Negotiable Instruments Law - Jo Valles

ad majorem dei gloriam
Ateneo de Manila University
Law school is tough enough as it is. Let’s lift each

Reviewer in other up. A candle loses nothing by lighting another
candle.
NEGOTIABLE INSTRUMENTS ---
LAW It’s not about the big things that you do the week or
the night before the exams, but the little things that
you do patiently and consistently every day.
Joanne Marie R. Valles, CPA - Joval
References:
1. Act No. 2031
2. The Law on Negotiable Instruments by Hector S. de Leon PAY IT FORWARD.
3. Cases from the Syllabus of Justice Caldona
Last Edit: November 29, 2019

FORM AND INTERPRETATION ad majorem dei gloriam NEGO
INTRODUCTION b. Accumulation of secondary contracts. As the Commercial paper. A commercial paper refers to written
negotiable instruments are issued and transferred promises or obligations that arise out of commercial
from one person to another, additional parties can transactions from the use of such instruments are promissory
1. Applicability of the Negotiable Instruments Law
become involved. notes and bills of exchange. All such paper is either negotiable
(Act No. 2031). It applies only to negotiable
4. Forms of negotiable instruments or non-negotiable. It is negotiable if and only if it conforms to
instruments, or those that meet the requisites laid down
a. Promissory notes the requisites under Section 1.
in Article 1 of the NIL.
b. Bills of exchange
• Any case not provided for by the Act shall be
The two mentioned above are the common forms of SECTION 1
governed by the provisions of existing
negotiable instruments. There are various forms of Form of negotiable instruments
legislation or in default thereof, by the rules of
negotiable instruments, but an analysis of these An instrument to be negotiable must conform to the following
the law merchant.
variations will reveal that they belong to one or the requirement:
• The Civil Code has no effect to its provisions
other of the types mentioned. (a) It must be in writing and signed by the maker or
except to supply any deficiency in cases not
• Variations of promissory notes include drawer;
covered by the Act (Art 18, Civil Code).
certificates of deposit, bank notes, due bills, (b) Must contain an unconditional promise or order to pay
2. Function and importance
and bonds. a sum certain in money;
a. Not legal tender but used as a substitute for money.
• Variations of bills of exchange include drafts, (c) Must be payable on demand or at a fixed or
b. Negotiable papers constitute, at present, the media
trade acceptances, and banker’s acceptances. determinable future time;
of exchange for most commercial transactions
(d) Must be payable to order or bearer; and
c. Negotiable instruments serve as media of credit
Tender of payment; check. A certified personal check is not (e) Where the instrument is addressed to a drawee, he must
transaction.
legal tender or the currency stipulated, and therefore, cannot be named or otherwise indicated therein with
3. Characteristics and features
constitute valid tender of payment. A check, whether a reasonable certainty.
a. Negotiability. This is the attribute of a bill or note
manager's check or ordinary check, is not legal tender, and an
whereby it may pass from one person to another
offer of a check in payment of a debt is not a valid tender of The requirements indicated in subsections (a) to (d) are for the
similar to money, so as to give the holder in due
payment and may be refused receipt by the obligee or creditor. negotiability of promissory notes, whole those in subsections
course the right to collect on the instrument the
Roman Catholic Bishop of Malolos v IAC (a) to (e) are for bills of exchange.
sum payable for himself, free from any defect in
• Where the meaning is doubtful, the courts have
the title of any of the prior parties or defenses
Tender of payment; check. Since a negotiable instrument is adopted the policy of resolving in favor of the
available to them among themselves (See Secs 52
only a substitute for money and not money, the delivery of such negotiability of the instrument.
and 57).
an instrument does not, by itself, operate as payment. Roman
• This being said, the rule that one can pass
Catholic Bishop of Malolos v IAC
no better title to personal property than he
• Payment will be effected only when the mercantile
himself has does not apply to negotiable
documents have been cashed. Caltex v CA
instruments.
A certificate of deposit has the following words printed on its
• A bona fide holder, however, while free face: This is to Certify that BEARER has deposited in this Bank
TITLE I
from personal defenses available to parties the sum of __ PESO. CA said it is non-negotiable as it payable
NEGOTIABLE INSTRUMENTS IN GENERAL
among themselves is subject to real not to whoever purports to be the `bearer' but only to the
Chapter 1
defenses that might have obtained between specified person indicated therein, the depositor.
Form and Interpretation
them.
• Ruling: The instrument is negotiable- it is payable to
bearer and not to a specific person. The documents do
1 @thejoannev JO VALLES
not say that the depositor is Angel de la Cruz and that as a credit instrument is its freedom to circulate as a substitute In writing. The term instrument indicates a writing; otherwise,
the amounts deposited are repayable specifically to for money. Hence, freedom of negotiability is the touchstone nothing could be negotiated or passed from hand to hand.
him. Rather, the amounts are to be repayable to the relating to the protection of holders in due course, and the Writing includes not only that which has been written on paper
bearer of the documents or, for that matter, whosoever freedom of negotiability is the foundation for the protection and with a pen or pencil but also that which is in print or has
may be the bearer at the time of presentment. which the law throws around a holder in due course. This been typed.
Angel Dela Cruz delivered these certificates of deposit to freedom in negotiability is totally absent in a certificate of
Caltex to guarantee purchases of fuel products. Can Caltex indebtedness as it merely acknowledges to pay a sum of money Signed by the maker or drawer. As a general rule, the
collect payment? to a specified person or entity for a period of time. signature of the maker or drawer is placed on the lower right-
• Ruling: No. The CTDs were delivered as security and hand corner of the instrument, but it may appear in any part
not as payment. Under the Negotiable Instruments Sesbreno v CA thereof, as long as it appears that a person intended to make the
Law, an instrument is negotiated when it is transferred A non-negotiable instrument can be validly transferred. instrument his own.
from one person to another in such a manner as to The negotiation of a negotiable instrument must be • Such signature is prima facie evidence of his intention
constitute the transferee the holder thereof, and a distinguished from the assignment or transfer of a negotiable or to be bound either as maker or drawer. But if it is not
holder may be the payee or indorsee of a bill or note, non-negotiable one. clear in what capacity the person intended to sign, he is
who is in possession of it, or the bearer thereof. • Only an instrument qualifying as a negotiable deemed an indorser.
instrument under the requirements of the law may be • It is preferable that the full name or at least the surname
Inciong v CA negotiated, either by indorsement and delivery or by should appear. But initials or any mark will be
Inciong was a co-maker of a promissory note worth P50,000. delivery alone where the negotiable instrument is a sufficient, provided that such signature be used as a
He was solidarily liable along with his two other co-makers. bearer instrument. A negotiable instrument may, substitute and the maker or drawer intends to be bound
When creditor came to collect, he assailed the validity of the however, instead of being negotiated, also be assigned by it.
instrument, saying that it was by trickery, fraud and or transferred. • The signature is presumed valid.
misrepresentation that he was made liable for the amount of • On the other hand, a nonnegotiable instrument may not
P50,000.00. Can he contest its validity by parol evidence? be negotiated but it may be assigned or transferred, Unconditional promise or order. See section 3
Doctrine: As a general rule, bills, notes and other instruments absent an express prohibition against assignment or Payable in a sum certain in money. Money is the medium of
of a similar nature are not subject to be varied or contracted by transfer written on the face of the instrument. exchange authorized or adopted by a domestic or foreign
parol or extrinsic evidence. The words “NON-NEGOTIABLE” stamped on the face of the government as part of its currency. It includes all legal tender
• Parol evidence rule: When the terms of an agreement instrument, did not destroy its assignability. Its sole effect was which has been defined as that currency which a debtor can
have been reduced to writing, it is considered as to exempt it from the statutory provisions relative to negotiable legally compel a creditor to accept in payment of a debt in
containing all the terms agreed upon and there can be, instruments. In other words, an instrument, though not money when tendered by the debtor in the right amount. See
between the parties and their successors-in-interest, no negotiable, may be validly transferred by assignment. Section 2.
evidence of such terms other than the contents of the
written agreement Serrano v CA Payable at a fixed or determinable future time or on
• Clearly, the rule does not specify that the written A pawn ticket is non-negotiable. It does not contain an demand. See sections 4 and 7
agreement be a public document. What is required is unconditional promise or order to deliver a sum certain in
that agreement be in writing. money. Upon presentation of the pawn ticket, one receives the Payable to order or bearer. See sections 8 and 9
jewelry pawned.
Traders Royal Bank v CA The drawee must be named. The reason for this last element
Certificates of indebtedness are non-negotiable. The Provision breakdown is to enable the payee or holder to know upon whom he is to
language of negotiability which characterize a negotiable paper call for acceptance or payment.
the instrument, and the (2) payee, the party to whom word of equivalent meaning: I agree to pay, I bind
NON-NEGOTIABLE INSTRUMENT. This an instrument the promise is made or the instrument is payable. myself to pay, I will pay, good to Joanne Valles or
(1) which does not meet the requirements in Section 1, or an • Maker. The maker’s signature must appear on the face order, due to Joanne Valles or order, I acknowledge to
instrument (2) which in its inception was negotiable but has lost of the note for him to be liable thereon. be indebted to Joanne Valles or order, and the like.
it quality of negotiability. • Payee. He may be specifically designated by name, or
• When non-negotiable. An instrument ceases to be office or title or may be unspecified (bearer). He may 2. BILL OF EXCHANGE
negotiable if the indorsement prohibits the further seek payment personally or further negotiate the A negotiable bill of exchange is an unconditional order in
negotiation of the instrument. instrument. writing addressed by one person to another, signed by the
• Governing laws. A non-negotiable instrument may not July 16, 2019
person giving it, and requiring the person to whom it is
be negotiated but may be assigned or transferred Rockwell addressed to pay upon demand or at a fixed or determinable
absent an express prohibition against assignment or P100,000 future time a sum certain in money to order or to bearer. (Sec
transfer written on the face of the instrument. These 126).
For value received, I promise to pay to the order of • Check. A check is an order drawn on a bank to pay
transfers are governed by the provisions of the Civil
Joanne Valles the sum of One Hundred Thousand Pesos
code on assignment of contract rights. Similarly, the money to a third person. It is payable on demand.
(P100,000) on or before December 31, 2019 at her house in
basic principles of contract law contained in the Civil Tacloban. • A bill of exchange is also known as an order paper or a
Code govern when a negotiable instrument is three-party paper.
improperly negotiated to a third person. (Sgd.) Julia Real • Original parties. A bill of exchange requires in its
• Legal consequences. Persons who transfer or assign • Variations. In the example above, the italicized phrase inception at least three parties: (1) drawer, who issued
contractual or non-negotiable rights pass only the may be replaced with any of the following and still and draws the order bill and gives the order to pay
rights they had. remain negotiable: to Joanne Valles or order, to money to a third person, (2) drawee, the party to whom
Examples of non-negotiable instruments: Joanne Valles or bearer, or to bearer. the bill is addressed and who is ordered and expected
1. Certificates of indebtedness- payable to a specific • Numerical figure. This is not essential for to pay, and (3) payee, the party in whose favor the bill
person or entity. Traders Royal Bank v CA negotiability but is used for convenience. is originally issued or is payable.
2. Pawn ticket- does not contain an unconditional promise • Place and date not essential to negotiability; general o Parties need not be distinct persons. The two
or order to pay a sum certain in money. Serrano v CA rule. The place and date are not essential to the parties to the bill can be the same person
3. Treasury warrants- payable from a specific fund. negotiability of the instrument except in certain cases (drawer-drawee, drawer-payee).
Abubakar v Auditor General when the date is necessary to determine when the note • Drawer. The drawer corresponds to the maker in a
4. Postal money orders- PECO v Soriano is due or the interest is to run when the payment of promissory note.
interest has been stipulated or when the holder is barred • Drawee. The drawee is not really a party to the bill. He
2 general kinds of negotiable instrument by the statute of limitations from enforcing the note. assumes liability only when he accepts the bill usually
1. PROMISSORY NOTE (Sec 144 and 186) by writing the word accepted and signing his name on
A negotiable promissory note is an unconditional promise in • For value received. This indicates the consideration the face thereof. In such case, he ceases being the
writing made by one person to another, signed by the maker, given for the note. Since under our law on contracts drawee and he becomes the acceptor. By accepting, the
engaging to pay on demand, or at a fixed or determinable future consideration is presumed, this phrase may be omitted. acceptor becomes primarily liable like the maker, the
time a sum certain money to order or to bearer. (Sec 184) • I promise to pay. This is essential for negotiability drawer becoming only a surety.
• A promissory note is also known as a promise paper or because it signifies an absolute and unconditional
a two-party paper. promise to pay the payee or the holder. The maker
• Original parties. The original parties are the (1) promises to pay, not that he might or he will probably
maker, the one who makes the promise to pay and signs pay. The word promise may be substituted by any other
• Payee. He may be specifically designated by name, or relationship between them. That is, the drawee a. Interest at a fixed rate- this does not render the
office or title or may be unspecified (bearer). He may must owe the drawer a debt, in which case, the instrument non-negotiable because the amount due
seek payment personally or further negotiate the drawer simply orders the drawee to pay the is still certain and can easily be computed.
instrument. debt or a portion of it to a third party. Example: “I promise to pay Payee or order
P10,000, with interest at 15% per annum.”
SECTION 2 b. Interest at an increased or reduced rate- the
Certainty as to sum; what constitutes.- increase is a penalty, and not part of the interest.
The sum payable is a sum certain within the meaning of this Example: “I promise to pay P or order P10, 000
Act, although it is to be paid— with interest at 15% per annum, from date until
(a) With interest; or paid; 12% if paid when due.
(b) By stated installments; or
(c) By stated installments with a provision that upon 2. Sum to be paid by stated installments
default in payment of any installment or of interest, the Stated installments means that the following appear
whole shall become due; or in the instrument:
(d) With exchange, whether at a fixed rate or at the current a. Interest of each installment, and
rate; or b. Due date of each installment
• Charge to the account of. These words mean that the (e) With costs of collection or an attorney’s fees, in case Example: “I promise to pay P or order P10,000 in
amount to be paid by the drawee is to be charged payment shall not be made at maturity. two installments as follows: P2,000 on January 1,
against the funds of the drawer. But these may be 2020 and P8,000 on July 1, 2020.”
omitted. • Test for sum certain. The instrument meets the sum Saying two installments alone does not fulfill the
• Idea and purpose of a bill of exchange. This is certain requirement if the holder can determine from requirements of the law.
because the drawer has funds in the hands of the the instrument itself the amount he is entitled to receive
drawee which the drawer desires to be paid to the at maturity. The basic test is whether the holder can 3. Sum to be paid by stated installments with
payee. He, therefore, draws the bill of exchange determine by calculation or computation the amount acceleration clause
ordering the drawee to pay the amount mentioned in payable when the instrument is due. a. Acceleration dependent on maker- The
the bill of exchange to the payee. • Payment of fixed amount of money. Since a acceleration clause does not make the instrument
• Liability of drawee for non-payment. If the drawee negotiable instrument is intended to take the place of payable upon contingency because the time of
refuses to accept when he has funds for the purpose, he money, it is, therefore, essential that it represents a payment will surely come. The maker can avoid
becomes liable to the drawer (and not the payee) for the fixed amount to be paid wholly in money. The amount acceleration by paying on time.
resulting damages and the harm done to his credit. But to be paid must be stated plainly on the face of the Example: “I promise to pay P or order P10,000
if the drawer has no funds in the hands of the drawee, instrument and must be determinable from the face of with interest at 15% per annum, in 4 equal
it is at least presumed that the former must have made the instrument itself without reference to any outside installments beginning July 1, 2019. Upon default
arrangements with the latter so that he will honor the source. of any installment or interest, the whole sum shall
bill. In such a case, the drawee must look to the drawer o If the instrument calls for an act other than the become due and payable.”
for reimbursement and not to a bona fide holder. payment of money, it is not negotiable because b. Acceleration at option of holder- But note that if
o In order for the drawee to be liable to the a negotiable instrument is intended as a the instrument provides for acceleration at the
drawer, there must be some kind of agreement substitute for money. option of the holder, the instrument is non-
obligating the drawee to honor the order of the negotiable.
drawer or an existing debtor-creditor 1. Sum to be paid with interest
4. Sum to be paid with exchange debt” renders the instrument non-negotiable. condition or contingency except implied conditions of
This refers to instruments that are payable in foreign Here, it cannot be ascertained from the face of presentment (secs 70, 143), protests (secs 152, 165,
currency. A provision for payment of a sum in a foreign the instrument exactly how much is payable. 167, 170), and notice of dishonor (sec 89) as provided
currency does not impair negotiability because the • Fee unreasonable or unspecified. The in the law.
current rate of exchange at any given time may easily stipulation for attorney’s fees may be reduced o Reason for requisite. The fact that the
be ascertained by inquiry from banks dealing on by the courts if found unconscionable or liability is unconditional greatly enhances the
exchange or foreign currencies and such rate is a matter unreasonable. If the fee is not specified, then it ability of the instrument to circulate freely
of common commercial knowledge. shall be a reasonable sum. from one person to another.
• Exchange is the charge for the expense of Bachrach v Golingco o If with condition, simple contract. If there is
providing funds at the place where the A promissory note contains a stipulation that an additional 25% a condition, the instrument constitutes a simple
instrument is payable to meet the instrument of attorney's fees [amounting to P2,115.25] shall be paid by the contract rather than a negotiable instrument.
which is issued at another place. It may be at a debtor, in addition to the amount due for principal and interest This is true even if the condition or event is
fixed rate or at the current rate. in case it becomes necessary to employ an attorney for very likely to occur or if it indeed occurs.
• Exchange is applicable only to foreign bills. collection of the sum due. Negotiable?
The provision on payment with exchange • Ruling. Yes. The legality of such a stipulation, when 1. Promissory note with promise to pay
applies to instruments drawn in one country annexed to a negotiable instrument is expressly • Implied promise to pay. It is not essential that
and payable in another. It is not applicable to recognized by the Negotiable Instruments Law (Act the word promise should be used. Any words
inland or domestic bills, or bills drawn and No. 2031, Sec. 2, par. E). equivalent to a promise or assumption of
payable at the same place. In such case, the • Courts may reduce. However, the court found this responsibility for the payment of the note on
stipulation for payment in exchange may be amount to be unreasonable and reduced the same to the face of an instrument are sufficient to
disregarded. P800. constitute a promise to pay.
• Bare acknowledgement of indebtedness not
5. Sum to be paid with costs of collection or an SECTION 3 enough. Words like I.O.U., due X P1,000, or
attorney’s fees. When promise is unconditional for value received do not constitute a promise
The stipulation that there shall be added to the amount An unqualified order or promise to pay is unconditional within to pay. But if words of negotiability are added
due in case payment is not made at maturity des not the meaning of this Act though coupled with— like due P or order or due P or bearer, the
affect the certainty of the amount because the increase (a) An indication of a particular fund out of which instrument is negotiable although it contains
in the amount due (even if uncertain) takes place after reimbursement is to be made or a particular account to no express promissory words since the written
maturity when the instrument ceases to be negotiable be debited with the amount; or promise to pay may be fairly inferred
in the full commercial sense, that is, it has ceased to (b) A statement of the transaction which gives rise to the therefrom.
perform the office of money. Until the instrument instrument. 2. Bill of exchange with order to pay
matures, the amount payable is certain. But an order or promise to pay out of a particular fund is not • Implied order to pay. It is not essential that
Example: “I promise to pay P or order P10,000 on or unconditional. the word order should be used. Any other
before December 31, 2019 with 15% attorney’s fee and words which are equivalent to an order or
costs of collection if not paid on maturity.” Unconditional promise or order which show the drawer’s will that the money
• When uncertain. But a provision “to pay all • Instrument must be payable absolutely; When should be paid are sufficient. Example: let the
costs, charges and expenses including promise or order to pay unconditional. It is not bearer or drawee will much oblige drawer to
attorney’s fees incurred by the payee in any enough that there be a promise or order. It must be pay payee or order.
legal proceedings for the collection of the unconditional, that is, it must not be subject to any • Mere request to pay not enough.
• Mere recital of consideration or origin of A no less important consideration is the circumstance that the
Terms not affecting unconditional liability transaction does not affect negotiability. treasury warrants in question are not negotiable instruments.
1. An indication of a particular fund out of which The reason for this is because instruments are Clearly stamped on their face is the word "nonnegotiable."
reimbursement is to be made or a particular issued by reason of the transaction upon which Moreover, and this is of equal significance, it is indicated that
account to be debited with the amount they are based and the mere recital of such they are payable from a particular fund, to wit, Fund 501.
• Reason for negotiability. The payment is not transaction does not make the promise to pay
dependent upon the existence or adequacy of the conditional. SECTION 4
particular account indicated. In this case, payment Example: “I promise to pay P or order P10,000 as Determinable future time; what constitutes.
is to be made first after which the particular fund per our contract or in consideration of the watch he An instrument is payable at a determinable future time, within
will be debited. gave to me.” the meaning of this Act, which is expressed to be payable—
• Fund indicated must not be the direct source of • Terms and conditions contained in another (a) At a fixed period after date or sight; or
payment. The fund indicated must only be the paper. If the promise or order is “subject to or (b) On or before a fixed or determinable future time
source of reimbursement, which is an act governed by the terms and conditions of our specified therein; or
subsequent to the payment. If the fund indicated is contract executed by us on _____”, the instrument (c) On or at a fixed period after the occurrence of a
only for reimbursement, then the drawee is not is not negotiable because the obligation to pay is specified event which is certain to happen, though the
limited to the money in his hands belonging to the burdened with the terms and conditions of another time of happening be uncertain.
drawer. The drawee may pay the amount out of any contract, subjecting the recovery on the instrument An instrument payable upon a contingency is not negotiable,
fund, but it is the reimbursement that is to come to defenses available under said contract. and the happening of the event does not cure the defect.
from the fund indicated. Furthermore, this will require the examination of
• Applicable only to bills of exchange. Note that said contract to determine the rights and • When time of payment certain. To be negotiable, the
this provision applies only to BoE because obligations under the instrument. Such instrument time of payment must be certain. That is, the
reimbursement and debiting can only take place is non-negotiable regardless of what the terms of instrument must be payable on demand or at a fixed or
where payment by another has been made. that contract actually are. The negotiability of an determinable future time. In the case of demand or
• Example: “Pay to the order of P P1,000 and instrument must be determined on its face alone sight instrument, the holder may call for payment at
reimburse yourself from the rentals of my house.” and not elsewhere. any time. On the other hand, a term or time
• Non-negotiable when there is a particular fund instrument is payable only upon the arrival of the time
out of which payment is to be made. It becomes for payment.
non-negotiable because payment is made to Abubakar v The Auditor General • Reason why time must be certain. So that the holder
depend upon the adequacy or existence of the fund Treasury warrant non-negotiable. A treasury warrant will know when he may enforce the instrument, and the
designated. "payable from the appropriation for food administration," is person liable (maker, drawer, or acceptor) will know
• Test of negotiability: Whether the instrument actually an order for payment out of "a particular fund," and is when he may be required to pay, or the secondary
carries the general personal credit of the maker or not unconditional, and does not fulfill one of the essential parties (drawer, indorser, or accommodation party)
drawer. requirements of a negotiable instrument. In the United States, will know when their obligations will arise.
• If language is ambiguous. If the language used is government warrants for the payment of money are not
ambiguous or obscure, courts usually decide in negotiable instruments nor commercial paper. As such, a holder Examples:
favor of negotiability. of a treasury warrant cannot claim to be a holder in due course 1. Payable at a fixed time.
because said term applies only to negotiable instruments. “I promise to pay P or order P10,000 on January 1,
2. A statement of the transaction which gives rise to 2020.”
the instrument. Metrobank v CA 2. Payable at a fixed period after date.
“60 days after date, I promise to pay P or order But nothing in this section shall validate any provision or Manila Oil issued to NB an instrument that contains a
P10,000.” stipulation otherwise illegal. provision: …do hereby authorize any attorney in the Philippine
3. Payable at a fixed period after sight. Islands, in case this note be not paid at maturity, to appear in
“60 days after sight, I promise to pay P or order General rule: The instrument is non-negotiable if it contains a my name and confess judgment for the above sum with
P10,000.” promise or order to do any act in addition to the payment of interest…”
After sight means after the instrument is seen by the money. • Section 5(b) of the NIL expressly provides that the
drawee upon presentment for acceptance. • Example: “I promise to pay P or order P10,000 and negotiable character of an instrument otherwise
4. Payable on or before a fixed time. (or) to deliver a horse.” negotiable is not affected by a provision which
“On or before January 1, 2020, I promise to pay P or Exception: Those enumerated in Section 5 are exceptions to authorizes confession of judgment if the instrument be
order P10, 000.” the rule. not paid at maturity. However, this provision cannot be
5. Payable on or before a determinable future time. taken to sanction judgments by confession, because the
“Before the start of the second semester, I promise to 1. Sale of collateral securities same section contains a disclaimer that nothing in said
pay P or order P10, 000.” The additional act is to be performed after the date of section shall validate any provision or stipulation
6. Payable on the occurrence of a specified event maturity when the instrument is no longer negotiable otherwise illegal.
“On the death of his father, I promise to pay P or order in the full commercial sense. Until maturity date, the • Warrants of attorney to confess judgment are not
P10, 000.” promise is to pay money only authorized; stipulation invalid but instrument still
7. Payable after the occurrence of a specified event. • Example: “I promise to pay P or order P10, 000 on negotiable. This is not contemplated by our law
“30 days after the death of his father, I promise to pay January 1, 2020 secured by a ring I delivered to him by because under these instruments, the promisor bargains
P or order P10, 000.” way of pledge and which he could sell should I fail to away his right to a day in court and because the effect
8. Payable upon contingency. pay him at maturity.” of the instrument is to strike down the right of appeal
“I promise to pay P or order P10, 000 if he passes the accorded by statute. But the invalidity of the provision
CPA Licensure Exam.” 2. Confession of judgment as to the confession of judgment does not render the
Contingency is an uncertain future event, or an event Judgment note. It is a written acknowledgement by instrument non-negotiable.
that may or may not happen.” the defendant of his indebtedness or liability to the
plaintiff. It enables the holder to obtain a judgment 3. Waiver of benefit granted by law
SECTION 5 without the delay usually incident to a lawsuit, as it • Benefits granted by law. Examples of benefits
Additional provisions not affecting negotiability. eliminates the necessity of a trial. granted by law that may be waived: notice of dishonor,
An instrument which contains an order or promise to do any act • Example: “I promise to pay P or order P10, 000 on protest, presentment for payment, and demand.
in addition to the payment of money is not negotiable. But the January 1, 2020 and I hereby authorize my lawyer to • Example: “Pay to bearer P10, 000. Notice of dishonor
negotiable character of an instrument otherwise negotiable is appear in any court of record after the obligation waived.”
not affected by a provision which— become due and waive the issuing and service of 4. Election of holder to require some other act
(a) Authorizes the sale of collateral securities in case the process and confess a judgment against me in favor of • Option belongs to holder. In this case, the option
instrument be not paid at maturity; or the holder of the note for such amount as may appear belongs to the holder of the instrument. The instrument
(b) Authorizes confession of judgment if the instrument be unpaid thereon, and thereupon to waive all errors in is therefore, negotiable because it is as good as an
not paid at maturity; or any such proceedings and waive all rights of appeal.” instrument payable in money.
(c) Waives the benefit of any law intended for the • Example: “I promise to pay bearer P10, 000 or an air
advantage or protection of the obligor; or National Bank v Manila Oil Refining & By-products conditioner at the option of the holder.”
(d) Gives the holder an election to require something to be Company, Inc.
done in lieu of the payment of money.
• Option belongs to promisor. If the option is with the party acted within a reasonable time in making Where an instrument is issued, accepted, or indorsed when
promisor, the instrument is non-negotiable because the presentment for payment. overdue, it is, as regards the person so issuing, accepting, or
holder cannot compel him to make payment in money. • Omission of value. It is usual to state in the instrument indorsing it, payable on demand.
that it is given for “value received” without specifying
SECTION 6 what the value is. But it is not even necessary to state • Payable on demand; what it means. An instrument
Omissions; seal; particular money. that value has been received for the instrument because payable on demand means that it is due and payable
The validity and negotiable character of an instrument are not consideration is presumed (Sec 24 NIL and Art 1354, immediately after delivery. It is a present debt due at
affected by the fact that— Civil Code). once.
(a) It is not dated; or • Omission of place. Section1 does not require a o Key words. Instead of on demand, the words
(b) Does not specify the value given, or that any value has negotiable instrument to specify the place where it is at sight, on presentation, on call, or at any time
been given therefor; or made or drawn or where it is payable. But Section 73 called for may be used.
(c) Does not specify the place where it is drawn or the specifies where presentment for payment should be o Overdue instruments. Overdue instruments
place where it is payable; or made when the place of payment is not specified. An are necessarily demand papers. A holder has
(d) Bears a seal; or instrument that does not specify the place of payment an immediate right of payment for the money
(e) Designates a particular kind of current money in which is presumed to be payable at the place of residence or promised or ordered to be paid.
payment is to be made. business of the maker or drawer. o Time instruments. Time instruments are
But nothing in this section shall alter or repeal any statute • Effect of presence of seal. Under American Law, a those that are payable at a definite time and not
requiring in certain cases the nature of the consideration to be sealed instrument is non-negotiable. There is no such on demand.
stated in the instrument. distinction in our law. • First paragraph. Under the first paragraph, an
• Effect of designation of particular kind of current instrument is payable on demand as regards the
• Omission of date. The date is generally not necessary money payable. The promise or order must call for the immediate parties and to subsequent parties.
in a bill. Hence, its omission will not make the payment of money but the law does not require that • Second paragraph. Under the second paragraph, an
instrument non-negotiable. In such case, the instrument payment should be made in legal tender. Money, as instrument is payable on demand only as regards
will be considered to be dated as of the time it was used in the law, is not necessarily limited to legal immediate parties since between immediate parties,
issued. tender as defined by law. It includes any particular kind there is no difference between a holder in due course
• Date not stated in the calendar. If there is a date of current money or foreign money which has a fixed and a holder not in due course.
stated but there is no such date in the calendar, the law value in relation to our money.
will deem the nearest date of the month the date o Example: “I promise to pay P or order SECTION 8
intended. P100,000 in Central Bank notes of P1,000 When payable to order.
• When date necessary. In the following cases, the date bills.” The instrument is payable to order where it is drawn payable to
is necessary to determine the date of maturity: the order of a specified person or to him or his order. It may be
1. Where said maturity date is tied to the date of SECTION 7 drawn payable to the order of:
issued (example is where a note is payable 30 days When payable on demand. (a) A payee who is not maker, drawer, or drawee; or
“after date”) An instrument is payable on demand— (b) The drawer or maker; or
2. Where interest is stipulated for the purpose of (a) Where it is expressed to be payable on demand, or at (c) The drawee;
determining when the interest is to run and sight, or on presentation; or (d) Two or more payees jointly; or
3. In the case of promissory note, the date of issue and (b) In which no time for payment is expressed. (e) One or more of several payees; or
in case of the BoE, the date of the last negotiation (f) The holder of an office for the time being.
thereof, for the purpose of determining whether a
Where the instrument is payable to order, the payee must be "FOR VALUE RECEIVED, I/we jointly and severally promise ambiguity and could have also avoided it by the exercise of a
named or otherwise indicated therein with reasonable certainty. to pay to the INDUSTRIAL PRODUCTS MARKETING, the little more care.
sum of xxx.” Negotiable? No. It does not contain words of
• Two or more payees jointly. “Pay to the order of A negotiability. SECTION 9
and B P10, 000.” • Effect of non-negotiability. It follows that the When payable to bearer.
• On or more of several payees. “Pay to the order of respondent can never be a holder in due course but The instrument is payable to bearer—
A,B, or C P10, 000.” Or “Pay to the order of A, B, and remains a mere assignee of the note in question. (a) When it is expressed to be so payable; or
C, or any of them or any two of them.” (b) When it is payable to a person named therein or bearer;
• Holder of an office for the time being. “Pay to the GSIS v CA or
order of the Commissioner of Internal Revenue.” ". . . for value received, we the undersigned . . . JOINTLY, (c) When it is payable to the order of a fictitious or non-
• Payee not named or described in an order SEVERALLY and SOLIDARILY, promise to pay the existing person, and such fact was known to the person
instrument. In an order instrument a specified person GOVERNMENT SERVICE INSURANCE SYSTEM the sum making it so payable; or
must always be named therein either before or after the of . . .” Negotiable? No. it does not contain words of (d) When the name of the payee does not purport to be the
word “order”. Otherwise, there is nobody who could negotiability. name of any person; or
give the order or authority to collect. The instrument is (e) When the only or last indorsement is an indorsement in
non-negotiable. PECO v Soriano blank.
Postal money orders non-negotiable. Postal money orders are
Salas v CA not negotiable instruments the reason behind this rule being • Bearer. A bearer is a person in possession of an
The note reads: "For value received, I/We jointly and that, in establishing and operating a postal money order system, instrument payable to bearer.
severally, promise to pay Viola Motor Sales Corporation or the government is not engaging in commercial transactions but • Bearer instrument. Section 9 defines a bearer
order xxx” Negotiable? Yes. merely exercises a governmental power for the public benefit. instrument. In such instrument, payment to any person
Among others, the instrument in order to be considered Further, some restrictions imposed upon money orders by in possession thereof in good faith and without notice
negotiable must contain the so-called "words of negotiability postal laws and regulations are inconsistent with the character that his title is defective, at or after maturity, discharges
— i.e., must be payable to 'order' or 'bearer. of negotiable instruments. For instance, such laws and the instrument. Delivery alone is enough to effect
• When payable to order. There must always be a regulations usually provide for not more than one endorsement; negotiation.
specified person named in the instrument and the bill payment of money orders may be withheld under a variety of o Note that an instrument may be a bearer
or note is to be paid to the person designated in the circumstances. instrument on its face or order instrument on
instrument or to any person to whom he has indorsed its face but fails to qualify as such.
and delivered the same. Equitable Banking v IAC • Fictitious person. A fictitious person is one who,
• Effect of omission. Without the words "or order" or "to Nell issued a check payable "to the order of EQUITABLE though named as a payee in the instrument, has no right
the order of", the instrument is payable only to the BANKING CORPORATION A/C OF CASVILLE to it because the maker or drawer so intended and it
person designated therein and is therefore non- ENTERPRISES INC. The bank teller credited it to the account matters not, whether the name of the payee used by him
negotiable. Any subsequent purchaser thereof will not of Casville as typed above, when in fact it is to be paid only to be that one living or dead, or one who never existed.
enjoy the advantages of being a holder of a negotiable Equitable Bank only. Should the bank be liable? No. The
instrument but will merely "step into the shoes" of the subject check was equivocal and patently ambiguous. Because
person designated in the instrument and will thus be of its wording, the payee ceased to be indicated with reasonable PNB v Rodriguez
open to all defenses available against the latter. certainty in contravention of Section 8 of the Negotiable General rule: A check that is payable to a specified payee is
Instruments Law. That ambiguity is to be taken contra an order instrument.
Consolidated Plywood v IFC Leasing proferentem, that is, construed against NELL who caused the
Exception: However, under Section 9 (c) of the NIL, a check A promissory note reads: Received from Miss Pacifica Jimenez
payable to a specified payee may nevertheless be considered as Ang Tek Lian v CA the total amount of P10,000) ten thousand pesos payable six
a bearer instrument if it is payable to the order of a fictitious or Pay to order of cash is bearer instrument. Where a check is months after the war, without interest. Jimenez sought to
non-existing person, and such fact is known to the person made payable to the order of cash, the word cash does not collect on the PN above by charging the estate of her debtors.
making it so payable. purport to be the name of any person, and hence the instrument But the administrator contended that the notes contained no
• When instrument payable to order becomes is payable to bearer. The drawee bank need not obtain any express promise to pay a specified amount.
payable to bearer; actual payee. An actual, existing, indorsement of the check, but may pay it to the person • Ruling. An acknowledgment of a debt becomes a
and living payee may also be "fictitious" if the maker presenting it without any indorsement. promise to pay by the addition of words implying a
of the check did not intend for the payee to in fact • But bank may require identification. Of course, if promise of payment, such as, payable, payable on a
receive the proceeds of the check. the bank is not sure of the bearer's identity or financial given day, payable on demand. To constitute a good
• Importance of distinction affects the manner of solvency, it has the right to demand identification promissory note, no precise words of contract are
negotiation. If payable to bearer, it is negotiated by and/or assurance against possible complications necessary, provided they amount, in legal effect, to a
delivery; if payable to order, it is negotiated by the (forgery, loss of the check by rightful owner, raising of promise to pay. In other words, if over and above the
indorsement of the holder completed by delivery. the amount payable). The bank may require, for its mere acknowledgment of the debt there may be
protection, that the indorsement of the drawer — or of collected from the words used a promise to pay it, the
Exception to the exception: Commercial bad faith. A showing some other person known to it — be obtained. instrument may be regarded as a promissory note.
of commercial bad faith on the part of the drawee bank or any • But where the Bank is satisfied of the identity and/or • Unrelated issue. Loans contracted and payable during
transferee of the check will work to strip it of this defense. The the economic standing of the bearer who tenders the the Japanese occupation should be paid according to
exception will cause such party to bear the loss. check for collection, it will pay the instrument without the Ballantyne schedule. However, if the loan was
• Commercial bad faith. Commercial bad faith is further question; and it would incur no liability to the expressly agreed to be payable after the war, peso-for-
present if the transferee of the check acts dishonestly, drawer in thus acting. peso payment shall be ordered in Philippine currency.
and is a party to the fraudulent scheme.
SECTION 10
The case at bar: Terms, when sufficient.
Rodriguez spouses issued checks to the order of specified The instrument need not follow the language of this Act, but
payees who were all members of PEMSLA. These checks were any terms are sufficient which clearly indicate an intention to SECTION 11
deposited directly by PEMSLA to its accounts without prior the requirements hereof. Date, presumption as to.
indorsements, and were credited by PNB to PEMSLA’s Where the instrument or an acceptance or any indorsement
account. Should PNB be liable to the spouses? YES. PNB was • Substance over form. While it is advisable to conform thereon is dated, such date is deemed prima facie to be the true
remiss in its duties as the drawee bank. to the forms prescribed by law to avoid uncertainty, it date of the making, drawing, acceptance, or indorsement, as the
• For the fictitious-payee rule to be available as a is not required to do so. As long as the clear intention case may be.
defense, PNB must show that the makers did not intend of the parties to make the instrument negotiable can be
for the named payees to be part of the transaction determined, the law will give it force and effect. • Burden of proof. He who claims that some other date
involving the checks. • Mere defect in language or grammatical error. This is the true date has the burden to establish such claim.
• At most, the bank's thesis shows that the payees did not does not render n instrument non-negotiable. Thus, the • Date in instrument payable at a fixed future date.
have knowledge of the existence of the checks. This words himself order may be construed as himself or Generally, a date is not essential to make an instrument
