multiplicity of suits, denies an action
to a party thus situated.
• Exceptions:
1. If the instrument passed through his hands
without indorsement
2. It had been indorsed by him without recourse
• In these two cases, there could be no objection founded
on his prior holding or indorsement, to the maintenance
of an action by him against the parties liable on the
instrument.
Limitations on Renegotiation
• General Rule: A prior party who reacquires the
instrument may further negotiate the same.
• Exception: A prior party cannot further negotiate the
instrument:
1. Where it is payable to the order of a third person,
and has been paid by the drawer;
2. Where it was made or accepted for
accommodation and has been paid by the party
accommodated;
3. In other cases, where the instrument is
discharged when acquired by a prior party.
Intervening Indorsers
• These are the parties in between the prior party and
the party who again became the holder of the
instrument.
Illustration:
BEARER INSTRUMENT
M – P – A – B – C (paid by C to A) – A – D – E – F
• In this case, A cannot claim payment from any of the
intervening parties (B and C). A prior party is not
allowed to go after them since they are reverted back
to their original position.
• His status at the time he received the instrument for the first
time, will be the same status that he had when he
subsequently became a party again to the instrument.
• If you were a Holder Not in Due Course (HNDC) when
you first became a holder, you will always be a HNDC
even if you re-acquire the instrument. The converse is
also true.
Suppose the indorsement of (A-B), (B-C), and (C-A)
were stricken out
• The indorsement from P-A remains, thus, A remains to be a
party to the instrument.
10 | P a g e
• These are not necessary to the title of F. Thus, F may still Right to Payment and Sue for Payment (Sec. 51)
go after A. The moment F goes after A, A cannot hold Sec. 51. Right of holder to sue; payment. - The holder of a
B and C liable, even if he happens to re-acquire the negotiable instrument may to sue thereon in his own name;
instrument subsequently. and payment to him in due course discharges the instrument.
• A remains to be a party because P indorsed it to A who
indorsed it to D. To Receive Payment For The Instrument
• If the payment is in due course, the instrument is
Illustration: discharged.
• Payment in due course – payment made:
BEARER INSTRUMENT a) At or after the maturity of the instrument
b) Holder thereof
M - P(i) - A (i) - B (bi) - C (d) - D (d) - E(i) - F(i) - G(i) -H (d) c) In good faith and without notice that his title is
- F (d) – G. defective
• Payment must be made at or after maturity to
• After striking out (here, H struck out the prior parties), H discharge the instrument.
delivered the instrument to F and then G. • If the instrument is paid before maturity, the prior party
• F and G cannot be considered as prior parties anymore who reacquires the same, may reissue and further
since they were already stricken out. What applies negotiate it under Sec. 50.
would then be the new negotiation.
• Even if what was only stricken out was the To Sue Using His Name
indorsement of P to A, all the subsequent parties of • A holder may sue on the instrument in his name.
that indorsement will be released from their liabilities, • Under Sec. 51, a holder even though he be a holder only
so they are not parties anymore to the instrument. for collection may sue in his own name.
• The indorsee (pledgee) of a note, as a collateral security,
RIGHTS OF THE HOLDER may sue as he is a “holder” within this section.
Holder • A person who is neither the payee nor a holder of a bad
• The payee or indorsee of a bill or note who is in possession check has neither the personality to sue nor a cause of
of it, or the bearer thereof (Sec. 191) entitled to receive action against the drawer.
the sum for which it calls. • Where a negotiable instrument has been in circulation, and
• It may be of three classes and the rights of each class of there is no defense between the antecedent parties, a
holder and defenses assertible against that class may be purchaser of such instrument as collateral security is
different under particular circumstances. entitled to recover thereon against the maker, the whole
• In an ascending order of rights, the classes are: amount regardless of what he may have paid therefor.
➢ Holders simply (Sec. 51)
➢ Holders for value (Sec. 26) Rights of a Transferee of Unindorsed Instrument To Sue
➢ Holders in Due Course (Sec. 52, 57) • A transferee of unindorsed instrument is certainly not a
“holder” as defined by Sec. 191, and, therefore, cannot be
Holder Payee Indorsee a holder in due course under Sec. 52.
The payee or indorsee The person to The person to whom • It is believed, nevertheless, that he may do so. If the
of a bill or note who is whom the the instrument was “transfer vests in the transferee such title as the transferor
in possession of it, or instrument was negotiated by had” (Sec. 49) and if the transferor had legal title, this
the bearer thereof, originally issued indorsement and/ or must pass by the transfer although subject to defenses.
entitled to receive the by the maker or delivery
sum for which it calls. drawer Classes Of Holders
1. Holder Simply
Comments: • The payee or indorsee of a bill or note who is in possession
• In the hands of any holder other than a holder in due of it, or the bearer thereof entitled to receive the sum for
course, a negotiable instrument is subject to the same which it calls.
defenses whether real or personal as if it were non- • A person who qualifies as a holder but does not meet all
negotiable. the conditions to qualify as a holder in due course.
• However it does not mean that an instrument in the hands • Also called an assignee or transferee.
of such holder is non-negotiable.
• The holder of a negotiable instrument is not necessarily 2. Holder For Value
the owner thereof (example: thief). — But he can legally Section 26. Where value has at any time been given for the
transfer the same to another who then becomes the new instrument, the holder is deemed a holder for value in respect
holder. to all parties who become such prior to that time.
• A holder for value is one who has given a valuable
Rights of a Holder in General consideration for the instrument issued or negotiated to
1. To receive payment and if the payment is in due course, him
the instrument is discharged
2. If ever you don't get the payment that you wanted, you 3. Holder In Due Course
may sue under his own name • See Sec. 52 (C-O-F-I) All four conditions must concur in
3. Instead of holding on to the instrument, you can negotiate order to qualify a person as a holder in due course.
or transfer it. • A holder in due course takes the Instrument free of most
defenses, or adverse claims to it by other parties.
Comments: • Also termed as a bona fide holder.
• The rights of a holder would depend on what kind of • Only a negotiation can operate as a valid transfer to make
holder the person is: Holder in Due Course (HDC) or the transferee a holder in due course.
a Holder Not in Due Course (HNDC). • He must be a “holder” which refers to the payee or
• If a person is a HDC, he is free from personal defenses and indorsee of a bill or note, who is in possession of it, or the
free to discharge the instrument for payment along with bearer thereof
being given the right to sue in his own name. • The holder of a non-negotiable instrument cannot
• If a person is a HNDC, he has the same rights as a HDC attain the status of a holder in due course. He is a
without being free from personal defenses. mere assignee.
• A part indorsee of an instrument is also considered merely
What are the rights of a holder in due course? an assignee
1. Sue in his own name • A prima facie presumption exists that the holder of a
2. Receive payment negotiable instrument is a holder in due course.
3. Free from personal defenses
4. To cause a discharge in the instrument when payment is Rights of a Holder in Due Course
made in due course. • The holders have the same rights in the sense that they
can sue using their names and also receive payment for
What are the rights of a holder NOT in due course? the instrument. If the payment is in due course, it can
1. Sue in his own name discharge the instrument.
2. Receive payment • But a holder in due course also holds the instrument:
3. Cause the discharge of the instrument when payment is 1. Free from any defect of title of prior parties. A
made in due course. holder of a negotiable instrument has more rights
than the prior parties, even the immediate transferor.

Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20 11 | P a g e
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
 2. Free from defenses available to prior parties
(only personal defenses).
3. He may enforce payment of the instrument for
the full amount thereof against all parties liable
thereon.
Payment In Due Course
Section 88. What constitutes payment in due course. —
Payment is made in due course when it is made at or after the
maturity of the instrument to the holder thereof in good faith
and without notice that his title is defective.
• A payment in due course can discharge an instrument.
• Payment is made in due course when it is made at or after
the maturity of the instrument to the holder thereof in
good faith and without notice that his title is defective.
Holder in Due Course (Sec. 52, 53 and 59)
Sec. 52. What constitutes a holder in due course. — A
holder in due course is a holder who has taken the instrument
under the following conditions (C-O-F-I):
a) That it is complete and regular upon its face;
b) That he became the holder of it before it was overdue, and
without notice that it has been previously dishonored, if
such was the fact;
c) That he took it in good faith and for value;
d) That at the time it was negotiated to him, he had no notice
of any infirmity in the instrument or defect in the title of
the person negotiating it.
Section 53. When person not deemed holder in due
course. — Where an instrument payable on demand is
negotiated on an unreasonable length of time after its issue,
the holder is not deemed a holder in due course.
Section 59. Rights of a holder in due course. — Every
holder is deemed prima facie to be a holder in due course; but
when it is shown that the title of any person who has negotiated
the instrument was defective, the burden is on the holder to
prove that he or some person under whom he claims acquired
the title as holder in due course. But the last-mentioned rule
does not apply in favor of a party who became bound on the
instrument prior to the acquisition of such defective title.
• General Rule: Presumption arises only in favor of a
person who is a holder in the sense defined in Section 191,
that is, a payee or indorsee who is in possession of the
instrument, or the bearer thereof
• Exception: When it is shown that the title of any person
who has negotiated the instrument was defective (Sec.
55), then the burden of proof shifts to the holder who must
show he is a holder in due course although he is not
himself a holder in due course.
• Exception to the Exception: There will be no reversal if
the party being made liable became bound prior to the
acquisition of such defective title (i.e., where defense is
not his own) — presumption in favor of holder.
Holder In Due Course
• A holder who took the instrument under the conditions
enumerated in Sec. 52. He takes the instrument free of
most defenses, or adverse claims to it by other parties.
• Only negotiation can operate as a valid transfer to make
the transferee a holder in due course.
• All the four conditions must concur in order to qualify a
person as a holder in due course. Absent of any, the holder
cannot be considered a holder in due course.
• By the term “holder” the law refers to the payee or
indorsee of a bill or note, who is in possession of it, or the
bearer thereof.
• A holder of a non-negotiable instrument cannot
attain the status of a holder in due course. He is a
mere assignee subject to defenses.
• A transferee who receives an instrument other than
by issue or negotiation cannot acquire the status of
a holder in due course.
• Every holder is generally deemed prima facie a holder in
due course.
• Burden of proving otherwise lies in the person who
disputes the presumption.
Comments:
• The only disadvantage of a HNDC is that the
instrument is subject to defenses as if it were non-
negotiable.
• A HDC on the other hand, takes the instrument free of
many defenses that exist between the original parties.
• A holder in due course is afforded most-favored status
under the law — thus, it is possible for a holder in due
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
course to acquire greater rights under a negotiable
instrument than those possessed by the payee or holder
• A mere assignee like an ordinary holder can enforce the
instrument against the primary party if the latter has no
defense available to him
At what point do you determine that the holder is a
holder in due course or not?
• At the time that the person became a holder of the
instrument. After this point, it will not matter anymore.
a. Complete and Regular Upon Its Face
• Complete – when, on its face, it contains all of the
requirements of a negotiable instrument under Sec 1.
• Regular – when the face of the instrument does not
give any doubts as to its authenticity.
Comments:
• An instrument would appear irregular when there are
alterations (i.e. erasures, superimpositions, and even
blanks).
• If the alteration is not apparent on its face, is the
instrument still regular?
➢ Yes! As long as there are no apparent alterations
on its face that would cast doubt upon its
authenticity.
• “In writing and signed by the maker or drawer” – the
maker or drawer does not need to be the one to write the
instrument; he only needs to sign.
b. Holder Of It Before It Was Overdue and without notice
that it has been previously dishonored
An instrument is overdue after the date of maturity.
1. If it is with a fixed term, the time provided has already
lapsed.
2. If payable on demand, distinguish between a promissory
note and a bill of exchange:
• Promissory Note: must be negotiated to the holder
within a reasonable time from the issuance.
• Bill of Exchange: must be negotiated to the holder
within a reasonable time from the last negotiation.
No notice of any fact that an instrument has been
previously dishonored, if such was a fact
• This can happen when it is a bill of exchange and there is
dishonor by non-acceptance.
• If it was not accepted, it will not be added to that
instrument thus that fact might not be known to you.
Comments:
• An overdue instrument carries strong indication that
it has been dishonored, thus, it puts all person on
notice that it may not have been paid because of a
valid defense to such payment.
• An overdue instrument is still negotiable, and although it
is subject to defenses existing at the time of the transfer,
it is certainly not subject to the same defenses as if it were
non-negotiable.
• To be a holder in due course, if there is a date of maturity,
you must become the holder of an instrument before
maturity.
• What if it is payable on demand? When do you know
that it is already overdue?
➢ Promissory Note: must be negotiated to the holder
within a reasonable time from the issuance.
➢ Bill of Exchange: must be negotiated to the holder
within a reasonable time from the last
negotiation.
➢ Reason for distinction: For a BOE, the last
opportunity that you will know who the person liable
is, or the last chance to present it for acceptance, is
at the maturity date (for term instruments) or at the
last negotiation (if a demand instrument).
➢ See Sec. 193 on the definition of reasonable time – a
question of fact.
• As regards the second requirement of not having a
notice of dishonor, it is possible that an instrument is
dishonored even before it becomes overdue, as when
there is non-acceptance by a drawee. So, if you had notice,
you cannot be a HDC, if you had none, you are still a HDC.
• A bill of exchange can be presented for acceptance and it
need not be accepted. If it is not accepted, it will not
be reflected on the instrument so it can then be
further negotiated without those persons knowing
that it has actually been dishonored by non-
acceptance.
• For as long as the instrument has not been overdue,
it can still be presented for acceptance.
12 | P a g e
Sec. 193. Reasonable Time, What Constitutes. — In
determining what is a "reasonable time" or an "unreasonable
time," regard is to be had to the nature of the instrument, the
usage of trade or business (if any) with respect to such
instruments, and the facts of the particular case.
When do checks become stale?
• 6 months after its issuance. Certain Payee has 6 months
to encash or deposit it.
What if holder forgets to deposit the check, can he go
back to the maker and ask the him to issue another
check? Can the maker refuse to issue a new one? Is the
obligation to pay extinguished?
• No. the obligation to pay is not extinguished because
checks are not legal tender, thus, it cannot be
considered payment not unless it is encashed.
• Considering that the obligation continues to exist, the
maker is still obliged to issue another check.
Where instrument is payable in installments, when can
you be a holder in due course?
• If it is part overdue and in part not, you are a HIDC
depending whether or not you had notice of the
previous installments left due and unpaid.
• Where installments due before transfer — an
installment is overdue as to installments due before the
transfer, and a transferee thereof cannot be a holder
in due course as to such installments, whether or no
he had notice of the non-payment.
• Where transferee without notice of non-payment —
He is considered a HIDC as to installments to mature in
the future.
• Note: An instrument is designed to circulate until the
maturity of the last installment.
• Acceleration Clause: If the default in one installment is
regarded as maturity of the instrument, then the
instrument would be overdue after the maturity of the first
installment.
Comment:
• what is important is at the time the instrument is
negotiated, you had no notice of the previous dishonor.
• It does not matter if after negotiation, you learn about the
dishonor.
c. In good faith and for value
• In good faith – simply absence of bad faith.
• For value – when there is a consideration sufficient to
support a simple contract.
• Presumption: Every NI is deemed prima facie issued for
valuable consideration; and every person whose signature
appears thereon to have become a party thereto for value
(Sec. 24, NIL)
• Value — any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt constitutes
value, whether the instrument is payable on demand or at
a future time. (Sec.25, NIL)
Good Faith
• "honesty in fact in the transaction concerned”
• without knowledge or notice of any material fact
which would render it dishonest to take the
instrument
• Determined by a consideration of facts and circumstances
of the particular case.
• There can be instances where you cannot be in good
faith if you fail to ask questions. Those instances
that require a prudent person to inquire, but he did
not.
• Holder must have taken the instrument in good faith and
that at the time it was negotiated to him he had no notice
of any infirmity in the instrument or defect in the title of
the person negotiating it.
• This refers only to the indorsee or transferee and NOT to
the seller of the negotiable instrument.
Bad Faith
• Has actual knowledge of the infirmity or defect or
knowledge of such facts which render it dishonest for him
to take particular negotiable paper.
What is the proof of bad faith?
• It is not necessary to show knowledge of the exact truth.
It is sufficient that if the facts within the knowledge tend
to show that there was something wrong with the
transaction
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
Comments:
• A holder for value is one who has parted with a valuable
consideration. A holder takes the instrument for value:
➢ To the extent that the agreed consideration has been
performed or that he acquires a security interest in or
a lien on the instrument otherwise than by legal
process.
➢ When he takes the instrument in payment of or as
security for an antecedent claim against any person
whether or not the claim is due.
➢ When he gives a negotiable instrument for it or makes
an irrevocable instrument to a third person.
• Can generosity be a basis for consideration?
➢ No, you cannot be considered a holder in due course
if you did not accept the instrument for value and
generosity is not considered a valuable
consideration.
• How about love and affection? Is it a valuable
consideration?
➢ No, because love and affection for purposes of
consideration is not valuable enough to make
one a holder in due course.
• But it does not mean that if a check was given and you are
not a holder in due course that you cannot use it. If it is
considered as a good instrument, then you can use it.
• So, this would tell us that all holders in due course are
holders for value, but not all holders for value are
holders in due course (as when they are not in good
faith).
• It is always a requisite that for one to be a holder in due
course to be a holder for value.
d. no notice of any infirmity in the instrument or defect
in the title of the person negotiating
• The reckoning point is the time the instrument was
negotiated to the holder.
• Although it talks about notice, it also refers to actual or
chargeable knowledge at the time it was negotiated.
Infirmity vs. Defect
• Infirmities – must include things that are wrong with the
instrument itself as distinguished from those things that
are lacking in the contracts of the instruments Such
infirmities are found in situations under Sections 13, 14,
15, 16 (usually defects of title), 21, 23, 124, and 125.
• Defect of title – cover all situations which are known as
personal or equitable defenses and also to cover those
equities of ownership where there is a breach of
negotiation. The defect may either be at the time it
was negotiated to him (acquired), and the time he
negotiated the instrument (let go/delivered).
Title is Defective When (Sec. 55, NIL):
1. Instrument/signature obtained by fraud, duress, force
or fear or other unlawful means or for an illegal
consideration; or
2. Instrument is negotiated in breach of faith, or fraudulent
circumstances
Notice of Infirmity or Defect
1. Actual knowledge of the infirmity or defect or knowledge
of such facts that his action in taking the instrument
amounted to bad faith (Sec.56, NIL)
2. Notice to an AGENT is chargeable against the principal.
3. Insufficient notice
4. RIGHT of a transferee who receives NOTICE of any
infirmity or defect BEFORE he has PAID THE FULL amount
for the instrument
Example of an Infirmity
• An instrument worth P100,000 on its face, but it was
written by your friend whom you know would issue an
instrument worth P10,000. There was an alteration made
in the instrument, an infirmity.
Examples of Defects in Title
1. The instrument was negotiated to a person on account of
murder.
2. When you pay for an instrument worth P1,000,000 but you
paid for only P1,000.
3. When you stole the instrument. (This is the most common
case)
No notice of infirmity on the instrument
• If you know any infirmities in the instrument, then you are
no longer a holder in due course. The reckoning point is
at the time the instrument was negotiated to you.
13 | P a g e
Comments:
• All these four conditions must concur for the holder to be
consider as a holder in due course.
• Absence of one will render one to be a holder not in due
course, but there is still the “shelter principle.”
When Notice of Infirmity or Defect Makes One A Holder
Not In Due Course
• Notice of any defect in the instrument will only affect
the status as the holder in due course if it is acquired
at the time the instrument was negotiated.
• If it is acquired after that, then it will already be
irrelevant.
De Ocampo vs. Gatchalian
• Mrs. Gatchalian wanted to buy a car for her husband. Mr.
Gonzales, represented himself as an agent of Dr. Ocampo
who owns a clinic.
• She went with Mr. Gonzales to check the car because she
was interested in the car. She wanted to see the
documents representing the title or ownership of the car
but Gonzales represented that the owner required the
potential buyer to show good intention in buying.
• So she issued a check. It was issued with two parallel
lines on the right corner of the check named in favor
of the payee, Dr. Ocampo at P600.
• The check was taken by Gonzales, but he used it to pay
for his wife’s medical bill (patient of the De Ocampo Clinic,
incurring a debt of P441.75)
• The check was not intended to be paid for any obligation
but the clinic accepted it. In fact, it gave the change
to Mr. Gonzales because the bill was only around 500
pesos.
• After knowing such fact and since Gatchalian never saw
Gonzales again, Gatchalian made a Stop Payment Order to
her bank.
• Dr. Ocampo now wants to recover the payment of the
check. He is claiming that he is a holder in due course.
• Gatchalian argues that De Ocampo is not entitled to
payment since there was no valid indorsement.
Supreme Court Ruling
• Dr. Ocampo is not a holder in due course because he
ought to have inquired into the circumstances
surrounding the issuance of the check.
• First and foremost, the check is crossed. If it’s a crossed
check, the consequence is that:
➢ It cannot be encashed
➢ It can only be deposited in the account of the payee
who must have a bank account
• Other circumstances which existed that was considered to
hold De Ocampo not in good faith:
➢ The amount that was actually contained in the
instrument did not correspond to the obligation
of Gonzales, it is more than the amount of the
obligation. This means this check must not be
originally issued for payment of the obligation to the
hospital.
➢ Gatchalian was not indebted to Dr. Ocampo (but
the clinic), yet he appeared as a payee.
• The check is intended to be used for a definite purpose Dr.
Ocampo did not inquire as to the purpose of such check.
• The check should not have been payable to the clinic
because it is a personal check and it bears the name
of Mrs. Gatchalian, and the clinic does not have any
dealings with her.
• These circumstances ought to have let him inquire about
the issuance of the check but he did not bother to do so.
• Hence, the SC attributed bad faith to him under Section 56
which says that knowledge of such fact amounted to bad
faith. Therefore, Dr. Ocampo is not considered a holder in
due course because he has notice of the infirmity.
Rights of Holder in Due Course (Sec. 57 & 58)
Section 57. Rights of holder in due course. — A holder in
due course holds the instrument free from defect of title of prior
parties, and free from defenses available to prior parties among
themselves, and may enforce payment of the instrument for
the full amount thereof against all parties liable thereon.
Section 58. When Subject to Original Defenses. — In the
hands of any holder other than a holder in due course, a
negotiable instrument is subject to the same defenses as if it
were non-negotiable. But a holder who derives his title through
a holder in due course, and who is not himself a party to any
fraud or illegality affecting the instrument, has all the rights of
such former holder in respect of all parties prior to the latter.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
Rights of a Holder in Due Course
1. To sue on the instrument in his own name (Sec. 51, NIL)
2. To receive payment on the instrument — discharges the
instrument (Sec. 51, NIL)
3. Holds the instrument free of any defect of title of prior
parties (Sec. 57, NIL)
4. Free from defenses available to prior parties among
themselves (Sec. 57, NIL)
5. May enforce payment of instrument for full amount,
against all parties liable (Sec.57, NIL)
Comments:
• The doctrine which protects a holder in due course is
founded on the broadest principles of public policy,
with regard to the utility, free circulation, and credit
of negotiable paper in the commercial world.
• ESTOPPEL - the one who made the wrong possible is
stopped by his neglect The defenses referred to in Section
57 that cannot be set up against a holder in due course
are the so-called “personal defenses” or equities (Sec. 13,
14, 124, 125, failure, absence and illegal consideration)
Types of Defenses
1. Real Defense
• They are those which attach to the instrument itself
and generally, disclose an absence of one of the
essential elements of a contract (Sec. 15 and 23).
• Available against ALL holders including holders in due
course.
2. Personal Defense
• Grows out of the agreement or conduct of a
particular person in regard to the instrument
which renders it inequitable FOR HIM, though holding
the legal title, to enforce it against the party sought
to be made liable.
• This is not available against a holder in due course.
This can be raised only against holders not in due
course.
• Here, the true contract appears, but for some reason,
the defendant is excused from the obligation to
perform.
Presumption of a Holder in Due Course
• In absence of any information, one is presumed a holder
in due course.
• If another claims that he is not a holder in due course, he
can either prove that he himself is a holder in due course
or to prove that the person from whom he acquired the
instrument is a holder in due course.
• When will the presumption not apply?
➢ The presumption that every holder is a holder in due
course does not apply whenever there is any
defect in any of the title of the person who
negotiated the instrument. It need not be the
person from whom he acquired it.
➢ Any defect automatically precludes the presumption.
The burden of proof is now shifted to the person who
claims that he acquired the title as a holder in due
course.
• Exception to the Exception: There will be no reversal if
the party being made liable became bound prior to the
acquisition of such defective title (i.e., where defense is
not his own) — presumption in favor of holder.
Example:
M → P → A* → B → C → D → E
*A stole the instrument.
In here, the defect is with A (he stole it). If M questions
the authenticity of the right of E as a holder in due
course or questions E for not being a holder in due
course, who has the burden of proof?
• It will be E who has to prove it, if the one who
questions it is a party prior to the defect (M & P).
• But, if (A, B, C, & D) these are the parties who will question
him (E) being a holder in due course, they (A to D) will
have to prove that E is not a holder in due course.
• If they will be able to prove that there is a defect in the
title, then it turns around, again the burden of proof will
be on E to prove that there was no defect in his title.
➢ If D is able to prove that the instrument was stolen, E
now has to prove that he has taken the instrument in
good faith and for value and that he has no knowledge
of the fact that it was stolen.
• But if it is M who will question E’s status as a HDC,
being a party prior to the defect, then E has to be the
one to prove that he is a HDC.
14 | P a g e
• If E is unable to prove to M that he is a HDC, what
does E have prove, instead?
➢ That the person from whom he acquired the
instrument (D) is a holder in due course for the shelter
principle to apply.
• What benefit would it give E if he is able to prove
that D is a HDC? Will E now be considered as a HDC?
➢ No, he will still not be a HDC.
➢ BUT, if E is able to prove that D is a HDC, then he
can be considered as a holder through a HDC,
and he can acquire the benefits of the Shelter
Principle under Section 58.
Payee As A Holder In Due Course
Is payee entitled to make same protection under Section
52 as any other bona fide holder for value?
• NEGATIVE VIEW: The holder in due course must have
acquired the instrument through negotiation and an
instrument is issued and not negotiated to a payee (Sec.
52(4))
• AFFIRMATIVE VIEW: “There can be no doubt that a
proper interpretation of the Act as whole leads to the
conclusion that a payee may be a holder in due course
under any of the circumstances in which he meets the
requirements of Sec.52”. With reference to the definition
of a holder in Sec. 191.
• Payee may be a holder in due course under any of the
circumstances in which he meets the requirements of
Section 52; Since holder as defined in Section 191 includes
a payee who is in possession, then a holder in due course
is a payee or indorsee who is in possession.
• Yang vs. Court of Appeals: The weight of authority
sustains the view that a payee may be a holder in due
course.
Drawee NOT A Holder In Due Course
• While a payee may be a HDC, a drawee does not, by
paying a bill, become a HDC under Sec. 52.
• A holder refers to one who has taken the instrument
as it passes along in the course of negotiation
towards the drawee and not the drawee who, on the
acceptance and payment of the instrument, thereby strips
it of all the negotiability and reduces it to a mere voucher
or proof of payment.
Holder Not In Due Course
• A holder not in due course is a holder of an instrument
where any of the four conditions in Sec. 52 are not
met.
Distinction between a holder in due course and not a
holder in due course
• Holder in due course — holds the instrument free from
the personal defenses of prior parties.
• Holder not in due course — holds the instrument not
free from any defenses of prior parties. They are subject
to the same defenses as if it were non-negotiable
(assignment of credits).
Rights Of Holder Not In Due Course
a. He may sue on the instrument in his own name
b. He may receive payment and if the payment is in due
course, the instrument is discharged
c. He is entitled to the instrument but holds it subject to the
same defenses as if it were non-negotiable
d. He has all the rights of the holder in due course from whom
he derives his title in respect of all parties prior to such
holder, provided he is not himself a party to any fraud or
illegality affecting the instrument
Rights of a Purchaser From a Holder In Due Course
(Shelter Principle)
• General Rule: NHDC rights are those of a mere transferee
of a non-negotiable instrument thus he is not free from
personal defenses
• Exception: A holder who derives his title form a holder in
due course has all the rights of the latter even though he
himself is a mere transferee or does not satisfy the
requirements of a HDC.
What is the reason behind such rule?
• If a third party cannot take commercial paper from an
innocent holder free from equitable defenses because such
third party knows of its original infirmities, then the rights
of the innocent holder are greatly reduced
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
When will the shelter principle apply?
1. That he derives his title through a holder in due course
2. He was not himself a party to any fraud or illegality
affecting the instrument
Notice Before Full Amount Paid (Sec. 54)
Section 54. Notice before full amount is paid. – Where the
transferee receives notice of any infirmity in the instrument or
defect in the title of the person negotiating the same before he
has paid the full amount agreed to be paid therefor, he will be
deemed a holder in due course only to the extent of the amount
theretofore paid by him.
• This section is intended to define the situation in which
the holder must protect himself by refusing to make
further payments.
Effect of Notice of Defect or Infirmity Before Full
Payment
1. If no amount has yet been paid — he is relieved from
the obligation to pay. If he does so, he is still not considered
a holder in due course.
• Where an instrument has been taken but the purchaser
has not yet paid anything, and he receives notice of
infirmity in the instrument or defect in the title of the
holder, he is relieved from the obligation to make payment
• If he does so, it is clear that he is not entitled to the
same protection as a holder in due course.
• Payment includes performance in any other manner of an
obligation.
2. An amount has been paid — he is under no legal
obligation to pay the balance upon discovery of the
infirmity or defect. If he does, he can be considered a holder
in due course only to the extent of the amount thereto.
• He has no legal obligation to pay the balance of the amount
he has agreed to pay on discovering the infirmity or defect
• If he does, he can be considered a holder in due course
only to the extent of the amount thereto for paid to him
Examples:
1. PN issued by M worth P20,000 in payment of goods sold to
P. There was failure of consideration because P did not
deliver. P indorsed PN to A who paid P12,000, and the
balance in a month. Before the end of the month, he
received notice of the defect. A is a holder in due
course to the extent of P12,000 that he has already
paid.
2. A note for P10,000 obtained by P, payee, by means of fraud
was negotiated by P for P9,000 to A who paid P5,000, and
another P4,000 after month. Before the end of the month,
A discovered the fraud, but he still paid the P4,000. He can
only recover P5,000, thereby depriving A of the benefit of
the bargain. Had the P9,000 been paid before receiving
notice, A, under Sec. 57, can recover P10,000.
Applicability of Sec. 54
• It is applicable only where the obligation by the holder
is such that upon discovering the infirmity in the
instrument, he is relieved from all further legal
obligations to make further payments, as, for example,
where the note has been transferred to him in consideration
of his promise to make future payments to his transferor.
• It does not apply where the holder has given for the
paper his promise which he must perform, as, for
instance, when he has incurred liability to a third
person.
Pennoyer vs. Dubois State Bank
• Indorsee (bank) of a promissory note had no notice of
the fraud at the time it issued its certificate of
deposit, but did have notice at the time it paid the
certificate.
• Indorsee is a holder in due course because it gave
the certificate of deposit “for value”—and if it was
under legal obligation to pay the certificate of
deposit when it became due.
• Its right to protection as a holder in due course was the
same as if it had paid money for the notes when it acquired
them.
When Title Is Defective (Sec. 55)
Section 55. When title defective — The title of a person who
negotiates an instrument is defective within the meaning of this
Act when he obtained the instrument, or any signature thereto,
by fraud, duress, or force and fear, or other unlawful means,
or for an illegal consideration, or when he negotiates it in
breach of faith, or under such circumstances as amount to a
fraud.
15 | P a g e
Defects vs. Infirmities
• Infirmity – Things which are inherently wrong with the
instrument. These are instances under Sec. 14, 15, 16,
and forgery, as causes for defenses are actual infirmities.
• Defect of title – cover all situations which are known as
personal or equitable defenses and also to cover those
equities of ownership where there is a breach of
negotiation. The defect may either be at the time it
was negotiated to him (acquired), and the time he
negotiated the instrument (let go/delivered).
• Defect – Failure of consideration, illegal consideration,
and theft. This happens when he obtains the instrument or
when he negotiated it with such defects.
• The one who institutes unlawful means in this case
must be the holder. The one acquiring the instrument is
the one who must conduct the fraud, duress, etc. It may
not necessarily be him, but he must be a party to it.
• Another defect of title is when he negotiates the title
in breach of faith or other circumstances of fraud.
• Fraud, whether at the time acquired or time negotiated, it
always causes a defect in title.
When Title Of A Person Defective (Two ways):
1. In the acquisition — if the instrument or any signature
thereto was obtained by fraud, duress, or force and fear
or other unlawful means, or for an illegal consideration; or
2. In the negotiation — when he negotiates the instrument
in breach of faith, or under such circumstance as amount
to a fraud. Duress or force and fear include all acts which
overcome the signer’s will.
Example of fraud at time he obtained instrument:
• When you, as agent, represented to your principal that
you acquired the truck, but in truth, you did not. To prove
this, you presented certain documents like a deed of sale.
The principal was induced to issue a negotiable
instrument because the agent presented a fake deed of
sale. In this case, you (agent) acquired the instrument
with defect since it is with fraud.
• Example of duress: Held him at gunpoint. Other
unlawful means may include stealing (most common
example).
Example of defect at the time of negotiation:
• You negotiated it to someone when you expected to get
consideration for it. There was failure of consideration, yet
you did not inform the person to whom you are negotiating
it to.
• In breach of faith: When there was failure of
consideration that had happened, and you did not inform
