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Defenses
Grounds or reasons pleaded or offered by the defendant in a case, showing why the plaintiff,
as a matter of law or fact, should not be given the relief he seeks.

Kinds of defenses
1. Real defense – is one that attaches to the instrument itself; one that can be set up against any holder
including a holder in due course (i.e. forgery, incomplete and undelivered instruments, material
alteration).

2. Personal defense – is one that can be set up only between immediate parties or remote parties in
privity with them (i.e. want of consideration, complete but undelivered instrument, incomplete but
delivered instrument).

144

1. The instrument is negotiable;

2. He became the holder by negotiation;
3. He is a holder in due course, or that he acquired the instrument from a holder in due
course; the maker’s or drawer’s defense is only a personal defense.

145

1

REAL DEFENSES
Incapacity as far as the incapacitated person is
concerned (see Article 1327, Civil Code);
Illegality of Contract when declared by law Filling up of blanks not in accordance with the
except where the maker or drawer is himself a authority given and within reasonable time
party to its illegality;
Want of delivery of incomplete instrument
(Section 15);
Forgery (Section 23);
Want of authority, apparent and real.
146
REAL DEFENSES
Duress amounting to forgery;
Fraud in factum or fraud in esse
contractus;
Fraudulent alteration by holder;
Prescription;
Other infirmities appearing on the face
of the instrument;
Discharge at or after maturity.
147
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PERSONAL DEFENSES
Filling of wrong date (Section 13);
(Section 14);
Want of delivery of complete instrument
(Section 16);
Absence or failure of consideration
(Section 28);
Simple fraud or fraud in inducement
(Section 55).
PERSONAL DEFENSES
Acquisition of instrument (not
signature) by duress, or force and fear;
Acquisition of instrument by unlawful
means;
Acquisition of instrument for an illegal
consideration;
Negotiation in breach of faith;
Negotiation under circumstances that
amount to fraud;
Innocent alteration or spoliation.
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PERSONAL DEFENSES
Set-off between immediate parties;

Discharge by payment or renunciation or

release before maturity;
Discharge of party secondarily liable by
discharge of prior party;

Want of authority of the agent who has

apparent authority.

148

Two kinds of fraud

relating to negotiable instrument
1. Fraud in the execution or fraud in factum
• It exists in those cases in which a person, without negligence, has signed an instrument which
was, in fact, a negotiable instrument, but was deceived as to the character of the instrument and
without knowledge of it, as where a note was signed by one under the belief that he was signing
as a witness to a deed, or where the signature was procured by fraudulent use of carbon paper.
• This kind of fraud is a real defense because there is no contract. It implies that the person did not
know what he was signing

149

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2. Fraud inducement or simple fraud

• It is that which relates to the quality, quantity, value, or character of the consideration of the
instrument. It implies that the signer knew what he was signing but that he was induced by fraud
to sign.

150

Rights of holder not in due course

1. He may sue on the instrument in his own name (Section 51);
2. He may receive payment and if the payment is in due course, the instrument is
discharged;
3. He is entitled to the instrument but holds it subject to the same defenses as if it
were non-negotiable (Section 58);
4. 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 affect

151

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1. Rights of a mere transferee

If a person is not a holder in due course, his rights are those of a transferee of a
non-negotiable instrument so that he is not free from personal defenses.

2. Rights of transferee from a holder in due course

Section 58 provides this exception: a holder who derives his title from a holder in
due course can still enjoy the special rights of the latter even though he himself is a
mere transferee. Such holder is called a holder through a holder in due course.

152

When holder presumed a holder in due course

1.Proof of being a holder
•Once the person through whose hands an instrument has passed shows that he is a holder, the
presumption accrues in his favor. He does not have to prove that he satisfies the requirements of a
holder in due course under Section 52.

2.Burden of proof on holder where indorser’s title defective

•When it is shown that the title of any person who has negotiated the instrument was defective, as
when the instrument is not payable to him or to bearer (De Ocampo v. Gatchalian, 3 SCRA 596),
then the burden of proof shifts to the holder who must show that he is a holder in due
course or that he acquired his title from a holder in due course although he is not himself a holder
in due course.

153

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When holder presumed a holder in due course

3. Exception
• The law, however, establishes an exception to the second mentioned rule, i.e.,
the holder has no burden of proving that he is a holder in due course in favor
of a party who became bound on the instrument prior to the acquisition of
such defective title. In other words, in this case, we revert to the presumption
that the holder is a holder in due course.

154

155

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By executing a note, a maker warrants that the payee as named in the instrument
exists.

He cannot therefore deny his liability on the ground that no such payee in fact exists.

