Nego San Beda Mem Aid

San Beda College of Law
6
MEMORY AID IN COMMERCIAL LAW
\
I. GENERAL CONCEPTS
NEGOTIABLE INSTRUMENT (NI)
A written contract for the payment of
money which complies with the
requirements of Sec. 1 of the NIL, which
by its form and on its face, is intended
as a substitute for money and passes
from hand to hand as money, so as to
give the holder in due course !"#$ the
right to hold the instrument free from
defenses available to prior parties.
(Reviewer on Commercial Law,
Professors Sundiang and Aquino)
Functions: (Bar Review Materials in
Commercial Law, Jorge Miravite, !!
ed")
1. %o supplement the currency of
the government.
&. %o substitute for money and
increase the purchasing medium.
Legal tender ' %hat (ind of
money which the law compels a creditor
to accept in payment of his debt when
tendered by the debtor in the right
amount.
Note) A NI although intended to be a
substitute for money, is not legal tender.
!owever, a chec( that has been cleared
and credited to the account of the
creditor shall be equivalent to delivery
to the creditor of cash. (Sec" #!, $CBA)
Featues: (Reviewer on Commercial
Law, Professors Sundiang and Aquino)
1. Negotiability ' %hat attribute or
property whereby a bill or note
or chec( may pass from hand to
hand similar to money, so as to
give the holder in due course the
right to hold the instrument and
to collect the sum payable for
himself free from defenses.
%he essence of
negotiability which
characteri*es a negotiable
paper as a credit instrument
lies in its freedom to
circulate freely as a
substitute for money.
+irestone %ire vs. #A, ,-,
S#.A /01$
&. Accumulation of Secondary
#ontracts ' Secondary contracts
are pic(ed up and carried along
with NI as they are negotiated
from one person to another1 or
in the course of negotiation of
negotiable instruments, a series
of 2uridical ties between the
parties thereto arise either by
law or by privity.
A!!"ica#i"it$:
%eneral Rule& %he provisions of the
NIL are not applicable if the instrument
involved is not negotiable.
'(ce)tion& In the case of Borromeo
vs" Amancio Sun, *+, SCRA +,#, the S#
applied Section 13 of the NIL by analogy
in a case involving a "eed of Assignment
of shares which was signed in blan( to
facilitate future assignment of the same
shares. %he S# observed that the
situation is similar to Section 13 where
the blan(s in an instrument may be filled
up by the holder, the signing in blan(
being with the assumed authority to do
so.
%he NIL was enacted for the purpose
of facilitating, not hindering or
hampering transactions in commercial
paper. %hus, the statute should not be
tampered with hapha*ardly or lightly.
Nor should it be brushed aside in order
to meet the necessities in a single case.
4ichael 5sme6a vs. #itiban(, 7... No.
131&89, 4arch &,, &003 #alle2o :.$
%in&s o' NI
(. PROMISSOR) NOTE (PN)
An unconditional promise in writing by
one person to another signed by the
ma(er engaging to pay on demand or at
a fi;ed or determinable future time, a
sum certain in money to order or to
bearer. Sec. 193$
*. BILL OF E+C,ANGE (BE)
An unconditional order in writing
addressed by one person to another,
signed by the person giving it, requiring
the person to whom it is addressed to
pay on demand or at a fi;ed or
determinable future time a sum certain
in money to order or to bearer. Sec.
1&/$
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON: Jayson OS Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario (Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel Ga!.ula (an3ing
La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
NEGOTIABLE INSTRUMENTS LA- (NIL)
(Act No. 2031, effective June 2, 1911)
7
C,EC% < A bill of e;change drawn on
a ban( payable on demand. Sec. 19-$. It
is the most common form of bill of
e;change.
OT,ER FORMS OF NI
1. #ertificate of deposit issued by
ban(s, payable to the depositor or
his order, or to bearer
&. %rade acceptance
,. =onds, which are in the nature of
promissory notes
3. "rafts, which are bills of e;change
drawn by one ban( upon another
-. "ebenture
All of these must comply with Sec. 1,
NIL.
Note: Letters of credit are not
negotiable because they are issued to a
specified person.
Instances ./en a BE 0a$ #e teate& as
a PN
a. %he drawer and the drawee are
the same person1 or
b. "rawee is a fictitious person1 or
c. "rawee does not have the
capacity to contract. Sec. 1,0$
d. >here the bill is drawn on a
person who is legally absent1
e. >here the bill is ambiguous Sec.
18?e@$
Paties to a NI
(. Po0isso$ Note
a. 4a(er ' one who ma(es
promise and signs the instrument
b. Aayee ' party to whom the
promise is made or the
instrument is payable.
*. Bi"" o' E1c/an2e
a. "rawer ' one who gives
the order to pay money to a
third party
b. "rawee ' person to
whom the bill is addressed and
who is ordered to pay. !e
becomes an acceptor when he
indicates his willingness to pay
the bill
c. Aayee ' party in whose
favor the bill is drawn or is
payable.
DISTINCTIONS
PROMISSOR)
NOTE
BILL OF
E+C,ANGE
Bnconditional
promise
Bnconditional
order
Involves & parties Involves , parties
4a(er is primarily
liable
"rawer is only
secondarily liable
5nly one
presentment) for
payment
%wo presentments)
for acceptance and
for payment
NEGOTIABLE
INSTRUMENTS
NON3NEGOTIABLE
INSTRUMENTS
5nly NI are
governed by the
NIL.
Application of the
NIL is only by
analogy.
%ransferable by
negotiation or by
assignment.
%ransferable only by
assignment

A transferee can be
a !"# if all the
requirements are
complied with
A transferee remains
to be an assignee
and can never be a
!"#
A holder in due
course ta(es the NI
free from personal
defenses
All defenses
available to prior
parties may be
raised against the
last transferee
.equires c"ean
tit"e4 one that is
free from any
infirmities in the
instrument and
defects of title of
prior transferors.
($otes and Cases on
Ban-s, $egotia.le
/nstruments and
ot0er Commercial
1ocuments,
2imoteo B" Aquino)
%ransferee acquires
a &ei5ati5e tit"e
only. ($otes and
Cases on Ban-s,
$egotia.le
/nstruments and
ot0er Commercial
1ocuments, 2imoteo
B" Aquino)
Solvency of debtor is
in the sense
guaranteed by the
indorsers because
they engage that the
instrument will be
accepted, paid or
both and that they
will pay if the
instrument is
dishonored. ($otes
and Cases on Ban-s,
$egotia.le
/nstruments and
ot0er Commercial
1ocuments, 2imoteo
B" Aquino)
Solvency of debtor is
not guaranteed under
Art. 1/&9 of the N##
unless e;pressly
stipulated. ($otes
and Cases on Ban-s,
$egotia.le
/nstruments and
ot0er Commercial
1ocuments, 2imoteo
B" Aquino)
8
BILLOF E+C,ANGE C,EC%
Not necessarily
drawn on a deposit.
%he drawee need not
be a ban(
It is necessary that
a chec( be drawn
on a ban( deposit.
5therwise, there
would be fraud.
"eath of a drawer of
a =5C, with the
(nowledge of the
ban(, does not
revo(e the authority
of the drawee to
pay.
"eath of the
drawer of a chec(,
with the
(nowledge of the
ban(, revo(es the
authority of the
ban(er to pay.
4ay be presented for
payment within
reasonable time
after its last
negotiation.
4ust be presented
for payment within
a reasonable time
after its issue.
4ay be payable on
demand or at a fi;ed
or determinable
future time
Always payable on
demand
NEGOTIABLE
INSTRUMENT
NEGOTIABLE
-ARE,OUSE
RECEIPT
If originally payable
to bearer, it will
always remain so
payable regardless of
If payable to
bearer, it will be
converted into a
receipt deliverable
manner of
indorsement.
to order, if
indorsed specially.
A holder in due
course may obtain
title better than that
of the one who
negotiated the
instrument to him.
%he indorsee, even
if holder in due
course, obtains
only such title as
the person who
caused the deposit
had over the goods.
ASSIGNMENT NEGOTIATION
Aertains to contracts
in general
Aertains to NI
!older ta(es the
instrument sub2ect
to the defenses
obtaining among the
original parties
!older in due
course ta(es it free
from personal
defenses available
among the parties
7overned by the
#ivil #ode
7overned by the
NIL
II. NEGOTIABILIT)
Fo0 o' NI: Sec. 1$ %e$: -UPOA
1. 4ust be in >riting and signed by the
ma(er or drawer1
&. 4ust contain an Bnconditional
promise or order to pay a sum
certain in money1
,. 4ust be Aayable on demand, or at a
fi;ed or determinable future time1
3. 4ust be payable to 5rder or to
bearer1 and
-. >hen the instrument is addressed to
a drawee, he must be named or
otherwise indicated therein with
reasonable certainty.
