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Negotiable Instruments Memory Aid 2.

Bill of Exchange: OSRM

UM - Summer Class 2011 i. unconditional order in writing addressed by one
Outlined By NCM person to another,
(Excerpts from H.S.De Leon, Dean Abad and Atty. Roland Pondoc) ii. signed by the person giving it,
iii. requiring the person to whom it is addressed to
Negotiable Instruments: WSPH pay on demand or at a fixed or determinable
i. written contracts for the payment of money; future time
ii. by its form, intended as a substitute for money iv. a sum certain in money to order or to bearer.
iii. intended to pass from hand to hand, (Sec. 126 NIL)
iv. to give the holder in due course the right to hold
the same and collect the sum due. 3. Check - bill of exchange drawn on a bank and
payable on demand. (Sec. 185 NIL)
Functions and importance of NI: SEC • special kind of a bill of exchange.
1. operates as a substitute for money – allows it to go Other examples of NI: CBDB/DTB
from hand to hand in the commercial markets and to 1. Certificate of deposit;
take the part of money in commercial transactions. 2. Bank Notes;
2. the media of exchange for most commercial
transactions (Checks) – they are a safe and
3. Due Bills;
convenient means of doing business that eliminate the 4. Bonds;
risk of dealing in cash. 5. Drafts;
3. serves as a medium for credit transaction – men 6. Trade Acceptances; and
without cash in hand are enabled by means of credit to 7. Banker’s Acceptances.
conduct and carry to completion business and
commercial enterprises. Non-negotiable Instruments: WTPC/LBD
1. Warehouse Receipts;
Note: Checks are primarily used for immediate payment 2. Treasury Warrants;
such as a substitute for money, while the ordinary bill of 3. Postal Money Order;
exchange and the promissory note are intended for the
4. Certificate of Stocks;
circulation of credits such as a credit instrument.
5. Letter of Credits;
Characteristics/Features of NI: 6. Bill of Lading; and
7. Dock Warrants.
1. Negotiability – it may pass from one person to
another similar to money. Note: it cannot be negotiated but can be transferred by
2. Accumulation of secondary contracts – negotiated assignment.
from one person to another, hence, additional parties
can become involved. Every negotiation is a contract in Life cycle of NI: INPAD/PDNPD
itself, there will be more parties to whom the holder can 1. Issuance
demand payment. 2. Negotiation
3. Presentment for acceptance in some NI
Note: If it cannot be transferred, then it is non- 4. Acceptance itself
negotiable. 5. Dishonored by non-acceptance
6. Presentment for payment
Common forms of NI:
7. Dishonored by non-payment
1. Promissory Note: PSM 8. Notice of dishonor
i. unconditional promise to pay in writing made by 9. Protest in some cases
one person to another, 10. Discharge
ii. signed by the maker, engaging to pay on
demand or a fixed determinable future time Promissory Note vs. Bill of Exchange:
iii. a sum certain in money to order or bearer.
Promissory Note: “Promise Paper”
When the note is drawn to maker’s own order, it is not i. unconditional promise;
complete until indorse by him. (Sec. 184 NIL) ii. involves 2 parties;
iii. Maker is primarily liable; and
iv. only 1 presentment – for payment.

Bill of Exchange: “Order Paper”

i. unconditional order;
ii. involves 3 parties;
iii. Drawer is only secondarily liable; and
iv. generally 2 presentments - for acceptance and d. With exchange – refers to instruments that are
for payment. payable in foreign currency.
Form of NI: An instrument to be negotiable must • The exchange rate must be stated, otherwise
conform to the ff. requirements: (Sec. 1 NIL) the latest exchange rate will be the basis.
e. Costs of collection or attorney’s fees – in case
PN: SUDO / BofE: SUDOC payment shall not be made at maturity, there shall be
1. IT MUST BE IN WRITING AND SIGNED BY THE added to the amount due on the note costs of collection
MAKER OR DRAWER. or an attorney’s fee.

Notes: Elaborated by Sec. 3 NIL:

• The instrument must be in writing; otherwise, a. Indication of particular fund from which the
nothing could be negotiated or passed from acceptor disburses himself after payment.
hand to hand. • The particular fund indicated fund should only be
• The writing may be in ink, print or pencil. It may the source of reimbursement and should not be
be upon parchment, cloth, leather or any other the direct source of payment; else it becomes
substitute of paper. conditional and therefore non-negotiable.
• There is no such thing as an oral negotiable • An instrument which contains a direction to
instrument. debit a particular account is negotiable.
• It must be signed by the maker or drawer. It b. Statement of the transaction which gives rise to
may consist of mere initials, numbers or thumb the instrument.
marks, but the holder must prove that what is • The statement of the consideration for which the
written is intended as a signature of the person instrument has been issued does not make it
sought to be charged. conditional; thus, it has no adverse legal effect
• His signature is prima facie evidence of his on the negotiability of the instrument.
intention to be bound as either maker or drawer. ---------------------------------------------------------------------------
--------------------------------------------------------------------------- 3. IT MUST BE PAYABLE ON DEMAND, OR AT A
MONEY. Elaborated by Sec. 7 NIL:
Instrument is payable upon DEMAND if:
Notes: a. It is expressed to be so payable on sight or upon
• The promise or order must be unconditional; it
must not be a subject to any condition or • an instrument payable on demand is due and
contingency. It must be payable absolutely. payable immediately after its delivery. It is a
present debt due at once.
• The sum payable must be certain; hence, it must Ex. Other words equivalent to “on demand” (PN)
be definite and specific, to assure clarity in - “at sight” (BofE)
determining the value of the instrument. - “on presentation”
- “on call”
If the instrument calls for an act, other than the - “at anytime called for”
payment of money, it is not negotiable. “At sight” means that the instrument is payable
Exceptions: as soon as it is seen by the party primarily liable.
• sale of collateral securities b. No period of payment is stipulated – when no time
• confession of judgment is expressed.
• waives benefit of law c. Issued, accepted, or endorsed after maturity –
• gives option to the holder to require something when the maturity date has already lapsed (overdue)
to be done in lieu of money and the drawee is willing to pay, then it is payable on
(Sec. 5 NIL) demand.

Elaborated by Sec. 2 NIL: Elaborated by Sec. 4 NIL:

Sum is certain even if it is to be paid with: Instrument is payable upon a DETERMINABLE
The instrument is still negotiable even if one of the ff. is FUTURE TIME if:
a. Interest – at fixed rate, or at increased/reduced rate. a. There is a fixed period after sight/date.
b. In installments – must be stated in the instrument: • Fixed period/time:
a. interest of each installment; and “I promise to pay P or order the sum of P10,000
b. due date of each installment. on October 29, 2009.”
c. In installments with acceleration clause – a
promise that if any installment or interest is not paid as • Fixed period after sight:
agreed, the whole shall become due. “Sixty days after sight, pay to the order of P the
sum of P10,000.”
b. To a specified person or his order – “Pay to P
• Fixed period after date: or order P10,000.”
“Sixty days after date, I promise to pay P or
order the sum of P10,000.” It may be drawn payable to the order of:
a. A payee who is not a maker, drawer, or drawee; or
b. On or before a specified date/fixed determinable b. the drawer or maker; or
future time. c. the drawee; or
• On or before a fixed time: d. two or more payees jointly; or
“On or before October 10, 2009, I promise to e. one or some of several payees ; or
pay P or order P10,000.” f. the holder of an office for the time being.

The maker has the option to pay in advance or Elaborated by Sec. 9 NIL:
on the fixed date. Instrument is payable to BEARER:
a. When it is expressed to be so payable – “I promise
• On or before a fixed determinable time: to pay bearer P10,000.”
“On or before the start of the next school b. When payable to the person named or bearer –
semester, I promise to pay P or order P10,000.” “Pay to P or bearer P10,000.” Or “Pay to P or holder
Determinable future time means a time that c. Payable to order of fictitious or non-existent
can be determined with certainty after the person and this fact was known to drawer – “Pay to
execution of the instrument. Superman or order P10,000.”
d. Name of payee not name of any person – “Pay to
c. On or at a fixed date after the occurrence of an cash.”, “Pay to money.”, “Pay to cash or order.”
event certain to happen though the exact date is not e. Only and last indorsement is an indorsement in
certain. blank – Blank indorsement is payable to bearer and may
• On the occurrence of a specified event: be negotiated by delivery. (Sec. 34 NIL)
“I promise to pay P or order the sum of P10,000
upon the death of his father.” Notes:
• After the occurrence of a specified event: • Once a bearer instrument, always a bearer
“Thirty days after the death of his father, I instrument – despite an indorsement, it can be
promise to pay P or order the sum of P10,000.” negotiated further by mere delivery.
If the instrument is payable upon a contingency, the 5. WHERE THE INSTRUMENT IS ADDRESSED TO A
happening of the event does not cure the defect (still DRAWEE, HE MUST BE NAMED OR OTHERWISE
Contingency – an uncertain future event or an event
which may or may not happen. Notes:
--------------------------------------------------------------------------- • This provision applies only to bills and checks.
4. IT MUST BE PAYABLE TO ORDER OR TO • The reason for this last element is to enable the
BEARER. payee or holder to know upon who he is to call
for acceptance or payment.
Notes: • Where a bill is addressed to the “treasurer” of a
• If payable to order – indorsement plus delivery. corporation, the drawee is sufficiently indicated.
• If payable to bearer – delivery only. ---------------------------------------------------------------------------
• An instrument payable to a specified person only The validity and negotiability of an instrument is not
is not an order instrument, thus, non-negotiable affected by the fact that: (Sec. 6 NIL)
as the promise or order is limited to paying one a. It is not dated; or
person only. b. does not specify the value given or that any had been
• The payee must be named or otherwise given; or
indicated therein with reasonable certainty. c. does not specify the place where it is drawn or
• If there is no payee, there would be no one to payable; or
indorse the instrument payable to order. d. bears a seal; or
Therefore useless to be considered negotiable. e. designates the kind of current money in which
payment is to be made.
Elaborated by Sec. 8 NIL:
Instrument is payable to ORDER: Notes:
a. Where it is drawn payable to the order of a • The instrument need not to follow the language
specified person – “Pay to the order of P of the law, any terms are sufficient which clearly
P10,000.” indicate an intention to conform to the
requirements hereof. (Sec. 10 NIL)