He also represents that the payee has the capacity to indorse, thus, he is precluded
from setting up the defense of minority or insanity of the payee or ultra-vires acts of a
corporation; the maker is primarily liable on the instrument.

156

Liability of the maker

The maker is primarily and unconditionally liable as his liability is not
conditioned on presentment to any other party for payment or otherwise.

Even where a note was made payable “to the order of myself,” and was
indorsed by the maker, such indorsement did not change his obligation from
that of a maker to one of an indorser and thus, he is still primarily and
unconditionally liable on the note.

157

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Primary party and secondary party distinguished

PRIMARY PARTY SECONDARY PARTY

Unconditionally bound; Conditionally bound;
Being unconditionally bound, primary Secondary party undertakes to pay the
party is absolutely required to pay the instrument only after certain conditions
instrument upon its maturity; have been fulfilled;
The liability of all secondary parties to an
instrument ends when the primary party
pays the full amount of the instrument
to the proper party.
158

Liability of maker
(1) Liability of maker unconditional
• The maker is undoubtedly a party primarily liable as he is the one to whom the holder will look first for
payment and the one who is expected to pay.
(a) He engages to pay the note according to its terms, subject to no condition whatsoever. He
promises to pay not only to the payee but to any subsequent holder who is legally entitled to the
instrument at its maturity date even if the holder does not demand payment at that time.
(b) He remains fully liable despite the fact that the instrument is presented for payment late unless
prescription has run.
(c) Due presentment for payment (Section 70), and due notice of dishonor (Section 89) are not
necessary for the purpose of charging the maker with liability, which is necessary, however, to fix
the liability of any drawer or indorser.

159

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(2) Admissions of maker

• The maker admits the existence of the payee and his then capacity (at the time of
signing the note) to endorse.
• This rule operates to prevent the maker from escaping liability by showing the
non-existence and incapacity of the payee.
(a) The payee must exist because there is no negotiable instrument until it is delivered
to him.
(b) The payee must have the capacity to contract because the note is intended to be
negotiated and not to be retained with the payee.

160

(3) Presumption arising from signature

• A person placing his name on the face of a note is prima facie a maker and liable
as such. He is presumed to have acted with care and to have signed the
instrument in question with full knowledge of its contents.

161

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Liability of the drawer

• He is secondarily liable.
• He does not engage to pay the bill absolutely.
• He engages merely that the bill will be accepted or paid or both, according to
its tenor.
• He is liable to pay only when:
1. the bill is presented for acceptance or payment to the drawee;
2. the bill is dishonored by non-acceptance or non;
3. the necessary proceedings on dishonor were duly taken.

162

Liability of the drawer

To whom secondarily liable?
To the holder and to indorsers who are compelled to pay.

Is the drawer of an accepted bill primarily liable?

Strictly speaking, no. Section 192 defines a person primarily liable as one
who by the terms of the instrument is absolutely required to pay the same. A
drawer is not absolutely required to pay.

163

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Distinctions between a drawer and a maker

Drawer Maker
issues a bill of exchange; issues a promissory note;
secondarily liable; primarily liable;
can negative or limit his liability. may not do so.

164

Liability of the drawee

• The drawee is not liable on the bill unless and until he accepts the same (Section 127),
and in case of a check, the drawee bank is not liable to the holder, unless and until it
accepts or certifies the check (Section 189).

• The drawee's liability therefore, begins with his acceptance and until then he is not
liable to the holder of the paper, and if it has been countermanded before acceptance,
the drawee is obliged to refuse to accept or pay it. The drawer, however, may hold the
drawee liable for not honoring the bill or check pursuant to their contract, express, or
implied.

165

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• The acceptor is primarily liable. He is in virtually the same position as the maker of a
note.
• He engages to pay absolutely according to the tenor of his acceptance. The liability is not
subject to any condition.
• The drawee by his acceptance places a legal liability on him for the payment of the bill in
favor of one who became a holder thereof after acceptance.
• The tenor of the bill is not necessarily the tenor of his acceptance, because the acceptor
may make qualifications. But if he accepts the bill without qualifications (or when his
acceptance is general), the tenor of the bill necessarily becomes the tenor of his
acceptance.

166

Effects of acceptor’s admissions

He is precluded from setting He cannot claim that the He cannot escape liability by
up the defense that the drawer’s signature is a forgery alleging want of consideration
drawer is non-existent or because he admits the between him and the drawer, as by
fictitious because he admits genuineness of the drawer’s accepting the bill he admits the
the existence of the drawer. signature. capacity and authority of the
drawer to draw the bill.
Note:
• In the absence of any indication in what capacity a person whose signature is written on the instrument intends it to
be, he shall be deemed an indorser.
• He cannot later on show by parol evidence that he signed merely as an agent for a prior party. The intent to be
bound in some other capacity than as an indorser must be indicated in the indorsement or on the face of the
instrument.