the person to whom you are negotiating to despite having
knowledge of such fact.
• Another example: There is breach of faith in relation to
the maker since he informed you not to deal with the
instrument due to forgery, but you dealt with it anyway.
• Another example: You were informed by the drawer that
it is not to be deposited since it is just for exhibition, yet
you further negotiated it.
Comments:
• The purpose of this provision is to prevent one from
becoming a holder in due course who takes an
instrument with notice that his transferor is not
acting honestly.
• The person negotiating the checks must have gone
beyond the authority given by his principal. If the
principal could prove that there was no negligence in the
performance of his duties, he may set up the personal
defense to escape liability and recover from other parties
who, through their own negligence allowed the
commission of the crime
• Important: In fact, the case of Gatchalian would fall
under defect in the title of the person negotiating at
the point of negotiated. It was negotiated in breach
of faith. There is also chargeable knowledge, hence,
notice to Dr. Ocampo.
• If you are a holder in due course, you are free from
personal defenses of prior parties.
• But even if you are not a holder in due course, you can still
acquire the rights of a holder in due course. You receive it
as if it is assigned to you. Thus, you acquire the rights of
your transferor. If the transferor is a holder in due course,
then you acquire the rights of a holder in due course but
only if you are not a party to the illegality in holding the
instrument. You become a holder through a holder in due
course.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
What Constitute Notice of Defect (Sec. 56)
Section 56. What constitutes notice of defect. — To
constitutes notice of an infirmity in the instrument or defect in
the title of the person negotiating the same, the person to
whom it is negotiated must have had actual knowledge of the
infirmity or defect, or knowledge of such facts that his action
in taking the instrument amounted to bad faith.
Two Kinds of Knowledge
1. Actual knowledge — The person knows the
circumstances which can cause a defect in the instrument.
It is personal knowledge that a particular act happened.
2. Chargeable knowledge — There are circumstances
which could have placed you in inquiry, but you
failed to inquire.
Comments:
• Under Sec. 54 and 56, negligence in itself is not
sufficient to constitute notice since it is not the
equivalent of either actual knowledge or bad faith.
• Notice is to be determined by the simple test of
honesty and good faith, and not by speculative
issues as to the indorsee’s negligence.
• If the holder had actual knowledge of suspicious
circumstances coupled with the means of readily
informing himself of the facts, and he willfully
abstained from making inquiries, his intentional
ignorance may amount to bad faith (De Ocampo vs.
Gatchalian)
• It is not necessary that the buyer of the instrument had
notice or knowledge of the exact fraud or the particulars
thereof, committed by the assignor, since all that is
required is knowledge of such facts that his action
in taking the instrument amounted to bad faith.
When should notice be reckoned from?
• From the time of negotiation
Mesina vs. IAC
• Jose Go purchased from Associated Bank a cashier's check
for P800,000.00. Unfortunately, he left said check on the
top of the desk of the bank manager when he left the
bank.
• The bank manager entrusted the check for safekeeping to
a bank official, a certain Albert Uy, who had then a visitor
in the person of Alexander Lim
• While Uy went to answer a phone call and go to the men's
room, the check was stolen by his visitor in the person of
Alexander Lim.
• Upon discovering that the check was lost, Jose Go
accomplished a "STOP PAYMENT" order.
• Two days later, Associated Bank received the lost check
for clearing from Prudential Bank. A lawyer demanded
Associated Bank to encash the check, but refusing to name
the identity of his client.
• Associated Bank filed a case for interpleader to determine
the owner of the check between Jose Go and “John Doe,”
the client of the lawyer.
• After dishonoring the same check twice, Associated Bank
received summons and copy of a complaint for damages
of Marcelo Mesina who was in possession of the lost check
and is demanding payment, so it moved to substitute
thename of Mesina for John Doe.
• Mesina claims that the check was paid to him by Alexander
Lim for “a certain transaction.”
• The interpleader was decided and it ruled Jose Go as the
owner of the manager’s check.
• Petitioner Mesina claims that a cashier's check
cannot be countermanded (cancelled) in the hands
of a holder in due course, himself claiming to be one.
Supreme Court Ruling
• Petitioner Mesina failed to substantiate his claim that
he is a holder in due course and for consideration or
value as shown by the established facts of the case.
• The check was Jose Go's property when it was misplaced
or stolen, hence he stopped its payment. At the outset,
respondent bank knew it was Jose Go's check and
no one else since Go had not paid or indorsed it to
anyone. The bank was therefore liable to nobody on the
check but Jose Go.
• Admittedly, petitioner became the holder of the
cashier's check as endorsed by Alexander Lim who
stole the check. He refused to say how and why it
was passed to him.
• He had therefore notice of the defect of his title over
the check from the start.
16 | P a g e
• The holder of a cashier's check who is not a holder in
due course cannot enforce such check against the
issuing bank which dishonors the same.
• If a payee of a cashier's check obtained it from the issuing
bank by fraud, or if there is some other reason why the
payee is not entitled to collect the check, the respondent
bank would, of course, have the right to refuse
payment of the check when presented by the payee,
since respondent bank was aware of the facts
surrounding the loss of the check in question.
• The check in question suffers from the infirmity of
not having been properly negotiated and for value
by Jose Go who is the real owner of said instrument.
Comment:
• A person who became the holder of a cashier's check as
endorsed by the person who stole it and who refused to
say how and why it was passed to him is NOT a HDC.
LIABILITIES OF PARTIES
Parties to an Instrument
A. Promissory Note
1. Maker
2. Drawer
3. Payee
B. Bill of Exchange
1. Drawer
2. Drawee
3. Payee
4. Intervening indorsers
Classification of Parties According to Liability
A. Primarily Liable
1. The maker of a promissory note
2. The acceptor of a bill of exchange
3. The certifier of a check
B. Secondarily (Conditionally) Liable
1. The drawer of a bill
2. The indorser of a note or bill
C. Not (yet) Immediately Liable
• The drawee until he accepts the instrument, in which case,
he becomes an acceptor.
Comments:
• Liability here refers to the obligation of a party to a
negotiable instrument to pay the same according to its
terms.
• A person primarily liable is one who, by the terms of
the instrument, is absolutely required to pay the
same. He is unconditionally liable, thus, required to
pay the instrument upon its maturity.
• A person secondarily liable undertakes to pay the
instrument only after certain conditions have been fulfilled,
to wit:
➢ Due presentment for payment or acceptance to
primary party (holder will be the one to make such
due presentment)
➢ Promissory note: No presentment for acceptance,
only presentment for payment; go to the maker and
present the instrument and then ask payment.
➢ Bill of exchange: Present for acceptance first before
presenting for payment to the drawee. After
acceptance by the drawee, he becomes bound
primarily on the instrument as an acceptor, thus,
presentment for payment can now be made.
➢ Personal Checks: Presentment for payment and
presentment for acceptance are done at the same
time; when presenting the check to the bank, that
covers both presentment for acceptance and
presentment for payment.
➢ Certified checks: Accepted already by the drawee-
bank before the check was issued.
➢ Dishonor by such party
✓ Promissory note: Dishonor is by non-payment
by the maker
✓ Bill of exchange: Dishonor is either by non-
acceptance or by non-payment.
✓ Checks: Bank refused to pay – both dishonor by
non-acceptance and dishonor by non-payment
➢ And the taking of proceeding required by law after
dishonor
✓ If the instrument is dishonored, there must be a
notice of dishonor given to the parties secondarily
liable before they are charged with liability.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
✓ If a party is secondarily liable and such party was
not given notice that the primary party
dishonored the note, such secondarily liable party
cannot be held liable because he was not notified.
Person Primarily Liable Person Secondarily Liable
The person who by the terms of All other parties.
the instrument is absolutely
required to pay the same.
Unconditionally bound. Thus, Conditionally bound.
absolutely required to pay the Undertakes to pay only after
instrument upon maturity. certain conditions have been
fulfilled (i.e. due presentment
for payment or acceptance to
primary party, dishonor,
dishonor proceedings)
Liability ends when the
primary party pays the full
amount
A. Liability of Maker
Section 60. Liability of maker — The maker of a negotiable
instrument, by making it, engages that he will pay it according
to its tenor, and admits the existence of the payee and his then
capacity to indorse.
The maker is primarily liable
• The maker is primarily liable because Sec. 60 provides
that:
1. He engages to pay the note according to its tenor,
subject to no condition whatsoever
2. He also warrants the existence of the payee and his
then capacity to indorse
• Primary liability – because there is no condition attached
as to when the maker would be held liable.
Maker
• The term “maker” includes an accommodation maker
and a surety who signs as maker.
• He is the one to whom the holder will look first for
payment and the one who is expected to pay.
• He remains fully liable despite the fact that the
instrument is presented for payment late until
prescription has run.
• Note: A person placing his name on the face of a note
is prima facie a maker, and liable as such; and he is
presumed to have acted with care and to have signed the
instrument in question with full knowledge of its contents
Comments:
• “…admits the existence of the payee.” – The law
requires for such warranty because you want to deal with
a negotiable instrument. The instrument can only become
a negotiable instrument if it is indorsed to a payee. There
can be no negotiable instrument if the payee is fictitious.
• You cannot have a negotiable instrument if the person to
whom you first delivered the instrument cannot deliver it
to other persons.
What else is the reason that the maker needs to admit
the existence of the payee?
• Because it would be very convenient for the maker to just
get away with the liability if he can merely say that the
payee, after all, is fictitious.
• After all, siya ra biyay gasuwat sa instrument, walay lain
tao kibaw nga fictitious ra jud diay ang payee.
“His capacity to indorse” – who is referred to here?
• The payee. His capacity to indorse needs to be admitted
because, ofcourse, we are dealing here with negotiable
instruments.
• If the payee doesn’t have the capacity to negotiate, then
what’s the point of making a negotiable instrument?
B. Liability of Drawer
Section 61. Liability of drawer. — The drawer by drawing
the instrument admits the existence of the payee and his then
capacity to indorse; and engages that, on due presentment,
the instrument will be accepted or paid, or both, according to
its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder or to any subsequent indorser who may
be compelled to pay it. But the drawer may insert in the
instrument an express stipulation negativing or limiting his own
liability to the holder.
The drawer is secondarily liable
17 | P a g e
• He is secondarily liable because there are conditions
before he can be held liable on the instrument.
• He only engages to pay the instrument subject to the
condition that the instrument be duly presented to the
drawee and only when the drawee dishonors it will he pay
on the instrument granted that the necessary proceedings
on dishonor is duly taken.
• The drawer is only present when we talk about bills
of exchange or checks. It is not the drawer who is
primarily liable, but it is the drawee-acceptor.
• The drawer is only liable when drawee does not
accept, or the drawee-acceptor does not pay the bill
or check.
• The drawer is just like an indorser. He is secondarily liable
on the instrument.
Can the drawer get away with the liability?
• The drawer can limit his liability, but practically, this
doesn’t seem sound as no one would accept the instrument
I fteh drawer would be allowed to negate his liability.
Warranties or Liabilities of a Drawer:
• Engages that upon presentment of the instrument, it will
be accepted or paid by the drawer.
• Admits the existence of the payee
• Admits the payee’s capacity to indorse
• Engages that he shall pay the instrument according to
its tenor, provided that (may be compelled to pay if
dishonored):
➢ Due presentment for acceptance or payment to the
party primarily liable
➢ Dishonor by the party primarily liable either by non-
acceptance or non-payment
➢ Notice of dishonor should be given to the drawer
Comments:
• Such are required because it is the drawer who drafted the
instrument and it would be very convenient for any party
to draft an instrument without the warranty that the
payee exists, and that the payee has capacity to indorse.
It would be very easy to limit their liability.
• A drawer can limit his own liability to the holder by
limiting the instance when he may be required to
pay as in the case when he breaches his warranty. A
drawer cannot negate altogether his liability.
• Example: Drawer will not warrant the solvency of the
drawee. (“without recourse,” “sans recourse”)
Conditions before a drawer pays the instrument:
1. The instrument is presented for acceptance or
payment.
2. Drawee dishonors the instrument either for non-
acceptance or non-payment.
3. Necessary proceedings on dishonor are duly taken.
Comments:
• These conditions should be met in order to charge the
drawer with his secondary liability
• The drawer may not unilaterally discharge himself from
liability on checks issued by him merely as security to a
holder in due course, be the mere expediency of
withdrawing his funds from the drawee bank. By issuing a
check, the drawer impliedly represents that funds or credit
are available for its payment in the drawee bank.
“..or to any subsequent indorser who may be compelled
to pay it” – when will this happen?
• If the holder went after an indorser, and the indorser later
goes after the drawer.
• In this case, the drawer pays to the indorser, not to the
holder, because the holder already received payment from
the indorser.
“But the drawer may insert in the instrument an express
stipulation negativing or limiting his own liability to the
holder” – what does this mean?
• This does not mean you will be discharged of any liability.
• It only means that you will not be held liable only on
certain circumstances if the drawer qualifies.
• Example: (“without recourse”) I will not be liable only if
the drawee is insolvent. But all other circumstances I will
be liable.
Qualifying by limiting the value, for example, the
instrument says 1M but you qualified that you will only
be liable up to 10K, is that allowed?
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
• No, you can limit only circumstances that do not
really extinguish your liability or change the value
that you are liable to pay.
Drawer vs. Maker
Drawer Maker
Issues a bill of exchange Issues a promissory note
Is only secondarily liable Primarily liable
Can negative or limit his liability May not limit his liability
C. Liability of Acceptor
Section 62. Liability of acceptor — The acceptor, by
accepting the instrument, engages that he will pay it according
to the tenor of his acceptance and admits:
a) The existence of the drawer, the genuineness of his
signature, and his capacity and authority to draw the
instrument; and
b) The existence of the payee and his then capacity to
indorse.
The drawee-acceptor is primarily liable.
• The drawee of a bill is not liable thereon before
acceptance, although he may be liable to the drawer for
breach of contract if he refuses without valid reason to
accept the bill
• General Rule: A refusal by the drawee constitutes a
dishonor of the instrument which triggers the liability
of secondary parties (drawer and indorsers), except those
indorsing qualifiedly.
Liability of the Drawee
• Before acceptance — drawee of a bill is not liable
before acceptance. Unless he accepts, he owes no duty
to either the payee or any other holder.
• After acceptance — once he accepts, the drawee
becomes an acceptor. Thus, he is virtually in the same
position as the maker.
Warranties of the Acceptor
The acceptor, by signing the bill as such, warrants the
following:
1. That he will pay the instrument according to the tenor of
his acceptance
2. Existence of the payee
3. Payee’s capacity to indorse
4. The existence of the drawer
5. The genuineness of the drawer’s signature
6. The capacity and authority of the drawer to draw the bill.
If the instrument is good for 1M, can the acceptor
actually accept up to 700K only?
• The acceptor is a person primarily liable, but he engages
to pay only according to the tenor of his acceptance.
• In this case, the holder can treat the acceptance as
dishonor. Kay alkansi sad ang holder because he paid for
1M, but he is only paid 700K. But this is allowed for
acceptors.
• But again, if the acceptor qualifies his acceptance, the
holder is given the option to treat it as dishonor.
• But if the holder accepts the qualified acceptance, it
is possible that parties secondarily liable will be
discharged, unless they also consented to the
qualified acceptance.
• Thus, the holder must give notice to parties secondarily
liable because they may be discharged from their liability
if they won’t accept the qualified acceptance by the drawee
acceptor.
• How do we know that they consented?
➢ You give them notices of dishonor, and if they don’t
reply within the required time, they are deemed to
have consented; OR if they actually replied that that
they accept the qualified acceptance.
The acceptor also admits the:
1. Existence of the drawer and the genuineness of his
signature
• Therefore, if there was forgery, the acceptor can be
held liable if he already accepted.
• He has to do this so that the acceptor cannot deny
payment on the found that the drawer is fictitious; for
the convenience of the holder and to allow the
instrument to be negotiated.
2. And his capacity and authority to draw the instrument
• If he does not do so, walay gamit iyang pag accept
kay wala man diay gihapoy capacity ang drawer, so
wala ra koy liability as acceptor.
3. Existence of the payee and his then capacity to indorse
18 | P a g e
 • Otherwise, it will be very convenient for the acceptor
to just say that the drawer is fictitious.
• Capacity to indorse is essential in negotiable
instruments
Warranties of the Acceptor
1. Engages to pay according to the tenor of his
acceptance subject to no condition.
• Acceptance may be qualified.
• If his acceptance is general or absolute, then he is
liable to pay according to the tenor of his acceptance
which incidentally is also the tenor of the bill itself.
Difference between maker and acceptor:
Maker Acceptor
Engages to pay according to Engages to pay according
the tenor of the to the tenor of his
instrument acceptance
• The difference between the two is that in acceptance
by a drawee-acceptor, he can qualify his acceptance.
• Only when there is no qualification as to acceptance
of the instrument can there be no difference
between an acceptor and a maker.
2. Admits the existence of the payee and his capacity
to indorse.
3. Admits the existence of the drawer and the
genuineness of his signature.
Comments:
• By accepting the bill unconditionally a bill, the drawee
becomes liable to a holder, and he cannot allege want or
failure of consideration between him and the drawer.
• The acceptor does not admit the genuineness of the
indorser’s signature because it is only the signature of the
drawer that he warrants.
Forgery in the signature of the drawer
• General Rule: Acceptor is liable in case there is forgery
in the signature of the drawer because he already
warranted the genuineness of the signature of the drawer
and his existence.
Forgery in the signature of the indorser
• General Rule: Acceptor is not liable because he does not
warrant the genuineness of the indorser’s signature.
Exceptions (to both):
1. Acceptor is negligent
2. Estoppel. When he has knowledge of such fact, then he is
estopped from claiming that there is forgery.
Defenses Precluded
• The acceptor is consequently precluded from
asserting as a defense that the drawer is fictitious
or non-existent, or that the drawer’s signature is a
forgery, or that he has no funds in his hands
belonging to the drawer with which to pay the bill, etc.
• By accepting unconditionally a bill, the drawee
becomes liable to a holder, and he cannot allege
want or failure of consideration between him and
the drawer.
Retraction of Acceptance
• The bill of exchange itself implies a representation by the
drawer that the drawee is already in receipt of funds to
pay.
• The drawee who has accepted CANNOT RETRACT this
admission as against a holder for value, since he has
thereby obtained a suspension of the holder’s
remedies against the drawer and an extension of
credit.
• Note: Like the maker, neither presentment for payment
nor notice of dishonor is necessary to charge him with
liability, except when he is an acceptor for honor (see Sec.
165). [Why? Because he is primarily liable]
Effect of Acceptance of an Altered Bill
• Section 62 should be read in relation to the definition of
acceptance in Section 132.
• 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.
• “…assent to the order of the drawer” in Section 132
means assent to pay according to the order of the
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
drawer and not according to what appears to be the
order of the drawer.
• Furthermore, it should be noted that under Section 124
(2), a holder in due course may enforce payment of
a materially altered instrument not according to its
altered tenor but “according to its original tenor.”
Payment Without Acceptance
• Strictly speaking, payment by the drawee may not be
considered as equivalent of acceptance.
• There is a distinction between payment and acceptance.
➢ Acceptance — a promise to perform an act
➢ Payment — the actual performance thereof
• However, the truth is, the payment of the amount of
a bill check by the drawee implies not only
acceptance but also compliance with the drawee’s
obligation. Payment amounts to more than an
acceptance, for the latter is an obligation to pay, and
the former is a discharge of indebtedness.
• In other words, there is implied acceptance in
payment.
• Reason: The rule holding such payment has all the efficacy
of an acceptance is founded upon the principle that the
greater includes the less.
D. Liability of Indorser
Section 63. When a person deemed indorser. — A person
placing his signature upon an instrument otherwise than as
maker, drawer, or acceptor, is deemed to be indorser unless
he clearly indicates by appropriate words his intention to be
bound in some other capacity.
Indorser
• A person signing his name on the back of an instrument is
nothing else appearing, a general indorser, and liable as
such.
• Being an indorser, he is chargeable only after
presentment and notice of dishonor.
Important: The law absolutely fixes the status of the
indorser and does not merely raise a presumption that
he is such. Thus, parole evidence may not be admitted to
show the intention that a person signed the instrument
in some other capacity.
Presumption of Being an Indorser
• If someone signs on the instrument without indicating in
what capacity they are signing, they are deemed as
indorsers.
• That is why an agent has to disclose his principal and
his capacity for signing, otherwise he will be
considered as any other indorser. But then, an
indorser may be classified into regular or irregular.
• If you see any signature on the instrument, then most
likely, that signature belongs to the indorser if there is no
other indication.
• It is important to know the capacity of the person
who signed so that we can know his liabilities.
Exception to the presumption
• If the signor indicates that he is bound in any other
capacity such as if he is signing as an agent.
Note: the status of an indorser is fixed by law, thus, parol
evidence is inadmissible. This is so to protect the full and
free circulation of negotiable papers and to ensure
commercial stability.
A guarantor may sign an instrument either “payment
guaranteed” or “collection guaranteed.”
• Payment guaranteed — the signer engages that if the
instrument is not paid when due, he will pay it according
to its tenor even if the party entitled to payment has not
attempted to collect from the party liable for it.
• Collection guaranteed — signer engages that if the
instrument is not paid when due, he will pay it according
to its tenor, but only after the party entitled to
payment has tried to collect.
What are the types of indorsers?
• Regular – those who become parties of the instrument
and subsequently negotiate the instrument further.
In other words, they paid for value.
• Irregular – not parties to an instrument, but place
thereon their signature in blank before delivery; they are
accommodation indorsers.
19 | P a g e
Warranties of a General Indorser (Sec. 66) a) That the instrument is genuine and in all respects
Qualified Indorser what it purports to be
Section 65. Warranty where negotiation by delivery and b) That he has a good title to it
so forth. — Every person negotiating an instrument by c) That all prior parties had capacity to contract
delivery or by a qualified indorsement warrants: • To allow further negotiation of the instrument.
a) That the instrument is genuine and in all respects what it • Holds the person negotiating to be mindful in the
purports to be deficiency
b) That he has a good title to it d) That he has no knowledge of any fact which would
c) That all prior parties had capacity to contract impair the validity of the instrument or render it
d) That he has no knowledge of any fact which would impair valueless.
the validity of the instrument or render it valueless. • In case of Sec. 66, at the time of the indorsement
But when the negotiation is by delivery only, the warranty is valid and subsisting. It does not require
extends in favor of no holder other than the immediate knowledge.
transferee. • In Sec 65, it requires knowledge first.
The provisions of subdivision (c) of this section do not apply to • Example: Party who is primarily liable and he turns
a person negotiating public or corporation securities other out to be insolvent and such insolvency is not known
than bills and notes. to the public.
• Example: If it is of public knowledge that he is
General Indorser insolvent, if they indorsed, in effect they are still
Section 66. Liability of general indorser. — Every indorser liable. Knowledge may be imputed.
who indorses without qualification, warrants to all subsequent e) Sec. 65, second paragraph
holders in due course: • If negotiated by delivery, there is no warranty
a) The matters and things mentioned in subdivisions (a), (b), extended to prior parties.
and (c) of the next preceding section; and • Is that true for qualified indorsement? No.
b) That the instrument is, at the time of his indorsement, Because it merely states person negotiating by
valid and subsisting delivery.
And, in addition, he engages that, on due presentment, it shall f) Sec. 65, last paragraph
be accepted or paid, or both, as the case may be, according to • There is no capacity because they are negotiating
its tenor, and that if it be dishonored and the necessary a public instrument.
proceedings on dishonor be duly taken, he will pay the amount • Municipal bond
thereof to the holder, or to any subsequent indorser who may • Merely refers to public
be compelled to pay it.
Sec. 66, warranty of solvency of person primarily liable.
What is the liability of the indorser? Why is it only insolvency of the primarily liable?
• He is only liable if the person primarily liable does • Because it may impute to the instrument itself.
not pay on the instrument and only if there is breach
of his warranty. Qualified vs. Unqualified or General Indorser
Qualified Indorser (Sec. 65) Unqualified or General
The warranty of an indorser would depend on what type Indorser (Sec. 66)
of indorser is he is:
Knowledge of qualified indorser Knowledge of general
• Sec. 65 – governs warranty by a person negotiating and
required to constitute breach indorser NOT required to
instrument by delivery or by a qualified indorser
constitute breach
• Sec 66 – governs warranty by a general indorser
For Sec. 66 (a), the items are In Sec. 65, it requires
the same with Sec. 65 except knowledge and notice
Warranties of Qualified Indorsers
on the 4th warranty — That he before it can breach the
• The warranties of negotiators by delivery and qualified
has no knowledge of any fact liability. You will only be
indorsers are the same under Sec. 65.
which would impair the validity liable if you knew the
• The difference is that warranties of negotiators by
of the instrument or render it invalidity.
delivery only extend to their immediate
valueless.
transferee, while that of qualified indorsers, extend
to all subsequent holders who make title through his
Sec. 66(b) also states that the
indorsement.
instrument is, at the time of his
indorsement, valid and
Comment:
subsisting;
• He reason for the difference is that in a bearer
instrument, there are no signatures, thus, you
You already accepted that the
cannot trace the negotiators. As a holder, you only
instrument is valid and
know the person who delivered such instrument to you and
subsisting. Whether the
you don’t know to whom such instrument has already
instrument is invalid and you do
passed on to.
not know that, you can already
• While in qualified indorsement of an order
breach your warranty and you
instrument, there are signatures through which you
will still be liable.
can trace the indorsements.
Does not warrant the solvency Warrants the solvency of
How would you classife irregular indorsers? of the party primarily liable the party primarily liable
• The are classified as general indorsers because they
indorse in blank, meaning they do not put Illustration:
qualification. Liability of a qualified indorser in a forged instrument
• Thus, they fall under Sec. 66 as general indorsers. (Order Instrument)
M → P → A → F* → B → C —(QI)→ D
Take note: *This is an order instrument negotiated by indorsement. From
1. Regular indorser — either Sec. 65 or Sec. 66 A, the instrument was stolen by F, who forged the signature of
2. Qualified regular indorser – 65 A and delivered it to B. B then negotiated it to C, and C to D.
3. Unqualified regular indorser – 66
4. Irregular indorser — 66 C is a qualified indorser who does not know about the
forgery. Will he be liable under Sec. 65(d)?
What’s the difference between 65 and 66? • A qualified indorser requires knowledge before he
• Letter (d) in Sec. 65. This requires knowledge or notice will be rendered liable under Sec. 65(d). Here, since
before they can be held liable. he has no knowledge of any fact, he will not be liable.
Thus, he did not breach his warranty under (d).
Example: A qualified indorser has no knowledge on an • However, while he is not liable for breach of warranty
infirmity (forgery) of the instrument. He is a party after under (d), because he has no knowledge of the
the forgery. Can he be liable? forgery, he will still be liable because of his warranty
• Under Sec. 65 (d), he is not liable. But under Sec. 65 (a), under Sec. 65 (a), that the instrument is genuine and in
he can be liable. all respects what it purports to be.
• But for an unqualified indorser, he is liable because of Sec.
66 (b), whether or not he has knowledge of the infirmity.

Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20 20 | P a g e
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
Had this been an unqualified indorsement, will C be Warranties of an Irregular Indorser (Sec. 64)
liable? Section 64. Liability of irregular indorser. — Where a
• Yes. Not just because he warrants that the instrument person, not otherwise a party to an instrument, places
is genuine and in all respects what it purports to be thereon his signature in blank before delivery, he is liable
under Sec. 65(a), but also because he warrants that as indorser, in accordance with the following rules:
the instrument is valid and subsisting at the time of a) If the instrument is payable to the order of a third person,
his indorsement under Sec. 66(b). he is liable to the payee and to all subsequent parties.
b) If the instrument is payable to the order of the maker or
Warranty on the solvency of the party primarily liable drawer, or is payable to bearer, he is liable to all parties
A. Qualified Indorsers subsequent to the maker or drawer.
• Qualified indorsers do not warrant the solvency of c) If he signs for the accommodation of the payee, he is liable
the party primarily liable. to all parties subsequent to the payee.
• Sec. 66 which states: “And, in addition, he engages that,
on due presentment, it shall be accepted or paid, or both, What are the types of indorsers?
as the case may be, according to its tenor, and that if it be 1. Regular – those who become parties of the instrument
dishonored and the necessary proceedings on dishonor be and subsequently negotiate the instrument further.
duly taken, he will pay the amount thereof to the holder, In other words, they paid for value. You will only indorse
or to any subsequent indorser who may be compelled to once you acquired the instrument, paid for it and now you
pay it.” This is not found in Sec. 65 (warranties of a hold it and want to transfer it, that is when you sign.
qualified indorser). 2. Irregular – not parties to an instrument, but place
• This tells us that qualified indorsers do not warrant thereon their signature in blank before delivery; they are
solvency of the party primarily liable because he accommodation indorsers.
does not engage to pay if ever it will be dishonored.
• A qualified indorser will be liable if he breaches his Comments:
warranty under Sec. 65. • Items under Sec. 64 paragraphs a to c can simply be
summarized by saying that the irregular indorser is
B. General Indorsers liable to all parties subsequent to his indorsement.
• General indorsers warrants the solvency of the party
primarily liable under the second par. of Sec. 66. Irregular or Anomalous Indorsement
• This denotes an indorsement:
Example of Sec. 65(d): If ever M, maker, is insolvent and ➢ For some purpose other than to transfer the
that fact is known by C, a qualified indorser, at the time instrument
he made the indorsement, will he be liable? ➢ An indorsement by a stranger to the instrument
• Under Sec. 65, he does not warrant the solvency of the ➢ An indorsement by one not in the actual or
person primarily liable. However, he has knowledge of apparent chain of title, especially an indorsement
the fact which would impair the validity of the instrument made prior to the delivery of the instrument to the
or render it valueless which is also his warranty under (d) payee.
of Sec. 65. Thus, he will still be liable. • The purpose of the indorsement not for transfer is
usually to add the signer’s credit to the instrument.
Had C been an unqualified indorser, would it matter?
• It will not matter whether or not he had knowledge. Who is an irregular or anomalous indorser?
• He will still be liable. • A person who:
➢ Not otherwise a party to an instrument (This means
Comments: that the irregular indorser is not a maker, drawer,
• If the reason for non-payment of a person primarily liable acceptor or regular indorser thereon)
is insolvency, you should not automatically conclude ➢ Places thereon his signature in blank
that the qualified indorser is not liable. ➢ Before delivery
• First, check whether he has knowledge or not of such • Usually, an irregular indorser is an accommodation
insolvency. Because it can be a breach of Sec. 65 (d). indorser. He is not necessarily so where he participates
in the consideration for the instrument.
Indorser’s Liability as Warrantor Distinct From His
Liability To Pay Warranties Of Irregular Indorser
• A qualified indorser who does not guarantee • While liability to the instrument is different from liability
payment of the instrument may nevertheless incur on the instrument itself, a breach of a warranty will still
liability for breach of one or more of the implied give rise to payment for the instrument.
warranties. • Your warranty depends on whether you are a (1)
• The warranties are imposed in view of the fact that the qualified indorser or an (2) unqualified indorser.
indorser is actually a seller of property. • Sec 64 provides only for the parties to whom an irregular
• As warrantor, his liability is unconditional. indorser is liable.
• His warranties are the same as those of a general
Indorser vs. Drawer indorser under Sec 66 inasmuch as his indorsement
Indorser Drawer is in blank, which, in itself, is an indorsement is
Party to either a note or bill Party only to a bill without qualification.
Does not make any admission • In short, what Sec. 64 is saying is that they are liable to
regarding the existence of Drawer makes such all parties subsequent to their signature.
payee and his capacity to admission • They are only there to lend their credit status to whoever
indorse is the person accommodated. The liability is only to the
Makes no warranties but person subsequent to him.
Makes warranties he engages to pay after
certain conditions are Liability of an Irregular Indorser
complied with a. If the instrument is payable to the order of a third
person, he is liable to the payee and to all subsequent
General Indorser vs. Irregular Indorser parties.
General Indorses Irregular Indorser • The irregular indorser signed before the instrument
Makes either a blank or special Always makes a blank was delivered to the third person.
indorsement indorsement • This third person refers to the payee. That is why he is
liable to the payee and to all subsequent parties.
Indorses after delivery to Indorses before delivery • Example: M makes a note payable to P or order. P,
payee to payee however, doesn’t have faith in the financial ability of M and
is willing to take the note only if X’s financial ability is at
Liable to payee and
the “back of it.” M then secures X’s indorsement in blank
Liable only to parties subsequent parties unless
before the note is delivered to P. P negotiates the note to
subsequent to him he signs for the
A. When A takes the instrument, X’s name appears as the
accommodation of payee
first indorser followed by P’s name. X is liable to P, payee,
and A, a subsequent party, but not to M.

Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20 21 | P a g e
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
b. If the instrument is payable to the order of the maker
or drawer, or is payable to bearer, he is liable to all
parties subsequent to the maker or drawer.
• He is liable because he must have signed this in behalf
or in accommodation of the maker or the drawer.
• Example: Suppose M makes a note payable to the order
of M (the payee and the maker are the same person). M
cannot circulate the instrument without X’s indorsement
thereon. X then signs his name and M indorsers and
delivers the instrument to A.
• In this case, the maker is the payee or the drawer is
still the payee. The indorser is liable to all parties
subsequent to the drawer or the maker.
c. If he signs for the accommodation of the payee, he is
liable to all parties subsequent to the payee.
• The terms “all parties subsequent to the payee” does
not include the payee himself because it him who is
being accommodated.
• Between the irregular indorser and the payee, the payee
must be liable.
• Example: M makes a note payable to P or order. Suppose
P wants to discount the note with A, a bank, but the bank
is not willing to rely on the financial ability of M and P
alone. P then asks X to accommodate him. X, without
receiving any valuable consideration therefor, but only for
the purpose of lending his name and credit to P, indorses
the note in blank. X is liable to all parties subsequent
to P, the payee. P is, in effect, the first indorser, and
X, the second indorser. He is not liable to the payee
because the payee is the one he accommodated.
Liability of indorser where paper is negotiable by
delivery (Sec. 67)
Section 67. Liability of indorser where paper negotiable
by delivery. — Where a person places his indorsement on an
instrument negotiable by delivery, he incurs all the liability of
an indorser.
• When it is a bearer instrument which is negotiable by
mere delivery, but negotiators, instead of
negotiating it by mere delivery, indorses it, then
they shall be liable as regular indorsers.
Liability of indorser where paper is negotiable by
delivery (bearer instrument) is only to the immediate
transferee
• The same warranties as those laid down in Section 65:
a) That the instrument is genuine and in all respects
what it purports to be
b) That he has a good title to it
c) That all prior parties had capacity to contract
d) That he has no knowledge of any fact which would
impair the validity of the instrument or render it
valueless.
• BUT when the negotiation is by delivery only, the
warranty extends in favor of no holder other than
the immediate transferee.
Illustration:
Bearer Instrument
M→P→A→F→B→C→D
• D is the current holder of a bearer instrument who went to
M and demanded payment. M said that he is insolvent.
To whom can D go after?
• He can go after C because it is only C who warrants to him.
Did C breach his warranty? What if C does not know
about the insolvency of M?
• Then C may not be held liable to D because he has no
knowledge of any fact which would impair or render the
instrument valueless. He did not breach his warranty.
• Thus, C cannot be held liable if he does not have
knowledge of insolvency of M. Take not that he does
not warrant the solvency of M.
• Because C did not breach his warranty being the
immediate transferor, D cannot go after anyone else
other than C.
• D may also wait until M becomes solvent so he can collect
payment. This is the risk that he has to take in getting the
instrument or the credit of M.
• Otherwise, it would also be unfair if you let C pay. C can
also insure this through a debtor-creditor relationship
insurance up to the extent of the debt.
What if C knows about the insolvency of M?
• If C knew of the insolvency of M at the time he
negotiated the instrument, then he will be liable.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
• The reason is not because he warrants the solvency,
but because he breached the warranty that he has
no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
Comments:
• Under Sec. 65, you can see there that knowledge is
necessary before he can be held liable for breach of their
warranties.
• This is the reason why if the instrument is dishonored by
the insolvency of the primarily liable and this is not of
public knowledge, you have to establish that there is
knowledge on the part of the person negotiating the
instrument by delivery. BUT if it is of public knowledge,
even if you didn’t know, you would be charged with
knowledge.
Order in which indorsers are liable (Sec. 68)
Section 68. Order in which indorsers are liable. — As
respect one another, indorsers are liable prima facie in the
order in which they indorse; but evidence is admissible to show
that, as between or among themselves, they have agreed
otherwise. Joint payees or joint indorsees who indorse are
deemed to indorse jointly and severally.
Order of Liability of Indorsers
A. Among themselves
• Liable prima facie in the order in which they indorsed.
• Every indorser is liable to all indorsers subsequent to him.
• This prima facie order of liability may be rebutted
because it may be shown by parol evidence either
written or oral, that “as between or among
themselves they have agreed otherwise.”
B. To the holder
• As to the holder of an instrument which has been
dishonored, he is not bound by the above section.
• Indorsers are liable in any order and none of them can
interpose as defense against him any agreement
among themselves regarding their order of liability.
Comments:
• The holder can go after any of the indorsers.
• But as to whom the indorsers can go after is
dependent on the order of their indorsement.
• Sec. 68 serves as guide to intervening indorsers as to
whom they can go after in case they will be required to
pay. It governs only the liability of the indorsers among
themselves but not their liability to the holder.
Joint Payees or Indorsees
• Under section 68, “joint payees or joint indorsees who
indorse are deemed to indorse jointly and
severally.” Their liability, therefore, is solidary so
that none of them can escape liability just because proper
notice of dishonor was not given to the other.
• Under section 184, a note made payable to the order of
the maker is not complete until indorsed by him.
• The last sentence of Section 68 does NOT apply to an
instrument containing the words “we promise to
pay” and made payable to the order of the makers
themselves because ins such a case their liability is
joint and not solidary.
Illustration:
M→P→A→B→C→D
• D may recover from any of said indorsers.
• So if D sues A, the latter cannot allege that he and B have
agreed that B should be liable first.
• If A is made to pay D, A can go against P, a prior indorser,
but not against B and C, subsequent indorsers, to whom
he is, in turn, liable.
• However, if after paying D, A can prove that their
agreement is that B should be liable first, A can ask
reimbursement from B.
Liability of an Agent or Broker (Secs. 19, 20, 21, and 69)
Sec. 19. Signature by Agent; Authority; How Shown. —
The signature of any party may be made by a duly authorized
agent. No particular form of appointment is necessary for this
purpose; and the authority of the agent may be established as
in other cases of agency.
Sec. 20. Liability of Person Signing as Agent, and So
Forth. — Where the instrument contains or a person adds to
his signature words indicating that he signs for or on behalf of
a principal, or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere
22 | P a g e
addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal, does
not exempt him from personal liability.
Sec. 21. Signature by Procuration; Effect of . — A
signature by "procuration" operates as notice that the agent
has but a limited authority to sign, and the principal is bound
only in case the agent in so signing acted within the actual
limits of his authority.
Section 69. Liability of an agent or broker. — Where a
broker or other agent negotiates an instrument without
indorsement, he incurs all the liabilities prescribed by Section
Sixty-five of this Act, unless he discloses the name of his
principal and the fact that he is acting only as agent.
Requisites for agent to be exempted from liability:
• If order instrument: The person must add to his
signature words indicating that he signs in behalf of the
principal or that he is acting in a representative capacity.
• If bearer instrument: Disclose of the name of the
principal and state that the agent is acting as such or their
capacity.
➢ How is this different from indorsement? You do
not affix your signature, you just disclose your
principal and your capacity for acting without
affixing your signature. If you affix your signature,
then you would be held liable as an indorser.
Comments:
• In a bearer instrument, the agent is acting as indorser by
doing these two things.
• Otherwise, he will be personally liable in the instrument.
Sec. 69 applies only to instrument payable to bearer.
• If it is payable to order, you would know that you
have to indorse. By indorsing it, you provide the
name of your principal plus the capacity for acting.
Metropol vs. Sambok
• The maker issued a PN payable in installments and with an
acceleration clause, to Ng Sambok Sons Motors Co., Ltd.
• Sambok Motors Company negotiated and indorsed the
note in favor of plaintiff Metropol Financing & Investment
Corporation with the following indorsement: “Pay to the
order of Metropol Bacolod Financing & Investment
Corporation with recourse. Notice of Demand;
Dishonor; Protest; and Presentment are hereby
waived. SAMBOK MOTORS CO. (BACOLOD) By: RODOLFO
G. NONILLO Asst. General Manager”
• The maker, Dr. Villaruel defaulted in the payment.
• Metropol notified Sambok as indorsee of said note of the
fact that the same has been dishonored and demanded
payment. Sambok failed to pay.
• Metropol filed a collection case against Sambok. The trial
court rendered its decision in its favor.
• Appellant Sambok argues that by adding the words
“with recourse” in the indorsement of the note, it
becomes a qualified indorser; that being a qualified
indorser, it does not warrant that if said note is dishonored
by the maker on presentment, it will pay the amount to
the holder.
Supreme Court Ruling
• Sambok is not a qualified indorser.
• A qualified indorserment constitutes the indorser a mere
assignor of the title to the instrument. It may be made by
adding to the indorser’s signature the words “without
recourse” or any words of similar import.
• Such indorsement relieves the indorser of the general
obligation to pay if the instrument is dishonored but not of
the liability arising from warranties on the instrument as
provided by section 65 of NIL.
• However, Sambok indorsed the note “with recourse”
and even waived the notice of demand, dishonor,
protest and presentment.
• Sambok, by indorsing the note “with recourse” does
not make itself a qualified indorser but a general
indorser who is secondarily liable, because by such
indorsement, it agreed that if Dr. Villaruel fails to pay the
note, plaintiff-appellee can go after said appellant.
• The effect of such indorsement is that the note was
indorsed without qualification.
• A person who indorses without qualification
engages that on due presentment, the note shall be
accepted or paid, or both as the case may be, and
that if it be dishonored, he will pay the amount
thereof to the holder.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
• Appellant Sambok’s intention of indorsing the note
without qualification is made even more apparent by
the fact that the notice of’ demand, dishonor, protest
and presentment were all waived.
• The words added by said appellant do not limit his
liability, but rather confirm his obligations as a
general indorser.
Maralit vs. Imperial
• Maralit filed three complaints for estafa through
falsification of commercial documents through
reckless imprudence against respondent Imperial.
• Maralit alleged that she was assistant manager of
the Naga City branch of the Philippine National Bank
(PNB); that on May 20, 1992, June 1, 1992, and July 1,
1992 respondent Imperial separately deposited in her
savings account at the PNB three United States
treasury warrants and on the same days withdrew their
peso equivalent of P59,216.86, P130,743.60, and
P130,326.00, respectively; and that the treasury
warrants were subsequently returned one after the
other by the United States Treasury, on the ground
that the amounts thereof had been altered.
• Maralit claimed that, as a consequence, she was held
personally liable by the PNB for the total amount of
P320,287.30.
• Respondent Imperial claimed that she merely helped
a relative, Aida Abengoza, to encash the treasury
warrant and that she did not know the amounts
were altered nor did she represent to petitioner that the
treasury warrants are genuine and that upon being
informed of dishonor, she immediately contacted her
relative and signed an acknowledgement to pay the total
amount of the treasury warrant.
• Judgment of the MTC was rendered as follows:
WHEREFORE, in view of the foregoing considerations, the
Court finds no ground to hold the accused criminally liable
for which she is charged, hence Corazon Jesusa L. Imperial
is ACQUITTED of all the charges against her. The accused
however is civilly liable as indorser of the checks
which is (sic) the subject matter of the criminal
action.
• The decision having become final and executory, the
MTC ordered the enforcement of the civil liability against
the accused arising from the criminal action.
• Imperial moved to quash the writ of execution on
the that the judgment did not order the accused to
pay a specific amount of money to a particular
person as it merely adjudicated the criminal aspect
but not the civil aspect hence there was no judgment
rendered which can be the subject of execution.
Supreme Court Ruling
• The loss is chargeable to the accused who upon her
indorsements warrant that the instrument is
genuine in all respect what it purports to be and that
she will pay the amount thereof in case of dishonor.
(Sec. 66 Negotiable Instrument Law)
• It is argued that the decision of the MTC did not order
respondent, as accused in the case, to pay a specific
amount of money to any particular person such that it
could not be an adjudication of respondent‘s civil liability.
• However, the ambiguity can easily be clarified by a
resort to the text of the decision or, what is properly
called, the opinion part.
• Doing so, it is clear that it can only be to petitioner
that respondent was made liable as the former was
the offended party in the case.
• As for what amount respondent is liable, it can only
be for the total amount of the treasury warrants
subject of the case, determined according to their
peso equivalent, in the decision of the MTC.
Sapiera vs. CA
• On several occasions, petitioner Remedios Nota
Sapiera, a sari-sari store owner, purchased from
Monrico Mart certain grocery items, mostly
cigarettes, and paid for them with checks issued by
one Arturo de Guzman:
a) PCIB Check No. 157059 dated 26 February 1987
for P140,000.00;
b) PCIB Check No. 157073 dated 26 February 1987
for P28,000.00;
c) PCIB Check No. 157057 dated 27 February 1987
for P42,150.00; and,
d) Metrobank Check No. DAG - 045104758 PA dated 2
March 1987 for P125,000.00.
23 | P a g e
• These checks were signed at the back by petitioner
Sapiera. When presented for payment, the checks were
dishonored because the drawer’s account was
already closed.
• Private respondent Ramon Sua informed Arturo de
Guzman and Sapiera about the dishonor but both failed to
pay the value of the checks.
• The court a quo acquitted Sapiera of the 4 charges of
estafa but did not rule on whether she could be held
civilly liable for the checks she indorsed to private
respondent.
• The trial court found de Guzman guilty of 2 counts of
Violation of B.P. Blg. 22 and sentenced him to suffer
imprisonment of six (6) months and one (1) day in each of
the cases, and to pay private respondent P167,150.00
as civil indemnity.
• Private respondent then filed a petition for mandamus with
the Court of Appeals, praying that the court a quo be
ordered to give due course to the appeal on the civil aspect
of the decision.
• The Court of Appeals granted the petition and
ordered Sapiera to pay private
respondent P335,000.00 representing the
aggregate face value of the 4 checks indorsed by
petitioner plus legal interest from the notice of
dishonor.
• Sapiera filed a motion for reconsideration of the Decision.
• The appellate court noted that private respondent was the
same offended party in the criminal cases against Sapiera
and against de Guzman. Deducting the amount of
P125,000.00 from De Guzman already collected by private
respondent, Sapiera was adjudged to pay P210,150.00 as
civil liability to private respondent.
• The appellate court then corrected its previous award,
which was erroneously placed at P335,000.00,
to P335,150.00 as the sum total of the amounts of the 4
checks involved.
• Note: It was alleged in the trial court that Sapiera was
asked to sign subject checks as identification of the
signature of Arturo de Guzman.
Supreme Court Ruling
• Section 2, par. (b), of Rule 111 of the Rules of Court, as
amended, specifically provides: "Extinction of the penal
action does not carry with it extinction of the civil,
unless the extinction proceeds from a declaration in a final
judgment that the fact from which the civil might arise did
not exist.
• Sapiera is liable for the value of the checks. Based on
the findings of the trial court, the exoneration of
petitioner of the charges of estafa was based on the
failure of the prosecution to present sufficient
evidence showing conspiracy between her and the
other accused de Guzman in defrauding private
respondent.
• However, by her own testimony, petitioner Sapiera
admitted having signed the 4 checks in question on
the reverse side without any indication as to how
she should be bound thereby. Therefore, she is deemed
to be an unqualified indorser.
• The Negotiable Instruments Law clearly provides -
Sec. 17. Construction where instrument is ambiguous. -
Where the language of the instrument is ambiguous, or
there are admissions therein, the following rules of
construction apply: x x x x (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. x x x x
Sec. 63. When person deemed indorser. - A person
placing his signature upon an instrument otherwise than
as maker, drawer or acceptor, is deemed to be an indorser
unless he clearly indicates by appropriate words his
intention to be bound in some other capacity.
Sec. 66. Liability of general indorser. - Every indorser who
indorses without qualification, warrants to all subsequent
holders in due course: (a) The matters and things
mentioned in subdivisions (a), (b) and (c) of the next
preceding section; and (b) That the instrument is, at the
time of the indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it
shall be accepted or paid or both, as the case may be,
according to its tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder or to any subsequent
indorser who may be compelled to pay it.
• Petitioner is liable for the value of the checks. As she
(petitioner) signed the subject checks on the
reverse side without any indication as to how she
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
should be bound thereby, she is deemed to be an
unqualified indorser thereof.
• Every indorser who indorses without qualification,
warrants to all subsequent holders in due course
that, on due presentment, it shall be accepted or
paid or both, according to its tenor, and that if it be
dishonored and the necessary proceedings on
dishonor be duly taken, he will pay the amount
thereof to the holder or to any subsequent indorser
who may be compelled to pay it.
BPI v. CA and Napiza
PE: Ramon
Benjamin Napiza DE: Bank EE
deposits $2,500; BPI withdraws and Agnes
Henry Chan owner De Guzman
• By way of accommodation and only for the purpose
of clearing, Benjamin Napiza (private respondent
herein), deposited a check in the amount of $2,500.00 in
his dollar deposit with the BPI. This check belongs to
Henry Chan.
• Napiza delivered to Chan a signed blank withdrawal
slip, with the understanding that as soon as the
check is cleared, both of them would go to the bank
to withdraw the amount of the check upon private
respondent's presentation to the bank of his
passbook.
• However, using the same blank withdrawal slip, a
bank employee was able to withdraw the amount of
$2,541.67, which was made payable to Ramon A. de
Guzman and Agnes C. de Guzman.
• Later, the bank received a communication that the
deposited check was a counterfeit. The bank informed
respondent Napiza that the check bounced, hence, the
latter tried to locate Chan.
• Since Napiza was unable to locate Chan, the bank
demanded payment from him.
• Napiza refused to pay on the ground that the check
was deposited for clearing purposes only to
accommodate Chan.
• As a result, petitioner bank filed a complaint against
private respondent for the return of the amount of
$2,500.00 or the prevailing peso equivalent plus interest,
attorney's fees, and litigation costs.
• The lower court dismissed the complaint. The lower court
held that having committed a mistake of not waiting
for the clearance of the check before authorizing the
withdrawal of its value, BPI should suffer the
resultant loss.
• The Court of Appeals affirmed the lower court's decision
and stressed that the mere deposit of the check did not
mean that it was already the property of the
depositor. The check had to be cleared and its proceeds
can only be withdrawn upon presentation of a
passbook in accordance with the bank's rules and
regulations.
• Hence, this petition wherein BPI claims that Napiza should
be held liable as a general indorser.
Supreme Court Ruling
• Ordinarily, Napiza would have been liable because he
is an accommodation indorser. But due to the
attendant circumstances, Napiza is discharged from
liability.
• The withdrawal slip indicates as well as the rules
promulgated by BPI that withdrawal from the bank should
be accompanied by the presentment of the account
holder’s (Napiza’s) savings bankbook.
• Under the said case, it can be seen that two requisites
must be presented to BPI by the person withdrawing
the amount: 1) a duly filled-up withdrawal slip; and
2) the depositor’s passbook.
• Thus, the fact that Napiza’s passbook was not presented
during the withdrawal is evidenced by the entries therein
showing that the last transaction that he made with the
bank was when he deposited the controversial check.
• Likewise, the CA correctly held that in depositing the
check in his name, private respondent did not
become the outright owner of the amount stated
therein.
• Under petitioner bank's own rule, by depositing the
check, private respondent was merely designating
petitioner as the collecting bank. This is in
consonance with the rule that a negotiable
instrument, such as a check, is not a legal tender.
• Moreover, in the case at bar, BPI, in allowing the
withdrawal of Napiza’s deposit failed to exercise the
24 | P a g e
 necessary diligence in total disregard of its own
rules.
• Hence, Napiza cannot be held liable. BPI should suffer for
the resulting damage.
ACCEPTANCE AND PAYMENT
Acceptance
How acceptance is made (Sec. 132 & 133)
Section 132. Acceptance; How Made, 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.
Section 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.
Acceptance
• The drawee-acceptor manifests his acceptance of the
order of the drawer.
• Acceptance only applies to a Bill of Exchange!
When is there acceptance?
• When there is an indication on the instrument itself
that the drawee accepted the instrument.
• Manifestation of consent to show that there was
acceptance.
Object and Effect of Acceptance
• The drawee is not a party until and unless it has made its
acceptance. Until the acceptance, it is the drawer primarily
liable.
• After acceptance, the drawee assumes responsibility.
• By accepting the bill, the drawee admits everything
essential to its validity
Requisites for a valid acceptance
1. Must be in writing;
• Exception: It does not apply to constructive
acceptance and to a foreign bill payable in another
state unless it is shown that the law of said state
requires a written acceptance.
• If it’s constructive, you will not see any acceptance
there. Example is in Sec. 137 - when an
instrument is destroyed. It is not required to be
in writing. By operation of law, acceptance is
deemed made.
2. Must expressly state that the promise shall be
performed by payment in money only (and not
goods); unconditional
• There shouldn’t be any promise other than the
promise to pay in money.
• If the acceptance of an instrument is “Yes, I accept
with the promise to pay 1000 carabaos instead of
P1000,” that is not allowed under the law.
3. Signed by the drawee; and
4. Delivered to the holder.
Holder Entitled to Acceptance on the Face of the Bill
• The holder may require that acceptance may be made on
the face of the bill.
• If such request is refused, he may treat the bill as
dishonored.
Where Acceptance May Be Made
• It is not required to be in the face of the instrument.
It can be written:
1. At the face of instrument; or
2. In a separate instrument
• However, the holder has the right to demand that
acceptance be made on the face of the bill, otherwise
he can treat the bill as dishonored and then may go after
those secondarily liable.
• Reason: To avoid the risk that the drawee’s liability may
not be extended to parties who did not see that piece of
paper where the acceptance is made.
• The instrument can be dishonored if the acceptor
refused. If it is not on the bill, he can deem it as
dishonored.
• Reason: For the protection of the parties kay naay chance
na mawala ang separate paper.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
Can acceptance be made even before the instrument is
made?
• There can be acceptance even if the instrument is
not yet made. It must be in writing and presented.
It must be attached in writing in order for them to
be bound by it.
• Even before the instrument is drawn, as long as the
acceptance is in writing, and this should be attached to the
instrument later on!
Kinds of Acceptance (Secs. 139, 140, and 141)
Section 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.
Section 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.
Section 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;
The acceptance of some one or more of the drawees, but not
of all
Two kinds of acceptance:
1. General Acceptance
2. Qualified Acceptance
General Acceptance
• No qualification as to the acceptance.
• An acceptance stating for payment to be made in a
particular place is still a general acceptance unless such
place is the only place where payment may be made.
Qualified Acceptance
• Qualified when there is modification and it changes
the effects of the instrument.
• Acceptance is qualified in any of the following ways:
a) Conditional — with a condition; makes the
payment by the acceptor dependent in the
fulfillment of a condition. Example: I accept the
instrument should you pass the bar exam.
b) Partial — that not the entire amount is accepted
to be payable; where the acceptor shall only pay a
part of the amount for which the bill is drawn.
Example: Instead of Php 1M, you only accepted Php
400k.
c) Local — to be paid ONLY at a particular place; where
there is a limitation or restriction as to the place
of payment (locational limitation). If it involves
locational limitation, it has to be EXCLUSIVE.
Example: I promise to accept the instrument and pay
it only in Cebu. “exclusively, only, solely." If it does
not contain words of exclusivity, then It is just an
additional place; permissive; so still a genera
acceptance.
d) Time-bound — changes the maturity of the
instrument; as to the time or time limitation.
Example: I accept and will pay 30 days after sight.
e) Acceptance by some but not all of the drawees
— when there is more than one drawee and the
drawees are not partners. Example: To A, B and C,
Pay to Y… , Sgd. Z. It is qualified if not all of them
accepted the instrument. TN: When there are several
drawees, the time to accept is 24 hours per drawee.
Comments:
• If there is qualified acceptance, the holder can deem
the instrument dishonored.
• But the holder an option to accept, so long as he
notifies the parties secondarily liable.
• Reasonable time: 24 hours the moment you receive the
notice.
If it is a qualified acceptance, does that render the
instrument dishonored?
• General Rule: No.
25 | P a g e
• Exception: If the holder refuses to take a qualified
acceptance, and if he does not obtain an unqualified
acceptance (Sec. 142).
Rights Of Parties As To Qualified Acceptance
Section 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.
When there is qualified acceptance, the holder has two
options:
1. He may treat the instrument as dishonored; or
2. He may accept the qualified acceptance.
• If the holder accepts, the drawer and the
indorsers who do not consent to such
acceptance will be discharged from liability.
Comment:
• If there is a qualified acceptance, the holder has the
duty to notify the indorsers and drawer and other
persons secondarily liable about the qualified
acceptance so that they can manifest their consent to the
qualified acceptance.
Rights Of Parties As To Qualified Acceptance
1. The holder may refuse a qualified acceptance and if
he does not obtain an unqualified acceptance, the bill may
be treated as dishonored by non-acceptance.
2. Where a qualified bill is taken, a drawer and indorsers
are discharged from liability UNLESS they have
expressly or impliedly authorized the holder to take
a qualified acceptance and subsequently assent thereto.
• Implied authorization happens when even if there
is a notice of the qualified acceptance from the holder,
the drawer does not express his dissent within a
reasonable time.
• Reasonable time: 24 hours the moment you receive
the notice.
3. When the drawer or an indorser receives notice of a
qualified acceptance, he must, within reasonable time
express his dissent to the holder or he will be deemed to
have assented thereto.
Notice To The Drawer And Indorsers Is Necessary
• When the drawer and indorsers receive the instrument, it
was not subject to these qualifications.
• If the instrument is changed because of the qualified
acceptance, it is only fitting to notify them because it
changes the contract that they previously received.
Effect Of Non-Acceptance By The Drawer And Indorsers
• They will be deemed discharged of their liability.
• However, they have to convey their dissent to such
acceptance to the holder within a reasonable time.
Otherwise, there will be an implied assent.
Certification of a Check
SECTION 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.
Certificate
• Agreement by the bank against whom a check is drawn
that the check will be paid when presented for
payment.
When Certificate Equivalent To Acceptance
• When certified by a bank on which it is drawn, the
certification is equivalent to an acceptance.
Form
• It must be in writing either on the check itself or on
a separate paper.
Effects of Certification Of Checks
1. It is equivalent to acceptance, making the bank
primarily liable on the instrument
2. It discharges the person secondarily liable if procured
by the holder
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
3. It operates as an assignment of funds of the drawer
in the hands of the drawee bank and therefore the
drawer cannot draw out funds then in the bank necessary
to meet the certified check
4. Bank becomes the debtor and cannot refuse to pay
5. Drawer cannot issue a stop payment order
LIABILITY OF CERTIFYING BANK
• The bank is estopped against a holder in due course:
1. To dispute the genuineness of the drawer’s signature
2. To set up the defense that the drawer’s funds is
insufficient or that the check is without funds
3. To allege that the drawer is indebted to the bank for
more than the amount of the check
• A bank certifying the check shall not be liable for
material alterations to it after certification.
• Example: If a check was certified for P500 and thereafter
there was a material alteration to P5,000, the bank shall
only be liable for P500.
WHEN CHECKS ARE TO BE CERTIFIED
1. When it is payable
2. Must be made by the person having the authority to certify
Effect Where The Holder Of The Check Procures It To Be
Certified
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.
• The drawer and indorsers shall be released from liability.
• Indorsers subsequent to the certification are NOT
discharged from liability.
• Where certification is obtained by someone else
other than the holder, then those secondarily liable
are not discharged from liability.
When check operates as an assignment
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.
• The moment the check is certified, the amount ceases to
be owned by the drawer and the latter no longer has
control over the said amount.
Before Acceptance
• The bank cannot be held liable because a check itself
does not constitute a transfer from the drawer to
the bank.
• Thus prior to acceptance, the bank cannot be sued
because it is NOT a privy to the contract.
Liability of Drawer to Holder
• The bank cannot be liable to holder because the bank is
not yet a party prior to acceptance.
• The recourse of the holder is to go after the drawer
and then the drawer sues the bank if non-
acceptance is not appropriate.
When Bank May Refuse Payment
1. The bank is insolvent
2. Drawer’s deposit is insufficient
3. Drawer is insolvent and proper notice is received by the
bank
4. Drawer dies and proper notice is received by the bank
5. The drawer has countermanded payment
6. The holder refuses to identify himself
7. The bank has reason to believe that the check is a forgery
8. The check is stale or postdated
Acceptance By Separate Instrument (Sec. 134)
Section 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.
• General Rule: Where acceptance is written on a paper
other than the bill itself, it does not bind the acceptor.
• Exception: In favor of a person to whom it is shown and
who, on the faith thereof, receives the bill for value
What Must Be Shown
• Where acceptance is written on a separate paper
other than the bill, in order to bind the acceptor, it is
necessary that:
26 | P a g e
 1. Acceptance be show to the person to whom it is
negotiated
2. Such person must take the bill for value on the faith
of such acceptance
Promise to accept by separate instrument (Sec. 135)
Sec. 135. Promise to accept; when equivalent to
acceptance. - An unconditional promise in writing to accept a
bill before it is drawn is deemed an actual acceptance in favor
of every person who, upon the faith thereof, receives the bill
for value.
Promise to Accept
• Applies to future instruments.
• Must be in writing.
• Deemed an actual acceptance to those who relied on
such promise (privy to the acceptance) and who upon
the faith thereof, receives the instrument for value.
Can you accept an instrument even before it is
completed?
• Yes, you can accept an instrument even before the same
is drafted or even before the instrument is completed and
that is already tantamount to an acceptance.
Comments:
• Just like an acceptance on a separate paper, the drawee’s
liability may only be extend to those parties who
were shown the instrument conveying the
acceptance of the drawee.
• Consequently, if you were not shown that instrument,
the drawee will not be liable to you.
Time Allowed To Accept (Sec. 136)
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.
• Time to accept is twenty-four hours after presentment.
• If accepted, the instrument will be considered as
accepted on the day of presentment.
Example:
• If the instrument is payable 20 days after sight and
presentment is made on November 7, 2019 at 6pm,
the drawee has until November 8, 2019 at 6pm,, to
make an acceptance or dishonor the instrument.
• If acceptance is made on November 8, 2019, the date of
maturity will be November 27, because it is reckoned from
the date of presentment which is on November 7.
Liability of drawee retaining or destroying bill (Sec. 137)
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.
• This Section speaks of constructive acceptance.
• There is constructive acceptance when no acceptance
occurred, but the instrument is deemed accepted.
• Sec. 137 only applies where it is done for
presentment for acceptance and NOT presentment
for payment.
Constructive Acceptance
• The drawee is allowed 24 hrs. after presentment to decide
whether or not he will accept the bill.
• If the drawee will not accept, the drawee has to
return the instrument to the holder. Otherwise,
there is already constructive acceptance by the
drawee.
• The drawee is required to return the instrument
within 24 hours after presentment.
• Meaning, the period to return the instrument is the
same as to the period to accept an instrument,
unless the holder gives a longer period.
There is constructive acceptance when:
• Where the drawee to whom a bill is delivered for
acceptance destroys it
• Where the drawee refuses, within 24 hours after
delivery or within such period as is given to him, to
return the bill, accepted or not accepted.
➢ The mere retention without refusal to return for
more than 24 hours constitutes constructive
acceptance under this section.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
➢ The presentation of a bill for acceptance is a demand
for its acceptance, which, if the bill is retained by the
drawee, implies a demand for its return if acceptance
is declined.
• This doctrine is based on the general principle of estoppel.
Comments:
• If the drawee does not accept or dishonor the instrument
within 24 hours, it will be deemed accepted. Hence,
demand is unnecessary.
• However, the holder must still demand for the return
of the instrument to complete the acceptance.
Acceptance of Incomplete Bill (Sec. 138)
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
non-acceptance 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.
• Acceptance can be made at any time, even after
dishonor or maturity. There is really no limitation as to
when you are supposed to accept an instrument as long as
it is accepted by the person holding such an instrument.
• This is allowed because it is for the benefit of the holder
if it is accepted. There is no harm, only benefit.
• If the instrument is accepted after previous dishonor,
it is deemed accepted at the date of first
presentment.
A bill may be accepted:
1. Before it has been signed by the drawer
2. If it is incomplete
3. If it is overdue
4. After it has been dishonored by a previous refusal to accept
5. Non-payment
Date of acceptance after second presentment retroacts
to the date of the first presentment
• When a bill payable after sight is dishonored by non-
acceptance and 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.
Acceptance Of An Incomplete Bill (before signed by
drawer, etc.)
• It does not mean that the person to whom the incomplete
bill is transferred becomes a holder in due course.
• The effect of accepting an incomplete bill is it will
only bind persons who has knowledge of such
acceptance.
• It can happen that acceptance is given even before the
instrument exists. If the instrument will eventually exist,
only those parties who knew about the acceptance before
the instrument was accepted will be bound.
Is it required that this type of acceptance be written in
some form?
• Yes. It must be in writing and it must be an
unconditional promise to accept.
• We go back to section 135. The instrument will have to
be accepted on a separate paper and only those
persons to whom that paper showing an acceptance
was written on will be bound by said acceptance of the
drawee.
• But the drawee can also accept it on the bill itself, as
when the bill is already there but it’s just that it is
not yet complete (like the drawer did put his signature
on it and yet the drawee already accepted it). (see Sec.
138)
Can the instrument be dishonored for non-acceptance
and later be accepted?
• Yes. An instrument can still be accepted even if it has
been previously dishonored.
• The effect is still like that of any other acceptance.
The acceptor is liable to pay the instrument to whoever is
the holder of the instrument.
Example:
• If the instrument is payable 20 days after sight and
presentment is made on November 7, 2019 but the
instrument is dishonored.
27 | P a g e
• Subsequently, the drawee decided to accept the
instrument on November 17, 2019 and notified the
holder of such acceptance.
• For purposes of maturity, the instrument is deemed
to have been accepted on November 7, 2019, the
date of first presentment, and so will mature on
November 27, 2019.
Presentment For Acceptance
When presentment for acceptance must be made (Sec.
143)
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.
• Acceptance is only applicable to a bill of exchange.
Presentment For Acceptance
• The production or the exhibition of a bill of exchange to
the drawee for his acceptance or payment.
Why is it necessary to present for acceptance?
• To charge persons secondarily liable.
Present For Acceptance, When REQUIRED
• Not all bills of exchange are required to be presented for
acceptance. Presentment is required only when (APE):
1. Bill payable after sight (or in any other case when
presentment for acceptance is necessary to fix the
maturity – when it says ”at sight”); or
• Example: To F: “Pay G or order P10,000, 10 days
after sight.”
• Here, it requires acceptance because it is necessary to
determine when the 10-day period will start to run.
2. Bill with express stipulation that it shall be presented
for acceptance.
• It is necessary that this be accepted to make
arrangements for the payment to be made wherever
is stated the place of payment should be. In other
words, so that the person primarily liable can make
arrangements once the instrument is already
presented.
3. Bill payable elsewhere than at the residence or place
of business of the drawee; or
• Necessary to allow the drawee to make
arrangements for payment.
• Why? Drawee happens to be the debtor. The
passive party. The creditor will be the one to go
after you. If not payable at the place of the drawee,
• Example: To D: “Pay F or order P1,000. Presentment
for acceptance is required.”
Comments:
• Only in these three circumstances that presentment for
acceptance is required.
• This is clear in the last paragraph of Sec. 143, which
states, “In no other case is presentment for acceptance
necessary in order to render any party to the bill liable.”
• In all other cases, presentment for acceptance is not
required, and the holder can directly go to the drawee for
payment and acceptance at the same time.
• Payment is not acceptance.
• Bearer instrument need not be presented for
acceptance.
• If the drawee does not write or sign the instrument, he will
not be liable for payment.
• The drawee is not liable to the instrument unless he
accepts the instrument.
• If the instrument is not presented for acceptance under
the three circumstances required by law, all parties
secondarily liable will be discharged from liability (Sec.
144).
• Presentment for acceptance is not necessary to hold a
party liable.
When Presentment For Acceptance Not Necessary
1. Payable on demand or on sight
2. Time bills or bills payable at a day certain or at a fixed time
after date
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
3. Other certain event which does not fall under subsections
(b) and (c) need not be presented for acceptance but only
for payment in order to charge drawer and indorsers
Effects Of Failure To Present For Acceptance (Sec. 144)
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.
• Failure to present for acceptance those bills of exchange
that require acceptance will discharge the drawer and
the indorsers of their liabilities.
When Failure To Present Releases Drawer And Indorser
• The holder of a bill which required presentment for
acceptance must either:
1. Present it for acceptance or
2. Negotiate it within reasonable time
• Hence, the failure to do either will discharge the drawer
and all indorsers from liability.