• If the instrument bears a date, it is presumed Chapter II – CONSIDERATION
that said date is the date when it was made by
the maker, drawn by the drawer, accepted by Sec. 24 NIL. Presumption of consideration.
the drawee, or indorsed by the payee or holder. • Every NI is deemed prima facie to have been
(Sec. 11 NIL) issued for a valuable consideration, and every
person whose signature appears thereon to
• Ante-dating or post-dating an instrument does have becomes a party thereto for value.
not render it invalid or non-negotiable provided • The presumption is only prima facie. It may be
this is not done for an illegal purpose or to rebutted or disproved by evidence to the
commit fraud. (Sec. 12 NIL) contrary.
Sec. 25 NIL. What constitutes value.
The date may be inserted in an instrument when: • Value is any consideration sufficient to support a
(Sec. 13 NIL) simple contract. Such as: PILSB
a. an instrument expressed to be payable at a fixed a. Pre-existing debts;
period after date is issued undated. b. Interests;
b. where acceptance of an instrument payable at a fixed c. Labor rendered services;
period after sight is undated.
d. Support; and
Effects: e. Benefits.
• If without for value, the holder is not a HIDC.
• Any holder may insert the true date of issuance
Not Value:
or acceptance.
a. Gift;
• The insertion of a wrong date does not avoid b. Donation;
the instrument in the hands of a subsequent c. Fear;
holder in due course. d. Love;
• As to the holder in due course, the date inserted e. Gratitude.
(even if it be the wrong date) is regarded as the
true date. Good faith means lack of knowledge or notice of defect
or infirmity.
Steps in issuance of NI:
1. The mechanical act of writing the instrument d. At time he took the instrument, no notice of
completely and in accordance with the requirements of infirmity in instrument or defect in the title of the
Sec.1 NIL. person negotiating it. (He is in good faith, so to speak).
2. The delivery of the complete instrument by the
maker or drawer to the payee or holder with the intention Notes:
of giving effects to it.
• Every holder is presumed to be a HIDC (Sec.
59). He who claims otherwise has the burden of
Requisites for a Holder in Due Course (HIDC): COVI
(Sec. 52 NIL) Four requisites must be complied,
otherwise, he is not qualified to be a HIDC.
Abnormal Instruments:
a. Receives the instrument complete and regular on
its face.
• An instrument is considered complete and Two (2) kinds:
regular on its face if: a. Incomplete instrument but delivered.
a. the omission is immaterial; and b. A signature and a blank piece of paper signed
b. the alteration on the instrument was not by the person for the purpose of converting it
apparent on its face. into a negotiable instrument.  A must.

b. Became a holder before it was overdue and had Two (2) requisites to bind the person who signed the
no notice that it had been previously dishonored if instrument before delivery:
such was the fact. i. It must be filled-up strictly with the authority
• An instrument is overdue after the date of given; and
maturity. ii. Within a reasonable time.
• On the date of maturity, the instrument is not yet
overdue and the holder is still a HIDC. Effects to a HIDC:
• If the instrument falls on the hands of a HIDC, it
c. Takes the instrument for value and in good faith. is valid and effectual for all purpose as
though it was filled up strictly in accordance with
the authority given and within reasonable time.

Rules where instrument is incomplete but delivered:
1. Authority to fill-up the blanks – the holder or the Effects of a Complete but Undelivered instrument:
person in possession has prima facie authority to • If a complete instrument is undelivered, then it is
complete an incomplete instrument by filling up the inoperative because delivery is a requisite to
blanks therein. liability. It is considered incomplete; thus,
2. Authority to put up any amount – a signature on a revocable.
blank paper delivered in order that may be converted • In the absence of delivery, the instrument
into a NI operates as a prima facie authority to fill it up as though complete in all its particulars, there is no
such for any amount. contract.
3. Right against party prior to completion – the
instrument may be enforced only against a party prior to In possession of an immediate party or a remote
completion if filled up strictly in accordance with the party:
authority given and within reasonable time.
• Immediate party – a party having been held to
know of the conditions or limitations placed upon
the delivery of the instrument.
iii. In both cases (a & b), the presumption is that the
blank was filled up in accordance with the • Remote party – a party who is not in direct
authority given and within reasonable time. contractual relation to each other. They can be
iv. The defense that the instrument had not been transformed into “immediate party.”
filled up in accordance with the authority given • If a complete instrument is found in their
and within reasonable time is not available as possession, there is a prima facie presumption
against a holder in due course. of delivery (but subject to rebuttal).
v. Sec. 14 raises a Personal Defense – if the last Notes:
holder is a HIDC, Maker is liable to pay. • If the instrument is no longer in the possession
of the person who signed it and it is complete in
2. INCOMPLETE and UNDELIVERED (Sec. 15 NIL). its terms, “a valid and intentional delivery by him
is presumed until the contrary is proved.”
Before delivery:
• Before delivery, an incomplete and undelivered Delivered conditionally or for a special purpose
instrument which is completed and negotiated • If delivery was conditional or for a special
without authority is not a valid contract in the purpose only, then it is not for the purpose of
hands of ANY holder as against the person who transferring title to the instrument. However, it is
signed the instrument. presumed to be made with the intention to
After delivery: transfer title – this can be rebutted.
• However, after delivery, persons who signed the
instrument can be held liable to HIDC. Effects to a HIDC:
Persons liable: • If a complete instrument is in the hands of a
• General Indorsers are liable because they HIDC, a valid delivery thereof by all parties prior
warrant that the instrument is genuine and valid; to him is CONCLUSIVELY presumed.
thus, they are estopped to deny the validity of
the instrument. Notes:
Notes: • Sec. 16 raises a Personal Defense – if the last
• Where an incomplete instrument has not been holder is a HIDC, Maker is liable to pay.
delivered, it will not, if completed and
negotiated without authority, be a valid 4. FORGERY (see Sec.23 NIL notes)
contract in the hands of any holder against any
person who signed before delivery.
• The invalidity of the instrument is only with
reference to the parties whose signatures
appear before and not after delivery.
• Sec. 15 raises a Real Defense – even if the last
holder is a HIDC, Maker is not liable to pay.
(Indorsers are liable because they warrant that
the instrument is genuine and in all respects
what it purports to be. As their signatures appear
on the instrument after delivery, the instrument
is valid as to them.)

Notes on delivery of NI:

