ACT NO.

2031
THE NEGOTIABLE INSTRUMENTS
LAW
TITLE I
Negotiable Instruments in General

CHAPTER I
Form and Interpretation

SECTION 1.
Form of Negotiable Instruments. An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
SECTION 2.
Certainty as to Sum; What Constitutes. The sum payable is
a sum certain within the meaning of this Act, although it is to be paid
(a) With interest; or
(b) By stated installments; or
(c) By stated installments, with a provision that upon default in payment of any
installment or of interest
the whole shall become due; or
(d) With exchange, whether at a fixed rate or at the current rate; or
(e) With costs of collection or an attorney's fee, in case payment shall not be
made at maturity.

SECTION 3. When Promise is Unconditional. An unqualified order or promise to pay

is unconditional within the meaning of this Act, though coupled with
(a) An indication of a particular fund out of which reimbursement is to be made, or a
particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument.
But an order or promise to pay out of a particular fund is not unconditional.

SECTION 4. Determinable Future Time; What Constitutes. An instrument is payable

at a determinable future time, within the meaning of this Act, which is expressed to be
payable
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified therein; or
(c) On or at a fixed period after the occurrence of a specified event, which is certain to
happen, though the time of happening be uncertain.
An instrument payable upon a contingency is not negotiable, and the happening of the
event does not cure the defect.

SECTION 5. Additional Provision Not Affecting Negotiability. An instrument which

contains an order or promise to do any act in addition to the payment of money is not
negotiable. But the negotiable character of an instrument otherwise negotiable is not
affected by a provision which
(a) Authorizes the sale of collateral securities in case the instrument be not paid at
maturity; or
(b) Authorizes a confession of judgment if the instrument be not paid at maturity; or
(c) Waives the benefit of any law intended for the advantage or protection of the obligor;
or
(d) Gives the holder an election to require something to be done in lieu of payment of
money.
But nothing in this section shall validate any provision or stipulation otherwise illegal.
SECTION 6. Omission; Seal; Particular Money. The validity and negotiable character
of an instrument are not affected by the fact that
(a)
(b)
(c)
(d)
(e)

It is not dated; or
Does not specify the value given, or that any value has been given therefor; or
Does not specify the place where it is drawn or the place where it is payable; or
Bears a seal; or
Designates a particular kind of current money in which payment is to be made. cdrep

But nothing in this section shall alter or repeal any statute requiring in certain cases
the nature of the consideration to be stated in the instrument.

SECTION 7.
demand

When Payable on Demand. An instrument is payable on

(a) Where it is expressed to be payable on demand, or at sight, or on

presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as
regards the person so issuing, accepting, or indorsing it, payable on demand.
SECTION 8.
When Payable to Order. The instrument is payable to order
where it is drawn payable to the order of a specified person or to him or his order.
It may be drawn payable to the order of
(a)
(b)
(c)
(d)
(e)
(f)

A payee who is not maker, drawer, or drawee; or

The drawer or maker; or
The drawee; or
Two or more payees jointly; or
One or some of several payees; or
The holder of an office for the time being.

Where the instrument is payable to order the payee must be named or

otherwise indicated therein with reasonable certainty.

SECTION 9. When Payable to Bearer. The instrument is payable to

bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person,
and such fact was known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any
person; or
(e) When the only or last indorsement is an indorsement in blank.
SECTION 10. Terms, When Sufficient. The instrument need not
follow the language of this Act, but any terms are sufficient which clearly
indicate an intention to conform to the requirements hereof.
SECTION 11. Date, Presumption As To. Where the instrument or an
acceptance or any indorsement thereon is dated, such date is deemed
prima facie to be the true date of the making, drawing, acceptance, or
indorsement, as the case may be.

SECTION 12. Antedated and Postdated. The instrument is not invalid

for the reason only that it is antedated or postdated, provided this is not
done for an illegal or fraudulent purpose. The person to whom an
instrument so dated is delivered acquires the title thereto as of the date of
delivery.

SECTION 13. When Date May Be Inserted. Where an instrument

expressed to be payable at a fixed period after date is issued undated, or
where the acceptance of an instrument payable at a fixed period after
sight is undated, any holder may insert therein the true date of issue or
acceptance, and the instrument shall be payable accordingly. The
insertion of a wrong date does not avoid the instrument in the hands of a
subsequent holder in due course; but as to him, the date so inserted is to
be regarded as the true date.

SECTION 14. Blanks; When May Be Filled. Where the instrument is

wanting in any material particular, the person in possession thereof has a
prima facie authority to complete it by filling up the blanks therein. And a
signature on a blank paper delivered by the person making the signature
in order that the paper may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as such for any amount. In
order, however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to its
completion, it must be filled up strictly in accordance with the authority
given and within a reasonable time. But if any such instrument, after
completion, is negotiated to a holder in due course, it is valid and effectual
for all purposes in his hands, and he may enforce it as if it had been filled
up strictly in accordance with the authority given and within a reasonable
time.

TWO STEPS IN THE EXECUTION OF A NEGOTIABLE

INSTRUMENT:
1. The ACT OF WRITING the instrument completely and in
accordance with Section 1 of the NIL; and
2. The DELIVERY of the instrument with the intention of giving
effect to it.

BOE and PN are sometimes executed in BLANK and

DELIVERED to another to fill in and NEGOTIATE for his own
benefit or that of the maker.
The BOE and PN are therefore INCOMPLETE BUT
DELIVERED.
It is to such instruments (BOE and PN) that SECTION 14
applies.

Section 14first sentence states:

Where the instrument is wanting in any material particular,
the person in possession thereof has a prima facie authority
to complete it by filling up the blanks therein.
The material particular referred to may be:
1. A particular the omission of which will render the instrument
non-negotiable,

such as the NAME OF THE PAYEE or the

NAME OF THE DRAWER; or

2. A particular the omission of which will NOT render the
instrument non-

negotiable, such as the DATE, RATE OF

INTEREST, PLACE OF PAYMENT.

(Section 125 of the NIL).

FACTS FROM WHICH PRIMA FACIE AUTHORITY

PRESUMED:
The law presumes 3 facts:
1. Want of material particular in the instrument,
2. Possession thereof by a person, and
3. That such person had authority to fill up the blank.

EXAMPLE:
A makes a PN payable to bearer leaving the
space for the sum payable blank. The PN is in
the hands of B. Under SEC. 14, B has prima
facie authority to fill up the blank.

Note that:
---the law does not seem to require the delivery of the
instrument with intent to have it be converted into a
negotiable paper, which is the case of with a signature in
blank.
---the law merely requires that it be in the possession of
a person OTHER THAN THE DRAWER OR MAKER,
and from such possession, together with the fact that the
instrument is wanting in a material particular, the law
presumes agency to fill up the blanks.

Section 14second sentence states:

And a signature on a blank paper delivered by the person making the
signature in order that the paper may be converted into a negotiable
instrument operates as a prima facie authority to fill it up as such for any
amount.
The law presumes the existence of the authority to fill the instrument
up to any amount from these two (2) facts:
1. A signature on a blank paper and
2. that the person signing in blank delivers it in order that the paper
may be converted into a negotiable instrument.
--MERE POSSSESSION BY A PERSON IS NOT ENOUGH.

EXAMPLE:
A signs his name on a piece of paper and
delivers the same to B for the purpose of enabling
B to recognize A's signature.
Has B the prima facie authority to write a
promissory note above the signature of A up to any
amount?

No, because the second requisite is not fulfilled.

The paper was not delivered with the intention of
having it converted into a negotiable instrument.

REQUISITES TO HOLD PRIOR PARTIES LIABLE:

Section 14third sentence states:
In order, however, that any such instrument when
completed may be enforced against any person who
became a party thereto prior to its completion, it must be
filled up strictly in accordance with the authority given and
within a reasonable time.

EXAMPLE:
A makes the following note:
I

promise

to

pay

or

order

______________________ on demand.
Sgd. A
A delivered the said mechanically INCOMPLETE
PN to B on April 6, 2014.
A authorized B to put in the blank only P1,000.00.

In order that a subsequent

holder WHO IS NOT A

HOLDER IN DUE COURSE may enforce the instrument

against A, who is a party prior to the completion of the
note:
1. the blank must be filled up strictly in accordance with
the authority given (that is, P1,000.00) and
2. it must be filled up within a reasonble time.

RIGHT OF A HOLDER IN DUE COURSE WHERE BLANK WAS WRONGFFULLY

FILLED

EXAMPLE:
A makes the following note:
I promise to pay B or order ______________________ on demand.
Sgd. A
A delivered the said mechanically INCOMPLETE PN to B on April 6,
2014.
A authorized B to put in the blank only P1,000.00.
Suppose B, however, puts in the blank P10,000.00. Then B indorses
the PN to C, C to D, D to E, who is not a HIDC.
Can E enforce the PN against A?

There are TWO views on this point:

1. The FIRST VIEW is that one who is NOT A HIDC cannot enforce the
instrument against a party prior to the completion of the instrument, such as A in
the example, if the instrument was not filled up strictly in accordance with the
authority given and within a reasonable time.
Hence, E cannot collect anything on the PN from A.
2. The SECOND VIEW is that, in such a case, the holder can enforce the
instrument according to the authorized tenor.
In other words, E can collect from A, P1,000.00.
What is the better view?

The better view seems to be the FIRST ONE.

The law provides that in order that one who is not
a HIDC may enforce a mechanically INCOMPLETE
BUT DELIVERED instrument, the two requisites
must exist.
The implication is that when one or both of the
requisites are absent, the instrument may not be
enforced.

LIABILITY OF PARTIES NEGOTIATING AFTER COMPLETION

EXAMPLE:
A makes the following note:
I promise to pay B or order ______________________ on demand.
Sgd. A
A delivered the said mechanically INCOMPLETE PN to B on April 6,
2014.
A authorized B to put in the blank only P1,000.00.
Suppose B, however, puts in the blank P10,000.00. Then B indorses
the PN to C, C to D, D to E, who is not a HIDC.
Can E enforce the PN against B, C, and D? For how much?

1.

Who

are

the

parties

negotiating

after

completion?
2. Can E enforce the PN against B, C, and D? For
how much?

1. The parties negotiating after completion are B,C,D, and E.

2. Of course, E can enforce the instrument at P10,000.00 against B,C, and
D.
B is liable because he was the one who placed the amount and
because as indorser, he warrants that the instrument is in all respects what
it purports to be and in addition, if he is a general indorser, that it is valid
and subsisting. (Sections 65 and 66 of the NIL)
C and D are liable because they are parties subsequent to the
completion and because as indorsers, they warrant that the instrument is in
all respects what it purports to be, and, in addition, if they are general
indorsers, and in addition, if he is a general indorser, that it is valid and
subsisting. (Sections 65 and 66 of the NIL)

B,C, and D are estopped or precluded from claiming that the note was not
filled up strictly in accordance with the authority given and within a
reasonable time.
MEANING OF REASONABLE TIME:
In determining reasonable time or unreasonable time, regard is to be
had to (1) the nature of the instrument, (2) the usage of trade or business
(if any) with respect to such instrument and, (3) the facts of the particular
case. ---Section 193 of the NIL.
--the term is relative.
--decisions are not uniform as to what constitutes reasonable time for
completing instruments.

--If the parties are ignorant or ill, 14 months from the date
of execution was held reasonable (In re Ferrera, Atl. 265).
--But in Madden v. Gaston, 121 N.Y.S. 951, a delay of 8
months has been unreasonable.

RIGHTS OF A HOLDER IN DUE COURSE:

A makes the following note:
I promise to pay B or order ______________________ on demand.
Sgd. A
A delivered the said mechanically INCOMPLETE PN to B on April 6,
2014.
A authorized B to put in the blank only P1,000.00.
Suppose B, however, puts in the blank P10,000.00. Then B indorses
the PN to C, C to D, D to E, who is a HIDC.
Can E, a HIDC, enforce the PN against A and how much?
Can E collect from B, C, and D?

1. YES. Under the last sentence of SEC. 14 which states:

But if any such instrument, after completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in his hands, and he may enforce it
as if it had been filled up strictly in accordance with the authority given and within a
reasonable time.
The PN was negotiated AFTER COMPLETION and E, being a HIDC, the
instrument is VALID AND EFFECTIVE for all purposes in his hands and he may
enforce it as if it had been filled up strictly in accordance with the authority given
and within a reasonable time.
2. YES, as to indorsers (and persons negotiating by delivery) such as B, C, and
D, it is with greater reason that E, a HIDC can enforce the PN against them.

A PERSONAL DEFENSE:
--defense of parties prior to completion, such as A, is that IT IS NOT FILLED
UP STRICTLY IN ACCORDANCE WITH THE AUTHORITY GIVEN or WITHIN A
REASONABLE TIME.
--such defense is AVAILABLE ONLY against HOLDERS WHO ARE NOT IN
DUE COURSE.
--BUT such defense is NOT AVAILABLE against a HIDC because under SEC.