167

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When a person is deemed an 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 the appropriate words his intention to be
bound in some other capacity (Section 63).

• 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 to be deemed as indorser (Section 17[f]).

• When the person who signed the instrument has clearly indicated by appropriate words his
intention to be bound in some other capacity, he shall not be deemed an indorser even if he did
not sign as maker, drawer or acceptor (Section 63).

168

Irregular indorser
• An "irregular indorser” also referred to an "anomalous indorser," is one
who indorses for some purpose other than to transfer the instrument.

• He is called an irregular or anomalous indorser because he indorses the

instrument in an unusual or peculiar manner – his name appears where
we would expect another name (Ogden, pp. 226-229).

• Usually, this is an accommodation indorser. The purpose of the

indorsement is usually to add the signer’s credit to the instrument.
169

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Liabilities of irregular indorser

• Section 64 provides only for the parties to whom an irregular indorser is liable.
a) If the instrument is payable to the order of a third person, he is liable to the payee and to
all subsequent parties.
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.
c) If he signs for the accommodation of the payee, he is liable to all parties subsequent to the
payee.

• His warranties are the same as those of a general indorser under Section 66 inasmuch as his
indorsement is in blank which, in itself, is an indorsement without qualification.

170

Negotiation by delivery or qualified indorsement

• Negotiation by delivery – refer to a holder who negotiates the instrument
in the same condition in which he received it, making no indorsement at all.
So a blank indorser of an instrument does not negotiate it “ by delivery”
within this section.

• Qualified indorsement – it is made by adding to the indorser’s signature

the words, “without recourse” or any words of similar import (Section 38).

171

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Warranty where negotiation by

delivery or qualified indorsement
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.

172

Example for “genuineness”

“A” forged the signature of “X” as maker in a note payable to “A” or order.
“A” negotiated it to “B” by indorsement in blank completed by delivery.
“B” in turn delivered the instrument to “C”. “X” refused to pay “C” on the
ground that his signature was forged. In such case, “C” can hold “B” who
negotiated the instrument by delivery liable because the latter warrants
that the instrument is genuine and in all respects what it purports to be
(Section 65[a]).

173

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“That he has a good title to it”

This warranty is violated when the person negotiating the instrument
does not have valid title to the instrument such as when the instrument
was merely stolen.

174

”That all prior parties had capacity to contract”

The person negotiating an instrument warrants that the antecedent
parties are legally capable of binding themselves in the capacities in which
they have signed, and this warranty is applicable whether the instrument
is negotiated by delivery or by a qualified or unqualified (general)
indorsement.

175

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“That he had no knowledge of any fact which would

impair the validity of the instrument or render it
valueless”
This warranty arises only when the person negotiating by delivery or qualified
indorser has such knowledge of fact that impairs the validity of the instrument or
renders it valueless and fraudulently conceals or withholds the same from the
transferee.

176

Liability of general indorser

• The liability of the general indorser is similar to the liability of the qualified
indorser and a person negotiating by delivery.
• As regards to the fourth warranty, however, the similarity ends.
• If the instrument turns out to be invalid, the unqualified indorser is liable
because of the fourth warranty but the qualified indorser is not liable unless he
was aware of the cause of the invalidity (Ang Tiong v. Lorenzo Ting).

177

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Conditions precedent to make indorser liable

1. There is due presentment for payment or acceptance, as the case may be; and
2. The necessary proceedings on dishonor must be duly taken in case the
instrument is dishonored.

178

Distinctions between a general indorser and an

irregular indorser
General indorser Irregular indorser
makes either a blank or special indorsement; always makes a blank indorsement;

indorses the instrument after its delivery to

indorses before its delivery to the payee;
the payee;
liable to the payee and subsequent parties
unless he signs for the accommodation of the
liable to only to parties subsequent to him.
payee in which case, he is liable only to all
parties subsequent to the payee.

179

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Liability of indorser where paper negotiable by

delivery
• An instrument payable to bearer is negotiable by delivery, and the transferor is liable to
the immediate transferee under Section 65. therefore, it is not necessary for the holder
to indorse the instrument if his purpose is just to negotiate the same.

• However, there is nothing to prevent the holder from indorsing the instrument if he
wants to. In such case, the liability of the holder will governed by Section 65 or Section
66, as the case may be.