6ete0ination o' ne2otia#i"it$:
a. >hole instrument
b. >hat appears on the face of the
instrument
c. .equisites enumerated in Sec.1 of the
NIL
d. Should contain words or terms of
negotiability. (%o)enco, Commercial
Law Bar Reviewer, cited in Aquino, )"
*)
In determining the negotiability of an
instrument, the instrument in its
entirety and by what appears on its face
must be considered. It must comply
with the requirements of Sec. 1 of the
NIL. #alte; Ahils. v. #A, &1& S#.A 339$
%he acceptance of a bill of e;change
is not important in the determination of
NEGOTIABLE
INSTRUMENT
NEGOTIABLE
6OCUMENT OF
TITLE
Sub2ect is money Sub2ect is goods
Is itself the
property with
value
%he document is a
mere evidence of
title ' the things of
value being the
goods mentioned in
the document
!as all the
requisites of Sec. 1
of NIL
"oes not have these
requisites
A holder of NI may
run after the
secondary parties
for payment if
dishonored by the
party primarily
liable.
Intermediate parties
are not secondarily
liable if the
document is
dishonored.
A holder, if a
holder in due
course, may
acquire rights over
the instrument
better than his
predecessors.
A holder can never
acquire rights to the
document better
than his
predecessors.
9
its negotiability. %he nature of
acceptance is important only on the
determination of the (ind of liabilities of
the parties involved A=#54 vs. Aruego,
10& S#.A -,0$
RE7UISITES OF NEGOTIABILIT)
a. It 0ust #e .itin2 an& si2ne& #$ t/e
0a8e o &a.e
Any (ind of material that substitutes
paper is sufficient.
>ith respect to the signature, it is
enough that what the ma(er or drawer
affi;ed shows his intent to authenticate
the writing. ($otes and Cases on Ban-s,
$egotia.le /nstruments and ot0er
Commercial 1ocuments, 2imoteo B"
Aquino)
#. Uncon&itiona" Po0ise o O&e to
!a$ a su0 cetain in 0one$
Bnconditional promise or order
>here the promise or order is made to
depend on a contingent event, it is
conditional, and the instrument involved
is non<negotiable. %he happening of the
event does not cure the defect.
%he unconditional nature of the
promise or order is not affected by)
a$ An indication of a particular fund out
of which reimbursement is to be
made, or a particular account to be
debited with the amount1 or
b$ A statement of the transaction which
gives rise to the instrument
>here the promise or order is sub2ect
to the terms and conditions of the
transaction stated, the instrument is
rendered non<negotiable. %he NI must be
burdened with the terms and conditions
of that agreement to destroy its
negotiability. (Cesar 3illanueva,
Commercial Law Review, !!4 ed")
=ut an order or promise to pay out of
a particular fund is N5% unconditional.
Sec. ,$
FUN6 FOR
REIMBURSEMENT
PARTICULAR FUN6
FOR PA)MENT
"rawee pays the
payee from his own
funds1 afterwards,
the drawee pays
himself from the
particular fund
indicated.
%here is only one
act< the drawee pays
directly from the
particular fund
indicated. Aayment
is sub2ect to the
condition that the
fund is sufficient.
Aarticular fund
indicated is N5% the
direct source of
payment but only the
source of
reimbursement.
Aarticular fund
indicated is the
direct source of
payment.
Aostal money orders are not negotiable
instruments. Some of the restrictions
imposed by postal laws and regulations
are inconsistent with the character of
negotiable instruments. Ahil. Cducation
#o. vs. Soriano, ,D S#.A -98$
%reasury warrants are non<negotiable
because there is an indication of the
fund as the source of payment of the
disbursement. 4etroban( vs. #A, 1D3
S#.A 1/D$
Aayable in sum certain in money
An instrument is still negotiable
although the amount to be paid is
e;pressed in currency that is not legal
tender so long as it is e;pressed in
money. AN= vs. Eulueta, 101 Ahil 1081,
Sec./ e$$.
%he certainty is however not affected
although to be paid)
a. >ith interest1 or
b. =y stated installments1 or
c. =y stated installments with an
acceleration clause1
d. >ith e;change1 or
e. >ith cost of collection or
attorneyFs fees. Sec. &$
%he dates of each installment must be
fi;ed or at least determinable and the
amount to be paid for each installment.
A sum is certain if the amount to be
unconditionally paid by the ma(er or
drawee can be determined on the face
of the instrument and is not affected by
the fact that the e;act amount is arrived
at only after a mathematical
computation. ($otes and Cases on
Ban-s, $egotia.le /nstruments and ot0er
Aquino)
ACCELERATION
CLAUSE
INSECURIT)
CLAUSE
E+TENSION
CLAUSE
A clause that
renders whole
debt due and
demandable
Arovisions in
the contract
which
allows the
#lauses in
the face of
the
instrument
10
upon failure of
obligor to
comply with
certain
conditions.
holder to
accelerate
payment if
he deems
himself
insecure.
that e;tend
the maturity
dates1
a. At the
option of
the holder1
b. C;tension
to a further
definite
time at the
option of
the ma(er
or acceptor
c. Automa '
tically upon
or after a
specified
act or
event.
Instrument is
still negotiable
Instrument
is rendered
non<
negotiable
because the
holderFs
whim and
caprice
prevail
without the
fault and
control of
the ma(er
Instrument
is still
negotiable
($otes and
Cases on
Ban-s,
$egotia.le
/nstruments
and ot0er
Commercial
1ocuments,
2imoteo B"
Aquino)
E+TENSION
CLAUSE
E+TENSION UN6ER
SEC. (*9(')
Stated on the face of
the instrument
Agreement binding the
holder1
a. %o e;tend the time
of payment or
b. Aostpone the
holderFs right to
enforce the instrument
Aarties are bound
because they too( the
instrument (nowing
that there is an
e;tension clause
=inds the person
secondarily liable and
therefore cannot be
discharged from
liabilities if)
a. !e consents or
b. .ight of recourse is
e;pressly reserved.
($otes and Cases on
Ban-s, $egotia.le
/nstruments and ot0er
Commercial
1ocuments, 2imoteo
B" Aquino)
c. Pa$a#"e on 6e0an& o at 'i1e& o
&ete0ina#"e 'utue ti0e
PA)ABLE ON
6EMAN6
PA)ABLE AT A
FI+E6 OR
6ETERMINABLE
FUTURE TIME
a. >here e;pressed
to be payable on
demand, at sight or
on presentation1
b. >here no period
of payment is stated1
c. >here issued,
accepted, or
indorsed after
maturity only as
between immediate
parties$. Sec. 8$
a. At a fi;ed period
after date or sight1
b. 5n or before a
fi;ed or
determinable future
time specified
therein1 or
c. 5n or at a fi;ed
period after the
occurrence of a
specified event,
which is certain to
happen, though the
time of happening is
uncertain. Sec. 3$
If the day and the month, but not the
year of payment is given, it is not
negotiable due to its uncertainty.
(Pandect of Commercial Law and
Juris)rudence, Justice Jose 3itug, +55,
ed")
&. Pa$a#"e to O&e o to Beae
Aayable to 5rder
%he instrument is payable to order
where it is drawn payable to the order of
a specified person, or to him or his
order. Sec. 9$
%he payee must be named or
otherwise indicated therein with
reasonable certainty.
%he instrument may be made payable
to the order of)
a. A payee who is not the ma(er,
drawer or drawee
b. %he drawer or ma(er
c. %he drawee
d. & or more payees 2ointly
e. 5ne or some of several payees
f. %he holder of an office for a
time being
Aayable to =earer
%he instrument is payable to bearer)
a. >hen it is e;pressed to be so
payable1 or
b. >hen it is payable to a person
named therein or to bearer1 or
c. >hen it is payable to the order of a
fictitious or non<e;isting person, and
such fact was (nown to the person
ma(ing it so payable1 or
d. >hen the name of the payee does
not purport to be the name of any
person1 or
11
e. >hen the only or last indorsement is
an indorsement in blan(. Sec. D$
Note: An instrument originally payable
to bearer can be negotiated by mere
delivery even if it is indorsed especially.
/f it is originall6 a B'AR'R instrument,
it will alwa6s .e a B'AR'R instrument"
As opposed to an original order
instrument becoming payable to bearer,
if the same is indorsed specially, it can
N5 L5N7C. be negotiated further by
mere delivery, it has to be indorsed.
A chec( that is payable to the order
of cash is payable to bearer. Reason& %he
name of the payee does not purport to
be the name of any person. Ang %e(
Lian vs. #A, 98 Ahil. ,9,$

FICTITIOUS PA)EE RULE
It is not necessary that the person
referred to in the instrument is really
non<e;istent or fictitious to ma(e the
instrument payable to bearer. %he
person to whose order the instrument is
made payable may in fact be e;isting
but he is till fictitious or non<e;istent
under Sec. Dc$ of the NIL if the person
ma(ing it so payable does not intend to
pay the specified persons. (Reviewer on
Commercial Law, Professors Sundiang
and Aquino)
e. I&enti'ication o' 6a.ee
Applicable only to a bill of e;change
A bill may be addressed to & or more
drawees 2ointly whether they are
partners or not but not to & or more
drawees in the alternative or in
succession. Sec. 1&9$
OMISSIONS :
PRO;ISIONS T,AT
6O NOT AFFECT
NEGOTIABILIT)
A66ITONAL
PRO;ISONS NOT
AFFECTING
NEGOTIABILIT)
a. It is not dated1
b. It does not
specify the value
given or that any
value has been
given1
c. It does not
specify the place
where it is drawn or
%'$'RAL R7L'& If
some other act is
required other than
or in addition to
payment of money,
the instrument is
not negotiable.