14 which states:
But if any such instrument, after completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in his hands, and he may enforce it
as if it had been filled up strictly in accordance with the authority given and within a
reasonable time.
--it is therefore a PERSONAL DEFENSE.

SUMMARY OF RULES WHERE INSTRUMENT IS INCOMPLETE

BUT DELIVERED:
In the case of an instrument that is incomplete and delivered,
but completed contrary to the authority given, or not completed
within a reasonable time:
1. If the holder is a HIDC, he can enforce the instrument as
completed against parties PRIOR or SUBSEQUENT TO THE
COMPLETION.
2. If the holder is NOT a HIDC, he can enforce the instrument as
completed ONLY against parties SUBSEQUENT to the completion
BUT NOT against those PRIOR thereto.

NOTE: The holder of an instrument is either the

1. PAYEE or
2. INDORSEE or
3. BEARER
in possession thereof who enforces the instrument. He would be the
plaintiff in an action to collect on the instrument.
On the other hand, the debtor may be the
1.
2.
3.
4.

MAKER or
ACCEPTOR or
DRAWER or
INDORSER
who would be the defendant against whom an instrument is enforced.

SECTION

15. Incomplete

Instrument

Not

Delivered. Where an incomplete instrument

has not been delivered, it will not, if completed and
negotiated without authority, be a valid contract in
the hands of any holder, as against any person
whose signature was placed thereon before
delivery.

SCOPE OF SECTION 15: INCOMPLETE AND UNDELIVERED

INSTRUMENT NOT VALID AGAINST PARTY BEFORE
DELIVERY
EXAMPLE:

A signed a blank check which was subsequently stolen by B who filled

in the amount and a fictitious name as

payee.

B then indorsed the

payee's name and passed the check to C, C to D, D to E, and E to F.

Can F enforce the instrument against A? Why?

NO.

Because as against A, whose signature

was placed on the check PRIOR to the delivery, the

instrument is NOT VALID.

WHERE HOLDER IS A HIDC

EXAMPLE:

A signed a blank check which was subsequently stolen by B who filled

in the amount and a fictitious name as

payee.

B then indorsed the

payee's name and passed the check to C, C to D, D to E, and E to F.

Suppose F is a HIDC, would your answer be the same?

YES. Because the NON-DELIVERY of an

INCOMPLETE

INSTRUMENT is

valid

defense, NOT ONLY between original parties

but also against a HIDC.
--the law does not make any distintion
between a HIDC and one who is not a HIDC.
--note that the law uses the phrase any
holder which includes a HIDC.

BUT INDORSERS, ETC. ARE LIABLE

--note that the instrument is invalid only with respect to parties whose signature appear on
the instrument PRIOR TO DELIVERY.
--Hence, as to parties whose signature appear on the instrument AFTER DELIVERY, the
instrument MAY BE valid.

EXAMPLE:
A signed a blank check which was subsequently stolen by B who filled
in the amount and a fictitious name as

payee.

B then indorsed the

payee's name and passed the check to C, C to D, D to E, and E to F.

Can F enforce the instrument against B, C, D, and E? Why?

YES. F can enforce the instrument against B who

stole the check from A, who later indorsed it to C, D,
and E.
F can enforce it to B, C, D, and E. The instrument is
valid as to B because (1) he was the one responsible
for the negotiation of the instrument, its theft and filling
up, and (2) because he is an indorser, and as such
warrants that the instrument is in all respect what is
purports to be and as to C,D,and E also because they
are indorsers.----(Section 65 and 66 of the NIL)

A REAL DEFENSE:
--Under SEC. 15, the possible defense of a party whose signature
appears on the instrument PRIOR TO DELIVERY is that, as against him,
the instrument is NOT VALID for having been INCOMPLETE and
UNDELIVERED.
--It can be interposed AGAINST (1) A HOLDER NOT IN DUE COURSE
and a (2) HIDC. SECTION 15 states:
Where an incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid contract in the
hands of any holder, as against any person whose signature was placed
thereon before delivery.

DISTINCTION ON PRESUMPTION OF
DELIVERY:
SECTION 15

SECTION 16

INCOMPLETE AND
UNDELIVERED

COMPLETE AND
UNDELIVERED

Delivery is prima facie

presumed where instrument
is in the hands of HIDC.

Delivery
is
conclusively
presumed where instrument
is in the hands of HIDC.

The maker/drawer may rebut by

presenting proof of NONDELIVERY.

The maker/drawer may not

rebut or present proof of
NON-DELIVERY. It is barred.

SECTION 16. Delivery; When Effectual; When Presumed. Every contract

on a negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As between immediate parties,
and as regards a remote party other than a holder in due course, the delivery, in
order to be effectual, must be made either by or under the authority of the party
making, drawing, accepting, or indorsing, as the case may be; and in such case
the delivery may be shown to have been conditional, or for a special purpose
only, and not for the purpose of transferring the property in the instrument. But
where the instrument is in the hands of a holder in due course, a valid delivery
thereof by all parties prior to him so as to make them liable to him is conclusively
presumed. And where the instrument is no longer in the possession of a party
whose signature appears thereon, a valid and intentional delivery by him is
presumed until the contrary is proved.

SCOPE OF SECTION 15: COMPLETE AND UNDELIVERED

UNDELIVERED INSTRUMENT IS INCOMPLETE
The first sentence of SEC. 16 provides that Every contract on a
negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto.
--NO RIGHTS ARISE UNTIL THE INSTRUMENT IS DELIVERED.
DELIVERY AND ISSUE:
The second sentence of SEC. 16 provides that As between immediate
parties, and as regards a remote party other than a holder in due course,
the delivery, in order to be effectual, must be made either by or under the
authority of the party making, drawing, accepting, or indorsing, as the case
may be; and in such case the delivery may be shown to have been
conditional, or for a special purpose only, and not for the purpose of
transferring the property in the instrument.

ISSUEthe first delivery of the instrument, complete in form, to a

person who takes it as a holder (Sec. 191 of the NIL).
DELIVERY and ISSUANCE are used interchangebly.
DELIVERY or ISSUANCE may be made by the
1. Maker
2. Drawer himself
3. Duly authorized agent
DELIVERY or ISSUANCE may be made either to the
1. Payee himself or his
2. Duly authorized agent

RIGHT TO REVOKE
--before delivery, the maker or drawer may REVOKE, CANCEL,
OR TEAR UP the instrument.
--Payee acquires no right until the instrument is delivery.
LITERAL MEANING OF IMMEDIATE AND REMOTE PARTIES
--Literally, DRAWER and PAYEE are IMMEDIATE PARTIES to each other.
--the same is true for the INDORSER and the INDORSEE to whom the
indorser indorses the instrument, to each other.
BUT, as to the DRAWER or MAKER, an INDORSEE is NOT an
IMMEDIATE PARTY.

EXAMPLE:
A makes a PN payable to B or order. B
negotiates the PN to C, and C to D, and D to E.
Literally, A and B are IMMEDIATE PARTIES. So
also are B and C to each other, as well as D and E.
But, A and C or B and E are REMOTE PARTIES
to each other.

BROAD MEANING OF IMMEDIATE AND REMOTE

PARTIES
--Under the NIL IMMEDIATE AND REMOTE PARTIES are given
broader meanings.
--IMMEDIATE PARTIES is confined to those who are immediate--in
the sense of knowing or being held to know the conditions or limitations
placed upon the delivery of the instrument.
--means PRIVITY NOT PROXIMITY.
--CRITERION:
Whether or not the party in question knows of the conditions or
limitations placed upon the deliveryor the fact that the instrument was not
delivered but stolen.
If the party in question knows, he is an immediate party even if he is
physically remote.
On the other hand, if he does not know, he is NOT immediate party
even if he is the next party physically.

EXAMPLE:
A makes a PN payable to B's order. He keeps it
in his safe but B, his nephew, after learning of its
existence, steals it.
B then indorses the note to C, C to D, D to E,
and E to F.
F knows that B stole the note from his uncle's
safe.
In this case, even if F is physically remote from
A, F is an immediate party as A is concerned
because he knows of the lack of delivery.

But suppose A delivers a PN payable to B's order,

to Y, his agent with instruction to deliver the PN to B
but only for safekeeping.
When Y delivered the PN to B, Y did not tell him
that the delivery is only for safekeeping.
Although B is physically immediate to A, he is not
an IMMEDIATE PARTY within the meaning of SEC.
16 as he does not know the limitations placed upon
delivery.

PRESUMPTION OF VALID DELIVERY AS TO

IMMEDIATE PARTY OR REMOTE PARTY NOT A
HIDC
---Under

the last sentence of SEC. 16, which states And where the

instrument is no longer in the possession of a party whose signature

appears thereon, a valid and intentional delivery by him is presumed until
the contrary is proved. -----------PRIMA FACIE PRESUMPTION
--In the first example, since the PN is no longer in the possession of A,
whose signature appears on the PN as maker, but is already in the
possession of F, the presumption is that A validly and intentionally delivered
the PN to B.

THE PRESUMPTION IS REBUTTABLE

--Against an IMMEDIATE PARTY and REMOTE PARTY who is not a HIDC,
the presumption will exist in his favor ONLY UNTIL the contrary is proven.
--The presumption is REBUTTABLE as against an IMMEDIATE PARTY and
REMOTE PARTY who is not a HIDC, and as against him, it may be proved
that:
1. No delivery was made; or
2. If there was delivery, it was not authorized; or
3. If the delivery was made or authorized, the delivery was CONDITIONAL,
or for SPECIAL PURPOSE only and not for the purpose of transferring
property in the instrument (SEC. 16second sentence)

A makes a PN payable to B's order. He keeps it in his safe but B, his

nephew, after learning of its existence, steals it.
B then indorses the note to C, C to D, D to E, and E to F.
F knows that B stole the note from his uncle's safe.
Even if F is physically remote from A, F is an immediate party.
Now, since F is an immediate party, A can prove against F that he did
not deliver the PN but was stolen by B in his safe.
Consequently, F cannot recover from A BUT F can recover from B, C,
D, and E since they are INDORSERS pursuant to SECS. 65 and 66.

PRESUMPTION OF VALID DELIVERY AS TO A

HIDC
Under SEC. 16, 3rd sentence, which states But where the instrument is
in the hands of a holder in due course, a valid delivery thereof by all parties
prior to him so as to make them liable to him is conclusively presumed.
--Presumption is conclusive, hence, contrary proof is barred.
EXAMPLE:
A makes a PN payable to B's order. He keeps it in his safe but B, his
nephew, after learning of its existence, steals it.
B then indorses the note to C, C to D, D to E, and E to F, a HIDC.

Since F is a HIDC, A CANNOT PROVE that the

PN was stolen by B, because in F's hand, being a
HIDC, VALID and INTENTIONAL DELIVERY by A,
a party prior to F, is CONCLUSIVELY PRESUMED
and

therefore,

CANNOT

INTRODUCE

EVIDENCE to DISPROVE the presumption.

A PERSONAL DEFENSE
--Under SEC. 16, possible defense of a party sought to be charged, is that
1. The instrument was not delivered, or
2. If delivered, delivery was not authorized or only on a condition or
for a special purpose.
--This defense may be termed WANT OF
MECHANICALLY COMPLETE INSTRUMENT.

DELIVERY

OF

--It is not available against a HIDC.

--Proof of lack of delivery, unauthorized delivery, or conditional delivery, or
for a special purpose---barred because in the hands of a HIDC, a valid and
intentional delivery of a COMPLETE BUT UNDELIVERED instrument is
CONCLUSIVELY PRESUMED.
BUT, the said defenses may be raised against an IMMEDIATE AND
REMOTE PARTIES who are NOT HIDC---as against them the presumption
is only PRIMA FACIE OR REBUTTABLE.

BASIC RULES APPLICABLE TO

SECTION 14

SECTION 15

INCOMPLETE BUT
UNDELIVERED

INCOMPLETE AND
UNDELIVERED

COMPLETE AND
UNDELIVERED

Delivery is prima facie

presumed where
instrument is in the
hands of HIDC.

Delivery is conclusively
presumed where
instrument is in the hands
of HIDC.

The maker/drawer may

rebut by presenting
proof of NONDELIVERY.

The maker/drawer may not

rebut or present proof of
NON-DELIVERY. It is
barred.

Real defense available

against BOTH a
HOLDER NOT IN
DUE COURSE and
HIDC.

Personal defense available

only against a HOLDER
NOT IN DUE COURSE but
not against a HIDC.

Personal defense
available only against
a HOLDER NOT IN
DUE COURSE but not
against a HIDC.