1. Delivery is essential to the validity of any negotiable General rule: A person whose signature does not
instrument. appear on the instrument is NOT liable.
2. As between immediate parties or those is like cases,
delivery must be with intention of passing title. Exceptions:
3. An instrument signed but not completed by the drawer a. One who signs in a trade or assumed name. (Sec. 18)
or maker and retained by him is invalid as to him for b. A duly authorized agent. (Sec. 19)
want of delivery even in the hands of a holder in due c. A forger.(Sec. 23)
4. But there is prima facie presumption of delivery of an Sec. 20 NIL. Liability of a person signing as agent.
instrument signed but not completed by the drawer or General rule: An agent is not liable on the instrument if
maker and retained by him if it is in the hands of a holder he were duly authorized to sign for or on behalf of a
in due course. This may be rebutted by proof of non- principal.
delivery. Requisites:
5. An instrument entrusted to another who wrongfully a. He must be duly authorized;
completes it and negotiates it to a holder in due course, b. He must add words to his signature indicating that he
delivery to the agent or custodian is sufficient delivery to signs as an agent; and
bind the maker or drawer. c. He must disclose his principal.
6. If an instrument is completed and is found in the • If an agent does not disclose his principal, the
possession of another, there is prima facie evidence of agent is personally liable on the instrument.
delivery and if it be a holder in due course, there is
conclusive presumption of delivery. Sec. 21 NIL. Per Procuration - operates as notice that
7. Delivery may be conditional or for a special purpose the agent has a limited authority to sign.
but such do not affect the rights of a holder in due Effects:
course. • The principal is only bound if the agent acted
within the limits of the authority given.
Rules of construction in case of ambiguity or • The person who takes the instrument is bound
omission: (Sec. 17 NIL) to inquire into the extent and nature of the
1. Sums expressed in words and in figures are authority given.
• When there is a discrepancy between the sum Sec. 22 NIL. Effect of indorsement by infant/corporation.
expressed in words and the sum expressed in General rule: Infants and corporations incur no liability
figures, the words control. by their indorsement or assignment of an instrument.
• However, when the words are ambiguous, Effects:
reference may be had to the figures to • No liability attached to the infant or the
determine the true amount. corporation.
2. Date when stipulated interest to run not specified • The instrument is still valid and the indorsee
– if the date when the stipulated interest is to run is not acquires title.
specified, the interest runs from the date of the ---------------------------------------------------------------------------
instrument or if undated from the date of its issue. FORGERY (Sec. 23 NIL)
3. An undated instrument is considered dated as of
the date of its issue. Two (2) kinds:
4. Written and printed words in conflict – in case of a. Forged signature; and
conflict between the written and printed provisions, the b. Signature made without authority.
written provisions prevail. Written words are deemed to Effects:
express the true intention of the maker or drawer a. no right to retain;
because they are placed there by him. b. no right to give a discharge; and
5. Whether instrument bill or note in doubt – in case c. no right to enforce payment can be acquired.
of doubt as to whether the instrument is a bill or note, the
holder may treat either at his election. It is only the forged signature or unauthorized
6. Capacity in which the person signed in doubt – in signature that is declared to be inoperative.
case of doubt due to the ambiguous location of the • The instrument or other signatures which are
signature, the party who signed is deemed to be an genuine may still exist and be enforced.
indorser, who assumes the least liability, and not as a
maker or drawer. Exceptions: Forged or unauthorized signatures may
7. Instrument signed by two or more persons – their produce rights or title, IF:
liability may either be solidary or joint. a. The party against whom it is sought to enforce such
• “I promise to pay” signed by two or more right is precluded (prevented) from setting up the forgery
persons gives rise to solidary liability. or want of authority.
• “We promise to pay” signed by two or more
persons gives rise to joint liability. Persons precluded from setting up the defense of
Sec. 18 NIL. Liability of person signing in trade. forgery:

• The forger himself. • Partial failure of consideration is a defense pro
• Those who warrant or admit the genuineness of tanto.
the signature in question (indorsers, persons
negotiating by delivery, and acceptors of BofE). Pro tanto defense is a defendant's counterclaim against
• Those who, by their acts, silence or negligence, the plaintiff for one-half the requested damages.
are estopped from setting up the defense of • To the extent of the failure.
forgery  Estoppel.
Absence of consideration means a total lack of any
b. Where the forged signature is not necessary to the valid consideration on the contract, in consequence of
holder’s title, in which case the forgery may be which the alleged contract must fail.
Failure of consideration means the failure or refusal of
Rights of parties in cases of forged indorsements: one party to do, perform or comply with the
1. Payable to order (PN) – the party whose signature consideration agreed upon.
was forged is not liable to any holder, even to a HIDC.
The indorsement, being forged is inoperative. • The defense of want of consideration is
ineffective against a HIDC.
2. Payable to bearer (PN) – the party whose signature • A drawee who accepts the bill cannot allege
is forged is liable to a HIDC, but not to the one who is want of consideration against the drawer.
not a HIDC. The reason is that the instrument being
originally payable to bearer, it can be negotiated by mere Sec. 29 NIL. Liability of an accommodation party.
delivery. Hence, even if the indorsement is forged, the Accommodation party - is one who signs the
forgery may be disregarded. instrument as maker, drawer, acceptor, or indorser
3. Payable to order (BofE) – the party whose signature without receiving value therefor and for the purpose of
was forged is not liable to any holder, even to a HIDC. lending his name to some other person.
The indorsement, being forged is inoperative. Effects:
• An accommodation party is liable to the holder
4. Payable to bearer (BofE) – when the bill is originally for value notwithstanding that such holder knew
payable to bearer, the drawee may debit the drawer’s that of the accommodation.
account in spite of the forged indorsement. The reason • Want of consideration cannot be interposed by
is that the forged indorsement is not necessary to the the accommodation party
title of the holder. • An accommodation maker may seek
reimbursement from a co-maker even in the
Notes: absence of any provision in the NIL; the
• Section 23 applies only to forged signatures or deficiency is supplied by the New Civil Code.
signatures made without authority. • He may do this even without first proceeding
• Alterations such as to amounts or like fall under against the debtor provided:
Section 124. a. He paid by virtue of judicial
• Drawee bank is conclusively presumed to know demand.
the signature of its drawer. b. Principal debtor is insolvent.
• Forgery is a Real Defense.
--------------------------------------------------------------------------- Accommodation Party vs. Regular Party:
Sec. 26 NIL. What constitutes holder for value.
Holder for value – is one who has given a valuable Accommodation Party:
consideration for the instrument issued or negotiated to • Signs an instrument without receiving value
him. therefore.
• A holder of a NI is presumed to be a holder for • Signs an instrument for the purpose of lending
value until the contrary is shown by any party his name to some other person.
who claims otherwise. • May always show by parol evidence that he is
only such an accommodation party.
Sec. 27 NIL. When lien on instrument constitutes holder • Cannot avail of the defense of absence or failure
for value – where the holder has a lien on the instrument of consideration against a HIDC.
arising either from contract or by implication of law, he is • After paying the holder, may sue for
deemed a holder for value to the extent of his lien. reimbursement the accommodated party.
• One who has taken a NI as collateral security for
a debt has lien on the instrument.

Regular Party:
Sec. 28 NIL. Effect of want of consideration. • Signs the instrument for value.
• Absence or failure of consideration may be set • Does not sign for the purpose of lending his
up against a holder not a HIDC. name to other person.
• Cannot disclaim or limit his personal liability as • Assignment is governed by Articles
appearing on the instrument by parol evidence. 1624 – 1635 of the Civil Code
• May avail the defense of absence or failure of (Assignment of Credits).
consideration against a HIDC. ---------------------------------------------------------------------------
• May not sue any subsequent party for INDORSEMENT
reimbursement. Indorsement is the writing of the name of the payee on
--------------------------------------------------------------------------- the instrument with the intent to:
Chapter III - NEGOTIATION • to transfer the title to the same; or
• guarantee the instrument; or
Sec. 30 NIL. What constitutes negotiation. • acknowledge payment.
Negotiation – is the transfer of a NI from one person to
another made in such a manner as to constitute the Sec. 31 NIL. Indorsement. How made.
transferee the holder thereof. Indorsement to be must be:
• There is no negotiation if the transfer does not i. written
make the transferee the holder of the ii. on the instrument itself or upon a piece of paper
instrument. attached.
• For a bearer instrument - by delivery. Notes:
• For an order instrument - by indorsement and • The paper attached with the indorsement is an
delivery. allonge.
Delivery – means the transfer of possession, actual or • An allonge must be attached so that it becomes
constructive, from one person to another. (Sec. 191, [6]) a part of the instrument, it cannot be simply
Negotiation vs. Assignment: pinned or clipped to it.
• As to application:
• Negotiation only applies to NI, but is not Necessity of indorsement:
applicable to non-negotiable
instruments. 1. It is essential to the execution of an instrument
• Assignment applies to both NI and non- payable to the order of the maker or drawer.
negotiable instruments.
• As for the transferee: 2. Essential to the negotiation of an order instrument, not
a bearer instrument.
• In negotiation, the transferee is a holder.
• In assignment, the transferee is an 3. Without an indorsement of an order instrument, one
assignee. cannot be a HIDC thereof even though he is entitled to
• HIDC/Assignee: have the indorsement made.
• In negotiation, a HIDC is subject only to
real defenses and may acquire better Sec. 31 NIL. Indorsement must be of entire instrument.
title or greater rights under the • The indorsement must be an indorsement of the
instrument than those possessed by the entire instrument.
transferor or a prior party. • An indorsement which purports to transfer to the
• In assignment, an assignee subject to indorsee a part only of the amount payable, or
both real and personal defenses and which purports to transfer the instrument to two
merely steps into the shoes of the or more indorsees severally, does not operate
assignor. as a negotiation of the instrument. But where the
• Indorser/Assignor: instrument has been paid in part, it may be
• In negotiation, a general indorser indorsed as to the residue.
warrants the solvency of prior parties.
• In assignment, an assignor does not
warrant the solvency of prior parties
unless expressly stipulated or the
solvency is known to him.
• As to liability:
• In negotiation, an indorser is not liable
unless there be presentment and notice
of dishonor.
• In assignment, an assignor is liable
even without notice of dishonor.
• As to governing articles:
• Negotiation is governed by the NIL. Kinds of Indorsements:

1. Special Indorsement: (Sec. 34 NIL)

• Also known as specific indorsement. • It may be made by adding to the
• It is one where the indorser identifies the indorser's signature the words "without
person to whom the instrument is recourse" or “sans recourse” or any
transferred as a holder thereof. words of similar import.
Notes I:
2. Blank Indorsement: (Sec. 34 NIL) • As such assignor, he cannot be held liable
• It is one where the indorser merely signs unless he violates his warranties under Sec. 65.
his name without identifying the person • Such an indorsement does not impair the
to whom the instrument is transferred as negotiable character of the instrument.
a holder thereof. • The qualified indorser guarantees only the
genuineness of the instrument but does not
• Specifies no indorsee, and an guarantee its payment. He will be liable only of
instrument so indorsed is payable to the signature of the maker turns out to be a
bearer, and may be negotiated by forgery.
delivery. • He will not be liable if the maker refuses to pay.