• If there is failure to present for acceptance and such
acceptance is required, the persons secondarily liable will
be discharged.
When will you present?
• Within reasonable time.
➢ PN — from issuance of instrument
➢ BoE — from last negotiation
How Presentment For Acceptance Is Made (Sec. 145)
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 as 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.
How do you secure acceptance?
• You have to present the instrument to the drawee for
acceptance.
Where do you present the instrument for acceptance?
• The law does not provide a rule where presentment for
acceptance has to be made.
Who makes the presentment for acceptance?
• In general, it is the holder or his agent/representative
(need not anymore be authorized formally, unlike when it
is the drawee’s agent where there is a requirement for
formal authorization; rationale: when you accept an
instrument, then it creates a liability – thus, it requires
that the agent of the drawee must be authorized
specifically).
How Presentment For Acceptance Is Made (P-BORD)
1. Presentment is made by or on behalf of the holder;
2. On a reasonable hour on a business day on or before
the maturity of the instrument
3. Before the bill is overdue;
4. Within a reasonable time;
5. To the drawee or to persons authorized to accept or
refuse the acceptance on his behalf.
Comment:
• We have to know this because if this is not complied with,
the instrument is not considered as presented for
acceptance.
When is a day considered a business day considering
that we have call centers now. So if the drawee is a call
center agent working on a Friday night, is Friday night
considered a business day?
• Atty. Amago: Follow government service hours, M-F, 8-
5PM.
28 | P a g e
To whom should presentment for acceptance be made?
• If addressed to two or more drawees who are not
partners, presentment made to all of them UNLESS
one has authority to accept for both.
➢ General Rule: Presentment must be made to all of
them.
➢ Exception: When one is authorized to represent
everyone, then presentment for acceptance may be
made to such person.
• If dead — presentment to his personal representatives.
➢ If the drawee is dead, presentment is excused
because of Sec. 148(a).
➢ In this case, presentment to a personal
representative (need not be court-appointed, as
long as you are recognized by the parties as the
representative) of the drawee is allowed. (This is
permissive because of the word “may”).
➢ Hence, this provision in only applicable in case the
holder opted to present the instrument, in which case,
he would have to do it with the representative of the
deceased drawee.
• If adjudged bankrupt or insolvent or has made
assignment for the benefit of the creditors — may be made
to him (drawee), trustee or assignee
➢ Trustee — insolvent
➢ Assignee — assignment to creditors
➢ Because of the word “adjudged as bankrupt”,
there has to be a court order declaring one to be
one as bankrupt; if insolvent, just establish that your
assets are not enough to cover your liabilities.
• Important: Place of presentment for payment is
IMMATERIAL.
On What Days May Presentment For Acceptance May Be
Made (Sec. 146)
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.
Days To Present The Instrument For Acceptance
• General Rule: Presentment for acceptance may be made
on any day.
• Exceptions:
1. If on a Sunday or a holiday, presentment should be
made on the next succeeding business day.
2. If on a Saturday (NOT a holiday), presentment may
be made before 12 o’clock noon.
Rule on Saturdays
Presentment for acceptance Presentment for payment
Before 12 o’clock noon on • If payable on demand -
that day, regardless of what Present before 12 noon or
type of instrument it may be. the next succeeding
business day.
• If payable on a fixed term
- Present on succeeding
day.
Reason For The Difference Of The Rules Regarding
Saturdays
• For acceptance, there is no need for the drawee to
have the money right there and then. Hence, it can be
presented for acceptance on a Saturday.
• On the other hand, presentment for payment may be
made on a Saturday only in case of an instrument
payable on demand since the drawee has a money
readily available even if it is a Saturday because he
knows that the instrument is payable on demand.
• Acceptance CAN be made even after maturity but the
presentment for acceptance MUST be made on or before
maturity.
Presentment Where Time Is Insufficient (Sec. 147)
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.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
• In this section, the presentment for acceptance is to
be made at a place other than where the bill is
drawn payable.
Effect When Time For Presentment Is Insufficient
• Delay in the presentment for payment is excused;
provided that there was exercise of reasonable diligence.
• The drawer and the indorsers are not discharged from their
liabilities.
• Only the delay is excused and not the presentment
itself. The instrument must still be presented after the
reason of the delay has ceased to exist or where
there is already a reasonable opportunity to present
the instrument for acceptance.
Example: The instrument drawn here in the Philippines is
payable in the next two days. The place of acceptance is in
the United States and the place of payment is in the
Philippines. In this case, presentment for payment cannot be
made in time after it is presented for acceptance. Hence, the
delay in presenting the instrument for payment is excused.
Where Presentment For Acceptance Is Excused (Sec.
148)
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.
Instances Where Presentment For Acceptance Is
Excused
Presentment for acceptance is excused and a bill may be
treated as dishonored by non-acceptance in either of the
following cases:
1. Drawee is dead, or has absconded, or is a fictitious
person or a person not having capacity to contract by
bill.
2. After exercise of reasonable diligence, presentment
cannot be made.
3. Presentment is irregular, but acceptance is refused
on some other grounds.
Example: I presented the instrument for acceptance on a
Sunday (which is irregular), and the acceptance is refused by
the drawee on the ground that they do not have any agreement
with the drawer.
When Presentment Is Excused, Differentiated
Section 147 Section 148
Only the delay is excused There is no need of
and yet if there is reasonable presentment already
time to present it, the because the presentment
instrument must be presented. itself is excused.
When Bill is Dishonored by Non-acceptance (Sec. 149)
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.
Instances When A Bill Is Dishonored By Non-Acceptance
1. There was presentment for acceptance, but it was
refused or cannot be obtained; or
• Example: The holder presented the instrument for
acceptance to the legal representative of the deceased
drawee (death of drawee excuses presentment), but
the legal representative refused to accept the same.
2. When the presentment for acceptance is excused
AND the bill is not accepted.
• This refers to the instances under Sec. 148
• There is no representative to accept.
• Most likely applicable when there is insufficiency of
time to present and still the holder tried to present it
after the time has elapsed and the instrument is not
accepted. Like in the case of section 147.
• However, even when presentment for acceptance
is excused, it is possible that the acceptor
29 | P a g e
 subsequently accepts. In such case, a bill cannot be
considered dishonored by non-acceptance.
• Example: Presentment for acceptance is excused
when the drawee has absconded (Sec. 148(a).
However, if he personally communicates his
acceptance afterwards, then the instrument cannot be
considered dishonored by non-acceptance.
Effect when dishonored
• Immediate accrual of right of recourse against parties
secondarily liable.
Duty Of Holder The Where Bill Is Not Accepted (Sec.
150)
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 non-acceptance or he loses
the right of recourse against the drawer and indorsers.
• The holder must give notices to the drawer and the
indorsers. Otherwise, they will be deemed discharged.
Rights Of Holder Where Bill Is Not Accepted (Sec. 151)
Sec. 151. Right of the holder where bill not accepted. —
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.
• When a bill is dishonored by non-acceptance, no
presentment for payment is necessary.
Immediate Right of Recourse
• This means that there is no need for the holder to
perform an additional act (such as filing a case)
against those persons primarily liable just so he can
go after those persons secondarily liable.
Cases Where Protest is Necessary (Secs. 152 and 158)
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. 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.
Presentment For Payment
Time of Maturity (Secs. 85 and 86)
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.
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.
If Payment Is To Be Made On A Sunday Or A Holiday
• Presented for payment on the next succeeding business
day.
Rule If Payment Is To Be Made On A Saturday
a) If payable on a fixed term — you have until Monday to
present it.
b) If payable on demand — you can either present it on the
next succeeding business day, OR present it on Saturday
before 12 o’clock noon. This is at the option of the
holder.
Comment:
• The reason of the law if the instrument is payable on
demand is that the person liable always brings with
him the money for payment considering that the
instrument is payable on demand anytime.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
Time of Maturity, Rules
1. Every negotiable instrument must be paid at the time fixed
therein without maturity
2. If the time of maturity falls on a Sunday or a holiday, the
instrument is payable on the next business day
3. If on a Saturday, it is to be paid on the next business day
➢ Exception: An instrument payable on demand may,
at the option of the holder, be presented for payment
before 12 o’clock noon on Saturday when the entire
day is not a holiday.
Comment:
• If a grace period is given on the instrument, then the
instrument is payable on the last date of grace.
What happens if it is an instrument payable upon
demand and you fail to present it?
• All persons secondarily liable will be discharged of
their liability.
Time, How Computed
• Like computation of time under the Civil Code, you exclude
the first, include the last.
Effect Of Want Of Demand On The Principal Debtor (Sec.
70)
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.
Presentment for Payment to Persons Primarily Liable
• The presentment of an instrument to the person primarily
liable for the purpose of demanding and receiving
payment.
Presentment To Person Primarily Liable Is Not
Necessary
• Presentment and demand for payment are not necessary
in order to charge the person primarily liable since
his liability is absolute.
• The holder may sue the acceptor and the maker as
soon as the date for payment has passed, without
need of demand.
General Rule: It is not necessary that the instrument be
presented to persons primarily liable because even if you don’t
present it, they will still have to pay.
Exceptions: However, if you have to present it for payment,
it depends:
1. If it is not payable on demand - presentment must
be made on the day it falls due or on the maturity
date.
2. If it is payable on demand - presentment must be
made within a reasonable time after its issue.
• Except that in a case of a bill of exchange, presentment
for payment will be sufficient if made within a
reasonable time after the last negotiation thereof.
Presentment for payment to persons secondarily liable
is necessary.
• Thus, for the indorsers and the drawer to be liable, there
must be presentment for payment.
• Notice of dishonor must be given to the persons
secondarily liable, otherwise, the party to whom notice is
not given shall be free from all liabilities.
Applicable Where Payable At A Specific Place
• It is also applicable where the instrument is payable
at a specific place, but not an unspecified place
Important:
• However, if the person primarily liable has the ability
and willingness to pay at the specified time and
place, the same is considered as a tender of
payment.
• He cannot be considered in delay and will not be
liable for interests subsequently accruing.
What if it is written in the agreement that presentment
for payment required to charge the person primarily
liable?
30 | P a g e
• Presentment for payment is NOT required to charge the
person primarily liable even if the same is in their written
agreement.
Instruments Payable on Demand
• There is no need for presentment for payment to
charge the person primarily liable. Thus, a suit may be
maintained even without demand.
Risk assumed in case presentment not made
• Non-presentment does not discharge person of his
debt. The risk a person assumes is the insolvency of the
debtor.
Presentment for Payment to Persons Secondarily Liable
• Since the drawer and indorsers undertake to pay only if
the instrument is dishonored, a demand for payment
must first be made upon the person primarily liable
to trigger the liability of the persons secondarily
liable.
• Even if presentment and demand for payment are
not necessary in order to charge the person
primarily liable, if the instrument is not presented to
the person primarily liable, the drawer and indorsers
are discharged from their liability.
What Constitutes Sufficient Presentment (Sec. 72 and
74)
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.
Sec. 74. Instrument must be exhibited. — 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.
How Presentment Is Made
a) By the holder or some other person authorized;
b) At a reasonable hour on a business day;
c) At the proper place; and
d) To persons primarily liable.
Requirement of Exhibition; Purpose
• To allow the person primarily liable to inspect the
instrument.
• For the person primarily liable to determine that the holder
has an actual right to payment.
Effect of Non-Compliance
• If the requirements are not complied with, then it is as if
no presentment has been done and the indorsers
and drawers will be discharged from liability.
Who makes the presentment for payment?
• The holder or his authorized representative.
“At a reasonable hour on a business day”
• What constitutes business hours depends upon the
general custom of the place where transaction took
place.
a) Bank – banking hours
b) In the place of business – during the usual business
hours in that place
c) Residence – Made between the usual hours of rising
and retiring
• This depends on the business hours of the
establishment where presentment for payment will
be made.
To whom should presentment for payment be made?
• To the party primarily liable.
a) Maker – Promissory note
b) Acceptor – accepted bill
c) Drawee – if bill of exchange is payable on demand
d) Any person at the place of presentment with
sufficient discretion if person primarily liable is
absent or inaccessible.
If the presentment is due to a particular place and the
person primarily liable cannot be found or is absent, to
whom should you make presentment?
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
• It could be to any person found at the place where
presentment should be made.
• But this “any person” does not refer to all persons. You
cannot present it to a minor, because he is incapable of
entering into a contact. It has to be a person of legal age
and as much as possible he should be authorized.
• However it is not necessary that he is authorized because
the law does not specify. After all this is just presentment
for payment and not the presentment itself.
Why is presentment for payment needed?
• This is not to make the person primarily liable, liable, but
in order not to discharge the persons secondarily
liable.
• Practical reason: If you are a holder of an instrument,
you would really want to present it for payment so that
you can receive payment for the instrument.
• Presentment in this case is like the concept of demand
in ObliCon. No demand, no delay, and you can never get
the fulfillment of the obligation.
The Instrument Must Be Exhibited
Exhibition
• The act of showing the bill to the drawee and
requesting its acceptance or payment.
• It is a personal or face to face demand at the proper
place, exhibiting the instrument to the maker or
acceptor from whom payment is demanded.
Waiver of Exhibition; Exhibition Needs To Be Demanded
• The instrument need not actually be exhibited,
unless such is demanded.
• Thus, the maker’s right to an exhibition of a note is
waived when he does not demand to see the note
and he refuses payment on some other grounds.
Purpose of Exhibition
To enable the debtor to:
1. Determine the genuineness of the instrument and the
indorsements and the right of the holder to receive
payment.
2. Enable him, upon payment, to take possession of it to
guard against a lawsuit by a subsequent holder.
Comments:
• The instrument should be exhibited so that the holder can
see the instrument and check whether the instrument is
genuine or not.
• It is also necessary so that he can take possession of the
instrument to serve as evidence to other parties who will
subsequently hold the instrument in case they demand for
payment.
• It is also to secure proof of validity of the instrument.
Presentment Without Exhibition
• Presentment would be ineffectual as the debtor is entitled
to see the instrument and demand it surrender upon
payment.
When Check Must Be Presented (Sec. 186)
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.
• Within a reasonable time after its issue
Effect of Delay
• The drawer will be discharged from liability thereon to the
extent of the loss caused by the delay.
When Delay In Making Presentment Is Excused (Sec.
81)
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.
• Presentment is still required, however, the delay is
excused due to circumstances not attributable to the
fault of the holder, beyond his control, and not
imputable to his default, misconduct, or negligence.
• This should not be confused with Section 82 which totally
dispenses with the presentment for payment.
• When the cause of the delay ceases to operate,
presentment must be made with reasonable
diligence.
31 | P a g e
• Important: What is excused is the delay in making of
presentment and not making of the presentment itself.
Place of Presentment (Sec. 73)
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.
• The enumeration in Section 73 must be followed
successively. Otherwise, presentment is
improperly done.
• If there is a place specified, it will not be proper to
present it in any other place.
• For letter (c), there is no preference on either
residence or usual place of business. This is at the
option of the holder.
• If no definite address is given and only the name of
town or city is stated, then subsection (b) or (c)
applies.
Presentment Where Instruments Is Not Payable On
Demand And Where Payable On Demand (Sec. 71)
Sec. 71. Presentment where instrument is not payable
on demand and where payable on demand. - Where the
instrument is not payable on demand, presentment must be
made on the day it falls due. Where it is payable on demand,
presentment must be made within a reasonable time after its
issue, except that in the case of a bill of exchange, presentment
for payment will be sufficient if made within a reasonable time
after the last negotiation thereof.
• If the instrument is not payable on demand, it must be
presented on the day that it falls due.
• If the instrument is payable on demand, it must be
presented within a reasonable time from:
1) Bill of Exchange – the last indorsement
2) Promissory Note – issuance
• If presentment for payment is not made in accordance
with the law, it will be deemed to have not been made.
Reasonable Time
• Depends on the circumstances surrounding the
instrument.
Effect of Discharge
• Parties secondarily liable can no longer be made
immediately liable, however, he can still be compelled to
pay in accordance to his warranties.
• Going after a party in accordance with his warranties
requires court participation.
Presentment Where Instrument Is Payable At a Bank
(Sec. 87 & 75)
Sec. 87. Rule where instrument is payable. — 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.
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.
Rule Where Instrument Is Payable At A Bank
• The instrument is equivalent to an order to the bank to pay
the same for the account of the principal debtor thereon.
• Only applicable where the instrument is addressed at a
particular named bank.
• Important: The bank may charge the amount of the
instrument out of the deposit of the maker or drawer
without necessity of getting additional authority from the
latter.
When To Present For Payment For Instrument
• General Rule: Must be made during banking hours.
• Important: Presentment made outside banking hours
operates to discharge the persons secondarily liable.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
• Exception: If the person primarily liable does not
have adequate funds in the bank, presentment at
any hour before the bank is closed on that day is
sufficient.
➢ Reason: Even if presentment was made during
banking hours, the instrument could not have been
paid just the same.
➢ However, the person primarily liable has until the
end of the banking hours of the date of maturity
to deposit funds for there to be enough.
Comments:
• Just because the usual banking hours is from 9AM-4PM, it
does not mean that the bank closes at 4PM. They also work
for 8 hours a day or even more.
• So, when there is reasonable knowledge to believe
that the instrument will not be paid, then you can
present it at any time before the bank closes.
When can you say that there is a reasonable knowledge
to believe that the instrument will not be paid?
1. When the person has no funds in the bank
2. When there was an account but it is already closed
3. When his fund in the bank is insufficient to pay the
instrument
Effect Of Depositing Insufficient Funds
• If before the closing of the banking hours, he
deposits funds to the bank enough to pay the
instrument, a demand earlier in the day is
premature.
• Hence, the instrument is not considered dishonored
though payment has been refused earlier in the day.
Important: The maker, unlike the indorser is not discharged in
any way by the fact that the note is presented for payment
after maturity date, UNLESS prescription has run.
Presentment Where Principal Debtor Is Dead (Sec. 76)
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.
Rule In Case Principal Debtor Is Dead
• If person primarily liable is dead and no place of
payment is specified, presentment for payment
must be made to his personal representative –
executor, administrator or the judicially declared
representative of the decedent – if there be and he can be
found with the exercise of reasonable diligence.
• Important: Applicable only if no place of payment is
found.
When Presentment For Payment May Be Dispensed With
• Presentment for payment may be dispensed with if, with
the exercise of reasonable diligence, no personal
representative can be found.
• However, the holder should still give the indorser a
notice of dishonor. Presentment should be made in the
last place of business. (Section 73 (d)).
Important: Under Sections 76, 77, and 78, presentment shall
be made in the places indicated therein ONLY WHEN there is
no place of payment specified.
Presentment To Persons Liable As Partners (Sec. 77)
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.
• Presentment to one is presentment to all. Dissolution
of the partnership does not affect this presentment.
Presentment To Joint Debtors (Sec. 78)
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.
• Must be presented to each of them.
Rule when there are several persons who are primarily
liable
• General Rule: Presentment must be made to all of them.
• Exceptions:
32 | P a g e
 ➢ They are partners.
➢ One is authorized to receive it in behalf of the others.
When Presentment Is Not Required To Charge The
Drawer (Sec. 79)
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.
• Presentment is not required to charge the drawer
where he has no right to expect or require that the
drawee or acceptor will pay the instrument.
• In this section, presentment is not required to charge the
drawer because the drawer is at fault.
Examples:
1. Where the drawer has no funds with the drawee
2. Where the drawer of a check has stopped payment thereof
3. Where the drawer of a check has withdrawn funds from
the drawee-bank leaving nothing with which to pay the
check
Important: Section 79 is an instance where a party secondarily
liable is not discharged in spite of lack of presentment.
Example:
To: Jaime Zobel de Ayala (na wa nimo kaila)
“Pay Mr. X or order P1,000,000” (Sgd. Richard)
• Here, presentment is not necessary for you to be liable on
the instrument.
• In the first place, you don’t know Jaime so there is no
reason to believe that the instrument will be paid.
• Presentment is necessary in order to hold the persons
secondarily liable, liable. The drawer is a person
secondarily liable.
• So, there is no need for the presentation because he
made a misrepresentation that the instrument will
be paid by a particular drawee (whom he doesn’t
even know).
• You only make such instrument when you have previous
arrangements with regard to the payment of a particular
instrument.
• In this case, the instrument will not be paid, thus, there is
no need to present the instrument to charge the drawer.
But there is a need to present the instrument to
ascertain if the instrument will be paid or not.
When Presentments Not Required To Charge The
Indorser (Sec. 80)
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.
• This pertains to an accommodated indorser.
• He is liable because said accommodated indorser
should actually be the person primarily liable.
• There is no need to go to the drawee if the instrument
drawn was done for accommodation.
• Whether or not the instrument is paid by the drawee, the
indorser will still pay the instrument and not the
accommodating drawer.
When Presentment May Be Dispensed With (Sec. 82)
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.
“… exercise of reasonable diligence”
• There must be an active search.
Important: The facts excusing the presentment must be
especially pleaded. What is excused is the delay of
presentment and not the presentment itself.
Summary Of Rules As To Presentment For Payment
1. Presentment for payment is not necessary to charge
persons primarily liable, but is necessary to change
persons secondarily liable.
2. In the following cases, presentment for payment is not
necessary to charge persons primarily liable:
a) As to drawer, under Section 79
b) As to indorser, under Section 80
c) When presentment is dispensed with under Section 82
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
d) When the bill has been dishonored by non-acceptance
as provided in Section 151
When Instrument Is Dishonored By Non-Payment (Sec.
83)
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
and cannot be obtained; or
b) Presentment is excused and the instrument is overdue and
unpaid.
• For letter (b), No need for presentment but the
instrument should remain unpaid or is overdue.
The instrument is dishonored by non-payment when:
1. It is duly presented for payment and payment is
refused or cannot be obtained
• Requirements:
a) Due presentment
b) Payment is not obtained
2. Presentment is excused and the instrument is overdue and
unpaid
• Requirements:
a) Present is excused
b) Instrument is overdue
c) Instrument is unpaid
Example:
I promise to pay X or order P 1,000.
Sgd. Bessy.
• If part of the instrument states that presentment for
payment is excused or waived, there is no need to present
payment to the person primarily liable.
• If you still tried to present it but she did not pay even
though the instrument is already overdue, this is
considered dishonored by non-payment under the second
instance.
• An instrument is deemed dishonored only when it is
overdue.
Why is it necessary to know when it is considered as
dishonored by non-payment or dishonored by non-
acceptance?
• So we would know when to commence the compliance
of procedure for dishonor.
• If there is dishonor by non- acceptance or dishonor by non-
payment, you have to comply with certain requirements of
the procedure for dishonor to make the persons
secondarily liable, liable.
Immediate Right Of Recourse
• The holder may immediately bring suit against the parties
secondarily liable and the latter cannot interpose the
defense that the suit should have been brought first
against the maker or acceptor.
• When instrument is dishonored by non-payment, an
immediate right of recourse to all parties
secondarily liable accrues to the holder.
• Important: Such right will only accrue after giving due
notice and dishonor to those secondarily liable.
Liability Of Persons Secondarily Liable
• They will have to pay the instrument unless that is not a
part of their warranty.
• Example: When you do not warrant the solvency of the
debtor as in the case of a qualified indorser. Although you
are not discharged from your liability, you may not be
compelled to pay.
Three Things Must Be Proven To Hold Secondary Party
Liable
1. Presentment was properly made
2. Primary party dishonored the instrument
3. Notice of dishonor was properly given to the secondary
party
Needs Notice Of Dishonor To Parties Secondarily Liable
• It is incumbent upon the holder whenever there is dishonor
for non-payment that the persons secondarily liable be
notified of the dishonor so that their liability will
commence.
Is it required that all of them be presented with the
notice of dishonor?
• No, it is not required.
33 | P a g e
What Constitute Payment In Due Course (Sec. 88)
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 instrument to the holder thereof in good faith
and without notice that his title is defective.
What constitutes payment in due course?
• It is payment at or after maturity of the instrument
by the person primarily liable or his duly authorized
representative to the holder or a duly authorized person
to receive payment on his behalf, granting that person
paying does not know of any defect in title of the holder or
the person the latter authorizes.
Requisites Of Payment In Due Course
1. Payment made at or after date of maturity.
2. Payment is made to the holder.
3. Payment made in good faith and without notice that the
title is defective.
Notice of Dishonor
Form Of Notice
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.
• There is no required form for the notice of dishonor.
• It can be in any form, oral or written.
• However, a written notice is preferred for practicality
purposes because you will have no proof of providing the
notice of dishonor. It would be convenient and advisable
to have everything documented.
• The notice of dishonor is akin to a demand for payment.
What should you specify?
1. Identity of the instrument
2. Fact of dishonor
3. Demand for payment
To And By Whom Notice Is Given
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.
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.
To whom will you give the notice?
• To persons secondarily liable or their authorized
agent (drawer and indorsers).
Do you need to give a notice to the person who made
qualified indorsement or to the person who negotiates
the instrument by delivery (PNBD)?
• No, because they don’t have liability. They can only be held
liable for a breach of warranty.
Who gives the notice?
• It is given by the (1) holder or on his behalf; or the (2)
person compelled to pay or on his behalf.
Comments:
• The one receiving the notice has to be an authorized agent
because if the agent receives a notice, it creates a liability
to his principal. That’s why the agent must be authorized
if he receives the notice.
• But if you are the one giving the notice, if you look at the
provision, it simply says “on behalf,” so no specific
authority is needed for as long you represent yourself as
an agent to the holder or whoever is the person compelled
to make payment, then that would suffice.
• Why did the law specify it in that case? Because it
creates more rights rather than creating more liability.
• Who is the person compelled to pay? Pertains to a
person to whom given a notice.
Illustration:
M –> P –> A –> B –> C (holder)
• If C went to M and M dishonored the instrument, then C is
required to give a notice of dishonor to all parties prior to
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
him (because the lay says all parties secondarily liable,
granting it is fully indorsed).
• If C gives ND to B, then B is compelled to pay C. In return
then, B has to give a ND to A. If A is required to pay by B,
A will have to give ND to P.
• These are the parties who are required to pay and they
can be represented by their agents.
Effect Of Notice
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.
Sec. 93. Effect where notice is given by party entitled
thereto. – Where notice is given by oron 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.
What is the extent of the benefit of the notice?
• If it is the holder itself who gives the notice, it will benefit
all subsequent holders and all parties prior to him who has
a right of recourse.
Illustration:
M –> P –> A –> B –> C (holder) negotiates further to - - - D
Supposing C is the holder. He gave a notice to B, but since he
cannot wait for the payment, he further negotiated the
instrument to D.
• The notice given by C to B on the dishonor of the
instrument will redound to the benefit of D, who is a
subsequent holder, even if it was C who gave the ND
and not D.
• In the same way that if C gave a notice to P as well, the
notice given by C to P will redound to the benefit of A and
B. They are the prior parties with a right of recourse
against the person whom the notice was given.
• Whatever notice was given by the holder to a prior
party, it will redound to the benefit of all subsequent
parties to whom the notice was given.
What if A did not receive any notice because the persons
given by C were B and P, what’s the effect?
• A will be discharged in relation to C.
• However, this is not automatic because if D will give a ND
to A, the notice of D to A will redound to the benefit of the
subsequent parties. So, A will not be discharged from any
liabilities.
Comments:
• Don’t confuse warranty from liability! Just because
parties are discharged from their liability, this does
not preclude other parties from going after them for
breach of their warranties.
• You can still go after them, in case there is breach of
warranty, but you cannot go after them anymore for
reason that there is non-payment because of the
insolvency or refusal of the person primarily liable to make
payment.
Illustration:
M –> P –> A –> B –> C –> D (holder) negotiated further to -
--E
If D is the holder of the instrument and the instrument
is dishonored by M, to whom D would give a notice?
• To all prior parties.
• If the instrument was further negotiated to E, who is now
a subsequent holder, the notice given by D, even if not
given by E himself, will redound to the benefit of E, being
the subsequent holder.
Supposing D gave a notice to B, what’s the effect on C?
• C will supposedly be discharged from his liability because
no one will go after him (since he is a party between B and
D).
• In this case, C is already discharged in relation to D.
But, if E will give a ND to C, then C will still be liable
on the instrument.
• So now, will it redound to the benefit of D? Not
anymore because this (the giving of notice by E to C)
is subsequently made. (Sec. 117)
B will also give notice to parties prior to him. Supposing
B gave ND to P, who will be benefitted from it?
• It will redound to the benefit of A, B, C, D and E because
they are prior parties to the holder with a right of recourse
34 | P a g e
 to the person who receive the notice (could also pertain to
parties subsequent to the person given with notice)
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.
(See above illustration)It should not prejudice the HDC
subsequent to the omission. That is why E can still give
a notice to C even if D did not give a ND to C.
What if it was not the holder who gave the notice, but
the person who is compelled to pay, who will be
benefitted?
• The holder and all parties subsequent to the party to whom
notice is given (the same ra sa Sec. 92)
When Agent May Give Notice
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 do 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.
If the agent is gives a notice in behalf of the principal,
what will happen?
• He may notify his principal or directly notify the parties of
the instrument.
Effect:
a. If the agent will notify his principal — He has 24 hours
from the moment he knew about the dishonor. Then the
principal has another 24 hours to give notice of dishonor
to parties in the instrument from receipt of dishonor from
such agent.
b. If the agent will notify the parties to the instrument
— He has 24 hours from the moment he knew about the
dishonor.
Comments:
• Ang kanindot man gud if ang agent mohatag ug notice
sa iyang principal kay naay additional time on the
part of the principal to give a notuce to prior parties.
• I-count ang agent as one additional party if he gave the
notice to the principal. So, the time will be longer.
• Kay diba, naa baya tay 24 hours within which to give ND,
unya ang reckoning point sa prior parties kay upon their
receipt of ND baya (unlike sa holder nga upon dishonor),
so magkataas jud ang oras.
Time And Place Of Notice
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.
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.
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:
(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; or
(b) If he lives in one place and has his place of business in
another, notice may be sent to either place; or
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
(c) 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.
Notice by Mail or Personal Delivery
MAIL PERSONAL DELIVERY
SAME PLACE
Place of business: Before
Deposited in time for the
Close of business hour
letter to reach him on the
Place of residence: Before
day following
usual hour of rest
DIFFERENT PLACE
Deposited in time for the Must be received within the
letter to go by mail the time it would have been
day following the day of received in due course of
dishonor mail
• The same place – boundary of the city or municipality
where the person is living. So, Cebu City is a different place
from Mandaue City.
• Usual hours of rest – based on the government service
hours, regardless if agents like in the BPOs (call center
agents).
Atty: If different place and is mailed, what is necessary
is the mailing of the notice the day following the day of
dishonor.
Where is it given? Order of priority:
1. Address as indicated;
2. If none:
a. Post office nearest his place of residence or where
accustomed to receive mail – if mail
b. Place of business or residence – if personal delivery
3. Place of Sojourn (temporary)
Waiver Of Notice
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.
When is the waiver given?
• Before or after time of giving notice. If before giving of
notice, it has to be express or implied
When can there be an implied waiver?
• Even if there was no notice, payment was still made.
Waiver Of Protest
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.
• If there is a waiver of protest, it is deemed waiver of
presentment and ND.
• Protest is more formal because you have to go to a notary
public. Waiver of presentment presupposes that there is a
waiver of dishonor by non-acceptance.
Notice Is Dispensed With
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.
Could you be excused from giving a notice?
• Yes, after exercising reasonable diligence, you cannot
reach the party being charged.
Notice Need Not Be Given
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.
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:
35 | P a g e
(a) When the drawee is a fictitious person or person not • Generally, protest is only required on a foreign bill,
having capacity to contract, and the indorser was aware although there is no prohibition if you want a promissory
of that fact at the time he indorsed the instrument; note to be protested.
(b) Where the indorser is the person to whom the instrument • Where? Where bill is dishonored.
is presented for payment; • Exception: When place of payment is different from place
(c) Where the instrument was made or accepted for his of business/residence of drawee. If dishonored by non-
accommodation. acceptance, it must be protested for non-payment at the
place where it is so payable.
(a) Drawer (b) Indorser
1. Drawer and drawee are the 1. Drawee is fictitious and How is protest made?
same persons; not having capacity to 1. Find the notary public – Protest can only be made by a
2. Drawee is fictitious or no contract and such fact is notary public or any respectable resident of the place
capacity to contract; known to the indorser where the bill is dishonored in the presence of 2 or more
3. Drawer is the person to • Indorser must be credible witnesses. The witnesses are only required if it’s
whom presentment for aware of such fact not a notary public, but you need to find a respectable one.
payment is made 2. Indorser is the person to 2. Notary public does again the presentation – The notary
• Drawer accommodated whom presentment of public will have to go again to the person primarily liable
the payee payment is made and do the presentation. So, to make it easy, it has to be
4. Drawee has no expectation • The indorser happens presented in the place where it was dishonored so the
that the drawee will honor to be the maker or notary will be able to present it again.
the instrument drawee-acceptor 3. Notary does noting on the day of dishonor – On the day of
• No arrangement 3. Where the instrument the dishonor, there is no requirement that the notary
5. Drawer countermanded was made or accepted for public will issue the certification. What he is required to do
payment his accommodation is to note the facts surrounding the dishonor of the
• Issuance of a stop • He is primarily liable instrument. It has to happen on the day of dishonor.
payment to the bank 4. Makes and seals the certificate
5. Gives notice of dishonor to all parties
Notice Where Party Is Dead
Sec. 98. Notice where party is dead. – When any party is Is it possible for an instrument to be protested even if it
dead and his death is known to the party giving notice, the is not yet dishonored?
notice must be given to a personal representative, if there be • Yes. This is called “Protest for Better Security”.
one, and if with reasonable diligence, he can be found. If there
be no personal representative, notice may be sent to the last Protest for Better Security
residence or last place of business of the deceased. • Here, the instrument is not dishonored because when
it was presented for acceptance, it was accepted.
If the person is dead, do you still have to give a notice? • But, the acceptor, before the instrument matures, is
• Yes, it must be given to the personal representative already adjudged bankrupt, insolvent and has made
granting that you know that the person is dead. (Kay if an assignment for the benefit of creditors.
wala, mo follow ka sa normal process) • IOW, the acceptor does not have control over his assets
anymore or it may not even be enough to make payment
Notice To Partners on the instrument. In order to protect the interest of the
Sec. 99. Notice to partners. – Where the parties to be holder, the law allows you to protest it already.
notified are partners, notice to any one partner is notice to the • This is “for better security” because even before the
firm, even though there has been a dissolution. instrument is dishonored, you already informed the
• Notice is to the partners, giving notice to one of them parties secondarily liable that they will be required
will suffice, even if the partnership has already been to make payment. At least, they were given ample time
dissolved. to prepare the funds necessary to make payment.