SECTION 16

SECTION 17.
Construction Where Instrument is Ambiguous. Where the
language of the instrument is ambiguous or there are omissions therein, the following rules
of construction apply:
(a) Where the sum payable is expressed in words and also in figures and there is a
discrepancy between the two, the sum denoted by the words is the sum payable; but if the
words are ambiguous or uncertain, reference may be had to the figures to fix the amount;
(b) Where the instrument provides for the payment of interest, without specifying the date
from which interest is to run, the interest runs from the date of the instrument, and if the
instrument is undated, from the issue thereof;
(c) Where the instrument is not dated, it will be considered to be dated as of the time it
was issued;
(d) Where there is a conflict between the written and printed provisions of the instrument,
the written provisions prevail;
(e) Where 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 election;
(f) Where a signature is so placed upon the instrument that it is not clear in what capacity
the person making the same intended to sign, he is to be deemed an indorser;
(g) Where an instrument containing the word "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.

How do you treat a negotiable instrument that is so

ambiguous that there is doubt whether it is a bill or
a note? (BAR 1998)

Where the instrument is so ambiguous that there

is doubt whether it is a bill or a note, the holder
may treat it as either at his election [Section 17 (e)].

Suppose A executes this instrument:

I promise to pay to the order of B P1,000.00 at
the PNB.
(Sgd.) A
To: The PNB
Accepted, (Sgd.) PNB
Is this a note or a bill?

This is an ambiguous instrument. It is a promise

to pay but there is a drawee and acceptor. In this
case, the payee or the holder may treat it either as
a bill or note. [Section 17 (e)]

Capacity of party signing is not

clear
--The signature of the MAKER OR DRAWER is usually at the lower
right hand corner of the instrument.
--That of the INDORSERS at the back of the instrument.
--That of the ACCEPTORacross the face of the instrument.
BUT THERE ARE CASES WHEREIN IT IS NOT CLEAR IN
WHAT CAPACITY A PERSON IS SIGNING.

Suppose A is the maker of a promissory note

which is payable to bearer.
B signs his name across the face of the
instrument.
Is B an acceptor or an indorser?

Obviously, B cannot be an acceptor because the

instrument is NOT a BOE.
Under Section 17 (f), B is deemed to be an
INDORSER.
Note: Section 17 (f) applies only when there is
doubt due to the ambiguous location of the
signature.

Two or more persons signing

Suppose A and B sign this note:
I promise to pay to C or order P1,000.00.
(Sgd.) A and B
What is the liability of A and B?

A and B are deemed to be JOINTLY AND

SEVERALLY LIABLE, not merely JOINTLY
LIABLE. Section 17 (g).
In other words, the holder of the instrument can
collect the whole amount of the instrument from
either A or B.

Suppose A and B sign this note:

We promise to pay to C or order P1,000.00.
(Sgd.) A and B
What is the liability of A and B?

A and B would only be JOINTLY LIABLE.

In other words, the holder of the instrument can
collect only the respective share of A or B in the
instrument.
In our jurisdiction, the word jointly when used
by itself in a judgment rendered in English is
equivalent to the word
m a n c o m u n a d a m e n t e.
(Sharuff v. Tayabas Land Co., 37 SCRA 655.

SECTION 18. Liability of Person Signing in Trade or Assumed Name. No

person is liable on the instrument whose signature does not appear thereon,
except as herein otherwise expressly provided. But one who signs in a trade or
assumed name will be liable to the same extent as if he had signed in his own
name.
SECTION 19. Signature by Agent; Authority; How Shown. The signature
of any party may be made by a duly authorized agent. No particular form of
appointment is necessary for this purpose; and the authority of the agent may be
established as in other cases of agency.
SECTION 20. Liability of Person Signing as Agent, and So Forth. Where
the instrument contains or a person adds to his signature words indicating that he
signs for or on behalf of a principal, or in a representative capacity, he is not liable
on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent, or as filling a representative character, without
disclosing his principal, does not exempt him from personal liability.
SECTION 21. Signature by Procuration; Effect of . A signature by
"procuration" operates as notice that the agent has but a limited authority to sign,
and the principal is bound only in case the agent in so signing acted within the
actual limits of his authority.

GENERAL RULE:
A PERSON WHOSE SIGNATURE DOES NOT
APPEAR ON THE INSTRUMENT IS NOT LIABLE
THEREON.

EXCEPTIONS:
1. One who signs in a trade or assumed name. (Section 18)
2. One who signs through an agent or authorized representative.
(Section 19)
3. Incapacitated persons who sign through their legal guardians.
4. Forgers of signatures. (Section 23)
5. Persons whose signatures were forged but who are precluded from
setting up the defense of forgery. (Section 23)
6. In case of constructive acceptance. (Section 137)
7. Indorsers who sign on a separate piece of paper known as allonge.
8. Persons who negotiate by mere delivery. They are liable for breach of
warranty although they did not sign. (Section 65)
9. Where the acceptor makes his acceptance of a bill on a separate paper.
(Section 134)
10. Where a person makes a written promise to accept a bill before it is
drawn. (Section 135)

Requisites for agent to escape

personal liability on his part
He must:
1. Be duly authorized;
2. Sign in a representative capacity; and
3. Disclose his principal.

EXAMPLES

1.

A
By:
B

2.

B for A

3.

B, agent of A

4.

For A, B, agent

5.

A
By
B, p.p.

6.

B, agent
B, trustee
B, guardian
B, administrator B, director

A
By
B, pp.

A
By
B, per proc.

Example No.
1.

B has complied with the 3 requisites:

a. He has the authority.
b. He disclosed his principal, A; and
c. He signed in a representative capacity.
The same is true for 2, 3, and 4.

5. B has also complied with the requisites, BUT with the

presence of p.p. (per procuration) meaning, B's
authority is limited.
If B exceeds his authority as stated in the SPA, A is not
liable. Third party's duty to verify authority of B.
6. There was no compliance by B with the 3 requisites.
Word agent is merely descriptive.

SECTION 22. Effect of Indorsement by Infant

or

Corporation.

The

indorsement

or

assignment of the instrument by a corporation or

by

an

infant

passes

the

property

therein,

notwithstanding that from want of capacity the

corporation or infant may incur no liability thereon.

GENERAL RULE:
Minor cannot give consent to contracts and
contracts entered into by him is VOIDABLE.
In case of CORPORATIONS, they cannot
perform acts beyond the scope of their authority.
Such acts would be ultra vires.

BUT, IF A MINOR OR CORPORATION

INDORSES
an instrument, the indorsee acquires title to it and
can enforce it against the maker or acceptor or
other parties PRIOR to the minor.
Such parties CANNOT escape liability by setting
up as a defense the incapacity of the indorser.

Minority is not a personal defense that may be

set up by the parties OTHER THAN THE MINOR.
It is a REAL DEFENSE available to the MINOR.

EXAMPLE
A is the maker of a PN. B is the payee.
B indorses the PN to C
C to D
D to E ( a MINOR at the time of indorsement)
E to F.
Can F enforce the PN to A, B, C, and D?

YES. F acquired title to the PN in spite of the

incapacity of E.
Hence, F can enforce the PN against A, B, C,
and D who are parties PRIOR to E.
A, B, C, and D CANNOT set up as a defense the
incapacity of E.

Remember that the MAKER (Sec. 60), DRAWER

(Sec. 61), and ACCEPTOR (Sec. 62) warrant not
only the existence of the payee but also his then
capacity to indorse.
Therefore, where the PAYEE is a MINOR, they
cannot interpose as a defense his incapacity to
indorse.
Same rule applies to other incapacitated
persons, i.e. insane, demented, deaf-mutes.

SECTION 23. Forged Signature; Effect of.

When a signature is forged or made without the
authority of the person whose signature it purports
to be, it is wholly inoperative, and no right to retain
the instrument, or to give a discharge therefor, or
to enforce payment thereof against any party
thereto, can be acquired through or under such
signature, unless the party against whom it is
sought to enforce such right is precluded from
setting up the forgery or want of authority.

Forgerymeans the counterfeit making or

fraudulent alteration of any writing which may
consist in:
--Signing of another's name, or
--Alteration of an instrument in the name, amount,
description of the person and the like
with intent to defraud.

CASES COVERED BY SECTION

23
Deals basically with:
1. Where the signature on the instrument is FORGED; and
2. Where the signature is made with the authority of the
person whose signature it purports to be.
The signature in question may be that of:
1.
2.
3.
4.

Maker
Drawer
Acceptor or
Indorser

In both cases, the signature is (1) WHOLLY

INOPERATIVE (2) NO RIGHT CAN BE
ACQUIRED
THROUGH
THE
FORGED
SIGNATURE.
FORGERY is a REAL DEFENSEavailable
against a HIDC.

EXTENT OF FORGERY
Section 23 does not purport to declare the
instrument totally void or the genuine signatures thereon
inoperative.
1. Only the FORGED SIGNATURE or MADE WITHOUT AUTHORITY which is
INOPERATIVE and NOT the INSTRUMENT or GENUINE SIGNATURES
THEREON.
2. The instrument can be enforced by holders to whose title over the instrument
the forged signature is not necessary, such as an indorsement of an
instrument which on its face is PAYABLE TO BEARER.
3. The instrument can be enforced against those who are PRECLUDED from
setting up the defense of forgery, even against those whose signatures are
forged.

EFFECTS OF FORGERY
BASIC

RULE:

FORGED

SIGNATUREWHOLLY

INOPERATIVE BUT INSTRUMENTOPERATIVE

Effects of a signature that is INOPERATIVE:
1. No right to RETAIN instrument by virtue of forged
signature.
2. No right to give DISCHARGE by virtue of the forged
signature.
3. No right to ENFORCE payment against any party prior
to the forgery.

HOWEVER, the effects of forgery may also be made to

apply to cases involving irregularities that amount to
FORGERY, such as:
1. Duress amounting to forgery;
2. Alteration amounting to forgery; and
3. Fraud in factum.
In these instances, the persons involved do not have
any intention to be bound or to sign a negotiable
instrument.

Example of Forgery

Mr. A prepares a PN specifying Mr. M. as the

maker and then copies the signature of Mr. M
without Mr. M's knowledge and consent, to make it
appear that Mr. M signed the PN.

Example of Signature without

Authority

Mr. A signed a BOE for and in behalf of the

drawer Mr. DR without the knowledge and consent
of Mr. DR.

Example of Duress amounting to

Forgery

Mr. X through force, made Mr. M, the maker, sign

a PN by holding his hand and by forcing Mr. M to
sign the instrument.

Example of Alteration amounting

to Forgery
The instrument is payable to Mr. P or his order
but Mr. X stole the instrument and replaced the
name of Mr. P with his name as payee, and
thereafter indorsed the instrument.

The altered

instrument now shows Mr. X as the payee although

the real payee is Mr. P.

Example of Fraud in Factum

Mr. A asked Mr. B, a stage actor, for an

autograph on a blank piece of paper. Later, without
the knowledge of Mr. B, Mr. A converted the paper
into a BOE.

CHAPTER II
Consideration

SECTION 24. Presumption of Consideration.

Every negotiable instrument is deemed prima facie
to have been issued for a valuable consideration;
and every person whose signature appears
thereon to have become a party thereto for value.

In an action based on a negotiable instrument, is

it necessary to aver or prove valuable
consideration?
No.

It is presumed that every negotiable

instrument has been issued for a valuable

consideration and every person whose signature
appears thereon is likewise presumed to have
become a party thereto for value.
But the presumption is rebuttable.

SECTION 25. Value, What Constitutes. Value

is any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt
constitutes value; and is deemed such whether the
instrument is payable on demand or at a future
time.

What kind of consideration is necessary to

support a negotiable instrument?
It should be a valuable consideration.
What is a valuable consideration?
It may consist either in some right, interest,
profit or benefit, accruing to the party who
makes the contract, or some forbearance,
detriment, loss, responsibility, act, labor, or
service on the other side.

Examples of valuable consideration

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Promise
Loan of money
Services
Credit
Compromise or settlement
Release of rights
Exchange of paper
Renewal of note
Forbearance to file civil actions; and
Extension of time

Is love or affection, or gratitude a

valuable consideration?
No. Consideration founded on love or
affection, or upon gratitude is good
consideration, but does not constitute such
valuable consideration as is sufficient to
support the obligation of a bill or note, as
between original parties.

Must a consideration be
adequate in order to be valuable?
It need not be adequate in order to be
valuable.
The ONLY essential element is that the
consideration is a VALUABLE ONE.

A borrows money from B with C

acting as co-maker of a negotiable
PN. C receives nothing from the
loan.
May C successfully raise the
defense of lack of consideration?

No.

It is not required that C should actually

receive the loan or a part thereof.

There is a

consideration moving from one party to another.

Distinguish lack or absence of consideration from

failure of consideration.
Lack or absence of considerationthere is NO
consideration from the beginning.
Failure of considerationthere is consideration
from the beginning, but later on, it disappears.