Conversion of a Bank Indorsement to a Special Without recourse – means without resort to a person
Indorsement: who is secondarily liable after the default of the person
• The holder may convert a blank who is primarily liable.
indorsement into a special indorsement
by writing over the signature of the Limited liability of qualified indorser:
indorser in blank any contract consistent He is liable only if the instrument is dishonored by non-
with the character of the indorsement. acceptance or non-payment due to:
(Sec. 35 NIL) 1. Forgery;
2. Lack of good title on the part of the indorser;
3. Restrictive Indorsement: (Sec. 36 NIL) 3. Lack of capacity to indorse on the part of the
• It is one where the transferee of the prior parties;
instrument does not acquire full rights of 4. The fact that at the time of the indorsement, the
the owner of the instrument as a holder instrument was valueless or not valid, and he
thereof. knew of that fact.
• It is one that restricts or prohibits entirely
Qualified Indorsement warrants: (Sec. 65 NIL) GGCN
the further negotiation of an instrument,
or modifies the rights of the holder or the a. The instrument is genuine and in all respect
liabilities of the indorser. what it purports to be;
b. The indorser has good title to it;
Three (3) types of Restrictive Indorsements: c. All prior parties had the capacity to contract;
i. Prohibits the further negotiation of the d. Indorser has no knowledge of any fact that
instrument; or would impair the validity or the value of the
ii. Agency type - Constitutes the indorsee the instrument. (More on p.14 of this memory aid)
agent of the indorser; or
iii. Trust type - Vest the title in the indorsee in trust Limitations of warranties:
for or to the use of some other persons. • If by delivery – extends only to immediate
But the mere absence of words implying power to • Warranty of capacity to contract does not apply
negotiate does not make an indorsement restrictive. to persons negotiating public or corporate
Rights of a Restrictive Indorsee: (Sec. 37 NIL)
Notes II:
1. To receive payment of the instrument; • A qualified indorser cannot raise the defense of
2. To bring any action thereon that the indorser a. forgery;
could bring; b. defect of his title or that it is void;
3. To transfer his rights as such indorsee, where c. the incapacity of the maker, drawer or
the form of the indorsement authorizes him to do previous indorsers.

But all subsequent indorsees acquire only the title of the • A qualified Indorsement makes the indorser
first indorsee under the restrictive indorsement. mere assignor of title of instrument, relieves him
4. Qualified Indorsement: (Sec. 38 NIL) of general obligation to pay if instrument is
• The indorsement merely makes the dishonored, but he is still liable for the
indorser an assignor of his title to the warranties arising from instrument only up to
instrument. warranties of general indorser.
• The warranty is to the capacity of prior parties at negotiated by either the indorsement of the bank or
the time the instrument was negotiated. corporation or the indorsement of the officer.
Subsequent incapacity does not breach the • The presumption established in this section may
warranty. be disproved by sufficient evidence to the
• Lack of knowledge of the indorser as to any fact contrary. It may be shown that the instrument
that would impair the validity or the value of the really belongs to the cashier personally as the
instrument must be subsisting all throughout. real creditor of the maker or drawer.
• A person Negotiating by Delivery warrants same
as those of qualified indorser and extends to Indorsement where name is misspelled, and so
immediate transferees only. forth: (Sec. 43 NIL) (Counter-sign)
Where the name of a payee or indorsee is wrongly
5. Conditional Indorsement: (Sec. 39 NIL) designated or misspelled, he may indorse the instrument
• It is one which is dependent upon a as therein described adding, if he thinks fit, his proper
contingent event that may or may not signature.
• It is one by which the indorser imposes Indorsement in representative capacity: (Sec. 44 NIL)
some other condition to his liability, or Where any person is under obligation to indorse in a
on the indorsee’s right to collect the representative capacity, he may indorse in such terms
proceeds of the instrument. as to negative personal liability.
Notes: • An instrument may be indorsed by a person
• A conditional indorsement does not prohibit the either personally or through an agent.
further negotiation of the instrument, regardless, • The authority of the agent need not be in writing.
of whatever the condition has been fulfilled or
not. Time of indorsement; presumption: (Sec. 45 NIL)
Except where an indorsement bears date after the
• It should be remembered that while a condition
maturity of the instrument, every negotiation is deemed
in the indorsement does not destroy
prima facie to have been effected before the instrument
was overdue.
• This section is important because in order to
Effects of indorsing an instrument originally
constitute one a HIDC, he must have taken the
instrument before it was due.
• It may further be negotiated by mere delivery.
• If the indorsement is without a date, the
• The person indorsing is liable as indorser to
presumption is that it was negotiated before
such persons as to make title through his
maturity. The presumption, however, is
This section only applies to instruments originally
Place of indorsement; presumption: (Sec. 46 NIL)
payable to bearer. Therefore, it cannot apply where the
Except where the contrary appears, every indorsement
paper is originally made payable to order and indorsed in
is presumed prima facie to have been made at the place
where the instrument is dated.
• See example P. 124 – De Leon.
Continuation of negotiable character: (Sec. 47 NIL)
Indorsement where payable to two or more persons: General Rule: An instrument negotiable in origin is
• Where an instrument is payable to the order of always negotiable. This is true even if the NI is already
two or more payees or indorsees who are not overdue, but any holder who acquires the instrument can
partners, all must indorse unless the one no longer be a HIDC.
indorsing has authority to indorse for the others.
(Sec. 41 NIL) Exceptions: It will not continue to be negotiable when:
• This section refers to a joint indorsement. • It has been restrictively indorsed; and
Exceptions: • It has been discharged by payment or otherwise.
a. Where the payees or indorsees are partners;
b. Where the payee or indorsee indorsing has
authority to indorse for others.

“Pay to A and B” = valid, “Pay to A or B” = invalid Elaborations of Sec. 119 NIL:

Effect of instrument drawn or indorsed to a person Causes of Discharge of the Instrument: DAC/DH
as cashier: (Sec. 42 NIL) a. Payment by the debtor;
Where an instrument is drawn or indorsed to a person as b. Payment by accommodated party;
"cashier" or other fiscal officer of a bank or corporation, it
c. Intentional cancellation by holder of instrument;
is deemed prima facie to be payable to the bank or
corporation of which he is such officer, and may be d. Any other act discharging a simple monetary
obligation; and
e. Debtor becomes holder of the instrument at/after • A negotiable instrument is subject to any and
maturity in his own right. every defense or defect in the instrument,
whether real or personal, as if it were non-
Notes: negotiable.
• Discharge of the instrument discharges all the • A holder who is not himself a HIDC but derives
parties thereto. his title from a HIDC is given the rights of such
• Payment must be in due course, and by the prior holder.
principal debtor or on his behalf. • A holder even though he be a holder only for
• If payment is not made by the principal debtor, collection may sue in his own name.
payment only cancels the liability of the payor
and those obligated after him but does not Not a holder in due course: (Sec. 53 NIL)
discharge the instrument. Where an instrument payable on demand is negotiated
• Payment by an accommodation party does not an unreasonable length of time after its issue, the holder
discharge the instrument. is not deemed a HIDC.
• The above section inferentially requires that
Striking out indorsement: (Sec. 48 NIL) such an instrument must be presented for
A holder may strike out any indorsement which is not payment within a reasonable time from its
necessary to his title. issue.
• An indorser whose indorsement is struck out is Notice BEFORE amount paid: (Sec. 54 NIL)
discharged. Rights of a transferee who receives NOTICE of any
• All indorsers subsequent to such indorser who infirmity or defect BEFORE he has PAID THE FULL
has been discharged are likewise relieved. amount for the instrument:
• He will be deemed a HIDC only to the extent of
Effects of a transfer without endorsement: (Sec. 49) the amount therefore paid by him.
• The transferee acquires such title as the • Payments made after knowledge of such
transferor had therein. infirmity or defect will render the transferee as
• The transferee acquires the right to have the one who is not a HIDC with respect to the
indorsement of the transferor. payment of the balance.
• Negotiation takes effect as of the time the
indorsement is actually made. When TITLE defective: (Sec. 55 NIL)
The title of a person who negotiates an instrument is
When prior party may negotiate instrument: (Sec. 50) defective when:
This section refers to reacquirer or a holder who a. By Acquisition: When he obtained the
negotiates an instrument and then subsequently instrument, or any signature thereto, by: 3FDUI
reacquires it. • fraud
• If a prior party reacquires an instrument before • force
maturity date, he may negotiate the same
• fear
further. But after paying the holder, he may not
claim payment from any of the intervening • duress
parties. • other unlawful means
--------------------------------------------------------------------------- • for an illegal consideration
Chapter IV – RIGHTS OF THE HOLDER b. By Negotiation: When he negotiates it: BF
• in breach of faith
Rights of the Holder (In General): (Sec. 51 NIL)
• any circumstances that amount to fraud.
a. He may sue on the instrument in his name; and
b. He may receive payment – the instrument is
discharged if payment is 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. (Sec. 88 NIL)
Classes of holders:
1. Holders simply (Sec. 51); What constitutes Notice of Defect: (Sec. 56 NIL)
2. Holders for value (Sec. 26); and To constitute notice, the Transferee must have actual
3. Holders in due course (Sec. 52). knowledge of the infirmity or defect of title of the
person negotiating the instrument. Mere suspicion is not
Holder – the payee or indorser of a bill or note, who is in enough.
possession of it, the bearer thereof.