180

As respects 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. (Section 68)

181

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Order of liability among indorsers

• This section establishes a disputable presumption that every indorser is liable to all indorsers
subsequent to him however, such may be rebutted as it may be shown by parol evidence “as
between and among themselves they have otherwise agreed.”
• An irregular indorser will not be liable to the accommodated party although from the order in
which he indorsed, the latter appears subsequent to the former.
• As to the holder, indorsers are liable in any order and none of them can interpose a defense
against him an agreement among themselves that they are not liable in the order of the
indorsements.
• The liability of joint payees or joint indorsees are therefore, solidary for the entire amount of the
instrument. Consequently, none of them can escape liability just because proper notice of
dishonor was not given to the other. But one who pays may demand reimbursements from the
others.

182

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. (Section 69)

• This refers to instruments which are payable to bearer and are, therefore, negotiable by
delivery.

• The agent or broker who negotiates by mere delivery incurs liabilities prescribed in Section
65; if it be by qualified indorsement, his warranties are also those stated in Section 65, and if
by general indorsement, those stated in Section 66.

183

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Effect of want of demand on the 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. (Section 70)

184

Presentment for payment to person

primarily liable is not necessary
• Presentment of payment means the presentation of an instrument (i.e. promissory note
or accepted bill) to the person primarily liable for the purpose of demanding and
receiving payment.
• Presentment and demand for payment are not necessary in order to charge the person
primarily liable, that is, the maker or the acceptor since his liability is absolute.
Therefore, the holder can sue the maker or the acceptor, although no demand was
made upon him, as soon as the date for payment has passed without the instrument
being paid.
• Such is true even if the instrument is payable at a special place.

185

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• Moreover, if the instrument is not paid and is overdue, he cannot be considered in

delay and, therefore, not being at fault, he is not liable for costs and interests
subsequently accruing although he is not relieved from making payment of the
amount due.

• Neither is presentment for payment necessary to charge the maker or the acceptor
even if it is required according to the terms of the instrument. Further, the failure to
make the presentment would not put him in default notwithstanding that the
instrument is overdue and unpaid.

• There must be first a demand for payment made upon the person primarily liable by
presenting the instrument to him for payment to enforce secondary liability to the
drawer and the indorsers. Otherwise, such presentment is excused or dispensed with.

186

Date of presentment of instrument

Payable at a fixed or Payable on demand

determinable future time

• Presentment must be made on the date it falls Question: Is it a promissory note or an ordinary bill of
due without a period of grace (Section 85). exchange?

• Otherwise, the drawers and indorsers will be • If a promissory note – within a reasonable time
discharged from liability (Section 70). after issuance of the note.

• Presentment made before maturity is not effective. • If bill of exchange – within a reasonable time after
last negotiation of bill.

187

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• It must be made by the HOLDER, or by some person authorized to receive

payment on his behalf;

• At a REASONABLE HOUR on a business day;

• At a PROPER PLACE as herein defined;

• 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.

188

Failure to comply with the requisites is equivalent to

no presentment is made and consequently, the
person’s secondarily liable are discharged.

189

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a) Specified place of payment;

b) Address of the person to make
payment;
c) Usual place of business or residence
of the person to make payment;
d) Where person to make payment can
be found or at his last known place
of business or residence.

190

Order of enumeration
• If subsection (a) can be applied, presentment made in any
other place under subsection (b) to (d) will be improper,
and therefore, will not come under Section 72 (c). Likewise,
subsection (c) should be made applicable only if
subsections (a) and (b) cannot be applied.

• Subsection (d) is applicable only if presentment cannot be

made at any other place.

191

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•Presentment refers to the act of the holder of a negotiable

instrument of exhibiting a note to the maker and demanding
payment, or showing a bill to the drawee and requesting its
acceptance or payment.

•A valid presentment consists of something more than a mere

demand. It requires personal or face to face demand at the
proper place, exhibiting the instrument to the maker or
acceptor from whom payment is demanded.

192

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. (Section 74)

193

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1. To enable the debtor to determine the genuineness of the instrument and the
indorsements and the right of the holder to receive payment.

2. To enable the party liable, upon payment, to take possession of the instrument
to guard against a lawsuit by a subsequent holder and to use such instrument as
a voucher or receipt in settlement of accounts with the drawer.

194

Presentment without exhibition

• The presentment would be ineffectual as the debtor is entitled to see the instrument and
demand its surrender upon payment (Robinson v. Lancaster Co., 138 Atl. 58), unless the
maker or drawee does not require its exhibition but refuses to pay it on some other
ground.
• Demand by telephone is not sufficient because exhibition of the instrument is not
possible.

