Notes on Negotiable

Instruments

BSA 4-1
 CHAPTER 1
APPLICABILITY OF NEGOTIABILITY INSTRUMENT LAW
Negotiable Instrument Law
Negotiable Instruments Law Section 190 of Act 2031 is the
law that governs any instrument that possesses the
characteristic of negotiability.
Negotiable Instruments Law Section 190 of Act 2031 was
enacted on February 3, 1911 and took effect ninety (90)
days after the official publication in the Gazette of the
Philippines Islands as stated in Section 198 of Act 2031.
The act took effect on June 2 1911.
Application of the Law
Any negotiable instrument made and delivered prior this
law is excluded to the application of provisions of
negotiable instruments law.
Any case not provided in the act and instruments other
than those qualified as negotiable instrument or which are
in substantial compliance or possesses the requisites stated
in Sec 1 shall be governed by existing legislations or default,
by the rules of the law on merchant.
Negotiable instruments instrument law was enacted to
facilitate the transactions in commercial papers.
FEBRUARY 20,
2019
I promise to pay Michael if she will catch the
sun and give it to Abby P5, 000 on demand.
Sgd. Luke
Despite there is a promise to pay by maker (Luke) to Payee
(Michael), the amount of P5, 000 on demand, the
instrument is deemed non-negotiable as it does not meet
the requisites stated in Section 1 that it must contain
unconditional promise to pay.
A negotiable instrument, either promissory notes or bill of
exchange, regardless whether contract of service, contract
of sale, debt agreement or other contracts was entered and
the payer was not in the capacity of paying it at present ,
can be issued as a medium of exchange or substitute for
money, or instrument of consideration.
Provided in Section 24:
Presumption of consideration:
Every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration. The person whose
signature indicated therein is considered to have become a
party for value
Likewise, Section 25 provides what comprises value.
“Value is any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt constitutes
value; and is deemed such whether the instrument is
payable on demand or at a future time”
FEBRUARY 20, 2019
Pay to the order of Calum P5, 000.
Ashton
Example of a check
Note that the cause or consideration is not required to be
stated in the instrument and it does not affect the
negotiability.
Holder of the Instrument
Holder according to Sec 191, is the payee or indorsee of a
bill or note who has the instrument or bearer.
Holder for value in Sec 26 states that:
“Where value has at anytime been given for the instrument,
the holder is deemed a holder for value in respect to all
parties who become such prior to that time.”
Example:
If V indorses the note to J-hope then J-hope to Jimin, Jimin is
the holder for value and can enforce the instrument
primarily to the maker, Jungkook.
FEBRUARY 20, 2019
I promise to pay V or bearer P15, 000 on demand.
Sgd. Jungkook
Effect of want consideration
Section 28 stated that absence or failure of consideration is
a matter of defense as against any person not a holder in
due course; and partial failure is an ascertained and
liquidated or otherwise.
When lien on instrument constitutes holder for value
Section 27 stated that where the holder has lien on the
instrument arising from contract or by implication of law,
he is deemed a holder for value to the extent of his lien.
Lien - a right to keep possession of property belonging to
another person until a debt owed by that person is
discharged.
Example:
Mayen issues a promissory note payable to the order of
Pedro for P10, 000. Later Pedro indorses the whole amount
of the note to Helen to secure his debt of P8, 000. Helen is a
holder for value to the extent of his lien P8, 000. At
maturity, how much may Helen collect from Mayen?
1. Mayen no defense against Pedro
 Helen can collect from Mayen P10, 000.
However, he has obligation to give P2000 to
Pedro.
2. Mayen has a personal defense against Pedro such as
want consideration
 Helen can collect only P8,000 since Helen is a
holder in due course only for the said
amount.
3. Mayen has a real defense against Pedro
 Helen can collect nothing from Mayen.
Negotiable Instruments under Act. 2031
A. Promissory note (Sec.184)
B. Bill of Exchange (Secs.126-131)
C. Checks (Secs.185,186,189,193)
 D. Bills in Set (Secs.178-183)
E. Inland and foreign bill of exchange (Sec.129)
F. Bill treated as promissory note (Sec.130)
G. Option bill or note (Sec.17[e])
A. Promissory note defined
A negotiable promissory note is an unconditional
promise in writing made by one party (the notes
issuer or maker) to another party (the notes payee),
signed by the maker, engaging to pay on demand, or
at a fixed or determinable future time, a sum certain
in money to order or to bearer. Where a note is
drawn to the maker’s own order, it is not complete
until indorsed by him. (Sec.184).
Parties in promissory note:
 Maker- the person, who executes the written
promise to pay, also called promisor. In the
example, Ryan Bang is the maker.
 Payee- the person in whose favor the promissory
note is made payable, also called promisee. In
the below example, Anne Curtis is the payee.
Example of Promissory note:
P10, 000 Marikina, Philippines
August 1, 2019
For Value received, I promise to pay Anne Curtis or
order the sum of P10, 000 on November 22, 2019
(Sgd) Ryan Bang
B. Bill of exchange define
A bill of exchange is an unconditional order in
writing addressed by one person to another, signed
by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed
or determinable future time a sum certain in money
to order or to bearer. (Sec.126)
Parties in bill of exchange :
 Drawer- the person who executes the written order
to pay. In the below example, Amy Perez is the
drawer.
 Payee- the person to whom the bill of exchange is
drawn payable. In the example, Vhong Navarro is
the payee.
 Drawee- the person who is given the command by
the drawer to pay the payee. In the example ,Jhong
Hillaro is the drawee.
Example of Promissory note:
Manila, Philippines
August 1, 2019
Pay to Vhong Navarro or order P 100,000 on demand.
(Sgd) Amy Perez
To: JhongHillaro
202 Aurora Building Sta.mesa City
Sec. 127 Bill not an assignment of funds in hands of
drawee.
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 is not liable on the instrument until he accepts it.
EXAMPLE:
28 September 2019
NPA-R Quezon City
Pay to Bryan or order Php200,000 on demand.
To: Luke
Sgd. Nina
If Bryan indorses the instrument to Lucas, Lucas to
Liam and Liam to Nate, Nate as the holder may present the
instrument to Luke for payment. If Luke refuses to pay,
Luke as the drawee cannot be compelled to pay Nate even if
To: Luke
Nina as the drawer has sufficient funds in the hands of
Luke. Reason, as stated in Sec.127, the "A bill of exchange
Sgd. Nina
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."
Explanation: 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.)
Sec. 128Bill addressed to more than one drawee. A bill
may be addressed to two or more drawees jointly,
whether they are partners or not; but not to two or more
drawees in the alternative or in succession.
Sample Illustration
28 September 2019
NPA-R Quezon City
Pay to Bryan or order Php200,000 on demand.
To: Luke and Patrick
Sgd. Nina
Note: By having the instrument addressed to two or more
drawees jointly simply means that presentment for
acceptance MUST BE MADE TO THEM ALL, unless one has
authority
To: Luke to accept or refuse acceptance for all, in which
case presentment may be made to him only.
In this case, the Sgd.bill
Ninamust be presented for
acceptance BOTH TO LUKE AND PATRICK since neither
the party is authorized by the other.
 28 September 2019
NPA-R Quezon City
Pay to Bryan or order Php200,000 on demand.
To: Luke or Patrick
Sgd. Nina
In this case, the instrument is not negotiable since it is
addressed to joint drawees IN THE ALTERNATIVE.
Note: Section 128 prohibits two or more drawees in the
alternative
To: Luke or in succession.
C. Check defined Sgd. Nina
A CHECK is a form of bill of exchange where the
order to pay a person is given to a bank which is holding
the payor’s money on deposit.
Functions:
 Used as substitute for money (bills or coins).
 Media of exchange for most commercial
transactions.
 Serve as a medium of credit transactions.
Note:
 Check is always drawn upon a bank
 Check is always payable on demand
 Check is drawn on a deposit
 Check must be presented for payment within a
reasonable time after its issue
Parties in a check
A check typically involves three parties;
 the drawer who writes the check
 the payee, to whose order the check is made out,
and
 the drawee or payor bank, the bank which has the
drawer's checking account from which the check is
to be paid.
Under Sec. 62, a bank is not liable until it accepts the
instrument.
Reason: Check is required to be presented for payment
and as a matter of procedure, a verification in addition to
the clearing process is observed by the drawee bank.