lack of knowledge is not tantamount to a lack of order. negotiable. This is true of instruments which are
intention on the part of the spouses that the payees will payable at a fixed future date and which do not stipulate
not receive the checks’ proceeds. Jimenez v Bucoy for the payment of interest.
o When date necessary. In the following cases, When date may be inserted. When date may be inserted.
the date is necessary to determine the maturity Where an instrument expressed to be payable at a fixed period Section 13 contemplates 2 cases:
(but not for the negotiability) of the after date is issued undated, or where the acceptance of an 1. When an instrument is payable at a fixed period after
instrument. instrument payable at a fixed period after sight is undated, any date but is issued undated; and
1. When the instrument is payable at a fixed holder may insert therein the true date of issue or acceptance, 2. When an instrument is payable at a fixed period after
period after date. and the instrument shall be payable accordingly. The insertion sight but the acceptance is undated.
2. Where the instrument is payable at a fixed of a wrong date does not avoid the instrument in the hands of a
period after sight or presentment. subsequent holder in due course; but as to him the date so • Reason why date may be inserted. The purpose is to
• Date in instrument payable on demand. Ordinarily, inserted is to be regarded as the true date. be able to determine the maturity of the instrument.
an instrument payable on demand need not be dated • Effect of wrong date inserted.
since it is demandable at any time. Pacheco v CA a. As to holder with knowledge (not in due course).
o Date of issue or last negotiation. Section 71 A loan was contracted and the debtors issued undated checks The insertion of a wrong date will avoid the
requires that a promissory note payable on as evidence of indebtedness. When the debtors were unable to instrument as to him but not as to a subsequent
demand be presented for payment within a pay, the creditors required the former to date the undated holder in due course who may enforce the same
reasonable time after its issue and a bill of checks so they will become evidence of their indebtedness. The notwithstanding the improper date.
exchange payable on demand to be presented creditors then filed a case of estafa against the debtors. b. As to holder without knowledge (holder in due
for payment within a reasonable time after its • Negotiability may be suspended by mutual course)
last negotiation. agreement. A check has the character of negotiability The insertion of a wrong date constitutes a material
o Relevance of date. Hence, the date of issue or and at the same time it constitutes an evidence of alteration. Nevertheless, in the hands of a holder in
last negotiation referred to above is required indebtedness. By mutual agreement of the parties, the due course, the date inserted, even if wrong, is to
not for negotiability but to determine whether negotiable character of a check may be waived and the be regarded as the true date.
a party acted within a reasonable time. instrument may be treated simply as proof of an Example:
SECTION 12 obligation. There cannot be deceit on the part of the “I promise to pay P or order P10,000 30 days after date.”
Ante-dated and post-dated. obligor, petitioners herein, because they agreed with (but the instrument is undated)
The instrument is not invalid for the reason only that it is ante- the obligee at the time of the issuance and postdating
dated or post-dated, provided it is not done for an illegal or of the checks that the same shall not be encashed or Suppose the true date of the note is July 30, 2019. The date of
fraudulent purpose. The person to whom an instrument so dated presented to the banks. Hence, debtors cannot be liable maturity is therefore on August 29, 2019.
is delivered acquires the title thereto as of the date of delivery. for estafa.
• Creditors could have inserted date themselves. He P dates the note July 15, 2019 to hasten the day of maturity. He
• Ante-dated. An instrument is ante-dated when it need not even ask the petitioners to place a date on the then indorses it to A after inserting the wrong date. A acquired
contains a date earlier than the true date of its issuance. check, because as holder of the check, he could have the instrument in good faith and is a holder in due course.
• Post-dated. An instrument is post-dated when it inserted the date pursuant to Section 13 of the NIL. • In so far as P is concerned, the note is avoided because
contains a date later than the true date of its issuance. And according to Section 14, as the person in the instrument is ante-dated for a fraudulent purpose.
• Effect. Ante-dating or post-dating alone does not possession of the check, has prima facie authority to • With respect to A, the effect is that A may enforce the
render an instrument invalid or non-negotiable. It may complete it by filling up the blanks therein. Besides, note on August 14, 2019 and not on August 29, 2019
be negotiated before or after the date given as long as pursuant to Section 12 of the same law, a negotiable because as to him, the date so inserted (July 15, 2019)
it is not negotiated after its maturity. instrument is not rendered invalid by reason only that will be regarded as the true date.
it is antedated or postdated.
SECTION 13 Steps in the issuance of a negotiable instrument.
There are always 2 steps involved in the issuance of every Rules for incomplete but delivered instruments to be treated the same was as a holder not in due course
negotiable instrument, namely: • Authority to fill up blanks. The holder or the person of a materially altered instrument.
1. The mechanical act of writing the instrument in possession has prima facie authority to complete the
completely and in accordance with the requirements of instrument by filling up the blanks therein. but the SECTION 15
Section 1; and authority to complete is not an authority to alter. Incomplete instrument not delivered.
2. The delivery of the complete instrument by the maker o Material particular. The law speaks of Where an incomplete instrument has not been delivered, it will
or the drawer to the payee or holder with the intention material particular or any particular proper to not, if completed and negotiated without authority, be a valid
of giving effect to it. be inserted in a negotiable instrument to make contract in the hands of any holder, as against any person whose
it complete, and the power to fill in the blanks signature was placed thereon before delivery.
extends to every complete feature or the
instrument. • Real defense. This defense may be raised even against
o Material particular. This includes name of a holder in due course. The instrument is not a valid
Sections 14, 15, and 16 the payee, amount, rate of interest, or name of contract in the hands of any holder, which includes a
Section 14- this applies only to an incomplete instrument which drawer. holder in due course.
has been delivered by the maker or drawer to the payee or • Authority to put any amount. A signature on a blank o Presumption of delivery. But note that there
holder. paper delivered in order that may be converted into is a prima facie presumption of delivery which
Section 15- this applies to an incomplete instrument which is negotiable instrument operates as prima facie authority must be rebutted by proof to the contrary.
undelivered to fill it up for such amount. In the absence of showing • Defense available to parties prior to delivery. The
Section 16- this applies to a complete instrument that is that the purpose of the delivery was to convert the invalidity of the instrument is only with reference to
undelivered. blank paper to a negotiable instrument, there cannot the parties whose signatures appear before and not after
arise a prima facie authority on the part of P to fill it delivery.
SECTION 14 up.
Blanks, when may be filled. • Right against party prior to completion. The Example: M makes a note for P10, 000 with the name of payee
Where the instrument is wanting in any material particular, the instrument may be enforced against a party prior to in blank (incomplete) and keeps it in his safe (undelivered). P
person in possession thereof has a prim a facie authority to completion only if it is filled up: steals the note and inserts his name as payee and then indorses
complete it by filling up the blanks therein. And a signature on a. Strictly in accordance with the authority given and the note to A, A to B, B to C, and C to D, a holder in due course.
a blank paper delivered by the person making the signature in b. Within a reasonable time
order that the paper may be converted into a negotiable • Right of a holder in due course. The defense that the In the case above, D can collect only from P, A, B, and C but
instrument operates as a prima facie authority to fill it up as instrument had not been filled up in accordance with not from M.
such for any amount. In order, however, that any such the authority given and within a reasonable time is not • M, being a party prior to delivery, can raise the defense
instrument when completed may be enforced against any available against a holder in due course. Hence, this is that the note is invalid. M is not liable to P, A, B, and
person who became a party thereto prior to its completion, it only a personal defense. The not is valid and effective C regardless if they are holders in due course or not.
must be filled up strictly in accordance with the authority given for all purposes in the hands of a holder in due course • P, A, B, and C are no longer parties prior to delivery
and within a reasonable time. But if any such instrument, after and he may enforce it as if it had been filled up strictly and therefore can no longer raise the defense under
completion, is negotiated to a holder in due course, it is valid in accordance with authority given and within a Section 15. Furthermore, as indorsers, they warrant
and effectual for all purposes in his hands, and he may enforce reasonable time. that the instrument is genuine and in all respects what
it as if it had been filled up strictly in accordance with the • Right of a holder not in due course. A holder not in it purports to be.
authority given and within a reasonable time. due course can collect nothing from the maker. He is
• In the case of P, he is liable not merely because he us • When in possession of a party other than a holder presumption of delivery by proving that there was no
an indorser but because he is the one responsible for in due course. If a complete instrument is found in the delivery or that it was not authorized. But D can
the theft, completion and negotiation of the instrument. possession of an immediate party or a remote party recover from P, A, B and C as they are indorsers.
other than a holder in due course, there is prima facie • Supposed D is a holder in due course. M is liable to
presumption of delivery but subject to rebuttal. But D and cannot prove that the note was stolen by P or was
note that when there is delivery, there is a presumption delivered conditionally or for a special purpose only
SECTION 16 that the purpose of the delivery is to transfer ownership because once an instrument is in the hands of D, a valid
Delivery; when effectual; when presumed. of the instrument. and intentional delivery by M, a prior party to D, is
Every contract on a negotiable instrument is incomplete and o Rebutting prima facie presumption of conclusively presumed.
revocable until delivery of the instrument for the purpose of delivery. It may be shown that the delivery
giving effect thereto. As between immediate parties, and as was conditional or for a special purpose only, Lim v CA
regards a remote party other than a holder in due course, the and not for the purpose of transferring the The Lims issued 7 checks in favor of Linton Commercial for
delivery, in order to be effectual, must be made either by or property in the instrument. payment of their steel materials. Said checks were dishonored
under the authority of the party making, drawing, accepting, or o Immediate parties. Those who have and the spouses were unable to pay despite repeated demands.
indorsing, as the case may be; and in such case the delivery may knowledge of the conditions or limitations RTC Malabon and CA held them guilty of violating BP 22. The
be shown to have been conditional, or for a special purpose placed upon the delivery of the instrument. checks were issued and delivered to Linton in Navotas and
only, and not for the purpose of transferring the property in the The word immediate contemplates privity and dishonored in Caloocan. Parties now question the jurisdiction
instrument. But where the instrument is in the hands of a holder not proximity. of RTC Malabon.
in due course, a valid delivery thereof by all parties prior to him o Remote parties. These are parties who are not • Jurisdiction. A person charged with a transitory crime
so as to make them liable to him is conclusively presumed. And in direct contractual relation to each other. In [such as BP 22] may be validly tried in any
where the instrument is no longer in the possession of a party other words, this contemplates proximity. municipality or territory where the offense was in part
whose signature appears thereon, a valid and intentional However, if a remote party has knowledge of committed.
delivery by him is presumed until the contrary is proved. any infirmity or defect in the instrument, such • Delivery is what’s important. The place where the
party is considered an immediate party. bills were written, signed, or dated does not necessarily
Delivery. This means the transfer of possession, actual or • When in possession of a holder in due course. If s fix or determine the place where they were executed.
constructive, from one person to another. It may be made either complete instrument is in the hands of a holder in due What is of decisive importance is the delivery thereof.
by the maker or drawer himself or through a duly authorized course, a valid delivery thereof by all parties prior to The delivery of the instrument is the final act essential
agent. him is conclusively presumed. A presumption is said to to the consummation of an obligation. An undelivered
be conclusive when admission of evidence to the bill or note is inoperative. Until delivery, the contract
Issue. This is the first delivery of the instrument, complete contrary is not allowed. is revocable.
inform, to the person who takes it as holder. • To whom made. And the issuance as well as the
Example: M makes a note payable to the order of P (complete) delivery of the check must be to a person who takes it
Holder. He is the payee or indorsee of a bill or note who is in and keeps it in his drawer (undelivered). P steals the note and as a holder, which means the payee or indorsee of a bill
possession of it, or the bearer thereof. then indorses it to A, A to B, B to C, and C to D. or note, who is in possession of it, or the bearer thereof.
• Suppose D has knowledge of lack of delivery. In this Application to the case. Note that the checks were delivered
• Delivery is prerequisite to liability. Every contract on case, P and D are immediate parties. While D is a to Linton in its place of business in Navotas, but was received
negotiable instrument even if it is completely written, remote party, he is an immediate party because he has by a collector assigned by Linton, in Caloocan. This
is incomplete and revocable until its delivery for the knowledge and therefore he is not a holder in due notwithstanding, the receipt of the checks by the collector of
purpose of giving it effect. course. As regards P and D, M may rebut the Linton is not the issuance and delivery to the payee in
contemplation of law. The collector was not the person who Mabanto was a City Fiscal whose salary comes in the form of a. Where the sum payable is expressed in words and also
could take the checks as a holder, i.e., as a payee or indorsee checks from the DOJ funds. The checks are currently in the in figures and there is a discrepancy between the two,
thereof, with the intent to transfer title thereto. possession of his supervisor. Are such checks public funds or the sum denoted by the words is the sum payable; but
Ruling: Consequently, venue or jurisdiction lies either in the property of Mabanto? if the words are ambiguous or uncertain, reference may
Regional Trial Court of Kalookan City or Malabon [Navotas Ruling: Under Sec. 16 of the NIL, every contract on a be had to the figures to fix the amount;
used to be in Malabon]. negotiable instrument is incomplete and revocable until b. Where the instrument provides for the payment of
delivery of the instrument for the purpose of giving effect interest, without specifying the date from which
People v Grospe thereto. Same provision provides that where the instrument is interest is to run, the interest runs from the date of the
A check was issued in Bulacan but uttered and delivered in no longer in the possession of a party whose signature appears instrument, and if the instrument is undated, from the
Pampanga. It was dishonored for lack of funds. A case for thereon, a valid and intentional delivery by him is presumed, issue thereof;
estafa and a violation of BP 22 were subsequently filed, until the contrary is proved. In this case, the checks were in the c. Where the instrument is not dated, it will be considered
Determine the venue for filing the action. custody of de la Victoria. Inasmuch as the checks have not yet to be dated as of the time it was issued;
• Estafa. In the crime of Estafa by postdating or issuing been delivered to Mabanto, they did not belong to him and still d. Where there is a conflict between the written and
a bad check, deceit and damage are essential elements had the character of public funds. printed provisions of the instrument, the written
of the offense. In this case, deceit took place in San provisions prevail;
Fernando, Pampanga, while the damage was inflicted DBP Rizal v Sima Wei e. Where the instrument is so ambiguous that there is
in Bulacan where the check was dishonored by the Respondent issued 2 crossed checks payable to petitioner bank doubt whether it is a bill or note, the holder may treat
drawee bank in that place. Jurisdiction therefore may and drawn against China Bank. These two checks were not it as either at his election;
be entertained by either the Bulacan or Pampanga delivered to the petitioner-payee or to any of its authorized f. Where a signature is so placed upon the instrument that
Court. [Note that the receipt of the sales supervisor of representatives but ended up with Lee Kian Huat who deposited it is not clear in what capacity the person making the
the check in Bulacan does not matter because the rule them to the account of Plastic Corporation. Does petitioner same intended to sign, he is to be deemed an indorser;
is that the issuance as well as the delivery of the check bank have a cause of action against any of the parties mentioned g. Where an instrument containing the word "I promise to
must be to a person who takes it as a holder, which above? No. pay" is signed by two or more persons, they are deemed
means the payee or indorsee of a bill or note, who is in Doctrine: A payee of a negotiable instrument acquires no to be jointly and severally liable thereon.
possession of it, or the bearer, thereof] interest with respect thereto until its delivery to him. Without
• BP 22. For BP 22, damage and deceit. are immaterial. the initial delivery of the instrument from the drawer to the Rules of construction. The rules in this section are applicable
The gravamen of the offense is the issuance of a check, payee, there can be no liability on the instrument. Moreover, only when the instrument in question is ambiguous or uncertain
not the non-payment of an obligation. As such, the case such delivery must be intended to give effect to the instrument. or where there are omissions therein. If the terms are clear, the
could have been filed in Bulacan. However, it is • Note that as against respondent-drawer Sima Wei, instrument must be enforced as it reads.
likewise true that knowledge on the part of the maker petitioner Bank has a right of action against her for the People v Romero
or drawer of the check of the insufficiency of his funds, balance due thereon because there was no delivery yet. The one with the pyramid scam. Ruiz invested P150,000 in
which is an essential ingredient of the offense is by And assuming that there was already delivery, there SAIDECOR, upon being promised a return of 800% in 15-21
itself a continuing eventuality, whether the accused be was no encashment yet, and hence no payment. days. The latter issued a post-dated check which indicated
within one territory or another. Accordingly, P1,000,200 in words but P1,200,000 in numbers. Does the
jurisdiction to take cognizance of the offense also lies SECTION 17 amount in words prevail? No. When the intention of the parties
in the Regional Trial Court of Pampanga. Construction where instrument is ambiguous. is clear, there is no room for construction. In this case,
Where the language of the instrument is ambiguous or there are P1,200,00 was the amount clearly intended by the parties
De la Victoria v Burgos omissions therein, the following rules of construction apply: [P150,000 x 8].
1. Sum in words and figures different. The words are who assumes the least liability, and not as maker or e. Where a person makes a written promise to accept a
controlling because the figures in the margin form no drawer. bill before it is drawn (Sec 135).
part of the instrument and are simply an abridgement 7. Instrument signed by 2 or more persons. If the
of the amount payable for convenience or reference, instrument says I promise to pay and it is signed by 2 Signing in a trade or assumed name. One who signs in a trade
and it is easier to change the figures to commit a or more persons, the liability is solidary. But if the or assumed name will be liable to the same extent as if he had
mistake on them than when the amount is written in instrument reads we promise to pay and it is signed by signed in his own name. But it is necessary that the party who
words. 2 or more persons, the liability is joint. signed intended to be bound by his signature. This is not really
• Words ambiguous or uncertain. Reference an exception to the general rule but rather an instance where a
may be made to the figures in this case. If, for PNB v Concepcion Mining person’s business name serves the same purpose that would be
example, the amount written is three sixty-five, Legarda [now deceased] and Sarte signed a promissory note in served by his signature.
and the check bears the figures 365, the figures favor of PNB. The note said I promise to pay. Wishing to evade
control. liability, Sarte argued that the estate of Legarda be included as Jose Remo Jr. v IAC
2. Date when stipulated interest to run is not specified. party-defendant when PNB wanted to collect. Is Sarte correct? Remo is a director in Akron Company. The BOD authorized
If the date when the stipulated interest is to run is not No. According to Section 17(7), their liability is solidary. And the purchase of 13 trucks, with Coprada [president] negotiating
specified, the interest runs from the date of the pursuant to Article 1216 of the New Civil Code, the creditor its purchase. Coprada issued a promissory note to secure
instrument. If it is undated, from the date of issue. may proceed against any one of the solidary debtors or some of payment of the trucks. Can Remo be held personally liable for
3. Instrument undated. An undated instrument is them simultaneously. Hence, PNB may choose not to include said note? No, he did not sign his name on the note, so he cannot
considered dated as of the date of its issue. And issue Legarda’s estate in the demand. be held personally liable thereby. The word we appearing on
means the first delivery of the instrument complete in the note refers to the corporation represented by Coprada and
form to a person who takes it as holder. Hence, if a SECTION 18 not its stockholders or directors.
promissory not has no date but was delivered on Liability of person signing in trade or assumed name. SECTION 19
January 1, 2019, it will be considered dated as of the No person is liable on the instrument whose signature does not Signature by agent; authority; how shown.
same time. appear thereon, except as herein otherwise expressly provided. The signature of any party may be made by a duly authorized
4. Written and printed words in conflict. The written But one who signs in a trade or assumed name will be liable to agent. No particular form of appointment is necessary for this
words prevail because written words are deemed to the same extent as if he had signed in his own name. purpose, and the authority of an agent may be established as in
express the true intention of the maker or drawer other cases of agency.
because they are placed there by himself. On the other Persons liable on an instrument Authority of agent. The authority of the agent may be given
hand, printed forms are prepared without any particular General rule: Only persons whose signatures appear on an orally or in writing, subject to the provisions of the Statute of
contract in view. instrument are liable thereon. Frauds. It has been held competent simply for the agent to sign
5. Doubt if bill or note. The holder may treat an Exceptions: The following are liable on the instrument even if the name of the principal and to show his authority to do so by
ambiguous instrument either as a bill or a note, at his their signatures do not appear thereon: other evidence.
discretion. An example is an instrument that contains a a. Where a person signs in a trade or assumed name (Sec
promise to pay but is addressed to a drawee. Another 18); SECTION 20
example is a bill where the drawer and the drawee are b. The principal is liable if a duly authorized agent sign in Liability of person signing as agent, etc.
one and the same person. his own behalf (Sec 19); Where the instrument contains or a person adds to his signature
6. Capacity in which the person signed in doubt. In c. In case of forgery (Sec 23), the forger is liable even if words indicating that he signs for or on behalf of a principal, or
case of doubt in what capacity the person making the his signature does not appear on the instrument; in a representative capacity, he is not liable on the instrument if
instrument intended to sign due to the ambiguous d. Where the acceptor makes his acceptance of a bill on a he was duly authorized; but the mere addition of words
location of the signature, he is deemed to be an indorser separate paper (Sec 134); and describing him as an agent, or as filling a representative
character, without disclosing his principal, does not exempt Aruego issued a bill of exchange in favor of PBCOM to finance only in case the agent in so signing acted within the actual limits
him from personal liability. the printing of his periodical. When PBCOM came to collect, of his authority.
he denied personal liability, arguing that he signed merely as
When agent may escape personal liability an agent of the PH Education Foundation Company, of which • Procuration. This is the act by which a principal gives
In order that an agent who signs a negotiable instrument may he is president. Correct? No. He signed in his name without power to another to act in his place as he could himself.
escape personal liability, the following are the requisites: indicating that he was acting merely as an agent nor disclosing It is ordinarily understood in the same sense as agency
1. He is fully authorized; his principal. Hence, he is personally bound. or proxy.
2. He adds words to his signature indicating that he is an • Effect of signature by procuration. It gives warning
agent, that he acts for or in behalf of a principal, or in Francisco v CA that the agent has but a limited authority to sign, so that
a representative capacity; and GSIS issued checks in favor of Ong. Francisco forged Ong’s it is the duty of the person dealing with him to inquire
3. He discloses his principal. signature to indorse the checks in his favor. When sued for into the extent of his authority. The principal is not
estafa through falsification of commercial documents, his bound if the agent has exceeded the actual limits of his
Example: defense was that he was authorized to sign Ong’s name to authority.
The principal is Julia Real and the agent is Joanne Valles. collect the latter’s receivables from GSIS. Can he escape
a. Julia Real personal liability on the checks? No. The NIL provides that Example:
By: when a person is under any obligation to indorse in a Julia Real
(Sgd.) Joanne Valles, Agent representative capacity, he may indorse in such terms as to Per procuration: Joanne Valles
b. (Sgd.) Joanne Valles negative personal liability. An agent so signing should indicate
As agent of Julia Real that he is merely signing in behalf of the principal and disclose SECTION 22
c. (Sgd.) Joanne Valles the name of his principal. In this case, Francisco signed in Effect of indorsement by infant or corporation.
For Julia Real Ong’s name, passing the latter’s signature as her own. She The indorsement or assignment if the instrument by a
committed forgery. corporation or by an infant passes the property therein,
Non-disclosure of principal. One who signs an instrument in Astroelectronics Corp v Phil Export notwithstanding that from want of capacity, the corporation or
a representative capacity but without disclosing his principal Phil Trust Co loaned Astro 3M, with Phil Export as surety. To infant may incur no liability thereon.
will still be personally liable although he adds words that secure the loans, Astro issued 3 promissory notes signed by its
describe him to be merely an agent. However, as between president, Roxas twice—one in his personal capacity, and Minors and other incapacitated persons
immediate parties, evidence may be presented to show the real another in his capacity as agent. when Astro failed to pay, Phil General rule: Contracts entered into by minors are voidable
character of the transaction, that is, the signer acted as a mere Export paid Phil Trust Co because it was the surety. When Phil and they do not incur a liability thereon. This defense may be
agent and the payee knew of this fact. Export sought to collect from Astro and Roxas, Roxas sought raised only by the minor.
to evade personal liability by saying that he signed merely as • Application to negotiable instruments. The
Republic Planters Bank v CA an agent of Astro. Can he be held personal liability? No. The indorsement made by a minor transfers the rights to the
The president and the treasurer of a corporation, in the promissory note reads I/We, jointly and severally and solidarily instrument but he cannot be made liable thereon for
corporation’s behalf, signed their names in 9 promissory notes promise to pay. Clearly, he intended to be bound in solidum lack of capacity. This is a real defense available to the
in favor of Republic Planters Bank. Can they be held personally with Astro. Hence, Phil Trust can choose from whom to collect. minor.
liable for the said notes? Yes. The agents signed their names Example: M issues a note payable to P, a minor. P
but never indicated nor disclosed the fact that they were acting SECTION 21 indorses the note to A. In this case, A can collect from
in a representative capacity. Signature by procuration; effect of M because while P is a minor, he is not incapacitated
A signature by “procuration” operates as notice that the agent to transfer certain rights. His indorsement transferred
PH Bank of Commerce v Aruego has but a limited authority to sign, and the principal is bound his rights on the note to A. But in case M cannot pay A
because of any reason, A cannot collect from P because 2. Where the signature is affixed by one who purports 9 checks of Casa Montessori in its BPI current account were
P can raise the defense of minority. to be an agent but has no authority to bind the cashed by its external auditor by forging the signature of its
• Other incapacitated persons. These include insane or principal. president. In the absence of showing negligence on the part of
demented persons and deaf-mites who do not know • Proof. Forgery is not presumed. It must be proven with the drawer, Casa, drawee bank BPI is liable.
how to write. clear and convincing evidence. He who alleges forgery Ratio: The banking business is impressed with public interest
Exception: Minors are liable when they are guilty of active has the burden of proof. and the highest degree of diligence is expected from it. Banks
fraud. That is, stating that they are of legal age, when in fact, Effects of forgery are bound to know the signature of their clients and if they pay
they are not. General rule: The forged signature is wholly inoperative and a forged check, they are considered as making payment out of
Corporations no right can be acquired through the forged signature. Forgery their own funds and cannot charge the same against the account
Ultra vires acts. This section applies to ultra vires acts is a real defense. It may be raised against a holder in due course. of the depositor whose name was forged.
committed by a corporation, or those beyond its powers. A • Only forged signature inoperative. Forgery does not
corporation is not liable on instruments in a note thereon by an purport to declare the instrument totally void not the Citibank v Cabamongan
indorsee, where the corporation is without capacity to make the genuine signatures thereon inoperative. Rights may Citibank allowed an impostor to pre-terminate the time deposit
contract in fulfillment of which they were executed. still exist and be enforced by virtue of such instrument of respondent spouses. The SC ordered the bank to reimburse
as to those whose signatures thereto are found to be the spouses upon showing negligence on the part of the bank.
Duty of diligence. One who deals with officers or agents of a genuine. The employee who dealt with the spouses ignored protocol by
corporation is bound to know, at his own peril, their powers and allowing pre-termination even without the original certificate
the extent of their authority. Exceptions: In the following cases, right or title can be of time deposit or the notarized release and waiver, even if the
acquired to a negotiable instrument through or under a forged employee had already noticed a discrepancy in the signatures
SECTION 23 signature: earlier, and failed to check their records even though they had
Forged signature; effect. 1. If the party to who it is sought to enforce such right is pictures of their clients on file. Moreover, the transaction lasted
When a signature is forged or made without the authority of the precluded from setting up forgery or want of authority. for only 40 minutes.
person whose signature it purports to be, it is wholly a. Those who by their acts, silence, or
inoperative, and no right to retain the instrument, or to give a negligence, are estopped from setting up the Examples where drawer was precluded from raising forgery
discharge therefor, or to enforce payment thereof against any defense of forgery; and as a defense
party thereto, can be acquired through or under such signature, b. Those who warrant or admit the genuineness
unless the party against whom it is sought to enforce such right of the signatures in question, namely: MWSS v CA
is precluded from setting up the forgery or want of authority. i. Indorsers MWSS issued 23 personalized checks but these checks were
ii. Acceptors cleared and deducted by drawee bank PNB from its account
Forgery. Forgery is the counterfeit-making or fraudulent iii. Persons negotiating by delivery twice. Is MWSS entitled to reimbursement from PNB? No,
alteration of any writing, and may consist in the signing of 2. Where the forged signature is not necessary to the forgery was not proved and MWSS was negligent.
another’s name, or the alteration of an instrument in the name, holder’s title, in which case the forgery may be • Forgery cannot be presumed. It must be established
amount, description of the person and the like, with intent disregarded. by clear, positive, and convincing evidence. NBI
thereby to defraud. Reports relied upon by MWSS are inadequate to
• Application. The provision applies only to 2 cases: Forgery of drawer’s signature sustain its allegations of forgery. These reports did not
1. When the signature is affixed by one who does not Examples of the general rule touch on the inherent qualities of the signatures which
claim to act as an agent and has no authority to bind are indispensable in the determination of the existence
the person whose signature he forged. BPI v CASA Montessori of forgery.
• MWSS is barred from setting up the defense of certain Aida Trencio. Equitable stamped at the back of the such discrepancies. Gempesaw’s negligence was the proximate
forgery because of negligence. In the use of checks and sent the checks for clearing. BDO paid the checks. cause of her loss; however, PBCom was likewise negligent.
personalized checks, MWSS failed to provide needed When BDO discovered the forged indorsements, it sought The approval of the Branch Manager was required for checks
security measures and failed to perform timely bank reimbursement from Equitable. Should Equitable be held w/ a second indorsement – and in spite of this, they failed to
reconciliations as well. liable? YES. The collecting bank or last endorser generally detect the fraud. Thus, the court equitably regulated the
suffers the loss because it has the duty to ascertain the liabilities of the parties – Gempesaw and PBCom share half of
Ilisorio v CA genuineness of all prior endorsements. The act of presenting the the losses.
A prominent businessman who had entrusted his checkbooks to check for payment to the drawee is an assertion that it has done
his secretary that allowed the latter to draw and cash 17 checks its duty to ascertain the genuineness of the endorsements. Rights of parties in cases of forged indorsements
from the former’s account was not allowed to recover the same Having accepted the crossed checks from persons other than Promissory note Bill of exchange
due to his negligence. He exhibited an unusual degree of trust the payees, the defendant is guilty of negligence; the risk of Order The party whose Where the bill is
to his sexytary and gave her unrestricted access to his accounts. wrongful payment has to be assumed by it. indorsement is forged is payable to order, the
not liable to any holder party whose
Forgery of indorser’s signature Jai Alai v BPI even a holder in due indorsement is forged
General rule: The drawee bank is not liable for the losses Jai-Alai acquired 10 checks from Ramirez, agent of Inter-Island course. The indorsement, is not liable to any
Gas, the original payee. Jai-Alai deposited these checks to BPI. being forged, is holder, even a holder
because it does not warrant the genuineness of the signature of
inoperative. in due course. The
the indorsers. It warrants only the signature of the drawer. It later on appeared that the checks contained unauthorized
indorsement forged is
• In this case, the collecting bank is liable. As last indorsements and so BPI returned the checks to drawee-banks
The other parties prior to wholly inoperative.
indorser, it warrants the genuineness of all prior and then deducted the same from Jai-Alai’s account. Proper? the party whose
indorsements. The basis for this liability is the Doctrine Yes. Jai-Alai, as a general indorser, broke his warranty under signature is forged If the drawee pays
of Last Clear Chance. NIL Sec. 66 that the instrument “is genuine in all respects what (including the maker), under a forged
o Doctrine of last clear chance. One who had it purports to be.” Thus, BPI should reimburse the drawee- are also not liable to any indorsement, the
the last clear opportunity to avoid the banks and Jai-Alai should in turn shoulder the reimbursable holder. drawer is not liable
impending harm but failed to do so is amounts. thereon and the
chargeable with the consequences thereof. Reason: The instrument drawee may not debit
• The collecting bank’s remedy is to go after the indorser Relative negligence: losses are shared by negligent parties being payable to order, it the drawer’s account.
can be negotiated only by
prior it. See Jai Alai digest.
indorsement and Reason: A bank is
• But the unqualified indorsement of the collecting bank Gempesaw v CA
completed by delivery. bound to know the
should be read with the 24-hour regulation on clearing Gempesaw operated four grocery stores. Her customary
But since the signature is signatures of its
house operation. practice of issuing a check was that the checks were to be filled
forged, it is inoperative customers. If it pays
out by Galang (trusted bookkeeper) as to all the material and cannot operate to under a forged check
Exception: When there is negligence, one is precluded from particulars. Then it will be sent to the petitioner for a signature. transfer any right or title it must be considered
raising forgery as a defense. In conspiracy with Galang’s friend in PBCOM, 82 checks were to the instrument. as making the
enchased by forging the signatures of the payees. Can payment out of its
Examples of the general rule Gempesaw recover from PBCOM? No. A depositor has a duty own funds.
BDO v Equitable to set up a system to prevent forgeries of indorsements
BDO drew 6 crossed Manager's checks payable to certain particularly by one’s employees, and if the depositor is Where, however, the
member establishments of Visa Card. The Checks were negligent, shall be deemed liable She never bothered checking checks are received
the statements, and she did not promptly inform the bank of merely for collection
deposited with the Equitable to the credit of its depositor, a
and deposit, the bank, Summary other material alteration does not discharge the
as agent, cannot be Note BoE instrument.
expected to know or Prior parties x x • Alters the effect of the instrument. In addition to
ascertain the Order Forged signature x x those enumerated in subsections (a) to (e) above, the
genuineness of all following constitute material alterations as they alter
Subsequent indorsers Liable to all Liable to all
prior indorsements. the effect of the instrument:
Bearer Where the note, In case the bill is Prior parties Liable to all Liable to all 1. Substitution of the words or bearer for or order.
mechanically complete, originally payable to Bearer Forged signature Only to HIDC x 2. Writing the words protest waived above a blank
is originally payable to bearer, the drawee Subsequent indorsers Liable to all Liable to all indorsement
bearer, the party whose may debit the *Liable to all means liable to HIDC and HNIDC 3. Erasure of the words without recourse above the
indorsement is forged is drawer’s account in signature of an indorser
liable to a holder in due spite of the forged SECTION 124
course, but not to one indorsement. Alteration of instrument; effect of. Effect of alteration of instrument
who is not a holder in Where a negotiable instrument is materially altered without the Section 124 and 125 refer to physical alterations of the
due course. Reason: The forged assent of all parties liable thereon, it is avoided, except as instrument. Thus, an extension of time given by the holder of a
indorsement is not against a party who has himself made, authorized, or assented note to the principal maker without the consent of a surety co-
The other parties prior to necessary to the tile of to the alteration and subsequent indorsers. maker is not an alteration.
the party whose the holder. The But when an instrument has been materially altered and is in 1. Alteration by a party. The instrument is discharged
signature is forged drawee cannot recover the hands of a holder in due course not a party to the alteration, and all prior parties thereto who did not give their
(including the maker), from the holder. he may enforce payment thereof according to its original tenor. consent to the alteration are discharged as well.
are liable to any holder, a. Exceptions. The instrument is not discharged
including a holder not in See discussion after Section 125. as against:
due course. i. A party who has made the alteration.
SECTION 125 ii. A party who consented to the alteration
Reason: The instrument What constitutes a material alteration. iii. Indorsers who indorsed subsequent to the
being originally payable Any alteration which changes: alteration
to bearer, can be a. The date; b. Favorable or unfavorable. The law does not
negotiated by mere b. The sum payable, either for principal or interest; distinguish between alterations favorable or
delivery. Indorsement is c. The time or place of payment: unfavorable to the party making the alteration.
not necessary to the title d. The number or the relations of the parties; c. Innocent or fraudulent. The law does not
of the holder and may be e. The medium or currency in which payment is to be distinguish between alterations fraudulently or
disregarded. made; innocently made. Hence, the instrument is still
Or which adds a place of payment where no place of payment discharged but the innocent party can sue upon
Liability of a bank that allows withdrawal under a forged is specified, or any other change or addition which alters the the original debt for which it has been given.
signature. A bank is bound to know the signatures of its effect of the instrument in any respect is a material alteration. 2. Alteration by a stranger. When the material alteration
customers; and if it pays a forged check, it must be considered of the instrument is made by a stranger, it is called
as making the payment out of its own funds, and cannot Material alteration spoliation. Section 124 does not make a distinction
ordinarily charge the amount so paid to the account of the • Material alteration. This refer to any change in the between alteration made by a party or a stranger.
instrument which materially affects the liability of the 3. Right of a holder in due course. A material alteration
depositor whose name was forged. San Carlos Milling v BPI;
parties in any way as specified in Section 125, or avoids the instrument in the hands of one who is not a
PNB v Quimpo
changes the contract of the parties in any respect. Any holder in due course as against any prior party who has
not assented to the alteration. But if an altered
instrument is negotiated to a holder in due course, he to People’s Bank and HSBC cleared the same. Changco was
may enforce payment thereof according to its original able to withdraw the amount. 27 days later, HSBC informed
tenor regardless of whether the alteration was innocent People’s Bank of the alteration and sought to collect from the
or fraudulent. latter. SC held that HSBC’s failure to inform People’s Bank of
the alteration within 24 hours negates whatever right the former
Central Bank’s 24-hour regulation had against the latter.
Central Bank Circular No. 9, Sec 4(c)
Items which should be returned for any reason whatsoever shall In-class notes
be returned directly to the bank, institution or entity from which Duties of a drawee bank
the item was received. 1. To know WON the drawer’s signature thereon is
• For this purpose, the Receipt for Returned Checks genuine
(Cash Form No. 9) should be used. The original and 2. To know whether there are sufficient funds in drawer’s
duplicate copies of said Receipt shall be given to the account to cover checks issued
Bank, institution or entity which returned the items and 3. To be able to detect alterations, erasures,
the triplicate copy should be retained by the bank, superimpositions or intercalations thereon
institution or entity whose demand is being returned. Because these instruments are prepared, printed, and issued by
• At the following clearing, the original of the Receipt itself. Hence, it has control of the drawer’s account.
for Returned Checks shall be presented through the
Clearing Office as a demand against the bank,
institution or entity whose item has been returned.
• Nothing in this section shall prevent the returned items
from being settled by direct reimbursement to the bank,
institution or entity returning the items.
• All items cleared at 11:00 o’clock A.M. shall be
returned not later than 2:00 o’clock P.M. on the same
day and all items cleared at 3:00 o’clock P.M. shall be
returned not later than 8:30 A.M. of the following
business day except for items cleared on Saturday
which may be returned not later than 8:30 A.M. of the
following day.
Note: This 24-hour regulation is valid and if the banks feel that
this is unwise, they should make proper representations with
the Central Bank. Until they do, they shall be bound by the said
period.
HSBC v People’s Bank