195

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The instrument, however, need not actually be exhibited unless such

exhibition 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.

196

Presentment where instrument is payable at a bank

Where an an instrument is payable at a bank, it is equivalent
to an order to the bank to make payment, for the account of
the principal debtor (Section 87).

197

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During banking hours

• If the instrument is payable at a bank and the person
is to make payment has funds in the bank to meet it
on the day of maturity, presentment must be made
during banking hours.

• Presentment made outside banking hours is not

sufficient inasmuch as banks do not make payment
outside of banking hours. Persons secondarily liable
will be discharged.

198

Anytime during the day

• If the person to make payment has no funds in the
bank to meet the payment anytime during the day,
presentment at any hour before the bank is closed
is sufficient to hold the persons secondarily liable.

• The reason is that even if presentment was made

during banking hours, the instrument could not
have been paid just the same.

199

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Before closing of banking hours

• The person to make payment has until the close of banking hours of the bank where the
instrument is made payable in which to pay it.

• If before the close of such hours he deposits fund to the bank enough to pay the instrument, a
demand earlier in the day is premature. Hence, the instrument is not considered dishonored
through payment has been refused earlier in the day (German-American Bank v. Millimen, 31
Miss 87, 65 N.Y. Supp. 242).

200

Presentment where principal debtor is dead

• If the principal debtor is dead, presentment for payment may be made to his
executor or administrator if there be one and can be found.

• Presentment may be dispensed with if with the exercise of reasonable diligence

no personal representative can be found, (see Section 82[a]). However, the
holder is not excused from giving notice of dishonor to the indorser, if he wishes
to hold the latter liable on the instrument.

201

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Presentment to persons liable as partners

Each partner is an agent of the partnership or of his co-partners and is

presumed to have authority to act for the others. Hence, presentment may
be made to any one of them or to the agent of one of them. A dishonor by
one is a dishonor by all.

202

Presentment to joint debtors

• If the parties primarily liable are not partners, their liability is only joint.

• In a joint obligation, there are as many debts as there are debtors, each debt
being considered distinct and separate from each other (Article 1208, Civil
Code).

• Presentment must be made to all of them to hold the drawer and indorsers on
their secondary liability (Section 17 [g]).

203

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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. (Section 79)

204

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. (Section 80)

205

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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. (Section 81)

206

When presentment may be dispensed with

a) Where after the exercise of reasonable diligence, presentment, as
required by this Act can not be made;
b) Where the drawee is fictitious person;
c) By waiver of presentment, express or implied. (Section 82)

207

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What constitutes reasonable negligence?

“Reasonable diligence implies active search. If practicable, the holder
should make inquiries of the payer when neither the maker nor his
residence could be found.”

208

When instrument dishonored by non-payment.

1. It is duly presented for payment and payment is refused or cannot be
obtained; or
2. Presentment is excused and the instrument is overdue and unpaid.
(Section 83)

209

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Effect when instrument is

dishonored by non-payment
• “An immediate right of recourse to all parties secondarily liable thereon accrues to the
holder.”

• The effects when the instrument is dishonored by non-payment are:

1. “The persons secondarily liable become the principal debtors.”
2. “He (holder) need not proceed against the person primarily liable before suing them.”

• Further, pursuant to Section 89, “the immediate right of recourse against secondary parties
will accrue only after the giving of due notice of dishonor to them.”

210

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 is
payable on the next succeeding business day. 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. (Section 85)

211

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General rule
Every negotiable instrument is payable at the time fixed therein without grace.

Rules of application
DAY OF MATURITY OF THE INSTRUMENT
When the day of maturity falls upon Sunday or a
holiday.
Instruments falling due or becoming payable on
Saturday.
Instruments payable on demand.
DAY OF PAYMENT OR PRESENTMENT
The instrument is payable on the next succeeding
business day.
To be presented for payment on the next succeeding
business day.
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.

212

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.
(Section 86)

213

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Payment is made in due course when it is made at or after the maturity of

the payment to the holder thereof in good faith and without notice that
his title is defective. (Section 88)

214

Payment in due course

Payment in due course – payment in the usual course of business.

How to effect a discharge of an instrument

• To effect a discharge of an instrument, payment should be in money, since
in a negotiable instrument, the promise or order is to pay a sum certain in
money.

215

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Requisites of payment in due course

1. Payment must be made at or after date of maturity;
2. Payment must be made to the holder;
3. Payment must be made in good faith and without notice that the holder’s title is
defective.

Good faith – refers to the maker or accepter not the holder.