Notice To Persons Jointly Liable Can protest be excused?

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.
• If the parties are jointly liable, then notice has to be
given to all of them.
Notice To Bankrupt
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.
• If the parties were adjudged bankrupt or insolvent or has
been in assignment for the benefit of the creditor, the
option is either give the notice to the persons
secondarily liable or to his trustee or assistant.
Time Notice Must Be Given
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.
• Within 24 hours from the dishonor of the instrument
PROTEST
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.
Protest
• A formal way of informing a party that the instrument has
been dishonored either by non-acceptance or non-
payment.
• The formal instrument executed by a notary public or other
competent person certifying that the fact necessary to the
dishonor has taken place. It is either for non-acceptance
or non-payment.
• Yes, under the same grounds of notice of dishonor.
Can delay be excused in doing a protest?
• Yes, same ground as when you have delay for presentment
for payment and notice of dishonor -- when it is due to
circumstances beyond the control of holder, provided that
such circumstances is not due to the fault, misconduct or
negligence of the holder.
Grounds for Notice of Dishonor to be Excused
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 to be charged.
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.
• Delay on the protest is excused it is due to circumstances
beyond the control of the holder.
• Should not be due to his fault or negligence.
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 bill supra
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.

Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20 36 | P a g e
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
• When an instrument has been dishonored, it is still PAYMENT FOR HONOR
possible that the instrument can be paid, not necessarily Sec. 172. Payment for honor; how made. - The payment
by the party primarily liable but someone else. for honor supra protest, in order to operate as such and not as
• This is otherwise known as acceptance supra protest. a mere voluntary payment, must be attested by a notarial act
• This can only happen once there has already been a of honor which may be appended to the protest or form an
protest made -- here the protest must be a protest for extension to it.
non-acceptance or protest for better security.
Payment For Honor
Requisites for Acceptance for Honor: • Made by a person, whether a party to the bill or not, after
1. There already has been a protest made (either protest for it has been protested for non-payment for the benefit of
non-acceptance or protest for better security) any party liable thereon or for the benefit of the person for
2. The instrument must not yet be overdue whose account it was drawn.
3. Consent of the holder. But take note that there can be • It is otherwise called as payment supra protest because
more than one acceptors for honor. prior protest for non-payment is required.
4. Acceptor for honor must be a stranger - someone who is
not a party to the instrument. Comments:
5. It has to be in writing and signed by the acceptor for honor. • If the instrument is accepted and there’s no protest for
There are some authors who contend that the acceptance better security, and yet the instrument is still dishonored
for honor must be notarized but the law does not specify - and it involves a foreign bill, then you may want to have
- it just says that it has to be in writing and signed. the instrument protested then.
• After protest, it is still possible that certain parties may pay
What is the liability of the acceptor for honor? the instrument -- that why we have this so-called payment
• Even if the acceptor for honor accepts the instrument, it is for honor, otherwise known as payment supra protest. This
still possible for him to not pay the instrument. always happens after protest -- protest for non-payment.
• He is only liable to the holder and to all parties
subsequent to the person in whose honor he Is consent of the holder necessary?
accepted the instrument. • Atty: There is no consent of the holder required because
all parties who may have been discharged by the payment
Illustration: by the payer for honor will also be discharged even if the
De - Dr - A - B - C - D payer for honor did not actually pay.
There can be an acceptor for honor for Dr(1), for A(2), for B(3) • Thus, consent of the holder is not required. If the holder
and for C(4). will not accept the party in whose honor the payment is
made and all parties subsequent to the party for whose
Liability: honor it is paid are discharged from their liability.
(1) will be liable to A, B, C and D
(2) will only be liable B, C and D Illustration:
(3) will be liable to C and D De - Dr - A - B - C - D
(4) will only be liable to D There can be an acceptor for honor for Dr(1), for A(2), for B(3)
and for C(4).
Comments:
• The acceptor for honor engages to pay the instrument If 3 made a payment for honor and D refuses the
according to the tenor of his acceptance, just like any other payment for honor, who will be discharged from the
acceptor. liability?
• But this acceptor for honor requires a lot of conditions • C would be discharged from the liability.
before he makes payment. • B will not be discharged because he is supposed the one
from whom the payor for honor can get reimbursement
Conditions: from.
1. That there is non-payment by the drawee.
2. There has been presentment for payment made to the Here the instrument should be overdue.
drawee. Who can be a payor for honor?
3. Protest for non-payment. • It can be a stranger or a party to the instrument.
• Here, the holder really has to make at least 2 • Unlike that of acceptance for honor, there can only be one
protests. First, you need to make a protest for non- payor for honor.
acceptance or for better security and second, protest
for non-payment. How do we determine who should be payor for honor?
4. Notice of dishonor has to be given to the acceptor for • It’s the person whose payment will cause the most
honor. discharge of parties who will be prioritized. In our
example, the payment of 1 will cause the discharge of
If it is silent, in whose honor is the instrument accepted? most parties.
• The drawer. This is because of history -- if the dishonored ➢ Payment of (1) will cause the discharge of A, B, and
by the drawee, people usually do acceptance for honor and C
seek to pay the instrument in order to preserve the ➢ Payment of (2) will cause the discharge of B and C
reputation of the drawer. ➢ Payment of (3) will cause discharge of C
• In the example above, it would be (1) who would cause
Presentment for Payment to Acceptor for Honor the most discharge. His payment will discharge the
Sec. 168. Presentment for payment to acceptor for liabilities of A, B, and D.
honor, how made. - Presentment for payment to the acceptor • Take note that to do a payment for honor, there has to be
for honor must be made as follows: a notarial act, unlike that of an acceptance for honor.
(a) If it is to be presented in the place where the protest for
nonpayment was made, it must be presented not later Acceptance for Honor vs. Payment for Honor
than the day following its maturity. Acceptance For Honor Payment For Honor
(b) If it is to be presented in some other place than the place
Acceptor for honor can only Payor for honor can be a
where it was protested, then it must be forwarded within
be a stranger stranger or a party of the
the time specified in Section one hundred and four.
instrument
There can be more than one There is preference. Thus,
Same way as you presented for payment to acceptor.
person offering to pay a bill there can only be one payor
When:
for the honor of different for honor.
1. If same place of payment, not later than the day following
parties.
maturity date;
Protest must be for non- Protest must be for non-
2. if different place of payment, mailed-in time to go the day
acceptance or for better payment
following the dishonor
security
3. Otherwise, same time as if mailed.
The bill must not be overdue The bill is overdue
Comment: Consent of the holder is Consent of the holder is not
• If you want to deliver it personally, make sure that it will required required nor can the holder
be received within the same day as if it was mailed. refuse
Notarial act of acceptance is Notarial act of honor is
not necessary necessary

Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20 37 | P a g e
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
Comments:
• TN: Generally, only foreign bills are required to be
protested, BUT you can do an acceptance for honor or
payment for honor for domestic bills or even promissory
note. Of course, you still have to do protest.
Rights of Payor for Honor
1. Right to be subrogated to the rights of the person in whose
honor he made the payment
2. Right to receive the bill and the protest.
DISCHARGE OF INSTRUMENT
If the instrument is not dishonored, and it was paid,
when can you say that the instrument is discharged?
• The law did not say anything about the person primarily
liable to be discharged.
• But there can be a discharge on the parties secondarily
liable, because if they are discharged, there remains a
liability on the part of the person primarily liable. So, you
can discharge them, but you cannot discharge the person
primarily liable. You can only discharge the instrument.
• This is because if the person primarily liable is discharged,
this goes without saying that the instrument should’ve
already been discharged.
Grounds for discharge of instrument:
1. Payment in due course by person primarily liable
• ”payment in due course” - When it is paid at or
after maturity to the holder in due course in good
faith and without notice of defect of his title.
• This will cause the discharge of the instrument if it is
made by the person primarily liable, otherwise, the
instrument may still be negotiated.
• If it is also paid before the instrument matures, the
person primarily liable may still negotiate the
instrument even after payment.
2. Payment in due course by the party accommodated
• This is true when the accommodation party is the
person primarily liable and you are just
accommodated, whether as a payee or an indorsee.
• Example: A PN made by the maker to accommodate
the payee. Here, between them, the payee is the
person primarily liable. But as to third parties, it is
the maker who is primarily liable. If, however, payee
pays the instrument in due course, then it will cause
the discharge of the instrument. Again, it has to be
payment in due course
3. By the intentional cancellation thereof by the holder
• Cancellation, as a rule, it is unintentional unless it is
cancellation of the signature.
• Example: If you have a kid who took the instrument
and it so happened that the kid started to stamp the
instrument “cancelled” all over, it does not discharge
the instrument since it is not the intent of the holder
to cancel the instrument.
• TN: Only indorsement can be cancelled. There cannot
be cancellation of the signature of the maker -- it will
never cause a discharge of the instrument itself. If
the maker’s signature is cancelled, it could be
deemed defacement of the instrument and you can
say that it is destroyed, hence deemed renunciation
of the liability of the person primarily liable.
4. By any other act which will discharge a simple
contract for the payment of money
• Remember OBLICON - PaLoReMeCoNo ARFP
➢ payment or performance of obligation
➢ loss of the thing due
➢ remission or condonation
➢ merger or confusion
➢ compensation
➢ novation
➢ annulment
➢ rescission
➢ fulfillment of a resolutory condition
➢ prescription
• Again, a negotiable instrument is just a contract so
whatever extinguishes an obligation, extinguishes a
negotiable instrument.
• The one specifically provided for by the law is
renunciation which is akin to remission or
condonation.
• Renunciation, By whom? Renunciation must be
done by the holder.
• When? Anytime, before, at or after maturity
• How? General rule, it is in writing unless delivery of
the instrument is made to the person primarily liable.
• Possession of the instrument by the person primarily
liable actually connotes payment.
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
5. When the principal debtor becomes the holder of
the instrument at or after maturity in his own right.
• This is actually the same ground as merger or
confusion where there is a merger in the identity of
the principal debtor and the principal creditor BUT this
can only cause the discharge of the instrument if it
happens AT or AFTER MATURITY.
Grounds for discharge of parties secondarily liable
1. By any act which discharges the instrument
2. by the intentional cancellation of his signature by
the holder
• If you strike out the signature of an indorser, he is
discharged from his liability.
3. By the discharge of a prior party
• It has to be an act of the holder and cannot be by
operation of law.
• Example: See previous illustration. If D is the
holder, and the instrument is dishonored, and D failed
to give a notice of dishonor to B, but he gave a notice
of dishonor to A and C only, B is discharge from his
liability as to D. C is not discharged from his liability
because that is by operation of law, not by the
voluntary act by the holder. Remember that B is only
discharged with respect to D, there is nothing that will
prevent C to give a notice of dishonor to B and so B
will remain to be liable to the instrument.
4. Valid tender of payment made by a prior party
• Example: If B will make payment to D and D refuses
to accept it, then C will be discharged from his
liability.
5. By a release of a principal debtor unless the holder’s
right of recourse against the party secondarily liable
is expressly reserved.
• Atty. Amago: Ang di jud nako masabtan class is this
“unless the holder’s right of recourse against the
party secondarily liable is expressly reserved” When
can it happen that the person primarily liable is
already released from his liability and a party
secondarily liable will allow to continue to be liable --
unlikely to happen but the law allows it. Naa ra jud sa
mailad.
• The effect will really be the person primarily liable
who is released from his liability will only be
discharged from his liability in relation to the holder,
but those parties secondarily liable whose holder’s
right of recourse is reserved, they can still go after
the person primarily liable.
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.
• If you changed the terms of the agreement,
specifically the date of payment, then that would
amount to novation and all those parties who did not
agree to such novation should also be discharged
from their liability, unless you consent, in which case,
you continue to be liable.
BILLS IN SET
Sec. 178. Bills in set constitute one bill -- Where a bill is
drawn in set, each part of the set being numbered and
containing a reference to the other parts, the whole constitutes
one bill.
• Rationale: This was crafted to accommodate the tradition
of making several copies of the same bill but with
reference to other parts (1 of 4, 2 of 4) because then there
was no assurance that a boat can reach its destination.
• What you do is you have the instrument delivered in
different boats, in the hope that at least one boat will reach
its destination.
Rules:
1. Constitute one bill (Sec. 178)
2. Order of priority (Sec. 179) - Although these bills
constitute only one bill, it could happen that several would
be negotiated. So when this happens, follow the order of
priority:
a) person whose right first accrues - he is the first
person who received the instrument. You look at the
date of indorsement, if that indorsement bears the
earlier date, then he will have priority over the
instrument. But then again, this cannot defeat the
acceptance of the instrument.
b) person first to present - Example: If 4 copies of the
instrument went to different persons (1, 2, 3, 4), it
38 | P a g e
 was 1 whose right first accrues because he was the
one who first received the instrument, but it was 4
who first presented the instrument to the person
primarily liable and it was his copy which bears the
acceptance of the person primarily liable, he will be
prioritized in terms of payment. Because the person
primarily liable will require the instrument which bore
his acceptance should be presented to him for
purposes of payment.
3. Liability of holder who indorses several parts to
different persons (Sec. 180)
• Supposedly, if there is an indorsement of an
instrument to several parties, then your liability will
also be to all parts of the instrument which you
separately indorsed.
• Be careful if its bills in set, there should only be one
copy of the instrument that you will sign as an
indorser, otherwise, you will be liable for each part
that you indorse.
4. Acceptance must be in one part; otherwise,
acceptor will be liable for each part accepted. (Sec.
181)
• Similar as when there is separate indorsement.
5. Requisite for payment: presentation of accepted
part (Sec. 182)
• If you will pay despite the absence of the presentation
of the instrument which bear your acceptance, there
could be a chance that you will later on receive a
presentment of the accepted part and you cannot
refuse to pay because that is the part which bore your
acceptance.
6. Discharge of one part, discharges all bills in set
(Sec. 183)
• If the drawee discharges one part of the bill, then the
other parts of the bill are discharged as well. Payment
of the portion which bears the acceptance is a
discharge of all the portion of the instrument.
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.
Is a postdated check, a check when it says payable on
demand?
• This is a check because it is payable on demand on the
date indicated on the instrument.
When should it be presented for payment?
It depends if it is a time instrument or a demand
instrument.
1. Time instrument - on the date that it falls due.
2. Demand instrument:
a) Promissory note - within reasonable time from the
date of issue.
b) Bill of exchange - within reasonable time from last
negotiation.
3. Check - within reasonable time from the date of issue.
• This is the case because a check need not be
accepted, there cannot even be more than one
indorsement of a check (BSP rules) -indorsement
is directly to the bank, supposedly. Although it can go
through collecting banks.
Effect of non-presentment of the check within
reasonable time from issue
A. Discharge of the drawer to the extent of the loss
caused by the delay
• How to determine the extent of loss caused by
delay? The only instance when the check is not paid
is when the bank goes bankrupt or bank-run. If it will
close then you cannot receive anymore the payment
of the check.
• If there is a closure of a bank, what happens is that
claims against the bank will be referred to the
Philippine Deposit Insurance Corporation (PDIC).
PDIC will give the insurance for your deposit, which
is at the maximum of P500,000.
• Example: X issued a check for P100,000. X has total
deposits of P1.5M in bank Y before bank went
bankrupt. X also has an outstanding check of P100k.
If bank Y goes bankrupt, what is the loss of X?
➢ X will receive 500k from the PDIC, thus, the loss
is only P1M.
➢ Now, get the percentage (ratio) of the loss
suffered by X = (1M/1.5M) = 2/3
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
➢ Now, to what extent is the drawer
discharged from his liability? You can say 2/3
or whatever is the amount.
➢ In our example, we multiply P100,000 with the
ratio 2/3, so the drawer will only be discharged
to the amount of P66,666.67. This is because 1/3
has been recovered through the payment of PDIC
up to a maximum of P500,000.
➢ How much is the drawer liable on the
check? He would be liable to 1/3 o the face value
of the check (P100k) which is equal to
P33,333.33, because he is not discharged as to
this amount. 1/3 is the percentage of recovery of
the holder.
• FORMULA FOR AMOUNT DISCHARGED: Value of
Check * Percentage of Loss = Amount of
discharge of the drawer.
• FORMULA FOR AMOUNT OF RECOVERY: Value of
check x Percentage of recovery = Amount of
recovery by the holder..
B. The indorsers will be discharged from their
liabilities.
Another Illustration:
X has a deposit worth P2M with AMA Bank. He drew a check
against the said account in the amount of P80,000. AMA Bank,
without the payee having presented the check for payment,
became bankrupt and was closed down by the PDIC. X was able
to recover an amount equal to the maximum deposit insurance
of PDIC (currently at P500,000). Up to what extent will X’s
liability on the check be discharged?
Step 1: Get the ratio of X’s loss from his deposit with
AMA Bank
(P2,000,000 – P500,000)/P2,000,000 = 75%
Step 2: Multiply the amount of the check issued with the
percentage of loss suffered by X
P80,000 * 75% = P60,000
Up to what extent will X still be liable to the payee?
P20,000, computed as P80,000 * 25% or P80,000 – P60,000
Requirement of Check Clearing
Does the check require clearing?
• Yes.
Does the check require certification?
• Not necessarily, what is only required is presentment
before the drawee-bank. But, if ever the instrument is
certified (as in the case of manager’s checks or cashier’s
checks), it is equivalent to acceptance and it will cause the
discharge parties secondarily liable.
Manager’s check and certified checks still need to
undergo clearing
• In such case (certified checks), the bank already set aside
the fund that will cover the payment for the certified check.
Hence, parties secondarily liable are discharged from
liability.
• It still requires clearing, otherwise, if there’s forgery or it’s
a counterfeit, the bank will not know if it won’t go through
pre-clearing. The only difference is that it doesn’t
need certification because it’s already deemed
certified.
• While a check is not required to be certified, if ever it is
certified, it is deemed accepted. Certification = Acceptance
• If a check is certified, parties secondarily liable will be
discharged from their liabilities.
• While the issuance of the check does not amount to the
assignment of funds in the account in favor of the payee
of the check, once the check is certified or accepted,
it will amount to assignment of the funds.
A manager’s check which was issued to a party for
purposes of a transaction which involves the purchase
of foreign currencies. The buyer issued a manager’s
check to the seller, but the foreign currencies did not
arrive. Can the buyer compel the bank to stop payment
of the manager’s check? (Metrobank vs. Wilfred N.
Chiok, GR No. 172652, Nov. 26, 2014)
• The SC, in a 2014 case, decided that a manager’s check
is already considered as equivalent to cash.
• Because of this, you cannot stop the bank from
making payment since funds have already been set
aside for that check.
• We cannot use Art. 1191 on reciprocal obligations to
refuse the payment of the check since there is no
39 | P a g e
 reciprocal obligation involving the underlying
obligation and the payment of the check by the bank.
The obligation is between the buyer and the seller,
whereas the obligation of the bank is between the
bank and the buyer only.
BP 22 - BOUNCING CHECKS LAW
• The gravamen of BP 22 is the issuance of a worthless
check. If you issue a worthless check, you can be liable
for BP 22 and estafa.
What is a worthless check?
• A check not accepted by the bank either due to
insufficiency of funds or closed account.
How would you know that there is already a violation of
BP 22?
• You look at the elements of the offense.
Elements of BP 22
1. Making, drawing or issuance of a check to apply on
account or for value
• This is very easy to prove. You just need to show that
it is issued to you in your favor.
2. Knowledge of the maker, drawer, issuer that at the
time of issue he does not have sufficient funds in or
credit with the drawee bank for payment of such
check in full upon its presentment
• This is very difficult to prove,
• However there is a presumption of knowledge set
by law. It cannot only apply in these three
circumstances (all three must be present):
a) The check must be presented within 90 days from
the date of the check;
b) That the drawer or maker of the check
receives notice that such check has not been
paid by the drawee
➢ Notice of dishonor has been given; and
take note that “receives notice” means that
it is not enough that the notice was “given,”
you must make sure that it was “received.”
c) Failure of the drawer to pay within 5
banking days from his receipt of notice of
dishonor
➢ Even if it’s already due, the drawer is still
given 5 banking days within which to make
payment in full or make arrangements.
➢ Don’t file a case if the 5 days has not yet
lapsed!!!
3. Check is subsequently dishonored by the drawee
bank for insufficiency of funds or credit or would
have been dishonored for the same reason had not
the drawer, without any valid reason, ordered the
bank to stop payment.
• Usually, once the bank dishonors the check, the bank
will stamp “dishonored for insufficient funds” or
“dishonored for unfunded deposit” or that the bank
account is closed or there is stop-payment order.
Defenses available according to jurisprudence:
1. Payment of the value of the dishonored check within 5
banking days from the receipt of notice of dishonor.
2. Payment of the value of the check before the filing of the
criminal case in court.
• Even if it is already beyond the 5 days, if you make
payment before the filing of the criminal case, it may
suffice.
• Atty. Amago: Take note though that this is only one
isolated case. The SC exonerated the lady because
there was payment made before the case was filed.
3. Failure to serve a notice of dishonor to the issuer.
• Notice is necessary for the presumption to apply
4. Novation or change in the underlying obligations of the
parties before filing of the criminal case in court.
5. Stop payment order pursuant to a valid reason such as
non-delivery of goods of services
• Take note that this is only allowed if it’s not a
manager’s check or cashier’s check.
Comments:
• In BP 22 kung ni-bounce ang check, di pa na mao
ang crime. There will only be a crime or will have the
complete elements if after pag-bounce, there is the
notice of dishonor giving the issuer 5 days to make
good of it.
• It is only after the lapse of the five days when you can
have a crime. Before the 3 or 5 days, there would be no
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
crime. Also, the 3 or 5 days will not lapse if there is
no written notice of dishonor.
• In the case of Ojeda, SC made it clear that good faith can
be a defense in estafa, but not in BP 22 because the
latter is malum prohibitum (the mere fact of issuing the
check will already constitute a crime).
• In Ojeda (2004), the defense was that the “usual nila is
mo issue si Ojeda ug check as guaranty and not for
deposit” sort of to prove that indeed naay siya'y utang in
this amount.
• After wa niya mabayri iyang utang, she approached the
creditor and made arrangements of another scheme and
because of that, the SC said that in the case of Ojeda there
was no deceit, thus no crime of estafa. The same thing
does not apply in which it is malum prohibitum.
BP 22 Cases
STATE INVESTMENT HOUSE vs. CA
217 SCRA 32
Doctrine: The withdrawal of the money from the drawee bank
to avoid liability on the checks cannot prejudice the rights of
holders in due course. For the reason that the holder who takes
the negotiated paper makes a contract with the parties on the
face of the instrument; there is an implied representation that
funds or credit are available for the payment of the instrument
in the bank upon which it is withdrawn.
Facts:
Nora Moulic issued to Corazon Victoriano, as security for pieces
of jewellery to be sold on commission, two postdated checks in
the amount of fifty thousand each. Thereafter, Victoriano
negotiated the checks to State Investment House, Inc. When
Moulic failed to sell the jewellry, she returned it to Victoriano
before the maturity of the checks. However, the checks cannot
be retrieved as they have been negotiated. Before the maturity
date Moulic withdrew her funds from the bank contesting that
she incurred no obligation on the checks because the jewellery
was never sold and the checks are negotiated without her
knowledge and consent. Upon presentment of for payment, the
checks were dishonoured for insufficiency of funds.
Issues:
1) Whether or not State Investment House inc. was a holder
of the check in due course
2) Whether or not Moulic can set up against the petitioner the
defense that there was failure or absence of consideration
Ruling:
1) Yes, Section 52 of the NIL provides what constitutes a holder
in due course. The evidence shows that: on the faces of the
postdated checks were complete and regular; that State
Investment House Inc. bought the checks from Victoriano
before the due dates; that it was taken in good faith and for
value; and there was no knowledge with regard that the checks
were issued as security and not for value. A prima facie
presumption exists that a holder of a negotiable instrument is
a holder in due course. Moulic failed to prove the contrary.
2) No, Moulic can only invoke this defense against the
petitioner if it was a privy to the purpose for which they were
issued and therefore is not a holder in due course.
Section 119 of NIL provides how an instruments be discharged.
Moulic can only invoke paragraphs c and d as possible grounds
for the discharge of the instruments. Since Moulic failed to get
back the possession of the checks as provided by paragraph c,
intentional cancellation of instrument is impossible. As
provided by paragraph d, the acts which will discharge a simple
contract of payment of money will discharge the instrument.
Correlating Article 1231 of the Civil Code which enumerates the
modes of extinguishing obligation, none of those modes
outlined therein is applicable in the instant case. Thus, Moulic
may not unilaterally discharge herself from her liability by mere
expediency of withdrawing her funds from the drawee bank.
She is thus liable as she has no legal basis to excuse herself
from liability on her check to a holder in due course. Moreover,
the fact that the petitioner failed to give notice of dishonor is
of no moment. The need for such notice is not absolute; there
are exceptions provided by Sec 114 of NIL.
PAPA vs. A.U. VALENCIA AND CO.
284 SCRA 643
Doctrine: After more than 10 years from the payment in part
by cash and in part by check, the presumption is that the check
had been encashed. Failure of the payee to encash a check for
more than 10 years undoubtedly resulted in the impairment of
the check through his unreasonable and unexplained delay.
Facts:
40 | P a g e
Myron Papa is the administrator of the estate of Angela Butte.
In 1973, he sold a portion of said estate to Felix Penarroyo
through A.U. Valencia and Co. Inc. Penarroyo gave Papa
P5,000.00 plus a check worth P40,000.00. However, Papa was
not able to deliver the certificate of title to Penarroyo. A
litigation ensued and ten years after, Papa argued that the sale
between him and Penarroyo was never consummated because
he did not encash the P40,000.00 check and that the P5,000.00
cash was merely earnest money.
Issue:
Whether or not Papa is correct.
Ruling:
No. After more than ten (10) years from the payment in part
by cash and in part by check, the presumption is that the check
had been encashed. Granting that Papa had never encashed
the check, his failure to do so for more than ten (10) years
undoubtedly resulted in the impairment of the check through
his unreasonable and unexplained delay. While it is true that
the delivery of a check produces the effect of payment only
when it is cashed, pursuant to Article 1249 of the Civil Code,
the rule is otherwise if the debtor (Penarroyo) is prejudiced by
the creditor's (Papa'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.
TAN vs. PEOPLE
500 SCRA 172
Doctrine: Notice of dishonor must be in writing, a verbal notice
is not enough. The statute itself has created a prima facie
presumption that the drawer had knowledge of the insu
fficiency of the funds at time of issuance and the check’s
presentment if he fails to pay the amount of the check within
5 banking days from notice of dishonor. Thus only after failure
to pay and receipt of dishonor will the presumption arise. If no
proof of notice of dishonor was served on the drawer, there is
no way to reckon the crucial 5 day period.
Demand letter was never presented in the course of the trial,
thus, there is no proof of notice of dishonor. The presumption
or prima facie evidence of knowledge cannot arise, if notice of
non-payment by the drawee bank is not sent to the maker or
drawer, or if there is no proof as to when such notice was
received by the drawer, since there would simply be no way of
reckoning the crucial 5-day period. Furthermore, the notice of
dishonor must be in writing; a verbal notice is not enough.
Knowledge of notice of dishonor when issuer filed his
answer on a case filed against him
The issuer already knows that the check is already dishonored
because of the fact that the case is already filed against him.
Five days had already lapsed since the filing of the case and
supposed the issuer had already filed an answer within 10 days
at the very least.
So one of the best arguments would be that the issuer tried to
make payment after knowing that the case is already filed
against him and yet the complainant refused to accept
payment.
Important: If ever you received a check which is worthless,
take note of the requirements for the presumption to apply for
filing of the case for violation of BP 22.
VACA vs. CA
298 SCRA 65
Doctrine: Damage to the payee is not an element of the crime
punished in BP 22. The “making, drawing & issuance of a check
payment of which is refused by the drawee because of
insufficient funds . . .” shall be prima facie evidence of
knowledge of such insufficiency of funds or credit unless such
maker or drawer pays the holder thereof the amount due
thereon, or makes arrangement for payment in full by the
drawee of such check within 5 banking days after receiving
notice that such check has not been paid by the drawee.
Petitioners in this case cannot pretend ignorance of the
insufficiency of funds. While it may be true that it was the
company's accountant who actually prepared the rubber check,
the fact remains that petitioners are the owners and officers of
the company. Sec. 1 of BP22 provides that "Where the check
is drawn by a corporation, company, or entity, the person or
persons who actually signed the check in behalf of such drawer
shall be liable under this Act."
Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino
In fact, petitioner Nieto testified that after the check in question
was dishonored, he instructed their company accountant to
prepare a replacement check. This belies petitioners' claim that
they had no hand in the preparation of checks and shows that
petitioners were in control of the finances of the company.
MACALAGLAG vs. PEOPLE
511 SCRA 400
When Estrella presented the checks for payment, the same
were dishonored on the ground that they were drawn against
a closed account.
Only a full payment of the face value of the second check
at the time of its presentment or during the five-day
grace period could have exonerated her from criminal
liability. A contrary interpretation would defeat the purpose of
BP22 that of safeguarding the interest of the banking system
and the legitimate public checking account user, as the drawer
could very well have himself exonerated by the mere
expediency of paying a minimal fraction of the face value of the
check.
CRUZ vs. CRUZ
515 SCRA 89
While indeed the gravamen of violation of B.P. Blg. 22 is the
act of issuing worthless checks, nonetheless, courts should not
apply the law strictly or harshly. Its spirit and purpose must be
considered.
Considering that petitioner had already paid the amount of the
check even before respondent filed his complaint, the SC
believed and so hold that no injury was caused to the public
interest or the banking system, or specifically to herein
respondent
Crus and Vaca Cases Compared
In the Vaca Case, payment was made after the case was
filed. Thus, as ruled by SC, “even if the payee su ffered no
damage as a result of the issuance of the bouncing check, the
damage to the integrity of the banking system cannot be
denied”.
DEL ROSARIO vs. CEDILLO
442 SCRA 70
The rule is that receipts for registered letters and return
receipts do not prove themselves; they must be properly
authenticated in order to serve as proof of receipt of the
letters.
It is a general rule that when service of notice is an issue, the
person alleging that the notice was served must prove the fact
of service. The burden of proving notice rests upon the
party asserting its existence. Service made through
registered mail is proved by the registry receipt issued by the
mailing office and an affidavit of the person mailing the notice
of dishonor.
Without the authenticating affidavit, the proof of giving the
notice of dishonor is insufficient unless the mailer personally
testifies in court on the sending by registered mail. Likewise,
for notice by mail, it must appear that the same was served on
the addressee or a duly authorized agent of the addressee.
Period of notice
• The notice is important because it is the period from where
the 5 days grace period to settle shall be counted.
• SC Opinion: If there is no notice, grace period will not
begin to run.
• Atty: Issuer of the check can be exonerated. Because he
can still give payment of the check, after knowing that the
check has been dishonored.
RESTERIO vs. PEOPLE
681 SCRA 592
What BP 22 punishes is the mere act of issuing a worthless
check. The law did not look either at the actual ownership of
the check or of the account against which it was made, drawn,
or issued, or at the intention of the drawee, maker or issuer.
Also, that the check was not intended to be deposited was
really of no consequence to her incurring criminal liability. The
mere act of issuing a worthless check, either as a deposit, as a
guarantee, or even as an evidence of a pre-existing debt or as
a mode of payment is covered by BP22. It is a crime classified
as malum prohibitum. The law is broad enough to include,
within its coverage, the making and issuing of a check by one
41 | P a g e
who has no account with a bank, or where such account was
already closed when the check was presented for payment.

CHENG vs. SY
592 SCRA 155
Facts:
Petitioner Cheng filed 2 cases of estafa against spouses Sy and
2 cases for violation of BP Blg. 22, both for issuing to her 2 PBC
Checks in payment of their loan for which were dishonored
upon presentment for having been drawn against a closed
account. Estafa cases were dismissed for failure to prove
elements of the crime and BP Blg. 22 were dismissed due to
failure of petitioner to identify accused in open court.
A complaint for collection of sum of money with damages filed
by petitioner was likewise denied.

Issue:
Whether the Rules of Criminal Procedure and Supreme Court
Circular on the Rules and Guidelines in the filing and
prosecution of criminal cases under BP Blg. 22 are applicable
to the present cases where the nature of the order dismissing
the cases for bouncing checks against respondent was based
on failure of prosecution to identify both of the accused.

Ruling:
The rule is that upon filing of the estafa and BP Blg. 22 cases
against respondents, where petitioner has not made any
waiver, express reservation to litigate separately, or has not
instituted the corresponding civil action to collect and damages
prior to the criminal action, the civil action is deemed instituted
with criminal cases. During the pendency of both cases, the
action to recover civil action is deemed instituted with criminal
cases. During the pendency of both cases, the action to recover
civil liability was impliedly instituted and remained pending
before respective trial courts.

Although civil action could have been litigated separately on

account of the dismissal of estafa cases on reasonable doubt,
petitioner was deemed to have elected that such civil action be
prosecuted together with BP Blg. 22 cases.

The 2000 Rules on Criminal Procedure may apply even to cases

already pending of its time of promulgation. Under these Rules,
the criminal violation of BP Blg.22 includes the corresponding
civil action to recover amounts of the checks to discourage
separate filing of civil action. The Rules encourage
consolidation of Civil and Criminal cases. Thus, where
petitioner’s rights may be fully adjudicated in the proceedings
before the court trying the BP Blg.22 cases, resort to a separate
action to recover civil liability is unwarranted on account of res
judicata for failure of petitioner to appeal the civil aspect of the
cases.

“Learning is NOT a spectator sport.”

– D. Blocher

“Education is what survives when what has

been learned has been forgotten.”
– B. F. Skinner

“The purpose of learning is growth, and our

minds, unlike our bodies, can continue
growing as long as we live.”
– Mortimer Adler

PLEASE DO NOT POST THIS ON SCRIBD,

COURSEHERO, ACADEMIA, OR ANY OTHER NOTE-
SHARING PLATFORM ONLINE!!!

Negado, Ruiz, Vargas| EH403 | Negotiable Instruments Law | Atty. Amago | USC Law | 1st Sem., A.Y 19-20 42 | P a g e
Supplemental Sources: 403 ‘17 Notes, 404 ‘16 Notes, 404 ‘17 Notes, 403 ’18 Notes, 404 ‘19 Notes, De Leon, and Aquino