X issues a check to Y, the latter being the

son, for the purpose of purchasing school
supplies. Is there consideration?

NONE. There is no consideration for

affection is not a consideration for purposes of
the NIL, unlike in the case of a donation.

A sold his horse to B. B issues a check in

the amount of P150,000.00 for the price.
While the horse was about to be delivered, the
horse died.
Was there a consideration for the check?

NONE.

There

is

FAILURE

OF

CONSIDERATION. There was consideration

in the beginning but later on, it disappeared
when the horse died.

SECTION 26. What Constitutes Holder for

Value. Where value has at any time been given
for the instrument, the holder is deemed a holder
for value in respect to all parties who became such
prior to that time.

SECTION

27. When

Lien

on

Instrument

Constitutes Holder for Value. Where the

holder has a lien on the instrument, arising either
from contract or by implication of law, he is
deemed a holder for value to the extent of his lien.

What constitutes a holder for

value?
A holder for value is one who has given a
consideration

for

the

instrument

issued

or

negotiated to him.
Holder is deemed as such not only as regards
the party to whom value has been given by him
but also in respect to all those who became parties
PRIOR to the time when value was given.

Example
M

issues

consideration.

PN

to

P,

payee,

without

P, also without consideration,

indorses the PN to A, who for value, indorses it to

B.
Under Section 26, B is deemed a holder for
value NOT ONLY AS REGARDS A but also as
regards M and P.

If B is a HIDC (Section 52), he can enforce the

PN for payment for the full amount of the note
against M, P, and A. (Section 57)
If B is NOT A HIDC, M can set up the defense of
absence of consideration (Section 58).

Let us say B negotiates the note to C by

way of gift. C is a holder for value within the
meaning of Section 26 as against M, P, and A
because they became parties PRIOR to the
time when value was given on the PN by B.

Meaning of lien
Lien is a charge against or interest in
property to secure payment of a debt or
performance

of

an

obligation.

It

is

VALUABLE CONSIDERATION.
Example:

One that arises because of a

mortgage or pledge.

EXAMPLE
If a negotiable certificate of time deposit
was delivered by A to B by way of pledge, B is
a transferee for value up to the extent of the
amount secured.
If the sum stated in the certificate of time
deposit is P30,000.00 and it was pledged to B
for P10,000.00 debt, B is a holder for value up
to P10,000.00.

SECTION 28. Effect of Want of Consideration.

Absence or failure of consideration is matter of
defense as against any person not a holder in due
course; and partial failure of consideration is a
defense pro tanto, whether the failure is an
ascertained and liquidated amount or otherwise.

What is the effect of want or

failure of consideration? What is
its nature?
It is a matter of defense as against any person
who is not a holder in due course.
It is PERSONAL OR EQUITABLE DEFENSE.

What is the effect of a partial

failure of consideration in a NIL?

It is a defense pro tanto, whether the failure

is an ascertained and liquidated amount or
otherwise.

M borrowed money from P in the amount of

P1,000.00. As a security for the loan, M issued a
PN in favor of P for P1,000.00.
However, P gave only P400.00 to M. The extent
of want of consideration is P600.00 in a P1,000.00
negotiable PN.
To what extent can M interpose want of
consideration?

M can only interpose want of consideration

only pro tanto or proportionately, that is, only
to the extent of P600.00 as against any
person NOT A HIDC. If the holder is a HIDC,
he can collect P1,000.00 because failure or
absence of consideration, whether full or
partial IS NOT AVAILABLE against a HIDC.

SECTION 29. LIABILITY OF ACCOMMODATION

PARTY. An accommodation party is one who
has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name
to some other person. Such a person is liable on
the

instrument

to

holder

for

value,

notwithstanding such holder at the time of taking

the

instrument

knew

accommodation party.

him

to

be

only

an

Definition of terms
Accomodation bill or noteis one to which the
accomodation party has put his name, without
consideration,

for

the

purpose

of

ACCOMODATING some other party, who is to use

it, and is expected for pay it.
--It is a loan of one's credit.

Accomodation partyis one who has signed the

instrument as:
1.

Maker

2.

Drawer

3.

Acceptor, or

4.

Indorser,
without receiving value therefor and for the

purpose of lending his NAME to some other

person.

--Expects that

not he, but the accomodated

party will provide payment of the BOE or PN when

it falls due.
--In lending his name, the accomodation party is
in effect, a SURETY FOR THE ACCOMODATED
PARTY.

Accomodated partyis one in whose favor a

person, without receiving value therefor, signs an
instrument for the purpose of lending his credit and
enabling said party to raise money upon it.
--impliedly agrees to take up the instrument at
maturity and to indemnify the accomodation party
against the consequences of non-payment.

May a person cease to be an accomodation party

if he receives a consideration, say a sum of
P150.00 for lending his name in a negotiable
instrument?

NO. The person who receives consideration for

lending his name in a negotiable instrument does
not cease to be an ACCOMODATION PARTY.
Under Section 29, the phrase without receiving
value therefor means without receiving value for
the issuance of the instrument and not without
receiving payment for lending his name.

State the nature of the rights and legal position of

an accomodation party?
1.

The accomodation party is a surety for the

accomodated party.
2.

When the accomodation parties make payment to

the holder of the notes, they have the right to sue the
accomodated party for REIMBURSEMENT since the
relation between them is in effect that of principal and
sureties, the accomodation parties being the sureties.

3. The accomodated party cannot recover from from the

accomodation

party.

Between

them,

absence

of

consideration is a defense.
4. Accomodation party can interpose the defense of
WANT OF CONSIDERATION against one who is not a
HIDC. (Prudencio v. CA, 143 SCRA 7)

Suppose A, the holder of an instrument knows

that one of the parties in the instrument, C, is an
accomodation party. In an action by A against C,
may

interpose

consideration? Why?

the

defense

of

want

of

NO. The defense of want of consideration is

available against the party accomodated but it
may not be interposed against a holder who has
acquired the instrument for value, even is such
holder knew that the acceptor is a mere
accomodation acceptor.
But the holder for value must otherwise be a
HIDC, that is, he must meet all the requisites
under Section 52 EXCEPT notice of want of
consideration.

Example
X is a lender of money. Y acts as broker in looking for
borrowers. Suppose the lender, not wanting his name to
appear in the books of the borrower as lender, requests Y,
the broker to take the note in his own name, immediately
transferring title thereto by indorsement, and this done, the
note is transferred at once to the lender.

Is Y, the broker an accomodation party?

No. The signature of the broker does not make him an

accomodation

party.

In

case

of

accomodation

indorsement, the indorser makes the indorsement for the

accomodation of the maker.

Such an indorsement is

generally for the purpose of better securing the payment

of the notethat is, he lends his name to the maker, not
the holder.
Y merely gave a favor to X and not to secure the
payment of the instrument but to relieve the latter of a
distasteful situation. (Maulini v. Serrano, 28 Phil. 610.)

ACCOUNT NO.
00843-052687-5

ACCOUNT NAME
ALEX

R/T NO.
09023

CHECK NO.
02345667

June 12, 1999

Pay to the
ORDER OF BART

P10,000.00

PESOS TEN THOUSAND PESOS

FAIR BANK
Manila Branch
Roxas Blvd., Manila
93906659-39066-1602-120592040397

ALEX

----------------------------------------------------------------------------------------------------------------------

A -----------------Accomodation
Party
To:

------------------ C

Accomodated
Party

FAIR BANK (DRAWEE BANK)

Holder

Problem:
Bart is buying some goods from Charlie. Charlie does
not want to receive Bart's check because he does not
believe in Bart's solvency. Charlie told Bart to secure a
check for the amount of the price from Alex whose credit
standing impresses Charlie. Bart talks to his friend Alex.
Alex issues a check for P10,000.00 payable to the order
of Bart and drawn upon Fair Bank. Bart gave Alex
P500.00 as a gratification for the favor.
Upon his receipt of the check from Alex, Bart indorsed
the check and delivered it to Charlie who then delivered
the goods to Bart but with knowledge that Bart did not pay
Alex any consideration for the check.

Charlie presented the check for payment to Fair

Bank. Before Charlie could do that, Alex changed
his mind about helping Bart. Alex made a STOP
PAYMENT ORDER to Fair Bank so that the check
when presented to Fair Bank was dishonored by
the same. Charlie made notice of dishonor to Bart
and Alex.
Can Charlie collect from Alex?

YES. Charlie can collect from Alex. The fact that there
was no consideration for the check is in the very nature of
an accomodation. Therefore, knowledge on the part of
Charlie about the lack of consideration will not prevent him
from collecting from Alex.

The P500.00 is only a

gratification but not a consideration. Alex cannot raise the

defense of lack of consideration against Charlie, a HIDC.

Assuming that Alex pays Charlie, is the

instrument discharged?

No.

Alex is an accomodation party.

Therefore, he is not the party ultimately liable

or the principal debtor under the instrument.
In fact, Alex still needs the instrument to
secure reimbursement from Bart.

Assuming Bart pays the check to Charlie,

is the instrument discharged?

YES. Bart is the accomodated party and,

therefore, the party ultimately liable or the
principal

debtor

under

the

instrument.

Payment by Bart at or after maturity in good

faith

is

payment

is

due

discharges the instrument.

course

which

If

Alex

collects

from

instrument discharged?

Bart,

is

the

YES. Bart is the accomodated party, and

therefore, the prinicipal debtor or the party
ultimately

liable

under

the

instrument.

Payment by Bart or after maturity of the

instrument is payment in due course which
discharges the instrument.

Assuming under the facts of the main

problem above that Charlie indorses and
delivers the check to Bart before maturity
thereof and Bart pays value therefor in
good faith, is the instrument discharged?

NO.
the

The instrument was renegotiated to

principal

debtor

but

he

may

still

renegotiate it since the instrument is not yet

discharged as it had not yet matured. Such
payment does not constitute payment in due
course which discharges the instrument.

Problem (1998 Bar)

Nora applied for a loan of P100,000.00 with
BUR Bank. By way of accomodation, Nora's
sister, Vilma, executed a promissory note in
favor of BUR Bank.

When Nora defaulted,

BUR Bank sued Vilma, despite its knowledge

that Vilma received no part of the loan.
May Vilma be held liable?

YES. Vilma's execution of the promissory

note was an accomodation.

Vilma is an

accomodation party, while her sister is he

accomodated party. Lack of consideration is
in the very nature of accomodation.

Problem
A issued a bill of exchange payable to the
order of B. B negotiated the bill to C. The bill
is payble 30 days from date.
C negotiated the same instrument to A on
the 10th day. Is the instrument discharged?

No. Although A is the principal debtor, he

can still renegotiate the bill toma subsequent
party because at the time it was renegotiated
to A, the bill was not yet due.

Since the

instrument had not yet matured, payment

therfor by A does not constitute payment in
due course that discharges the instrument.

Payment by the principal debtor at or after maturity is

payment in due course which is a ground to discharge
the instrument. In the problem, it is not yet payment in
due course because the instrument had not yet matured.
A was placed back to the position as before. A did not
acquire any better right against C and B to whom he is
still liable as a prior party.

In other words, A cannot

collect from C just because the instrument was

renegotiated back to him. He is back to his position as a
prior party.

Problem (1998 Bar)

For the purpose of lending his name without receiving
value therefor, Pedro makes a note for P20,000.00
payable to the order of X who in turn negotiates it to Y, the
latter knowing that Pedro is not a party for value.
1.

May Y recover from Pedro if the latter interposes the

absence of consideration?

2.

Supposing, under the same facts, Pedro pays the

said P20,000.00, may he recover the amount from X?

1.

Yes.

Pedro is an accomodation party.

Absence of consideration is in the very nature of

accomodation. Pedro cannot raise the defense of
absence of consideration.
2.

Yes. While Pedro is the accomodation party,

X is the accomodated party who benefited from

the transaction. To allow X to avoid reimbursing
Pedro would constitute unjust enrichment on the
part of X at the expense of Pedro.

CHAPTER III
Negotiation

SECTION 30. What Constitutes Negotiation.

An instrument is negotiated when it is transferred
from one person to another in such manner as to
constitute the transferee the holder thereof. If
payable to bearer, it is negotiated by delivery; if
payable

to

order,

it

is

negotiated

by

the

indorsement of the holder completed by delivery.

What are the methods of transfer

of negotiable instruments?
There are 3 methods:
1. By operation of law;
3. By assignment;
3. By negotiation.
Negotiation:
If payable to bearerdelivery
If payable to orderindorsement + delivery

If a negotiable instrument is merely assigned---the transferee DOES NOT become a holder and
merely steps into the shoes of the transferor.
If an instrument is NON-NEGOTIABLE, it can
still be transferred but only through assignment,
Transferee is always an assignee who merely
steps into the shoes of the transferor.
Transferee cannot be a HIDC, subject to
defenses of prior parties.