Note: The purpose is to limit its liability.
WITHIN WHAT TIME A CHECK MUST BE PRESENTED
SEC. 186 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. 193 provides what constitutes reasonable time,
“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.”
A check becomes stale after more than six (6) months or
180 days. (Current banking practice)
 [International Corporate Bank v. Gueco (351 SCRA
517 {2001})] Salient Points:
 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;
 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 the bill of exchange, presentment is
sufficient if made within a reasonable time after
its last negotiation.
Note:
 The test is whether the payee employed such
diligence as a prudent man exercise in his own
affairs.
 The nature and theory behind the use of a check
points to its immediate use and payability.
Material Importance (Security Bank and Trust Co. v.
CA[91 CSRA 33])
1. There was no contractual relation created between
the drawee bank and the payee as a result of the
payment by the former of the amount of the checks;
2. Drawee bank simply paid (or is paying) the check for
and in behalf of the drawer;
3. If the check was dishonored upon presentment for
payment, the payee cannot sue the drawee bank but
only the drawer for lack of privity; and
4. The funds from which the check shall be paid belong
to the drawer and merely deposited with the drawee
bank.
Kinds of Checks
1. Manager’s check– drawn by the bank’s manager
upon the bank itself payable to third person and is
similar to cashier’s check both as to effect and use.
2. Cashier’s checks – is a check of the bank’s cashier on
his own or another check. It is a bill of exchange
drawn by the cashier of the bank upon the bank
itself, and accepted in advance by the act of its
issuance.
(It is really the bank’s own check and may be treated
a promissory note with the bank as a maker. The
check becomes the primary obligation of the bank
which issues it and constitutes its written promise
to pay upon demand. The mere issuance of it is
considered an acceptance thereof. If treated as
promissory note, the drawer would be the maker
and in which case the holder needs not to prove
presentment for payment or present the bill to the
drawee for acceptance.)
3. Certified checks – where the check is certified by the
bank on which it is drawn, the certification is
equivalent to an acceptance. ( Sec. 187) It is likewise
guarantees the availability of funds for the check.
And, where the holder of a check procures it to be
 accepted or certified, the drawer and all indorsers
are discharged from liability thereon. (Sec. 188)
4. Stale checks – not presented and encashed within six
(6)months.
5. Crossed check – bears two parallel lines across its
face normally on the upper left side diagonally and
signifying either for payee’s account only or for
deposit only.
A crossed check is defined as a check crossed
with two (2) lines, between which either the name
of the bank or the words “and company,” in full or
abbreviated. In the former case, the banker on
whom it is drawn must not pay the money for the
check to any other than the banker named; in the
latter case, he must not pay it to any other than a
banker. In one case, it was ruled that the crossing of
one of the subject checks should have put petitioner
on guard; it was duty-bound to ascertain the
indorser’s title to the check or the nature of his
possession and crossing of the checks mean:
a. The check may not be e-cashed but only
deposited in the bank;
b. The check may be negotiated only once to one
who has an account with a bank; and
c. The act of crossing the check serves as a warning
to the holder that the check has been issued for
definite purpose so that he must inquire if he has
received the check pursuant to that purpose;
otherwise, he is not a holder in due course.
6. Bad checks – a check that is not honored because the
account either contains insufficient funds or does
not exist. Also termed hot check; worthless check;
rubber check; bounced check; cold check; bogus
check; false check; dry check.
7. Blank check – a check signed by the drawer but left
blank as to the payee or the amount, or both.
8. Cancelled check – a check bearing a notation that it
has been paid by the bank on which it was drawn. A
cancelled check is often used as evidence of
payment.
9. Memorandum check – a check that a borrower gives
to a lender for the amount of the short-term loan,
with the understanding that it is not to be presented
for payment but will be redeemed by the borrower
when the loan falls due.
10. Traveler’s check – a cashier’s check that must be
signed by the purchaser at the time of purchase and
countersigned when cashed. An instrument that
1. payable in demand,
2. drawn or payable at or through bank,
3. is designated by the term “traveler’s check” or
by a substantially similar term, and
4. requires, as a condition to payment, a
countersignature by the person whose
specimen signature appears on the instrument.
D. Bills in Set
Bill in set constitute one bill
Where a bill is drawn in a set, each part of the set
being numbered and containing a reference to the other
parts, the whole of the parts constitute one bill. (Sec. 178)
A bill in set is one negotiable instrument composed
of several parts (or pages), each part being numbered and
containing a reference to the other parts, the whole of the
parts constituting but one bill.
Illustration:
 First Part
 Second Part
Purpose of a bill in set
The purpose of drawing bills in set is to increase
probability that at least one part of the bill would reach its
destination.
Right of holders where different parts are negotiated
Where two or more parts of a set are negotiated to
different holders in due course, the holder whose title first
accrues is, as between such holders, the true owner of the
bill. But nothing in this section affects the right of a person
who, in due course, accepts or pays the parts first
presented to him. (Sec. 179)
Liability of holder who indorses two or more parts of
set to different persons
When the holder of a set indorses two or more parts to
different person, he is liable on every such part, and every
indorser subsequent to him is liable on the part he has
himself indorsed, as if such parts were separate bills (Sec
180)
The holder of a set who indorses two or more parts of the
instrument to different persons, he is liable on the parts
indorsed and every indorser following him is also liable on
the part he himself indorsed, assuming it is separate bills.
Acceptance of bill drawn in sets
The acceptance may be written on any part and it must be
written on one part only. If the drawee accepts more that
one part and such accepted parts negotiated to different
holders in duce course, he is liable on every such part as if it
were a separate bill. (Sec 181)
The drawee who accepts a bills in set is required to accept
onlyonepart of the bill and the acceptance thereof may be
written only on the one part of the set. If the
draweeaccepts all the parts of the bills, and the bills were
negotiated, the drawee is liable on every part of the bill.
Payment by acceptor of bills drawn in sets
When the acceptor of a bill drawn in a set pays it without
requiring the part bearing his acceptance to be delivered up
to him, and the part at maturity is outstanding in the hands
of a holder in due course, he is liable to the holder thereon.
(Sec 182)
If the drawee pays the bill, before he accepts, he must
require that part of the bill in a set supports his acceptance
(signature for example) that delivered to him or
surrendered for payment. The acceptor of the bill drawn in
set should pay the part that supports his acceptance. And
the part at maturity is still outstanding in the hands of a
holder in due course, he is liable to the holder.
Effect of discharging one of a set
Except as herein otherwise provided, where any one part of
a bill drawn in a set is discharged by payment or otherwise,
the whole bill is discharge. (Sec 183)
The section means on discharging by payment only on one
set. It is because that part constituting the bills in set is
assumed as one bill. This means that payment on one set, is
also payment of the whole.
E. Inland and foreign bills
An inland bill of exchange is a bill which is, or on its
face purports to be, both drawn and payable within the
Philippines. Any other bill is a foreign bill. Unless the
contrary appears on the face of the bill, the holder may
treat it as an inland bill (Sec 129).
Kinds of Bills of Exchange:
1. Inland Bill- stated on its face what the purpose and
can only be drawn and payable within the
Philippines;
2. Foreign bill- can be drawn in the Philippines but
payable outside the country; can be drawn outside
the countries but payable in the Philippines; or can
be drawn and payable outside the Philippines.
F. When bill may be treated as promissory note
Importance of treating the bill as promissory
note
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. (Sec 70)