• However, if the transferee has knowledge of
some facts that ought to put him in inquiry, and 2. Real Defense: (or Legal Defense)
he took the instrument without making such • Are those that attach to the instrument itself
inquiry, he is deemed to have taken the and, as such, are available as defense against
instrument in bad faith. the whole world including a HIDC.
Examples of Real Defenses:
“Infirmity in the instrument” means that something is a. Incomplete and undelivered instruments;
wrong with the instrument itself; like: forgery or material b. Forgery;
alteration. c. Minority;
d. Material Alteration;
“Defect in the title of the person” means that e. Cognovit actionem or confession of judgement
something is wrong in the manner he obtained the instrument; and
instrument; like: Want of consideration or acquisition by f. Fraud in factum or fraud in esse contractus.
means of fraud or duress. When subject to original defenses: (Sec. 58 NIL)
Rights of a HIDC: (Sec. 57 NIL) SRFDE In the hands of a holder not a HIDC, an instrument is
i. To sue on the instrument in his own name; subject to defenses as if it were non-negotiable.
ii. To receive payment on the instrument – • However, a holder who derives his title from a
Payment to him in due course discharges the HIDC acquires the rights of a HIDC in respect
instrument; to all parties prior to the said HIDC from which
iii. To hold the instrument free of any defect of title he acquired the instrument; provided that such
of prior parties; holder is not a party to any fraud or illegality
iv. He is free from defenses available to prior affecting the instrument.
parties among themselves; and
v. He may enforce payment of instrument for full Who is deemed HIDC: (Sec. 59 NIL)
amount, against all parties liable. Every holder is deemed prima facie to be a HIDC.
• The holder referred to in this section is the
Defenses affecting NI: Payee or Indorsee who is in possession of the
instrument, or the bearer thereof.
1. Personal Defense: (or Equitable Defense)
• Are those which arise in the course of the life of When it shown that the title of any person who has
the instrument emanating from the conduct or negotiated the instrument was defective:
circumstances surrounding its acquisition by a • The burden is on the holder to prove that he or
party thereto. some person under whom he claims acquired
Effects to a HIDC: the title as HIDC.
• It is not a good defense against a HIDC. • This rule, however, will not apply with respect to
• It is because a HIDC holds the instrument free parties who are already bound on the instrument
from any defect of title of prior parties or free prior to the acquisition of the defective title.
from the defenses available to prior parties ---------------------------------------------------------------------------
among themselves. Chapter V – LIABILITIES OF PARTIES
Effects to a holder not a HIDC:
• It is a good defense against a party not a HIDC. IN GENERAL:
• It is because a holder not a HIDC holds the Parties primarily liable:
instrument subject to the defenses available to • Maker of promissory note.
prior parties among themselves. • Acceptor of bill of exchange.
Examples of Personal Defenses: • Certifier of a check.
a. Complete but undelivered instrument;
b. Incomplete but delivered instrument; Liabilities:
c. Acquisition of the instrument by means of fraud • Unconditionally liable;
in inducement;
d. Acquisition of the instrument by means of fear,
• Duty bound to pay the holder at date of maturity,
WON holder demands payment from him, and
force or duress;
he is not relieved from liability even if the
e. Acquisition of the instrument for an illegal
instrument should become overdue due to
failure of holder to make such demand.
f. Acquisition of the instrument by unlawful means;
g. Absence of consideration in the acquisition of • Person primarily liable: person who by the
the instrument; terms of the instrument is absolutely required to
h. Insertion of a wrong date where date is a pay the same.
material particular; • Presentment for payment not necessary to
i. Negotiation in breach of faith; and charge primary party.
j. Negotiation under circumstances amounting to
fraud. Liability of the Maker: (Sec. 60 NIL)
Warranties of a Maker: TPC • See example. P.91 – Abad.
i. He will pay the PN according to its tenor; Effects:
ii. He admits the existence of the payee; • Payee can either accede to the condition and
iii. He admits that the payee has the capacity to the bill will be paid accordingly.
indorse. • Payee can refuse the condition and treat the bill
Notes: as dishonored.
• He engages to pay the note according to its
terms, subject to no condition whatsoever. Tenor of GENERAL ACCAPTANCE:
• He promises to pay not only to the payee but to • He can accept the bill without varying the terms
any subsequent holder who is legally entitled to – this is called general acceptance.
the instrument at its maturity date even if the • In case of GA, he is liable on the bill according
holder does not demand payment at that time. to the tenor of the instrument.
• Due presentment for payment and due notice of • See example. P.91 – Abad.
dishonor are not necessary for the purpose of
charging the maker with liability. IN GENERAL:
• He cannot allege that the payee is a fictitious Parties secondarily liable:
• He cannot allege that the payee is a minor, • Drawer of a bill.
insane or the corporation is acting ultra vires. • Indorsers both note and bill.

