Dispensation of Notice

When is Notice of Dishonor dispensed:

1. When party to be notified knows about the dishonor, actually or
constructively (Secs. 114-117);
2. If waived (Sec. 109); and
3. When after due diligence, it cannot be given (Sec. 112).

How is Notice of Dishonor given:

1. By bringing verbally or
2. By writing to the knowledge of the person liable the fact that a
specified instrument, upon proper proceedings taken, has not been
accepted or has not been paid, and that the party notified is expected
to pay it.

Circumstances when Notice of dishonor NOT necessary

1.
2.
3.
4.
5.
6.
7.

Waiver of notice. (Sec. 109)

Waiver of protest. (Sec. 111)
When after due diligence, notice cannot
be given. (Sec. 112)
Drawer in cases under Sec. 114
Indorser in cases under Sec. 115; and
Where due notice of dishonor by nonacceptance has been
given (notice of dishonor by nonpayment not necessary). (Sec.
116)

When can a notice of dishonor be dispensed with?

1. When drawer and drawee is the same person
2. Drawee is fictitious or does not have the capacity to contract
3. Drawer is person to whom the instrument is presented for
payment (he is the one who dishonored the instrument)
4. Drawer has no right to expect or require that the drawee or
acceptor will honor the instrument.
5. Drawer has countermanded the payment (e.g. stop payment
order) (Sec.114)

Sample Case:
Juben issued to Y 2 postdated checks as security for pieces of jewelry to
be sold. Y negotiated the check to S. When Juben failed to sell the jewelry
he withdrew all his funds from the drawee bank. After dishonor, Juben
contends that the holder failed to give her a notice of dishonor. Is notice of
dishonor necessary?
Held: He was responsible for the dishonor of his checks, hence,
there was no need to serve him notice of dishonor. (State
Investment House, Inc. v. CA, G.R. No. 101163, Jan. 11, 1993)
With regard to the indorser, when is it not necessary to give a notice
of dishonor?
1. Drawee is

fictitious or has no capacity to contract, and

indorser was aware of these facts at the time he indorsed

the instrument;

2. Indorser is person to whom the instrument is presented for

payment; or
3. 3. Instrument was made or accepted for his accommodation
(Sec. 115)

EFFECT OF FAILURE TO GIVE NOTICE

What is the effect of omission of a previous holder to give notice of
dishonor by non acceptance?
It does not prejudice the rights of a holder in due course
subsequent to the omission to present the instrument to the drawee

for acceptance and notify the drawer and indorsers if acceptance is

refused. (Sec. 117)

When should the notice be given?

1. General Rule: As soon as instrument was dishonored (Sec. 102)
Party is allowed one entire day for the purpose of giving notice.
Exception: Delay is excused (Sec. 113) Note: An instrument
cannot be dishonored by nonpayment until after the maturity
2. Parties reside in the same place
a. Place of business Before close of business hours on the day
following
b. Residence Before the usual hours of rest on the day following
c. By mail Deposited in the post office in time to reach him in the
usual course on the day following (Sec. 103)
3. Parties reside in different places
a. By mail Deposited in the post office in time to go by mail
(actual departure in the course of mail from the post office in
which the notice was deposited) the day following the day of
dishonor.
b. If no mail At a convenient hour (of the sender) on that day, by
the next mail thereafter
c. Other than by post office (e.g. personal messenger) Within
the time that notice would have been received in due course of
mail, if it has been deposited in the post office within the time
specified in (a) (Sec. 104) 4. Time of notice to antecedent
parties Same time for giving notice that the holder has after
the dishonor (Sec. 107)

d. Note: Actual receipt of the party within the time specified by law
is sufficient though not sent in the places specified above. (Sec.
108)

What is the effect of failure to give notice of dishonor?

General Rule: Any person to whom such notice is not given is discharged,
but he will still be liable for breach of warranties pertaining to the
instrument.
Exceptions:
1.
2.
3.
4.

Waiver. (Sec. 109)

Notice is dispensed with. (Sec. 112)
Not necessary to drawer. (Sec. 114)
Not necessary to indorser. (Sec. 115)

What is the effect of lack of notice of dishonor on the instrument

which is payable in installments?
1. No acceleration clause Failure to give notice of dishonor on a
previous installment does not discharge drawers and indorsers as to
succeeding installments.
2. With acceleration clause It depends upon whether the clause is
automatic or optional.
a.
Automatic failure to give notice of dishonor as to a
previous

installment

will

discharge

the

persons

secondarily liable as to the succeeding installments;

b.

Optional if not exercised, the rule would be the same as

if there is no acceleration clause. If exercised, the rule
would be the same as if the installment contains an
automatic acceleration clause. (Town Savings Bank v. CA,
G.R. No. 106011, June 17, 1993)

To whose benefit does a notice of dishonor inure?

1. When given by or on behalf of a holder:
a. All parties prior to the holder, who have a right of recourse
against the party to whom the notice is given; and
b. All holders subsequent to the holder giving notice. (Sec. 92)
2. When given by or on behalf of a party entitled to give notice:
a. The holder; and
b. All parties subsequent to the party to whom notice is given.
(Sec. 93)
Dishonor in the hands of an Agent:
Agent can do either of the following:
1. Directly give notice to persons secondarily liable thereon; or
2. Give notice to his principal. In such case, he must give notice
within the time allowed by law as if he were a holder. (Sec. 94)
A party giving notice is deemed to have given due notice where:
1. The notice of dishonor is duly addressed, and
2. Deposited in the post-office, even when there is miscarriage of mail.
(Sec. 105)

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