Section 70 provides that presentment for payment is

necessary in order to charge the drawer and indorsers,
parties secondary liable. When the bill is treated as note,
the drawer becomes the maker, so, the holder of the
instrument need not prove a presentment for payment.
Therefore, it can be give out already.

G. Option bill or note

Section 17(e) states that “Where the instrument is
so ambiguous that there is doubt whether it is a bill
or note, the holder may treat it as either at his
selection.

Example whether the instrument a note or bill:

24, July 2019

I promise to pay Alma or bearer P10,000 payable

on 24 July 2020.

To: Roderick Sgd. Bella

Sgd. Jungkook
 CHAPTER 2
NEGOTIABILITY
Negotiable Instruments
Negotiable instruments are an alternative for money
which can be used as a substitute for payment in a certain
transaction like sales, commercial transactions and other
financial transactions. In spite of that, creditor cannot be
enforced to accept the negotiable instrument as a payment
even if it’s a valid one due to the reason that it’s not a legal
tender.
A legal tender is a currency where a debtor can
oblige a creditor to accept as a payment.
As such, it’s the discretion of the creditor to accept
or decline the negotiable instrument as a mode of payment.
Negotiability
The important factors in an instrument to be
negotiable are in its face, other things are not relevant.
First, the instrument must be in writing and the signature
of the maker or drawer is indicated therein. Only the
person whose signature is seen in the face of the
instrument is liable. As long as it can be read and has the
other factors, the instrument can be written to a paper or
substitute for paper.
Second, it must contain an unconditional promise or
order to pay a sum certain in money. Requirements in the
face of an instrument will make it non-negotiable.
Third, it must be payable on demand, or at a fixed, or
determinable future time.
Fourth, it must be payable to order or to bearer. The
instrument may be named to a fictitious character and still
be deemed valid.
Fifth is for the bill of exchange where it’s addressed
to a drawee. The drawee must be named or indicated with a
reasonable certainty.
Signature of the maker or drawer
Signature is person’s name or mark written by that
person and used with the intention of authenticating a
document. Furthermore, no person is liable on the
instrument whose signature does not appear thereon,
except as herein otherwise expressly provided.
Exceptions:
1. A person signing in a trade name or assumed name
will be liable to the extent as if he signed in his own
name.
2. Duly authorized agent signing for the principal. The
principal is bound by the signature of the agent.
3. In case of forgery, the forger is still liable even his
signature does not appear on the instrument.
4. An indorser signing on a separate paper attached to
the instrument.
5. The acceptor when the acceptance is written on a
paper other the bill itself.
Effect of forged signature
 The signature under forged or made even without
authority of the person, meaning the signature are
W.I.D.E:
o W-Wholly inoperative
 The signature is wholly inoperative
o I-Instrument retainer
 No right to retain the instrument
o D- Discharge
 No right to give discharge therefore or
o E-Enforcement payment
 No right to enforce payment thereof
against any party, thereof can be acquired
through or under such signature, unless
the party against whom it is sought to
enforce such right is precluded from
setting up the forgery or want of
authority.
Article 169 of the revised Penal code discuss how forgery is
committed
 Under article 169 forged may be committed by the
following:
1. "Appearance of a true genuine document"
 By giving it to a treasury or bank note or any
instrument, payable to bearer or order
mentioned
2. "C.A.S.E"
Counterfeiting, Altering, Substituting and Erasing it either
figures, letters, words or signs contained therein.
Noted: Under Section 23 does not avoid the INSTRUMENT
but only the FORGED SIGNATURE, thus a forged
indorsement does not operate as the payee's indorsement.
Unless, "A party against whom it is sought to enforce a right
is precluded from setting up the forgery or want of
authority"
P - Persons Negotiating by delivery
I - Indorsers
A - Acceptor
(P.I.A) Those are the warrantors of the genuineness of the
signature on the instrument
SIGNATORIES OF NEGOTIABLE INSTRUMENT:
1. Maker
2. Drawer
3. Indorser
Forged Signature of the Maker
Order Instrument
 The right of the indorsee is to proceed against the
payee, not the maker (because as to the maker, the
instrument is inoperative)
Bearer Instrument
 The indorsee who is a holder in due course can
proceed against ALL parties.
  Signature is immaterial but forger is criminally
liable.
Setting up the defense of forgery
1. The party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of
authority by their N.A.S.P:
N - Negligence
A - Acts
S - Silence
P - Parties who warrant s or admit the genuineness of the
signature in the question under Sec 65 and 66.
Forged Signature of the Drawer
Without the Collecting Bank (instrument was encashed
or presented for payment at the very same drawee bank)
 The drawer-depositor has ALL the right against the
drawee-depository bank for negligence in not
ascertaining the genuineness of the signature of its
client.
Rule: A bank is bound to know its depositors’
signature.
With Collecting Bank (instrument was deposited or
presented for payment in another bank called the
collecting bank as distinguished from the drawee bank)
 Generally, collecting banks are held to be negligent
for failing to observe precautionary measures to
detect the forgery.
 A collecting bank where a check is deposited and
which indorses the check upon presentment with
the drawee bank is such an indorser.
 The collecting bank is bound by his warranties as an
indorser and cannot set up the defense of forgery as
against the drawee bank.
General Rule: The warranty “that the instrument is
genuine and in all respects what it purports to be”
covers all the defects in the instrument affecting the
validity thereof, including a forged instrument.
Exception: When the issuance of the check itself
was attended with negligence.
Exception to the Liability of the Collecting Bank or
the “60%-40%” or “50%-50” Liability Rule
A. 60% - 40% Liability Rule (60% drawee bank and
40% collecting bank)
 The drawee bank is liable for 60% of the amount on
the face of the negotiable instrument and 40% liable
for the collecting banks due of the negligence of both
banks.
B. 50% -50% Liability Rule (drawer and collecting
bank)
 The issuing institution and the collecting bank
should be proportionately shared the liability for the
loss of amount represented by the check concerned
because of the negligence of the both parties.
  Banks or institution which issued the checks was
held partially liable for the amount in the check