216

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. (Section 89)

217

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When a negotiable instrument is considered to be dishonored

A negotiable instrument is considered to be dishonored:
1. If it is not accepted when presented for acceptance;
2. If it is not paid when presented for payment at maturity; or
3. If presentment is excused or waived and the instrument is past due and unpaid.

Notice of dishonor – bringing, either verbally or in writing, to the knowledge of

the drawer or indorser of an instrument, the fact that a specified negotiable
instrument, upon proper proceeding taken, has not been accepted or has not been
paid and that the party notified is expected to pay it.

Protest – notice of dishonor given by a notary public.

218

Purpose of giving a notice of dishonor

The object of giving notice of dishonor is two-fold:
1. To inform the parties secondarily liable that the maker or acceptor, as the case may be, has failed to
meet his engagement; and
2. To advice such parties that they will be required to make payment

Purpose of giving prompt notice of dishonor

To enable the party, whom the holder wishes to charge, to preserve and enforce his rights against prior
parties.

Effect of failure to give notice of dishonor

Any such person to whom such notice is not given is discharged. However, although the indorser to
whom notice is not given is discharged, he is still liable for breach of warranties pertaining to the
instrument.
219

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1. By the holder; or
2. Another in behalf of the holder; or
3. By a party to the instrument who may be compelled to pay for 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;
or
4. Another person in behalf of such party

Notice by a mere stranger is ineffectual unless he is acting as agent of to a party who is entitled to
give notice of dishonor.

220

Effect of notice given by holder

• Notice of dishonor given by or on behalf of the holder inures to the benefit
of:
1. All holders subsequent to the holder who has given notice;
2. All parties prior to the holder but subsequent to the party to whom notice has
been given and against whom they have a right of recourse.

A party can charge a prior party who has received notice of dishonor although he
himself has not given said prior party any notice. The reason for this is that a party
entitled to a notice of dishonor need to be notified only once.

221

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Effect of notice given by party entitled thereto

Notice of dishonor given by or on behalf of the party entitled to give notice
inures to the benefit of:
1. the holder; and
2. all parties subsequent to the party to whom notice is given including
parties subsequent to the holder who gave notice.

222

When and to whom agent may give notice

• Notice to parties secondarily liable – if the agent gives notice directly to the
parties secondarily liable, he must do so within the time fixed by Sections
102,103,104, and 107. Otherwise they are discharged for lack of notice unless the
principal notifies them within the same time.

• Notice to principal – if he chooses to give notice to his principal, he must notify the
latter within the same time referred to as if he were a holder. The principal has also
the same time for giving notice to the parties secondarily liable as if the instrument
was dishonored on the day that he received the notice.

223

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A written notice need not be signed and an insufficient written notice may
be supplemented and validated by verbal communication. A misdescription
of the instrument does not vitiate the notice unless the party to whom the
notice is given is in fact misled thereby. (Section 95)

224

Whether written or oral, the notice must set forth:

1. The identity of the instrument;
2. The fact that it has been dishonored by non-acceptance or non-payment; and
3. A statement that the party giving notice intends to look the party addressed for
payment.

How notice is given

Notice of dishonor may be given:
1. by personal delivery; or
2. by mail.

225

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In what form must notice of dishonor be?

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 (Section 96).

Notice by telephone is sufficient, provided, that it is clearly shown that the party to
be notified was really communicated with, that is fully identified as the party at the
receiving end of line.

226

Person to be given notice

• Party himself, or
• His agent on his behalf.

Note:
• The agent under this section must be authorized.
• It is different from Section 91 because under said section, the giving of notice
benefits the principal, whereas under Section 97, the receipt of notice creates
liability.

227

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Notice where the party is dead must be given to his personal representative provided
that:

1. His death is known to the party giving notice;

2. There is a personal representative; and
3. If with reasonable diligence, the said personal representative could be found.

228

Notice to partners
Where the parties to be notified are partners, notice to any one partner is
notice to the firm, even though there has been a dissolution. (Section 99(

229

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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. (Section 100)

230

Time within which notice must be given

Notice must be given as soon as the instrument is dishonored and unless
delay is excused as hereinafter provided, must be given within the times
fixed by this Act. (Section 102)

231

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Notice where parties reside in same place

• Two means of giving notice of dishonor: personally and by mail.

• The place where the notice may be given is either

a. Place of business; or
b. Residence of the party to receive the notice.

• At the option of the party giving the notice.

232

Notice where parties reside in different places

• 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 that
day, by the next mail thereafter.

• 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 has been deposited in the post
office within the time specified in the last subdivision.