If a payee presents a check to a drawee

bank for payment, is there negotiation?
NO. Payee simply demands and receives
payment from the bank. However, if the payee
goes to a store to buy something and uses the
check in payment by indorsing and delivering
it, there is negotiation. So also, if the check is
presented to a bank, other than a drawee
bank for payment, there is negotiation.

SECTION 31. Indorsement; How Made. The

indorsement must be written on the instrument
itself or upon a paper attached thereto. The
signature of the indorser, without additional words,
is a sufficient indorsement.

How is indorsement made?

The indorsement must be written on the
instrument itself or upon a paper attached thereto
called an allonge.
--signature of indorser without additional words
sufficient

indorsement

INDORSEMENT.

called

BLANK

Richard Clinton makes a PN payable to bearer

and delivers the same to Aurora Page.

Aurora

Page, however, indorses it to Sam in this manner:

Payable to Sam. Signed: Aurora Page

PROMISSORY NOTE
Manila, June 22, 1999
I, Richard Clinton, promise to pay to bearer
the

sum

of

TEN

THOUSAND

(P10,000.00) Philippine Currency.

Richard Clinton
(Signature of Maker)

PESOS

Later, Sam without indorsing the promissory

note, transfers and delivers the same to Napoleon.
The note is subsequently dishonored by Richard
Clinton.
May Napoleon proceed against Richard Clinton
for the note?

YES.

The PN made and issued by Richard

Clinton is a bearer instrument. As such, the note

can be negotiated by mere delivery.
The special indorsement by Aurora Page did not
detract from its nature as a bearer instrument.
Napoleon became a holder of the note when it
was delivered and transferred to him by Aurora
Page, without the latter indorsing the same.

SECTION 32. Indorsement Must Be of Entire

Instrument. The indorsement must be an
indorsement

of

the

entire

instrument.

An

indorsement which purports to transfer to the

indorsee a part only of the amount payable, or
which purports to transfer the instrument to two or
more indorsees severally, does not operate as a
negotiation of the instrument. But where the
instrument has been paid in part, it may be
indorsed as to the residue.

Not

considered

as

negotiation

but

assignment:
1. Indorsement of a part payable
2. Indorsement to two or more indorsees
severally

mere

1. Pay to Mr. A P600.00 and Mr. B P400.00

Sgd. Juan dela Cruz
not considered negotiation
2. Pay to the order of Juan dela Cruz, P1,000.00 on
June 20, 2005.
It was delivered to Mr. A by indorsing to him ONLY
HALF of the amount.
Pay to Mr. A P500.00.
Sgd. Juan dela Cruz
not considered negotiation

However, there can still be negotiation if the

amount not indorsed P500.00
paid.

was already

3. Pay to the order of Juan dela Cruz

P1,000 on June 20, 2005.
Pay to Mr. A or Mr. B.
Sgd. Juan dela Cruz

indorsement is still negotiable

4. Pay to the order of Juan dela Cruz

P1,000 on June 20, 2005.
Pay to Mr. A and Mr. B.
Sgd. Juan dela Cruz

indorsement is still negotiable

SECTION 33. Kinds of Indorsement. An

indorsement may be either special or in blank; and
it may also be either restrictive or qualified, or
conditional.

Kinds of indorsement:
1. As to the methods of negotiation:
a.

Special (Sec. 34)

b.

Blank

2. As to kind of title transferred:

a.

Restrictive

b.

Non-restrictive

(Sec. 36)

3. As to scope of liability of indorser:

a.

Qualified

b.

Unqualified or general (Secs. 34 and 66)

4. As to presence of limitations:
a. Conditional
b. Unconditional (Sec. 39)
5. Other kinds of indorsements:
a.
b.
c.
d.

Joint
Successive
Irregular
Facultative

(Sec. 41)
(Secs. 50 and 68)
(Sec. 64)
(Sec. 111)

Examples
1.
Special indorsementspecifies the person to whom
or whose order the instrument is to be payable. (Sec. 34)
An intrument payable to the order of B is indorsed by B,
at the back as follows:
Pay to C.
Sgd. B.

2. Blank indorsementNo indorsee is specified

making the instrument payable to bearer. (Sec. 35)
An intrument payable to the order of B is indorsed by
B to C, at the back as follows:
Sgd. B.

3. Absolute indorsementno condition is fixed. The

indorser binds himself to pay upon no other condition than
the failure of the prior parties to pay, and of due notice to
him of such failure.
An intrument payable to the order of B is indorsed by B to
C, at the back as follows:
Pay to C.
Sgd. B.
or
Sgd. B.

4. Conditional indorsementone wherein the indorser

subjects the indorsement to the happening of a
contingent event which may or may not happen or a past
event unknown to the parties. (Sec. 39)
A note is indorsed by payee as follows:
Pay to B, if he passes the bar examinations.
Pay to Mr. A, when he graduates in his Architecture
course on or before the year 2016.
Sgd. B

5. Restrictive indorsementone which either: (Sec. 36)

a. Prohibits further negotiation of the instrument.
Pay to A only.
Sgd. B.
Pay to A and to no other person.
Sgd. B.
b. Constitutes the indorsee the agent of the indorser.
Pay to A for collection.
Sgd. B.
Pay to A for collection and remittance. Sgd. B.
Pay to A for collection only.
Sgd. B.
Pay to A for deposit.
Sgd. B.
c. Vests the title in the indorsee in trust for or to the use
of some other persons.
Pay to A in trust for B.
Sgd. D.
Pay to A as trustee for B. Sgd. D.
Pay to A for my use.
Sgd. D.
Pay to A for the use of B. Sgd. D.

6. Qualified indorsementone which constitutes the

indorser a mere assignor of the title to the instrument.
(Sec. 38)
--There is transfer of title without guaranteeing
payment. Indorser is mere assignor to the instrument.
--Liability is limited; Indorser is secondarily liable
May be qualified by adding to the indorser's signature:
without recourse, sans recourse, at indorsee's risk,
indorser not holder
Pay to A, at indorsee's risk.

Sgd. B.

7. Joint indorsementone which requires the indorsement

of 2 or more payees.
An instrument payable to the order of A and B is
indorsed by payees A and B as follows:
Pay to C.

Sgd. A and B.

8. Successive indorsementone where at the back of the

instrument there appear two or more indorsements.
An the back of the instrument payable to the order B
appears the following indorsements:
Pay to C.
Pay to D.
Pay to E.
Pay to F.

Sgd. B.
Sgd. C.
Sgd. D.
Sgd. E.

9. Irregular indorsementwhere a person, not otherwise

a party to an instrument, places thereon his signature in
blank before delivery, he is liable as an irregular indorser.
In an instrument payable to the order of B, B's name
should appear on the back of the instrument as the first
indorser, but instead,we find the name of Y as the first
indorser. In such case,Y is an IRREGULAR INDORSER.

Example of irregular indorser

Juan bought goods from Jose for P100,000.00. In
payment of the price, Juan drew and issued a check
for P100,000.00 drawn upon Union Savings Bank.
Before Juan delivered the check to Jose, he
caused Pedro to sign on the upper portion of the face
of the check. When Jose presented the check to the
drawee bank for payment, the latter dishonored the
check for the reason Closed Account.
After giving the notice of dishonor to Juan and
Pedro, can Jose collect the amount of the check from
Pedro, assuming that Juan is insolvent?

YES. PEDRO is an irregular indorser, in effect an

accomodation indorser. The fact that there was no
consideration for the indorsement of Pedro is of no
moment since that is in the nature of an
accomodation. After paying to Jose, Pedro has the
right to ask for reimbursement from Juan who is the
accomodated party.

10. Facultative indorsementone where the

indorser enlarges his liability by waiving the usual
demand and notice of dishonor.
Pay to C. Waiving demand, protest and notice.
Sgd. B.

10. Indorsement by an agentone which is done

by a person with proper authority of the principal.
Pay to C. Waiving demand, protest and notice.
Sgd. B.

SECTION

34. Special

Indorsement;

Indorsement in Blank. A special indorsement

specifies the person to whom, or to whose order,
the instrument is to be payable; and the
indorsement of such indorsee is necessary to the
further

negotiation

of

the

instrument.

An

indorsement in blank specifies no indorsee, and

an instrument so indorsed is payable to bearer,
and may be negotiated by delivery.

What is the requirement for negotiation if an instrument

is (a) Specially indorsed, or (b) Indorsed in blank?
1.
Where the instrument is originally payable to order
and it is negotiated by the payee by special indorsement, it
can be further negotiated by the indorsee by indorsement +
delivery.
2.
Where the instrument is originally payable to order
and it is negotiated by the payee by blank indorsement, it
can be further negotiated by the holder by mere delivery.
Reason:
effect of blank indorsement is to make the
instrument payable to bearer.
3.
Where the instrument is originally payable to bearer,
it can be further negotiated mere delivery, even if the
original bearer negotiated by special indorsement.

SECTION

35. Blank

Indorsement;

How

Changed to Special Indorsement. The holder

may convert a blank indorsement into a special
indorsement by writing over the signature of the
indorser in blank any contract consistent with the
character of the indorsement.

Illustration:
A makes a PN with B as the payee.
B indorses in blank and delivers the same to C.
Sgd. B
C may place above B's signature
Pay to C.
Sgd. B

SECTION 36.
When Indorsement Restrictive. An
indorsement is restrictive which either
(a)Prohibits the further negotiation of the instrument; or
(b)Constitutes the indorsee the agent of the indorser; or
(c)Vests the title in the indorsee in trust for or to the use of
some other persons.
But the mere absence of words implying power to
negotiate does not make an indorsement restrictive.

The indorsement reads: Pay to

X and does not contain the
words or order or bearer.
Is this a restrictive indorsement?

NO, the omission of the words

bearer
restrictive.

or order or

does not make the indorsement

Under section 36 mere absence of

words implying power to negotiate does not make an

indorsement restrictive.

SECTION 37. Effect of Restrictive Indorsement; Rights

of Indorsee. A restrictive indorsement confers upon
the indorsee the right
(a)To receive payment of the instrument;
(b)To bring any action thereon that the indorser could
bring;
(c)To transfer his rights as such indorsee, where the form
of the indorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of
the first indorsee under the restrictive indorsement.

Suppose that a PN for P1,000.00 is

indorsed thus:
Pay to B for deposit only.

Sgd. A

and that B owes Y, P1,000.00.

May B transfer the PN to Y for the said
debt?

NO,

the

indorsement

is

restrictive. B's authority is only to

collect.

Can B use the money for his

personal expenses?

NO, B cannot use the money for

his personal expenses. He must
safely

keep

the

amount

for

deposit, until A, the indorser asks

for the return thereof.

SECTION

38. Qualified

Indorsement.

qualified indorsement constitutes the indorser a

mere assignor of the title to the instrument. It may
be made by adding to the indorser's signature the
words "without recourse" or any words of similar
import. Such an indorsement does not impair the
negotiable character of the instrument.

SECTION

39. Conditional

Indorsement.

Where an indorsement is conditional, a party

required to pay the instrument may disregard the
condition and make payment to the indorsee or his
transferee whether the condition has been fulfilled
or not. But any person to whom an instrument so
indorsed is negotiated will hold the same, or the
proceeds thereof, subject to the rights of the
person indorsing conditionally.

SECTION

40. Indorsement

of

Instrument

Payable to Bearer. Where an instrument,

payable to bearer, is indorsed specially, it may
nevertheless be further negotiated by delivery; but
the person indorsing specially is liable as indorser
to only such holders as make title through his
indorsement.

Applicability:
--Applies only to instruments payable to BEARER.
--Cannot apply where instrument is originally payable to
order and indorsed in blank because under Section 9, a
note or bill which on its face is payable to order, becomes
payable to bearer ONLY when the last indorsment is an
indorsement in blank.
--When blank indorsement is followed by a special
indorsment, the instrument is not within the terms of Sec.
9.

SECTION 41. Indorsement Where Payable to

Two or More Persons. Where an instrument is
payable to the order of two or more payees or
indorsees who are not partners, all must indorse,
unless the one indorsing has authority to indorse
for the others.

Where the instrument is payable to 2 or

more persons, may only 1 indorse?
The rule is that in such case, ALL MUST
INDORSE.
EXCEPTIONS:
1. Where the payees are partners in which case ANY
ONE OF THEM MAY INDORSE; and
2. In case one of the payees is authorized by another
or others to indorse the instrument.

SECTION 42. Effect of Instrument Drawn or

Indorsed to a Person as Cashier. Where an
instrument is drawn or indorsed to a person as
"cashier" or other fiscal officer of a bank or
corporation, it is deemed prima facie to be payable
to the bank or corporation of which he is such
officer; and may be negotiated by either the
indorsement of the bank or corporation, or the
indorsement of the officer.