because of the negligence of these parties which
resulted in the issuance of the checks without the
authorization or confirming its validity.
 The holder of the instrument having no participation
in the forgery and negotiation of instrument can
raise real defense of forgery as against both banks
Forged Signature of the Indorser
A. Forged signature of the Indorser in an order
instrument
Example:
Athena makes a promissory note payable to Kenji or
order Php 20,000. Assume that while Kirby holds the
instrument, Bernadette took it unlawfully and forged
the signature of Kirby. Afterwards, she indorsed it to
Hikari and Hikari to Sakura.
 In this case, Sakura can proceed against Bernadette,
the one who forged the signature of Kenji.
 Sakura cannot collect from Athena, Kenji and Kirby
because the instrument is wholly inoperative.
 Sakura can collect from Bernadette and Hikari being
the subsequent parties.
Notes:
1. Parties prior to the forgery are not liable.
2. Only the forger and subsequent parties are liable in
an order instrument and it’s signature of the
indorser is forged
As held by the Supreme Court, to wit:
1. Forgery
 For the party whose signature is forged:
- Real or absolute defense
-Was never a party because of the reason he never
gave his consent to the contract
-Not liable to anyone; not even by a holder in due
course
 If a person’s signature is forged as a maker of the
promissory note:
-He cannot be made to pay because he never made
the promise to pay
 A person’s signature as a drawer of check is forged:
- Drawee bank cannot charge the amount against
the drawer account
 Section 23 also covers about a forged indorsement,
for example:
- Forged signature of the payee
- Indorsee of a note or check
 According to the said provision, subsequent parties
cannot go against parties prior to the forgery and
the signature that is forged is “wholly inoperative”.
 Exception:
-There is an exception to the rules if a party is
precluded from setting up forgery as defense.
2. Forged indorsements
 2 Types of cases involving forged
instruments of checks
1. Forgery was done by a person not related to
the drawer
Example: Mail Robbery
2. Forgery was done by an agent of the drawer
- It is the duty of the drawer (depositor) to report
to the drawee bank if he learns that the check
drawn by him has been paid under a forged
instrument.
- The negligence or failure of a drawer to discover
or to report the forgery to the drawee will cause
the drawer to lose his right against the drawee.
 Delivery is essential for the purpose of giving effect
to the instrument.
 Issuance of the instrument
-First delivery of the instrument, complete in form,
to the payee who takes it as a holder of the
instrument
 Rule: A drawer’s account for the amount of the said
check which an indorsement has been forged
CANNOT be charge by a drawee bank who has paid
the check.
 Exception: Drawer is guilty of negligence
which made the bank to honor such a check
or checks.
 In case the check is stolen from the payee, he has no
similar obligation to the forged instruments.
 The failure of the depositor to act as a “prudent
businessman” under the circumstances is based on
the negligence of the depositor which, in turn, will
prevent the recovery of an unauthorized payment.
 If it came to the knowledge of the depositor that her
or his funds is disappearing and if it happens that
she fails to take steps, it will make her negligent and
be estopped to recover from the bank.
 The negligence of the petitioner was the reason of
her loss. Under the Section 23 of Negotiable
Instruments Law (NIL), he or she cannot compel the
drawee bank to recredit her account with the
amount of such checks.
B. Forged signature of the Indorser in a bearer
instrument
Example:
Athena makes a promissory note payable to Kenji or
order Php 20,000. Assume that while Kirby holds the
instrument, Bernadette took it unlawfully and forged
the signature of Kirby. Afterwards, she indorsed it to
Hikari and Hikari to Sakura, a holder in due course.
 In this case, Sakura can proceed against Bernadette,
the one who forged the signature of Kirby and
Hikari, the subsequent party.
 Because the instrument is a bearer instrument,
Sakura may likewise proceed against Athena and
Kenji.
 The instrument is a bearer instrument and
endorsement are not necessary and under Sec. 30,
the bearer instrument can be negotiated by delivery
only. The endorsement and forged signature are not
 necessary to pass the title; it can be pass through
delivery.
Signature by agent
The signature of any party may be made by a duly
authorized agent,
Requisites – signing as agent;
 Duly authorized to sign for the principal;
 Addition of words describing him as an agent or as a
filing a representative capacity; and
 Must disclose his principal
Signature by procuration
The agent has but a limited authority to sign, and the
principal is bound only in case the agent in so signing acted
within the actual limits of his authority. Procuration means
the act of appointing someone as an agent or attorney in
fact.
An agent per procuration must be expressly
authorized either to make, draw, accept or indorse the
instrument for his principal. Otherwise, without express
authority, cannot presume to act for and in behalf of the
principal, the agent per procuration is not bound, and thus,
not liable.
Liability of Accommodation Party
An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser,
without receiving value thereof, and for the purpose of
lending his name to some other person. The relation of
accommodation party and the accommodated party is one
of principal and surety – the accommodation party being
the surety.
The surety’s liability to the creditor is immediate,
primary, and absolute; he is directly and equally bound
with the principal.
Unconditional promise or order to pay a sum certain in
money
Unconditional promise is a straightforward promise
dependent upon the happening of certain event. In case of
bill of exchange, the order must an order of payment and
not a mere request to pay.
Every promise in writing to pay money is presumed
to have been made for a valuable consideration until the
contrary is proved.
When promise is unconditional
An unconditional promise is that which indicates a
particular fund from which reimbursement is to be made,
or a particular account to be debited with the amount, and
a statement of transaction which give rise to the
instrument, thus, making the instrument negotiable. On the
other hand, an instrument which states a particular found
from which payment is to be made is non-negotiable.
Particular account to be debited
Treasury warrants are non-negotiable instrument
as it is actually an order of payment out of a particular fund;
therefore, it is not within the scope of negotiable with costs of collection or attorney’s fee in case payment shall
instruments law. not be made upon maturity.”