Exception: Liabilities:
• He remains fully liable even if the instrument is • Conditionally liable.
presented for payment late unless prescription • Not bound to pay unless the following has been
has run. fulfilled: DDT
1. Due presentment or demand from
Liability of the Acceptor: (Sec. 62 NIL) primary party for payment or
Warranties of the Acceptor: ADGC/AC acceptance;
i. He will pay the bill according to the tenor of his 2. Dishonor by such party; and
acceptance; 3. Taking of proceedings required by law
ii. He admits the existence of the drawer; after dishonor.
iii. He admits that the signature of the drawer is
genuine; Liability of Drawer: (Sec. 61 NIL)
iv. He admits the capacity of the drawer; Warranties of the Drawer: CDP
v. He admits that the drawer has the authority to i. He admits the existence of the payee and his
draw the instrument; and then capacity to indorse;
vi. He admits the existence of the payee and his ii. He engages that, on due presentment, the bill
capacity to indorse. will be accepted or paid, or both, according to its
Notes: iii. That if it is dishonored by non-acceptance or
• He is liable only if he accepts. If he accepts, the non-payment, he will pay to the holder of the bill
drawee becomes known as the acceptor. or to any subsequent indorser who was
• An acceptance occurs when the drawee compelled to pay it, provided the necessary
signs his name somewhere on the face proceedings on dishonor were duly taken.
of the instrument.
• He cannot deny that the drawer is a fictitious Notes:
person, or that his signature is not genuine. • He is only secondarily liable because he is not
• He cannot deny that the drawer is a minor, or absolutely required to pay the instrument.
the drawer has no authority to sign the
instrument or that the corporation as drawer is Negativing or limiting his own liability to the holder:
acting ultra vires. • The drawer may negative or limits his liability to
• He cannot deny the existence of the payee and the holder by inserting a provision to that effect
his capacity to indorse. in the instrument.
• Ex. “In case of dishonor, I am not liable
Tenor of his ACCEPTANCE: for the amount of this instrument.”
• He can vary the terms of the instrument such To fix the liability of the Drawer, the ff. steps must be
that he can become liable only according to taken: DDT
his own terms. 1. Due presentment or demand from
• However, he is absolutely required to pay primary party for payment or
according to the tenor of his acceptance. acceptance;
2. Dishonor by such party; and
3. Taking of proceedings required by law ii. The indorser has good title to it;
after dishonor. iii. All prior parties had the capacity to contract;
iv. Indorser has no knowledge of any fact that
• The steps must concur; otherwise the Drawer would impair the validity or the value of the
will be discharged from liability. instrument.
When a person deemed Indorser: (Sec. 63 NIL)
• A person who signs an instrument not as maker, Applicability of this section:
drawer or acceptor is deemed to have signed as This section applies in the ff. instances:
an Indorser. a. The instrument is payable to bearer and it is
• If it is not clear in what capacity a person signed negotiated by mere delivery;
the instrument, he is deemed to be an Indorser. b. The instrument is payable to order and it is
negotiated in qualified indorsement; and
Notes: c. The instrument is payable to order and the only
• An indorser may vary the terms of his liability, or last indorsement is in blank, and it is
thus, he may indorse “san recourse” and limit his negotiated further by mere delivery.
liability on the instrument.
• The indorser may also sign as “surety”, in which Notes:
case he becomes jointly and severally liable with • The person negotiating by mere delivery or by
the principal debtor without regard to appropriate qualified indorsement is only secondarily liable
presentment for payment, notice of dishonor and on the instrument.
exhaustion of the assets of the principal debtor. • They are liable only if the person primarily liable
• If a person signs an instrument “For purpose of will not pay and the four warranties above
identification only”, he incurs no liability thereon. enumerated have been violated by them.
• Where a person places his indorsement on an
instrument negotiable by delivery, he incurs all Difference:
the liability of an indorser. (Sec. 67 NIL) • Negotiation is by delivery only – the warranty
extends only to his immediate transferee.
Liability of Irregular Indorser: (Sec. 64 NIL) • Qualified Indorsement – the warranty extends
Requisites to be an Irregular Indorser: PSB to all parties who derived the title through his
a. He is not otherwise a party to the instrument; indorsement.
b. He signs the instrument in blank; and
c. He signs before delivery of the instrument; Liability of a General/Unqualified Indorser:
otherwise, if after delivery, this section will not (Sec. 66 NIL)
apply. Warranties of a General Indorser: GGCV
i. That the instrument is genuine and in all
Cases regarding the liability of an Irregular Indorser: respects what it purports to be;
1. Instrument payable to the order of a third ii. That he has a good title to it;
person – he is liable to the payee and to all iii. That all prior parties had the capacity to
subsequent parties. contract; and
2. Instrument payable to the order of maker or iv. That is valid and subsisting.
drawer or is payable to bearer – he is liable to
all parties subsequent to the maker or drawer. In addition: DP
3. If he signs for the accommodation of payee – • Engages that the instrument will be accepted or
he is liable to all parties subsequent to the paid or both according to its tenor on due
payee. presentment.
• See examples. P. 173 – De Leon. • Engages to pay the amount thereof if it be
dishonored and the necessary proceedings on
Warranties of an Irregular Indorser are the same as dishonor are taken.
those of a General Indorser under Sec. 66 NIL. Notes:
• A General Indorser or Unqualified Indorser
guarantees that the instrument is valid and
subsisting, whether or not he has no knowledge
of that fact.
• So, if the instrument indorsed turns out to be
Qualified Indorsement/Negotiation by delivery: invalid, the Unqualified Indorser is liable
(Sec. 65 NIL) because of the fourth warranty.
Warranties of a Qualified Indorser/Negotiation by
delivery: GGCN To fix the liability of a General Indorser, the ff. steps
i. The instrument is genuine and in all respect must be taken: DDT
what it purports to be;
1. Due presentment or demand from • In other words, the holder can sue the maker or
primary party for payment or the acceptor, although no demand has been
acceptance; made on him, as soon as the date for payment
2. Dishonor by such party; and has passed without the instrument being paid.
3. Taking of proceedings required by law Presentment for payment NECESSARY:
after dishonor. • It is necessary in order to charge the Drawer
and Indorser.
Order of liability AMONG Indorsers: (Sec. 68 NIL)
The presumption is that Indorsers are liable in the order Instrument payable at a special place:
in which they indorse; unless it is shown otherwise by • The ability and willingness on the part of the
parol evidence. primary party to pay at a special place (ex. At a
bank, office or at a residence) at maturity are
Among themselves: equivalent to a tender and offer of payment
• Every indorser is liable to all subsequent on his part so that if the instrument is not paid
indorsers. and is overdue, he cannot be considered in
• An indorser cannot be held liable to a prior delay.
indorser. Exception: • Therefore, not being fault, he is not liable for the
• Irregular Indorser will not be liable to the costs and interests subsequently accrued by
accommodated party although from the such delay. (He is still liable for the amount due
order in which he indorsed, the latter though)
appears subsequent to the former.
To the holder: Where presentment required by terms of the
• As far as the holder is concerned, he can go
against any indorser in any order. • Presentment for Payment is still not necessary
to charge the Maker or Drawer even if the terms
Notes: of the instrument require it.
• Joint indorsers are liable joint and severally. • The failure to make the presentment would not
Their liability being solidary, a notice of dishonor put him in default notwithstanding that the
given to one of them will suffice to hold all the instrument is overdue and unpaid.
joint indorsers liable on the instrument.
Effects where presentment NOT made:
Liability of an Agent or Broker: (Sec. 69 NIL) • If the instrument is not presented to the person
This section refers to an instrument payable to bearer primarily liable, the Drawer and the Indorsers
and negotiated by mere delivery by an agent or are discharged from their secondary liability
broker. unless such presentment is excused or
• He is personally liable in the manner of an discharged with.
indorser who negotiated the instrument by mere
delivery if he did not disclosed the name of the Presentment where instrument is not payable on
principal and the fact that he is only an agent. demand; and where payable on demand:
(Sec. 71 NIL)
Liabilities of an Accommodation Party: (Sec. 29 NIL) Instrument is not payable on demand. (Payable at a
See P.7 of this Memory Aid. fixed or at a determinable future time) – Presentment
--------------------------------------------------------------------------- must be made on the day it falls due; otherwise, the
Chapter VI – PRESENTMENT FOR PAYMENT Drawer and Indorsers will be discharged from liability.
• Presentment made before maturity is not
Presentment for payment – is the presentation of the effective.
instrument to the person primarily liable for the purpose
of demanding and receiving payment. Instrument payable on demand:
• The instrument must be exhibited to the person • PN – presentment for payment must be made to
whom payment is demanded, and when it is the Maker within a reasonable time after its
paid, the instrument must be delivered to the issue.
party paying it. (Sec. 74 NIL) • BofE – presentment for payment to the Drawee
or Acceptor must be made within a reasonable
time after the last negotiation thereof.
Effect of want of demand on principal debtor: • Last negotiation means the last transfer for
(Sec. 70 NIL) value.
Presentment for payment NOT NECESSARY:
• It is not necessary in order to charge the person What constitutes SUFFICIENT presentment:
primarily liable (Maker or Acceptor) on the (Sec. 72 NIL)
instrument. Presentment for payment, to be sufficient, must be
• By WHO – by the Holder, or by some person 2. Partners – presentment for payment may be
authorized to receive payment on his behalf; made to any one of them, even though there has
• When – at a reasonable hour on a business been dissolution of the firm. (Sec. 77 NIL)
day; 3. Joint Debtors – presentment must be made to
• Where – at a proper place as herein defined; them all. (Sec. 78 NIL)
• To Whom – to the person primarily liable on the
instrument, or if he is absent or inaccessible, to
any person found at the place where • If there is a place specified in the instrument,
presentment is made. presentment should be made at such place.

Notes: Presentment NOT required to charge the ff:

Instances where in spite lack of presentment, a party
• If the presentment for payment does not comply
secondarily liable is still not discharged from liability.
with any of the requisites provided in this
Drawer: (Sec. 79 NIL)
section, the effect is the same as if no
presentment is made. • Thus, presentment is not required to charged
the Drawer if:
• Consequently, the persons secondarily liable are
discharged. • He has no right to expect – he has no
funds with the drawee.
Place of presentment: (Sec. 73 NIL) • Drawer and Drawee is same person.
Place of presentment is made at a proper place: Indorser: (Sec. 80 NIL)
a. The place for payment is specified – it is there • Thus, presentment is not required to charged
presented as stated. the Indorser if:
b. If no place is specified – the given address of • He is an indorser for whose
the person to make payment in the instrument. accommodation an instrument is made
c. If no given address of the person to make or accepted – the accommodated
payment – the usual place of business of the payee-indorser is the real debtor and
person to make payment. not the maker or acceptor.
d. If presentment cannot be made at any other
place – his last known place of business or When delay in making presentment is EXCUSED:
residence, or a place wherever he can be found. (Sec. 81 NIL)
Delay in MAKING presentment for payment is
Notes: excused when: CI
• The proper place of presentment should be i. The delay is caused by circumstances beyond
applied in the order of the enumeration from (a) the control of the holder;
to (d). ii. The delay is not imputable to his default,
misconduct or negligence.
Presentment where instrument payable at BANK:
(Sec. 75 NIL) Notes:
Must be made during Banking hours: • Only the delay in making presentment is
• Banks does not make payment outside of excused and not the making of the presentment
banking hours – persons who are secondary itself.
liable will be discharged. • Circumstances beyond the control of the holder
Any time during the day: – are events which could not be foreseen, or
• Presentment at any hour before the bank is which, though foreseen are inevitable.
closed is sufficient to hold persons secondary • When the cause of delay ceases to operate,
liable. presentment must be made with reasonable
Before close of Banking hours: diligence.
• The person to make payment has until the close
of banking hours of the bank where the When presentment for payment is EXCUSED:
instrument is made payable in which to pay it. (Sec. 82 NIL)
Presentment for payment is excused where: EFW
i. After the exercise of reasonable diligence,
presentment cannot be made;
No place of payment is specified, and: ii. The drawee is a fictitious person;
1. Principal debtor is dead – presentment for iii. By waiver of presentment; expressed or implied.
payment must be made to his personal Notes:
representative (if he can be found with the • Reasonable diligence implies active search.
exercise of reasonable diligence). (Sec. 76 NIL)
Dishonored by non-payment: (Sec. 83 NIL)

The instrument is dishonored by non-payment Rule where instrument payable at bank: (Sec 87 NIL)
when: Where the instrument is payable at a bank it is
a. It is duly presented for payment but payment is equivalent to an order to the bank to pay the same for
refused or cannot be obtained. the account of the principal debtor thereon.
b. Presentment is excused and the instrument is
overdue and unpaid. Notes:
• This section applies only where the instrument is
Notes: payable at a particular named bank. (ex. PNB)
• An instrument is dishonored by non-payment a • A note made payable at “any bank in Manila” will
long as it is not paid even if the primary party not suffice authority to pay the note even if the
may be willing to pay. maker has a deposit on any banks in Manila.

