GENERAL STEPS IN ENFORCING LIABILITY

A. PROMISSORY NOTES
1.) Presentment for Payment

Sec. 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.

Meaning of presentment for payment. – By presentment is meant the production of a bill of exchange for his acceptance, or to
the drawee or acceptor for payment or the production of a promissory note to the party liable for payment of the same.
Presentment for payment consists of a (1) personal demand for payment at the proper place; (2) with the bill or note in
readiness to exhibit it if required, and to receive payment and surrender it if the debtor is willing to pay. A mere informal talk
asking payment of a note, not accompanied with a presentment of it or intended as a formal presentment and demand, is not
sufficient to put the note in dishonor. A demand over the telephone is not a sufficient presentment to charge the indorser
unless the maker, by word or conduct, waives the right to ask for an exhibition of the note.
Want of demand on principal debtor. – No presentment for payment is necessary to charge a person primarily liable like the
maker and the acceptor, because when a suit is filed against the party primarily liable that itself is a demand. Thus, failure of
the holder to present a note for payment was held no defense to the maker.
Effect of payment to the holder. – The payment in due course to the holder of an instrument discharges the instrument.
Payment in due course is payment made (1) at or after the maturity of the instrument (2) to the holder thereof (in good faith
and without notice that his title is defective. (Sec. 88, NIL) 
 (2) NOTICE OF DISHONOR (Sec. 89, NIL)

PRESENTMENT FOR PAYMENT

A. Concept of Presentment

A negotiable instrument is “presented” when it is placed or exhibited before a person required or who may be required to pay
it coupled with the request that he honor the obligation represented by the instrument. Normally, presentment may be for the
acceptance of the instrument (bill of exchange) or for payment (bill or note).

Presentment for payment; general rule. – Presentment for payment is not necessary to charge a party primarily liable on the
instrument. It is necessary only to charge those secondarily liable. A party primarily liable on an instrument is, generally
speaking, the real debtor, and should pay the instrument when due, and is no more entitled to any procedure to charge him
than a debtor on any other kind of contractual obligation. But secondary parties are liable only in case the party primarily liable
does not pay. 


Effect of lack of presentment. – Presentment for payment must be made to the party primarily liable; otherwise parties
secondarily liable will be discharged.

llustration: A, maker, issues a promissory note in favor of B. B negotiates the not to C, C to d, D to E, holder. E fails to make
presentment for payment to A, maker. The immediate effect is to discharge parties secondarily liable like B, C and D. He can
only go against A, the maker, who is primarily liable thereon.

B. Requisites of Sufficient

Sec. 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. 


1.) Date of Presentment

Sec. 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.

Fixed date. – If the maturity date is fixed in the instrument, the instrument should be presented for payment on the said fixed
date. Thus, if the instrument is payable on June 2, 2008, the instrument should be presented for payment on said date.

Payable on demand. – If the instrument 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. If the instrument is not presented for payment within a reasonable time after issue or last
negotiation as the case may be, the persons secondarily liable are discharged.

When should be made:


(a) Promissory note on demand: Within reasonable time after its issue

(b) Bill of exchange on demand: Within a reasonable time after its last negotiation (c) Instrument payable on a specified date:
On the date it falls due

No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an unreasonable time,
because "reasonable time" depends upon the peculiar facts and circumstances in each case.

"Reasonable time" has been defined as so much time as is necessary under the circumstances for a reasonable prudent and
diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights, and
possibility of loss, if any, to the other party.

In the instant case, the check in question was issued on September 13, 1960, but was presented to the drawee bank only on
March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of dishonor was made by
the petitioner through a letter dated April 27, 1968. Under these circumstances, the petitioner undoubtedly failed to exercise
prudence and diligence on what he ought to do al. required by law. The petitioner likewise failed to show any justification for
the unreasonable delay. (Far East Realty Investment, Inc. vs. CA)

A stale check is one which has not been presented for payment within a reasonable time after its issue.

 It is valueless and, therefore, should not be paid.

Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it
falls due.

When the instrument is payable on demand, presentment must be made within a reasonable time after its issue.

In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof.

A check must be presented for payment within a reasonable time after its issue, and in determining what is a “reasonable
time,” regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and
the facts of the particular case. The test is whether the payee employed such diligence as a prudent man exercises in his own
affairs. This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a
check payable on demand which was long overdue by about two and a half (2-1/2) years was considered a stale check. Failure
of a payee to encash a check for more than ten (10) years undoubtedly resulted in the check becoming stale. Thus, even a delay
of one (1) week or two (2) days, under the specific circumstances of the cited cases constituted unreasonable time as a matter
of law. (The International Corporate Bank (now Union Bank of the Philippines) vs. Sps. Francis S. Gueco and Ma. Luz E. Gueco)
 Problem: Gemma drew a check on September 13, 1990. The holder presented he check to the drawee bank only on March 5,
1994. The bank dishonored the check on the same date. After dishonor by the drawee bank, the holder gave a formal notice of
dishonor to Gemma through a letter dated April 27, 1994. (a) What is meant by “unreasonable time” as applied to
presentment? (b) Is Gemma liable to the holder?

o (a) The concept of what is reasonable is relative. “Reasonable time” has been defined as so much time as is
necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the
contract or duty requires should be done, having a regard for the rights and possibility of loss, if any, to the
other party. (Far East Realty Investment, Inc. vs. CA) 
 However, with respect to checks, the Supreme Court
had taken cognizance of the current banking practice that check becomes stale after more than 6 months or
180 days. (Luis S. Wong vs. CA) 


o (b) NO. Gemma is no longer liable to the holder based on the instrument. Gemma is already discharged from
secondary liability under the check, because presentment and notice of dishonor was made after an
unreasonable length of time of more than 3 years. The check was already stale at the time of presentment.

o However, Gemma may still be liable to the holder if the latter is her contracting party. Failure to present the instrument on
time does not totally wipe out all liability based on contract. Although she may not be liable on the check, she may be
liable on the contract. 


o Rule in Determining Maturity Date

Sec. 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 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.

B.) Rule in Computing Time

Sec. 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

Under the New Civil Code, in computing a period, the first day shall be excluded, and the last day included. (Art. 13,
NCC)

Illustrations:

o 1) Fixed period after date: The instrument is payable twelve months from 
 date and the date appearing on the
instrument is December 8, 2007. Using the rule under Sec. 86, the instrument should be payable on
December 8, 2008 not December 7, 2008 because December 8, 2007 is not included in the computation 


o 2) After sight: If the instrument is payable 10 days after sight or presentment for acceptance and the instrument
was presented for acceptance on December 3, 2007, the instrument is payable on December 13, 2007. In
determining the 10-day period, December 3, 2007 shall be excluded and the last day, December 13, 2007
shall be excluded.

o 3) After the happening of a specified event: If the instrument is payable within 10 days from the death of Mr. X
and Mr. X died on December 10, 2007, the instrument is payable on December 20, 2007 because the date of
death of Mr. X shall be excluded, and the date of payment, the last date of the 10-day period, December 20,
2007 shall be included.

C. Rule if Payable at a Bank

Sec. 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.

 The person to make payment has until the close of banking hours of the bank where the instrument is made payable
in which to pay it, and if before the close of such hours he deposits money enough to pay it, a demand earlier in the
day is premature. The law presumes that presentment was made during banking hours.

Sec. 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.

This provision should be read together with Section 127 of the NIL which provides that a bill of itself does not operate as an
assignment of the funds in the hands of the drawee available for the payment thereof and the drawee is not liable on the bill
unless and until he accepts the same. Similarly, Sec. 187 of the NIL provides that a check of itself does not operate as
assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder, unless
and until it accepts or certifies the check.

Nevertheless, even if there is no assignment of funds, the statement in the instrument that it is payable at a bank is equivalent
to an order to the bank to pay the same for the account of the principal debtor thereof.

Illustration: Thus a promissory note made by the maker Mr. M which states that it is payable at BPI Escolta Branch is
equivalent to an order to that specific bank to pay the note for the account of Mr. M. However, there is no order to a bank if
the instrument only states that it is payable in any bank in Negros Oriental without specifying a particular bank.

2.) Place of Presentment

Sec. 73. Place of presentment. - Presentment for payment is made at the proper place:
(c) Where a place of payment is specified in the instrument and it is there presented;
(d) 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; 

(e) 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; 

(f) 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. 

Illustration: The proper place may be as follows:

 Where place of payment is specified: A issues a promissory note in favor of B, payee, payable at the “Bank of the
Philippine Islands (main Office), Ayala Avenue, Makati City.” The place of presentment must be made at the
designated bank. 


 No place is specified and address given: In the example above, if no place is specified but the address of A, maker is
given thus: “4 Quezon Avenue, Lucena City” and the holder presents it in the address given. 


 No place of payment and address specified: If A the maker, did not specify the place of payment and no address is
given and the holder of the notes knows that the usual place of business of A is at “Rockwell, Makati City” and it
is there presented. 


 Presented to person to make payment wherever he may can be found: The holder of the note meets A, the maker, at
Mall of Asia and the note was there presented. 

(a) RULE IF PAYABLE AT A SPECIAL PLACE (Sec. 70, NIL)

Sec. 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.

If the holder does not present the instrument for payment at such special place, he loses his right to the payment of interest.