Sec. -$
'8C'P2/9$S&
where it is payable1
d. It bears a seal1
e. It designates a
particular (ind of
current money in
which payment is to
be made. Sec. /$
a. Authori*es the
sale of
collateral
securities on
default1
b. Authori*es
confession of
2udgment on
default1
c. >aives the
benefit of law
intended to
protect the
debtor1 or
d. Allows the
creditor the
option to
require
something in
lieu of money.
III. INTERPRETATION OF NEGOTIABLE
INSTRUMENTS (Sec. (<)
a. "iscrepancy between the
amount in figures and that in
words ' the words prevail, but if
the words are ambiguous,
reference will be made to the
figures to fi; the amount.
b. Aayment for interest is provided
for ' interest runs from the date
of the instrument, if undated,
from issue thereof.
c. Instrument undated ' consider
date of issue.
d. #onflict between written and
printed provisions ' written
provisions prevail.
e. >hen the instrument is so ambiguous
that there is doubt whether it is
a bill or note, the holder may
treat it as either at his election1
f. If one signs without indicating in
what capacity he has affi;ed his
signature, he is considered an
indorser.
g. If two or more persons sign :;e
)romise to )a6,< their liability is
2oint each liable for his part$
but if they sign :/ )romise to
)a6,< the liability is solidary
each can be compelled to
comply with the entire
obligation$. Sec. 18$
12
I;. TRANSFER AN6 NEGOTIATION
INCI6ENTS IN T,E LIFE OF A NI (+
Ag.a6ani, +55 ed")
a. Issue
b. Negotiation
c. Aresentment for acceptance, in
certain (inds of =ills of C;change
d. Acceptance
h. " ishonor by non<acceptance
i. A resentment for payment
2. " ishonor by non<payment
(. N otice of dishonor
l. " ischarge
MO6ES OF TRANSFER
a. Negotiation ' the transfer of the
instrument from one person to another
so as to constitute the transferee as
holder thereof. Sec.,0$
b. Assignment ' %he transferee does not
become a holder and he merely steps
into the shoes of the transferor. Any
defense available against the transferor
is available against the transferee.
($otes and Cases on Ban-s, $egotia.le
/nstruments and ot0er Commercial
1ocuments, 2imoteo B" Aquino)
Assignment may be effected whether
the instrument is negotiable or non<
negotiable. Sesbre6o vs. #A, &&& S#.A
3//$
,O- NEGOTIATION TA%ES PLACE
a. Issuance ' first delivery of the
instrument complete in form to a person
who ta(es it as a holder. Sec. 1D1$
Steps)
1. 4echanical act of writing
the instrument completely
and in accordance with the
requirements of Section 11
and
2. %he delivery of the
complete instrument by the
ma(er or drawer to the
payee or holder with the
intention of giving effect to
it. (20e Law on $egotia.le
/nstruments wit0 1ocuments
of 2itle, =ector de Leon,
!!! ed")
#. Su#se=uent Ne2otiation
1. If payable to bearer, a
negotiable instrument may
be negotiated by mere
delivery.
&. If payable to order, a NI may
be negotiated by
indorsement completed by
delivery
Note: In both cases, delivery must be
intended to give effect to the transfer of
instrument. "evelopment =an( vs. Sima
>ei, &1D S#.A 8,/$
c. Inco0!"ete ne2otiation o' o&e
instu0ent
>here the holder of an instrument
payable to his order transfers it for value
without indorsing it, the transfer vests in
the transferee such title as the
transferor had therein and he also
acquires the right to have the
indorsement of the transferor. =ut for
the purpose of determining whether the
transferee is a holder in due course, the
negotiation ta(es effect as of the time
when the indorsement is made. Sec. 3D$
&. In&ose0ent
Legal transaction effected by the
affi;ing oneGs signature at the)
a. =ac( of the instrument or
b. Bpon a paper allonge$ attached
thereto with or without
additional words specifying the
person to whom or to whose
order the instrument is to be
payable whereby one not only
transfers legal title to the
paper transferred but li(ewise
enters into an implied guaranty
that the instrument will be duly
paid Sec. ,1$
%'$'RAL R7L'& Indorsement must
be of the entire instrument.
'8C'P2/9$& >here instrument has
been paid in part, it may be indorsed
as to the residue. Sec. ,&$
Hinds of Indorsement)
A. SPECIAL ' Specifies the person to
whom or to whose order, the instrument
is to be payable Sec. ,3$
=. BLAN% ' Specifies no indorsee)
1. Instrument becomes payable to
bearer and may be negotiated by
delivery Sec. ,3$
&. 4ay be converted to special
indorsement by writing over the
signature of indorser in blan(
any contract consistent with
13
character of indorsement Sec.
,-$
#. ABSOLUTE ' 5ne by which indorser
binds himself to pay)
1. Bpon no other condition than
failure of prior parties to do so1
&. Bpon due notice to him of such
failure.
". CON6ITIONAL ' .ight of the indorsee
is made to depend on the happening of a
contingent event. Aarty required to pay
may disregard the conditions. Sec. ,D$
C. RESTRICTI;E > An indorsement is
restrictive, when it either)
a. Arohibits further negotiation of
the instrument1 or
b. #onstitutes the indorsee the
agent of the indorser1 or
c. Iests the title in the indorsee in
trust for or to the use of some
other persons. =ut mere absence
of words implying power to
negotiate does not ma(e an
indorsement restrictive. Sec.
,/$
+. 7UALIFIE6 ' #onstitutes the indorser
a mere assignor of the title to the
instrument. Sec. ,9$
It is made by adding to the indoserGs
signature words li(e Jsans recourse,K
Lwithout recourseJ, Jindorser not
holderJ, Jat the indorserGs own ris(J, etc.
7. ?OINT ' Indorsement payable to & or
more persons Sec. 31$
!. IRREGULAR > A person who, not
otherwise a party to an instrument,
places thereon his signature in blan(
before delivery Sec. /3$
5ther rules on indorsement1
1. Negotiation is deemed prima facie to
have been effected before the
instrument is overdue e;cept if the
indorsement bears a date after the
maturity of the instrument. Sec. 3-$
&. Aresumed to have been made at the
place where the instrument is dated
e;cept when the place is specified. Sec.
3/$
,. >here an instrument is payable to the
order of & or more payees who are not
partners, all must indorse unless
authority is given to one. Sec. 31$
3. >here a person is under obligation to
indorse in a representative capacity, he
may indorse in such terms as to negative
personal liability. Sec. 33$
RENEGOTIATION TO PRIOR PARTIES
(Sec. @9)
>here an instrument is negotiated
bac( to a prior party, such party may
reissue and further negotiate the same.
=ut he is not entitled to enforce
payment thereof against any intervening
party to whom he was personally liable.
Reason& %o avoid circuitousness of suits.
STRI%ING OUT IN6ORSEMENT
%he holder may at any time stri(e out
any indorsement which is not necessary
to his title. %he indorser whose
indorsement is struc( out, and all
indorsers subsequent to him, are thereby
relieved from liability on the instrument.
Sec. 39$
CONSI6ERATION FOR T,E ISSUANCE
AN6 SUBSE7UENT TRANSFER
Cvery NI is deemed prima facie to have
been issued for a valuable consideration.
Cvery person whose signature appears
thereon is presumed to have become a
party thereto for value. Sec. &3$
>hat constitutes value)
a. An antecedent or pre<e;isting debt
b. Ialue previously given
c. Lien arising from contract or by
operation of law. Sec. &8$
;. ,OL6ERS
,OL6ER
A payee or endorsee of a bill or note
who is in possession of it or the bearer
thereof. Sec. 1D1$
RIG,TS OF ,OL6ERS IN GENERAL
Sec. -1$
a . 4ay sue thereon in his own name
b. Aayment to him in due course
discharges the instrument
%he only disadvantage of a holder who
is not a holder in due course is that the
negotiable instrument is sub2ect to
defenses as if it were non<negotiable.
(C0an ;an vs" 2an >im, +!5 P0il" ,!#)
,o"&e In 6ue Couse (,6C)
14
A holder who has ta(en the instrument
under the following conditions) %E): C O
; I
1. Instrument is complete and regular
upon its face1
&. =ecame a holder before it was
overdue and without notice that it
had been previously dishonored1
,. +or 5alue and in good faith1 and
3. At the time he too( it, he had no
notice of any infirmity in the
instrument or defect in the title of
the person negotiating it. Sec. -&$
Ri2/ts o' a ,6C:
1. 4ay sue on the instrument in his own
name1
&. 4ay receive payment and if payment
is in due course, the instrument is
discharged1
,. !olds the instrument free from any
defect of title of prior parties and
free from defenses available to
parties among themselves1 and
3. 4ay enforce payment of the
instrument for the full amount
thereof against all parties liable
thereon. Secs. -1 and -8$
Cvery holder of a negotiable
instrument is deemed prima facie a
holder in due course. !owever, this
presumption arises only in favor of a
person who is a holder as defined in
Section 1D1 of the NIL. %he weight of
authority sustains the view that a payee
may be a holder in due course. !ence,
the presumption that he is a prima facie
holder in due course applies in his favor.