Effect of dishonor by non-payment: (Sec. 84 NIL) Payment in due course: (Sec. 88 NIL)
• An immediate right of recourse to all parties Payment is made in due course when it is made at or
secondarily liable thereon accrues to the holder. after the maturity of the instrument to the holder thereof
Notes: in good faith and without notice that his title is defective.
• The immediate right of recourse against • See example. P. 202 – De Leon.
secondary parties will accrue only after the • PIDC discharges the instrument.
giving of due notice of dishonor to them.
Time of Maturity: (Sec. 83 NIL) ---------------------------------------------------------------------------
When the day of maturity falls upon: Chapter VII – NOTICE OF DISHONOR
Timed Instrument:
i. Sunday or Holiday – the instrument is payable To WHOM notice of dishonor be given: (Sec. 89 NIL)
on the next succeeding day. When a NI has been dishonored by non-acceptance or
ii. Saturday – the instrument is payable on the non-payment, the notice of dishonor must be given to
next succeeding day, that is Monday. If Monday the:
is a holiday, then it is Tuesday. • Drawer; and
On Demand: • To each Indorser
• It may be presented before 12:00 o’clock noon Any Drawer or Indorser to whom such notice is not
on Saturday or on Monday, at the option of the given is discharged.
When instrument considered to be dishonored:
Notes: a. If it is not accepted when presented for
• The instrument is payable at the time fixed acceptance;
herein without grace. b. If it is not paid when presented for payment at
• If grace is provided in the instrument, the maturity; or
instrument is payable on the last date of c. If presentment is excused or waived and the
grace. instrument is past due and unpaid.
• See example. P. 199 and 200 – De Leon.
Object of notice of dishonor:
Computation of time of Maturity: (Sec. 86 NIL) i. To inform the parties secondarily liable that the
Where the instrument is payable at a fixed period maker or acceptor has failed to meet his
after date, after sight, or after the happening of a engagement; and
specified event: ii. To advise such parties that they will be required
• The time of payment is determined by excluding to make payment.
the day from which time is to begin to run, and Notes:
by including the date of payment. • Although the indorser to whom notice is not
given is discharged, he is still liable for breach
Examples: of warranties pertaining to the instrument.
• Instrument dated April 5, 2009, payable after
three months after date – due date is July 5,
• Instrument dated Nov. 8, 2008, payable after
twelve months – due date is Nov. 8, 2009 and
not Nov. 9, 2009.
• Instrument payable ten days after Oct. 11, 2009 As a general rule, failure to give a notice of dishonor to
– due date is Oct. 21, 2009. By counting or the Drawer or Indorsers will discharge them from any
adding ten days from Oct. 11, 2009, the last of liability on the instrument.
the ten days is Oct. 21, 2009. Exceptions:
1. When there is a waiver of notice of dishonor
under Sec. 109.
• Notice of dishonor may be waived • See example. P. 125 – Abad.
 Before the time of notice has By WHOM notice of dishonor be given: (Sec. 90 NIL)
arrived; or Under this section, the notice may be given:
 After the omission to give due 1. By the holder;
notice. 2. By a party to the instrument who might be
Waiver may be expressed or implied. compelled to pay it and who has a right of
2. When notice of dishonor is dispensed with under reimbursement from the party to whom notice is
Sec. 112. given; and
3. By an agent in behalf of (1) or (2).
• Notice of dishonor is dispensed with
See example. P. 110 – Abad.
 After the exercise of reasonable ---------------------------------------------------------------------------
diligence, it cannot be given to Chapter VIII – DISCHARGE OF N.I.
or does not reach the parties
sought to be charged. Instrument; How discharged: (Sec. 119 NIL) DAC/DH
3. When notice of dishonor need not be given to i. Payment in due course by or on behalf of
the Drawer under Sec. 114. (SF/PRC) principal Debtor.
• Notice of dishonor is not required to be • Payment must be made by the Principal
given to the Drawer in either of the ff. Debtor at or after the maturity of the
cases: instrument.
i. Drawer and drawee are the • Payment by a party secondarily liable
same person; will not discharge the instrument
ii. Drawee is a fictitious person or because he will just step into the shoes
a person not having capacity to of the holder and acquire the right to
contract; demand payment from the principal
iii. Drawer is the person to whom debtor.
the instrument is presented for • Payment before its maturity will not
payment; discharge the instrument because the
iv. Drawer has no right to expect or instrument can be re-negotiated.
require that the drawee or ii. Payment in due course by the party
acceptor will honor the Accommodated where party is
instrument; made/accepted for accommodation.
v. Drawer has countermanded • The accommodated party is actually the
payment. principal debtor; hence, payment by the
4. When notice of dishonor need not be given to accommodated party will discharge the
the Indorsers under Sec. 115. (FPA) instrument.
• Notice of dishonor is not required to be iii. Intentional Cancellation by holder.
given to the Indorser in either of the ff. • It must be intentional and not made by
cases: mistake.
i. Drawee is a fictitious person or • The holder in so doing clearly
not having the capacity to renounces his rights as creditor in the
contract, and the Indorser was instrument.
aware of that fact at the time he • In the same manner, renunciation by the
indorsed the instrument; holder pursuant to Sec. 122 NIL may
ii. Indorser is the person to whom discharge an instrument.
the instrument is presented for • Cancellation may be done by writing the
payment; word “cancelled” or “paid” on the face of
iii. The instrument was made or the instrument.
accepted for his • There is also cancellation when the
accommodation. instrument is torn up, burned or
5. When the due notice of dishonor by non- mutilated.
acceptance has previously been given, a
subsequent notice of dishonor by non-payment
need not be given under Sec. 116.
• See example. P. 124 – Abad. iv. Any other act which Discharges a simple
6. When omission to give a notice of dishonor by contract for payment of money.
non-acceptance does not prejudice the rights of • Obligations are extinguished by:
a HIDC subsequent to the omission under Sec. PLCC/CN
117. • Payment or performance;
• Loss of the thing due; of a right of recourse against the party
• Condonation or remission of discharged by the holder.
debt; • This subsection applies only to
discharge by the act of the holder and
• Confusion or merger of the
not to discharges by operation of law.
rights of creditor and debtor;
iv. Valid tender of payment made by prior party.
• Compensation; and
• A valid tender of payment made by a
• Novation.
prior party, if accepted, would result in
• Other causes of extinguishment of the discharge of said party and of all
obligations: ARP parties subsequent to him.
• Annulment; v. Release of Principal Debtor, unless holder’s
• Rescission; right of recourse against the party
• Prescription. secondarily liable is expressly reserved.
v. Principal debtor becomes the Holder of the • The release of the Principal Debtor
instrument at or after the maturity in his own discharges the instrument and all
right. secondary parties.
• When the principal debtor becomes the • However, it would not be the case if the
holder of the instrument in his own right, holder reserved his right of recourse
the instrument is discharged because of against secondary parties.
the merger in his person of the • This reservation of the right of recourse
characters of creditor and debtor. must be express.
• “In his own right” means not in a vi. Any Agreement binding upon holder to
representative capacity. extend time of payment, or to postpone the
• The reacquisition must be “at or after holder’s right to enforce the instrument,
maturity date” otherwise no discharge unless made with the assent of the party
will be effected because the debtor on secondarily liable, or unless the right of
reacquiring the instrument can re- recourse against such party is expressly
negotiate the same. reserved.
• The agreement to extend the time of
Effects of Sec. 119: payment does not discharge the a party
• Primarily liable persons and the instrument are secondarily liable:
discharged. a. Where the extension of time is
• Discharge – is the release of all parties, consented to by such party; and
whether primary or secondary, from the b. Where the holder expressly
obligations of the instrument; renders the reserves his right of recourse
instrument non-negotiable. against such party.

When persons secondarily liable on the instrument Right of party who discharges instrument:
are discharged: (Sec. 120 NIL) ACD/VRA (Sec. 121 NIL)
i. Any Act which discharges the instrument. Payment made by a party secondarily liable will not
discharge the instrument. The party so paying will have
• Any acts which discharges an the following status and rights:
instrument under Sec. 119 NIL also a. He will be remitted to his former rights as regard
discharges the primarily and secondarily all prior parties;
liable parties. b. He may strike out his own and all subsequent
• But a discharge of a secondary party indorsements; and
does not effect a discharge of the c. He may again negotiate the instrument.
instrument itself.
ii. Intentional Cancellation of signature by the Exceptions to the right to negotiate:
holder. a. Where a BofE payable to the order of a third
• If the holder intentionally strikes out the person is paid by the drawer upon maturity of
signature of a person secondarily liable, the instrument.
the effect is to discharge him from b. Where the instrument is paid on due date by the
liability on the instrument as if he has accommodated party. Having been paid by the
never been a party to the same. Principal Debtor, the instrument is discharged.