233

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Summary of when notice is given

1. Residence in the same place
a. Personal service (at place of business or at residence);
b. By mail.

2. Residence not in the same place

a. By mail;
b. Otherwise than mail.

234

When sender deemed to have given due notice

1. The notice of dishonor is duly addressed; and
2. Deposited in the post-office.

235

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Notice to subsequent party

Where a party receives notice of dishonor, he has, after the receipt of such notice, the
same time for giving notice to antecedent parties that the holder has after the
dishonor. (Section 107)

236

An instrument is considered DISHONORED in the hands of a party who receives a

notice of dishonor from the holder on the date he received such notice and not on
the date the instrument is dishonored in the hands of the holder.

Example
P, A, B, C (indorsers)
D (holder)

If the instrument is dishonored on October 10, D may notify any or all the
indorsers prior to him. D must give notice not later than the next day, October 11.

237

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Example

D notifies only C on October 11.

C, upon receipt of the notice of dishonor from D may, in turn, notify any or all of
the antecedent parties not later than October 12.

HOWEVER, if D immediately notifies C on October 10, C must give notice to

antecedent parties not later than October 11.

C cannot take an extra day to notify P, A and/ or B.

238

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
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.

239

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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.
(Section 108)

240

Waiver – is the intentional abandonment of a known right. It may be made before the
time of giving notice or after omission to give due notice.

Form of waiver
• Express – when it is made orally or in writing as when the notice of dishonor waived
appears above the signature of an indorser.
• Implied – usually takes place after there has been omission to give notice. It is
inferred from act or language.

The following cases were held to constitute implied waiver after maturity:
1. Payment of interest by an indorser after he learns of the default of the maker;
2. Admission of liability after dishonor;
3. Promise to pay the note if the maker does not pay; and
4. Suggesting a plan settlement.
241

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Whom affected by waiver

Where the waiver is embodied in the instrument itself, it is binding upon
all parties; but, where it is written above the signature of an indorser, it
binds him only. (Section 110)

242

If the waiver is embodied in the instrument itself

• It binds all the parties.

If it is written above the signature of an indorser

• It binds him only.

Example
The instrument reads as follows:
I promise to pay or order
P10,0000.00 on or before
November 31, 2010 waiving
presentment for payment notice
of dishonor.
(sgd.) M
The following indorsements appear on
the back: The waiver in the example binds not
only the maker M, but the indorsers P,
To A A and B since it appears in the body of
the instrument itself. It is, therefore, not
(sgd.) P
necessary for C to give notice to P, A
To B
and B to charge them because the
(sgd.) A waiver is a part of the contract not only
To C of the maker M, also of the indorsers P,
(sgd.) B A and B, as well.

243

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However, if the waiver was written (above the signature of A only):

• Only A would be bound by the waiver. C must give notice to P and B; otherwise they would be
discharged.

244

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. (Section 111)

245

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Protest
Protest is the formal instrument executed usually by a notary public
certifying that the legal steps necessary to fix the liability of the drawee and
the indorsers have been taken.

246

Effect of waiver of protest

When protest is waived, presentment and notice of dishonor are also
deemed waived. This is so because “protest” means all the steps
accompanying dishonor necessary to charge a party secondarily liable.

247

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When notice is dispensed with

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. (Section 112)

248

When notice dispensed with

Notice is dispensed with if after the exercise of reasonable diligence, notice could not be
given or does not reach the parties sought to be charged.

• Reasonable diligence depends upon the circumstances of each case.

• It implies “active search” which means that the holder should endeavor to find out the
whereabouts of the party to be notified. (e.g., merely examining the telephone directory
for the address is not sufficient)
• Notice of dishonor to the indorser at a certain address in the city where the indorser had
never lived and which was not received is ineffective.
• See also Section 105

249

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Delay in giving notice; how excused

Delay in giving notice of dishonor is excused when the delay is caused by
circumstances beyond the control of the holder and not imputable to his
default, misconduct, or negligence. When the cause of delay ceases to
operate, notice must be given with reasonable diligence. (Section 113)

250

When delay in giving notice excused

It is excused when the delay is caused by circumstances beyond the control of the holder and
not imputable to his:
• Default
• Misconduct
• Negligence

When the cause of delay ceases to operate, notice must be given with reasonable diligence.

• This rule is similar to that in Section 81 excusing delay in making presentment.

• Section 112 v. 113 – Section 112 dispenses with the duty to give notice but Section 113
excuses merely the delay in giving it.