PLDT drew a check in favor of HSBC [which is also the drawee
bank]. Said check fell in the hands of Changco, who erased the
payee’s name and replaced it with his. He deposited the check
CONSIDERATION ad majorem dei gloriam NEGO
CHAPTER II promissory note to pay for the lawyer’s services, but later on Where value has at anytime been given for the instrument, the
refused to pay. Can Rama collect on the note? No. holder is deemed a holder for value in respect to all parties
CONSIDERATION • The presumption of consideration is only prima facie who become such prior to that time.
and may therefore be rebutted by competent evidence.
SECTION 24 Such is the case here. • Holder for value. A holder for value is one who has
Presumption of consideration. o The promissory note read that it represented given a valuable consideration for the instrument
Every negotiable instrument is deemed prima facie to have cash advances made by the lawyer in issued or negotiated to him.
been issued for a valuable consideration, and every person connection with the case, but the SC found that • As to whom. The holder is deemed as a holder for
whose signature appears thereon to have become a party thereto it was highly unusual for a lawyer to lend value not only as regards the party to whom value has
for value. money, without security or interest, to a client been given by him but also in respect to all those who
whom he had known only for 3 months. became parties prior to the same when value was given.
• Consideration. A.K.A. cause. This is the immediate,
direct, or essential reason which induces a party to
o Furthermore, it was shown that Pineda did not • Presumption. A holder of a negotiable instrument is
need the money as he had various properties presumed to be a holder for value until the contrary be
enter into a contract.
and cash deposits. shown by any party who claims otherwise.
• Presumption of consideration. The law presumes that
• Nevertheless, it was shown in the case that the
there is a consideration and the same is lawful. Because
consideration of the note is contrary to law and public Example: M issues a note payable to P, without consideration.
of this presumption, it is not necessary that the
policy- it was to influence public officers in the P, without consideration, indorses it to A. A, with consideration
consideration be expressly stated in the instrument.
performance of their duties. Hence, the note is void ab indorses it to B. B negotiates the note to C by way of gift.
However, this presumption may be disproved by
evidence to the contrary.
initio. • In the example above, B is deemed a holder for value
not only as regards A but also as regards M and P.
Travel-on v CA
SECTION 25 o HIDC. If B is a HIDC, he may enforce
Value; what constitutes payment for the full amount against M, P, and
Montilla issued checks in favor of Travel-on for the purchase
Value is any consideration sufficient to support a simple A.
of airline tickers but later on denied that said check was
evidence of her indebtedness to the latter. RTC and CA ruled
contract. An antecedent or pre-existing debt constitutes value; o Not HIDC. If B is not a HIDDC, M can set up
and is deemed such whether the instrument is payable on the defense of absence of consideration.
in favor of Montilla but SC reversed.
• A check which is regular on its face is deemed prima
demand or at a future time. • In the same example, C is a holder for value with
facie to have been issued for a valuable consideration respect to M, P, and A because they became parties to
• Valuable is not the same as adequate. A the instrument prior to the time when value was given
and every person whose signature appears thereon is
consideration need not be adequate. It is enough that it on the note by B.
deemed to have been a party thereto for value.
is valuable. For example, a note worth P20,000 is said
• CA placed the burden of proving valuable
to have been issued for a valuable consideration if SECTION 27
consideration on Travel-On. This is wrong. It should
issued for a piano worth P18,000. When lien on instrument constitutes holder for value.
be Miranda who must prove that he had issued the
• Pre-existing debt. An existing debt may be that of the Value is any consideration sufficient to support a simple
checks without sufficient consideration
maker or drawer or for the benefit of a third person. contract. Where the holder has a lien on the instrument arising
from contract or by implication of law, he is deemed a holder
Pineda v dela Rama
SECTION 26 for value to the extent of his lien.
To prevent NARIC from instituting criminal charges against
What constitutes holder for value
Pineda, the latter hired Atty. Dela Rama because the latter was
a close friend of NARIC’s general manager. He issued a

When there is lien. One who has taken a negotiable instrument • Absence. If the land does not exist, there is absence of • He is classified according to the accommodated party’s
as collateral security for a debt has a debt has a lien on the consideration. There can be no recovery between P and status- if the accommodated party is a maker, then the
instrument. M. But if the note is indorsed to A, a holder in due accommodation party is liable on the instrument as if
• Amount of instrument > debt secured. The pledgee course, A can recover from M because consideration is he was the maker.
is a holder for value to the extent of his lien. He can only a personal defense. • Therefore, an accommodation party may be an
collect the full amount of the instrument but must • Total failure. If it exists but P failed to deliver it accommodation maker, accommodation drawer,
return the surplus to the pledgor. because he sold it to X who in good faith registered the accommodation acceptor, or an accommodation
• Amount of instrument < or = to the debt secured. sale, there is failure of consideration. There can be no indorser.
The pledgee is a holder for value for the full amount recovery between P and M. But if the note is indorsed
and may, therefore, recover all. to A, a holder in due course, A can recover from M 3 requisites for an accommodation party
• Party liable has defenses. The lien is subject to because consideration is only a personal defense. 1. He must be a party to the instrument, signing as maker,
defenses. • Partial failure. If only 2/3 of the land was delivered, drawer, or indorser
o Personal defense. If, between the pledgor and there is a partial failure of consideration. Hence, P can 2. He must not receive value therefor (for the instrument)
the party liable on the instrument, there are recover only 2/3 of the note as M is not liable for the 3. He must sign for the purpose of lending his name or
existing defenses, then the pledgee can collect 1/3, which is the price of the undelivered portion. credit to some other person.
on the instrument only to the extent of the
amount of the debt. SECTION 29 Accommodated party. One whose favor a person, without
o Real defense. If there are real defenses, then Liability of accommodation party. receiving value therefor, and for the purpose of lending his
the pledgee can recover nothing upon the An accommodation party is one who has signed the instrument credit and enabling the said person to raise money from it.
instrument. as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other Liability of an accommodation party to a holder; absence
SECTION 28 person. Such a person is liable on the instrument to a HOLDER of consideration not a defense. The law provides that the
Effect of want of consideration. FOR VALUE, notwithstanding such holder at the time of accommodation party is liable to a holder for value
Absence or failure of consideration is a matter of defense as taking the instrument knew him to be an accommodation party notwithstanding such holder at the time of taking the instrument
against any person not a holder in due course; and partial failure only. knew him to be an accommodation party only. This means that
of consideration is a defense pro tanto, whether the failure is an absence of consideration between the accommodation and
ascertained and liquidated amount or otherwise. Accommodation note or bill. It is one to which the accommodated party is not a defense against a holder for value.
accommodation party has put his name, without consideration,
Absence of consideration. This means the total lack of any for the purpose of accommodating some other party who is to Liability of an accommodation party to a holder; he is in
valid consideration for the contract, in consequence of which use it, and is expected to pay it. It is a loan of one’s credit. effect a surety. The liability of an accommodation party to a
the alleged contract must fail. holder for value is not only primary but also unconditional. As
Accommodation party. One who has signed the instrument as far as a holder for value is concerned, he is a solidary co-debtor.
Failure of consideration. This means the failure or refusal of maker, drawer, acceptor, or indorser without receiving value • The relation between an accommodation party and the
one of the parties to do, perform or comply with the therefor, and for the purpose of lending his name to some other accommodated party is one of principal and surety --
consideration agreed upon. The agreed upon consideration person. the accommodation party being the surety. As such, the
failed to materialize. • He is the one lending credit to the accommodated accommodation party is deemed an original promisor
Example: M issues a note payable to P in payment of a parcel party, and expects that the instrument will be paid by and debtor from the beginning. Although a contract of
of land. the latter when it falls due. suretyship is in essence accessory/collateral to a valid
principal obligation, the surety’s liability to the creditor
is immediate, primary and absolute. He is directly and against the accommodated hide the fact Maulini is the lender in the borrower’s
equally bound with the principal. Ang v Associated party. books.
Bank
Clark v Sellner PNB v Maza & Mecenas
Recovery of amount paid. After making payment to the Sellner and 2 otherpeople signed a note in favor of Clark. It Maza and Macenas executed 5 promissory notes in favor of
holder, the accommodation party may recover from the reads: Six months after date, for value received, we jointly and PNB and failed to pay the same. They refused to pay,
accommodated party for reimbursement. severally promise to pay to the order of R. N. Clark xxx. The contending that they are mere accommodation parties and
note matured but was not paid. Sellner refuses to pay because Echaus is the real-party-in-interest. Are Meza and Macenas
Meaning of without receiving value therefor. The law he says that he is only an accommodation party who merely lent liable to PNB? Yes.
contemplates value received for the instrument, and not for the the use of his name without receiving any part of the proceeds • Absence of consideration not a defense of
lending of name or credit. Thus, one may still be considered an of the note. Can Sellner be held liable? YES accommodation parties. Even though Maza and
accommodation party within the meaning of the law • He is a solidary debtor. The liability of Sellner, as one Mecenas argue that they never received consideration
notwithstanding the fact that he received payment for the of the signers of the note, is not dependent on whether on the notes, such is not a valid defense against liability
lending of his name. he has, or has not, received any part of the amount of as accommodation makers. The consideration which
the debt. The defendant is really and expressly one of supports the promise of the accommodation maker is
Liability as accommodation party not presumed. Bautista, the joint and several debtors on the note. that parted with by the person taking the note and
in his capacity as president of Cruiser Bus Lines, purchased • It is immaterial, so far as the creditor is concerned, received by the person accommodated.
various spare parts from a supplier and issued 2 post-dated whether one of the signers has, or has not, received • Remedy. When the accommodation parties make
checks, which were subsequently dishonored. The issue anything in payment of the use of his name. payment to the holder of the notes, they have the right
presented before the SC is WON he should be liable as an • As to Clark, he is the “holder for value” as to sue the accommodated party for reimbursement,
accommodation party. SC ruled in the negative. In the absence contemplated in Sec. 29. As holder, he has the right to since the relation between them is in effect that of
of concrete evidence, it cannot just be assumed that Bautista demand payment of the debt from the signer of the principal and sureties, the accommodation parties
intended to lend his name to the corporation. note, even though he knows that said person is merely being the sureties.
an accommodation party.
Accommodation party v Regular party Sadaya v Sevilla
Accommodation party Regular party Maulini v Serrano Sevilla and Sadaya are joint accommodation makers, while
Signs the instrument without Signs the instrument for Serrano is a broker and his business consists in looking for Varona is the accommodated party. Sadaya paid the amount of
receiving value value lenders and borrowers and acting as mediator to negotiate a the note. Should he be reimbursed by Sevilla?
Signs for the purpose of Does not sign for this loan between the two. The usual practice is for Serrano to Summary of rules:
lending his name purpose personally deliver the money to the borrower, take the note in 1. A joint and several accommodation maker of a
May always show by parole Regular party cannot limit or his own name, and then immediately indorse it to the actual negotiable PN may demand from the principal debtor
evidence that he is only an disclaim personal liability by lender. The lender in this case is Maulini. Is Serrano an reimbursement for the amount that he paid to the payee
accommodation party parole evidence
accommodation party? No. 2. A joint and several accommodation maker who pays on
Cannot avail of the defense Regular party may avail of
of absence of consideration such against a HNIDC • Maker or indorser. The accommodation referred to in the said PN may directly demand reimbursement from
or failure of consideration the Negotiable Instruments law is to the note’s maker his co-accommodation maker without first directing
against HNIDC or indorser, and not to the payee or indorsee. In this his action against the principal debtor, provided
After paying the holder, he Regular party may not sue case, Serrano ‘accommodated’ the indorsee, namely a. He made payment by virtue of a judicial
may sue for reimbursement any subsequent party for Maulini, not to better secure payment but to simply demand, OR
reimbursement. b. Principal debtor is insolvent.
In this case, the CA found that Sadaya made payment 1. Issue. This is the first delivery of the instrument negotiated, the assignee acquires the right to have the
voluntarily and without judicial demand. There was an absolute complete in form, to a person who takes it as holder. A indorsement of the assignor. When indorsement is
absence of Varona being insolvent. Therefore, he should not be negotiable instrument’s legal life does not begin until subsequently obtained, the transfer operates as a
reimbursed. it is issued by the maker or drawer to the first holder. negotiation only as of the time indorsement is actually
2. Negotiation. This is the transfer of an instrument from made.
Crisologo Jose v CA one person to another in such manner as to constitute
Benares, president of the Corporation, issued a check drawn the transferee the holder thereof. There is no Negotiation v Assignment
against Traders Royal Bank to accommodate its client, the Ong negotiation if the transfer does not make the transferee A negotiable instrument may either be negotiated or assigned,
spouses. The check was payable to Crisologo. The check was the holder thereof. but a non-negotiable instrument can only be assigned.
in the name of the Corporation and the president and the a. Order instruments. These are negotiated by
treasurer were the authorized signatories. However, it was the indorsement followed by delivery. Negotiation Assignment
president and the VP for Sales that signed the check. Can the b. Bearer instruments. These are negotiated by Refers only to negotiable Refers generally to an
Corporation be held liable as accommodation party? NO. mere delivery. instruments ordinary contract
Benares is personally liable. Delivery is the transfer of possession, actual or Transferee is a holder Transferee is an assignee
Sec 29 of the NIL does not apply to corporations. The issue constructive, from one person to another. Note that HIDC is subject only to real Assignee is subject to real
or indorsement of negotiable paper by a corporation without the delivery must be voluntary. Meaning, if a person defenses and personal defenses
consideration and for the accommodation of another is ultra issues a note payable to bearer, and such note is stolen HIDC may acquire better Generally, an assignee
vires. In this case, the signatories are liable in their personal and delivered to a third person, there is no delivery and title or greater rights to the merely steps into the shoes
instrument than those of the assignor
capacity. therefore no negotiation.
possessed by the transferor
• But liable if authorized. An officer or agent of a 3. Assignment. It is the transfer of the title to an
or a prior party
corporation shall have the power to execute or indorse instrument with the assignee generally taking only such
General indorser warrants Assignor does not warrant
a negotiable paper in the name of the corporation for title or rights as his assignor has, subject to all defenses the solvency of prior parties solvency of prior parties
the accommodation of a third person only if available against his assignor. unless expressly stipulated
specifically authorized to do so. In this case, the or when insolvency is known
corporation is liable as an accommodation party. Delivery of order instrument without indorsement to him
1. Transfer operates as an ordinary assignment. The Indorser is not liable unless Assignee liable even without
CHAPTER III assignee is merely placed in the position of the there be presentment and notice of dishonor
assignor, the former acquiring the instrument subject to notice of dishonor
NEGOTIATION Negotiation covered by NIL Assignment covered by Art
all defenses, real and personal, against the latter.
2. Transferee does not become holder. Without 1624 to 1635 of the
SECTION 30 Civil Code.
indorsement, the transferee would not be a holder, he
What constitutes negotiation.
being not the payee, indorsee, or the bearer thereof.
An instrument is negotiated when it is transferred from one Caltex v CA
• Holder. This is the payee or indorsee of a bill
person to another in such manner as to constitute the transferee A certificate of deposit has the following words printed on its
or note, who is in possession of it, or the bearer
the holder thereof. If payable to bearer, it is negotiated by face: This is to Certify that BEARER has deposited in this Bank
thereof.
delivery; if payable to order, it is negotiated by the indorsement the sum of __ PESO. Angel Dela Cruz delivered these
• Bearer. Person in possession of a bill or note
of the holder completed by delivery. certificates of deposit to Caltex to guarantee purchases of fuel
payable to bearer.
3. When indorsement is subsequently obtained. When products. Can Caltex collect payment?
Methods of transfer of a negotiable instrument
an order instrument is only delivered but not
NEGOTIATION ad majorem dei gloriam NEGO
• Ruling: No. The CTDs were delivered as security and who could take the checks as a holder, i.e., as a payee or o Upon a paper attached thereto. Where the
not as payment. Under the Negotiable Instruments indorsee thereof, with the intent to transfer title thereto. indorsement is on a slip of paper physically
Law, an instrument is negotiated when it is transferred Ruling: Consequently, venue or jurisdiction lies either in the attached to the instrument so as to become part
from one person to another in such a manner as to Regional Trial Court of Kalookan City or Malabon [Navotas of it, the paper is known as an allonge.
constitute the transferee the holder thereof, and a used to be in Malabon].
holder may be the payee or indorsee of a bill or note, SECTION 32
who is in possession of it, or the bearer thereof. SECTION 31 Indorsement must be of entire instrument.
Indorsement; how made The indorsement must be an indorsement of the entire
Lim v CA The indorsement must be written on the instrument itself or instrument. An indorsement which purports to transfer to the
The Lims issued 7 checks in favor of Linton Commercial for upon a paper attached thereto. The signature of the indorser, indorsee a part only of the amount payable, or which purports
payment of their steel materials. Said checks were dishonored without additional words, is sufficient indorsement. to transfer the instrument to two or more indorsees severally,
and the spouses were unable to pay despite repeated demands. does not operate as a negotiation of the instrument. But where
RTC Malabon and CA held them guilty of violating BP 22. The • Indorsement. This is the writing of the name of the the instrument has been paid in part, it may be indorsed as to
checks were issued and delivered to Linton in Navotas and payee or indorser on the instrument with the intent the residue.
dishonored in Caloocan. Parties now question the jurisdiction either (1) to transfer the title to the same, or (2) to Partial indorsement
of RTC Malabon. strengthen the security of the holder by assuming a General rule:
• Jurisdiction. A person charged with a transitory crime contingent liability for its future payment. • Partial indorsement makes the instrument non-
[such as BP 22] may be validly tried in any • Nature of indorsement. This is a mode of transfer. It negotiable. Indorsement must be of the entire
municipality or territory where the offense was in part is also a new contract and an obligation on the part of instrument. The reason is that there cannot be partial
committed. the indorser- an implied guarantee that the instrument delivery of one instrument. The object of the provision
• Delivery is what’s important. The place where the will be duly paid according to the terms thereof. is to avoid multiplicity of suits or actions in court.
bills were written, signed, or dated does not necessarily • Necessity. It is necessary to the execution of an • Effect to indorsee. The indorsee becomes a mere
fix or determine the place where they were executed. instrument payable to the order of the maker or drawer. assignee in which case he would be subject to all
What is of decisive importance is the delivery thereof. It is also essential to the negotiation of an order defenses available between the parties. Being only a
The delivery of the instrument is the final act essential instrument. part indorsee, he is considered as a mere assignee.
to the consummation of an obligation. An undelivered • Form of indorsement. The law does not require an
bill or note is inoperative. Until delivery, the contract exclusive form, but it must be in writing. Exception:
is revocable. o Blank indorsement. Signature of the indorser Partial payment previously made. If part of the amount has
• To whom made. And the issuance as well as the without additional words. already been paid, the balance may be indorsed.
delivery of the check must be to a person who takes it o Special indorsement. Where the name of the
as a holder, which means the payee or indorsee of a bill indorsee is specified. Indorsement to multiple payees or indorsees.
or note, who is in possession of it, or the bearer thereof. • Place of indorsement. The indorsement may be Note that in nego, the meaning of the words joint and several
Application to the case [negotiation issue]. Note that the written: are baliktad sa obli.
checks were delivered to Linton in its place of business in o On the instrument itself. The word • Several payees. Transfer of the instrument to 2 or
Navotas, but was received by a collector assigned by Linton, in indorsement originates from the Latin word more persons severally (independently) does not
Caloocan. This notwithstanding, the receipt of the checks by indorsa, which literally means writing on the operate as a negotiation because the cause of action is
the collector of Linton is not the issuance and delivery to the back. However, the instrument may be written split. Example: Indorsement that says, “Pay to A or B”
payee in contemplation of law. The collector was not the person on the face of the instrument. or “Pay to A 800, and to B 200.”