See examples. P. 132 – Abad.

iii. Discharge of prior party. Renunciation by holder: (Sec. 122 NIL)
• The reason for the rule is that the The holder may expressly renounce his rights against
discharge deprives a subsequent party any party to the instrument before, at, or after its
• The express renunciation by the holder b. The sum payable, either for principal or interest;
must be absolute and unconditional. c. The time or place of placement;
• The renunciation in favor of the Principal d. The number or the relations of the parties;
Debtor at or after the maturity of the e. The medium or currency in which payment is to
instrument discharges the instrument. be made; or which adds a place where no place
• Persons secondarily liable are likewise of payment is specified; or any other change or
discharged from liability. addition which alters the effect of the instrument
• A renunciation must be in writing in any respect.
unless delivered personally to the
person primarily liable thereon. See examples. P. 135 – Abad.
However, renunciation cannot affect the rights of a HIDC Chapter X – ACCEPTANCE
without notice.
How is acceptance MADE: (Sec. 132 NIL)
When cancellation INOPERATIVE: (Sec. 123 NIL) Acceptance of a bill is the signification by the drawee of
Cancellation is inoperative if made: UMW his assent to the order of the drawer.
a. Unintentionally; • Acceptance must be: WSP
b. By mistake or through fraud; and a. In writing;
c. Without authority of the holder. b. Signed by the Drawee; and
c. Must contain an express or implied
Cancellation is presumed to be intentional; hence, the promise to pay money.
burden is on the holder claiming its ineffectiveness to
overcome the presumption by contrary evidence. Any equivalent word or expression such as “honored,”
“seen,” “good,” “I would pay” or the signature of the
Notes: Drawee alone is valid as acceptance.
• Cancellation may be of the instrument itself or
a mere signature thereof. Holder entitled to acceptance on face of bill:
• Cancellation may be made by crossing, tearing, (Sec. 133 NIL)
Holder of a bill may require that the acceptance be
erasing, and burning or by any other means
written on the bill, if request refused, may treat the bill as
which obliterates the signature or destroys the
Types of Acceptance:
Effect of alteration of instrument: (Sec. 124 NIL)
Where a NI is materially altered without the assent of all
1. Extrinsic acceptance: (Sec. 134 NIL)
parties liable thereon, it is rendered void.
• Acceptance on a separate instrument.
• However, it does not discharge the instrument
as against: • Acceptance is written on a paper other than the
a. The party who made the alteration; bill itself (Bill is existing).
b. The party who authorized or assented
to the alteration; and In order to bind the Acceptor, it is required that:
c. Indorsers who indorsed subsequent to a. The acceptance be shown to the person to
the alteration. whom the instrument is negotiated; and
b. Such person must take the bill for value on the
Effects to a HIDC not a party to the alteration: faith of such acceptance.
• He may enforce payment according to its
original tenor. 2. Virtual acceptance: (Sec. 135 NIL)
• A promise to accept a future non-existing bill.
• The promise must be unconditional
and in writing.
• Deemed an actual acceptance in favor
of every person who, upon the faith
thereof, receives the bill for value.

See examples. P. 147 – Abad.

What constitutes a MATERIAL ALTERATION: 3. Constructive acceptance: (Sec. 137 NIL)

(Sec. 125 NIL) • There is Constructive acceptance where:
Any alteration which changes: DSTN/CAC
i. The drawee destroys the bill when it is
a. The date; presented to him for acceptance;
ii. After the bill is delivered to the drawee ii. Partial. To pay part only of the amount
for acceptance, he refuses to return for which the bill is drawn;
the same within 24 hours or within iii. Local. To pay only at a particular place;
such period of time as the holder may iv. Qualified as to time;
have allowed. v. Acceptance of some, one or more of
the Drawees but not all.
In all of the above instances, the Drawee is deemed to
have accepted the bill. See examples. P. 151 – Abad and P. 259 – De Leon.
• An accidental destruction would not constitute
acceptance. It must willfully done. Rights to parties as to Qualified acceptance:
(Sec. 142 NIL)
Time allowed Drawee to accept: (Sec. 136 NIL) The holder may refuse to take a qualified acceptance, if
he cannot obtain a general acceptance; the holder may
The drawee is allowed 24 hours after presentment to treat the bill as dishonored by non-acceptance.
decide whether or not he will accept the bill; the • The holder has the right to have a general
acceptance, if given, dates as of the day of presentation.
• If the holder takes a qualified acceptance, the
See examples. P. 257 – De Leon.
Drawer and the Indorsers are discharged from
liability on the bill, unless they have expressly or
Acceptance of Incomplete bill: (Sec. 138 NIL)
impliedly consented to the qualified acceptance.
Acceptance may be made at any time as follows:
a. Before the bill is signed by the drawer;
b. While the bill is still incomplete; When presentment for acceptance must be made:
c. When the bill is already overdue; and (Sec. 143 NIL)
d. After the bill has been dishonored by non- Presentment for acceptance – is the production of the
acceptance or non-payment. BofE to the Drawee for his acceptance.

If a bill payable after sight is dishonored by non- Presentment for acceptance is required by law in the
acceptance but subsequently accepted by the Drawee, ff. instances: ASE
the holder has the right to have the acceptance dated as a. Bills payable after sight in order to fix the
of the first time the bill was presented for acceptance. maturity of the instrument;
b. Stipulation in the bill that it be presented for
See examples. P. 149 – Abad. acceptance because the parties are bound by it;
c. Bills payable elsewhere than at the residence or
Kinds of Acceptance: place of business of the Drawee. (This is to
allow the Drawee to make arrangements for the
1. General Acceptance: payment of the bill)
• A general acceptance assents without
qualification to the order of the Drawer. In no other case is presentment for acceptance
• An acceptance to pay at a particular place is a necessary in order to render any party to the bill liable.
general acceptance. (Sec. 140 NIL) Hence, presentment for acceptance is not required in the
• But if the acceptance expressly states ff:
that it is payable there only and not a. Bills payable on demand;
elsewhere, it is a qualified acceptance. b. Bills payable at sight;
 Payable at PNB = General c. Bills payable on a fixed date;
 Payable only at PNB = Qualified d. Bills payable several days after date;
e. Bills upon the occurrence of an event; and
2. Qualified Acceptance: f. Bills payable several days after the occurrence
• In express terms varies the effect of the bill as of an event.
In all of the foregoing, what is necessary is merely a
presentment for payment on due date.

Failure to make a presentment for acceptance when

required will discharge parties secondarily liable on the
• Kinds of Qualified Acceptance: CPL/QA instrument.
i. Conditional. Payment by the acceptor When failure to present releases Drawer and
Indorser: (Sec. 144 NIL)
dependent on the fulfillment of a
All bills required by law to be presented for acceptance
condition therein stated;
must be:
a. Presented for acceptance; or bill for acceptance at a place other than the place where
b. Negotiated within a reasonable time after its the bill is drawn payable.
It is possible that the holder is situated at a place which
Otherwise, the Drawer and the Indorsers will be is very far from the residence or place of business of the
discharged from liability thereon. Drawee such that the distance between them would
make it impossible for him to make a presentment for
Presentment; how made: (Sec. 145 NIL) acceptance and a presentment for payment on due date
without delay.
• By WHO – by the Holder, or any person dult
authorized by him; In this case, the delay will not discharge the Drawer
and the Indorsers from liability on the instrument.
• When – at a reasonable hour on a business day
and before the bill is overdue and within a
See examples P. 266 – De Leon and P. 157 – Abad.
reasonable time;
• To Whom – to the Drawee or any person duly Where presentment is EXCUSED: (Sec. 148 NIL)
authorized by him. Presentment for acceptance is excused in the ff. cases:
a. Where a bill is addressed to two or more Drawees a. Where the Drawee is dead;
who are not partners:
b. Where the Drawee is fictitious;
• Presentment for acceptance must be made to all c. Where the Drawee has absconded;
of them unless one has the authority to accept
or refuse acceptance for all, in which case d. Where a person has no capacity to contract;
presentment may be made to him only. e. Where, after the exercise of reasonable
 The refusal by one of them to accept will diligence, presentment cannot be made; and
not constitute a dishonor of the f. Where an improper presentment is made.
instrument until all of them shall have
refused. The acceptance by one or In all of the above cases, the holder may treat the bill as
more of them but not by all of them will dishonored by non-acceptance.
only constitute a qualified acceptance of
the instrument. When dishonored by non-acceptance: (Sec. 149 NIL)
The holder may treat the bill as dishonored by non-
b. Where the Drawee is dead: acceptance in the ff. cases: RPEQ/WO
• Presentment is excused. a. When acceptance is refused by the Drawee;
• Although not necessary, presentment may be b. When acceptance cannot be obtained by the
made to his personal representative. holder within the period prescribed by law;
c. When presentment is excused;
c. Where the Drawee has been adjudged a bankrupt d. Where the Drawee makes a qualified
or an insolvent or has made an assignment for the acceptance;
benefit of creditors: e. Where the Drawee refuses to write his
• Presentment is not excused. acceptance on the face of the bill; and
• Presentment may be made either to the Drawee f. When the Drawee performs his promise by any
himself or to his trustee or assignee. other means than the payment of money.

On what days presentment may be made: Duty of holder where bill not accepted:
(Sec. 146 NIL) (Sec. 150 NIL)
Under Sec. 85, only bills payable on demand may be When acceptance is refused or cannot be obtained, it is
presented for payment before 12 o’clock noon on a the duty of the holder to treat the bill as dishonored.
working Saturday. • He must within the time prescribed give a notice
of dishonor, or protest when required, to the
Under Sec. 146, in presentment for acceptance, all Drawer and Indorsers; otherwise, they will be
kinds of bills without distinction may be presented discharged from liability.
before 12 o’clock noon on a Saturday when such day is • When a bill is dishonored by non-acceptance, an
not otherwise a holiday. immediate right of recourse against the
Drawer and Indorsers accrues to the holder and
no presentment for payment is necessary.
(Sec. 151 NIL)
Presentment where time is insufficient:
(Sec. 147 NIL)
This section excuses delay in making presentment for
payment when such delay is caused by presenting the