The purpose of the statute is the designation of a particular place where the holder of the instrument, on the one hand,
 Expectation of receiving the amount due or of ascertaining that the instrument will not be met, thus obviating the
necessity of seeking out the obligor,
 Enables the obligor to make provision against default or dishonor by having the funds at such place thereby stopping
interest and obviating costs.

3.) Presentment to the Party Primarily Liable

a.) How Presentment Made

Sec. 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.

Exhibition of Instrument Required. – Presentment for payment necessarily includes the exhibition or production of the
instrument itself to the person liable thereon. It is required in order that the maker or acceptor may be able to determine the
genuineness of the instrument, the right of the holder to receive payment, and so that he may immediately reclaim
possession upon paying the amount.

 Thus, it has been held that “a formal demand for payment of a note is not sufficiently proved where it is not shown
that the party making the demand exhibited the note or had it in his possession.”

To whom presented. – The instrument must be presented 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. Necessarily, the person found at the place of
presentment must be a capacitated person. 


When exhibition is excused:


(a) When debtor does not demand to see the instrument but refuses payment on some other grounds; and
(b) When the instrument is lost or destroyed.

Even if the rule requires that the instrument must be exhibited to determine its genuineness,
 this is rendered unnecessary not only by the omission to contest it, but also by the admission of the authenticity of
the note implicit from the averment that substantial payments were made thereon and by the express waiver of
“demand, presentment, protests and notice of protests and nonpayment” in the note.

b.) Rules in Case party primarily liable is already dead

Sec. 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.

c. Presentment to Partners
Sec. 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.

In partnership, each partner is, under the law, an agent of the other partners. Thus, each partner may represent the
partnership and may bind the other partners. Consistently, presentment may be made to any of the partners under Sec. 77.
However, there are 2 requirements before presentment can be made to either of the persons primarily liable:
1.) The persons primarily liable must be partners. 

2.) There is no place of payment that is specified. 


d.) Presentment to Joint Debtors

Sec. 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.

If the debtors are joint debtors, each debtor is liable only for their respective shares in the obligation. Thus, if there are two
debtors, Mr. A and Mr. B and the total obligation is P1,000.00, Mr. A is liable only for P500.00 while Mr. B is liable only for
P500.00. Applying this rule, if there are two or more makers or two or more acceptors, each maker or acceptor is liable only for
their share in the obligation; hence, there must be presentment to all of them. If Mr. A and Mr. B are both makers in the same
instrument, presentment must be made to both of them.

INSTANCES WHERE PRESENTMENT IS EXCUSED

Sec. 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.

Sec. 80. When presentment not required to charge the indorser. - Presentment is not required in order to charge an indorser
where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be
paid if presented.

Sec. 82. When presentment for payment is excused. - Presentment for payment is excused:
a. Where, after the exercise of reasonable diligence, presentment, as required by this Act, cannot be made; 

b. Where the drawee is a fictitious person; 

c. By waiver of presentment, express or implied. 


There are cases where the drawers and indorsers can still be charged even if there is no presentment for payment.

Presentment for payment is not necessary in the following instances:

 As to drawer, where he has no right to expect or require that the drawee or acceptor will pay the instrument. (Sec.
79) 

 As to indorser, where 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) 

 Where, after the exercise of reasonable diligence, presentment, as required by this Act, cannot be made. (Sec. 82) 

 Where the drawee is a fictitious person. (Sec. 82) 

 By waiver of presentment, express or implied. (Sec. 82) 


Retention of Liability Even if Not Presented.

 Non-presentment will not relieve the drawer from his liability but would only discharge him from liability to the
extent of the loss caused by the delay or non-presentment.
 This is consistent with the rule in Art. 1249 of the Civil Code which provides that “delivery of promissory notes
payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have been impaired.

Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the
 discharge of the drawer only to the extent of the loss caused by the delay. Failure to present on time, thus, does not
totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in
the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the
manager’s check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original
obligation to pay certainly has not been erased. (The International Corporate Bank (now Union Bank of the
Philippines) vs. Sps. Francis S. Gueco and Ma. Luz E. Gueco) 


WHEN DELAY IN PRESENTMENT EXCUSED

Sec. 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.

Inevitable or unavoidable accident not attributable to the fault of the holder and making presentment morally and
physically impossible may excuse delay in presentment of a negotiable instrument.

Delay in presentment is excused by overwhelming calamity, malignant disease, interruption of trade negotiations by
political circumstances, war between holder’s and maker’s countries, suspension of commercial intercourse by public
enemy and the like.

NOTICE OF DISHONOR

Notice of dishonor; meaning and purpose. –

“Dishonor” of an instrument consists in non- acceptance of a bill, or non-payment of a bill or note.

Notice of dishonor is one given orally or in writing, personally, by mail, by wire, or even by telephone to all parties secondarily
liable, identifying the instrument and advising that it has been dishonored.
 By giving notice of dishonor, the holder perfects his rights against parties secondarily liable; by failing to give it, he
discharges them, and his only recourse then is against the party primarily liable thereon.


Effect: Upon valid notice of dishonor, immediate right of recourse against the indorser arises. It is as if the indorser becomes
primarily liable in the sense that the holder need not claim payment from the person primarily liable.

A. WHEN DISHONOR OF THE INSTRUMENT OCCURS

1.) DISHONOR BY NONPAYMENT

Sec. 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 cannot be obtained; or (b) Presentment is excused and the
instrument is overdue and unpaid.

2.) DISHONOR BY NON ACCEPTANCE

Sec. 149. When dishonored by nonacceptance. - A bill is dishonored by non- acceptance:

2. When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or can not be
obtained; or

3. When presentment for acceptance is excused and the bill is not accepted.

B. WHO SHOULD GIVE DISHONOR

 Holder 

 Agent or representative of the holder 

 Any party who may be compelled to pay like indorsers 

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

Who will benefit:

. 1) Given by or on behalf of the holder – inures to the benefit of all subsequent holders and all prior parties who
have a right of recourse against the party to whom it is given.
.
. 2) If the notice is given by the indorser who may be compelled to pa, such notice inures to the benefit of the
holder and all parties subsequent to the party to whom notice is given.

. Illustration: M, maker, issued a negotiable note to P, the payee, payable to P or his order. P indorsed the
instrument to A, then A to B, B to C, and C to D, the present holder. If M dishonors the instrument, D may
notify C since C may be compelled to pay D. C, in turn may notify any person who may be secondarily liable
to him, that is B ,A and P. B may notify A and P and A may notify P. If D gave notice of dishonor to P, A, B
and C, the latter (C) need not notify P, A and B again because notice by the holder inures to the benefit of all
prior parties who have a right of recourse against the party to whom it is given

. On the other hand, if D notified only C but C, in turn, notified P, A and B liable because notice by an indorser (C in
this case) inures to the benefit of the holder. Additionally, P need not notify A & B anew because the notice
given by C inures to the benefit of all parties subsequent to the party to whom notice is given (P having
been given notice by C).
.
Sec. 90. By whom given. - The notice 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 the holder, and who, upon taking it up, would have a right to reimbursement
from the party to whom the notice is given.

Sec. 91. Notice given by agent. - Notice of dishonor may be given by any agent either in his own name or in the name of any
party entitled to given notice, whether that party be his principal or not.

Sec. 92. Effect of notice on behalf of holder. - Where notice is given by or on behalf of the holder, it inures to the benefit of all
subsequent holders and all prior parties who have a right of recourse against the party to whom it is given.

Sec. 93. Effect where notice is given by party entitled thereto. - Where notice is given by or on behalf of a party entitled to give
notice, it inures to the benefit of the holder and all parties subsequent to the party to whom notice is given.

Sec. 94. When agent may give notice. - Where the instrument has been dishonored in the hands of an agent, he may either
himself give notice to the parties liable thereon, or he may give notice to his principal. If he gives notice to his principal, he must
do so within the same time as if he were the holder, and the principal, upon the receipt of such notice, has himself the same
time for giving notice as if the agent had been an independent holder.

C. FORM OF NOTICE

Sec. 95. When notice sufficient. - A written notice need not be signed and an insufficient written notice may be supplemented
and validated by verbal communication. A misdescription of the instrument does not vitiate the notice unless the party to
whom the notice is given is in fact misled there by.

Sec. 96. Form of notice. - The notice may be in writing or merely oral and may be given in any terms which sufficiently identify
the instrument, and indicate that it has been dishonored by non-acceptance or non-payment. It may in all cases be given by
delivering it personally or through the mails.

Form and Contents of Notice. – The notice of dishonor may be written or oral.

o As a matter of practice, the notice should be in writing and signed but it is legally sufficient if oral, or partly
 oral, or if unsigned.
o No precise form of words is necessary to be used in giving notice. The absence of a notary’s seal does not
invalidate a notice.
o Mere knowledge of dishonor independently acquired is not the equivalent of statutory notice.
o It is sufficient if the writing identifies the instrument and indicates that it has been dishonored by non-
acceptance or by non-payment. The essential thing is that the party secondarily liable shall have notice. 