#ely Mang vs. #ourt of Appeals, 7... No.
1,9083, August 1-, &00,$
,o"&e Not In 6ue Couse
5ne who became a holder of an
instrument without any, some or all of
the requisites under Sec. -& of the NIL.
>ith respect to demand instruments,
if it is negotiated an unreasonable length
of time after its issue, the holder is
deemed not a holder in due course.
Sec.-,$
%'$'RAL R7L'& +ailure to ma(e
inquiry is not evidence of bad faith.
'8C'P2/9$S&
1. >here a holderFs title is defective or
suspicious that would compel a
reasonable man to investigate, it cannot
be stated that the payee acquired the
chec( without the (nowledge of said
defect in the holderFs title and for this
reason the presumption that it is a
holder in due course or that it acquired
the instrument in good faith does not
e;ist. "e 5campo vs. 7atchalian, ,
S#.A -D/$
&. !older to whom cashierFs chec( is not
indorsed in due course and negotiated
for value is not a holder in due course.
4esina v. IA#$
.ights of a holder not in due course)
1. It can enforce the instrument and sue
under it in his own name.
&. Arior parties can avail against him any
defense among these prior parties and
prevent the said holder from collecting
in whole or in part the amount stated in
the instrument
Note: If there are no defenses, the
distinction between a !"# and one who
is not a !"# is immaterial. ($otes and
Cases on Ban-s, $egotia.le /nstruments
and ot0er Commercial 1ocuments,
2imoteo B" Aquino)
S,ELTER RULE
A holder who derives his title through
a holder in due course, and who is not
himself a party to any fraud or illegality
affecting the instrument, has all the
rights of such former holder in respect of
all prior parties to the latter. Sec. -9$
ACCOMMO6ATION
A legal arrangement under which a
person called the accommodation party,
lends his name and credit to another
called the acco00o&ate& !at$,
without any consideration.
Acco00o&ation Pat$ (AP)
.equisites)
1. %he accommodation party must sign
as ma(er, drawer, acceptor, or
indorser1
&. !e must not receive value therefor1
and
,. %he purpose is to lend his name or
credit. Sec. &D$
Note: :wit0out receiving value
t0erefor,< means without receiving
15
value by virtue of the instrument.
#lar( vs. Sellner, 3& Ahil. ,93$
Cffects) %he person to whom the
instrument thus e;ecuted is
subsequently negotiated has a right of
recourse against the accommodation
party in spite of the formerFs (nowledge
that no consideration passed between
the accommodation and accommodated
parties. Sec. &D$
.ights N Legal Aosition)
1. AA is generally regarded as a suret6
for the party accommodated1
&. >hen AA ma(es payment to holder
of the note, he has the right to sue
the accommodated party for
reimbursement. Agro
#onglomerates, Inc. vs. #A, ,39
S#.A 3-0$
Liability) Liable on the instrument to a
holder for value notwithstanding such
holder at the time of the ta(ing of the
instrument (new him to be only an
accommodation party. !ence, As
regards, an AA, the 3
th
condition, i"e",
lac( of notice of infirmity in the
instrument or defect in the title of the
persons negotiating it, has no
application. Stelco 4ar(eting #orp. vs.
#ourt of Appeals, &10 S#.A -1$
.ights of AAs as against each other)
4ay demand contribution from his co<
accommodation party without first
directing his action against the principal
debtor provided)
a. !e made the payment by virtue
of 2udicial demand1 or
b. %he principal debtor is insolvent.
%he relation between an
accommodation party is, in effect, one
of principal and surety ' the
accommodation party being the surety.
It is a settled rule that a surety is bound
equally and absolutely with the principal
and is deemed an original promissory and
debtor from the beginning. %he liability
is immediate and direct. .omeo 7arcia
vs. "ionisio Llamas, 7... No. 1-31&8,
"ecember 9, &00,$
>ell<entrenched is the rule that the
consideration necessary to support a
surety obligation need not pass directly
to the surety, a consideration need not
pass directly to the surety, a
consideration moving to the principal
alone being sufficient. Spouses Cduardo
Cvangelista vs. 4ercator +inance #orp,
7... No. 1399/3, August &1, &00,$
;I. PARTIES -,O ARE LIABLE
PRIMAR) AN6
SECON6AR)
LIABILIT) OF
PARTIES
-ARRANTIES OF
PARTIES
4a(es the parties
liable to pay the
sum certain in
money stated in the
instrument.
Impose no direct
obligation to pay in
the absence of
breach thereof. In
case of breach, the
person who
breached the same
may either be
liable or barred
from asserting a
particular defense.
#onditioned on
presentment and
notice of dishonor
(Cam)os and Lo)e?@
Cam)os, $egotia.le
/nstruments Law,
+554 ed")
"oes not require
presentment and
notice of dishonor.
(Cam)os and
Lo)e?@Cam)os,
$egotia.le
/nstruments Law,
+554 ed")
(. Pi0ai"$ Lia#"e (Sec. A9 an& A*4
NIL)
MA%ER ACCEPTOR OR
6RA-EE
A. Cngages to pay
according to the
tenor of the
instrument1 and
=. Admits the
e;istence of the
payee and his
capacity to indorse.
A. Cngages to pay
according to the
tenor of his
acceptance1
=. Admits the
e;istence of the
drawer, the
genuineness of his
signature and his
capacity and
authority to draw
the instrument1
and
#. Admits the
e;istence of the
payee and his
capacity to
indorse.
A bill of itself
does not operate as
an assignment of
funds in the hands
of the drawee
available for the
payment thereof
and the drawee is
16
not liable unless
and until he
accepts the same
Sec.1&8$
*. Secon&ai"$ Lia#"e (Sec. A(4 AB an&
AA4 NIL)
6RA-ER GENERAL
IN6ORSER
IRREGULAR
IN6ORSER
A. Admits
the
e;istence of
the payee
and his
capacity to
indorse1
=. Cngages
that the
instrument
will be
accepted or
paid by the
party
primarily
liable1 and
#. Cngages
that if the
instrument
is
dishonored
and proper
proceedings
are brought,
he will pay
to the party
entitled to
be paid.
A. >arrants
all
subsequent
!"# <
a. %hat the
instrument is
genuine and
in all respect
what it
purports to
be
b. !e has
good title to
it1
c. All prior
parties had
capacity to
contract
d. %he
instrument
is, at the
time of
endorse<
ment, valid
and
subsisting.
=. Cngages
that the
instrument
will be
accepted or
paid, or
both, as the
case may be,
according to
its tenor1 and
#. If the
instrument is
dishonored
and
necessary
proceedings
on dishonor
be duly
ta(en, he
will pay to
the party
entitled to
be paid.
A person,
not
otherwise a
party to an
instrument,
places his
signature
thereon in
blan(
before
delivery.
Sec. /3$
A. If
instrument
payable to
the order
of a ,
rd
person, he
is liable to
the payee
and
subsequent
parties.
=. If
instrument
payable to
order of
ma(er or
drawer or
to bearer,
he is liable
to all
parties
subsequent
to the
ma(er or
drawer.
#. If he
signs for
accommo<
dation of
the payee,
he is liable
to all
parties
subsequent
to the
payee.
C. Li0ite& Lia#i"it$ (Sec. A@D Meto!o"
Financin2 5. Sa0#o84 (*9 SCRA
EAB)
7UALIFIE6
IN6ORSER
PERSON
NEGOTIATING B)
6ELI;ER)
Cvery person
negotiating
instrument by
delivery or by a
qualified
endorsement
warrants that)
A. Instrument is
genuine and in all
respects what it
purports to be1
=. !e has good title
to it1
#. All prior parties
had capacity to
contract1
". !e has no
(nowledge of any
fact which would
impair the validity
of the instrument or
render it valueless.
A. >arranties same
as those of
qualified indorsers1
and
=. >arranties
e;tend to
immediate
transferee only.
PERSON
NEGOTIATING B)
MERE 6ELI;ER)
OR B) 7UALIFIE6
IN6ORSEMENT
GENERAL
IN6ORSER
No secondary
liability1 but is
liable for breach of
warranty
%here is secondary
liability, and
warranties
>arrants that he
has no (nowledge of
any fact which
would impair the
validity of the
instrument or
render it valueless
>arrants that the
instrument is, at
the time of his
indorsement, valid
and subsisting
OR6ER OF LIABILIT)
%here is no order of liability among the
indorsers as against the holder. !e is
free to choose to recover from any
indorser in case of dishonor of the
instrument. ($otes and Cases on Ban-s,
$egotia.le /nstruments and ot0er
17
Aquino)
As respect one another, indorsers are
liable prima facie in the order in which
they indorse unless the contrary is
proven Sec./9$
%'$'RAL R7L'& 5ne whose signature
does not appear on the instrument shall
not be liable thereon.