An example of instrument which states a particular account With interest

to be debited is:
The certain as to sum requirement refers to the
“To: May principal amount, and the interest stipulated is just a mere
accessory to the instrument.
Pay to June or order Php 10,000.00 and charge to the
account of July Corporation.” By stated installments

The instrument is negotiable as it does not mean
that the payment is to be made from the account of July
Corporation. May is the drawer here, so regardless if July
Corporation’s account has enough or insufficient amount,
June will be paid by May. Only the reimbursement of May’s
payment will come from July Corporation’s account.
The mode of payment (which is by instalment) does
not affect the negotiability of the instrument as the
principal sum is certain. It is only when maturity date is not
stated which renders it non-negotiable.
By stated installments with acceleration clause

There is a presumption that a valuable consideration has Example:

been given which gives rise to the instrument and the September 03, 2019
signatures of people that appear thereon have become a
party thereto for value. I promise to pay Anna or bearer P15,000 in three monthly
installments, as follows:
Sum certain in money

As stated, a negotiable instrument is payable only in

money. Payments other than money renders the 1st – October 03, 2019 P5,000
instrument non-negotiable. 2nd – November 03, 2019 P5,000
3rd – December 03, 2019 P5,000
Section 2 states that, “Sum payable is a sum certain within
the meaning of this Act, a although it is to be paid: (a) with Upon default in payment in any of the above-mentioned
interest; or (b) by stated instalments: or (c) by stated installments, then the whole amount payable shall become
instalments with a provision that, upon default in payment of due.
any instalment or interest, the whole shall become due; or (d)
with exchange, whether at a fixed rate or current rate; or (e) Sgd. Elsa
 The instrument is still negotiable because it has provision With costs of collection or attorney’s fee
that upon default in payment of any installment, the whole
amount shall become due. Example:

The provision is called acceleration clause. As an incident, July 14, 2019

the objective is to compel the payment of the instrument on
time.
I promise to pay Karl or bearer P10,000 on August 14,
With exchange rate whether at a fixed rate or current
rate 2019 and upon default, I likewise commit to pay the costs
June 18, 2019 of collection and attorney’s fee.

Sgd. Rei
I promise to pay Vilma or bearer $10,000 with
exchange at 1.5%.
This is still negotiable because the sum of P10,000 is still
Sgd. Nikka certain although it is to be paid with collection and an
attorney's fee, in case shall not be paid at its maturity date.

Must be payable on demand, or at a fixed or

This provision applies to foreign bill. Exchange means rate determinable future time
multiplied by the principal amount to cover the expenses in
providing the funds since it may be drawn in one country
and payable in another. The instrument is negotiable
because it is with exchange. - As to time, certain is a necessity. This requires the
time or maturity of the instrument.

An instrument is payable on demand:

1. When it is expressed to be payable on demand, or at a

sight, or on presentation.
2. In which no time for payment is expressed. 1. As to person issuing after it is overdue.

Payable on demand, or at sight or on presentation 2. As to person accepting after it is overdue.

Example: 3. As to person endorsing after it is overdue.

Determinable future time

June 28, 2019 An instrument is payable at a determinable future time,

which is expressed to be payable:

a. At a fixed period after date or sight; or

1. I promise to pay Gelo or bearer P20,000 on demand.
Or
2. I promise to pay Gelo or bearer P20,000 on
presentation. Or
3. I promise to pay Gelo or bearer P20,000. (No time)
b. On or before a fixed determinable future time specified
therein; or
c. On or at a fixed period after the occurrence of a specified
event which is certain to happen, though the time of
happening is uncertain.

Example:
Sgd. Riane

January 4, 2019
Overdue instrument regarded as payable on demand 1. I promise to pay Aira or bearer P10,000, 30 days
after date. Or
Instrument issued, accepted, or indorsed when
overdue 2. I promise to pay Aira or bearer P10,000, 30 days
after sight. Or
Example:
March 23, 2019 3. I promise to pay Aira or bearer P10,000 on or before
February 4, 2019.
I promise to pay Federer or bearer P50,000 on March
31, 2019. Sgd. Audrey