Whether verbal or in writing, the notice must state the following:

1) Sufficient description of the bill or note;
2) Statement that the instrument has been dishonored upon presentment
for acceptance or for payment;

3) Statement that the instrument has been protested if protest is required; and
4) An announcement of the intention to look to the party addressed for payment.
Note however that of the written notice lacks any of these matters, the same may nevertheless be completed
or validated by a verbal communication.
o Thus, if the written notice contains all the matters enumerated earlier except (b) be cause there is no
statement that the instrument has been dishonored, the person given notice may orally state that there
was dishonor to complete or validate the notice of dishonor.

If there is misdescription, the notice is still valid and effective except if a party was in fact misled.
o Thus, if the notice states the amount to be paid but there was misdescription thereof, the notice is still
effective because the instrument itself states the sum certain in money that has to be paid.

D. TO WHOM NOTICE IS GIVEN

1) PARTY SECONDARILY LIABLE OR AGENT

Sec. 97. To whom notice may be given. - Notice of dishonor may be given either to the party himself or to his agent in that
behalf.

(2) NOTICE WHERE PARTY IS DEAD

Sec. 98. Notice where party is dead. - When any party is dead and his death is known to the party giving notice, the notice must
be given to a personal representative, if there be one, and if with reasonable diligence, he can be found. If there be no personal
representative, notice may be sent to the last residence or last place of business of the deceased.
Service to a representative is necessary under Sec. 98 only if the following requirements are present:
1) The person who should give notice knows that the person to receive notice is dead;
2) The person who is supposed to receive notice has a personal representative; and
3) The personal representative could be found after the exercise of reasonable diligence.

Notice to a representative is not necessary in any of the following instances:

1) If there was, in fact, no personal representative;
2) If the person to give notice is not aware of the death of the person who is supposed to receive notice; or
3) If the personal representative cannot be found despite the exercise of reasonable diligence.

(3) NOTICE TO PARTNERS

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

o The rule that notice to one partner will bind the partnership is consistent with the mutual agency rule in
partnership.
o The New Civil Code provides that “Every partner is an agent of the partnership for the purpose of its
business, and the act of every partner, including the execution in the partnership name of any instrument,
for apparently carrying on in the usual way the business of the partnership of which he is a member binds
the partnership, unless the partner so acting has in fact no authority to act for the partnership in the
particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such
authority..”

(4) NOTICE TO PERSONS JOINTLY LIABLE

Sec. 100. Notice to persons jointly liable. - Notice to joint persons who are not partners must be given to each of them unless
one of them has authority to receive such notice for the others.
Failure to give notice to a joint indorser. – Joint indorsers, to whom notice of dishonor has been given, are not
discharged by reason of failure to give notice to the other joint indorsers. 

Where liability is joint, each debtor is responsible for his own share in the obligation. One cannot be made to
shoulder the entire amount or the share pertaining to the co-debtor.
o Art. 1207 of the Civil Code provides that “The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of the former has a right to demand,
or that each one of the latter is bound to render, entire compliance with the prestation.
o There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity”

(5) NOTICE TO BANKRUPT (Sec. 101, NIL)

Sec. 101. Notice to bankrupt. - Where a party has been adjudged a bankrupt or an insolvent, or has made an assignment for
the benefit of creditors, notice may be given either to the party himself or to his trustee or assignee.
Two situations contemplated under Section 101:

1) The party to whom notice should be given is declared by a court as bankrupt or insolvent; and

2) The party to whom notice should be given has made an assignment for the benefit of creditors.
In these situations, notice may be given to the party himself or the trustee or assignee.
o Despite the notice of dishonor, however, the claim of the holder or any person who has a right of
reimbursement from the insolvent or the assignor must be settled in accordance with the Insolvency Law,
Act No. 1956 or the pertinent rules under the Civil Code on concurrence and preference of credits.

E. TIME AND PLACE OF NOTICE AN

Sec. 102. Time within which notice must be given. - Notice may be given as soon as the instrument is dishonored and, unless
delay is excused as hereinafter provided, must be given within the time fixed by this Act.
Effect of notice before maturity. – The sending of notice before maturity of a note to all the parties is not a sufficient
notice of dishonor.
o The purpose of prompt notice is to give the persons secondarily liable every opportunity to secure
themselves such as, to enable the party to be charged to preserve and protect his rights against prior
parties.

Sec. 103. Where parties reside in same place. - Where the person giving and the person to receive notice reside in the same
place, notice must be given within the following times:
(a) If given at the place of business of the person to receive notice, it must be given before the close of business hours on the
day following.

(b) If given at his residence, it must be given before the usual hours of rest on the day following.
(c) If sent by mail, it must be deposited in the post office in time to reach him in usual course on the day following.

Words used cannot be modified. – The specific words of this section cannot be modified by the definition of a
reasonable time in Sec. 193, which has no application to this section but applies to cases like those described in Sec.
144 and others. 

When the law refers to persons residing in the same place under Sec. 103, the law means the same town or city.
Notice under this Section may either be personal or by mail.

With respect to paragraph (b) of Section 103, usual hours of rest has been defined as any of the hours when the
member of the household are attending their ordinary affairs. 


Regarding paragraph (c), notice is still considered timely given even if in fact the notice did not reach the person who
is supposed to receive notice of dishonor the day following. It might even e impossible under present circumstances
to expect that the mail will reach the destination the following day. It is therefore enough that the person who is
supposed to give notice must exert effort that it will reach the day following.

Sec. 104. Where parties reside in different places. - Where the person giving and the person to receive notice reside in
different places, the notice must be given within the following times:
(a) If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of dishonor, or if there
be no mail at a convenient hour on last day, by the next mail thereafter.
(b) If given otherwise than through the post office, then within the time that notice would have been received in due course of
mail, if it had been deposited in the post office within the time specified in the last subdivision.
Notice by mail. – When notice is given by mail, it is not enough that the notice be mailed on the day following
dishonor;
o it should be mailed in time to go by the mail on that day.
o Thus, if the departure of mail on the day following dishonor was between 9 and 10 o’clock in the morning,
this is convenient hour, and deposit of the notice in the post office on the evening of that day is too late.
If no mail after dishonor. – When there is no mail leaving after the day of dishonor of the instrument, the
requirement is complied with if the notice is mailed in time to go by the next mail.
o Thus, if the instrument was dishonored November 1, and the notice is to be sent to Davao from Manila, the
notice of dishonor may be mailed on November 5, if the next mail leaves for Davao on that date.
Personal service of the notice under paragraph (b) is sufficient if the said notice is personally delivered within the
same time that the mail will normally reach the destination.
o Thus, if it usually takes 3 days to reach the destination, the person given notice personally to a person who
resides in a different place has 3 days to personally deliver the notice.
Sec. 105. When sender deemed to have given due notice. - Where notice of dishonor is duly addressed and deposited in the
post office, the sender is deemed to have given due notice, notwithstanding any miscarriage in the mails.
Proof of execution of notices. – Proof of execution of notices of dishonor, of enclosing them in stamped envelopes
and placing them with other mail matter carried to the post office by a clerk, whose business this was, is enough
without calling the clerk, to justify a finding that the notices were duly mailed, in an action against the indorser.

Sec. 106. Deposit in post office; what constitutes. - Notice is deemed to have been deposited in the post-office when
deposited in any branch post office or in any letter box under the control of the post-office department.

Sec. 107. Notice to subsequent party; time of. - 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.

Antecedent parties. – “Antecedent parties” means antecedent in liability and each joint indorser is an antecedent
party as to his part of the debt. Antecedent party means to go before or simply a prior party.
An indorser who receives a notice of dishonor is entitled to give notice to person from whom he can ask for
reimbursement. These include the drawer or prior indorsers who are referred to as antecedent parties. If notice is
received by an indorser, he can avail of the period provided for in Section 103 and 104.

Illustration: Notice to antecedent parties – The notice to antecedent parties is reckoned from the date of receipt of
notice of dishonor. Let us say that an instrument is indorsed by A to B, B to C, C to D, and D to E, holder. In the hands
of E, the instrument was dishonored on September 15. E, holder will have until September 16 to give notice of
dishonor to prior parties. If notice of dishonor is given to D, a prior party, D has until September 17 to give notice to
the party or parties prior to him, etc.

Sec. 108. Where notice must be sent. - Where a party has added an address to his signature, notice of dishonor must be sent to
that address; but if he has not given such address, then the notice must be sent as follows:
(a) Either to the post-office nearest to his place of residence or to the post-office where he is accustomed to receive his letters;
or
(b) If he lives in one place and has his place of business in another, notice may be sent to either place; or
(c) If he is sojourning in another place, notice may be sent to the place where he is so sojourning.
But where the notice is actually received by the party within the time specified in this Act, it will be sufficient, though not sent
in accordance with the requirement of this section.

Address at the time of execution. – Notice addressed to an indorser at a place which at the time of the execution of
the note was stated by him to be his residence, is sufficient. The burden of proof of notice is on the holder.

When notice actually received. – It is significant, however, that provided notice is actually received within the time
provided in the law, it will be considered sufficient notice though not sent in accordance with the legal requirements.

 The notice of dishonor must be sent to the address of the indorser or the drawer indicated in the instrument itself.
o It is only when there is no address specified in the instrument that the notice may be sent to the placed
mention in Sec. 108.
 o
Nevertheless, the last paragraph of Sec. 108 clearly manifests that strict compliance is not necessary. It is not
absolutely necessary that the notice is sent in the places mentioned in Sec. 108. It is enough that notice is actually
received on time or within the time prescribed in Sections 103 and 104 by the person who is supposed to receive
even if he received the same in a different place. Thus, if the indorser personally received a notice of dishonor the day
following the dishonor, the same is valid even if he received it while he was in a restaurant eating his lunch. Needless
to state, there must be proof of actual receipt of the notice of dishonor.