• Joint payees. However, negotiation is valid if the b. Unqualified or general • Negotiation of order and bearer instruments. The
indorsees are joint. But the indorsements of all the 4. As to presence or absence of limitations negotiation would depend on the nature of the
indorsees are required for further negotiation of the a. Conditional instrument.
instrument. Example: Indorsement that says, “Pay to b. Unconditional o Originally payable to order. If negotiated by
A and B.” 5. Other kinds the payee through special indorsement, the
• Alternative payees. The negotiation of the instrument a. Joint indorsement of the indorsee is necessary to the
may be made by the indorsement of either of the b. Successive further negotiation of the instrument.
payees. Example: Indorsement that says, “Pay to A, or c. Irregular or anomalous o Originally payable to bearer. If negotiated
in his absence, pay to B.” d. Facultative by the payee through special indorsement, it
may nevertheless be negotiated by mere
Montinola v PNB Note that once an instrument as issued satisfies all the requisites delivery, but the special indorsement is liable
Ramos has a check worth Php100, 000 drawn against PNB. He of negotiability, no indorsement, even restrictive ones, can only to such holders as make title through his
sold part of the check’s value of Php30, 000 to Montinola. At negate its negotiable status. indorsement (sec 40).
the back of the check, Ramos instructed the bank to pay
Montinola only Php30, 000 and deposit the balance to Ramos’ SECTION 34 Blank indorsement. This is one where the name of the payee
account. Montinola now seeks to collect on the entire Special indorsement; indorsement in blank is not specified. This ordinarily consists only of the signature
instrument. Can he do so? No. A special indorsement specifies the person to whom, or whose of the payee or indorser. A check payable to the order of a
An indorsement which purports to transfer to the indorsee a part order, the instrument is to be payable, and the indorsement of named person indorsed by him on blank makes it a bearer
only of the amount payable does not operate as a negotiation of such indorsee is necessary to the further negotiation of the instrument.
the instrument. Montinola may therefore not be regarded as an instrument. An indorsement in blank specifies no indorsee, and • Payable to bearer when indorsed in blank. An
indorsee. At most he may be regarded as a mere assignee of the an instrument so indorsed is payable to bearer, and may be instrument indorsed in blank is payable to bearer and
P30,000 sold to him by Ramos, in which case, as such assignee, negotiated by delivery. may be negotiated by mere delivery without the need
he is subject to all defenses available to the drawer Provincial for further indorsements regardless of whether the
Treasurer of Misamis Oriental and against Ramos. Special indorsement. This is one where the name of the payee instrument is originally payable to order or bearer.
is specified. This is known as specific indorsement or Takeaway: an order instrument may be converted into a bearer
SECTION 33 indorsement in full. instrument by a blank indorsement, but a bearer instrument
Kinds of indorsement. remains as such regardless of the manner of indorsement. Once
An indorsement may either be special or in blank; it may also • Forms. A special indorsement may specify either: a bearer instrument, always a bearer instrument.
be restrictive or qualified or conditional. o The person to whom the instrument is to be
paid. Example: Indorsement that says, “Pay to SECTION 35
Classification of indorsement A.” Blank indorsement; how changed to special indorsement.
1. As to methods of negotiation o The person to whose order the instrument is to The holder may convert a blank indorsement into a special
a. Special be payable. Example: Indorsement that says, indorsement by writing over the signature of the indorser in
b. In blank “Pay to the order of A.” blank any contract consistent with the character of the
2. As to the kind of title transferred • Words of negotiability not necessary. The words of indorsement.
a. Restrictive negotiability (or order, or to the order of) are not
b. Non-restrictive necessary in indorsements and their omission does not Payable to bearer by indorsement. This provision
3. As to the scope of liability of indorser affect the negotiability of an instrument which is contemplates an instrument [originally an order instrument]
a. Qualified negotiable on its face. made payable to bearer by an indorsement in blank, and not an
instrument originally payable to bearer. This is why such • Mere absence of words of negotiability. This does liable to the indorsee of the instrument is dishonored
instrument may be converted into an order instrument. not destroy negotiability. But if in their place a for some other reason like the insolvency of the person
restrictive word such as only is employed so as to primarily liable.
SECTION 36 prevent further negotiation, the instrument is not only • Without recourse. Such phrase is usually used to
When indorsement restrictive. restrictively indorsed but it also ceases to be qualify the instrument. The word recourse means a
An indorsement is restrictive which either: negotiable. resort to a person who is secondarily liable after the
(a) Prohibits the further negotiation of the instrument; or SECTION 37 default of the person who is primarily liable.
(b) Constitutes the indorsee the agent of the indorser; or Effect of restrictive indorsement; rights of indorsee.
(c) Vests the title in the indorsee in trust for or to the use Metropol v Sambok Motors
of some other person. A restrictive indorsement confers upon the indorsee the right – Villaruel executed a promissory note in favor of Sambok.
But the mere absence of words implying power to negotiate a. To receive payment on the instrument; Sambok indorsed it to Metopol and the indorsement reads: Pay
b. To bring any action thereon that the indorser could
does not make an indorsement restrictive. to the order of Metropol..with recourse.” Villaruel defaulted
bring;
and so Metropol ran after Sambok by virtue of its indorsement.
c. To transfer his rights as such indorsee, where the form
• Restrictive indorsement. This is one so worded that it Did Sambok’s indorsement make him a qualified indorser? NO.
of the indorsement authorizes him to do so.
either restricts or prohibits entirely the further • Bad writing. He added the words with recourse, which
But all subsequent indorsees acquire only the title of the first
negotiation of an instrument, or modifies the rights of is the exact opposite of without recourse. He is deemed
indorsee under the restrictive indorsement.
the holder or the liabilities of the indorser. to be a general indorser who indorsed the instrument
o Prohibits further negotiation. Pay to A only without qualification. A person who indorses without
• Section 37 enumerates a restrictive indorsee’s rights.
or Pay to A and to no other person. qualification engages that on due presentment, the note
o Constitutes indorsee agent of indorser. Pay shall be accepted or paid as the case may be, and if
SECTION 38
to A for collection, Pay to A for collection and dishonored he will pay the amount to the holder.
Qualified indorsement.
remittance, Pay to A for collection only, or Pay
A qualified indorsement constitutes the indorser a mere • Recourse meaning. It means resort to a person who is
to A for deposit. secondarily liable after the default of the person who is
assignor of the title to the instrument. It may be made by adding
o Vests title in the indorsee in trust for or to primarily liable.
to the indorser’s signature the words “without recourse” or any
the use of some other person. Pay to A in
words of similar import. Such an indorsement does not impair
trust for B, Pay to A as trustee for P, Pay to A SECTION 39
the negotiable character of the instrument.
as agent of P, Pay to A for the use of B. Conditional indorsement.
• Restrictive indorsement limits the rights of Where an indorsement is conditional, a party required to pay
• Qualified indorsement limits liability of indorser.
indorsee. By means of such indorsement, an indorser the instrument may disregard the condition and make payment
This is one which constitutes the indorser a mere
notifies all the prospective holders that the indorsee has to the indorsee or his transferee, whether the condition has been
assignor of the title to the instrument. That is, instead
only the authority to deal with the instrument as fulfilled or not. But any person to whom an instrument so
of guaranteeing the payment of the instrument to the
thereby directed and that the indorsee has only a indorsed is negotiated will hold the same, or the proceeds
holder in case the latter is unable to obtain payment
restrictive title thereto. thereof, subject to the rights of the person indorsing
from the maker, acceptor, or drawee at maturity, he
• Restrictive indorsement destroys negotiability. conditionally.
does not do so.
Such indorsement destroys the negotiability of the
• Warranty liability still present. Such indorser is still
instrument and bars further negotiation to a holder in • Absolute indorsement. This is one by which the
liable for breach of his warranties as an indorser under
due course. All subsequent indorsers acquire only the indorser binds himself to pay, upon no other condition
section 65, unless such indorsement specifically
title of the first indorsee under the restrictive than the failure of prior parties to do so, and of due
excludes warranties. But the qualified indorser is not
indorsement. notice to him of such failure.
• Conditional indorsement. This is one by which the o A may nevertheless negotiate the instrument • 2 or more payees severally. “Pay to the order of P or
indorser imposes some other condition to his liability by delivery to B. However, B will have no A.” This is governed by Section 8(e) and may be
or on the indorsee’s right to collect the proceeds of the right against P since B did not obtain his title negotiated by any of such alternative payees.
instrument. through the indorsement of P. but A as
• Condition on indorsement does not affect indorser, and M as maker will be liable to B. Metrobank v BA Finance Corp
negotiability. A conditional indorsement does not o Suppose A indorses the note to B who Metrobank issued a check payable to Bitanga and BA Finance.
prohibit the further negotiation of the instrument, negotiates the same to C by delivery. In this Without the indorsement or authority of BA Finance, Bitanga
regardless of whether the condition has been fulfilled case, P is liable to A and also to B as a general deposited the check to his account with Metrobank and
or not. However, note that a condition appearing in the indorser under Section 66. A is likewise liable withdrew the proceeds. Is Metrobank liable? Yes, to the full
face of the instrument renders the instrument non- to B. C obtains his title through negotiation by extent.
negotiable. delivery of the instrument by B and not • Not partners. Under NIL Sec. 41, where an instrument
through indorsement of P and A. Hence, P and is payable to the order of 2 or more payees or indorsees,
SECTION 40 A are not liable to C but B would be liable to who are not partners, all must indorse unless the one
Indorsement of instrument payable to bearer. C under section 65. indorsing has authority to indorse for the others. In this
Where an instrument, payable to bearer, is indorsed specially, • Application of provision. The provision applies only case, Bitanga alone indorsed the crossed check and yet
it may nevertheless be further negotiated by delivery; but the to instruments originally payable to bearer. Metrobank allowed him to deposit the check and
person indorsing specially is liable as indorser only to such withdraw the proceeds. Clearly, Metrobank was
holders as make title through his indorsement. SECTION 41 negligent in allowing Bitanga to deposit the check
• Once a bearer instrument, always a bearer Indorsement when payable to 2 or more persons. despite his lone indorsement.
instrument. A special indorsement does not convert a Where an instrument is payable to the order of two or more • Akin to paying a forged indorsement. Payment of an
bearer instrument to an order instrument. Hence, payees or indorsees who are not partners, all must indorse instrument over a missing indorsement is equivalent to
notwithstanding the provision is Section 34 saying that unless the one indorsing has authority to indorse for others. paying a forged indorsement or an unauthorized
an instrument specially indorsed can be negotiated only indorsement in itself in case of joint payees. Further,
by indorsement and delivery, the indorsee of a Example: M makes a note payable to the order of P and A. Metrobank is the last indorser and as a general rule, the
specially indorsed bearer instrument may further • General rule: Both P and A must indorse. collecting bank or last indorser suffers the loss because
negotiate it by mere delivery. • Exception: Either of them may endorse without the it has the duty to ascertain the genuineness of all prior
• Effect. The person indorsing specially is liable only to indorsement of the other if: indorsements. In presenting the check to the drawee
those holders who can trace their title to the instrument 1. The payees or indorsees are partners. bank, Metrobank asserts it has done its duty to
by a series of unbroken indorsements from such special 2. The payee or indorsee indorsing has the authority ascertain the genuineness of prior indorsements.
indorser. to indorse for the others. Accordingly, one who credits the check’s proceeds to
• Example: M issues a promissory note payable to P or Example: M makes a note payable to the order of P who the account of the indorsing payee is liable to the non-
bearer and delivers it to P. P indorses the instrument to indorses “Pay to A and B. indorsing payee for the entire amount of the check.
A. • Same rules above apply.
o To negotiate the note to A, P has only to SECTION 42
deliver the same to A. With or without the Applicability. Section 39 applies only to instruments payable Effect of instrument drawn or indorsed to a person as cashier.
indorsement of P, S becomes the holder of the to 2 or more payees or indorsees jointly and NOT to two or Where an instrument is drawn or indorsed to a person as
instrument by its delivery because indorsement more payees severally. “cashier” or other fiscal officer of a bank or corporation, it is
is not necessary. deemed prima facie to be payable to the bank or corporation of
which he is such officer, and may be negotiated by either the
indorsement of the bank or corporation or the indorsement of the indorsement was negotiated after maturity has the Striking out indorsements.
the officer. burden of proof. 1. Instrument payable to bearer on its face. The holder
may strike out all intervening indorsements or any of
SECTION 43 SECTION 46 them for none of them is necessary to his title. Note that
Indorsement where name is misspelled, etc. Place of indorsement; presumption. an instrument payable to bearer on its face may be
Where the name of a payee or indorsee is wrongly designated Except where the contrary appears, every indorsement is negotiated by mere delivery notwithstanding the fact
or misspelled, he may indorse the instrument as therein presumed prima facie to have been made at the place where the that it has been specially indorsed.
described adding, if he thinks fit, his proper signature. instrument is dated. 2. Instrument originally payable to order.
• The holder may strike out all the special
Example: Joanne Valles is the payee but her name was spelled Example: A note is dated, “Manila, July 25, 2019.” If it is indorsements after the indorsement in blank.
as Joanne Valyes. She may either: subsequently indorsed without the payee indicating the place of After doing this, the last (or only) indorsement
1. Affix her signature on the instrument using the indorsement, it is presumed that the indorsement was made in becomes an indorsement in blank and
misspelled name, or Manila. therefore the instrument becomes payable to
2. Affix her signature on the instrument and correct the bearer. The special indorsements are no longer
spelling of her name. SECTION 47 necessary to the holder’s title as he would have
Continuation of negotiable character. acquired the same by mere delivery.
SECTION 44 An instrument negotiable in its origin continues to be • But the holder may not strike out the indorser
Indorsement in representative capacity. negotiable until it has been restrictively indorsed or discharged of the payee. Since the instrument is payable to
Where any person is under the obligation to indorse in a by payment or otherwise. order, it cannot be validly negotiated without
representative capacity, he may indorse in such terms as to the indorsement of the payee.
negative personal liability. Negotiable character
General rule: An instrument negotiable in origin is always
See section 20 discussion. negotiable, although the negotiable instrument is already due. SECTION 49
Exceptions: An instrument ceases to be negotiable when: Transfer without indorsement; effect of.
SECTION 45 1. It has been restrictively indorsed. This should be Where the holder of an instrument payable to his order transfers
Time of indorsement; presumption. construed to refer only to such restrictive indorsements it for value without indorsing it, the transfer vests in the
Except where an indorsement bears date after the maturity of tat prohibit further negotiation of the instrument transferee such title as the transferor had therein, and the
the instrument, every negotiation is deemed prima facie to have (Section 36(a)). transferee acquires, in addition, the right to have the
been effected before the instrument was overdue. 2. It has been discharged by payment or otherwise. A indorsement of the transferor. But for the purpose of
negotiable instrument may be discharged by any of the determining whether the transferee is a holder in due course,
• Important in determining status of holder. This different ways in Section 119. the negotiation takes effect as of the time the indorsement is
section is important because in order to constitute one actually made.
a holder in due course he must have taken the SECTION 48
instrument before it was overdue. Striking out indorsements. Order instrument delivered only (not indorsed)
• Presumptions. If the indorsement bears a date, the The holder may at any time strike out any indorsement which 1. The transaction is an equitable assignment and the
presumption is that it is the true date. If the indorsement is not necessary to his title. The indorser whose indorsement is transferee acquires the instrument subject to defenses
is without a date, the presumption is that it was struck out, and all other indorsers subsequent to him, are and equities available among prior parties.
negotiated before maturity. The one who alleges that thereby relieved from liability on the instrument. 2. He cannot negotiate it.
3. If the transferor had legal title, the transferee acquires • B may negotiate the note to any subsequent holder.
such title and in addition, the right to have the • However, B cannot hold C and D liable because he is
indorsement of the transferor. personally liable to both of them.
a. The transferee becomes a holder upon • B’s rights are limited to M, P, and A.
receiving the indorsement and thus is capable
of negotiating the instrument further. Limitations on negotiation
b. Before indorsement is made, the transferee is In the following cases, a prior party cannot negotiate the
not a holder. Negotiation takes place as of the instrument:
time indorsement is actually made. 1. Where it is payable to the order of a third person and
has been paid by the drawer (Sec 121(a)).
BPI v CA et al 2. Where it was made or accepted for accommodation and
Templonuevo had 3 checks in the amount of Php 267, 000 but has been paid by the party accommodated (Sec 121(b)).
BPI deposited the same in the account of Salazar without 3. In other cases, where the instrument is discharged
Templonuevo’s indorsmeent. Is Salazar considered a transferee when acquired by a prior party (Sec 119)
under Section 49 if the NIL? No.
• The provision contemplates a situation where the payee
or indorsee delivers a negotiable instrument for value
without indorsing it. The underlying premise of this
provision is there was a valid transfer of ownership of
the negotiable instrument.
• In this case, Salazar did not receive it under a valid
transfer of ownership; it was a crossed-check under
Templonuevo’s name. The presumption therefore does
not work in her favor
SECTION 50
When prior party may negotiate instrument.
Where an instrument is negotiated back to a prior party, such
party may, subject to the provisions of this Act, reissue and
further negotiate the same. But he is not entitled to enforce
payment thereof against any intervening party to whom he was
personally liable.
Right of a prior party to negotiate

Reacquirer. This provision refers to a reacquirer or a holder
who negotiates an instrument and then subsequently reacquires
it.
Example: M makes a note payable to the order of P, who
indorses it to A, A to B, B to C, C to D, and D back to B.
RIGHTS OF A HOLDER ad majorem dei gloriam NEGO
CHAPTER IV 2. To receive payment and if the payment is in due course, except that the instrument is subject to every available
the instrument is discharged defense as if it were non-negotiable.
RIGHTS OF THE HOLDER • Payee as HIDC. There are conflicting authorities on
Note: Under Section 51, the following may sue in their own this. The contrary view is that an HIDC must have
SECTION 51 names: acquired the instrument through negotiation and not by
Right of holder to sue; payment. 1. A holder even though he be a holder for collection issuance. On the other hand, the affirmative view is that
The holder of a negotiable instrument may sue thereon in his 2. The pledgee of a note as he is deemed holder within a payee may be an HIDC by virtue of Sec 191, which
own name; and payment to him in due course discharges the this section defines a holder as a payee or indorsee. Therefore,
instrument. using that definition in Sec 52 will include the payee as
SECTION 52 an HIDC.
Holders What constitutes a holder in due course. • Drawee not an HIDC by paying the bill. A holder is
A holder means the payee or indorsee or a bill or note, who is A holder in due course is a holder who has taken the instrument one who has taken the instrument as it passes along in
in possession thereof. It includes persons in possession of a under the following conditions: the course of negotiation towards the drawee, and not
bearer instrument as well as payees or indorsees possessing a. That it is complete and regular upon its face; the drawee who, on the acceptance and payment of the
order instruments. b. That he became the holder of it before it was overdue, instrument, thereby strips it of all negotiability and
and without notice that it had been previously reduces it to a mere voucher or proof of payment.
In descending order of rights, the following are the classes of dishonored, if such was the fact;
holders: c. That he took it in good faith and for value; The requisites explained
1. Holders in due course (Sec 52, 57) d. That at the time it was negotiated to him he had no 1. Complete and regular upon its face
2. Holders for value (Sec 26) notice of any infirmity in the instrument or defect in the • Incomplete. An instrument is incomplete
3. Holders simply (Sec 51) title of the person negotiating it. when it is wanting in any material particular or
particular proper to be inserted in a negotiable
Ordinary holder Holder in due course instrument without which the instrument will
A person who qualifies as a holder but does not meet all the • All must concur. Every holder is generally considered not be complete.
conditions to qualify as a holder in due course is called an prima facie a holder in due course. But if any of the • Irregular. To render the alteration irregular,
ordinary holder or a mere holder (assignee or transferee). requisites above is absent, the holder cannot be the alteration must be visible or apparent on
1. Subject to defenses. In the hands of a holder other than considered a holder in due course. the face of the instrument. If it is not apparent,
a holder in due course, a negotiable instrument is • Holder of non-negotiable instrument not a HIDC. the matter is governed by Section 124, which
subject to any and every defense or defect in the The holder of a non-negotiable instrument is a mere renders the instrument void.
instrument, whether real or personal, as if it were non- assignee subject to defenses, acquiring no better rights 2. Holder before overdue and not notice of dishonor
negotiable. However, it does not mean that an under the contract than those possessed by the assignor. • Overdue. An instrument is overdue after the
instrument is non-negotiable in the hands of such And a transferee who receives an instrument other than date of maturity.
holder. by issue or negotiation cannot acquire the status of a • Date of maturity. The date of maturity is the
2. Not necessarily owner. The holder of a non- holder in due course regardless of the other time fixed therein. If the instrument is payable
negotiable instrument is not necessarily the owner circumstances under which his acquisition of the on demand, the date of maturity is the date of
thereof. An example is a person who steals a note instrument took place. presentment. If the instrument is payable on
payable to bearer. • Not HIDC subject to defenses. A holder who is not a the occurrence of a specified event which is
Rights of a holder in general holder in due course has all the rights of the latter certain to happen, the date of maturity is the
1. To sue the instrument in his own name
happening of the event.