'8C'P2/9$S&
1. %he principal who signs through an
agent is liable1
&. %he forger is liable1
,. 5ne who indorses in a separate
instrument allonge$ or where an
acceptance is written on a separate
paper is liable1
3. 5ne who signs his assumed or trade
name is liable1 and
-. A person negotiating by delivery as in
the case of a bearer instrument$ is
liable to his immediate indorsee.
;II. 6EFENSES
REAL 6EFENSES PERSONAL
6EFENSES
%hose that attach
to the instrument
itself and are
available against
all holders,
whether in due
course or not, but
only by the parties
entitled to raise
them. a.(.a
absolute defenses$
%hose which are
available only against
a person not a holder
in due course or a
subsequent holder who
stands in privity with
him. a.(.a. equitable
defenses$
1. 4aterial
Alteration1
&. >ant of
delivery of
incomplete
instrument1
,. "uress
amounting to
forgery1
3. +raud in
factum or fraud in
esse contractus1
-. 4inority
available to the
minor only$1
/. 4arriage in the
case of a wife1
8. Insanity where
the insane person
has a guardian
appointed by the
court1
1. Absence or failure
of consideration,
partial or total1
&. >ant of delivery of
complete instrument1
,. Insertion of wrong
date in an instrument1
3. +illing up of blan(
contrary to authority
given or not within
reasonable time1
-. +raud in
inducement1
/. Acquisition of
instrument by force,
duress, or fear1
8. Acquisition of the
instrument by
unlawful means1
9. Acquisition of the
instrument for an
illegal consideration1
9. Bltra vires acts
of a corporation
D. >ant of
authority of agent1
10. C;ecution of
instrument
between public
enemies1
11. Illegality ' if
declared void for
any purpose
1&. +orgery.
D. Negotiation in
breach of faith1
10. Negotiation under
circumstances that
amount to fraud1
11. 4ista(e1
1&. Into;ication
according to better
authority$1
1,. Bltra vires acts of
corporations where
the corporation has
the power to issue
negotiable paper but
the issuance was not
authori*ed for the
particular purpose for
which it was issued1
13. >ant of authority
of agent where he has
apparent authority1
1-. Insanity where
there is no notice of
insanity on the part of
the one contracting
with the insane
person1 and
1/. Illegality of
contract where the
form or consideration
is illegal.
EFFECTS OF CERTAIN 6EFENSES
A. MINORIT)
Negotiation by a minor passes title to
the instrument. Sec.&&$. =ut the minor
is not liable and the defense is personal
to him
B. ULTRA ;IRES ACTS
A real defense but the negotiation
passes title to the instrument. Sec. &&$
Note: A cor)oration cannot act as an
accommodation party. %he issuance or
indorsement of negotiable instrument by
a corporation without consideration and
for the accommodation of another is
ultra vires. #risologo<:ose v. #A, 118
S#.A -D3$
C. INCOMPLETE AN6 UN6ELI;ERE6 NI
(Sec. (@)
If completed and negotiated without
authority, not a valid contract against a
person who has signed before delivery of
the contract even in the hands of !"#
but subsequent indorsers are liable. %his
is a real defense.
18
6. INCOMPLETE BUT 6ELI;ERE6 NI
(Sec. (B)
1. !older has prima facie authority to
fill up the instrument.
&. %he instrument must be filled up
strictly in accordance with the
authority given and within
reasonable time
,. !"# may enforce the instrument as
if filled up according to no. &.
E. COMPLETE BUT UN6ELI;ERE6 NI
(Sec. (A)
1. =etween immediate parties and
those who are similarly situated,
delivery must be coupled with the
intention of transferring title to the
instrument.
&. As to !"#, it is conclusively
presumed that there was valid
delivery1 and
,. As against an immediate party and
remote party who is not a !"#,
presumption of a valid and
intentional delivery is rebuttable.
F. FRAU6
FRAU6 IN FACTUM
OR FRAU6 IN
IN6UCEMENT
FRAU6 IN
ESSES
CONTRACTUS
OR FRAU6 IN
E+ECUTION
%he person who signs
the instrument
intends to sign the
same as a NI but was
induced by fraud
%he person is
induced to sign an
instrument not
(nowing its
character as a bill
or note
G. ABSENCE OR FAILURE OF
CONSI6ERATION (Sec. *E)
Aersonal defense to the pre2udiced
party and available against any person
not !"#.
,. PRESCRIPTION
.efers to e;tinctive prescription and
may be raised even against a !"#. Bnder
the #ivil #ode, the prescriptive period of
an action based on a written contract is
10 years from accrual of cause of action.
I. MATERIAL ALTERATION
Any change in the instrument which
affects or changes the lia.ilit6 of t0e
)arties in any way.
Cffects)
1. Alteration by a party ' Avoids the
instrument e(ce)t as against the
party who made, authori*ed, or
assented to the alteration and
subsequent indorsers.
!owever, if an altered instrument
is negotiated to a !"#, he may
enforce payment thereof according
to its original tenor regardless of
whether the alteration was innocent
or fraudulent.
Note: Since no distinction is made, it
does not matter whether it is
favorable or unfavorable to the party
ma(ing the alteration. %he intent of
the law is to preserve the integrity
of the negotiable instruments.
&. Alteration by a stranger s)oliation$<
the effect is the same as where the
alteration is made by a party which a
!"# can recover on the original
tenor of the instrument. Sec. 1&3$
#hanges in the following constitute
material alterations)
a. "ate1
b. Sum payable, either for principal
or interest1
c. %ime or place of payment1
d. Number or relations of the
parties1
e. 4edium or currency in which
payment is to be made1
f. %hat which adds a place of
payment where no place of
payment is specified1 and
g. Any other change or addition
which alters the effect of the
instrument in any respect. Sec.
1&-$
A serial number is an item which
is not an essential requisite for
negotiability under Sec. 1, NIL, and
which does not affect the rights of
the parties, hence its alteration is
not material. AN= vs. #A, &-/ S#.A
3D1$
Co0!aison o' sections (B4 (@ an& (A o' t/e ne2otia#"e instu0ents "a.
Section 14 Section 15 Section 16
"elivery "elivered Bndelivered
Bndelivered
Note) "elivery may be made for a
conditional or for a special purpose
only and not for the purpose of
transferring the property in the
instrument
#ompleteness 1. >anting in any material
particular
1. =lan( paper with
signature
4echanically incomplete 4echanically complete
Authority of person
in possession
1. Arima facie authority to
complete it by filling up
the blan(s therein
1.Signature operates as a
prima facie authority to
fill it up as such for any
amount
No authority to complete andOor
negotiate instrument
4ay negotiate if delivered to him by
or under the authority of the party
ma(ing, indorsing, drawing or
accepting, as the case may be.
>hen enforceable If filled up strictly in accordance with authority given
and within a reasonable time
Not enforceable >hen delivery is made by or under
authority of the party ma(ing,
indorsing, drawing or accepting, as
the case may be.
Hind of defense Aersonal .eal Aersonal
.ights of holder 1. If !"#, he can enforce the instrument as
completed against parties prior or subsequent to
the completion
&. If not a !"#, he can enforce the instrument as
completed only against parties subsequent to the
completion but not against those prior thereto.
None in the hands of any holder.
!owever, the invalidity of the
instrument is only with reference to
parties whose signatures appear on
the instrument after delivery, the
instrument is valid.
#an enforce the instrument.
Note) >here the instrument is in the
hands of a !"#, a valid delivery
thereof by all parties prior to him so
as to ma(e them liable to him is
conclusively presumed. >here the
instrument is no longer in the
possession of a party whose signature
appears thereon, a valid and
intentional delivery to him is
presumed until the contrary is
proved.
?. FORGER)
#ounterfeit ma(ing or fraudulent
alteration of any writing, which may
consist of)
1. Signing of anotherFs name with
intent to defraud1 or
&. Alteration of an instrument in the
name, amount, name of payee, etc.
with intent to defraud. (+ Ag.a6ani4
+55 ed")
%'$'RAL R7L'& >hen a signature is
forged or made without the authority of
the person, the signature not
instrument itself and the genuine
signatures$ is wholly inoperative
Legal Cffects)
1. No right to retain the instrument
&. %o give a discharge therefore
,. %o enforce payment thereof
against any party thereto, can
be acquired through or under
such signature
'8C'P2/9$& Bnless the party against
whom it is sought to enforce such right is
precluded from setting up the forgery or
want of authority. Sec. &,$
Pesons !ec"u&e& 'o0 settin2 u!
&e'ense o' 'o2e$
1. %hose who warrant or admit the
genuineness of the signature in
question. %his includes indorsers,
persons negotiating by delivery and
acceptors.
2. %hose who, by their acts, silence, or
negligence, are estopped from
setting up the defense of forgery.
RULES ON FORGER)
A. Promissory Notes
O&e
Instu0ent
Beae
Instu0ent
Ma8eFs
si2natue
'o2e&
a. 4a(er is not
liable because
he never
became a
party to the
instrument.
b. Indorsers
subsequent to
forgery are
liable because
of their
warranties.
c. Aarty who
the made the
forgery is
a. 4a(er is not
liable.
b. Aarty who
made the
forgery is
liable.
c. Indorsers
may be made
liable to those
persons who
obtain title
through their
indorsements.
liable.