SECTION 43. Indorsement Where Name is

Misspelled, and So Forth. Where the name of
a payee or indorsee is wrongly designated or
misspelled, he may indorse the instrument as
therein described, adding, if he thinks fit, his
proper signature.

The PN is payable to Jose C.

Ferrer but the real name of the
payee is Juan J. Ferrer. May it
be indorsed by the payee by
signing Juan J. Ferrer?

NO. It must be indorsed by signing Jose C.

Ferrer but the indorser may add his proper
signature, Juan J. Ferrer.

SECTION 44. Indorsement in Representative

Capacity. Where any person is under obligation
to indorse in a representative capacity, he may
indorse in such terms as to negative personal
liability.

SECTION

45. Time

of

Indorsement;

Presumption. Except where an indorsement

bears date after the maturity of the instrument,
every negotiation is deemed prima facie to have
been effected before the instrument was overdue.

SECTION

46. Place

of

Indorsement;

Presumption. Except where the contrary

appears, every indorsement is presumed prima
facie to have been made at the place where the
instrument is dated.

SECTION

47. Continuation

of

Negotiable

Character. An instrument negotiable in its origin

continues to be negotiable until it has been
restrictively indorsed or discharged by payment or
otherwise.

Does an instrument cease to be negotiable

after maturity?
There are 2 contradictory views:
1. Negotiability ceases in the full commercial sense
after maturity; that negotiability ceases by default
of the maker in his payment.
2. Negotiability continues even after maturity.
Which of the two views is more sound?

They can actually be reconciled.

After maturity, an instrument originally negotiable
continues to be negotiable in the sense that the
contracts of the parties to it continue and are governed
by the NIL.
On the other hand, after maturity, the instrument
ceases to be negotiable in the sense that a transferee
AFTER MATURITY is not a HIDC, and, therefore, is not
free from defenses obtaining between prior parties.
Transfer to such transferees would be equivalent to a
mere assignment and subject to defenses.

SECTION 48. Striking Out Indorsement. The

holder may at any time strike out any indorsement
which is not necessary to his title. The indorser
whose indorsement is struck out, and all indorsers
subsequent to him, are thereby relieved from
liability on the instrument.

M makes a PN payable to P or bearer. The PN

is indorsed specially and in succession as
follows:
Pay to A.
Sgd. P.
Pay to B.
Sgd. A.
Pay to C.
Sgd. B.
May C strike out the all the indorsements?

C, the present holder, may strike out all the

indorsements because they are not necessary to his title.
The instrument, being originally payable to bearer on
its face, remains a BEARER instrument inspite of the
special indorsements, hence, may be negotiated by
mere DELIVERY.
If C cancels P's indorsement, then P, and A and B
who are indorsers subsequent to P are released from
liability.

C can claim only against M, the maker.

A and B are also discharged from liability because
their indorsements having been stricken out, are
deprived of their right of recourse against P. (Sec.
120)
If C strikes out B's indorsement, then only B will
be relieved from liability (Sec. 40).

SECTION

49. Transfer

Without

Indorsement;

Effect of . Where the holder of an instrument

payable to his order transfers it for value without
indorsing it, the transfer vests in the transferee such
title as the transferor had therein, and the transferee
acquires, in addition, the right to have the indorsement
of the transferor. But for the purpose of determining
whether the transferee is a holder in due course, the
negotiation takes effect as of the time when the
indorsement is actually made.

Examples:
Mr. M, the maker issued an instrument to Mr. P, the
payee on January 1, 2014. The instrument is payable
to the order of Mr. P on or before November 10, 2014.
On March 1, 2014, P delivered the instrument to Mr. A
with the intention of transferring his right over the said
instrument. Mr. P did not indorse the instrument.
Did Mr. A acquire the instrument as a holder or as a
mere assignee?

Mr. A acquired the instrument as a mere

assignee on March 1, 2014. In addition, Mr. A
acquired the right to require Mr. P to indorse
the instrument.

Suppose Mr. A demanded on March 15, 2014, for Mr.

P to indorse the instrument. Mr. P actually indorsed the
instrument on April 15, 2014. On April 1, 2014, Mr. A
learned that Mr. P. committed fraud against Mr. M and
that is the reason why Mr. M issued the instrument.
Can Mr. A be considered as a HIDC?

Mr. A cannot be considered as a HIDC

because the instrument is deemed negotiated
only on April 5, 2014. Thus, even if Mr. A was not
aware of the fraud at the time of delivery on
March 1, 2004, he cannot be considered a HIDC
because he was not even a holder on such date.
He became a holder only on the date the
indorsement was made on April 5, 2014.

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.

Illustration:
Suppose A makes a PN for P1,000.00 payable to B,
as payee.
With the following indorsements:
B to C
C to Jose Soriano
Jose Soriano to C
C to D
D to E
E to F
F back to Jose Soriano

Can Jose Soriano renegotiate the

note, say to Yu and Co.? What is
the effect?

YES, under Section 50 of the NIL, Jose Soriano

may further negotiate the instrument.

But Jose

Soriano cannot enforce the payment of the note

against C, D, E, and F, to whom he is liable. This is
to avoid circuity.

CHAPTER IV
Rights of the Holder

SECTION 51. Right of Holder to Sue; Payment.

The holder of a negotiable instrument may sue
thereon in his own name; and payment to him in
due course discharges the instrument.

SECTION 52. What Constitutes a HOLDER IN

DUE COURSE. A holder in due course is a holder
who has taken the instrument under the following
conditions:
(a)

That it is complete and regular upon its face;

(b)

That he became the holder of it before it was

overdue, and without notice that it had been
previously dishonored, if such was the fact;

(c)

That he took it in good faith and for value;

(d)

That at the time it was negotiated to him he had

no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.

SECTION 53. When Person NOT DEEMED

HOLDER IN DUE COURSE. Where an
instrument payable on demand is negotiated an
unreasonable length of time after its issue, the
holder is not deemed a holder in due course.

SECTION 54. Notice Before Full Amount Paid.

Where the transferee receives notice of any
infirmity in the instrument or defect in the title of
the person negotiating the same before he has
paid the full amount agreed to be paid therefor, he
will be deemed a holder in due course only to the
extent of the amount theretofore paid by him.

SECTION 55. When Title Defective. The title

of a person who negotiates an instrument is
defective within the meaning of this Act when he
obtained the instrument, or any signature thereto,
by fraud, duress, or force and fear, or other
unlawful means, or for an illegal consideration, or
when he negotiates it in breach of faith, or under
such circumstances as amount to a fraud.

SECTION

56. What

Constitutes

Notice

of

Defect. To constitute notice of an infirmity in the

instrument or defect in the title of the person
negotiating the same, the person to whom it is
negotiated must have had actual knowledge of the
infirmity or defect, or knowledge of such facts that
his action in taking the instrument amounted to
bad faith.

SECTION 57. Rights of Holder in Due Course.

A holder in due course holds the instrument free
from any defect of title of prior parties, and free
from defenses available to prior parties among
themselves, and may enforce payment of the
instrument for the full amount thereof against all
parties liable thereon.

SECTION

58. When

Subject

to

Original

Defenses. In the hands of any holder other

than a holder in due course, a negotiable
instrument is subject to the same defenses as if it
were non-negotiable. But a holder who derives his
title through a holder in due course, and who is not
himself a party to any fraud or illegality affecting
the instrument, has all the rights of such former
holder in respect of all parties prior to the latter.

SECTION 59. Who is Deemed Holder in Due

Course. Every holder is deemed prima facie to be
a holder in due course; but when it is shown that the
title of any person who has negotiated the instrument
was defective, the burden is on the holder to prove
that he or some person under whom he claims
acquired the title as holder in due course. But the lastmentioned rule does not apply in favor of a party who
became bound on the instrument prior to the
acquisition of such defective title.

CHAPTER V
Liabilities of Parties

SECTION 60.

Liability of Maker. The maker of a negotiable instrument by making it

engages that he will pay it according to its tenor, and admits the existence of the payee
and his then capacity to indorse.

SECTION 61.

Liability of Drawer. The drawer by drawing the instrument admits the

existence of the payee and his then capacity to indorse; and engages that on due
presentment the instrument will be accepted or paid, or both, according to its tenor, and
that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it. But the drawer may insert in the instrument an express stipulation
negativing or limiting his own liability to the holder.

SECTION 62.
Liability of Acceptor. The acceptor by accepting the instrument
engages that he will pay it according to the tenor of his acceptance; and admits
(a) The existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.

SECTION 63.

When Person Deemed Indorser. A person placing his signature

upon an instrument otherwise than as maker, drawer, or acceptor is deemed to be an

indorser, unless he clearly indicates by appropriate words his intention to be bound in
some other capacity. cda

SECTION 64.

Liability of Irregular Indorser. Where a person, not otherwise a

party to an instrument, places thereon his signature in blank before delivery, he is liable as
indorser, in accordance with the following rules:
(a) If the instrument is payable to the order of a third person, he is liable to the payee and
to all subsequent parties.
(b) If the instrument is payable to the order of the maker or drawer, or is payable to
bearer, he is liable to all parties subsequent to the maker or drawer.
(c) If he signs for the accommodation of the payee, he is liable to all parties subsequent
to the payee.

SECTION 65.
Warranty Where Negotiation by Delivery and So Forth. Every
person negotiating an instrument by delivery or by a qualified indorsement warrants
(a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would impair the validity of the instrument
or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder
other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons negotiating
public or corporation securities, other than bills and notes.

SECTION 66.

Liability of General Indorser. Every indorser who indorses without

qualification, warrants, to all subsequent holders in due course

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; and
(b) That the instrument is at the time of his indorsement valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or
both, as the case may be, according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to pay it.

SECTION 67.

Liability of Indorser Where Paper Negotiable by Delivery. Where a

person places his indorsement on an instrument negotiable by delivery he incurs all the
liabilities of an indorser.

SECTION 68.

Order in Which Indorsers are Liable. As respects one another,

indorsers are liable prima facie in the order in which they indorse; but evidence is
admissible to show that as between or among themselves they have agreed otherwise.
Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally.

SECTION 69.

Liability of an Agent or Broker. Where a broker or other agent

negotiates an instrument without indorsement, he incurs all the liabilities prescribed by

section sixty-five of this Act, unless he discloses the name of his principal and the fact that
he is acting only as agent.

CHAPTER VI
Presentment for Payment

SECTION 70.

Effect of Want of Demand on Principal Debtor. Presentment for

payment is not necessary in order to charge the person primarily liable on the instrument;
but if the instrument is, by its terms, payable at a special place, and he is able and willing
to pay it there at maturity, such ability and willingness are equivalent to a tender of
payment upon his part. But, except as herein otherwise provided, presentment for payment
is necessary in order to charge the drawer and indorsers.

SECTION 71.

Presentment Where Instrument is Not Payable on Demand and

Where Payable on Demand. Where the instrument is not payable on demand,

presentment must be made on the day it falls due. Where it is payable on demand,
presentment must be made within a reasonable time after its issue, except that in the case
of a bill of exchange, presentment for payment will be sufficient if made within a reasonable
time after the last negotiation thereof.

SECTION 72.

What Constitutes a Sufficient Presentment. Presentment for

payment, to be sufficient, must be made

(a) By the holder, or by some person authorized to receive payment on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument, or if he is absent or inaccessible, to
any person found at the place where the presentment is made.

SECTION 73.
Place of Presentment. Presentment for payment is made at the
proper place
(a) Where a place of payment is specified in the instrument and it is there presented;
(b) Where no place of payment is specified, but the address of the person to make
payment is given in the instrument and it is there presented;
(c) Where no place of payment is specified and no address is given and the instrument is
presented at the usual place of business or residence of the person to make payment;
(d) In any other case if presented to the person to make payment wherever he can be
found, or if presented at his last known place of business or residence.

SECTION 74.

Instrument Must Be Exhibited. The instrument must be exhibited to

the person from whom payment is demanded, and when it is paid must be delivered up to
the party paying it.

SECTION 75.

Presentment Where Instrument Payable at Bank. Where the

instrument is payable at a bank, presentment for payment must be made during banking
hours, unless the person to make payment has no funds there to meet it at any time during
the day, in which case presentment at any hour before the bank is closed on that day is
sufficient.

SECTION 76.

Presentment Where Principal Debtor is Dead. Where the person

primarily liable on the instrument is dead, and no place of payment is specified,

presentment for payment must be made to his personal representative, if such there be,
and if, with the exercise of reasonable diligence, he can be found.

SECTION 77.

Presentment to Persons Liable as Partners. Where the persons

primarily liable on the instrument are liable as partners, and no place of payment is
specified, presentment for payment may be made to any one of them, even though there
has been a dissolution of the firm.

SECTION 78.