F. WHEN NOTICE IS EXCUSED OR UNNECESSARY

Sec. 109. Waiver of notice. - Notice of dishonor may be waived either before the time of giving notice has arrived or after the
omission to give due notice, and the waiver may be expressed or implied.

Waiver means the person who is making the waiver renounces the benefit of the act or matter in his favor.
Thus, the rule on the giving of notice is for the benefit of the drawer or the indorsers. If no notice is given, they are
discharged. The indorsers or the drawer may waive the benefit of the notice of dishonor and they will still be liable as
a consequence despite the absence of such notice. 


Types of waiver:
o 1) Express or implied
o 2) Written on the in instrument itself, or written above the signature of the indorser
o 3) Before the time of giving of notice, or after the failure to give notice
o
Effect of part payment after dishonor. – Where an indorser, knowing that notice of dishonor has not been sent to
him, makes a part payment after the dishonor of the instrument, he is deemed to have waived the requirement of
notice.
o The liability of an indorser depends upon the implied condition that the instrument shall be duly presented
at its maturity and that notice of dishonor shall be duly transmitted to the indorser.
o But these conditions being for the benefit of the indorser may be waived by him.
o The usual method is to write the words “waiving notice” or “waiving protest” above the indorser’s
signature. Usually promissory notes drafted by financing institutions contain words “notice of dishonor
waived.”
Sec. 110. Whom affected by waiver. - Where the waiver is embodied in the instrument itself, it is binding upon all parties; but,
where it is written above the signature of an indorser, it binds him only.

To whom binding. – The person who are bound by the waiver shall be determined in accordance with the following
ruled:
1) If the waiver is written on the instrument itself, it is binding on all parties.
2) If the waiver is written above the signature of the indorser, it is binding only the indorser and he is the only
one who is deemed to have made the waiver.

Sec. 111. Waiver of protest. - A waiver of protest, whether in the case of a foreign bill of exchange or other negotiable
instrument, is deemed to be a waiver not only of a formal protest but also of presentment and notice of dishonor.

Effect of waiver of protest. – A waiver of protest necessarily includes not only of a formal protest but also of
presentment and notice of dishonor.
o It was held that a waiver of protest written on the face of a negotiable promissory note before it was
indorsed, is deemed to be a waiver on the part of an indorser, not only of a formal protest, but also of
presentment and notice of dishonor.
o
Sec. 112. When notice is dispensed with. - Notice of dishonor is dispensed with when, after the exercise of reasonable
diligence, it cannot be given to or does not reach the parties sought to be charged.

Notice of dishonor dispensed with.

o Notice of dishonor need not be given to a drawer who has no right to expect that the drawee would accept
or pay the bill, as where he draws upon one who has no funds of his, or is not indebted to him, or had made
no previous agreement with him to honor his bills.
o Notice of dishonor to the drawer is also dispensed with where the drawee is a fictitious person, or a person
 not having capacity to contract, or
o where the drawer is the person to whom the instrument is presented for payment, as where the drawer
drew the bill on himself naming himself as drawee.

Sec. 114. When notice need not be given to drawer. - Notice of dishonor is not required to be given to the drawer in either of
the following cases:
(a) Where the drawer and drawee are the same person;
(b) When the drawee is fictitious person or a person not having capacity to contract;
(c) When the drawer is the person to whom the instrument is presented for payment;
(d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument;
(e) Where the drawer has countermanded payment

Notice to DRAWER dispensed with. – Notice of dishonor is no longer necessary to be given to the drawer in the situations
contemplated under Sec. 114 because the drawer is actually notified or the dishonor was actually his fault.

Notice to Drawer not necessary:

1) Where the drawer and drawee are the same person;
Reason: Drawer is actually already aware of the dishonor.

2) When the drawee is fictitious person or a person not having capacity to contract;

Reason: If the drawee is non-existent, there is nobody to dishonor the instrument hence, the instrument
need not be presented for payment. It is actually the drawer who was at fault for placing a fictitious
drawee. On the other hand, if the drawee is a minor, the drawer cannot also expect that the drawee will
honor the instrument.

3) When the drawer is the person to whom the instrument is presented for payment;

Reason: Contemplates a situation where the drawer is not the drawee but the person to whom the
instrument was presented in behalf of the drawee is the drawer.

4) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; 


o Ex: Drawer has closed his account with the drawee bank, thus, drawer has no reason to expect that the
drawee bank will honor the check that he issued. 


5) Where the drawer has countermanded payment.


o Ex: When the drawer directed or ordered the drawee not to pay. Thus, if a stop payment order was
given by the drawer of the drawee bank, the drawer has no reason to expect that the drawee bank will
honor the check that he issued. 


Sec. 115. When notice need not be given to indorser. - Notice of dishonor is not required to be given to an indorser in either of
the following cases:
(a) When the drawee is a fictitious person or person not having capacity to contract, and the indorser was aware of that fact at
the time he indorsed the instrument;
(b) Where the indorser is the person to whom the instrument is presented for payment; (c) Where the instrument was made or
accepted for his accommodation.

Notice to INDORSER dispensed with. – Notice of dishonor to an indorser is dispensed with where, after the exercise of
reasonable diligence, it cannot be given.

o Yet when it is “reasonable diligence” that is in issue, each case is a law unto itself. The holder must take
some steps to discover the whereabouts of the party secondarily liable. He cannot “remain in a state of
passive and contented ignorance.” He should, for instance, inquire of the other parties to the paper. But it
has been held that merely consulting a directory is not enough. 

 Notice to Indorser not necessary:
1) Fictitious drawee
2) Where the indorser is the person to whom the instrument is presented for payment
o Example: If the indorser is the authorized agent or representative of the drawee who dishonored the
instrument, the notice of dishonor need not be given to the drawer. This is possible for instance if the
indorser is the bank teller who dishonored the check in behalf of the drawee bank.
3) Indorser is accommodated party

Sec. 116. Notice of non-payment where acceptance refused. - Where due notice of dishonor by non-acceptance has been
given, notice of a subsequent dishonor by non- payment is not necessary unless in the meantime the instrument has been
accepted.

Sec. 117. Effect of omission to give notice of non-acceptance. - An omission to give notice of dishonor by non-acceptance does
not prejudice the rights of a holder in due course subsequent to the omission.

Sec. 117 provides that the right of the subsequent holder in due course who is not aware of the previous dishonor is
not affected by the failure to give notice.

o Illustration: X, is the holder of a bill of exchange. He presents it to Y, the drawee, for acceptance a
month before its maturity but acceptance was refused. This is a dishonor of the bill by non-acceptance.
But X, does not give the notice of dishonor to A, the drawer, or to B, the first indorser. X’s failure to
give notice of dishonor to A and B will discharge the latter two (A & B) to X, holder. The bill, however,
was not yet due because the dishonor by non-acceptance took place a month before maturity.
Supposing, X negotiates the bill to C, who becomes a holder in due course without notice of the
dishonor of the bill. On maturity, C presents the bill to Y for payment but the latter refused to do so.
May C recover from A and B? Yes, C can recover from A and B.

c. WHEN DELAY IN GIVING NOTICE IS EXCUSED

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

Delay; How excused. – Delay in giving notice of dishonor caused by the necessity of making inquiries as to the
address of the party to be notified is excusable, the holder being ignorant of the address.
o Failure, however, after the exercise of reasonable diligence, to find the drawer of a dishonored bill at
the address given by him, does not dispense with notice if an address at which he is to be found comes
to the holder’s knowledge before the action is brought.

Exercise of reasonable diligence likewise excuses the delay in the giving of notice.
o However, it is required that there is no fault, misconduct or negligence on the part of the person who
is supposed to give notice. For example, if a natural calamity like flood and typhoon prevented the
holder to give notice of dishonor on time without negligence on his part, the delay is excused.
However, if the typhoon or flood ceases, the holder must already give notice of dishonor with
reasonable diligence.

1. CONCEPT OF DISCHARGE

 Discharge means release from further liability, obligation, or from the binding effect of the negotiable instrument. As
to the paper itself, it puts an end to its contractual obligation. As to the parties to the instrument, it operates as a
release of some or all of them from further obligation and liability under the instrument although the instrument
may not be discharged, as where only part of the obligors are released. Then again release of the instrument
may be accomplished by a release of all the parties to it.

 
 Literally, a discharge means to free from a charge or obligation. It operates as a release from and termination of the
obligation in whatever manner. A negotiable instrument as a form of a contract is discharged when it loses its
force and effect as a legal obligation. A negotiable promissory note may express a promise to pay a sum certain
in money, yet when it is paid by the party principally obliged to pay it – the note loses its life and dies in a
 manner of speaking, because its is discharged by payment.

2. HOW INSTRUMENT IS DISCHARGED (SEC. 119, NIL)

Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is made or
accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after maturity in his

A. PAYMENT IN DUE COURSE

Sec. 88. What constitutes payment in due course. - Payment is made in due course when it is made at or after the
maturity of the payment to the holder thereof in good faith and without notice that his title is defective.
Payment in due course – payment made at or after the maturity of the payment to the holder thereof in good faith
and without notice that his title is defective.