• Acquisition on date of maturity. This of his authority is constructive knowledge of HIDC only to the extent of the amount paid prior to the
acquisition is deemed to be before maturity the principal. discovery.
because the debtor has the whole day to pay. • Notice AFTER acquisition. Notice that the
• Acquisition after maturity. This carries a instrument has been dishonored or any defense SECTION 55
string indication that it has been dishonored. against the instrument after it has been When title is defective.
• Dishonor. An instrument may be dishonored acquired does not prevent a holder from The title of a person who negotiates an instrument is defective
by non-acceptance or non-payment. Dishonor qualifying as an HIDC. within the meaning of this Act when he obtained the
by non-payment applies both to BoE and PNs instrument, or any signature thereto, by fraud, duress, or force
and can take place only at the time of maturity. SECTION 53 and fear, or other unlawful means, or for an illegal
Dishonor by non-acceptance pertains only to When person not deemed holder in due course. consideration, or when he negotiates it in breach of faith or
BoE and may occur before the maturity date. Where an instrument payable on demand is negotiated an under such circumstances as amount to a fraud.
3. Took in good faith and for value unreasonable length of time after its issue, the holder is not
• Good faith. Good faith means honesty in fact deemed a holder in due course. SECTION 56
in the transaction concerned. The test of good What constitutes notice of defect.
faith is subjective. • Vs Sec 52. The requirement in Sec 52(b) that to be an To constitute notice of an infirmity in the instrument or defect
• Bad faith. It means that the holder has HIDC, one must acquire the instrument before it is in the title of the person negotiating the same, the person to
knowledge of facts which render it dishonest overdue refers to an instrument payable at a fixed or whom it is negotiated must have had actual knowledge of the
for him to take a particular piece of negotiable determinable future time. Sec 53 governs those infirmity or defect, or knowledge of such facts that his action
paper. instruments payable on demand. in taking the instrument amounted to bad faith.
• Proof of bad faith. It is not necessary to show • Reasonable time. Regard is to be had to the nature of
knowledge of the exact truth. It is sufficient the instrument, the usage of trade or business (if any), • Negligence to make inquiries not sufficient.
that such knowledge of the holder tends to and the facts of the particular case. Negligence in itself if not enough to constitute notice
show that there was something wrong with the because it is not the equivalent of either actual
transaction. SECTION 54 knowledge or bad faith.
• Holder for value. This is a holder who gives Notice before full amount paid. • Knowledge amounting to bad faith. If the holder had
any consideration sufficient to support a Where the transferee receives notice of any infirmity in the actual knowledge of suspicious circumstances, coupled
simple contract (value), even though it may not instrument or defect in the title of the person negotiating the with the means of readily informing himself of the facts
be adequate. However, love and affection do same before he has paid the full amount agreed to be paid and he willfully abstained from making inquiries, his
not constitute value within the meaning of the therefor, he will be deemed a holder in due course only to the intentional ignorance may amount to bad faith.
law. extent of the amount theretofore paid by him. • Effect of notice of defect. Knowledge or chargeable
4. No notice of infirmity or defect in title notice of any defect at the time of taking the instrument
• Notice of infirmity or defect in title. To Notice prior to full payment destroys the status of the holder as an HIDC. This
constitute notice, the holder must have had 1. No amount has been paid. Transferee is relieved from opens all defenses otherwise cut off against him and
actual or chargeable knowledge of the the obligation to make payment. If he still pays, he is not merely that relating to the defect of which he had
infirmity or defect. He must have had acted in not entitled to the same protection as a holder in due notice.
bad faith. course.
• Bad faith of agent is bad faith of principal. 2. An amount has been paid. Transferee is not under SECTION 57
Knowledge of an agent acting within the scope obligation to pay the balance upon discovery of the Rights of a holder in due course.
infirmity or defect. If he pays the remainder, he is an
A holder in due course holds the instrument free from any fraud or illegality affecting the instrument, has all the rights of subsequent holder who
defect of title of prior parties, and free from defenses available such former holder in respect of all parties prior to the latter. In other words, there are stands in privity with the
to prior parties among themselves, and may enforce payment cases when an HIDC is not party seeking to enforce it.
of the instrument for the full amount thereof against all parties Rights of a holder not in due course legally entitled to receive
liable thereon. 1. He may sue on the instrument in his own name payment from the primary
2. He may receive payment and if the payment is in due party.
Rights of an HIDC course, he is discharged These do not render the They can be used only
SURE DEDE PA 3. He is entitled to the instrument but holds it subject to instrument valueless. The between original parties or
1. He may sue on the instrument in his own name the same defenses as if it were non-negotiable instrument is unenforceable immediate parties or against
2. He may receive payment and if the payment is in due 4. He has all the rights of a holder in due course from only against the party who is immediate parties or against
course, the instrument is discharged; whom he derives his title in respect of all parties prior entitled to set up the defense. one who is not an HIDC.
3. He holds the instrument free from and defect of title of to such holder, provided he is not himself a party to any Question the legality of the Affect only the validity of
prior parties; fraud or illegality affecting the instrument. instrument itself. the agreement for which the
4. He holds the instrument free from defenses available instrument was issued.
to prior parties among themselves; and Holder through a holder in due course Examples: Examples:
5. He may enforce payment of the instrument for the full 1. He derives his title through an HIDC 1. Incapacity, as far as 1. Filling of wrong
amount thereof against all parties liable thereon. 2. He was not himself a party to any fraud or illegality the incapacitated date
affecting the instrument. person is concerned. 2. Filling up of blanks
• Real defenses available against an HIDC. The 2. Illegality of contract not in accordance
defenses enumerated above are personal defenses and Note: But a payee or indorsee whose title is defective cannot when declared by with authority given
cannot be raised against an HIDC. Real defenses, better it by selling the instrument to an HIDC and buying it law (except when and not within
which attach to the instrument itself, would be again. the maker or drawer reasonable time
available against all persons even as against an HIDC. is party to the 3. Complete but
• Reason. The rile that permits an HIDC to take an Defenses illegality, which is undelivered
instrument free of all personal defenses is a necessity Defenses. These are grounds or reasons pleaded or offered by only personal) instrument
if a commercial papers are to circulate freely and the defendant in a case, showing why the plaintiff, as a matter 3. Incomplete and 4. Absence or failure
prospective purchasers are to accept them freely and of law or fact, should not be given the relief he seeks. undelivered of consideration
willingly. instrument 5. Simple fraud or
• Holder not in due course. He acquires the instrument Real defenses Personal defenses 4. Forgery fraud in inducement
subject to tall defenses, whether real or personal, Aka absolute or universal Aka limited or equitable 5. Want of authority 6. Acquisition of
because he is treated as a mere assignee of a non- These may be asserted These are available to prior (apparent and real) instrument (not
negotiable paper. against ALL parties, both parties among themselves 6. Duress in the signature) by duress
immediate and remote, but are not good against an acquisition of or fear and force
including holders in due HIDC. They can be asserted signature amounting 7. Acquisition of
SECTION 58
course or holders through only against ordinary to forgery (must be instrument by
When subject to original defenses.
holders in due course. holders. so overwhelming as unlawful means
In the hands of any holder other than a holder in due course, a
negotiable instrument is subject to the same defenses as if it They are called real because They are so called because to entirely deprive 8. Acquisition of an
were non-negotiable. But a holder who derives his title through they attach to the res, that is, they are available only the victim of his instrument for an
a holder in due course, and who is not himself a party to any the instrument. against that person or will) illegal consideration
7. Fraud in factum or 9. Negotiation in 3. Let us suppose now that the fraud was committed by B
fraud in esse breach of faith • When presumption arises. The presumption that against A. in this case, the situation of A is the same as
contractus (fraud in 10. Negotiation under every holder is deemed to be an HIDC arises only in that of M in the first example, and P, the same as that
the performance) circumstances that favor of a person who is a holder in the sense defined of M in the second example.
8. Fraudulent amount to fraud in Section 191, that is, a payee or indorsee who is in
alteration by holder 11. Innocent alteration possession of the instrument or is the bearer thereof.
9. Prescription or spoliation • WherE indorser’s title is defective. When it is shown
10. Other infirmities 12. Set-off between that the title of ANY person who has negotiated the
appearing on the immediate parties. instrument was defective, the burden is on the holder
face of the 13. Discharge by to prove that he is an HIDC or that he acquired his title
instrument payment or through an HIDC.
11. Discharge at or after renunciation or o Exception. The holder has no burden of
maturity release before proving that he is an HIDC or that he acquired
maturity his title through an HIDC in favor of a party
14. Discharge or party who became bound on the instrument prior to
secondarily liable by the acquisition of such defective title.
discharge of prior Therefore, we evert to the presumption that the
party holder is an HIDC.
15. Want of authority of
an agent who has Example:
apparent authority 1. P obtained the note of M through simple fraud and
(but if the principal negotiates it to A, A to B, B to C, and C to D, the
can show that the present holder.
agent had not • The presumption is that D is an HIDC. But
express, implied, or once M proves the fraud committed by P, the
apparent authority to burden is on D to show that he is an HIDC or
sign, the defense is that C, from whom he acquired his title, is an
real) HIDC.
2. Suppose the fraud was committed by A against P, the
SECTION 59 presumption is that D is an HIDC is not destroyed
Who is deemed holder in due course. because M became bound on the instrument before the
Every holder is deemed prima facie to be a holder in due course; acquisition of the defective title by A.
but when it is shown that the title of any person who has
• Note that P is similarly situated as M in the first
negotiated the instrument was defective, the burden is on the
example. As P became bound on the
holder to prove that he or some person under whom he claims
instrument contemporaneous (not prior to)
acquired the title as holder in due course. But the last-
with A’s acquisition of his defective title, the
mentioned rule does not apply in favor of a party who became
presumption of due course holding does not
bound on the instrument prior to the acquisition of such
accrue in favor of S as far as P is concerned
defective title.
once P shows that the title of A was defective.
LIABILITIES OF PARTIES ad majorem dei gloriam NEGO
genuineness of his c. That all prior parties c. That all prior parties
CHAPTER V had capacity to had capacity to
signature and his
LIABILITIES OF PARTIES capacity and contract; contract;
Liability. This refers to the obligation of a party to a negotiable authority to draw d. That he has no d. The instrument is
instrument to pat the same according to its terms. the instrument knowledge of any valid and subsisting
fact which would
Engages to pay Engages that: Engages that he
Primarily liable impair the validity Warranty that instrument
the instrument On due will pay the
The person primarily liable is one who, by the terms of the of the instrument or will be honored
according to its presentment, the instrument render it valueless. He engages that, on due
instrument, is absolutely required to pay the same. He is tenor. instrument will be according to the *for a person negotiating by presentment, it shall be
unconditionally bound. accepted or paid, tenor of his delivery, warranties extend accepted or paid, or both, as
1. Maker of a promissory note or both, according acceptance only to immediate transferee. the case may be, according to
2. The acceptor of a bill of exchange to its tenor. its tenor
3. The certifier of a check
And that if it be And that if it be dishonored
Secondarily (conditionally liable) dishonored and and the necessary
The person secondarily liable is conditionally bound. He the necessary proceedings on dishonor be
undertakes to pay the instrument only after certain conditions proceedings on duly taken, he will pay the
have been fulfilled: (1) due presentment for payment or dishonor be duly amount thereof to the holder,
acceptance to the primary party, (2) dishonor by such party, and taken, he will pay or to any subsequent indorser
(3) taking of proceedings required by law after dishonor. the amount who may be compelled to
1. The drawer of a bill pay it.
thereof to the
2. The indorser of a note or bill holder or to any
SECTION 60
subsequent
Liability of maker.
Not liable indorser who may The maker of a negotiable instrument, by making it, engages
1. The drawee until he accepts the instrument in which be compelled to that he will pay it according to its tenor, and admits the
case, he becomes an acceptor pay it. existence of the payee and his then capacity to indorse.
2. A person who is not a party to the instrument
• A person becomes a party to the instrument by Warranties of indorsers Warranties of the maker
signing his name thereon. Negotiate by General indorser Maker. The term maker applies only to the maker of a
• The general rule is that no person is liable on delivery/qualified indorser (Sec 66) promissory note. It includes an accommodation maker and
an instrument unless his signature appears (Sec 65) surety who signs as maker. He has the following warranties:
thereon. GEGO CA KNOW GEGO CA VAL 1. To pay the note according to its terms
a. That the instrument a. That the instrument 2. The existence of the payee
Summary of liabilities is genuine and in all is genuine and in all 3. The payee’s capacity to endorse at the time the maker
Maker Drawer Acceptor respects what it respects what it signed the note
Admits the existence of the payee and his then capacity to purports to be; purports to be;
indorse b. That he has a good b. That he has a good Liability unconditional. He engages to pay the note according
title to it; title to it; to its terms, subject to no condition whatsoever. He promises to
Admits the
pay not only to the payee but to any subsequent holder who is
existence of the
legally entitled to the instrument at its maturity date even if the
drawer, and the

ACCEPTANCE FOR HONOR ad majorem dei gloriam NEGO
holder does not demand payment at that time. He remains fully Php 3, 700 that he advanced earlier. Is Perez still liable to both, according to its tenor, and that if it be dishonored and the
liable despite the fact that the instrument is presented for Araneta? Yes, because of his warranties as a maker of the PN. necessary proceedings on dishonor be duly taken, he will pay
payment late unless prescription has run. the amount thereof to the holder or to any subsequent indorser
Maker engages to pay the instrument according to its tenor. who may be compelled to pay it. But the drawer may insert in
Charging maker with liability. Due presentment for payment Section 60 of the NIL provides that the maker engages that he the instrument an express stipulation negativing or limiting his
and due notice of dishonor are not necessary for the purpose of will pay it according to its tenor and admits the existence of the own liability to the holder.
charging the maker with liability. Those are necessary only to payee and his then capacity to indorse so that appellant cannot
fix the liability of any drawer or indorser. now escape liability as maker by alleging that he spent the Conditions for liability of drawer
money for the medical treatment of his daughter since it is not The drawer does not promise to pay the bill absolutely. He
PNB v Maza & Mecinas the payee's concern to know how said proceeds should be spent. makes no warranty but engages to pay after certain conditions
Maza and Mecinas issued 5 promissory notes in favor of PNB That is the sole concern of the maker. Payee's interest is merely are met:
but they refused to pay upon maturity. They contended that they to see that the note be paid according to its terms. 1. Due presentment for payment or acceptance to the
were merely accommodation parties who received no value for primary party (drawee)
the instrument, and that Echaus is the real-party-in-interest. Tan Tua Sia v Yu Biao 2. Dishonor by such party, and
Contention proper? No. Sontua and Sontian were business partners. When Sontian died, 3. Taking of proceedings required by law after dishonor:
his share in the company was settled. For settlement of such a. Notice of dishonor given to the drawer
Makers are primarily liable. The liability of makers is share, the company issued a promissory note in favor of the b. In case of foreign bills, protest is made
primary and unconditional. Hence, they must keep their heirs. But the company became insolvent. The lower court
followed by a notice of protest.
engagement and pay as promised. [Not in the decision: a maker ordered the remaining partners in the company to pay, but
engages that on due presentment, the instrument will be Gotua refused. Is Gotua liable to the heirs? Yes. He is co-maker
Drawer v maker
accepted or paid, or both, according to its tenor. Hence, he can of the promissory note.
Drawer Maker
not renege on his warranty now. He cannot escape liability by Issues a BoE Issues a PN
He is liable for his warranties. As maker, he warrants that (1)
saying that it was Echaus who negotiated the instrument and Secondarily liable Primarily Liable
he will pay the promissory note according to its tenor; (2) he
received value therefor.] Can limit his liability Cannot do so because
admits the existence of the payee; (3) he admits that the payee
has the capacity to indorse. liability is unconditional 9
Accommodation parties liable on the instrument.
• There is no showing that Gotua was deceived to sign
accommodation parties are liable to the face of their PNB v Picornell
the note. Furthermore, the note was in his possession
undertaking and can claim no benefit as such. He is liable as Picornell drew a bill of exchange agaisnt HVT in favor of PNB.
and that he knew what he signed was a promissory note
though he were financially interested in the transaction. The bill represented the amount that Picornell obtained from
concerning Tan Tua Sia’s interest in the company.
Further, it is not necessary that consideration be given to them, PNB for the purchase of tobacco as ordered by HVT. Upon
since the consideration in their favor is the same consideration • The Court also noted that since he is of age and a
presentation by PNB, HVT accepted the bill unconditionally.
received by the party accommodated. businessman, he is presumed to have acted with due
Later on, however, PNB refused to pay on the ground that some
care and to have signed the note with full knowledge
of the tobacco were damaged. PNB protested the bill. Can HVT
Araneta v Perez of its contents. It is the duty of every contracting party
evade liability on the ground of lack of consideration? No. Is
Perez issued a PN in favor of Araneta in the amount of Php 3, to learn and know its contents before he signs and
Picornell liable on the bill? Yes, by virtue of his warranties as
700. He failed to pay at maturity, so Araneta filed a collection delivers it.
drawer.
suit. Although Perez admitted the execution of the note and his
default, he said that the proceeds of the note was used for the SECTION 61
Absence or failure of consideration raised only against not
medical expenses of his minor daughter, who is the beneficiary Liability of drawer.
HIDC. Since the bank was a HIDC, absence or failure of
of the trust administered by Araneta. Perez now wants to escape The drawer by drawing the instrument admits the existence of
consideration cannot be raised against him. As payee, he is
liability by saying that Araneta as trustee is required to pay the the payee and his then capacity to indorse; and engages that, on
stranger to the transaction between the drawer and the acceptor.
due presentment, the instrument will be accepted or paid, or
Hence, in a suit by him agaisnt the acceptor, the issue on
consideration between the drawer and acceptor cannot be triggers the liability of secondary parties (drawer and the NIL, became an agent of the former for the collection of the
inquired into. indorsers, except those indorsing qualifiedly). amount in the draft.
• Liability after acceptance. Once he accepts, he
Drawer’s warranties. As drawer, he warranted that the bill, becomes an acceptor and is placed in the same position SECTION 63
upon presentment, will be accepted or paid, or both. As it was as the maker of a note. When a person deemed indorser.
not paid, he became liable to the payment of its value to the • Liability primary. He is primarily liable and engages A person placing his signature upon an instrument otherwise
holder thereof, which is the plaintiff bank. Upon the non- to pay according to the terms of his acceptance, subject than as maker, drawer or acceptor, is deemed to be an indorser,
payment of the bill by the drawee-acceptor, the bank had the to no conditions. (Note that the maker engages to pay unless he clearly indicates by appropriate words his intention
right of recourse, which it exercised, against the drawer. according to the tenor of the instrument). to be bound in some other capacity.
Character as an agent irrelevant. He cannot exempt himself Far East Bank v Gold Palace • Signature on the back. A person signing his name on
from responsibility by the fact of his having been a mere agent Tagoe purchased several pieces of jewelry from Gold Palace. the back of an instrument with nothing else appearing,
of this company, because nothing to this effect was indicated or )P258K) As payment, it offered a foreign draft issued by United is a general indorser. Being an indorser, he is
added to his signature on signing the bill. as drawer, on its Land Bank account, and payable to Gold chargeable only after presentment and notice of
Palace (380K). Far East, the collecting bank, presented the dishonor.
SECTION 62 draft for clearing to LBP, the drawee bank, and it was cleared. • Intention to be bound in some other capacity. The
Liability of acceptor. However, LBP later on found out that the check was materially law requires one to indicate by appropriate words his
The acceptor, by accepting the instrument, engages that he will altered from merely P380. Gold Palace had already spent intention to be bound in some other capacity on the
pay it according to the tenor of his acceptance; and admits: portion of the money, so Far East was unable to fully debit its instrument itself. Parole or extrinsic evidence not
a. The existence of the drawer, the genuineness of his account. is Gold Palace liable for the remainder? No. It is acceptable.
signature, and his capacity and authority to draw the protected by Section 62 of the NIL. • Liability as guarantor. A guarantor is liable
instrument; and subsidiarily, after the assets of the principal debtor
b. The existence of the payee and his then capacity to LBP is liable for its warranties. In this case, LBP cleared and have been exhausted. He waives the need for
indorse. paid the subject foreign draft and forwarded the amount thereof presentment, protest, or notice of dishonor.
to Far East (collecting bank). LBP, by the said payment, • Liability as surety. A surety is primarily and
Warranties of acceptor recognized and complied with its obligation to pay in absolutely liable with the principal debtor without
1. The existence of the payee accordance with the tenor of his acceptance. The tenor of the benefit of exhaustion of the properties of the latter and
2. The payee’s capacity to endorse at the time the acceptance is determined by the terms of the bill as it is when without also the necessity of presentment or notice of
acceptor accepted the drawee accepts. Therefore, LBP was the one liable on its dishonor.
3. The existence of the drawer payment of the check according to the tenor of the check at the
4. The genuineness of the drawer’s signature time of payment, which was the raised amount. Therefore, LBP Ang Tiong v Ting
5. The drawer’s capacity and authority to draw the bill could no longer refuse to accept the payment it erroneously Ting issued a PCB check payable to cash or bearer. Felipe Ang
Note: The acceptor does not admit the genuineness of the made to a due course holder. placed his signature at the back of the check as an indorsement
indorser’s signature because it is only the signature of the in blank. Ang Tiong received the check and presented it to PCB
drawer that he warrants. Gold Palace protected by section 62. Having relied on the for payment, but the bank dishonored it. Tiong made written
• Liability before acceptance. He is not liable before LBP’s clearance and payment of the draft and not being demands to Ting and Ang to pay the amount of the check, but
acceptance. Prior that, he is merely a drawee and unless negligent (it delivered the purchased jewelry only when the they both ignored the demand. Is Ang liable? Yes, as a general
he accepts, he owes no duty to either the payee or other draft was cleared and paid), Gold Palace is protected by Section indorser.
holder; 62 of NIL. Thus, its collecting bank, Far East, should not have Deemed to be a general indorser. According to Section 63 of
• Refusal by the drawee to accept. This refusal to debited the money paid by the drawee bank from Gold Palace’s the NIL, a person placing his signature upon an instrument
accept constitutes a dishonor of the instrument which account. When Gold Palace deposited the check with Far East, otherwise than as maker, drawer, or acceptor is a general
the latter, under the terms of the deposit and the provisions of indorser, unless he clearly indicates by appropriate words his
intention to be bound in some other capacity – here, Felipe did liable to all parties subsequent to the maker or • X is liable to A and all subsequent parties but
not do so. drawer. not to M. But M is liable to X. M’s liability is
c. If he signs for the accommodation of the payee, he that of a first indorser and X of a second
Warranties of general indorser. A general indorser engages is liable to all parties subsequent to the payee. indorser.
that on due presentment, it shall be accepted or paid, or both, as 3. Signs for the accommodation of payee. He is liable
the case may be, and that if it be dishonored, he will pay the Irregular or anomalous indorser to all parties subsequent to the payee.
amount thereof to the holder. Hence, Felipe Ang is liable to pay He is a person who is: • Example: M makes a note payable to the order
Ang Tiong. 1. Not a party to an instrument- this phrase means that he of P. P wants to discount the note with A, a
is not a maker, drawer, acceptor, or regular indorser bank, but the bank is not willing to rely on the
Tuazon et al v Heirs of Bartolome Ramos thereon financial ability of M and P alone. P then
The spouses indorsed several Traders Royal Bank checks as 2. Places thereon his signature in blank secures X to accommodate him. X, without
payment for the cavans of rice purchased from the predecessor 3. Before delivery receiving any valuable consideration therefor,
of the heirs. However, the checks were dishonored for Weirdo. He irregular or anomalous indorser indorses the but only for the purpose of lending his name
insufficiency of funds. In the collection suit filed against them, instrument in an unusual, singular, or peculiar manner. His and credit to P, indorses the note in blank.
spouses now contend that the drawer, Evangeline Santos, name appears where we would naturally expect another name. • X is liable to all parties after P. In effect, P is
should be impleaded in this case as an indispensable party. Example: If an instrument is made payable to the order the first indorser, and X is the second indorser.
Correct? No. of P as the payee, P’s name should appear on the back
Drawer irrelevant; indorser became primarily liable when of the instrument as the first indorser but instead we SECTION 65
instrument was dishonored. As indorser, Maria Tuazon find the name of X. in such case, X is an irregular or Warranty; where negotiation by delivery and so forth.
warranted that upon due presentment, the checks were to be anomalous indorser. Every person negotiating an instrument by DELIVERY or by
accepted or paid, or both, according to their tenor; and that in Warranties. His warranties are the same as of a general a QUALIFIED indorsement, warrants:
case they were dishonored, she would pay the corresponding indorser under Section 66 inasmuch as his indorsement is in GEGO CA KNOW
amount. After an instrument is dishonored by nonpayment, blank, which, in itself is an indorsement without qualification. e. That the instrument is genuine and in all respects what
indorsers cease to be merely secondarily liable; they become Section 64 only provides for the parties to whom an irregular it purports to be;
principal debtors whose liability becomes identical to that of indorser is liable. f. That he has a good title to it;
the original obligor. The holder of a negotiable instrument need g. That all prior parties had capacity to contract;
not even proceed against the maker before suing the indorser. Liability of irregular or anomalous indorser h. That he has no knowledge of any fact which would
Clearly, Evangeline Santos -- as the drawer of the checks -- is 1. Payable to the order of a third person. He is liable to impair the validity of the instrument or render it
not an indispensable party in an action against Maria Tuazon, the payee and all subsequent parties, but not to the valueless.
the indorser of the checks. maker. But when the negotiation is by delivery only, the warranty
• Example. M issues a note payable to the order extends in favor of no holder other than the immediate
SECTION 64 of P, but secures X’s indorsement prior to transferee.
Liability of irregular indorser. delivery to P. P indorses the note to A. The provisions of subdivision (c) of this section do not
Where a person, not otherwise a party to an instrument, places • X is liable to P and A but not to M. apply to persons negotiating public or corporation securities,
thereon his signature in blank before delivery, he is liable as 2. Payable to the order of maker or drawer or to other than bills and notes.
indorser, in accordance with the following rules: bearer. He is liable to all parties subsequent to the
a. If the instrument is payable to the order of a third maker or drawer. • Negotiation by delivery or qualified indorsement.
person, he is liable to the payee and to all • Example: M makes a note payable to the order Negotiation by delivery means negotiating the
subsequent parties. of M and secures X’s indorsement. M cannot instrument in the same condition the holder received it,
b. If the instrument is payable to the order of the circulate the instrument without the making no indorsement at all. Therefore, a blank
maker or drawer, or is payable to bearer, he is indorsement of X. X signs his name and M indorsement is not negotiation by delivery. On the
indorses and delivers the instrument to A. other hand, a qualified indorsement is made by adding
to the indorser’s signature the words without recourse • Warranty that instrument will be honored; crime, Ubay accepted from Milagros and Maniego several
or any other words of similar import. promissory liability. Because of the last paragraph, an personal checks drawn against PNB with Milagros as drawer
• Liability merely as assignor of credit. A person unqualified indorser is liable in case the instrument is and Maniego as indorser. In exchange, Milagros and Maniego
negotiating a bearer instrument by delivery or a person not paid because of the insolvency of any prior party. received public funds under Ubay’s custody. Ubay accepted the
negotiating by qualified indorsement do not assume to A qualified indorser, on the other hand, is liable only checks knowing full well the same were worthless and weren’t
pay the instrument in the event of dishonor unless the of he had knowledge of such insolvency. The following sufficiently funded. Consequently, the checks were dishonored
dishonor is based on any of the 4 implied warranties in conditions must be met (unless waived): to the Government’s prejudice. Are Maniego and Milagros
Section 65. 1. Due presentment for payment or acceptance, as the
liable for the checks? Yes, as indorsers.
• Immediate transferee only. For a person negotiating case may be; and
by delivery, warranties extend only to immediate 2. If the instrument is dishonored, the necessary Deemed indorser. Under the law, the holder or last indorsee of
transferee. proceedings on dishonor be duly taken. a negotiable instrument has the right to enforce payment of the
• Sale of public or corporate securities. Brokers and Indorser v drawer instrument for the full amount thereof against all parties liable
other persons negotiating public or corporation Indorser Drawer thereon. Among those liable is the indorsee who places his
securities, other than bills or notes, do not warrant the Both are secondarily liable signature upon an instrument otherwise than as a maker,
capacity of prior parties. Party to a note or bill Party only to a bill drawer, or acceptor, unless he clearly indicates that he intends
Does not make admission Admits the existence of to be bound by some other capacity. Such indorser promises
SECTION 66 regarding existence of payee payee and his then capacity that the instrument shall be paid according to its tenor, and if
Liability of general indorser. and his then capacity to to indorse dishonored, and the necessary proceedings of dishonor be
Every indorser who indorses without qualification, warrants, to indorse taken, he will pay the amount to the holder, or to any
all subsequent holders in due course: Has warranties No warranties but engages subsequent indorsee.
a. The matters and things mentioned in subdivisions (a), to pay after certain
(b), and (c) of the next preceding section; and conditions are complied Associated Bank v Tan
b. That the instrument is, at the time of his indorsement, with. Cheng issued a post-dated check amounting to Php 101, 000 in
valid and subsisting; favor of Tan. Upon deposit to the collecting bank (Associated
And, in addition, he engages that, on due presentment, it shall General indorser and irregular indorser Bank), this was cleared, and so his balance is now Php 297,
be accepted or paid, or both, as the case may be, according to General indorser Irregular indorser 000. Tan drew checks in favor of his business partners, but the
its tenor, and that if it be dishonored and the necessary Makes blank or special Only makes blank check bounced for insufficiency of funds. It turns out that
proceedings on dishonor be duly taken, he will pay the amount indorsement indorsement Associated Bank debited the account of Tan for the check
thereof to the holder, or to any subsequent indorser who may Indorser after its delivery to Indorses prior to delivery to issued by Cheng because the drawee bank dishonored said
be compelled to pay it. payee payee check. Proper? No. collecting bank did not exercise properly its
Liable only to parties Liable to the payee and right to debit the account of Tan.
• Valid and subsisting; 4th warranty liability. An subsequent to him subsequent parties unless he
unqualified indorser warrants that the instrument is signs for the Drawee bank has a right of set off. A bank has a right of setoff
valid and subsisting, WON he has no knowledge of that accommodation of the payee over the deposits therein for the payment of any withdrawals
fact. (As opposed to a qualified indorser who merely in which case he is liable on the part of a depositor. However, in this case, Associated
warrants that he has no knowledge of facts that would only to all parties bank did not treat Tan’s account with the highest degree of care.
invalidate the instrument or render it useless.) subsequent to the payee Associated Bank itself admitted that they allowed the
o Example. Hence, if the instrument indorsed withdrawal of the face value of the deposited check prior to
turns out to be invalid, the unqualified indorser Ubay v Maniego clearing “as an act of accommodation to a valued client” which
is liable because of the 4th warranty. Whereas, Ubay, Milagros, and Maniego, were charged with the crime of shows how the bank disregarded the clearance requirement of
a qualified indorser is liable only if he was Malversation. Ubay is an AFP Officer designated as Disbursing the banking system. In ordinary banking practice, the bank may
aware of the cause of the invalidity. Officer and had under his control public funds. To facilitate the either credit the amount to the depositor’s account directly or
only after the collecting bank has paid the same. However, the one who instructed the qualified indorsement to be placed checks as negotiable instruments and, accordingly, assumed the
before the clearance of the check, the bank can only assume at in the check. Such qualified indorsement by Gomez was the warranty of an endorser and thus cannot deny liability on the
its own risk the check that would be cleared and paid out. reason for the “irregular indorsement.” RCBC then cannot hold checks. The collecting bank or last endorser generally suffers
prior indorsers, Alviar and Gonzales, liable on the instrument. the loss because it has the duty to ascertain the genuineness of
In relation to section 66; lack of notice. Under Sec 66, a To do otherwise will result to injustice because a subsequent all prior endorsements. Its act of presenting the check for
general indorser of a negotiable instrument engages that if the party may just make the instrument defective and later on claim payment to the drawee is an assertion that the party making the
instrument is dishonored and the necessary proceedings for its form prior indorsers who have no knowledge or participation presentment has done its duty to ascertain the genuineness of
dishonor are duly taken, he will pay the amount thereof to the in the introduction of such defect. the documents.
holder. It has been held in jurisprudence that notice of dishonor
is necessary to charge an indorser and that the right of action Bank of America v Associated Bank Liability of Miller’s representatives. The representatives are
agaisnt him does not accrue until said notice is given. In this BA Finance granted Miller a credit line facility whereby the also ordered to pay Associated Bank because a person who has
case, Tan was the payee, but when he deposited the check to latter could assign or discount its trade receivables with BA not given value of the money paid to him has no right to retain
the collecting bank, he also became an indorser. Hence, when Finance. Through several deeds of assignment, Miller the money he received. In other words, this means there must
the subject check was dishonored by the drawee bank, it was discounted its receivables to BA Finance. BA Finance issued 4 be no unjust enrichment.
incumbent upon the collecting bank to notify Tan of the checks against Bank of America (drawee) payable to the order
dishonor before Tan could be held liable or before said bank of Miller, but there were deposited by Miller’s representative SECTION 67
could debit the account of Tan. in his personal account in Associated Bank. Associated Bank, Liability of indorser where paper negotiable by delivery.
as collecting bank, stamped the checks with all prior Where a person places his indorsement on an instrument
Gonzales v RCBC indorsements and/or lack of indorsements guaranteed. Bank of negotiable by delivery, he incurs all the liability of an indorser.
Dr. Zapanta drew against Wilshire Center bank a check in favor America honored the checks. Because Miller failed to deliver
of Alviar. Alviar indorsed this check. RCBC gives special to BA Finance the proceeds of the assigned receivables, the Liability of indorser of bearer instrument
accommodations to its employees to receive the check’s value latter filed a complaint agaisnt Miller and its representatives, • Negotiation by delivery. A bearer instrument is
without waiting for the clearing period, so Gonzales (Alviar’s and Bank of America for allowing encashment of the checks by negotiable by mere delivery. One who does so is liable
mother) presented the foreign check to Gomez, the RCBC’s persons other than the payee named. Determine the liability of only to the immediate transferee under Section 65.
Head of Retail Banking. Gomez asked Gonzales to indorse the the parties. • Negotiation by indorsement. A bearer instrument
check, and when she did, Gomez encashed the check and signed may nevertheless be indorsed. One who does so incurs
the check but indicated thereon her authority of “up to P17,500 Liability of drawee. Bank of America is liable to pay BA- liability depending on the nature of his indorsement.
only.” [She made a qualified indorsement] But when RCBC Finance because of the nature of the four checks as crossed o Special indorsement. He is liable only to
tried to collect the amount from Wilshire Bank, the latter checks. Clearly, BA-Finance intended the checks for deposit indorsers who make title through his
dishonored the check because of irregular indorsement thereon. only by Miller in its bank account. Thus, when a person other indorsement.
Can RCBC demand from Gonzales and Alviar the payment of than Miller – in this case, Robert – presented and deposited the o Qualified indorsement. He is liable only to
the dishonored check? No. checks in his own personal account and Bank of America paid the immediate transferee under Section 65.
the value of the checks and charged BA-Finance’s account, o Unqualified indorsement. He incurs the
Collecting party must be free from fault. Alviar and Bank of America is deemed to have violated the instructions of liabilities of a general indorser under Section
Gonzales are general indorsers whose liabilities extend only to the drawer and is liable for the amount charged to the drawer’s 66.
the state of the instrument at the time of their indorsement. account.
Therefore, in order for the liability of general indorsers in SECTION 68
Section 66 to apply, the holder or subsequent indorser who tries Liability of collecting bank. Associated Bank is liable to Order in which indorsers are liable.
to claim under the instrument which had been dishonored for reimburse BA-Finance because under Section 66, an indorser As respects one another, indorsers are liable prima facie in the
“irregular indorsement” must not be the irregular indorser makes certain warranties. When Associated Bank stamped the order in which they indorse; but evidence is admissible to show
himself who gave cause for the dishonor. In this case, RCBC back of the four checks with the phrase all prior endorsements that, as between or among themselves, they have agreed
was the reason for the defect in the instrument because it was and/or lack of endorsement guaranteed, the bank treated the
otherwise. Joint payees or joint indorsees who indorse are
deemed to indorse jointly and severally.
• Among themselves. This section governs the liability