Pa$eeFs
si2natue
'o2e&
a. 4a(er and
payee not
liable.
b. Indorsers
subsequent to
forgery are
liable.
c. Aarty who
made the
forgery is
liable.
a. 4a(er is
liable.
Indorsement
is not
necessary to
title and the
ma(er engages
to pay holder$
b. Aarty who
made the
forgery is
liable
In&oseFs
si2natue
'o2e&
a. 4a(er,
payee and
indorser whose
signature was
forged is not
liable.
b. Indorsers
subsequent to
forgery are
liable.
=ecause of
their
warranties$
c. Aarty who
made the
forgery is
liable.
a. 4a(er is
liable.
indorsement
is not
necessary to
title and the
ma(er engages
to pay the
holder$
b. Indorser
whose
signature was
forged not
liable to one
who is not a
!"# provided
the instrument
is
mechanically
complete
before the
forgery.
c. Aarty who
made the
forgery is
liable.
B. Bi""s o' E1c/an2e
O&e
Instu0ent
Beae
Instu0ent
6a.eFs
si2natue
'o2e&
a. "rawer is
not liable
because he
was never a
party to the
instrument.
b. "rawee is
liable if it paid
no recourse
to drawer$
because he
admitted the
genuiness of
the drawerFs
signature.
"rawee cannot
recover from
a. "rawer is
not liable.
b. "rawee is
liable if it paid.
"rawee cannot
recover from
the collecting
ban(.
c. Aarty who
made the
forgery is
liable.
the collecting
ban( because
there is no
privity
between the
collecting
ban( and the
drawer. %he
latter does not
give any
warranty
regarding the
signature of
the drawer.
Associated
=an( vs. #A$
c. Indorsers
subsequent to
forgery liable
such as
collecting
ban( or last
endorser$
d. Aarty who
made the
forgery is
liable
Pa$eeFs
si2natue
'o2e&
a. "rawer,
drawee and
payee not
liable.
b. Indorsers
subsequent to
forgery are
liable. such as
collecting
ban($
c. Aarty who
made the
forgery is
liable
a. "rawer is
liable
b. "rawee is
liable
c. Aayee is not
liable
d. #ollecting
ban( is liable
because of
warranty
e. Aarty who
made the
forgery is liable
In&oseFs
si2natue
'o2e&
a. "rawer,
payee and
indorser whose
signature was
forged not
liable.
b. "rawee is
liable if it paid.
c. Indorsers
subsequent to
forgery are
liable. such as
collecting ban($
d. Aarty who
made the
forgery is
liable.
a. "rawer is
liable.
indorsement
not necessary to
title$
b. "rawee is
liable.
c. Indorser
whose signature
was forged is
liable because
indorsement is
not necessary to
title.
d. Aarty who
made the
forgery is liable.
;III. ENFORCEMENT OF LIABILIT)
A. STEPS TO C,ARGE T,E PARTIES
LIABLE
a. Pi0a$ Lia#i"it$
%he unconditional promise attaches the
moment the ma(er ma(es the
instrument while the acceptorFs assent
to the unconditional order attaches the
moment he accepts the instrument. No
further act is necessary in order for the
liability to accrue. Aresentment for
payment is all that is necessary. ($otes
and Cases on Ban-s, $egotia.le
/nstruments and ot0er Commercial
1ocuments, 2imoteo B" Aquino)
#. Secon&a$ Lia#i"it$
1. Steps in promissory note
indorsers$
a. Aresentment for
payment to the ma(er.
b. Notice of dishonor should
be given, if dishonored
by non<payment.
&. Steps in bill of e;change
a. Aresentment for acceptance in
the following instances)
a. >here the bill is payable
after sight, or when it is
necessary in order to fi;
the maturity of the
instrument1
b. >here the bill e;pressly
stipulates that it shall be
presented for
acceptance1
c. >here the bill is drawn
payable elsewhere than
at the residence or place
of business of the
drawee. Sec. 13,$
Note: In all the above cases, the holder
must either present the bill for
acceptance or negotiate it within a
reasonable time1 otherwise, the drawer
and all indorsers are discharged. Sec.
133$
&. If dishonored by non<acceptance1
a. Notice of dishonor given to
drawer and indorsers.
b. Arotest in case of a foreign bill.
,. If bill is accepted)
a. Aresentment for payment to the
acceptor.
3. If dishonored upon presentment for
payment
a. Notice of dishonor to persons
secondarily liable.
b. Arotest for dishonor by non<
payment in case of foreign bill.
B. PRESENTMENT
%he production of a =C to the drawee
for his acceptance, or to the drawee or
acceptor for payment or the production
of a AN to the party liable for the
payment of the same. Sec. 80$
PRESENTMENT FOR PA)MENT
#onsists of)
1. Personal demand for )a6ment at the
proper place1 and
&. Readiness to e(0i.it the instrument
if required, and to receive payment
and to surrender the instrument if
the debtor is willing to pay.
.equisites)
1. 4ade by the holder or any person
authori*ed to receive payment on his
behalf1
&. At a reasonable hour on a business
day1
,. At a proper place1
3. %o the person primarily liable or if
he is absent or inaccessible, to any
person found at the place where the
presentment is made. Sec. 8&$
>hen should be made)
1. AN payable on demand) within
reasonable time after its issue1
&. =C payable on demand) within
reasonable time after its last
negotiation1
,. Instrument payable on a specified
date) on the date it falls due. Sec.
81$
Aroper place)
1. Alace specified1
&. Address of the person to ma(e
payment is given, in case no place is
specified1
,. Bsual place of business or residence
of the person to ma(e payment, in
case no place is specified and no
address is given1
3. In any other case, wherever the
person to ma(e payment can be
found, or at his last (nown place of
business or residence. Sec. 8,$
>hen not required)
1. In order to charge the drawer where
he has no right to e;pect or require
that the drawee or acceptor will pay
the instrument1Sec. 8D$
&. In order to charge an indorser when
the instrument was made or
accepted for his accommodation and
he has no reason to e;pect that the
instrument will be paid if presented.
Sec. 90$
>hen delay in ma(ing presentment or
of giving notice is e;cused)
1. >hen caused by circumstances
beyond the control of the holder1 and
&. Not imputable to his default,
misconduct, or negligence. Sec. 91$
>hen presentment for payment is
e;cused)
1. After e;ercise of reasonable
diligence, it cannot be made1
&. "rawee is a fictitious person1
,. C;press or implied waiver. Sec. 9&$
E1/i#ition
Aurposes)
1. %o enable the debtor to determine
the genuineness of the instrument
and the right of the holder to
receive payment1 and
&. %o enable him to reclaim possession
upon payment.
>hen e;cused)
1. >hen debtor does not demand to see
the instrument but refuses payment
on some other grounds, and
&. >hen the instrument is lost or
destroyed.
S!ecia" cases
1. /nstrument )a6a.le at a .an- ' 4ust
be made during ban(ing hours unless
there are no funds to meet it at any time
during the day, presentment at any hour
before the ban( is closed on that day is
sufficient. Sec. 8-$
&. Person lia.le is dead ' 4ay be made
to his personal representative, if there
be one, and if he can be found. Sec. 8/$
C. PRESENTMENT FOR ACCEPTANCE
>hen required)
a. >here the bill is payable after
sight, or when it is necessary in order
to fi; the maturity of the instrument1
b. >here the bill e;pressly stipulates
that it shall be presented for
acceptance1
c. >here the bill is drawn payable
elsewhere than at the residence or
place of business of the drawee. Sec.
13,$
!ow made)
a. >here a bill is addressed to & or more
drawees who are not partners,
presentment must be made to all
b. >here drawee is dead, presentment
may be made to his personal
representative
c. >here the drawee is ad2udged a
ban(rupt, insolvent or made an
assignment to his creditors, presentment
may be made to him or his trustee or
assignee
>hen e;cused)
1. >here the drawee is dead, or has
absconded, or is a fictitious person
or a person not having capacity to
contract by bill1
&. After e;ercise of reasonable
diligence, presentment cannot be
made1
,. Although presentment has been
irregular, acceptance has been
refused on some other ground. Sec.
139$
If bill is duly presented for
acceptance and it is not accepted within
the prescribed time, the person
presenting it must treat the bill as
dishonored by non<acceptance or he
loses the right of recourse against the
drawer and indorsers. Sec. 1-0$
6. ACCEPTANCE
%he signification by the drawee of his
assent to the order of the drawer.
It is the act by which the drawee
manifests his consent to comply with the
request contained in the bill of e;change
directed to him.
Fo0: 4ust be in writing and signed by
the drawee and must not e;press that
the drawee will perform his promise by
any other means than the payment of
money. Sec. 1,&$
%he holder of the bill presenting the
same for acceptance may require that
the acceptance be written on the bill,
and if such request is refused, may treat
the bill as dishonored. Sec. 1,,$
%in&s:
1. %'$'RAL < assents without
qualification to the order of the
drawer.