Presentment to Joint Debtors. Where there are several persons,

not partners, primarily liable on the instrument, and no place of payment is specified,
presentment must be made to them all.

SECTION 79.

When Presentment Not Required to Charge the Drawer.

Presentment for payment is not required in order to charge the drawer where he has no
right to expect or require that the drawee or acceptor will pay the instrument.

SECTION 80.

When Presentment Not Required to Charge the Indorser.

Presentment for payment is not required in order to charge an indorser where the
instrument was made or accepted for his accommodation and he has no reason to expect
that the instrument will be paid if presented.

SECTION 81.

When Delay in Making Presentment is Excused. Delay in making

presentment for payment is excused when the delay is caused by circumstances beyond
the control of the holder, and not imputable to his default, misconduct, or negligence.
When the cause of delay ceases to operate, presentment must be made with reasonable
diligence.

SECTION 82.

When Presentment May Be Dispensed With. Presentment for

payment is dispensed with

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

SECTION 83.
When Instrument Dishonored by Non-payment. The instrument is
dishonored by non-payment when
(a) It is duly presented for payment and payment is refused or can not be obtained; or
(b) Presentment is excused and the instrument is overdue and unpaid.

SECTION

84.

Liability

of

Person

Secondarily

Liable,

When

Instrument

Dishonored. Subject to the provisions of this Act, when the instrument is dishonored by
non-payment, an immediate right of recourse to all parties secondarily liable thereon
accrues to the holder.

SECTION 85.

Time of Maturity. Every negotiable instrument is payable at the time

fixed therein without grace. When the day of maturity falls upon Sunday, or a holiday, the
instrument is payable on the next succeeding business day. Instruments falling due or
becoming payable on Saturday are to be presented for payment on the next succeeding
business day, except that instruments payable on demand may, at the option of the holder,
be presented for payment before twelve o'clock noon on Saturday when that entire day is
not a holiday.

SECTION 86.

Time; How Computed. When the instrument is payable at a fixed

period after date, after sight, or after that happening of a specified event, the time of
payment is determined by excluding the day from which the time is to begin to run, and by
including the date of payment.

SECTION 87.

Rule Where Instrument Payable at Bank. Where the instrument is

made payable at a bank it is equivalent to an order to the bank to pay the same for the
account of the principal debtor thereon.

SECTION 88.

What Constitutes Payment in Due Course. Payment is made in due

course when it is made at or after the maturity of the instrument to the holder thereof in
good faith and without notice that his title is defective.

PROCEDURE TO MAKE PERSONS

SECONDARILY LIABLE
WHO ARE PRIMARILY LIABLE?
A.

MAKER

-- IN A PROMISSORY
NOTE

B.

ACCEPTOR

-- IN A BILL OF
EXCHANGE

WHO ARE SECONDARILY LIABLE?

A.

DRAWER

B.

INDORSER

FAILURE TO TAKE ANY OF THE TWO

STEPS (PRESETMENT FOR PAYMENT AND
NOTICE OF DISHONOR) WILL DISCHARGE
THE PERSONS SECONDARILY LIABLE.

PRESENTMENT FOR PAYMENT

IS PRESENTMENT FOR PAYMENT

NECESSARY IN ORDER TO CHARGE THE
PERSON PRIMARILY LIABLE?

NO. By express provision of section 70 of the

NIL.
Thus, presentment for payment is not
necessary to hold an acceptor or maker liable.
Such presentment, except in cases provided
by law, is necessary to charge the persons
secondarily liable----DRAWER & INDORSER.

WHAT IS MEANT BY PRESENMENT?

WHAT DOES IT CONSIST OF?

PRESENTMENT MEANS:
a. The production of a BOE to the drawee for
his acceptance, or to the drawee or acceptor
for payment; or
b. the production of a PN to the party liable for
its payment.

PRESENTMENT CONSISTS OF:

a. Personal demand for payment at the proper
place
b. with the bill or note in readiness to exhibit if it is
required, and
c. to receive payment and surrender it if the
debtor is willing to pay.

WHAT ARE THE STEPS TO BE TAKEN TO

CHARGE THE PERSONS SECONDARILY LIABLE
ON A PROMISSORY NOTE?

a. Presentment for payment must be made within

the period required to the PERSON PRIMARILY
LIABLE UNLESS EXCUSED; and
b. If the PN is dishonored by non-payment, notice
of dishonor by non-payment must be given to the
persons
SECONDARILY
LIABLE
UNLESS
EXCUSED.

WHAT ARE THE STEPS TO BE

TAKEN TO CHARGE THE
PERSONS SECONDARILY LIABLE
ON A BILL OF EXCHANGE?

a. In the 3 cases required by law, presentment for acceptance to the drawee or

negotiation within reasonable time after acquisition is required (Secs. 143 and 144)
UNLESS EXCUSED (Sec. 148);
In other cases aside from the 3, there is no need for presentment for acceptance.

b.

If the BOE is dishonored by non-acceptance:

1. Notice of dishonor by non-acceptance

must be given to persons SECONDARILY
LIABLE (Sec. 80) UNLESS EXCUSED
(Sec. 117) and,
2. In case of FOREIGN BILLS,
PROTEST OF DISHONOR by nonacceptance must be made UNLESS
EXCUSED (Secs. 117 & 159).

C. BUT if the BOE is accepted, or if the BOE is not required to be presented for
acceptance, it must be presented for payment to the persons PRIMARILY LIABLE (Sec.
71), UNLESS EXCUSED. (Sec. 82)

D. If the BOE is DISHONORED by nonpayment, then:

1. A notice of dishonor by non-payment
must also be given to persons
SECONDARILY LIABLE (Sec. 80),
UNLESS EXCUSED; and
2. In case of FOREIGN BILL, a protest
for dishonor by non-payment must be
made (Sec. 152), UNLESS EXCUSED.

Suppose a BOE payable at BDO, a

special place, with X drawee-acceptor who
is willing and able to pay it at its maturity.
The present holder is F.
Is it necessary to present the BOE for
payment to make X liable?
What is the effect?

1.

NO, it is not necessary to present the bill for

payment to charge X, the acceptor.

2.

The only effect is that if X is able and willing to

pay the bill at BDO at maturity, it is equivalent to a

tender of payment on the part of X, and the holder
F loses his right to recover interest due subsequent
to maturity and costs of collection but he can still
hold X liable (Sec. 70)

WHEN MUST PRESENTMENT BE

MADE?

THE

DATE

DEPENDS

OF
ON

PRESENTMENT
WHETHER

THE

INSTRUMENT IS
PAYABLE AT A FIXED PERIOD OR
DETERMINABLE FUTURE TIME
OR
OR DEMAND.

1.

IF THE INSTRUMENT IS PAYABLE

AT

FIXED

DETERMINABLE

PERIOD
FUTURE

TIME

OR

PRESENTMENT MUST BE MADE ON

THE DAY IT FALLS DUE.
PRESENTMENT BEFORE MATURITY
IS IMPROPER.

a.)
Every negotiable instrument is
payable at the time fixed therein without
grace. (Sec. 85).
Ex.
If the bill is payable on June 15, 2015, it
must be paid on the said date, no grace to
be granted.

b.)
When the day of maturity falls upon
a Sunday or a holiday, the instrument is
payable on the next succeeding business
day. (Sec. 85).
Ex.
When June 15, 2015 falls on a
Sunday or a holiday, it is payable on
Monday or the succeeding business day.
Presentment must be made on
succeeding business day.

that

c.)

When the day of maturity is on a

Saturday, presentment for payment shall

be made on the next succeeding business
day. EXCEPT that demand instrument
may, at the option of the holdeer, be
presented

for

payment

before

12:00

o'clock noon on Saturday when the entire

day is not a holiday. (Sec. 85).

Ex.
When

June

15,

2015

falls

on

Saturday , it is payable on June 17, 2015,

Monday, the succeeding business day.

d.

Where the instrument is payable at a

fixed period after date, after sight, or after

the happening of a specified event, the
time

of

payment

is

determined

by

excluding the day from which the time is to

begin to run, and by including the date of
payment. (Sec. 86).

GENERAL RULE:
Presentment for payment must be made
on due date of instrument.
EXCEPTION:
If the due date falls on a Saturday,
present instrument on Monday.

REASON:
Obligor is entitled to the full day to make
payment. But since Saturday is half day
work and the banks would be closed in the
afternoon, and the following day is a
Sunday, he should have until Monday to
pay. The law wants to give the person
primarily liable, one whole day to look for
money.

EXCEPTION to the EXCEPTION:

If the instrument is payable on demand,
the instrument can be presented on a
Saturday.
The reason is that the holder could have
presented it on any day.

Ex.
A draws a bill dated March 1, 2015, thus:
To: X:
30 days from date, to pay B or order
P1,000.00.
Sgd. A

How will you compute the maturity

of the bill drawn by A?

To compute the period, exclude

March 1, then count 30 days, and
th

include the 30 day, March 31, 2015

is the date of payment.

Ex.
A draws a bill dated January 31, 2015,
thus:
To: X:
A month from date, to pay B or order
P1,000.00.
Sgd. A

How will you compute the maturity

of the bill drawn by A?

To compute the period, exclude

January 31, then count 28 days, and
include the 28

th

day, February 28,

2015 is the date of payment or if a

leap year, February 20, 2015.

An instrument is payable 75 days

from April 6, 2015. Give the date of
maturity.

In such a case, compute the date of maturity

as follows:
Add 75 days to 6 (April 6) getting the total of
81 days.
Add the number of days for April (30 days)
and May (31 days) or 61 days.
Deduct 61 days from 81 days, arriving at 20
days.
2015.

The instrument matures on June 20,

THE

DATE

DEPENDS

ON

OF

PRESENTMENT
WHETHER

THE

INSTRUMENT IS
PAYABLE AT A FIXED PERIOD OR
DETERMINABLE FUTURE TIME
OR
OR DEMAND.

2.

INSTRUMENT

PAYABLE

ON

DEMAND
a.

In case of a PN, it must be presented

for payment within a reasonable time

FROM ISSUE.
b.

In case of a BOE, it must be

presented for payment within a reasonable

time FROM LAST NEGOTIATION.

LAST NEGOTIATION-- IS THE LAST

TRANSFER FOR VALUE.
SUBSEQUENT

TRANSFERS

BETWEEN BANKS FOR PURPOSES OF

COLLECTION ARE NOT NEGOTIATION
WITHIN THE MEANING OF SECTION 71.

WHAT CONSTITUTES SUFFICIENT

PRESENTMENT FOR PAYMENT?
(SEC. 72)

PRESENTMENT FOR PAYMENT,

TO BE SUFFICIENT, MUST BE
MADE-(a) By the holder, or by some person
authorized to receive payment on his
behalf;

(b) At a reasonable hour on a

business day;
(c) At a proper place;
(d) To the person primarily liable on
the instrument, or if he is absent or
inaccessible, to any person found at
the place where the presentment is
made.

When may presentment for payment

be dispensed with?

It may be dispensed with in the following cases:

(1) Where by the exercise of reasonable diligence
presentment cannot be made;
(2) Where the drawee is fictitious;
(3) By waiver of presentment, express or implied.
(Sec. 82, NIL.)
(4) Presentment for payment is not required in
order to charge the drawer where he has no
right to expect or require that the drawee or
acceptor will pay the instrument. (Sec. 79, NIL.)

(5) Presentment for payment is not required in

order to charge an indorser where the instrument
was made or accepted for his accommodation and
he has no reason to expect that the instrument will
be paid if presented. (Sec. 80,NIL.)

It should be noted that in the last two instances

above, the exceptions are relative. Only the
drawer or indorse referred to in such sections
(Secs. 79, and 80) is not discharged but all other
parties secondarily liable are relieved unless
presentment of payment is made to hold such
parties liable.

When is an instrument dishonored

by non-payment?

A negotiable is dishonoured by non-payment

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

What is, in general, the effect when

the

negotiable

instrument

dishonored by non-payment?

is

In such case, an immediate right of recourse

to all parties secondarily liable on the instrument
accrues to the holder so long as notice of dishonor
is properly given to such parties. (See Sec. 84,
NIL.)

What is the meaning of the term

immediate right of recourse against all
parties secondarily liable in case an
instrument
payment

is

dishonored

under

Sec.

84

Negotiable Instruments Law?

by
of

nonthe

The term immediate right of recourse means

that the holder, after the instrument is dishonored
by non-payment and after notice of dishonor is
properly given, may sue an indorser as principal
debtor and the indorser cannot set up the defense
that the suit should have been brought first against
the maker.

Must the holder first sue the

person primarily liable?

No. It has been held that although the maker

may have given collateral security for the note, the
holder is not required to first realize upon the
security before suing the indorser. (Miller vs. Levitt,
115 N.E. 431.)

Give the time of maturity of every

negotiable instrument.