of indorsers only as among themselves. That is, while
there is a presumption that indorsers are liable in the
order of their indorsement, such presumption may be
rebutted by parole evidence that among themselves
they have agreed otherwise.
o Not binding on holder. The holder of an
instrument which has been dishonored is not
bound by the above section. As to him, the
indorsers are liable in any order and none of
them can interpose the defense as a defense
against him an agreement among themselves
that they are liable in a different order.
• Solidary liability of joint indorsees. Joint payees or
joint indorsees who indorse are deemed to indorse
jointly and severally. The liability is therefore solidary,
wherein each one of them is liable for the entire amount
of the instrument.
SECTION 69
Liability of an agent or broker.
Where a broker or other agent negotiates an instrument without
indorsement, he incurs all the liabilities prescribed by Section
65 of this Act, unless he discloses the name of his principal, and
the fact that he is acting only as agent.
Liability of an agent or broker
To escape personal liability, the agent or broker must disclose
the name of his principal and the fact that he acts only as an
agent. parole evidence is not admissible to exempt him from
liability.
PRESENTMENT FOR PAYMENT ad majorem dei gloriam NEGO
CHAPTER VI severally promise to pay to the order of R. N. Clark xxx. The Republic sys that the defendant banks had sent statements
Presentment for Payment note matured but was not paid. Sellner refuses to pay because of all credits and deposits held in favor of persons either
he says that the instrument was not presented to him for known to be dead or who have not made further deposits
SECTION 70 payment. or withdrawals during a period of 10 years or more.
Effect of want of demand on principal debtor. Citibank claimed that it inadvertently included in its report
Presentment for payment is not necessary in order to charge the Presentment not necessary. Presentment for payment is no several items which are not credits or deposits;
person primarily liable on the instrument; but if the instrument longer necessary because Sellner, as maker, is the person specifically, manager’s checks, cashier’s checks, demand
is, by its terms, payable at a special place, and he is able and primarily liable on the instrument. drafts, and telegraphic transfers. Can these items be
willing to pay it there at maturity, such ability and willingness escheated? Only the manager’s and cashier’s checks. The
are equivalent to a tender of payment upon his part. But, except SECTION 71 law covers evidence of indebtedness of any kind in favor
as herein otherwise provided, presentment for payment is Presentment, where instrument is not payable on demand; and of any person who is either dead or has not been heard of
necessary in order to charge the drawer and indorsers. where payable on demand. in 10 years or more. Escheat proceedings presuppose an
Where the instrument is not payable on demand, presentment existing creditor-debtor relationship.
• Presentment for payment. This is the presentation of must be made on the day it falls due. Where it is payable on
an instrument to the person liable for the purpose of demand, presentment must be made within a reasonable time Demand drafts. These are bill of exchange payable on
demanding and receiving payment. after its issue, but in the case of a bill of exchange, presentment demand. A bill of exchange within the NIL does not
• Presentment not required for primarily liable. The for payment will be sufficient if made within a reasonable time operate as an assignment of funds in the hands of the
reason for this is because his liability is absolute, and after the last negotiation thereof. drawee who is not liable on the instrument until he accepts
he is liable without the need of a demand. Failure to it. In fact, the law requires that a draft or bill of exchange
make the presentment will not make the holder in Date of presentment of the instrument must be presented either for acceptance or payment within
default. Payable at a fixed or On the date it falls due a reasonable time after its issue or after the last
• Ability and willingness; payable at a special place. determinable future time without period of grace. negotiation. Since the demand drafts were not presented
The ability and willingness on the part of the person - Presentment before either for acceptance or for payment, Citibank never had
primarily liable to pay at maturity in a special place are maturity is not the chance to accept or reject them, and it follows that it
equivalent to tender of payment such that if the effective.
never became a debtor of the payees concerned and thus
instrument is not paid and is overdue, he cannot be Payable on demand Within a reasonable time the drafts cannot be considered as credits subject to
considered in delay. after issue of the note.
• Presentment for payment to persons secondarily
escheat.
Within a reasonable period
liable necessary. Unless presentment is excused, of time after last negotiation
failure to do so would release the indorsers and the Manager’s checks and cashier’s checks. These checks
of bill.
drawer from their secondary liability. The reason for constitute as the bank’s written promise to pay upon
- Last negotiation
this is because they undertake to pay only if the demand. As such, they are debts or credits that may be
means last transfer
instrument is dishonored. Hence, a demand for escheated.
for value.
payment must first be made upon the person primarily
liable although the purpose of such demand is to charge Republic v PNB
Telegraphic transfers. These have already been paid for
the indorsers with liability. by the bank and are being held in the name of the payees
Act No. 3936 provides that unclaimed bank balances are
who may demand them any time, and it would be absurd
to be escheated in favor of or reverted back to the
Clark v Sellner to say that the bank is the owner of the telegraphic transfer
Republic. Pursuant to this, the Republic instituted escheat
Sellner and 2 other people signed a note in favor of Clark. It payment orders. As such, they are susceptible of being
proceedings for certain unclaimed bank deposits. The
reads: Six months after date, for value received, we jointly and escheated.
International Corporate Bank v Gueco Where the instrument is payable at a bank, presentment for
As payment of a loan, spouses Gueco delivered manager’s SECTION 73 payment must be made during banking hours, unless the person
checks to International Corporate Bank. However, these Place of presentment. to make payment has no funds there to meet it at any time
were not enchased, and therefore they became stale. Are Presentment for payment is made at the proper place: during the day, in which case presentment at any hour before
the spouses obliged to issue new manager’s or cashier’s a. Where a place of payment is specified in the instrument the bank is closed on that day is sufficient.
checks? Yes. and it is there presented;
b. Where no place of payment is specified but the address Time of presentment where payable at a bank
Stale checks valueless. A stale check is one, which has not of the person to make payment is given in the During banking hours Person to make payment has
been presented for payment within a reasonable time after its instrument and it is there presented; funds in the bank to meet it
issue. It is valueless and, therefore, should not be paid. Under c. Where no place of payment is specified and no address on the date of maturity.
the NIL, an instrument not payable on demand must be is given and the instrument is presented at the usual At any time during the day, Person to make payment has
presented for payment on the day it falls due. When the place of business or residence of the person to make but before bank is closed no funds in the bank to meet
instrument is payable on demand, presentment must be made payment; the payment during the day
within a reasonable time after its issue. In the case of a bill of d. In any other case if presented to the person to make
exchange, presentment is sufficient if made within a reasonable payment wherever he can be found, or if presented at SECTION 76
time after the last negotiation thereof. his last known place of business or residence. Presentment where principal debtor is dead.
Where the person primarily liable on the instrument is dead
Manager’s checks treated as accepted at issuance. In this • In order. The proper place of presented is the place and no place of payment is specified, presentment for payment
case, the check involved is not an ordinary bill of exchange but specified in the order of enumeration above. Hence, must be made to his personal representative, if such there be,
a manager’s check. (See ratio for definition). The mere issuance subsection (d) is applicable only if presentment cannot and if, with the exercise of reasonable diligence, he can be
of it is considered an acceptance thereof. If treated as be made at any other place. found.
promissory note, the drawer would be the maker and in which
case the holder need not prove presentment for payment or SECTION 74 • Applicable only where there is no place of payment
present the bill to the drawee for acceptance. Instrument must be exhibited. specified. If a place of payment has been specified,
The instrument must be exhibited to the person from whom payment should be made there.
SECTION 72 payment is demanded, and when it is paid, must be delivered • Where payment may be made to a personal
What constitutes a sufficient presentment. up to the party paying it. representative. The following are the requisites based
Presentment for payment, to be sufficient, must be made: on the provision:
a. By the holder, or by some person authorized to receive Presentment. This is the act of the holder of a negotiable 1. Principal debtor is dead
payment on his behalf; instrument of exhibiting a note to the maker and demanding 2. No place of payment is specified
b. At a reasonable hour on a business day; payment or showing a bill to the drawee and requesting its 3. A personal representative has been appointed by
c. At a proper place as herein defined; acceptance and payment. the deceased
d. To the person primarily liable on the instrument, or if 4. The representative can be found with the exercise
he is absent or inaccessible, to any person found at the Demand by telephone not sufficient. This is because of reasonable diligence.
place where the presentment is made. exhibition of the instrument is not possible via telephone, and
the debtor is entitled to see the instrument and demand its Query: What if no personal representative has been appointed?
All of the requisites must be complied with. Otherwise, it is surrender upon payment. Answer: Refer to Section 73.
the same as if no presentment has been made and consequently,
the persons secondarily liable are discharged. SECTION 75 SECTION 77
Presentment where instrument payable at bank.
Presentment to persons liable as partners. Delay in making presentment for payment is excused when the instrument(Section 70) but is required to charge those
Where the persons primarily liable on the instrument are liable delay is caused by circumstances beyond the control of the secondarily liable on the instrument- the drawer and indorsers.
as partners, and no place of payment is specified, presentment holder, and not imputable to his default, misconduct, or
for payment may be made to any of them, even though there negligence. When the cause of delay ceases to operate, Exception: Parties secondarily liable may be charged even
has been a dissolution of the firm. presentment must be made with reasonable diligence. without presentment for payment when:
• Applicable only where there is no place of payment Not required to charge the Drawer has no right to
specified. If a place of payment has been specified, • Only delay excused. It is only the delay that is drawer (Section 79) expect or require the drawee
payment should be made there excused, and not the act of presenting itself. Note that or acceptor to pay the
the provision says that once the cause ceases, instrument.
SECTION 78 presentment has to be made with reasonable diligence. - Example: Drawer
Presentment to joint debtors. • Beyond the control. Circumstances beyond the has no funds with
Where there are several persons not partners, primarily liable control of the holder are events which could not be the drawee unless
on the instrument, and no place of payment is specified, foreseen, or which, though foreseen, are inevitable. arrangement has
presentment must be made to them all. been made for the
SECTION 82 payment of the bill;
• Joint liability. In a joint obligation, there are as many When presentment for payment is excused. drawer of a check
debts as there are debtors, each debt being considered Presentment for payment is excused: stopped payment
distinct and separate from each other. Hence, DILI.FIC.WAIVE thereof;
presentment must be made to all of them to hold the a. Where after the exercise of reasonable diligence, When drawer and drawee are
drawer and indorsers on their secondary liability. presentment as required by this Act, cannot be made; one and the same person.
b. Where the drawee is a fictitious person; Not required to charge the Indorser is an
SECTION 79 c. By waiver of presentment, expressed or implied. indorser (Section 80) accommodation party and he
When presentment not required to charge the drawer. has no reason to expect that
Presentment for payment is not required in order to charge the Waiver. It is the intentional abandonment of a known right. the instrument will be paid if
drawer where he has no right to expect or require that the The waiver may be made before or after maturity and it may be presented.
drawee or acceptor will pay the instrument. express or implied. - Reason: The
• Express waiver. Presentment waived or waiving accommodated
See summary after Section 82. demand and protest written before the signature of the party is the real
drawer or indorser is an express waiver. debtor and not the
SECTION 80 • Implied waiver. This may be manifested by an act or maker or acceptor.
When presentment not required to charge the indorser. conduct of a party calculated to lead the holder to Not required at all (Section DILI.FIC.WAIVE
Presentment is not required in order to charge an indorser where believe that presentment is waived, or to mislead or 82)
the instrument was made or accepted for his accommodation prevent him from treating the instrument as he When the bill has been
and he has no reason to expect that the instrument will be paid otherwise would like. dishonored by non-
if presented. acceptance (Section 151)
Summary of rules as to presentment for payment
See summary after Section 82. Sections 70, 79, 80, and 82 SECTION 83
General rule: Presentment for payment is not required to When instrument dishonored by non-payment.
SECTION 81 charge those persons who are primarily liable on the The instrument is dishonored by non-payment when:
When delay in making presentment is excused.
a. It is duly presented for payment and payment is refused the next succeeding Payment in due course requisites
or cannot be obtained; or business day or 1. Payment must be made at or after maturity.
b. Presentment is excused and the instrument is overdue before 12:00 noon Payment before maturity does not discharge the
and unpaid. on Saturday when instrument is not considered payment. Rather, it is a
the entire day is not negotiation back to the primary party.
SECTION 84 a holiday, at the 2. Payment must be made to the holder.
Liability of person secondarily liable, when instrument option of the holder. 3. Payment must be made in good faith and without
dishonored. notice that the holder’s title is defective. Good faith
Subject to the provisions of this Act, when the instrument is SECTION 86 refers to the maker or acceptor and not to the holder.
dishonored by non-payment, an immediate right of recourse to Time; how computed.
all parties secondarily liable thereon accrues to the holder. When the instrument is payable at a fixed period after date, after
sight, or after that happening of a specified event, the time of
SECTION 85 payment is determined by excluding the day from which the
Time of maturity. time is to begin to run, and by including the date of payment.
Every negotiable instrument is payable at the time fixed therein
without grace. When the day of maturity falls upon Sunday, or Translated: Exclude first day, include last day.
a holiday, the instrument is payable on the next succeeding Examples:
business day. Instruments falling due or becoming payable on 1. 3 months after May 9, 2019 is August 9, 2019.
Saturday are to be presented for payment on the next 2. 12 months after May 9, 2019 is May 9, 2020.
succeeding business day, except instruments payable on 3. One month after January 31 is February 28, or
demand which may, at the option of the holder, be presented February 29, if it is a leap year.
for payment before twelve o’clock noon on Saturday when that 4. Ten days after May 9, 2019 is May 19, 2019.
entire day is not a holiday.
SECTION 87
Time of maturity Rule where instrument payable at bank.
General rule Payable at the time fixed on Where the instrument is made payable at a bank, it is equivalent
the instrument without grace to an order to the bank to pay the same for the account of the
period. If grace period is principal debtor thereon.
provided in the instrument,
the instrument is payable on Note: This section applies only where the instrument is payable
the last day of grace. at a particular named bank (Bank of the Philippine Islands) and
Maturity date is a Sunday Payable on the next not when the note is payable at any bank in Tacloban.
or a holiday succeeding business day
Maturity date is a a. Not payable on SECTION 88
Saturday demand. Payable on What constitutes payment in due course.
the next succeeding Payment is made in due course when it is made at or after the
business day. maturity of the payment to the holder thereof in good faith and
b. Payable on without notice that his title is defective.
demand. Payable on
NOTICE OF DISHONOR ad majorem dei gloriam NEGO
CHAPTER VII SECTION 90 Effect of notice given on behalf of holder.
Notice of Dishonor By whom given Where notice is given by or on behalf of the holder, it inures to
The notice may be given by or on behalf of the holder, or by or the benefit of all subsequent holders and all prior parties who
SECTION 89 on behalf of any party to the instrument who might be have a right of recourse against the party to whom it is given.
To whom notice of dishonor must be given compelled to pay it to the holder, and who, upon taking it up, Who benefit from notice given by or on behalf of the
Except as herein otherwise provided, when a negotiable would have a right to reimbursement from the party to whom holder
instrument has been dishonored by non-acceptance or non- the notice is given. 1. All holders subsequent to the holder who gave notice
payment, notice of dishonor must be given to the drawer and to 2. All parties prior to the holder but subsequent to the
each indorser, and any drawer or indorser to whom such notice By whom notice of dishonor may be given party to whom notice has been given and against whom
is not given is discharged. 1. The holder they have a right of recourse.
2. Any person in behalf of the holder
When an instrument is considered to be dishonored 3. Party entitled to give notice. A party to the instrument Example. A note is issued by M to P. Said note is indorsed in
1. If it is not accepted when presented for acceptance who may be compelled to pay to the holder and who, the following manner: P—A, A—B, B—C, C—D(holder), and
2. If it is not paid when presented for payment upon taking it up, would have a right to reimbursement D—E (subsequent holder). The note is dishonored in the hands
3. If presentment is excused or waived and the instrument from the party to whom the notice is given (in short, of D, who notifies, P, A, B, and C.
is past due and unpaid one may give notice to a prior party and not to a • Notice by D to P. Inures to the benefit of A, B, C, and
subsequent party because he is liable to such party and E.
• Notice of dishonor. This means bringing either has no right of reimbursement) • Notice by D to A. Inures to the benefit of B, C, and E.
verbally or by writing, to the knowledge of the drawer 4. Any person in behalf of (3) o If B pays C. B may go against P or A even
or indorser of an instrument, the fact that a specific though he himself did not give notice to P and
negotiable instrument, upon proper proceedings taken, SECTION 91 A. the notice given to P and A by D operates
has not been accepted or has not been paid and that the Notice given by agent. in favor of him.
party notified is expected to pay it. Notice of dishonor may be given by an agent either in his own • Notice by D to B. Inures to the benefit of C and E.
o 2-fold object of notice of dishonor. (1) To name or in the name of any party entitled to give notice, • Notice by D to C. Inures to the benefit of E.
inform the parties secondarily liable that the whether that party be his principal or not.
persons primarily liable failed to meet their SECTION 93
engagement. (2) To advise the parties • Authority to give notice not necessary. The agent Effect where notice is given by party entitled thereto.
secondarily liable that they will be required to need not be authorized by the principal to give the Where notice is given by or on behalf of a party entitled to give
make payment. notice. Under Section 91, any person can be an agent notice, it inures to the benefit of the holder and all parties
• Protest. Notice of dishonor given by a notary public. of any party entitled to give notice. The notice may be subsequent to the party to whom notice is given.
• To whom notice of dishonor is given. To the persons given in the name of the agent or the party entitled to
secondarily liable- the drawer and indorsers. give notice. Who benefit from notice given by or on behalf of a party
• Failure to give notice of dishonor. The holder is not • Authority to receive notice necessary. According to entitled to give notice
required to notify the drawer and all indorsers because Section 97, notice may be given to the party himself or 1. The holder
he may choose to hold only one or some of the to his agent in that behalf. 2. All parties subsequent to the party to whom notice is
indorsers and any party to whom such notice is given given
is discharged. However, the party so discharged is still Reason for difference: Section 91 benefits the principal,
liable for breach of warranties pertaining to the Section 97 creates a liability. Example: Suppose in the example above, D only notifies C.
instrument. (Sections 65 and 66) • Result. P, A, and B are discharged from liability
SECTION 92 because of lack of notice.
• Effect to C. C becomes a party entitled to give notice same provisions in notifying When the party sought to be charged is dead, the notice must
because he may be compelled to pay it to the holder. the parties secondarily liable be given to his personal representative provided that:
Hence, C may now give notice to P, A, and B within as if the instrument was 1. His death is known to the party giving notice;
the time fixed by law. dishonored on the day that he 2. There is a personal representative appointed; and
• Notice by C to P. inures to the benefit of A, B, D, and received the notice. 3. The personal representative can be found with the
E. exercise of reasonable diligence.
SECTION 95
Importance of Section 92 and 93. Knowing the parties who When notice sufficient. This is the same rule as presentment for payment when no place
benefit from the notice of dishonor given by a person is A written notice need not be signed, and an insufficient written has been specified.
important to determine WON a party to the instrument has been notice may be supplemented and validated by verbal
discharged from liability or not. communication. A misdescription of the instrument does not SECTION 99
vitiate the notice unless the party to whom the notice is given Notice of partners.
SECTION 94 is in fact misled thereby. When the parties to be notified are partners, notice to any one
When agent may give notice. partner is notice to the firm, even though there has been a
Where the instrument has been dishonored in the hands of an SECTION 96 dissolution.
agent, he may either himself give notice to the parties liable Form of notice.
thereon, or he may give notice to his principal. If he gives notice The notice may be in writing or merely oral, and may be given This is the same rule as presentment for payment when no place
to his principal, he must do so within the same time as if he in any terms which sufficiently identify the instrument, and has been specified.
were the holder, and the principal, upon the receipt of such indicate that it has been dishonored by non-acceptance or non-
notice, has himself the same time for giving notice as if the payment. It may in all cases be given by delivering it personally SECTION 100
agent had been an independent holder. or through the mails. Notice to persons jointly liable.
Notice to joint parties who are not partners must be given to
When instrument is dishonored in the hands of an agent SECTION 97 each of them, unless one of them has authority to receive such
Such agent may choose to give notice of dishonor to: To whom notice may be given. notice for the others.
Parties secondarily liable The agent must give the Notice of dishonor may be given either to the party himself or
notice within the time fixed to his agent in that behalf. This is the same rule as presentment for payment when no place
in Sections 102, 103, 104 See discussion in Section 91. has been specified.
and 107. Otherwise, the
parties are discharged for SECTION 98 Not in reference to Section 68. This provision does not refer
lack of notice, unless the Notice where party is dead. to joint payees or joint indorsees mentioned in Section 68
principal himself notifies When any party is dead, and his death is known to the party because such indorsees are deemed to indorser jointly and
them within the same time. giving notice, the notice must be given to a personal severally, and therefore, have solidary liability.
His principal He must notify his principal representative, if there be one, and if with reasonable diligence,
SECTION 101
within the time fixed in he can be found. If there be no personal representative, notice
Notice to bankrupt.
Sections 102, 103, 104 and may be sent to the last residence or last place of business of the
Where a party has been adjudged a bankrupt or an insolvent, or
107. deceased.
has made an assignment for the benefit of creditors, notice may
be given either to the party himself or to his trustee or assignee.
The principal, on the other Notice of dishonor when party is dead
hand, must comply with the
SECTION 102
Time within which notice must be given. Where the person giving and the person to receive notice reside Notice is deemed to have been deposited in the post-office
Notice may be given as soon as the instrument is dishonored; in different places, the notice must be given within the when deposited in any branch post-office or in any letter box
and unless delay is excused as hereinafter provided, must be following times: under the control of the post-office department.
given within the time fixed by this Act. a. If sent by mail, it must be deposited in the post office
in time to go by mail the day following the day of Deposit in post-office
Place where notice may be given dishonor, or if there be no mail at a convenient hour on The notice may be deposited in:
At the option of the party giving notice, notice may be given that day, by the next mail thereafter. 1. The post-office
personally or by mail in any of the following: b. If given otherwise than through the post-office, then 2. Any branch post-office
1. Place of business of the party notified within the time that notice would have been received in 3. Any letter box under the control of the post-office
2. Place of residence of the party notified due course of mail, if it had been deposited in the post-
office within the time specified in the last subdivision. SECTION 107
Time for giving notice Notice of subsequent party; time of.
Refer to the following: Summary: Notice need not reach the party notified the day Where a party receives notice of dishonor, he has, after the
1. Section 103- if party giving notice and party to be after the dishonor. receipt of such notice, the same time for giving notice to
notified reside in the same place a. By mail. It must go by mail the day following the day antecedent parties that the holder has after the dishonor.
2. Section 104- party giving notice and party to be of dishonor.
notified reside in different places b. Not by mail. It must reach the party notified not later Date refreshes. As to a subsequent party who is entitled to give
3. Section 107 than the time he would have received it had it been notice to of dishonor to other parties, the instrument is
mailed. considered dishonored from the time he receives the notice of
SECTION 103 dishonor from the holder, and not from the actual date that the
Where parties reside in same place. SECTION 105 instrument was dishonored in the hands of the holder.
Where the person giving and the person to receive notice reside When sender deemed to have given due notice.
in the same place, notice must be given within the following Where notice of dishonor is duly addressed and deposited in the Example: P, A, B, C, and D are indorsers of a note. The
times: post-office, the sender is deemed to have given due notice, instrument is dishonored in the hands of D on January 1, 2019.
a. If given at the place of business of the person to receive notwithstanding any miscarriage in the mails. Assuming they all reside in the same place, D must give notice
notice, it must be given before the close of business to any of those secondarily liable not later than January 2, 2019.
hours on the day following. When sender deemed to have given due notice • If D gives notice on January 2 to C, C in turn has until
b. If given at his residence, it must be given before the Notice by mail is deemed to have been properly made where: January 3 to give notice, and not January 2. The
usual hours of rest on the day following; 1. Notice of dishonor is duly addressed counting restarts.
c. If sent by mail, it must be deposited in the post-office 2. Notice of dishonor has been deposited in the post-
in time to reach him in usual course on the day office. SECTION 108
following. Where notice must be sent.
Deemed sent. As long as the sender has done everything that Where a party has added an address to his signature, notice of
Summary: Notice must reach the party to be notified the day the law requires him to do, notice will still be considered on dishonor must be sent to that address; but if he has not given
after the dishonor. time although it does not reach the addressee due to the such address, then the notice must be sent as follows:
miscarriage in the mails. The notice must be properly a. Either to the post-office nearest to his place of
SECTION 104 addressed, stamped, and mailed. residence or to the post-office where he is accustomed
Where parties reside in different places. to receive his letters; or
SECTION 106 b. If he lives in one place and has his place of business in
Deposit in post-office; what constitutes. another, notice may be sent to either place; or
c. If he is sojourning in another place, notice may be sent Waiver. It is the intentional abandonment of a known right. Counterpart is Section 82, when presentment is dispensed with.
to the place where he is sojourning. The waiver may be made before or after maturity and it may be
But where the notice is actually received by the party within the express or implied. See summary after Section 117.
time specified in this Act, it will be sufficient though not sent • Express waiver. Notice of dishonor waived written
in accordance with the requirement of this section. before the signature of the drawer or indorser is an SECTION 113
express waiver. Delay in giving notice; how excused.
• Address given is priority. Where a party has added an • Implied waiver. This may be manifested by omission Delay in giving notice of dishonor is excused when the delay is
address to his name, the notice must be sent to that to give notice. caused by circumstances beyond the control of the holder and
address and it will be sufficient even though the not imputable to his default, misconduct, or negligence. When
address is an incorrect one. But if no address has been Persons affected the cause of delay ceases to operate, notice must be given with
provided, the provisions in Section 108 will govern. All parties If the waiver is embodied in reasonable diligence.
• If received on time, kebs. As long as the notice is the instrument itself (on the
received within the time prescribed by law, notice is face or body), it binds all • Only delay excused. It is only the delay that is
effective even though it did not comply with Section parties. excused, and not the act of giving notice itself. Note
108. Only the particular indorser If the waiver is written above that the provision says that once the cause ceases,
SECTION 109 the signature of the indorser, notice has to be given with reasonable diligence.
Waiver of notice. it binds him only. Notice • Beyond the control. Circumstances beyond the
Notice of dishonor may be waived either before the time of must still be given to the control of the holder are events which could not be
giving notice has arrived or after the omission to give due others. foreseen, or which, though foreseen, are inevitable.
notice, and the waiver may be expressed or implied.
Waiver of protest SECTION 114
See summary after Section 111. • Protest. This is the formal instrument executed usually When notice need not be given to drawer.
by a notary public certifying that the legal steps Notice of dishonor is not required to be given to the drawer in
SECTION 110 necessary to fix the liability of the drawee and the either of the following cases:
Whom affected by waiver. indorsers have been taken. SA.FIC.PER.RI.CO
Where the waiver is embodied in the instrument itself, it is • When protest waived. Since it includes all steps a. Where the drawer and drawee are the same person;
binding upon all parties; but, where it is written above the accompanying dishonor necessary to charge a party b. When the drawee is fictitious person or a person not
signature of an indorser, it binds him only. secondarily liable, its waiver necessarily includes the having capacity to contract;
waiver of the following: c. When the drawer is the person to whom the instrument
See summary after Section 111. 1. Formal protest is presented for payment;
2. Presentment d. Where the drawer has no right to expect or require that
SECTION 111 3. Notice of dishonor the drawee or acceptor will honor the instrument;
Waiver of protest. e. Where the drawer has countermanded payment.
A waiver of protest, whether in the case of a foreign bill of SECTION 112
exchange or other negotiable instrument, is deemed to be a When notice is dispensed with. SECTION 115
waiver not only of a formal protest but also of presentment and Notice of dishonor is dispensed with when, after the exercise of When notice need not be given to indorser.
notice of dishonor. reasonable diligence, it cannot be given to or does not reach the Notice of dishonor is not required to be given to an indorser in
parties to be charged. either of the following cases:
Summary for waiver of notice of dishonor. FIC.PER.AC
a. When the drawee is a fictitious person or a person not by non-acceptance or non-
having capacity to contract, and the indorser was aware Exception: Parties secondarily liable may be charged even payment.
of that fact at the time he indorsed the instrument; without notice of dishonor when: - If not so protested,
b. Where the indorser is the person to whom the Generally, when notice is When after the exercise of the drawer and
instrument is presented for payment; dispensed with (Section reasonable diligence indorsers are
c. Where the instrument was made or accepted for his 112) 1. It cannot be given discharged.
accommodation. 2. It does not reach the Exception Protest for other negotiable
parties sought to be instruments is optional
SECTION 116 charged except in the cases provided
Notice of non-payment where acceptance refused. When notice need not be SA.FIC.PER.RI.CO for in Sections 158, 161, and
Where due notice of dishonor by non-acceptance has been given to drawer (Section 171.
given, notice of a subsequent dishonor by non-payment is not 114) - However, a protest
necessary, unless in the meantime the instrument has been Where notice need not be FIC.PER.AC is more
accepted. given to indorser (Section advantageous since
115) the holder obtains a
SECTION 117 Notice is waived Section 109 most convenient
Effect of omission to give notice of non-acceptance Protest is waived Section 111 record of evidencing
An omission to give notice of dishonor by non-acceptance does Due notice of dishonor by Section 116 the fact of dishonor.
not prejudice the rights of a holder in due course subsequent to non-acceptance has been
the omission. given
As to an HIDC, w/o notice Section 117
HIDC not affected. A holder in due course subsequent to the of dishonor by non-
failure to give notice of non-acceptance may still present the acceptance, subsequent to
instrument to the drawee for acceptance and notify the drawer the omission to give notice
and indorsers if the acceptance is refused.
SECTION 118
Example: R drew a bill against W in favor of P. P presents the When protest need not be made; when must be made.
bill for acceptance to W, who refuses to accept the same. Where any negotiable instrument has been dishonored, it may
• P fails to give notice of dishonor by non-acceptance be protested for non-acceptance or non-payment, as the case
to R. R is discharged from liability. may be; but protest is not required except in the case of foreign
• P indorses the instrument to A, am HIDC. As to A, bills of exchange.
R is not discharged from liability in accordance with
Section 117. A cannot be prejudiced by P’s omission. Protest. This is the formal instrument executed usually by a
A may notify R and P and hold them on their secondary notary public certifying that the legal steps necessary to fix the
liability. liability of the drawee and the indorsers have been taken.
General rule Protest is required inly in
Summary: when notice need not be given foreign bills of exchange
General rule: Like presentment for payment, notice of which have been dishonored
dishonor is not necessary to charge persons primarily liable, but
is necessary to charge persons secondarily liable.
DISCHARGE OF NEGOTIABLE INSTRUMENTS ad majorem dei gloriam NEGO
CHAPTER VIII a. The cancellation must be intentional. The f. By any agreement binding upon the holder to extend
Discharge of Negotiable Instrument presumption is that the cancellation was the time of payment, or to postpone the holder’s right
intentional. to enforce the instrument, unless made with the assent
SECTION 119 b. It must be made by the holder of the party secondarily liable, or unless the right of
Instrument; how discharged Writing the word cancelled or paid on the face of the recourse against such party is expressly reserved.
A negotiable instrument is discharged: instrument, tearing up, burning, or mutilating are
PAY. PAY. CAN. OTHER. OWN examples of cancellation. Methods of discharge of secondary parties
a. By payment in due course by or on behalf of the 4. Any other act which discharges a contract. Article 1. Discharge of the instrument. If the instrument itself
principal debtor; 1231 of the Civil Code provides that obligations are is discharged (Section 119), all primary and secondary
b. By payment in due course by the party accommodated, extinguished by: parties are discharged. But if only a secondary party is
where the instrument is made or accepted for his a. Payment or performance discharged, it does not effect the discharge of the
accommodation; b. Loss of the thing due instrument itself.
c. By the intentional cancellation thereof by the holder; c. Condonation or remission of the debt 2. Intentional cancellation of signature. The holder
d. By any other act which will discharge a simple d. Confusion or merger of the rights of the debtor may strike out indorsements not necessary to his title
contract for the payment of money; and creditor (Sec 48).
e. When the principal debtor becomes the holder of the e. Compensation a. The person whose signature is intentionally
instrument at or after maturity in his own right. f. Novation cancelled by the holder is discharged, as if he has
5. Reacquisition by principal debtor in his own right. never been a party to the same.
Discharge of an instrument When the principal debtor becomes the holder of the b. Likewise, parties subsequent to him are
Discharge. This means the release of all parties, whether instrument in his own right, the instrument is discharged because of subsection (c).
primary or secondary, from the obligations arising under the discharged because of the merger in his person the 3. Discharge of prior party by act of holder. This refers
instrument rendering it without force and effect and, characters of the creditor and debtor. In order that there only to discharge due to acts of the holder (such as the
consequently, no longer negotiable. will be a discharge under subsection (e), the cancellation discussed in the preceding item) and not
Note that the enumeration under Section 119 is exclusive. reacquisition must be: to discharges by operation of law (such as insolvency,
1. Payment by principal debtor. In order that payment a. By the principal debtor prescription, or lack of notice of dishonor).
may produce the effect of discharging the instrument, b. In his own right- meaning, not in a 4. Valid tender of payment by prior party. A valid
the following requisites must be met: representative capacity. tender of payment by a prior party, if accepted, would
b. It must be made in due course c. At or after maturity result to the discharge of the said party, and necessarily
i. Made at or after maturity of all parties subsequent to him (subsection [c]). It is
ii. Made to the holder SECTION 120 just, therefore, that the holder’s refusal without any
iii. In good faith When persons secondarily liable on the instrument are justifiable reason to accept a valid tender of payment
iv. Without notice that the title of the holder discharged. made by a prior party should discharge subsequent
is defective A person secondarily liable on the instrument is discharged: parties.
c. It must be made by the principal debtor DIS. CAN. PRI. TEND. VALID. RE(A)L. EXTEND. 5. Release of the principal debtor by act of the debtor.
2. Payment by accommodated party. The a. By any act which discharges the instrument; The release of the principal debtor through acts of the
accommodated party is the real debtor and therefore, b. By the intentional cancellation of his signature by the debtor (and not by operation of law) discharges the
payment made by him is equivalent to payment made holder; instrument and therefore, all secondary parties ae also
by the principal debtor. c. By the discharge of a prior party; discharged. Moreover, with the release of the principal
3. Intentional cancellation by the holder. The d. By a valid tender or payment made by a prior party; debtor, subsequent parties lose a right of recourse
following requisites must be met in order that e. By a release of the principal debtor, unless the holder’s against him.
cancellation may discharge the instrument: right of recourse against the party secondarily liable is • However, if the holder reserved a right of
expressly reserved; recourse against the subsequent parties, the