Requisites of payment in due course:

1) Must be made by or in behalf of the principal debtor or the accommodated party where the instrument
is made or accepted for his accommodation;

2) Payment must be made to the holder;


 Thus, payment to the payee who already negotiated the instrument will not discharge the same
 There is also no payment in due course if it was made to a possessor of an order instrument not
indorsed because the possessor is not a holder.

3) The Payor must be in good faith and without notice that his title is defective;
 Rightful holder who may have been unlawfully deprived MAY still enforce payment against the
payor who paid with notice of the defect in the holder’s title.

4) Payment must be made AT or AFTER maturity date of the instrument. 


Payment cannot be made by delivering another negotiable instrument.

 Article 1249 of the New Civil Code provides that delivery of a negotiable instrument does not
produce the effect of payment UNLESS THE SAME IS ENCASHED or the VALUE thereof was
IMPAIRED THROUGH THE FAULT OF THE OBLIGEE.

1. BY THE PRINCIPAL DEBTOR (SEC. 119 [a], NIL)

Payment may operate as a discharge of liability if it is made by:

1.)By a Primary Party,

i.e., a maker or acceptor if he is not a surety for a principal debtor who signed as a secondary
party; or 


2) If the Primary Party is a SURETY for a principal debtor who signed as a secondary party,
 then a payment by the secondary party, who is also the principal debtor, will discharge the
instrument; and 


3) Payment on behalf of the principal debtor discharges the instrument

  under Principles of LAW OF AGENCY. 

Payment made by the secondary party who is not the accommodated party will not discharge the
instrument.

2. BY THE ACCOMMODATED PARTY (SEC. 119 [b], NIL)

The person who made or accepted the instrument is Only a SURETY of the accommodated party.

B. INTENTIONAL CANCELLATION
 This may be effected by TEARING it up, BURNING it or WRITING THE WORDS “CANCELLED” on the
instrument.
 The INTENTION to CANCEL OR DESTROY must be clear.

1. RULE IN CASE OF UNINTENTIONAL CANCELLATION (SEC. 123, NIL)

Sec. 123. Cancellation; unintentional; burden of proof. - A cancellation made unintentionally or under a mistake or
without the authority of the holder, is inoperative but where an instrument or any signature thereon appears to have
been cancelled, the burden of proof lies on the party who alleges that the cancellation was made unintentionally or
under a mistake or without authority.

When the instrument was destroyed unintentionally or by mistake or thrown away believing that it was already
paid, the cancellation would be INEFFECTIVE.

C. ANY ACT THAT DISCHARGES SIMPLE CONTRACTS

Article 1231 Obligations are extinguished (PLCCC- NAFP)

1) Payment or performance; 

2) Loss of the thing due; 

3) Condonation or remission of the debt; 

4) Confusion or merger of the rights of creditor and debtor; 

5) Compensation; 

6) Novation;
7) Annulment or rescission; 

8) Fulfillment of a Resolutory condition; 

9) Prescription 


The enumeration in Art. 1231 is not, however, exclusive because there are other grounds that are provided for in
other provisions of the New Civil Code and some other special laws. 


However, Withdrawal of Funds is NOT one of the grounds for extinguishment of a simple contract.

o In State Investment House vs. Court of Appeals, Nora Moulic, the drawer of the subject checks, issued the
checks to a certain Corazon Victoriano as deposit for jewelry that she obtained from the said payee meant
to be sold to other persons. When she was returning the jewelry, the payee failed to return the checks
because she already negotiated the same to the petitioner. Moulic then withdrew her funds from the
drawee bank. The Supreme Court ruled that the instrument was not discharged.

D. PRINCIPAL DEBTOR BECOMES HOLDER

The principal debtor becomes the holder of the instrument at or after maturity in his own right.

o It is an accepted rule that POSSESSION OF AN INSTRUMENT by the maker or acceptor at or after maturity
gives rise to the presumption of payment.
 o If a maker of a note, however, reacquires his own note as an agent of another, not in his own right, it would
not discharge the instrument.

The phrase “in his own right” has been construed to exclude a case where a maker acquires the instrument in a
purely representative capacity.

o Thus, a note is Not Discharged when the Maker Acquires it AS AGENT OF ANOTHER.
o Nor is it discharged when the maker becomes the holder as EXECUTOR OR ADMINISTRATOR.

However, the maker is DISCHARGED even if he acquired the instrument through an agent who did not disclose his
principal.

3. DISCHARGE OF PERSONS SECONDARILY LIABLE (SEC. 120, NIL)

Sec. 120. When persons secondarily liable on the instrument are discharged. - A person secondarily liable on the instrument is
discharged:
(a) By any act which discharges the instrument; 

(b) By the intentional cancellation of his signature by the holder; 

(c) By the discharge of a prior party; 

(d) By a valid tender or payment made by a prior party; 

(e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily liable is
expressly reserved; 

(f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to
enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse
against such party is expressly reserved. 


(B) TO (F) of Sec. 120 applies only to “parties who on the FACE OF THE INSTRUMENT ITSELF ARE SECONDARILY
LIABLE”
o NOT to parties primarily liable thereon, even if they be only sureties or for a co-maker or
accommodation makers.” In other words, a maker who is only an accommodation maker is not
discharged by any of the grounds provided for in Sec. 120.

DISCHARGE OF PRIOR PARTY. –

Sec 120 (b) By the intentional cancellation of his signature by the holder;
o May result in the discharge of other parties.
o Sec. 48 of the NIL provides that the indorser whose indorsement is struck out, and all indorsers
subsequent top him, are thereby relieved from liability on the instrument.
 The situation contemplated under Section 48 is covered by paragraph (c) of Sec. 120
which provides that discharge of a prior party discharges a person secondarily liable.
 Thus, if the payee P indorses the instrument to A, then A to B, B to C and C to D,
intentional cancellation by D of A’s signature discharges B and C. B and C are also
discharged because they are deprived of their right of recourse against A when A’s
signature is cancelled.

Sec 120 (c) By the discharge of a prior party;

o Means discharge by some ACT OF THE CREDITOR.
o It does not include discharge by operation of law.
 (1) discharge by bankruptcy or insolvency;
 (2) discharge through prescription;
 (3) failure to give notice of dishonor.

TENDER OF PAYMENT.
o “Tender of payment” (d) of Sec. 120,
o “the act by one which PRODUCES and OFFERS to a person holding a claim or demand against him the
amount of money which he considers and admits to be due, in satisfaction of such claim or demand
 without any stipulation or condition.”
o The rule is only fair because it is the fault of the holder that he did not receive payment. If he accepted
the tender of payment by a prior party, the subsequent party would have been discharged.

RELEASE OF PRINCIPAL DEBTOR.

o Discharges the instrument and the persons secondarily liable has no more right of recourse against the
principal debtor.
o However, where the release was made with RESERVATION OF THE RIGHT OF RECOURSE AGAINST THE
PRINCIPAL debtor, the persons secondarily liable are NOT DISCHARGED.
 Effect of the reservation is the implied reservation of their right of recourse against the
maker.

SEC 120 (e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily
liable is expressly reserved; 

SEC 120 (f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's
right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of
recourse against such party is expressly reserved. 

o Will not release the secondary parties only if they acceded to the release of the principal debtor.
o If the Release was done WITHOUT THEIR CONSENT, they cannot be made liable
 because the drawer and the general indorsers engage to pay only if the instrument “is
dishonored, and the necessary proceedings on dishonor be duly taken.”

If there is no dishonor, they cannot be made liable. It is believed that the supposed implied reservation of the right of
recourse against the maker is inconsistent with the provisions of NIL because it will thereby remove the conditions for
the secondary liability to operate

EXTENSION OF TERM.
o An agreement to extend the term of payment entered into with the principal debtor releases the
persons secondarily liable.
o This is understandable because the assurance of the drawer and the indorsers is PAYMENT
ACCORDING TO THE TENOR OF THE INSTRUMENTS.
 An agreement to extend the time of payment varies the original undertaking of the
secondary parties.

Sec. 121. Right of party who discharges instrument. - Where the instrument is paid by a party secondarily liable thereon, it is
not discharged; but the party so paying it is remitted to his former rights as regard all prior parties, and he may strike out his
own and all subsequent indorsements and against negotiate the instrument, except:
(a) Where it is payable to the order of a third person and has been paid by the drawer; and
(b) Where it was made or accepted for accommodation and has been paid by the party accommodated.

Sec. 122. Renunciation by holder. - The holder may expressly renounce his rights against any party to the instrument before,
at, or after its maturity. An absolute and unconditional renunciation of his rights against the principal debtor made at or after
the maturity of the instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due
course without notice. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable
thereon.