Sgd. Riane

Sgd. Reiniel
 - Nos. 1 & 2 are negotiable because the future time is
determinable
- No. 3 is also negotiable because it is a fixed or
determinable future time.
In the above case, it is only the maker, Audrey, that is given
the privilege to make use of the period stated in the note
"on or before" the period intended to benefit her.
Occurrence of Certain Event
 It is not necessary that the date on the instrument be
specific, as long as a specified event is payable at a
fixed or determinable future time, the instrument
shall be rendered NEGOTIABLE.
 On the other hand, if there is no date on the
instrument and the specified event cannot be known
to come or contingent, the instrument shall be
rendered NON-NEGOTIABLE and the happening of
the event does not cure the defect or its non-
negotiability.
 According to Art. 1180 of the Civil Code, “In
conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the
event which constitutes the condition”.
Must be Payable to Order or to Bearer
 Under Section 8, the instrument is payable to order
where it is drawn payable to the order of specified
person or to him or to his order and maybe drawn
payable to the order of:
 A payee who is not maker, drawer, or
drawee;
 Drawer or maker
 Drawee
 Two or more payees jointly
 One or some several payees; or
 The holder of an office for a time being.
 Under Section 9, the instrument is payable to bearer
when:
 It is expressed to be so payable;
 It is payable to a person named therein or
bearer;
 It is payable to the order of a FICTITIOUS or
non-existing person, and such fact was
known to the person making it so payable;
 The name of the payee does not purport to be
a name of any person; or
 The only or last indorsement is an
indorsement in blank.
NOTE: The term “order” or “bearer” is the magic word in a
negotiable instrument. If there is no payable to order or
bearer in an instrument, then that instrument is not
negotiable. These words serve as an expression that the
instrument maybe transferred.
Payable to Order
 There must always be a specified person named in
the instrument which means that the bill or note is
to be paid to the person designated in the
 instrument or to any person to whom he has
indorsed the instrument and delivered the same.
Payable to bearer
 A bearer is the person who is in possession of a bill
or note which is payable to bearer.
 A bearer instrument refers to the bearer of the
documents, or whosoever at the time of
presentment the instrument payable
01 October 2019
 Pay to bearer Php 100,000
-when it is expressed to be so payable
 Pay to Federer or bearer Php 100,000
-when it is payable to a person named therein or
 Pay to Wolverine Php 100,000
-when it is payable to order of a fictitious or non-
existing person, and such fact was known to the
person making it so payable
 Pay to cash
-when the name of the payee does not purport to
be the name of any person
 At the back of the instrument, the payee signed
his name and deliver it to another
-when the only or last indorsement is an
indorsement in blank.
To: Roddick
Sgd. Nadal
Fictitious Payee
Requisites:
1. Payable to the order of a fictitious or non-
existing person,
2. Such fact was known to the person making it so
payable.
Checks issued to “Prinsipe Abante” or “Si Malakas at
Maganda,” who are well-known characters in Philippine
mythology, are bearer instruments because the named
payees are fictitious and non-existent.
Fictitious Payee
Requisites:
3. Payable to the order of a fictitious or non-
existing person,
4. Such fact was known to the person making it so
payable.
Checks issued to “Prinsipe Abante” or “Si Malakas at
Maganda,” who are well-known characters in Philippine
mythology, are bearer instruments because the named
payees are fictitious and non-existent.
Fictitious Payee Rule
In a fictitious-payee situation, the drawee bank is
absolved from liability and the drawer bears the loss. When
faced with a check payable to a fictitious payee, it is treated
as a bearer instrument that can be negotiated by delivery.
 The underlying theory is that one cannot expect a
fictitious payee to negotiate the check by placing his
indorsement thereon. And since the maker knew this
limitation, he must have intended for the instrument to be
negotiated by mere delivery. Thus, in case of controversy,
the drawer of the check will bear the loss.
This rule is justified for otherwise, it will be most
convenient for the maker who desires to escape payment of
the check to always deny the validity of the indorsement.
Commercial Bad Faith Rule
A showing of commercial bad faith on the part of the
drawee bank, or any transferee of the check for that matter,
will work to strip it of this defense. The exception will cause
it to bear the loss.
Commercial bad faith is present if the transferee of
the check acts dishonestly, and is a party to the fraudulent
scheme.
For the fictitious-payee rule to be available as a
defense, the drawee must show that the makers did not
intend for the named payees to be part of the transaction
involving the checks.
1. If the bank failed to satisfy a requisite condition
of a fictitious-payee situation.
-that the maker of the check intended for the
payee to have no interest in the transaction, the
bank is liable for the loss
2. In the case of failure to show that the payees
were fictitious in its broader sense, the fictitious-
payee rule does not apply. Thus, the checks are
to be deemed payable to order. Consequently,
the drawee bank bears the loss.
3. A bank that regularly processes checks that are
neither payable to the customer nor fully
indorsed by the payee is apparently grossly
negligent in its operations.
4. In a checking transaction, the drawee bank has
the duty to verify the genuineness of the
signature of the drawer and to pay the check
strictly in accordance with the drawer's
instructions.
Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
 It is basic in a bill of exchange that a drawee
must be a party thereto.
 A bill makes a command or order to pay and
such, the person or the drawee to whom such
order is made or addressed must be named.
 In case the drawee cannot be named, then at
least be indicated with reasonable certainty like
“Finance Officer” of a corporation.
Note: since the drawee is only a party to a bill of exchange,
this provision necessarily does not apply to promissory
note.
1. A check is a bill of exchange drawn on a bank
payable on demand.
 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.
2. Fixed savings and current deposits of money in
banks and similar institutions shall be governed by
the provisions concerning simple loan.
 The relationship between the bank and the
depositor is that of a debtor and creditor.
3. Where the bank possesses funds of a depositor, it is
bound to honor his checks to the extent of the
amount of his deposits.
 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.
4. 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.
5. A drawer must remember his responsibilities every
time he issues a check. He must personally keep
track of his available balance in the bank and not
rely on the bank to notify him of the necessity to
fund certain check he previously issued.
 A check, as distinguished from an ordinary bill of
exchange, is supposed to be drawn against a
previous deposit of funds for it is ordinarily
intended for immediate payment.
6. A bank performs its full duty where, upon the
receipt of a check drawn against an account in which
there are insufficient funds to pay it in full, it
endeavors to induce the drawer to make good his
account so that the check can be paid, and failing in
this, it protests the check on the following morning
and notifies its correspondent bank by the telegraph
of the protest.
7. The bank had all the right to dishonor the checks
because there were no sufficient funds to speak of in
the first place.
 If the demand is by check, a drawer must have to
his credit enough to cover the demand. If his
credit with the bank is less than the amount on
the face of the check, the bank may lawfully
refuse payment.
8. A bank is under no obligation to make part payment
on a check, up to only the amount of the drawer's
funds, where the check is drawn for an amount
larger than what the drawer has on deposit.
Additional provisions not affecting negotiability
By the form and interpretation of section 1 on
negotiable instrument, an instrument is negotiable if it is
intended as a substitute for money. But if the instrument
calls for an act other than the payment of money, it is not
negotiable. However, there are additional provisions not
affecting the negotiability.
(a) Authorizes the sale of collateral securities in case
the instrument be not paid at maturity;
Because the law provides an exception to the general rule
that a sale of collateral that contains instructions or
promises to take measures other than the payment of funds
cannot be negotiated.
Just like if the instrument is compensated by
FAILURE or such dishonesty should be transferred to
persons with subordinate duties. Otherwise, these parties
will be released.
Burden of evidence
It is upon the plaintiff who seeks to enforce the
defendant’s liability upon a negotiable instrument as an
indorser to establish said liability by proving that notice
was given to the defendant within the time and in the
manner required by the law that the instrument in question
had been dishonored.
(d) Gives the holder an election to require something to
be done in lieu of payment of money.

(b) Authorizes a confession of judgment if the
instrument be not paid at maturity; or
In the Philippines, there are certain effects in recognizing
decision in the confession of judgment that are considered
invalid because they violate public policy.
Fourth exception to the rule: Even if additional act
exists, the matter may be negotiable if the right to choose
between paying money or performing additional actions is
in the hands of the owner.

1. It extends the range of fraud,

2. If you process this order, your rights in court will be

respected for one day.

3. As a result of this document, the rights to objections set

out in the charter were rejected.