251

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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. (Section 114)

252

When notice to drawer not required

1) Holder has option to treat bill as promissory note

• There is not necessity of giving the notice of dishonor under
subsections (a) and (b) of Section 114 since these two cases the holder
is given the option under Section 130 to treat the bill as a promissory
note
i. Subsection (a) Where the drawer and drawee are the same person
ii. Subsection (b) When the drawee is a fictitious person or a person
not having capacity to contract

253

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When notice to drawer not required

2) Drawer has knowledge of dishonor

• It is the drawer who dishonored the instrument. The presentment itself
constitutes notice of dishonor of the instrument

3) Drawer knew bill would be dishonored

• The drawer of the check is not entitled to the notice of dishonor when
he has no account with the drawee bank or has no funds with the
drawee bank

254

When notice to drawer not required

4) Drawer countermanded payment

• The drawer knows that the instrument will dishonored since he
countermands payment. This means that the ordered the drawee not to
pay.

255

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When notice need not be given to indorser

Notice of dishonor is not required to be given to an indorser in either of the following

cases:

(a) When the drawee is a fictitious person or person not having capacity to contract,
and the indorser was aware of that fact at the time he indorsed the instrument;
(b) Where the indorser is the person to whom the instrument is presented for
payment;
(c) Where the instrument was made or accepted for his accommodation. (Section
115)

256

When notice to indorser not required

General Rule:
Failure to give due notice of dishonor to all other secondary parties will relieve them of their
liability.

Exception:
Either of the cases provided under Section 115
(a) The indorser is aware that the drawee is a fictitious person or a person not having
capacity to contract
(b) The indorser is the person to whom the instrument is presented for payment and
dishonored the same
(c) The indorser, is in fact, the principal debtor being the accommodated party

257

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Notice of non-payment where acceptance refused

• When a bill dishonored by non-acceptance
• An immediate right of recourse accrues to the holder against all
secondary parties, and no presentment for payment is necessary
(Section 151, NIL)

• But if the holder presents the payment on maturity and it is dishonored

• No need to notify again the secondary parties. (Section 116)

258

• But if the instrument is accepted after it was dishonored by non-acceptance

• It is necessary for the holder to present the instrument for payment upon
maturity.

• In case of non-payment
• The holder must give the corresponding notice of dishonor.
• Otherwise, the secondary parties will be discharged.

259

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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.
(Section 117)

260

• In case of dishonor by non-payment, no holder subsequent to the dishonor can he a

holder in due course
• The maturity of the instrument already appears on the face thereof
• Thus the holder knows such dishonor from the fact that the instrument is
overdue (Section 52b)

• But any holder may present an instrument for acceptance before maturity
• In order to dishonor it, the drawee only has to refuse to accept it,
without having to write anthing on the instrument

261

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• Failure of the previous holder to give notice of dishonor by non-acceptance

cannot prejudice a holder in due course
• The holder in due course may still present the instrument to the drawee
for acceptance and notify the drawer and indorsers if the acceptance is
refused

262

Situation:
• R drew a bill against W in favor of P.
• When P presented the bill for acceptance to W, it was refused.
• P failed to give notice of dishonor by non-acceptance to R
(within period under Secs. 103/104).

Effect:
• R is discharged from his liability.

263

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• In the same situation:

• If after refusal by W, P indorses the instrument to A
(who is a holder in due course)

• Effect:
• R is not discharged from his liability to A
• A cannot be prejudiced by P's failure to give notice of dishonor
to R (Section 117)

• If W refuses to accept A's presentment

• A may notify R and P and hold them on their secondary liability

264

When protest need not me 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.
(Section 118)

265

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FOREIGN BILLS OF EXCHANGE

• If dishonored by non-acceptance or non-payment, protest is necessary.
• If no protest is made, the drawer and indorsers are discharged
(Section 152).

266

FOR OTHER NEGOTIABLE INSTRUMENTS

• Optional, except for cases under Section 158, 161, or 171.
• Formal protest not essential, all that is needed are:
• Presentment and demand at the time and place provided for in the
instrument; and
• Notice to indorser of such presentment, demand, and non-payment
(McBride v Illinois National Bank, 133 App. Div. N.Y. 346)

267

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Summary of Rules on Notice of Dishonor

• Notice of dishonor is not needed to charge persons primarily liable, but is necesary
to charge persons secondarily liable.
• But notice to charge persons secondarily liable is not needed when:
1. notice is waived (Section 109)
2. protest is waived (Section 111)
3. notice is dispensed with (Section 112)
4. as to the drawer under Section 114
5. as to an indorser under Section 115
6. due notice of dishonor has not been given (Section 116)
7. as to a holder in due course subsequent to the omission
to give notice (Section 117)
268

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