PAYMENT BY A PARTY SECONDARILY LIABLE. –

 Does not discharge the instrument.
o where an indorser pays an instrument on maturity, the maker is not discharged from liability to
the indorser who made the payment.
o But the indorser paying is restored to his former position, and he may assert his rights against
prior parties, or again negotiate the paper.
o Illustration: X draws a bill of exchange against Y, drawee, in favor of B, payee. B negotiates the bill
to C, C to D, and D to E, and E to F, holder. Let us say that E, a prior indorser, pays the bill to F. The
payment made by E will have the following consequences: (a) It will discharge E although the
instrument itself is not discharged; (b) Having paid the instrument, E will be remitted to his former
rights as holder. E can, therefore, enforce his rights against X, B, C, and D. However, if X, drawer,
pays the instrument and it being payable to B, a third person, X can no longer renegotiate the bill.
 Also, if B was actually an accommodated party and he pays the instrument, he can no longer
renegotiate it because being an accommodated party, he is the one ultimately liable to pay the bill
and he would have no rights of recourse against X, drawer and Y, drawee.

RENUNCIATION
 The Act of SURRENDERING A RIGHT OR CLAIM WITHOUT RECOMPENSE, but it can be applied with equal
propriety to the relinquishing of a demand upon an agreement supported by a consideration.
 It must be with written declaration to that effect
 if oral, must be accompanied by surrender of the instrument to the person primarily liable thereon.

Effects of Renunciation:
o A renunciation IN FAVOR OF A SECONDARY PARTY may be made by the holder before, at, or after maturity
of the instrument. The effect is to discharge only such secondary party and all parties subsequent to him
but the instrument remains in force. 

o A renunciation IN FAVOR OF THE PRINCIPAL DEBTOR may be effected at or after maturity. The effect is to
discharge the instrument and all parties thereto provided the renunciation is made unconditionally and
absolutely. 


Note: In either case, renunciation. DOES NOT AFFECT THE RIGHTS OF A HOLDER IN DUE COURSE WITHOUT NOTICE

PAYMENT BY THIRD PERSON


There is a view that of payment is made by a third person, the instrument is not discharged because payment is not
made by the person primarily liable. It is believed however that if a person paid the holder of the instrument with the
intention of acquiring title over the instrument, the payor cannot be considered a third person.
 A THIRD PERSON is one who will pay for or in behalf of the maker and not one who intends to have any
right over the instrument.
 If payment is made by one who intends to acquire a right over the instrument, such person is an ASSIGNEE
or a HOLDER as the case may be.

The Civil Code recognizes a situation where a third person will pay for and in behalf of the principal debtor. Although
a creditor is not bound to accept payment from a third person.
 Whoever pays for another may demand from the debtor what he has paid except that if he paid without
the knowledge or against the will of the debtor, he can recover only insofar as the payment has been
beneficial to the debtor.

SURRENDER OF INSTRUMENT

 The instrument must be surrendered to the payor whenever discharge is by payment by or in behalf of the
principal debtor, payment by the accommodated party, by renunciation or by any other ground that
discharges simple contracts.
 If the instrument is not surrendered, it may fall in the hands of a holder in due course who may have a right
to enforce the instrument despite the previous payment that was made.
o State Investment House vs. CA. The drawer, in the said case, was made liable even if she returned
the jewelry for which the check in question was issued. Nevertheless, the instrument was not
deemed discharged as to the holder in due course who was without notice of such fact.

1. CHECKS
 “bill of exchange payable on demand drawn on a bank.”
 Checks are used between banks and bankers and their customers
 Designed to facilitate banking operations.
 It is of the essence to be payable on demand, because the contract between the banker and the customer is that the
money is needed on demand.

Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise
provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.
Sec. 186. Within what time a check must be presented. - A check must be presented for payment within a reasonable
time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay.
 Sec. 187. Certification of check; effect of. - Where a check is certified by the bank on which it is drawn, the certification is
equivalent to an acceptance.
Sec. 188. Effect where the holder of check procures it to be certified. - Where the holder of a check procures it to be
accepted or certified, the drawer and all indorsers are discharged from liability thereon.
Sec. 189. When check operates as an assignment. - A check of itself does not operate as an assignment of any part of the
funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or
certifies the check.

Checks are not mere contracts but:

o A representation of funds on deposit 

o Representation of credit stated in monetary value 

o Substitute for cash 

o As payment for an obligation 


2. CHECKS DISTINGUISHED FROM DRAFT

 Cashier’s checks are not the equivalent of bank draft.
o Thus, the Supreme Court explained in Republic of the Philippines vs. Philippine National Bank, et.al.
o To begin with, we may say that a DEMAND DRAFT IS A BILL OF EXCHANGE PAYABLE ON DEMAND
Considered as a bill of exchange, a draft is said to be, like the former, an open letter of request from, and
an order by, one person on another to pay a sum of money therein mentioned to a third person, on
demand or at a future time therein specified (13 Words and Phrases, 371).
o As a matter of fact, the term "draft" is often used, and is the common term, for all bills of exchange. And the
words "draft" and "bill of exchange" are used indiscriminately
o On the other hand, a bill of exchange within the meaning of our Negotiable Instruments Law (Act No. 2031)
does not operate as an assignment of funds in the hands of the drawee who is not liable on the instrument
until he accepts it.
 This is the clear import of Section 127. It says: "A bill of exchange of itself does not operate as an
assignment of the funds in the hands of the drawee available for the payment thereon and the
drawee is not liable on the bill unless and until he accepts the same."
 In other words, in order that a drawee may be liable on the draft and then become obligated to
the payee it is necessary that he first accepts the same.
 In fact, our law requires that with regard to drafts or bills of exchange there is need that they be
presented either for acceptance or for payment within a reasonable time after their issuance or
after their last negotiation thereof as the case may be (Section 71, Act 2031).
 Failure to make such presentment will discharge the drawer from liability or to the extent of the
loss caused by the delay (Section 186, Ibid.)

o BUT A DEMAND DRAFT IS VERY DIFFERENT FROM A CASHIER'S OR MANAGER'S CHEEK, contrary to
appellant's pretense, for it has been held that the latter
 ( CASHIERS CHECK) is a primary obligation of the bank which issues it and constitutes its written
promise to pay upon demand.
 Thus, a cashier's check has been clearly characterized in In Re Bank of

o A cashier's check issued by a bank, however, is not an ordinary draft. The latter is a bill of exchange
payable demand. It is an order upon a third party purporting to drawn upon a deposit of funds.
 The following definitions cited by appellant also confirm this view:
A CASHIER'S CHECK is a check of the bank's cashier on his or another bank. It is in effect a bill of
exchange drawn by a bank on itself and accepted in advance by the act of issuance (10 C.J.S.
409).
o A cashier's check issued on request of a depositor
 is the substantial equivalent of a certified check and the deposit represented by the check passes
to the credit of the checkholder, who is thereafter a depositor to that amount

A cashier's check, being merely a bill of exchange drawn by a bank on itself, and accepted in advance by the
act of issuance, is not subject to countermand by the payee after indorsement, and has the same legal
effects as a certificate deposit or a certified check (Walker v. Sellers, 77 So. 715, 201 Ala. 189).

A demand draft is not therefore of the same category as a cashier's check which should come within the purview of
the law.

3. RELATIONSHIP BETWEEN DRAWER, DRAWEE AND PAYEE

 Ordinarily, checks are drawn on bank accounts that are opened by drawers on drawee banks. The drawer of the check
is a depositor of the drawee bank.
The Supreme Court explained this relationship in Spouses Moran and Librada Moran vs. The Honorable
Court of Appeals, et. al:

We start some basic and accepted rules, statutory and doctrinal. A check is a bill of exchange drawn on a bank
payable on demand.
o Thus, a check is a written order addressed to a bank or persons carrying on the business of banking, by a
party having money in their hands, requesting them to pay on presentment, to a person named therein or
to bearer or order, a named sum of money.
o Fixed savings and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan. In other words, the relationship between the bank and the depositor is
that of a debtor and creditor. By virtue of the contract of deposit between the banker and its depositor, the
banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of
the bank.
Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of
his deposits.
o The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the
drawer to substantial damages without any proof of actual damages.
Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact
that a deposit may be made later in the day. Before a bank depositor may maintain a suit to recover a specific amount
from his bank, he must first show that he had on deposit sufficient funds to meet his demand.
This relationship between the drawer and the drawee bank makes the drawee bank liable to the drawer in case of
wrongful dishonor of checks. A drawee bank who wrongfully dishonors a check is not liable to the payee for lack of
privity but it is liable to the drawer because the drawee bank breached its contract with the drawer. The drawee, by
accepting the deposit of the drawer, obligated itself to honor the check drawn by the drawer up to the extent of the
latter’s deposit. Thus, if it dishonors the check for insufficiency of funds even if there are really sufficient funds, the
drawee bank breached its obligation to the drawer-depositor.
o There is usually a contractual obligation between the payee and drawer. The drawer normally issues checks in
payment of an obligation to the payee. The payee, however, does not have contractual relationship with the drawee.
The drawee does not even become liable upon the issuance of the check. Section 189 of the NIL provides that “a
check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank,
and the bank is not liable to the holder unless and until it accepts or certifies the check.” As a consequence, the
drawee is not liable to the payee just because the drawer actually issued the check to him (payee) for valuable
consideration. There is no obligation on the drawee’s part to honor the check and the payee has no cause of action
against the drawee even if the dishonor was wrongful.