&. A7AL/B/'1 < which in e;press terms
varies the effect of the bill as
drawn.
a. #onditional < ma(es payment by
the acceptor dependent on the
fulfillment of a condition therein
stated.
b. Aartial < an acceptance to pay
part only of the amount for
which the bill is drawn.
a. Local < an acceptance to pay
only at a particular place.
b. Pualified as to time
c. %he acceptance of some one or
more of the drawees but not of
all. Sec. 131$
+orm)
1. 4ust be made by or on behalf of the
holder1
&. At a reasonable hour on a business
day1
,. =efore the bill is overdue1 and
3. %o the drawee or some person
authori*ed to accept or refuse to
accept on his behalf.
I0!"ie& Acce!tance
If after &3 hours, the drawee fails to
return the instrument. !e is also deemed
to have accepted the instrument when
he destroys the same.
E. NOTICE OF 6IS,ONOR
Notice given by holder or his agent to
party or parties secondarily liable that
the instrument was dishonored by non<
acceptance by the drawee of a bill or by
non<payment by the acceptor of a bill or
by non<payment by the ma(er of a note.
Sec. 9D$
.equisites)
1. 7iven by holder or his agent, or by
any party who may be compelled by
the holder to pay Sec. D0$1
&. 7iven to secondary party or his
agent Sec. D8$1
,. 7iven within the periods provided by
law Sec. 10&$1 and
3. 7iven at the proper place Secs. 10,
and 103$
>hen dispensed with)
1. >hen party to be notified (nows
about the dishonor, actually or
constructively Secs. 113<118$1
&. If waived Sec. 10D$1 and
,. >hen after due diligence, it cannot
be given Sec. 11&$.
!ow given)
1. =y bringing verbally or
&. =y writing to the (nowledge of the
person liable the fact that a
specified instrument, upon proper
proceedings ta(en, has not been
accepted or has not been paid, and
that the party notified is e;pected
to pay it.
%o whom given)
1. Non<acceptance bill$ ' to persons
secondarily liable, namely, the
drawer and indorsers as the case
may be.
&. Non<payment both bill and note$ '
indorsers.
Note: Notice must be given to
persons secondarily liable.
5therwise, such parties are
discharged. Notice may be given to
the party himself or to his agent.
=y whom given)
1. %he holder
&. Another on behalf of the holder
,. Any party to the instrument who may
be compelled to pay it to the holder,
and who would have a right of
reimbursement from the party to
whom notice is given. Sec. D0$
6IS,ONOR B) NON3PA)MENT
1. Aayment is refused or cannot be
obtained after due presentment for
payment1
&. Aresentment is e;cused and the
instrument is overdue and unpaid.
Sec. 9,$
Cffect) %here is an immediate right of
recourse by the holder against persons
secondarily liable. !owever, notice of
dishonor is generally required. Sec. 93$
6IS,ONOR B) NON3ACCEPTANCE
Instances:
1. >hen it is duly presented for
acceptance and such an acceptance
is refused or cannot be obtained1 or
&. >hen presentment for acceptance is
e;cused, and the bill is not
accepted. Sec. 13D$
Cffect) Immediate right of recourse
against the drawer and indorsers accrues
to the holder and no presentment for
payment is necessary. Sec. 1-1$
E''ect o' "ac8 o' notice o' &is/ono on
NI ./ic/ ae !a$a#"e in insta""0ents
1. $o acceleration clause ' failure to
give notice of dishonor on a previous
installment does not discharge
drawers and indorsers as to
succeeding installments.
&. ;it0 acceleration clause ' failure to
give notice of dishonor as to previous
installment will discharge the
persons secondarily liable as to the
succeeding installments.
To ./ose #ene'it &oes a notice o'
&is/ono inue
1. >hen given #$ o on #e/a"' o' a
/o"&e)
a. All parties prior to the holder,
who have a right of recourse
against the party to whom the
notice is given1 and
b. All holders subsequent to the
holder giving notice. Sec. D&$
&. >hen given #$ o on #e/a"' o' a
!at$ entit"e& to 2i5e notice)
a. %he holder1 and
b. All parties subsequent to the
party to whom notice is given.
Sec. D,$
6is/ono in t/e /an&s o' an A2ent
Agent can do either of the following)
1. "irectly give notice to persons
secondarily liable thereon1 or
&. 7ive notice to his principal. In
such case, he must give notice
within the time allowed by law
as if he were a holder. Sec. D3$
A !at$ 2i5in2 notice is &ee0e& to /a5e
2i5en &ue notice ./ee:
1. %he notice of dishonor is duly
addressed, and
&. "eposited in the post<office,
even when there is miscarriage
of mail. Sec. 10-$
>here a party receives notice of
dishonor, he has, after the receipt of
such notice, the same time for giving
notice to antecedent parties that the
holder has after the dishonor. Sec. 108$
-ai5e o' Notice o' 6is/ono
Cither before the time of giving notice,
or after the omission to give due notice.
>aiver may be e;pressed or implied.
Sec. 10D$
As to who are affected by an e1!ess
.ai5e depends on where the waiver is
written)
1. If it appears in the body or on
the face of the instrument, it binds
all parties1 but
&. If it is written above the
signature of an indorser, it binds
him only. Sec. 110$
Notice of dishonor is not required to be
given to the &a.e in any of the ff.
cases)
1. "rawer and drawee are the
same1
&. "rawee is a fictitious person or
not having the capacity to
contract1
,. "rawer is the person to whom
the instrument is presented for
payment1
3. %he drawer has no right to
e;pect or require that the
drawee or acceptor will honor
the instrument1
-. >here the drawer has
countermanded payment. Sec.
113$
Notice of dishonor is not required to be
given to an in&ose in the ff. cases)
1. "rawee is a fictitious person or
does not have the capacity to
contract, and indorser was
aware of that fact at the time he
indorsed the instrument1
&. Indorser is the person to whom
the instrument is presented for
payment1
,. Instrument was made or
accepted for his
accommodation. Sec. 11-$
If an instrument is not accepted by
the drawee, there is no sense presenting
it again for payment, and notice of
dishonor must at once be given. If there
was acceptance, presentment for
payment is still required and if payment
is refused, there is a need for notice of
dishonor. Sec. 11/$
An omission to give notice of dishonor
by non<acceptance does not pre2udice
the rights of a holder in due course
subsequent to the omission. Sec. 118$
F. FOREIGN BILL OF E+C,ANGE
1. "rawn in the Ahilippines but payable
outside the Ahilippines.
&. Aayable in the Ahilippines but drawn
outside the Ahilippines.
INLAN6 BE FOREIGN BE
A bill which or on its
face purports to be
both drawn and
payable within the
Ahilippines.
5ne which is or on
its face purports to
be drawn or payable
outside the
Ahilippines.
NOTICE OF
6IS,ONOR
PROTEST
.equired in inland
bill
.equired in foreign
bill
4ay be oral or
written
Always written
4ay be made by a
party or agent
4ade by a notary
public or a
respectable resident
in the presence of
witness
4ade in residence of
parties
4ade in the place of
dishonor
PROTEST
%he formal instrument e;ecuted
usually by a notary public certifying that
the legal steps necessary to fi; the
liability of the drawee and the indorsers
have been ta(en.
>ho ma(es)
1. A notary public1 or
&. Any respectable resident of the
place where the bill is dishonored, in
the presence of & or more credible
witnesses. Sec. 1-3$
Potest 'o #ette secuit$ ' 5ne
made by the holder of a bill after it has
been accepted but before it matures,
against the drawer and indorsers, where
the acceptor has been adCudged a
ban(rupt or an insolvent, or has made an
assignment for the benefit of the
creditors. Sec. 1-9$
Arotest is necessary only in case of
foreign bills of e;change, which have
been dishonored by non<acceptance or
non<payment, as the case may be. If it
is not so protested, the drawer and
indorsers are discharged. Sec. 119$
ACCEPTANCE FOR ,ONOR
An underta(ing by a stranger to a bill
after protest for the benefit of any party
liable thereon or for the honor of the
person for whose account the bill is
drawn which acceptance inures also to
the benefit of all parties subsequent to
the person for whose honor it is
accepted, and conditioned to pay the
bill when it becomes due if the original
drawee does not pay it. Secs. 1/1<180$
Re=uisites:
1. %he bill must have been protested
for dishonor by non<acceptance or
for better security1
&. %he acceptor for honor must be a
stranger and not a party already
liable on the instrument1
,. =ill must not be overdue1
3. Acceptance for honor must be with
the consent of the holder of the
instrument.
Fo0a" e=uisites:
1. 4ust be in writing1
&. 4ust indicate that it is an
acceptance for honor1
,. Signed by the acceptor for honor1
3. 4ust contain an e;press or implied
promise to pay money1
-. %he accepted bill for honor must be
delivered to the holder.