Every negotiable instrument is payable at the

time fixed therein without grace. When the day of
maturity falls upon Sunday, or a holiday, the
instrument is payable on the next succeeding
business day, except that the instruments payable
on demand may, at the option of the holder, be
presented for payment before twelve oclock noon
on Saturday when that entire day is not a holiday.
(Sec. 85, NIL.)

An

instrument

falls

due

or

becomes payable on a Saturday.

When

must

presentment

payment be made?

for

The time for making presentment depends upon

whether the instrument is payable at a fixed or
determinable
presentment

future
must

time,
be

in

made

both
on

the

cases,
next

succeeding business day, that is on Monday, if

Monday, is not a holiday. Where the instrument is
payable on demand, presentment must be made
on Saturday, the date of maturity, before 12 oclock
noon or on Monday, if this is not a holiday, at the
option of the holder.

How is the time for maturity date

of an instrument computed?
Illustrate.

Where the instrument is payable at a fixed

period after date, after sight, or after the
happening of a specified event, the time of
payment is determined by excluding the day from
which the time is to begin to run, and by including
the date of payment. (Sec. 86, NIL.)

Thus, A draws a bill dated March 1, 2015, which

reads:
To X: Thirty days from date, to pay B or order
P1,000.00.
Sgd. A.
To compute the period exclude March 1, then
count thirty days, and include the 30 th day, March
30, 2015, the date of payment.

An instrument is payable seventy

five days from April 6, 2015.
Give the date of maturity.

In such case, compute the date of maturity as

follows:
Add 75 days to 6 (April 6) getting the total of 81
days.
Add the number of days for April (30 days) and
May (31 days) or 61 days.
Deduct 61 days from 81 days, arriving at twenty
days.
The instrument matures on June 20, 2015.

A negotiable instrument is due and

payable four months after October
31, 2015. Give the date of maturity.

The instrument matures on February 28, 2016,

(Krasnow vs. Drasnow, 253 Mass 528.)
If the last month in the computation of the
period is February, and the computation is by
months, the date of maturity may either be
February 28, or February 29, in case of a leap
year.

What is a payment in due course?

What are its requisites?

Payment is in due course when it is made at or

after maturity of the instrument to the holder thereof in
good faith and without notice that his title is defective.
(Sec. 88, NIL.)
The requisites of payment in due course are as
follows:
(1) Payment must be made at or after the date of
maturity;
(2) Payment must be to the holder; and
(3) Payment must be made by the debtor in good
faith.

IF

THE

MAKER

INSTRUMENT

PAYS

THE

BEFORE

MATURITY, IS THE INSTRUMENT

DISCHARGED?

The payment is not in due course and it

constitutes a negotiation back to the person
primarily liable who can re-negotiate it. Therefore,
the instrument is not discharged.

Is payment to an indorsee not in

possession of as note a payment
in due course?

No. because the payment is not made to the

holder. Payment to a person other than the holder
is at the risk of the party paying because it may
turn out the indorsee is not authorized by the
holder to receive payment.

Is payment to a person by the

debtor

who

knows

that

such

person stole it a payment in due

course?

No. because the payment is not made in good

faith. This is without prejudice to the effects of
forgery which as a rule does not pass title.

Summarize

the

rules

presentment for payment.

as

to

A. (1) Presentment for payment is not necessary to

charge persons primarily liable.
(2) But it is necessary to charge persons
secondarily liable except:
(a.) As to the drawer, where he has no right to
expect or require that the drawee or acceptor will pay
the instrument. (Sec 79. NIL.)
(b.) As to the indorser, where the instruments
was made or accepted for his accommodation and he
has no reason to expect that the instrument will be
paid if presented. (Sec. 80, NIL.)
(c.) When dispensed with under Section 82; and
(d.) When the instrument has been dishonored
by non-acceptance.

Does the indorser, or other

person secondarily liable on an
instrument ever become primarily
liable? If so, when?

Yes. As to the holder, after an instrument is

dishonored by non-payment, the persons
secondarily liable thereon cease to be secondarily
liable. They become principal debtors, and their
liability becomes the same as that of the original
obligors. This is, of course, provided that notice of
dishonor is given to them. If no notice of dishonor
is given to them, they are discharged.
As among themselves, persons secondarily
liable are presumed liable in the order they
become parties to the instrument.

What is the notice of dishonor?

It means bringing either orally or in writing, to

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

Give the necessity and purpose

of notice of dishonor.

When an instrument is dishonored by nonacceptance (in the case of a bill) or non-payment

(in the case of both bill and note), notice of
dishonor must be given to the persons secondarily
liable, namely, the drawer (in a bill) and indorsers,
as the case may be (in both bill and note),
otherwise such parties are discharged from liability
on the instrument. (See Sec. 89, NIL.)

To

whom

must

notice

of

dishonor be given? State the

general rule.

Notice of dishonor must be given to the drawer

and to each indorser when a negotiable instrument
is dishonored by non-acceptance or non-payment
and any drawer or indorser to whom such notice is
not given is discharged. (Sec. 89, NIL.)

A makes a note payable to order

of B.
B negotiates it to C, C to D, D to
E and E to F.

Based on the provision that notice of dishonor

may be given by or on behalf of the holder or by
or on behalf of any party to the instrument who
might be compelled to pay it to holder, and who,
upon taking it up, would have a right to
reimbursement from the party to whom the notice
is given (Sec. 90, NIL.)

Give the persons who can give

notice of dishonor.

(1) F, the holder, can give notice.

(2) X, the stranger, can give notice on Fs behalf.
If X is a notary public, he may give notice as
agent.
(3) C, D and E can give notice of dishonor
because any of them may be compelled by F
to pay (provided that notice of dishonor was
given by F to them).

C can give notice only to B, because it is only B

whom he can hold liable but to whom he is liable
instead.
D can give notice of dishonor to C and B.
E can give notice of dishonor to D, C and B.

May strangers X or Y

give

notice on behalf of F or B, C and

D?

Y, a stranger, can give notice of dishonor on

behalf of B, C or D, to the persons to whom each
can give notice.

Suppose that F notifies D only.

Can D notify E?

No, D cannot notify E because D, upon taking

up the note would not have the right of
reimbursement from E.
The effect is to discharge E.

Whom can D notify? Give your

reasons, when necessary.

D can notify C and B, because he would have a

right of recourse against any of them, if he is
compelled to pay the note to F, holder.

Can E give notice of dishonor?

E in the above case, cannot give notice of

dishonour on his own behalf because upon
discharge, he becomes a stranger, and a total
stranger cannot give a notice on his own behalf.

Give the difference between notice of dishonor

given by an agent under Section 91 of the
Negotiable Instruments Law and notice of dishonor
given to an agent under Section 97 of the same
law.

Notice of dishonor may be given by an agent

either in his own name or in the name of any party
entitled to give notice, whether that party be his
principal or not.
In other words, for purposes of giving notice of
dishonor, it is not necessary that the agent be
authorized by the principal. In the case of notice of
dishonor given to an agent, the latter must be
authorized to receive the notice of dishonor
otherwise the notice is not valid.

Give

the

difference

between

notice of dishonor by personal

service and notice of dishonor by
mail.

Notice of dishonor by personal service

must be received by the party himself for a
person duly authorized while in the case of
notice of dishonor by mail, there arises a
presumption of due notice immediately
upon posting. (Sec. 105, NIL.)

A makes a negotiable note payable

to B, or order.
B negotiates to C, C to D to E and
E to F.
F notifies B, C, D and E.
Give the legal effect or effects of
such notice.

(1) The notice by F to B inures to the benefit of

C, D and E as they are parties prior to F who have
a right of recourse against B.
And even if they do not give notice to B, B is not
discharged as to them and they can hold B liable
on the basis of the notice given by F. If any of them
is compelled to pay, he can sue B, without having
the necessity
dishonor.

of giving B another notice of

(2) The notice by F to C insures to the

benefit of D and E, for the same reasons,
but not for the benefit of B, because while
B is a party prior to F who gave the notice,
B does not have a right of recourse
against C. On the other hand, it is C who
can hold B liable.

(3) the notice by F to D insures to

the benefit of E only but not to C.
(See Sec. 92, NIL.)

When is notice of dishonor

dispensed with?

In the following cases:

(1) When, after the exercise of reasonable
diligence, it cannot be given to or does not reach
the parties sought to be charged (Sec. 112, NIL.);
(2) When it is waived, expressly or
impliedly (Sec. 109, NIL.); or
(3) When, in cases provided for by law,
notice need not be given to the drawer or indorser.
(Secs. 114 and 115, NIL.)

In what cases is notice of

dishonor not required to hold a
drawer liable?

In the following cases:

(1) Where the drawer and drawee are the
same person;
(2) When the drawee is s fictitious person
or a person not having capacity to contract;
(3) When the drawer is the person to whom
the instrument is presented for payment;
(4) Where the drawer has no right to
expect or require that the drawee or acceptor will
honor the instrument; or
(5) Where the drawer has countermanded
payment. (Sec. 114,NIL.)

What are the instances when

notice of dishonor need not be
given to an indorser to hold the
latter liable?

Notice of dishonor is not required to be given to

an indorser in either of the following cases:
(1) When the drawee is a fictitious person
or a person not having capacity to contract, and
the indorser was aware of that fact at the time he
indorsed the instrument; or
(2) Where the indorser is the person to
whom the instrument is presented for payment; or
(3) Where the instrument was made or
accepted for his accommodation. (Sec. 115,NIL.)

Where notice of dishonor by

non-acceptance has been given,
is there a need of notice of a
subsequent
payment?

dishonor

by

non-

No, unless in the meantime the

instrument has been accepted, that is, that
the instrument has been later on accepted
after previous refusal of the drawee to
accept the same but before dishonor by
non-payment. (Sec. 116, NIL.)

When is a negotiable instrument

discharged?

A negotiable instrument is discharge in the

following cases:
(1) By payment in due course by or on
behalf of the principal debtor;
(2) By payment in due course by the party
accommodated where the instrument is made or
accepted for accommodation;
(3) By the intentional cancellation thereof
by the holder;

(4) By any other act which will discharge a

simple contract for the payment of money;
(5) When the principal debtor becomes the
holder of the instrument at or after maturity in his
own right. (Sec. 119, NIL.)

When is a person secondarily

liable

on

discharged?

the

instrument

A person secondarily liable is discharged in the

following cases:
(1) By any act which discharges the instrument
(any of the acts mentioned in Sec. 119);
(2) By the intentional cancellation of his signature
by the holder;
(3) By the discharge of a prior party;
(4) By a valid tender of payment made by a prior
party;

(5) By a release of the principal debtor, unless

the holders right of recourse against the party
secondarily liable is expressly reserved;
(6) By any agreement binding upon the holder
to extend the time of payment or to postpone the
holders right to enforce the instrument unless
made with the consent of the party secondarily
liable, or unless the right of recourse against such
party is expressly reserved. (Sec. 120,
NIL.)
By failure to give notice of dishonor to him,
unless excused. (Sec. 89, NIL.)

A is the drawer of a bill addressed to X,

drawee, payable to the order of B.
The bill was successively indorsed by B
to C, C to D, D to E and E to F, holder.
Suppose that D, one of the indorsers,
pays the bill, what are the legal effects?

In such a situation, the instrument

is

not

discharged

discharged.

but

is

D is remitted to his former rights against

parties prior to him, such as C, Band A.
If D was formerly a holder in due course,
even if at the time of payment he already
had notice of defects of title, he can
enforce his rights against any of them free
from defenses, as he is remitted to his
former rights.

D can strike out his indorsement

and the subsequent indorsements of
E and F.
D can renegotiate the instrument.
(Sec. 121, NIL.)

When
discharge
instrument?

may
a

renunciation
negotiable

Renunciation

discharges

negotiable

instrument when it is:

(1) Absolute and unconditional,
(2) It is made in favour of a person primarily
liable,
(3) It is made at or after maturity of the
instrument, and
(4) In writing or the instrument is delivered up to
the person primarily liable.

When is the cancellation of a

negotiable instrument operative?

Cancellation

of

negotiable

instrument is operative and takes

effect only when it is intentional.

When is the cancellation of a

negotiable
inoperative?

instrument

The cancellation of a negotiable

instrument is inoperative when made
(1)

unintentionally,

(2)

under

mistake, or (3) without authority of

the holder. (Sec. 123, NIL.)

What is the legal effect where a

negotiable instrument is materially
altered without the assent of all
parties liable thereon?

The instrument, in such case, is avoided, except

as against:
(1) A party who has made the alteration;
(2) A party who authorized or assented to
the alteration;
(3) Subsequent indorsers (Sec. 124, NIL.),
and
(4) Furthermore, where the instrument is in
the hands of a holder in due course, not a party to
the alteration, he may enforce payment thereof
according to its original tenor.

What shall constitute material

alteration
instrument?

of

negotiable