o However, in Hongkong and Shanghai Banking Corporation vs. Cecilia Diez Catalan, the Supreme Court explained that
although the payee may not sue the drawee based on the check itself, the payee may sue the drawee based on tort
under Article 19 of the New Civil Code. The payee may sue for abuse of right so long as he can prove: (a) that there is
a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another.
o In the Hongkong and Shanghai Banking Corporation case, the allegations sufficiently warrant an action for tort
 because it was alleged that there was unwarranted failure on the part of the drawee bank to pay the checks
notwithstanding the repeated assurance of the drawer as to the authenticity of the checks and frequent directives to
pay the value thereof to the payee. The complaint likewise alleged that there was gross inaction on the part of the
drawee on the instruction of the drawer as well as evident failure to inform the payee of the reason for its continued
inaction and non-payment. These acts smack of insouciance on the part of the drawee and are sufficient allegations
of clear abuse of right for which the drawee may be held liable to the payee for any damage that the payee incurred
resulting therefor. It was noted that the actions of the drawee prevented the payee from seeking further redress from
the drawer.
o A bank is under obligation to treat the accounts of its depositors with meticulous care whether such account consists
only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the performance of this
obligation is demandable. While the bank’s negligence was not attended with malice and bad faith, nevertheless, it
caused serious anxiety, embarrassment and humiliation. The fact remains that the bank has committed a serious
error.
Cases when bank may refuse payment:
o The bank is insolvent. 

o The drawer’s deposit is insufficient or he has no account with the bank or said account 
 had been closed
or garnished. 

o The drawer is insolvent and proper notice is received by the bank. 

o The drawer dies and proper notice is received by the bank. 

o The drawer has countermanded payment. 

o The holder refuses to identify himself. 

o The bank has reason to believe that the check is forgery. 

A bank is under no obligation to make part payment on a check up to the amount of the drawer’s funds as where the
check is drawn for an amount larger than what the drawer has on deposit. IN case of partial payment, the check
holder could not be called upon to surrender the check and the bank would be without a voucher affording a certain
means of showing payment. (Moran vs. CA)

4. KINDS OF CHECK
A. Cashier’s and Manager’s Check
Cashier’s check – a bill of exchange drawn by a bank upon itself, and is accepted by its issuance. A manager’s check is
of the same nature, although instead of being signed by the cashier, it is the manager who signs the same for the
bank. 

 Essentially, the bank is both the drawer and the drawee of the cashier’s check. It should be noted, however,
7
that in one case , the Supreme Court considered the purchaser of the check as the drawer thereof
 A demand draft is very different from a cashier’s or manager’s check. The former is an order upon a third
party to be drawn upon a deposit of funds. The latter is a primary obligation of the bank which issues it and
constitutes its written promise to pay upon demand. (Rep. Vs. PNB)
 The Bangko Sentral ng Pilipinas presently generally disallows the issuance of cashier’s, manager’s pr
certified checks that are payable to bearer. The pertinent BSP Circulars provide:

 BSP CIRCULAR NO. 259 Series of 2000

Pursuant to Monetary Board Resolution No. 1494 dated 1 September 2000, additional anti-money
laundering rules and regulations for banks are hereby issued as follows:

Section 1. Issuance of Cashier’s, Manager’s or Certified Checks. Banks shall not issue cashier’s,
manager’s or certified checks or other similar instruments payable to cash, bearer, fictitious payee
or numbered account.

When the person purchasing the above-mentioned instruments is not a regular bank client, the
issuing bank shall require the purchaser to present his/her proof of residence together with
his/her driver’s license, passport, employment I.D. or other photo identification card. A register
for cashier’s, manager’s or certified checks issued shall be maintained by the bank.

Section 2. Sanction. Any violations of the provision of this Circular shall be subject to a fine of
 P30,000 per transaction. This Circular shall take effect immediately.
 BSPCIRCULAR NO. 291 Series of 2001
The Monetary Board, in its Resolution No. 707 dated 10 May 2001 decided to authorize the issuance of
cashier’s, manager’s or certified checks or other similar instruments in blank or payable to cash, bearer
or numbered account as an exception from the provisions of Circular no. 259, subject to the following
conditions:
1. That the amount of each check shall not exceed P10,000.00; 

2. That the buyer of the check is properly identified as required under Circular No. 259 dated 29
September; 

3. That a register of said checks shall be maintained with the following minimum information: 

4. Date issued; 

5. Amount; 

6. Name of buyer; 

7. Date paid; 

8. If the aggregate instruments purchased by the same person within any thirty (30) day period
amounts to at least fifty 
 thousand pesos (P50,000), the purpose of the buyer should be stated.


d. That banks which issue as well as those which accept as deposits, said cashier’s, manager’s or
certified checks or other similar instruments issued in blank or payable to cash, bearer or
numbered account shall take such measure(s) as may be necessary to ensure that said
instruments are not being used/resorted to by the buyer or depositor in furtherance of a money-
laundering activity. 

e. That the deposit of said instruments shall be subject to the same requirements/scrutiny applicable
to cash deposits. 

f. That transactions involving said instruments should be accordingly reported to the Bangko Sentral
ng Pilipinas if there is reasonable ground to suspect that said transactions are being used to
launder funds of illegitimate origin. 

This Circular shall take effect immediately.

B. Certified Check-
one drawn by a depositor upon funds to his credit in a bank which a proper officer of the bank certifies will be paid
when duly presented for payment.
 It is analogous to a certificate of deposit of a certifying bank. Certification is similar to acceptance but is different
in the sense that: (1) Certifications at the instance of the holder discharges while there is no discharge in
ordinary acceptance; (2) In certification, the bank debits the drawer’s account at the time of certification and
sets aside funds out of the drawer’s control. Thus, the effect of certification is the same as though the money
had been paid by the bank to the holder and redeposited by him in his own credit.
 Nevertheless, even if the drawer does not actually have any deposit in the drawee bank, the certification legally
obligates the latter to honor the certified check. So far as concerns the liability of the certifying bank to a holder
in due course, it is immaterial whether the drawer of a check had a deposit in the bank. However, it was also
held that a bank which has certified a check through mistake or fraud can revoke its certification if the rights of
third parties are not affected and the payee has not changed his position in reliance of the certification.
 When a check is certified, it ceases to possess the character, or to perform functions, of a check, and represents
so much money on deposit, payable to the holder on demand. The check becomes a basis of credit – an easy
mode of passing money from hand to hand, and answers the purposes of money. (Philippine National Bank vs.
National City Bank of New York)
 Certification – it is an agreement whereby the bank binds itself to pay the check at any future time when
presented for payment.

C. Crossed Check - done by writing two (2) parallel lines diagonally on the left top portion of the checks.
 There is no provision in the NIL that governs crossed check. However, a provision concerning such type of check
can be found in the Code of Commerce:
o Sec. 541, Code of Commerce. The maker or any legal holder of a check shall be entitled to indicate
 therein that it be paid to a certain banker or institution, which he shall do by writing across the face the
name of said banker or institution, or only the words “and company.
The payment made to a person other than the banker or institution shall not exempt the person on
whom it is drawn, if the payment was not correctly made.
Kinds of Crossed Checks:
1) The crossing is special where the name of a bank or a business institution is written 
 between 2 parallel lines,
which means that the drawee should pay only with the 
 intervention of that company. 

2) The crossing is general where the words written between 2 parallel lines are “and Co.” or 
 “for payee’s account
only.” (Associated Bank vs. CA, 208 SCRA 468) 

Crossed checks according to the Bill of Exchange Act of 1882:
 Generally crossed check – where a check bears across its face an addition of:

A. The words “and company” or any abbreviation thereof between two parallel transverse lines, either with or
without the words “not negotiable”; or

B. Two parallel transverse lines simply, either with or without the words “not negotiable”; that addition
constitutes a crossing and the check is crossed generally.
 Specially crossed check – where a check bears across its face an addition of the name of a bank, either with or
without the words “not negotiable,” that addition constitutes a crossing, and the check is crossed specially and
to that bank.
(1) EFFECTS OF CROSSING A CHECK
 The crossing of a check relates to the mode of its presentment for payment.
Under Section 72 of the NIL, presentment for payment, to be sufficient, must be made by the holder or by some
person authorized to receive payment on his behalf. Who the holder or authorized person is depends on the
instruction stated on the face of the crossed check.
Specific effects of crossing a check:
o The check may not be encashed but only deposited in the bank; 

o The check may be negotiated only once – to one who has an account with the bank; 
 and 

o The act of crossing serves as a warning to the holder that the check has been issued 
 for a definite
purpose so that he must inquire if he has received the check pursuant to that purpose. 
 The
negotiability of the check is not affected by it being crossed, whether generally or specially. It may
legally be negotiated from one person to another as long as the one who encashes the check with the
drawee bank is another bank, or if it is specially crossed, by the bank mentioned between parallel lines.
(Bataan Cigar and Cigarette Factory, Inc. vs. CA)
Issuing a crossed check imposes no legal obligation on the drawee not to honor such a check. It is more of a
warning to the holder that the check cannot be presented to the drawee bank for payment in cash. Instead, the check
can only be deposited with the payee's bank which in turn must present it for payment against the drawee bank in
the course of normal banking transactions between banks. The crossed check cannot be presented for payment but it
can only be deposited and the drawee bank may only pay to another bank in the payee's or indorser's account.
(Gempesaw vs. CA) 

Consequently, crossing of checks should put the holder on inquiry and upon him devolves the duty to
ascertain the indorser’s title to the check or the nature of his possession. Failing in this respect, the holder is declared
guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the NIL, and as such the
consensus authority is to the effect that the holder of the check is not a holder in due course. (Bataan Cigar and
Cigarette Factory, Inc. vs. CA)
Crossing of the check becomes a material part thereof such that its obliteration is unlawful.
D. Memorandum Check – in the form of an ordinary check, with the word “memorandum,” “memo” or “mem”
written across its face, signifying that the maker or drawer engages to pay the bona fide holder absolutely, without
any condition concerning its presentment. Such a check is an evidence of debt against the drawer, and although it
may not be presented, has the same effect as an ordinary check, and if passed to a third person, will be valid in his
hands like any other check. (People vs. Nitafan)
E. Traveller’s Check - instruments purchased from banks, express companies, or the like, in various denominations,
which can be used like cash upon second signature by the purchaser. It has the characteristics of a cashier’s check of
the issuer. It requires the signature of the purchaser at the time he buys it and also at the time he uses it – that is
when he obtains the check from the bank and also at the time he delivers the same to the establishment that will be
paid thereby.
5. WHEN REQUIRED TO BE PRESENT FOR PAYMENT (Sec. 186) NIL
Sec. 186. Within what time a check must be presented. - A check must be presented for payment within a reasonable time
after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay.
Reasonable Time:
o Nature of the Instrument;
o Usage of business or trade; 

o The facts of the particular case. 