(c) waives the benefit of any law intended for the

advantage or protection of the obligor;
 CHAPTER 3
ISSUANCE
Sec 17 lays down the rules of construction or interpretation
where the language of the instrument is ambiguous or
there are omissions therein.
Construction where instrument is ambiguous. - Where the
language of the instrument is ambiguous or there are
omissions therein, the following rules of construction
apply:
(a) Where the sum payable is expressed in words and also
in figures and there is a discrepancy between the two, the
sum denoted by the words is the sum payable; but if the
words are ambiguous or uncertain, reference may be had to
the figures to fix the amount
(b) Where the instrument provides for the payment of
interest, without specifying the date from which interest is
to run, the interest runs from the date of the
instrument, and if the instrument is undated, from the
issue thereof
(c) Where the instrument is not dated, it will be considered
to be dated as of the time it was issued
(d) Where there is a conflict between the written and printed
provisions of the instrument, the written provisions prevail
(e) if the instrument is unclear that it is hard to tell whether
it is a bill or note, the holder of such instrument may treat it
as either at his choice.
(f) If the signature is placed on the instrument and it’s not
clear in what capacity he intended to sign, he is considered
to be an indorser.
(g) If an instruments contains the word “I promise to pay”
is signed by two or more persons, they are considered to be
jointly and severally liable thereon.
Omissions (Sec. 6)
The validity and negotiability of an instrument is not
affected even if it:
a. is not dated
b. does not specify the value given, or any value had been
given
c. the place where it has been drawn or the place where it is
payable is not specified
d. bears a seal
e. designates a particular kind of current money in which
payment is to be made
However, nothing in this chapter shall change or repel any
statute requiring the nature of the consideration to be
stated in the instrument
Presumption as to date
If the instrument or an acceptance or any indorsement
thereon, is dated, the date is prima facie to be the true date
of the making, drawing, acceptance, or indorsement, as the
case may be.
When date may be inserted
An instrument is expressed to be payable:
1. at a fixed period after date is issued undated; or
2. where the acceptance of the instrument to be paid at a
fixed period after sight is not dated
The true date of issue or acceptance may be inserted by any
holder, and the instrument shall be payable. The insertion
of an incorrect date does not avoid the instrument in the
hands of a following holder in due course.
Ante-dated and Post-dated
-An instrument is ante-dated or post-dated is still
valid and negotiable until proven that the purpose of the
instrument is for fraudulent or illegal claims then the
instrument can now be invalid. Furthermore, only at the
date where the payee shall receive the delivered
instrument is where he acquires the title.
a) Ante-dated instrument
-is a negotiable instrument that has a date that have
already been passed by in time, then the issuance of
instrument is made.
b) Post-dated instrument
-is a negotiable instrument where the date of
issuance comes first then at a later time the date or
effective date of the instrument comes after.
Hence, an ante-dated or past-dated instrument must be
NEGOTIATED BEFORE its maturity, otherwise, it loses its
negotiability.
Complete or Incomplete and/or deliver or undelivered
Instruments
 Incomplete and delivered instrument – Sec. 14
 Incomplete and undelivered instrument – Sec. 15
 Complete and undelivered instrument – Sec 16
A. Incomplete and delivered instrument (Blanks;
whenmay be filled)
- The person in possession of the instrument has been
given an authority called prima facie authority to
complete the incomplete instrument by filling up the
blanks therein. And signed by the maker of the
instrument may turn the instrument to a negotiable
instrument.
- When the instrument is completed it may be
enforced against any person who became a party
prior to tits completion. Although, before the
instrument can be passed on from one person to
another, the person accordance with the authority
given and within recoverable time.
- But if such instrument after completion is
negotiated to a holder in due course, whatever is
within in the instrument shall be valid, effective and
can be enforce as if it was strictly in accordance with
the authority given by the drawer or maker
B. Incomplete and undelivered Instruments
- Is where an instrument is incomplete and
undelivered therefor is an invalid contract in the
hands of any holder against any person who signed
the instrument before delivery. A clear indication of
non-delivery of such instrument means there is no
consent given by the person who has a signature
written in the instrument.
C. Complete and undelivered instrument
- Is where an instrument is completely filled up but
not yet delivered causing such instrument to be
invalid. Because to be valid a delivery, with purpose
of giving effect, of the instrument shall be needed for
the person who made the signature in the
instrument to be liable. However, if in the hands of
the holder in due course it will be valid and prior
parties to him will be pressured to be liable and also
the person who signed the instrument as long as he
has proven that he didn’t deliver the instrument, he
will not be held liable.
Person to make delivery
To be effectual delivery must be made by:
1. By the party making, drawing, accepting, or indorsing the
instrument.
2. By the person under the authority of the party making,
drawing, accepting, or indorsing the instrument.
Person to whom the instrument is delivered
1. To a holder in due course
- when a completed instrument is delivered to a
holder in due course, a valid delivery is conclusively
presumed and thereof all parties prior to him is liable for the
instrument he holds.
- lack of delivery is not a defense against a holder in
due course.
2. To a holder not in due course
- when a completed instrument is delivered to a
holder not in due course, a valid and intentional delivery is
presumed until the contrary is proved.
- lack of delivery is a defense as against a holder not
in due course.
Immediate and Remote Parties
(A) Immediate Parties
- refer to persons who are privies to the promissory
note or bill of exchange.
- parties between whom there is a privity to a
negotiable instrument or in contractual relation to each
other and are persons who know or are being held to know
of the conditions and/or limitations placed upon the
delivery of the instrument.
(B) Remote Parties
- refer to persons who are not in direct contractual
relation or privy to each other in a negotiable instrument
Illustrative example: What constitutes a material alteration

(1) Assume that Mr. M makes and delivers a promissory
note to Mr. P, and Mr. P indorses it to Mrs. A, and Mrs. A TO
Mrs. B. Mr. M and Mr. P are said to be immediate parties
because they are in direct contractual relation with each
other. The same is true to Mr. P and Mrs. A, and Mrs. A to
Mrs. B.
(2) Also in the preceding example Mr. M and Mrs. B are
remote parties, that is, parties who are not in direct
contractual relation to each other.
It includes any alteration which changes:
1. the date
2. the sum payable (principal or interest)
3. the time or place of payment
4. the number or the relations of the parties
5. the medium or currency in which paymentis to be made

As such by virtue of Sec.52, a holder in due course is not an 6. or which adds a place of payment where no lace of
immediate party because he has no notice of any infirmity payment is specified, or any other change or addition which
in the instrument or defect in title of the person negotiating alters the effect of the instrument in any respect, is a
it. material alteration. (Sec.125)

Simply saying that a holder in due course has no knowledge

of the conditions and/or limitations of the delivery of the
instrument.