effect is that there is an implied reservation by • When the instrument can no longer be renegotiated: absolutely and
the subsequent parties of the right of recourse a. Where it is payable to the order of a third person unconditionally.
against the principal debtor. and has been paid by the drawer; and - The rights of an
• Note that the reservation by the holder must be b. Where it was made or accepted for accommodation HIDC without
express and not implied. and has been paid by the party accommodated. notice are not
6. Extension of the time of payment. This is the affected.
agreement binding on the holder made with the SECTION 122
principal debtor, and not with a third party. To be Renunciation by holder. Example: D is the holder of an instrument made by M and
binding, the agreement must be supported by a The holder may expressly renounce his rights against any party indorsed in succession by P, A, B, and C. E is a subsequent
valuable consideration and for a definite period. But in to the instrument before, at, or after its maturity. An absolute holder in due course.
the following cases, secondary parties are not and unconditional renunciation of his rights against the • D renounces rights against B. B and C are discharged.
discharge notwithstanding a binding agreement: principal debtor made at or after the maturity of the instrument But as to E (HIDC without notice), B and C are still
a. When the agreement was consented to by the party discharges the instrument. But a renunciation does not affect liable.
secondarily liable the rights of a holder in due course without notice. A • D renounces rights against M. The instrument and all
b. When a right of recourse against such party is renunciation must be in writing, unless the instrument is the parties are discharged. But as to E (HIDC without
expressly reserved. delivered up to the person primarily liable thereon. notice), B and C are still liable.
SECTION 121 Renunciation. This means waiver of the right to collect against SECTION 123
Right of party who discharges instrument. a party who may be liable on the instrument. To discharge a Cancellation; unintentional; burden of proof.
Where the instrument is paid by a party secondarily liable party, the renunciation must be express. It has the following A cancellation made unintentionally, or under a mistake or
thereon, it is not discharged; but the party so paying it is effects: without the authority of the holder, is inoperative, but where an
remitted to his former rights as regard all prior parties, and he In favor of a secondary It must be made by the instrument or any signature thereon appears to have been
may strike out his own and all subsequent indorsements and party holder before, at, or after cancelled, the burden of proof lies on the party who alleges that
against negotiate the instrument, except: maturity. the cancellation was made unintentionally, or under a mistake
a. Where it is payable to the order of a third person and - Only the secondary or without authority.
has been paid by the drawer; and party and all parties
b. Where it was made or accepted for accommodation and subsequent to him When cancellation is inoperative
has been paid by the party accommodated. are discharged. A cancellation is inoperative when made:
- The instrument 1. Unintentionally, or
Example: R is the drawer of a bill addressed to W, the drawee remains in force. 2. By mistake or through fraud, or
and payable to the order of P. The bill is accepted by W and is - The rights of an 3. Without authority
indorsed successively as follows: P—A, A—B, B—C. HIDC without
• A pays the bill. The instrument is not discharged, but notice are not • Intentional cancellation; presumption. Cancellation
A, B, and C are discharged. affected. is presumed to be intentional. Hence, the burden is on
• Rights of A. A secondary party who pays has the In favor of principal This may be effected at or the holder claiming its ineffectiveness to overcome the
following rights: after maturity. presumption by contrary evidence.
o He is remitted to his former rights as regards - The effect is to • Cancellation; how made. Writing the word cancelled
prior parties R and P, that is, he may collect discharge the or paid on the face of the instrument, tearing up,
from them. instrument and all burning, or mutilating are examples of cancellation.
o He may strike out his own indorsement and all parties thereto,
subsequent indorsements provided that the SECTION 124
o He may renegotiate the instrument renunciation is made Alteration of instrument; effect of.
Where a negotiable instrument is materially altered without the Section 124 and 125 refer to physical alterations of the
assent of all parties liable thereon, it is avoided, except as instrument. Thus, an extension of time given by the holder of a
against a party who has himself made, authorized, or assented note to the principal maker without the consent of a surety co-
to the alteration and subsequent indorsers. maker is not an alteration.
But when an instrument has been materially altered and is in 4. Alteration by a party. The instrument is discharged
the hands of a holder in due course not a party to the alteration, and all prior parties thereto who did not give their
he may enforce payment thereof according to its original tenor. consent to the alteration are discharged as well.
a. Exceptions. The instrument is not discharged
See discussion after Section 125. as against:
i. A party who has made the alteration.
SECTION 125 ii. A party who consented to the alteration
What constitutes a material alteration. iii. Indorsers who indorsed subsequent to the
Any alteration which changes: alteration
f. The date; b. Favorable or unfavorable. The law does not
g. The sum payable, either for principal or interest; distinguish between alterations favorable or
h. The time or place of payment: unfavorable to the party making the alteration.
i. The number or the relations of the parties; c. Innocent or fraudulent. The law does not
j. The medium or currency in which payment is to be distinguish between alterations fraudulently or
made; innocently made. Hence, the instrument is still
Or which adds a place of payment where no place of payment discharged but the innocent party can sue upon
is specified, or any other change or addition which alters the the original debt for which it has been given.
effect of the instrument in any respect is a material alteration. 5. Alteration by a stranger. When the material alteration
of the instrument is made by a stranger, it is called
Material alteration spoliation. Section 124 does not make a distinction
• Material alteration. This refer to any change in the between alteration made by a party or a stranger.
instrument which materially affects the liability of the 6. Right of a holder in due course. A material alteration
parties in any way as specified in Section 125, or avoids the instrument in the hands of one who is not a
changes the contract of the parties in any respect. Any holder in due course as against any prior party who has
other material alteration does not discharge the not assented to the alteration. But if an altered
instrument. instrument is negotiated to a holder in due course, he
• Alters the effect of the instrument. In addition to may enforce payment thereof according to its original
those enumerated in subsections (a) to (e) above, the tenor regardless of whether the alteration was innocent
following constitute material alterations as they alter or fraudulent.
the effect of the instrument:
4. Substitution of the words or bearer for or order.
5. Writing the words protest waived above a blank
indorsement
6. Erasure of the words without recourse above the
signature of an indorser
Effect of alteration of instrument
BILLS OF EXCHANGE ad majorem dei gloriam NEGO
TITLE II to the acceptor, the indorser to the drawer, and the indorsee, to the drawer and indorsers, if any. But the drawee who refuses to
Bills of Exchange the payee. accept may be made liable to the drawer.
CHAPTER IX When a bill is like a note. When a bill is accepted, it becomes SECTION 128
Form and Interpretation very similar to a promissory note. The position of the acceptor Bill addressed to more than one drawee.
is that of a maker, while the drawer that of first indorser or A bill may be addressed to two or more drawees jointly,
SECTION 126 surety of the acceptor. (A certified check is practically a PN whether they are partners or not; but not to two or more drawees
Bill of exchange, defined. with the bank as a maker. It discharges the drawer from liability in the alternative or in succession.
A bill of exchange is an unconditional order in writing thereon).
addressed by one person to another, signed by the person giving Addressed to 2 or more drawees jointly. “To A and B” or
it, requiring the person to whom it is addressed to pay on Other bills of exchange “To A, B, and C”
demand or at a fixed or determinable future time a sum certain 1. Foreign bill of exchange and inland bill of exchange
in money to order or to bearer. 2. Draft Addressed to 2 or more drawees in the alternative. “To A or
3. Trade acceptance- draft or BoE drawn by the seller on B”
Bill of exchange Note the purchaser of goods and accepted by the latter by
Contains an unconditional Contains and unconditional signing it as a drawee. Addressed to 2 or more drawees in succession. “To A, and
order requiring another to promise made by one person 4. Banker’s acceptance- draft or BoE drawn against a in his absence, to B”
pay the instrument to another to pay it bank
3 parties: drawer, drawee, 2 parties: maker and payee or 5. Letters of credit- loan agreements made by a bank or Rationale. The objection to the drawees being in the alternative
payee bearer other person at the request of a customer that the bank or in succession is the difficulty in determining the exact date
Drawer who issues the Maker who issues the will pay or honor up to a stated amount on compliance of dishonor of the bill in as much as it cannot be said that the
instrument is only instrument is primarily liable with the conditions specified in the credit. (They are bill is dishonored until all of the drawees have dishonored it and
secondarily liable neither drafts or notes) if the presentment takes place for a period covering several days
Bill drawn payable to the Note drawn payable to the when the last dishonor is made.
drawer’s own order is maker’s own order is not SECTION 127
complete without complete until indorsed by Bill not an assignment of funds in hands of drawee. SECTION 129
indorsement provided him A bill of itself does not operate as an assignment of the funds Inland and foreign bills of exchange.
accepted by the drawee in the hands of the drawee available for the payment thereof, An inland bill of exchange is a bill which is, or on its face
A bill must be presented for No need for presentment for and the drawee is not liable on the bill unless and until he purports to be, both drawn and payable within the Philippines.
acceptance in certain cases acceptance; present for accepts the same. Any other bill is a foreign bill. Unless the contrary appears on
and drawee not liable until payment the face of the bill, the holder may treat it as an inland bill.
he accepts the same Until he accepts, drawee is a stranger to the bill. Before
A bill payable on demand A note payable on demand acceptance, the bill is merely an order to the drawee to pay. As SECTION 130
must be presented for must be presented for far as the holder is concerned, the drawee is not bound to accept When bill may be treated as promissory note.
payment within a reasonable payment within a reasonable even if the drawer has sufficient funds in his hands. Where in a bill the drawer and drawee are the same person, or
time after its last negotiation time from its issue where the drawee is a fictitious person, or a person not having
Drawee not liable to a holder in due course. The mere capacity to contract, the holder may treat the instrument, at his
When note is like a bill. When a promissory note is indorsed issuance of a bill does not operate as an assignment of the funds option, either as a bill of exchange or as a promissory note.
by the payee, it becomes just like a bill. The maker corresponds in the hands of the drawee. Hence, an HIDC of a dishonored
bill has no cause of action against the drawee but only against When bill may be treated as a promissory note
Under this provision, a holder may treat an instrument, at his
option, either as a bill of exchange or a promissory note.:
1. The drawer and the drawee are the same person
2. Drawee is a fictitious person
3. Drawee has no capacity to contract
SECTION 131
Referee in case of need.
The drawer of a bill and any indorser may insert thereon the
name of a person to whom the holder may resort in case of
need; that is to say, in case the bill is dishonored by non-
acceptance or non-payment. Such person is called a referee in
case of need. It is in the option of the holder to resort to the
referee in case of need or not, as he may see fit.
Referee in case of need. This is the person named by the

drawer or indorser as the one to whom the holder may resort in
case of need, that is, in case the bill is dishonored by non-
acceptance or non-payment. It is not obligatory upon the holder
to apply to the referee in case of dishonor. Should he wish to,
the bill must first be protested. The referee is not bound to pay
the holder but he may be made liable to the party who named
him.
ACCEPTANCE ad majorem dei gloriam NEGO
CHAPTER X Where a drawee to whom a bill is delivered for acceptance
Acceptance SECTION 133 destroys the same, or refuses within twenty-four hours after
Holder entitled to acceptance on face of bill. such delivery, or within such other period as the holder may
SECTION 132 The holder of a bill presenting the same for acceptance may allow, to return the bill accepted or non-accepted to the holder,
Acceptance; how made and so forth. require that the acceptance be written on the bill, and if such he will be deemed to have accepted the same.
The acceptance of a bill is the signification by the drawee of his request is refused, may treat the bill as dishonored.
assent to the order of the drawee. The acceptance must be in Constructive acceptance by operation of law
writing and signed by the drawee. It must not express that the SECTION 134 The drawee is deemed to have accepted the bill if he either:
drawee will perform his promise by any other means than the Acceptance by separate instrument. 1. Destroys it. This must be willful and not accidental
payment of money. Where an acceptance is written on a paper other than the bill 2. Refuses to return the bill accepted or non-accepted
itself, it does not bind the acceptor except in favor of a person within 24 hours after delivery or within such period
• Acceptance. This is the act by which the drawee to whom it is shown and who, on the faith thereof, receives the given to him. There must have been demand and such
manifests his consent to comply with the request bill for value. demand was refused.
contained in the bill of exchange directed to him and it
contemplates an engagement or promise to pay. When acceptance in a separate instrument SECTION 138
• Object of acceptance. The object is to bind the drawee To bind the acceptor: Acceptance of incomplete bill.
and make him an actual party liable to the instrument. 1. The acceptance must be shown to the person to whom A bill may be accepted before it has been signed by the drawer,
Note that the drawee is a stranger to the bill until he it is negotiated, and or while otherwise incomplete, or when it is overdue, or after it
accepts the same. 2. Such person must take the bill for value on the faith of has been dishonored by a previous refusal to accept, or by non-
• Effect of acceptance. Upon acceptance, the bill such acceptance payment. But when a bill payable after sight is dishonored by
becomes a note. The drawee assumes the liability of the non-acceptance and the drawee subsequently accepts it, the
maker, while the drawer that of the first indorser. SECTION 135 holder, in the absence of any different agreement, is entitled to
• How acceptance is made. Usually by writing across Promise to accept; when equivalent to acceptance. have the bill accepted as of the date of the first presentment.
the face of the bill the word accepted under which the An unconditional promise in writing to accept a bill before it is
drawee signs his name with the date also written. drawn is deemed an actual acceptance in favor of every person SECTION 139
• Other words. What is important is that the intention to who, upon the faith thereof, receives the bill for value. Kinds of acceptance.
accept may be inferred from the words used. Other An acceptance is either general or qualified. A general
words that may be used: honored, seen, presented, Promise to accept a future non-existing bill acceptance assents without qualification to the order of the
good, I would pay. 1. In writing drawer. A qualified acceptance in express terms varies the
2. Unconditional effect of the bill as drawn.
Formal requisites of acceptance
1. In writing SECTION 136 Kinds of acceptance
2. Signed by the drawee Time allowed drawee to accept. 1. General acceptance. This is an assent without
3. Must contain an express or implied promise to pay The drawee is allowed twenty-four hours after presentment in qualification to the order of the drawer. The drawee
money which to decide whether or not he will accept the bill; the binds himself to pay the bill according exactly to its
acceptance, if given, dates as of the day of presentation. tenor.
Note: It is not a requisite that an acceptance be written on the • Accepted or good without nothing else but the
bill, but the holder has the right to require that the acceptance SECTION 137 signature of the acceptor.
be made on the bill itself. See Section 133. Liability of drawee retaining or destroying bill. • Accepted, payable at BPI Tacloban.