Stale Check. – A stale check is one which has not been presented for payment within a reasonable time after its issue.
It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on
demand must be presented for payment on the day it falls due. When the instrument is payable on demand,
presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is
sufficient if made within a reasonable time after the last negotiation thereof.
In banking practice, a check becomes stale after 6month from issue.

6.EFFECT OF DEATH OF DRAWER

o The authority of the drawee bank to honor a check drawn against it us said to be terminated by the death of the
drawer. There is no provision in the NIL expressing this rule. However, the Bill of Exchange Act of 1882 provides that
notice of the customer’s death revokes the banker’s authority to pay. Sec. 75 of the Bill of Exchange Act of 1882
provides:

Sec. 75, Bill of Exchange Act of 1882. The duty of a banker to pay a cheque drawn on him by his customer are
determined by –

(1) Countermand of payment;

(2) Notice of customer’s death.

Moreover, the National Internal revenue Code already disallows withdrawal from the bank account of the deceased
unless proper taxes are paid to the Bureau of Internal Revenue.
7. PERTINENT PHILIPPINE CLEARING HOUSE CORPORATION RULES

o On the check’s due date, a holder of a check may either proceed directly to the drawee bank and present the same
for payment or he may deposit it in his account with his bank known as the depositary or collecting bank. The
depositary bank will then make a provisional credit to his account in the amount of the check. The check thereafter
goes through the process of clearing through the “clearinghouse.”
o Clearinghouse – an association of banks or other payors for the purpose of settling accounts with each other on a
daily basis. Each member of the clearinghouse forwards all deposited checks drawn on other members and receives
from the clearinghouse all checks drawn on it. Balances are adjusted and settled each day.
o It is only after the check has been cleared and collected from the drawee bank that final credit is made in the payee-
depositor’s account. The normal bank policy is to disallow withdrawal from the account of the amount covered by the
check. In some cases, the collecting bank may be held liable if it allows withdrawal of deposit even if the check has
not yet been cleared by the drawee bank.
o Relationship of Parties. – When a check is sent to the clearinghouse, the collecting bank acts as the agent of the
depositor. The collecting bank does not become the owner of the amount covered by the check as the same is only
being collected from the drawee bank for the principal, the depositor.
o Warranties. – A collecting bank is required to stamp on the check that is sought to be cleared that states: “Cleared
thru the Philippine Clearing House Corporation. All prior indorsements and/or lack of endorsement guaranteed.”

A bank is not required to accept all the checks negotiated to it. It is within the bank’s discretion to receive a check for
no banking institution would consciously or deliberately accept a check bearing a forged indorsement. When a check
is deposited with the collecting bank, it takes a risk on its depositor. When a check is deposited with the collecting
bank, it takes a risk on its depositor. It is only logical that this bank be held accountable for the checks deposited by its
customers.

However, even in the absence of the stamp, the collecting bank is also deemed to have made such warranty in
sending the check for clearing.

o There are also case authorities that treat a collecting bank as an indorser. Hence, the collecting bank is deemed to
 have given the same warranties of the general indorser.

o Thus, the collecting bank cannot set up the defense of material alteration for it warrants that the instrument is
genuine and in all respects what it purports to be.
o Duty of Care. – The banking industry is affected with public interest. As such, in dealing with its depositors, a bank
should exercise its functions not only with the diligence of a good father of a family but it should do so with the
highest degree of care.
o Return of Items. – Section 20 of the Rules of the PCHC provides that
Sec. 20.1. Any check/item sent for clearing through the PCHC on which payment should be refused by the
Drawee Bank in accordance with the long standing and accepted banking practices such as but not limited to the fact
that:
(a) it bears the forged signature or unauthorized signature of the drawer(s); or 

(b) it is drawn against a closed account; or 

(c) it is drawn against insufficient funds; or 

(d) payment thereof has been stopped; or 

(e) it is post-dated or stale-dated; and 

(f) it is a cashier’s/manager’s/treasurer’s check of the drawee which has been materially altered; shall 
 be
returned through the PCHC not later than the next regular clearing for local exchanges and the acceptance
of said return by the Sending Bank shall be mandatory. 

20.2 Failure of the Drawee Bank to return such items within said “reglementary period” shall deprive the
Bank of its right to return the items thru the PCHC. 

20.3 However, the right of the Drawee Bank to recover the amount of the item(s) returned shall remain to
be governed by the general principles of law when the defect(s) are discovered after the “reglementary
period.”
o “24 hour rule” – return of checks which contain forged signatures and other grounds stated in Sec 20 in the Rules of
the Philippine Clearing House Corp. Failure to comply with such rule will be deemed negligence on the part of the
drawee.

o 24 hour rule does not apply to checks bearing forged indorsements and materially altered checks. These are covered
by Sec. 21 which allows return thereof “within the period prescribed by law for the filing of a legal action.” This means
that checks bearing forged indorsements and materially altered checks shall be returned within 10 years pursuant to
Article 1144 of the Civil Code. Actions based upon a written contract or upon an obligation created by law must be
brought within 10 years from the time the right of action accrues.
o Stopping Payment. – The drawer has the right to order the drawee to stop payment of a check and this right flows
from the rule that the issuance of a check by itself is not an assignment of funds by the drawee. If a bank pays a check
after it has been notified to stop payment, it pays on its own responsibility and will not be permitted to charge the
account.
The drawer may countermand payment if he has a valid defense against the holder of the check. Thus,
countermanding of a check is proper where the payee failed to deliver the goods that he was supposed to deliver.
(Bataan Cigar and Cigarette Factory, Inc. vs. CA)
o Iron Clad Rule. – Prohibits the countermanding of payment of certified checks. Cashier’s checks are in the nature of
accepted or certified checks and that payment thereon cannot be countermanded by the payee. (Republic of the
Philippines vs. Philippine National Bank)

o However, in the case of Mesina v. IAC, the court qualified the rule by stating that the holder must be a holder in due
course before the stop payment order may not be successfully invoked against him.
CRIMES INVOLVING CHECKS
1.) ESTAFA – postdating a check or issuing a check in payment of an obligation, as provided in Art. 315, par. 2(d) of the Revised
Penal Code, viz

Art. 315. Swindling (estafa). — Any person who shall defraud another by any of the means mentioned hereinbelow
shall be punished by:
2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the
commission of the fraud:
(d) [By post-dating a check, or issuing a check in payment of an obligation when the offender therein were not
 sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to
cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder that said check
has been dishonored for lack of insufficiency of funds shall be prima facie evidence of deceit constituting false
pretense or fraudulent act.
Essential Elements:
o That the offender postdated or issued a check in payment of an obligation contracted 
 at the time the
check was issued; 

o That such postdating or issuing a check was done when the offender had no funds in the bank, or his funds
deposited therein were not sufficient to cover the amount of the check; 

o Deceit or damage to the payee thereof. 

2.) VIOLATION OF BP22
2 ways of violating BP 22
1. By making or drawing and issuing a check to apply on account or for value knowing 
 at the time of issue
that the check is not sufficiently funded; and 

2. By having sufficient funds in or credit with the drawee bank at the time of issue but failing to keep sufficient
funds therein or credit with said bank to cover the full amount 
 of the check when presented to the
drawee bank within a period of 90 days. 


There must be written notice of dishonor to the accused. (Domagsang vs. CA)
3.) CHECK KITING –
is the wrongful practice of taking advantage of the float, the time that elapses between the deposit of the check in
one bank and its collection at another.
 The depositary bank will honor the checks even if it has not yet been cleared. In anticipation of the dishonor of
the check that was deposited, the conspirators will replace the original check with another worthless check.
Check kiting has been described as a procedure whereby checks written on accounts in separate banks are used
to generate short-term purchasing power through the use of the bank’s credit.
 This is punishable under Art. 315 (1) (b) of the RPC. It is estafa with unfaithfulness or abuse of confidence by
misappropriating or converting, to the prejudice of another, money received by the offender in trust or under an
obligation involving the duty to return the same.