OR6INAR)
ACCEPTANCE
ACCEPTANCE
FOR ,ONOR
No previous protest
is required
Arevious protest is
required
#onsent of holder is
implied
#onsent of holder
is required
"rawee is acceptor Acceptor must be
stranger to the bill
Acceptor is
primarily liable
Acceptor is
secondarily liable
PA)MENT FOR ,ONOR
Aayment made by a person, whether a
party to the bill or not, after it has been
protested for non<payment, for the
benefit of any party liable thereon or for
the benefit of the person for whose
account it was drawn. Secs. 181<188$
Re=uisites:
1. %he bill has been dishonored by non<
payment1
&. It has been protested for non<
payment1
,. Aayment supra protest another term
for payment for honor because prior
protest for non<payment is required$
is made by any person, even by a
party thereto1
3. %he payment is attested by a
notarial act of honor which must be
appended to the protest or form an
e;tension of it1
-. %he notarial act must be based on
the declaration made by the payor
for honor or his agent of his
intention to pay the bill for honor
and for whose honor he pays.
Note) If the above formalities are not
complied with, payment will operate as
a mere voluntary payment and the payor
will acquire no right to full
reimbursement against the party for
whose honor he pays.
In payment for honor, the payee
cannot refuse payment. If he refuses,
he cannot recover from the parties who
would have been discharged had he
accepted the same. In acceptance for
honor, the holderFs consent is necessary.
%he payor for honor is given the right
to receive both the bill and the protest
obviously to enable him to enforce his
rights against the parties who are liable
to him.
BILLS IN SET
5ne composed of several parts, each
part being numbered and containing a
reference to the other parts, the whole
of the parts constituting but one bill.
Aurpose) It is usually availed of in
cases where a bill had to be sent to a
distant place through some conveyance.
If each part is sent by different means of
conveyances, the chance that at least
one part of the set would reach its
destination would be greater.
Ri2/ts o' /o"&es ./ee !ats ae
ne2otiate& se!aate"$
1.If both are !"#, the holder whose
title first accrues is considered the
true owner of the bill.
&.=ut the person who accepts or pays
in due course shall not be
pre2udiced. Sec. 18D$
O#"i2ations o' /o"&e ./o in&oses * o
0oe !ats o' t/e #i"" in set
1.%he person shall be liable on every
such part1
&.Cvery indorser subsequent to him is
liable on the part he has himself
indorsed, as if such parts were
separate bills. Sec. 190$
I+. 6ISC,ARGE
6ISC,ARGE OF NI
A release of all parties, whether
primary or secondary, from the
obligations arising thereunder. It
renders the instrument without force
and effect and, consequently, it can no
longer be negotiated. (20e Law on
$egotia.le /nstruments wit0 1ocuments
of 2itle, =ector de Leon, !!! ed")
Instances)
1. =y payment in due course by or on
behalf of the principal debtor1
&. Aayment by accommodated party1
,. Intentional cancellation by the
holder1
3. =y any act which will discharge a
simple contract for the payment of
money1 Sec. 11D$
-. >hen the principal debtor becomes
the holder of the instrument at or
after maturity in his own right.
PA)MENT IN 6UE COURSE
.equisites)
1. Aayment must be made at or after
maturity.
&. Aayment must be made to the
holder.
,. Aayment must be made in good faith
and without notice that the holderFs
title is defective. Sec. 99$
=y whom made)
a. =y ma(er or acceptor1 or
b. Surety if a primary party1 or
c. =y an agent on behalf of the
principal
RENUNCIATION (Sec. (**)
%he act of surrendering a right or
claim without recompense, but it can be
applied with equal propriety to the
relinquishing of a demand upon an
agreement supported by a consideration.
(+ Ag.a6ani +55 ed")
Cffects)
1. A renunciation in favor of a
secondary party may be made by the
holder before, at or after maturity
of the instrument. %he effect is to
discharge only such secondary party
and all parties subsequent to him
but the instrument itself remains in
force.
&. A renunciation in favor of the
principal debtor may be effected at
or after maturity. %he effect is to
discharge the instrument and all
parties thereto provided the
renunciation is made unconditionally
and absolutely.
Note: In either case, renunciation does
not affect the rights of a holder in due
course without notice.
CANCELLATION
It includes the act of tearing, erasing,
obliterating, or burning. It is not limited
to writing of the word QcancelledK, or
LpaidK, or drawing of criss<cross lines
across the instrument. Sec. 1&,$ It may
be made by any other means by which
the intention to cancel the instrument
may be evident.
6ISC,ARGE OF PERSONS SECON6ARIL)
LIABLE
1. =y any act which discharges the
instrument1
&. =y the intentional cancellation of his
signature by the holder1
,. =y the &ischarge of a prior party1
3. =y a 5alid tender of payment made
by a prior party1
-. =y the elease of the principal
debtor, unless the holderFs right of
recourse against the party
secondarily liable is e;pressly
reserved1
/. =y any agreement binding upon the
holder to e;tend the time of
payment or to postpone the holderFs
right to enforce the instrument.
Sec. 1&0$
/n t0e following cases, t0e
agreement to e(tend t0e time
of )a6ment does not disc0arge a
)art6 secondaril6 lia.le&
a$ where the e;tension of time is
consented to by such party1
b$ where the holder e;pressly
reserves his right of recourse
against such party.
Aayment at or after maturity by a
party secondarily liable does not
discharge the instrument. It only
cancels his own liability and that of the
parties subsequent to him. Sec. 1&1$
+. C,EC%S
A bill of e;change drawn on a ban(
payable on demand Sec. 19-$
CONCEPTS:
1. #ertification of #hec(s
An agreement whereby the ban(
against whom a chec( is drawn,
underta(es to pay it at any future time
when presented for payment.
Cffects)
a. Cquivalent to acceptance Sec.
198$ and is the operative act
that ma(es ban(s liable
b. Assignment of the funds of the
drawer in the hands of the
drawee Sec. 19D$
c. If obtained by the holder,
discharges the persons
secondarily liable thereon Sec.
199$
&. A chec( of itself does not operate as
an assignment of any part of the funds to
the credit of the drawer with the ban(.
%he ban( is not liable to the holder,
unless and until it accepts or certifies
the chec(. Sec. 19D$
,. A chec( must be presented for
payment within reasonable time after its
issue or the drawer will be discharged
from liability thereon to the e;tent of
the loss caused by the delay. Sec. 19/$
.easonable time) Sec. 1D,, NIL$
a. Nature of the instrument
b. Bsage of business or trade
c. %he facts of the particular case
3. >here the holder of a chec( procures
it to be accepted or certified, the
drawer and all indorsers are discharged
from liability thereon. Sec. 19/$
-. .efusal of drawee ban( to certify
%he holder has no action against the
ban( but he has a right of action against
the drawer. %he drawer in turn has right
of action against the ban( based on the
original contact of deposit between
them.
Cosse& C/ec8
A chec( which in addition to the usual
contents of an ordinary chec( contains
also the name of a certain ban(er or
business entity through whom it must be
presented for payment.
Cffects)
a$ %hat the chec( may not be
encashed1 it may only be deposited
with the ban(1
b$ %hat the chec( may be negotiated
only once to a person who has an
account with the ban(1 and
c$ %hat it serves as a warning to the
holder that the chec( has been
issued for a definite purpose.
=ataan #igar vs. #A, &,0 S#.A /3,$
%he NIL is silent with respect to
crossed chec(s, although the #ode of
#ommerce ma(es reference to such
instrument. Nonetheless, this #ourt has
ta(en 2udicial cogni*ance of the practice
that a chec( with & parallel lines in the
upper left hand corner means that it
could only be deposited and not
converted into cash. 20e effects of
crossing a c0ec- t0us, relates to t0e
mode of )a6ment, meaning that the
drawer had intended the chec( for
deposit only by the rightful person, i"e",
the payee named therein. #ely Mang vs.
#ourt of Appeals, 7... No. 1,9083,
August 1-, &00,$
IRON CLA6 RULE
Arohibits the countermanding of
payment of certified chec(s. .epublic
of the Ahilippines vs. AN=$
Note: %he holder must be a holder in
due course before the stop payment
order may not be successfully invo(ed
against him. 4esina vs. IA#, 13/ S#.A
3D8, -0-$
T)PES OF C,EC%S (Cesar 3illanueva,
Commercial Law Review, !!4 ed")
a. Cas/ieFs C/ec8
5ne drawn by the cashier of a ban(, in
the name of the ban( against the ban(
itself payable to a third person. It is a
primary obligation of the issuing ban(
and accepted in advance upon issuance.
%an vs. #A, &,D S#.A ,10$
b. Mana2eFs C/ec8
A chec( drawn by the manager of a
ban( in the name of the ban( itself
payable to a third person. It is similar to
the cashierFs chec( as to the effect and
use.
c. Me0oan&u0 C/ec8
A chec( given by a borrower to a
lender for the amount of a short loan,
with the understanding that it is not to
be presented at the ban(, but will be
redeemed by the ma(er himself when
the loan falls due and which
understanding is evidenced by writing
the word LmemorandumK, LmemoK or
LmemK on the chec(.
d. Ceti'ie& C/ec8
An agreement whereby the ban(
against whom a chec( is drawn
underta(es to pay it at any future time
when presented for payment. Sec. 198$

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