2. Qualified acceptance. This varies the effect of the bill or subsequently assent thereto. When the drawer or an indorser
as drawn. receives notice of a qualified acceptance, he must, within a
• Conditional. Accepted. Will pay as soon as reasonable time, express his dissent to the holder or he will be
the goods are sold. deemed to have assented thereto.
• Partial. A bill for P10,000 is accepted as:
Accepted for P3,000 only. • Drawee’s right to general acceptance. He has the
• Local. Payable in BPI Tacloban ONLY. right to require a general acceptance and may consider
• Qualified. A bill payable 30 days after date is the bill a dishonored if he obtains merely a qualified
accepted as: Payable 40 days after date. acceptance. Accordingly, he must notify the drawer
• As to drawee. The drawees are A, B, and C. and the indorsers.
only A and B accepted. • Drawers and indorsers discharged. Unless they have
expressly or impliedly authorized the holder to take a
SECTION 140 qualified acceptance, they are discharged.
What constitutes a general acceptance. o Reason. The drawer and the indorsers engage
An acceptance to pay at a particular place is a general that the bill will be paid as drawn or indorsed
acceptance unless it expressly states that the bill is to be paid by them. The effect of the qualified acceptance
there only and not elsewhere. will be to make a contract for them without
their consent.
SECTION 141 • Implied assent. When the drawer or an indorser
Qualified acceptance. receives notice of a qualified acceptance, he must,
An acceptance is qualified which is: within a reasonable time, express his dissent to the
a. Conditional; that is to say, which makes payment by holder or he will be deemed to have assented thereto.
the acceptor dependent on the fulfillment of a condition • When holder agrees to a qualified acceptance. He
therein stated; must give notice to the drawer and indorsers. The latter
b. Partial; that is to say, an acceptance to pay part only of are not discharged from liability if they expressly or
the amount for which the bill is drawn; impliedly give their assent thereto. s
c. Local; that is to say, an acceptance to pay only at a
particular place;
d. Qualified as to time;
e. The acceptance of some, one or more of the drawees
but not of all.
SECTION 142
Rights of parties as to qualified acceptance.
The holder may refuse to take a qualified acceptance and if he
does not obtain an unqualified acceptance, he may treat the bill
as dishonored by non-acceptance. Where a qualified
acceptance is taken, the drawer and indorsers are discharged
from liability on the bill, unless they have expressly or
impliedly authorized the holder to take a qualified acceptance,
PRESENTMENT FOR ACCEPTANCE ad majorem dei gloriam NEGO
CHAPTER X payment and thus put a limit to the period of their liability and e. By the holder, or by some person authorized to receive
Presentment for Acceptance likewise enable them to protect themselves by other means payment on his behalf;
before it is too late. f. At a reasonable hour on a business day;
SECTION 143 g. At a proper place as herein defined;
When presentment for acceptance must be made. SECTION 145 h. To the person primarily liable on the instrument, or if
Presentment for acceptance must be made: Presentment; how made. he is absent or inaccessible, to any person found at the
a. Where the bill is payable after sight, or in any other Presentment for acceptance must be made by or on behalf of place where the presentment is made.
case, where presentment for acceptance is necessary in the holder at a reasonable hour, on a business day and before
order to fix the maturity of the instrument; or the bill is overdue, to the drawee or some person authorized to SECTION 85
b. Where the bill expressly stipulates that it shall be accept or refuse acceptance on his behalf; and Time of maturity.
presented for acceptance; or a. Where a bill is addressed to two or more drawees who Every negotiable instrument is payable at the time fixed therein
c. Where the bill is drawn payable elsewhere than at the are not partners, presentment must be made to them all, without grace. When the day of maturity falls upon Sunday, or
residence or place of business of the drawee. unless one has authority to accept or refuse acceptance a holiday, the instrument is payable on the next succeeding
In no other case is presentment for acceptance necessary in for all, in which case presentment may be made to him business day. Instruments falling due or becoming payable on
order to render any party to the bill liable. only; Saturday are to be presented for payment on the next
b. Where the drawee is dead, presentment may be made succeeding business day, except instruments payable on
Presentment for acceptance. This is the production or to his personal representative; demand which may, at the option of the holder, be presented
exhibition of a bill of exchange to the drawee for his acceptance c. Where the drawee has been adjudged a bankrupt or an for payment before twelve o’clock noon on Saturday when that
or payment. The words presentment for acceptance also insolvent, or has made an assignment for the benefit of entire day is not a holiday.
include presentment for payment. creditors, presentment may be made to him or to his
• General rule: presentment for acceptance is not trustee or assignee. Time of maturity
necessary General rule Payable at the time fixed on
• Exception: it shall only be necessary in the Presentment for acceptance the instrument without grace
circumstances enumerated in Section 143. In these 1. By or on behalf of the holder period. If grace period is
cases, the holder must do either of the following or else 2. At a reasonable hour provided in the instrument,
the drawer and indorsers are discharged from liability: 3. On a business day the instrument is payable on
o Present the bill for acceptance 4. To the drawee or some person authorized on his behalf, the last day of grace.
o Negotiate it (even without presentment for subject to the limitations above Maturity date is a Sunday Payable on the next
acceptance) within a reasonable time or a holiday succeeding business day
SECTION 146 Maturity date is a Payable on demand.
SECTION 144 On what days presentment may be made. Saturday Payable on the next
When failure to present releases drawer and indorser. A bill may be presented for acceptance on any day on which succeeding business day or
Except as herein otherwise provided, the holder of a bill which negotiable instruments may be presented for payment under the before 12:00 noon on
is required by the next preceding section to be presented for provisions of Sections 72 and 85 of this Act. When Saturday is Saturday when the entire day
acceptance must either present it for acceptance or negotiate it not otherwise a holiday, presentment for acceptance may be is not a holiday, at the option
within a reasonable time. If he fails to do so, the drawer and all made before twelve o’clock, noon, on that day. of the holder.
indorsers are discharged.
SECTION 72 Note: This is different from
Reason: The drawer and indorsers have a right in having the What constitutes a sufficient presentment. Section 85 because it does
bills accepted immediately in order to shorten the time of Presentment for payment, to be sufficient, must be made:
not make a distinction as to a. When it is duly presented for acceptance and such an
bills payable on demand or acceptance as is prescribed by this Act is refused or SECTION 151
not in case the day for cannot be obtained; Right of holder where bill not accepted.
presentment for acceptance b. When presentment for acceptance is excused, and the When a bill is dishonored by non-acceptance, an immediate
falls on a Saturday. bill is not accepted. right of recourse against the drawer and indorsers accrues to the
holder and no presentment for payment is necessary.
SECTION 147 SECTION 150
Presentment; where time is insufficient. Duty of holder where bill not accepted. Immediate right of recourse. After giving notice of dishonor
Where the holder of a bill drawn payable elsewhere than at the Where a bill is duly presented for acceptance and is not and protesting when required, the holder my immediately
place of business, or the residence of the drawee has no time, accepted within the prescribed time, the person presenting it proceed against the drawer and indorsers for the value of the
with the exercise of reasonable diligence, to present the bill for must treat the bill as dishonored by non-acceptance or he loses bill without waiting for maturity.
acceptance before presenting it for payment on the day that it the right of recourse against the drawer and indorsers.
falls due, the delay caused by presenting the bill for acceptance Presentment for payment not necessary. Since payment
before presenting it for payment is excused, and does not Duty of holder where bill not accepted. The holder must take cannot be expected after acceptance has been refused, there is
discharge the drawers and indorsers. the necessary proceedings against the drawer and each indorser, not point waiting for the date of maturity to present the bill for
that is, he must have the bill protested if required (Section 152), payment. But if the bill is subsequently accepted, presentment
Only delay excused. Note that only the delay is excused and and give notice of dishonor (Section 89). for payment is necessary.
not the act of presenting the bill for acceptance. Presentment
for acceptance is excused only in instances enumerated in Treat as dishonored. The holder must treat the bill as
Article 148. dishonored if within 24 hours after presentment, the bill is not
accepted.
SECTION 148
Where presentment is excused. SECTION 152
Presentment for acceptance is excused, and a bill may be In what cases protest necessary.
treated as dishonored by non-acceptance, in either of the Where a foreign bill appearing on its face to be such is
following cases: dishonored by non-acceptance, it must be duly protested for
a. Where the drawee is dead, or has absconded, or is a non-acceptance, and where such bill which has not previously
fictitious person or a person not having capacity to been dishonored by non-acceptance is dishonored by non-
contract by bill. payment, it must be duly protested for non-payment. If it is not
b. Where, after the exercise of reasonable diligence, so protested, the drawer and indorsers are discharged. Where a
presentment cannot be made. bill does not appear on its face to be a foreign bill, protest
c. Where, although presentment has been irregular, thereof in case of dishonor is unnecessary.
acceptance has been refused on some other ground.
SECTION 89
SECTION 149 To whom notice of dishonor must be given.
When dishonored by non-acceptance. Except as herein otherwise provided, when a negotiable
A bill is dishonored by non-acceptance: 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.
PROTEST ad majorem dei gloriam NEGO
CHAPTER XI b. The fact that presentment was made and the manner
Protest thereof; Example. A bill dishonored on May 9, 2019 need not be
c. The cause or reason for protesting the bill; protested on the same day but it must at least be duly noted.
SECTION 152 d. The demand made and the answer given, if any, or the • Effect. If a formal protest is subsequently made he
In what cases protest necessary. fact that the drawee or acceptor could not be found. effect will retroact to the day of noting. Note however,
Where a foreign bill appearing on its face to be such is that the notice if dishonor must be given within the
dishonored by non-acceptance, it must be duly protested for Purpose of certificate of protest. To do away with the prescribed time. Otherwise, the parties secondarily
non-acceptance, and where such bill which has not previously necessity of proving the fact of presentment, demand, non- liable will be discharged.
been dishonored by non-acceptance is dishonored by non- payment, and notice of dishonor by witnesses in court.
payment, it must be duly protested for non-payment. If it is not SECTION 156
so protested, the drawer and indorsers are discharged. Where a Prima facie evidence. The certificate of protest is merely Protest; where made.
bill does not appear on its face to be a foreign bill, protest prima facie evidence of the facts therein stated. They may be A bill must be protested at the place where it is dishonored,
thereof in case of dishonor is unnecessary. disproved by competent evidence to the contrary. except that when a bill drawn payable at the place of business
or residence of some person other than the drawee has been
Protest; a formal, notarized notice of dishonor. This is a SECTION 154 dishonored by non-acceptance, it must be protested for non-
formal instrument executed by a notary public or other Protest, by whom made. payment at the place where it is expressed to be payable, and
competent person, certifying that the facts necessary to the Protest may be made by: no further presentment for payment to, or demand on the
dishonor of the instrument by non-acceptance or non-payment a. A notary public; or drawee is necessary.
have taken place. b. By any respectable resident of the place where the bill
is dishonored, in the presence of two or more credible Where protest is to be made
When no authentication of the notary public. The result is witnesses. General rule At the place where the bill
that the certificate of protest of a foreign bill is no proof of the was dishonored
drawee’s refusal to accept or pay the bill. When witnesses not required. Witnesses are not required if Exception: A bill dishonored by non-
the protest is made by a notary public. Bill drawn payable at the acceptance must be protested
Reasons for requiring protest in case of foreign bills place of business or for non-payment at the place
1. For uniformity in international transactions because SECTION 155 residence of some person where it is expressed to be
most countries require it; and Protest; when to be made. other than the drawee has payable
2. Furnishes authentic and satisfactory evidence of the When a bill is protested, such protest must be made on the day been dishonored by non-
dishonor to the drawer, from his residence abroad, of its dishonor unless delay is excused as herein provided. acceptance
would experience difficulty in verifying the matter and When a bill has been duly noted, the protest may be Example: Drawee resides in Tokyo but the bill is payable at
would thus be compelled to rely on the representation subsequently extended as of the date of the noting. BPI Tacloban.
of the holder. • The bill is presented for acceptance by the payee to the
When protest to be made. The notary public need not make drawee in Tokyo but acceptance is refused.
SECTION 153 the formal certificate of protest on the same day the instrument • At maturity, the bill is presented for payment to BPI
Protest; how made. is dishonored. But the noting of the matters required to be stated Tacloban, who refused payment.
The protest must be ANNEXED to the bill, or must contain a in Section 53 including the date of dishonor must be made on • Application of provision: The holder must protest the
COPY thereof, and must be under the HAND AND SEAL of the date of dishonor while they are still fresh in the mind of the bill for non-payment in Manila and no further
the notary making it, and must specify: notary public. presentment for payment to, or demand on, the drawee
a. The time and place of presentment; • Noting. As in literal na writing of the requirements is necessary.
under Section 153.
SECTION 157 When a bill is lost or destroyed or is wrongly detained from the
Protest both for non-acceptance and non-payment. person entitled to hold it, protest may be made on a copy or
A bill which has been protested for non-acceptance may be written particulars thereof.
subsequently protested for non-payment.
Loss or destruction or wrong detention of a bill will not
Protest both for non-acceptance and non-payment. Where a excuse protest. This is because these cases do not affect the
bill has already been protested for non-acceptance, protest for contract of the parties.
non-payment is discretionary on the part of the holder. Under
Section 151, presentment for payment is not necessary after the Protest v notice of dishonor
bill has been dishonored by non-acceptance. Protest Notice of dishonor
As a rule, required only in Required in any negotiable
SECTION 158 case of dishonor of a foreign instrument, other than a
Protest before maturity where acceptor insolvent. bill appearing on its face to foreign bill.
Where the acceptor has been adjudged a bankrupt or an be such.
insolvent, or has made an assignment for the benefit of creditors Always written Oral or written
before the bill matures, the holder may cause the bill to be Includes presentment, notice Limited only to a notice of
protested for better security against the drawer and indorsers. of dishonor, and all the steps dishonor
accompanying dishonor
Protest for better security. This is one made by the holder of Made by either notary public Made by a party or his agent
a bill after it has been accepted but before it matures, against or by any respectable
the drawer and indorsers, where the acceptor has been adjudged resident in the present of
a bankrupt or an insolvent, or has made an assignment for the witnesses
benefit of creditors. As a rule, made at the place Place of dishonor is not
where the bill is dishonored. essential
Optional only. Omission of this protest will not affect the Made on the day of dishonor Made within the time
holder’s remedy against the drawer and indorsers. prescribed (Secs
102,103,104,107)
SECTION 159
When protest dispensed with.
Protest is dispensed with by any circumstances which would
dispense with notice of dishonor. Delay in noting or protesting
is excused when delay is caused by circumstances beyond the
control of the holder and not imputable to his default,
misconduct, or negligence. When the cause of delay ceases to
operate, the bill must be noted or protested with reasonable
diligence.
SECTION 160
Protest where bill is lost and so forth.
CHAPTER XII 1. The bill must have been protested for dishonor by non- Reason. The reason for the presumption is that only the drawer
Acceptance for Honor acceptance or for better security will become liable to the acceptor for honor. The acceptance
2. The acceptor for honor must be a person not a party for the honor of the drawer will thus discharge most parties to
SECTION 161 already liable thereon (stranger to the bill) the bill.
When bill may be accepted for honor. 3. The bill must not be overdue at the time of the
When a bill of exchange has been protested for dishonor by acceptance for honor SECTION 164
non-acceptance or protested for better security and is not 4. The acceptance for honor must be with the consent of Liability of the acceptor for honor.
overdue, any person NOT being a party already liable thereon the holder of the instrument The acceptor for honor is liable to the holder and to all parties
may, with the consent of the holder, intervene and accept the to the bill subsequent to the party for whose honor he has
bill supra protest for the honor of any party liable thereon, or Stranger; why. If the acceptor for honor is already a party accepted.
for the honor of the person for whose account the bill is drawn. liable on the bill, then his acceptance would not give additional
The acceptance for honor may be for part only of the sum for security to the holder. Subrogation. The acceptor for honor is subrogated to the rights
which the bill is drawn; and where there has been an acceptance which the parties to the bill subsequent to the party for whose
for honor for one party, there may be a further acceptance by a SECTION 162 honor he has accepted may have against the latter and all prior
different person for the honor of another party. Acceptance for honor; how made. parties.
An acceptance for honor supra protest must be in writing and • Meaning, as the acceptor for honor, he takes the place
Acceptance for honor; aka acceptance supra protest. This is indicate that it is an acceptance for honor, and must be signed of the person for whose honor he accepts. As such, he
an undertaking by a stranger to a bill after protest for the benefit by the acceptor for honor. becomes liable to the holder and all subsequent parties
of: who have a right of recourse against the person for
a. Any party liable thereon, or Formal requisites of acceptance for honor whose honor he accepts.
b. For the honor of the person for whose account the bill 1. Must be in writing
is drawn 2. Must indicate that it is an acceptance for honor Example: R draws a bill against W. P is the payee, and he
3. Must be signed by the acceptor for honor indorses it to A, A to B, B to C, and C to D, the present holder.
Whom benefited. The acceptance for honor inures to the 4. Must contain an express or implied promise to pay D presents the bill for acceptance, but W dishonored it. X
benefit of all the parties subsequent to the person for whose money and accepted the bill for the honor of B (assume all requisites were
honor it is accepted, and conditioned to pay the bill when it 5. The accepted bill for honor must be delivered to the complied with).
becomes due if the original drawee does not pay it. holder • To whom X is liable. X becomes liable to B and C,
who are parties subsequent to B.
Purpose. Its purpose is to preserve the credit of the parties to Example. “Accepted for the honor of Julia. (Sgd) Jo.” • Rights of X. If X pays D, X will have a right of
the instrument or some party to it for whose honor the recourse against R, W, P A, and B. But X’s right will
acceptance is made. SECTION 163 depend upon whether W is liable to R.
When deemed to be an acceptance for honor of the drawer.
Consideration presumed. Where a bill is accepted for honor, Where an acceptance for honor does not expressly state for SECTION 165
consideration is presumed, and the presumption is that the whose honor it is made, it is deemed to be an acceptance for the Agreement of acceptor for honor.
acceptor has funds or money of the person for whose honor he honor of the drawer. The acceptor for honor, by such acceptance, engages that he
accepts. will, on due presentment, pay the bill according to the terms of
Presumption. If the bill is accepted without specifying the his acceptance provided it shall not have been paid by the
Requisites of acceptance for honor person for whose honor it is made, it is deemed to be an drawee and provided also that is shall have been duly presented
The following requisites must concur before an acceptance for acceptance for the honor of the drawer. for payment and protested for non-payment and notice of
honor may be made: dishonor given to him.
Presentment for payment to the acceptor for honor must be • Beyond the control. Circumstances beyond the
Secondary liability. The undertaking of the acceptor for honor made as follows: control of the holder are events which could not be
is not an absolute engagement to pay at all events, but only a a. If it is to be presented in the place where the protest for foreseen, or which, though foreseen, are inevitable.
collateral and conditional engagement to pay, it the drawee non-payment was made, it must be presented not later
does not. than the day following its maturity. SECTION 170
b. If it is to be presented in some other place than the place Dishonor of bill by acceptor for honor.
Conditions for his undertaking where it was protested, then it must be forwarded When the bill is dishonored by the acceptor for honor, it must
The acceptor for honor binds himself to pay according to the within the time specified in Section 104. be protested for non-payment by him [the holder].
terms of his acceptance, provided:
1. Bill was duly presented for payment SECTION 104. Where parties reside in different places. Protest for non-payment by acceptor for honor. If the
2. It has not been paid by drawer Where the person giving and the person to receive notice reside acceptor for honor does not pay the bill, the holder must protest
3. It was protested for non-payment and in different places, the notice must be given within the the bill for non-payment by the acceptor for honor. With this
4. Notice of dishonor is given to him supra protest following times: protest, there would have been 3 protests on said bill:
c. If sent by mail, it must be deposited in the post office 1. Protest for dishonor by non-acceptance or better
SECTION 166 in time to go by mail the day following the day of security
Maturity of bill payable after sight; accepted for honor. dishonor, or if there be no mail at a convenient hour on 2. Protest for non-payment by the drawee in order to hold
Where a bill payable after sight is accepted for honor, its that day, by the next mail thereafter. the acceptor for honor liable
maturity is calculated from the date of the noting for non- d. If given otherwise than through the post-office, then 3. Protest for non-payment by acceptor for honor in order
acceptance and not from the date of the acceptance for honor. within the time that notice would have been received in to hold the drawer and indorsers whose liabilities have
due course of mail, if it had been deposited in the post- not yet become fixed because of acceptance for honor.
Example: A bill payable 30 days after sight is presented for office within the time specified in the last subdivision.
acceptance to the drawer on October 1. Acceptance for honor Ordinary acceptance
• If acceptance is refused the noting of dishonor by non- SECTION 169 Previous protest required None required
acceptance should be made on the date of dishonor. When delay in making presentment is excused. Acceptor for honor- stranger Acceptor is drawee
• If the bill is accepted supra protest on October 5, the The provisions of Section 81 apply where there is delay in Consent of holder required Not required
date of maturity is on October 21, counted from making presentment to the acceptor for honor or referee in case Acceptor secondarily liable Acceptor primarily liable
October 1. of need. There may be several There can be no acceptors in
acceptors for honor for the alternative or successive
Repetition of Section 165. SECTION 81. When delay in making presentment is excused. different parties in the bill
Delay in making presentment for payment is excused when the Bill is not discharged upon Bill is discharged upon
SECTION 167 delay is caused by circumstances beyond the control of the payment by the acceptor for payment by the acceptor
Protest of bill accepted for honor, and so forth. holder, and not imputable to his default, misconduct, or honor
Where a dishonored bill has been accepted for honor supra negligence. When the cause of delay ceases to operate,
protest or contains a referee in case of need, it must be protested presentment must be made with reasonable diligence.
for non-payment before it is presented for payment to the • Only delay excused. It is only the delay that is
acceptor for honor or referee in case of need. excused, and not the act of presenting itself. Note that
the provision says that once the cause ceases,
SECTION 168 presentment has to be made with reasonable diligence.
Presentment for payment to acceptor for honor; how made.
PAYMENT FOR HONOR ad majorem dei gloriam NEGO
CHAPTER XIII 2. It has been protested for non-payment 2. The payer for honor is subrogated for, and succeeds to,
Payment for Honor 3. Payment supra protest is made by any person, even not both the rights and duties of the holder as regards the
a party thereto party for whose honor he pays and all parties liable to
SECTION 171 4. Payment is attested by a notarial act of honor which the latter.
Who may make payment for honor. must be appended to the protest or form an extension
Where a bill has been protested for non-payment, any person of it Example. R draws a bill against W, payable to the order of P.
may intervene and pay it supra protest for the honor of any 5. The notarial act must be based on the declaration made The bill is indorsed to A, B, C, D, and E successively. W does
person liable thereon, or for the honor of the person for whose by the payer for honor or his agent, of his intention to not pay E and E has duly protested the non-payment. S pays the
account it was drawn. pay the bill for honor and for whose honor he pays. bill supra protest.
• B, C, and D are discharged.
Payment for honor; aka payment supra protest. This is Effect of non-compliance. If the above formalities are not • S is subrogated to the rights of the holder R, with
payment made by any person, whether a party to the bill or not, complied with, the payment is nothing but a voluntary payment. respect to W, R, P and A. But the right of S against W,
after it has been protested for non-payment, for the benefit of: The payer acquires no right to full reimbursement against the R, and P will depend on whether or not they are liable
• Any party liable thereon party to whose honor he pays. [Article 1236 and 1237] to A.
• The person for whose account it was drawn
Purpose. Payment for honor may be availed of when the Preference of parties offering to pay for honor. Where holder refuses to receive payment supra protest.
holder, knowing that the bill has already been dishonored for Where two or more persons offer to pay a bill for the honor of Where the holder of a bill refuses to receive payment supra
non-payment, does not want to indorse the bill and thereby different parties, the person whose payment will discharge most protest, he loses his right of recourse against any party who
incur the liabilities of an indorser or of one negotiating by mere parties to the bill is to be given the preference. would have been discharged by such payment.
delivery.
Example. R draws a bill against W, payable to the order of P. Example. In the example above, if E refuses to accept payment
SECTION 172 The bill is indorsed to A, B, C, D, and E successively. W does supra protest from S for the honor of A, E loses his right to
Payment for honor; how made. not pay E and E has duly protested the non-payment. T offers collect from B, C, and D who would have been discharged by
The payment for honor supra protest, in order to operate as such to pay supra protest for the honor of C, and S for the honor of such payment.
and not as a mere voluntary payment, must be attested by a A.
notarial act of honor which may be appended to the protest or • S is to be preferred because his payment will discharge SECTION 177
form an extension to it. B, C, D. payment by T will discharge only D. Rights of payer for honor.
The payer for honor, on paying to the holder the amount of the
SECTION 173 SECTION 175 bill and the notarial expenses incidental to its dishonor, is
Declaration before payment for honor. Effect on subsequent parties where bill is paid for honor. entitled to receive both the bill itself and the protest.
The notarial act of honor must be founded on a declaration Where a bill has been paid for honor, all parties subsequent to Rights of payer for honor. He has the right to receive both the:
made by the payer for honor, or by his agent in that behalf, the party for whose honor it is paid are discharged, but the payer 1. Bill
declaring his intention to pay the bill for honor and for whose for honor is subrogated for, and succeeds to, both the rights and 2. Protest
honor he pays. duties of the holder as regards the party for whose honor he
pays and all parties liable to the latter. Reason. The reason is to enable him to enforce his rights under
Requisites for valid payment for honor Section 175 [right to subrogation].
In order that payment for honor may operate as such, the Effect of payment for honor
following requisites must be present: 1. All parties subsequent to the party for whose honor it Payment for honor Acceptance for honor
1. The bill has been dishonored by non-payment is paid are discharged
PAYMENT FOR HONOR ad majorem dei gloriam NEGO
Protest must be for non- Protest must be for non-
payment acceptance or for better
security
Bill is overdue Bill must not be overdue
Consent of holder not Consent of holder required
required
Acceptor secondarily liable Acceptor primarily liable
Notarial act of honor Not required
required
Only one payer for honor Can be several acceptors for
honor
Effects of payment for honor Effects of acceptance for
are provided in 175 and 177 honor are in 164 and 165
BILLS IN SET ad majorem dei gloriam NEGO
CHAPTER XV Effect when separate bills. The effect, therefore, is that the
Bills in Set Negotiation of a bill in set; each may be negotiated. Each holder is liable to each person to whom he indorsed part of the
part of a bill may be negotiated but the payee is not supposed bill.
SECTION 178 to negotiate all of the parts because the only reason for drawing • Example. Assume the three parts above were
Bills in set constitute one bill the bill in parts is to obtain greater assurance that at least one negotiated by the payee separately to A, B, and C. The
Where a bill is drawn in a set, each part of the set being will reach the payee safely. payee is liable to A, B, and C. If said indorsees indorse
numbered and containing a reference to the other parts, the each bill to other people, they are likewise liable to
whole of the parts constitutes one bill. Negotiation; each part negotiated to different person. When those people.
the payee negotiates different parts to different persons, he
Bill in a set. This is composed of several parts, each part being becomes liable on each part. SECTION 181
numbered and containing a reference to the other parts, the Acceptance of bills drawn in sets.
whole of the parts constituting but one bill. Negotiation; each part negotiated to different person. As The acceptance may be written on any part and it must be
between holders in due course, the owner of the bill is the written on one part only. If the drawee accepts more than one
Purpose. These are usually used when a bill has to be sent to a holder whose title first accrues. part and such accepted parts negotiated to different holders in
distant place through some conveyance. If each part is sent by due course, he is liable on every such part as if it were a separate
different means of conveyances, the chance that at least one Drawee’s rights. If the drawee in good faith accepts or pays bill.
part of the set would reach its destination would be greater. the first part presented to him, he is protected, and he can
rightfully refuse to accept or pay the bills presented by the Acceptance on one part only. The drawee is required to accept
holder in due course who first became the owner. The drawee only one part of the bill—because each one is but part of the
is not liable for more than one part because his order is to pay whole set.
or accept only one part.
• Example. Assume the three parts above were Effect of acceptance of different parts. Should the drawee
negotiated by the payee separately to A, B, and C, in accept more than one part and such parts are negotiated, the
the same order. If they all try to collect from the drawee acceptor can be held liable for each part he accepted. It is as if
at the same time, A must be paid. But if B goes to the each part is a separate bill.
drawee first and the drawee pays B, drawee is not liable
to A. SECTION 182
Payment by acceptor of bills drawn in sets.
SECTION 180 When the acceptor of a bill drawn in a set pays it without
Liability of holder who indorses two or more parts of a set to requiring the part bearing his acceptance to be delivered up to
different persons. him, and the part at maturity is outstanding in the hands of a
When the holder of a set indorses two or more parts to different holder in due course, he is liable to the holder thereon.
persons he is liable on every such part, and every indorser
SECTION 179 subsequent to him is liable on the part he has himself indorsed, When acceptor pays, must require surrender. When the
Rights of holders where different parts are negotiated. as if such parts were separate bills. acceptor pays the bill, he should require the person to whom he
Where two or more parts of a set are negotiated to different When negotiated to different persons, separate bill. The made payment to surrender the part bearing his acceptance.
holders in due course, the holder whose title first accrues is, as general rule is that each part constitutes only one bill. However, Otherwise, he will be liable to a holder in due course who
between such holders, the true owner of the bill. But nothing in when negotiated to different persons, it is as if they are different presents the part to him. It is as if he did not pay at all.
this section affects the rights of a person who, in due course, or separate bills in themselves. • Example. If each part is negotiated separately to A, B,
accepts or pays the parts first presented to him. and C, and the drawee accepts only the part indorsed to
BILLS IN SET ad majorem dei gloriam NEGO
A but pays the one negotiated to B without requiring A
to deliver the part he accepted, then the drawee is liable
to A notwithstanding payment to B.
SECTION 183
Effect of discharging one of a set.
Except as herein otherwise provided, where any one part of a
bill drawn in a set is discharged by payment or otherwise, the
whole bill is discharged.
Effect of discharging one of a set. If one part is discharged,

the entire bill is discharged because a bill in set constitutes only
one bill.
Exceptions. The phrase except as herein otherwise provided

refers to the exceptions mentioned in Sections 180, 181, and
182.
PROMISSORY NOTES AND CHECKS ad majorem dei gloriam NEGO
• Example. Due to Jo Valles P10,000, payable Intended for immediate Intended for circulation as an
CHAPTER XV to her order. payment instrument for credit
Promissory Notes and Checks Death of the drawer of the Death of the drawer of an
5. Collateral note. A note wherein the maker pledges check with the knowledge of ordinary bill does not revoke
SECTION 184 securities to the payee to secure the payment of the the bank revokes the the authority of the drawee to
Promissory note, defined. amount of the note. authority of the bank to pay pay
A negotiable promissory note, within the meaning of this Act, Must be presented for Must be presented for
is an unconditional promise in writing made by one person to 6. Installment note. It is a note payable in specified or payment within a reasonable payment within a reasonable
another, signed by the maker, engaging to pay on demand, or periodic installments at predetermined times. time after issuance time after last negotiation
at a fixed or determinable future time, a sum certain in money Drawer of a check not Drawer discharged totally
to order or to bearer. Where a note is drawn to the maker’s own presented within a
order, it is not complete until indorsed by him. 7. Judgment note. This is a note to which is added a
reasonable time after
power of attorney enabling the payee to take judgment
issuance is discharged to the
Simple promissory note. This is one which merely contains a against the maker without the formality of a trial if the
extent of the loss caused by
promise by one person to pay a sum of money to another. note is not paid on due date.
the delay
When a check is accepted or Drawer and indorsers remain
Special types of promissory notes. The following are other Not necessary negotiable. The items enumerated above may
certified, the drawer or liable in spite of acceptance.
instruments which are in form and in substance promissory or may not be negotiable, depending on WON they comply
indorsers are discharged
notes. with Section 1. In the absence of promise to pay, it is a mere
from liability thereon.
receipt.
1. Certificate of deposit. It is a written Stale check. This is a check that has not been presented for
acknowledgement by a bank of the receipt of money on SECTION 185
Check, defined. payment within a reasonable time after issuance. It is valueless
deposit which the bank promises to repay to the and should therefore not be paid.
A check is a bill of exchange drawn on a bank payable on
depositor, bearer, or to some other person, to the order
demand. Except as herein otherwise provided, the provisions of • 6 months. Current banking practice presently
of the depositor, or to him or his order, at a later date regards the check as stale if it has been
or on demand. this Act applicable to a bill of exchange payable on demand
apply to a check. outstanding for more than 6 months.
• Deposit slip. But a deposit slip is a mere
receipt, and not a promissory note. Special types of checks
Check Ordinary BoE
1. Memorandum check. The word memorandum, memo,
2. Bond. It is an evidence of indebtedness issued by a Always drawn on a bank May or may not be drawn on
or mem is written on the face of the check, signifying
public or private corporation, promising to pay a sum a bank
that the drawer engages to pay the bona fide holder
of money on a day certain in the future. Always payable on demand Payable on demand or at a
absolutely upon presentment at maturity and if due
fixed or determinable future
notice of the presentment and non-payment should be
3. Bank note. It is an instrument issued by a bank for time
given. In other words, the drawer may be sued the same
circulation as money payable to bearer on demand. Drawn against previous Need not be drawn against a
as a maker upon a promissory note.
deposit of funds deposit
2. Cashier’s check. This is one drawn by the cashier of a
4. Due bill. It is a promissory note which shows on its Need not be presented for Needed to be presented for
bank upon the bank itself, payable on demand to a
face an acknowledgement by a person of his acceptance acceptance in certain cases
payee. It is really the bank’s own check and may be
indebtedness to another. The word due is usually used. (sec 143)
treated as a promissory note with the bank as a maker.
2. Drawer suffers loss; and SECTION 188
3. Bank draft. A check drawn by a bank upon a bank. 3. Loss suffered is attributable to the delay. Effect where the holder of check procures it to be accepted or
certified.
4. Manager’s check. It is one drawn by the bank’s When discharged even if presented within a reasonable Where the holder of a check procures it to be accepted or
manager upon the bank itself. It is similar to the time. Even if the check is presented for payment within a certified, the drawer and all indorsers are discharged from
cashier’s check both as to effect and use. reasonable time after its issue, the drawer will be discharged if liability thereon.
he is not given notice of dishonor within the prescribed time.
5. Traveler’s check. It is one upon which the holder’s Effect of certification obtained by holder. The certification
signature must appear twice, one to be affixed by him If discharged, not necessarily in full. The drawer is ahs the same effect as if the holder had drawn the money,
at the time it is issued and the second or discharged from liability only to the extent of the loss caused redeposited it and taken a certificate of deposit for it.
countersignature, to be affixed by him in the presence by the delay in presentation and the burden of proving loss rests
of the payee before it is paid. on him. No proof, no discharge. Must be obtained by holder. If the certification is obtained by
• Purpose. To provide the traveler safe and third persons other than the holder, even if such person be the
convenient method by which to supply himself Insolvency the only kind of loss contemplated. The only loss payee, parties secondarily liable are not discharged because the
with funds in almost all parts of the words. which would be sustained by the drawer in case presentment holder has not yet received payment.
was not made within a reasonable time would be the insolvency
6. Certified check. It is one which bears upon its face an of the bank subsequent to the delivery and prior to the SECTION 189
agreement by the drawee bank that the check will be presentment of the check. Peninsula National Bank v Mans When check operates as an assignment.
paid on presentation. The usual practice is by stamping Penderson A check of itself does not operate as an assignment of any part
or writing the word certified upon the check. of the funds to the credit of the drawer with the bank, and the
SECTION 187 bank is not liable to the holder, unless and until it accepts or
7. Crossed check. It is one which bears across its face Certification of check; effect of. certifies the check.
two parallel lines drawn diagonally, usually on the Where a check is certified by the bank on which it is drawn, the
upper left side. A crossed check can only be deposited certification is equivalent to an acceptance. Right before acceptance of certification. A check drawn in
and not encashed. the ordinary form, does not of itself, as between the drawer and
Effects of certification of check the payee or holder, constitute a transfer of any money of the
SECTION 186 1. It is equivalent to acceptance, making the bank drawer to the credit of the holder. It is simply an order by the
Within what time a check must be presented. primarily liable on the check drawer to pay the amount of the check on presentment.
A check must be presented for payment within a reasonable 2. It discharges persons secondarily liable • Until payment by the bank, the issuance and circulation
time after its issue or the drawer will be discharged from 3. It operates as an assignment of the funds of the drawer have not effect on the funds of the drawer in the bank
liability thereon to the extent of the loss caused by the delay. in the hands of the drawee bank nor do they discharge the debt in payment for which
4. The payee becomes the deposited of the drawee bank the check was issued.
No immediate discharge of drawer. The drawer is not 5. The drawer may not issue a stop payment order on the
discharged by the mere delay in the presentation of the check certified check When certified. The moment a check is certified, the funds
for payment if he does not suffer any loss from the delay. cease to be under the control of the drawer and are no longer
Purpose. To enable the holder to use it as money. the his.
Requisites for discharge under this provision certification of checks enables persons not well-acquainted to
1. Check is not presented within a reasonable time after close promptly business transactions since the holder knows When bank may refuse payment
its issue; that he can compel the drawee bank to cash it. 1. When it is insolvent;
2. Drawer’s deposit is insufficient, or he has no account
in the bank or said account has been closed;
3. The drawer is insolvent and proper notice is received
by the bank;
4. The drawer dies and proper notice is received by the
bank;
5. The drawer has countermanded payment;
6. The holder refuses to identify himself;
7. The bank has reason to believe that the check is a
forger; or
8. The check is stale or post-dated
Relation between depositor and bank; creditor-debtor

relationship.
Relation between depositor and bank; agency. Where the

checks are received by the bank merely for collection and
deposit, the relationship created is agency. The bank is to
collect from the drawees of the check of its depositor for sums
not in excess of the amount of his deposit.
• The first bank to receive a check for payment is the
depositary bank.
• The bank on which the check is drawn is the payor
bank.
• Any bank except the payor bank that handles a check
during some phase of the collection process is called
collecting bank.
• An intermediate bank is any bank except the payor
bank and the depositor bank, to which a check is
transferred in the course of the collection process.
GENERAL PROVISIONS ad majorem dei gloriam NEGO
CHAPTER XVI
General Provisions “Written” includes printed, and “writing” includes print.

Short title. Persons primarily liable on instrument.
This Act shall be known as the Negotiable Instruments Law. The person “primarily” liable on an instrument is the person
who, by the terms of the instrument, is absolutely required to
SECTION 191 pay the same. All other parties are “secondarily” liable.
Definition and meaning of terms.
In this Act, unless the context otherwise requires: SECTION 193
Acceptance means an acceptance completed by delivery or Reasonable time, what constitutes.
notification; In determining what is a “reasonable time” or an “unreasonable
time,” regard is to be had to the nature of the instrument, the
Action includes counterclaim and set-off; usage of trade or business with respect to such instruments, and
the facts of the particular case.
Bank includes any person or association of persons carrying on
the business of banking, whether incorporated or not; SECTION 194
Time, how computed; when last day falls on holiday.
Bearer means the person in possession of a bill or note which Where the day, or the last day for doing any act herein required
is payable to bearer; or permitted to be done falls on a Sunday or on a holiday, the
act may be done on the next succeeding secular or business day.
Bill means bill of exchange, and “note” means negotiable
promissory note; SECTION 195
Application of Act.
Delivery means transfer of possession, actual or constructive, The provisions of this Act do not apply to negotiable
from one person to another; instruments made and delivered prior to the taking effect
hereof.
Holder means the payee or indorsee of a bill or note who is in
possession of it, or the bearer thereof; SECTION 196
Cases not provided for in Act.
Indorsement means an indorsement completed by delivery; Any case not provided for in this Act shall be governed by the
provisions of existing legislation or in default thereof, by the
Instrument means negotiable instrument; rules of the law merchant.
SECTION 197. Repeals. – All Acts and laws and parts thereof
Issue means the first delivery of the instrument, complete in inconsistent with this Act are hereby repealed.
form, to a person who takes it as a holder; SECTION 198. Time when Act takes effect. – This Act shall
take effect ninety days after its publication in the Official
Person includes a body of persons, whether incorporated or not; Gazette of the Philippines shall have been completed.
Value means valuable consideration;


Negotiable Instruments Law - Jo Valles

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Negotiable Instruments Law - Jo Valles

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ad majorem dei gloriam

Ateneo de Manila University

Law school is tough enough as it is. Let’s lift each

Joanne Marie R. Valles, CPA - Joval

Last Edit: November 29, 2019

HSBC v People’s Bank

Last Edit: November 29, 2019

Last Edit: November 29, 2019

Right of a prior party to negotiate

Last Edit: November 29, 2019

Last Edit: November 29, 2019

• Among themselves. This section governs the liability

Last Edit: November 29, 2019

Effect of alteration of instrument

Referee in case of need. This is the person named by the

Last Edit: November 29, 2019

Effect of discharging one of a set. If one part is discharged,

Exceptions. The phrase except as herein otherwise provided

Relation between depositor and bank; creditor-debtor

Relation between depositor and bank; agency. Where the

SECTION 190 SECTION 192

Value means valuable consideration;

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