Alteration of Instrument

When a negotiable instrument is materially altered without

the authorization or consent of all parties, it is avoided,
except to the party who has authorized the alteration and
subsequent indorsers. However, according to Sec.124 when
an instrument has been materially altered and in the hands
of a holder in due course not a party to the alteration, he
may enforce payment to thereof according to its original
tenor.
 CHAPTER 4 Kinds of Holder

NEGOTIATION 1. Holder in due course

2. Holder not in due course
3. Holder for value
Negotiation – when the instrument is transferred from one
person to another, which becomes the holder.
1. Holder in Due Course
Holder who has taken the instrument under the ff
- Bearer instrument – negotiated by delivery conditions: (Sec.52)
- Order instrument – negotiated by indorsement a. That is complete and regular upon its face;
b. he became the holder of t before it was overdue, and
coupled with delivery
without notice that it has been previously
dishonored, if such was the fact;
c. he took it in good faith and for value;
NEGOTIABLE NON- d. That at the time it was negotiated to him, he had no
NEGOTIABLE notice of any infirmity in the instrument or defect in
NEGOTIATED  the title of the person negotiating it.
ASSIGNED/TRANSFERRED  

Sec. 55. When title defective. - The title of a person who

Holder – payee or indorsee of a bill or note who is in
possession of it, or the bearer thereof. (Sec.191)
Basic Rights of a Holder (Sec. 51)
1. Rights to sue on the instrument in his own name
2. Rights to receive payment – discharge the
instrument
negotiates an instrument is defective within the meaning of
this Act when he obtained the instrument, or any signature
thereto, by fraud, duress, or force and fear, or other
unlawful means, or for an illegal consideration, or when he
negotiates it in breach of faith, or under such circumstances
as amount to a fraud.
DEFECTIVE TITLE IN GENERAL
• In the acquisition or negotiation thereof
DEFECTS OF TITLE
• All those situations which at common law were
known as equitable defenses and also to cover those
equities of ownership where there was breach of faith in
negotiation
• Examples?
o Acquisition of the instrument by fraud
o Acquisition of the instrument by force, duress or fear
o Acquisition of the instrument by unlawful means
o Acquisition of the instrument by for an illegal
consideration
o Negotiation of the instrument in breach of faith
 Negotiation of the instrument under
circumstances which amount to fraud
Sec. 56. What constitutes notice of defect. - To
constitutes notice of an infirmity in the instrument or
defect in the title of the person negotiating the same, the
person to whom it is negotiated must have had actual
knowledge of the infirmity or defect, or knowledge of such
facts that his action in taking the instrument amounted to
bad faith.
To constitute a notice of defect or infirmity, the holder
must have actual knowledge either:
1. Of the defect or infirmity or
2. of facts that his action in taking the instrument amounts
to bad faith
ACTUAL KNOWLEDGE
• Actual knowledge is required and not mere suspicion,
surmise or fear
TAKING AMOUNTING TO BAD FAITH
• Bad faith consists in guilty knowledge, or willful
ignorance, showing a vicious or evil mind
• While mere suspicion is not enough, where there is
knowledge of suspicious circumstances, coupled with
means of verifying them, taking the instrument may
amount to bad faith
INFIRMITIES
• Things that are wrong with the instrument itself
• What are these?
o Wrong date inserted where the instrument is
expressed to be payable at a fixed period after sight is
undated
o Filling up a blank instrument not strictly in
accordance with the authority given or not within
authority given or not within the reasonable time, where
it was delivered wanting in a material alteration
o Filling up without authority an incomplete and
undelivered instrument
o Lack of valid and intentional delivery
o Forgery
 Material alteration
ACQUISITION WITHOUT NOTICE OF DEFECT OF TITLE
OR OF INFIRMITY
• The following may be chargeable with notice—
one taking an instrument which is overdue; and one
acquiring an instrument for a grossly inadequate
consideration
GOOD FAITH MEANS LACK OF NOTICE OF DEFECT OR
INFIRMITY
Sec. 54. Notice before full amount is paid. - Where the
transferee receives notice of any infirmity in the instrument
or defect in the title of the person negotiating the same
before he has paid the full amount agreed to be paid
therefor, he will be deemed a holder in due course only to
the extent of the amount therefore paid by him.
Sec. 58. When subject to original defense. - In the
hands of any holder other than a holder in due course, a
negotiable instrument is subject to the same defenses as
if it were non-negotiable. But a holder who derives his
title through a holder in due course, and who is not
himself a party to any fraud or illegality affecting the
instrument, has all the rights of such former holder in
respect of all parties prior to the latter.
RIGHTS OF A HOLDER NOT IN DUE COURSE
1. He may sue on his own name
2. He may receive payment and if the payment is in due
course, the instrument is discharged
3. He holds the instrument subject to the same defenses
as if it were non-negotiable
4. But a holder not in due course who derives his title
from a holder in due course and who isn’t a party
himself to any fraud or illegality affecting the instrument,
has all the rights of such former holder in respect of parties
prior to the latter
THE HOLDER ACQUIRING FROM A HOLDER IN DUE
COURSE HAS THE BURDEN OF PROOF TO SHOW
PREDECESSOR IS INDEED A HOLDER IN DUE COURSE
LEGAL AND EQUITABLE DEFENSES
• The holder in due course is free from equitable
defenses only
AN ALTERATION MAY BE A REAL OR PERSONAL
DEFENSE. WHY?
• An alteration irrespective of original tenor, it can be
enforced—real
• Irrespective of difference between original and
altered tenor, can collect only limited amount—personal
EQUITABLE OR PERSONAL DEFENSES
• Those which grow out of the agreement or conduct
of a particular person in regard to the instrument
which renders it inequitable for him, though holding legal
title, to enforce it against the defendant, but which are not
available against bona fide purchasers for value without
notice
LEGAL OR REAL DEFENSE
• Attach to the instrument itself and can be set up
against the whole world, including a holder in due course
• The right sought to be enforced has never existed or
ceased to exist
• Defense against everybody
THE INSTRUMENT SUBJECT TO A REAL DEFENSE
CAN STILL BE ENFORCED. IT CANNOT BE
ENFORCED WITH REGARD THE PERSON TO WHOM
THE LEGAL DEFENSE IS AVAILABLE.
BETWEEN WHOM DEFENSE CAN BE RAISED IN NOTES
• In general, the defense of want of consideration
may only be raised between immediate parties
• But this could be raised in the instance that the holder
has notice of the want in consideration
BETWEEN WHOM DEFENSE MAY BE RAISED IN BILLS
• The want or failure of consideration may be
interposed in an action brought by the payee against
the drawer or by the indorsee against the payee
indorsing, or by the drawer against the acceptor, but not in
an action between the payee and acceptor
• In the latter case, the defense is available only if
there is no consideration received by the defendant for
his liability and plaintiff must have given no consideration
for his title.
WANT OF DELIVERY OF COMPLETE INSTRUMENT
• Where the instrument is mechanically complete and is
not wanting in any material particular, want of delivery is
an equitable defense
• As against holders not in due course, it can be shown
that no delivery was made, or that the delivery was
conditional or for a special purpose
• Where the instrument is stolen, the defense is also
equitable
• But where the instrument is payable to order, it is a
real defense—for the person would have to commit forgery
on the instrument
FRAUD IN INDUCEMENT IS A PERSONAL OR EQUITABLE
DEFENSE
• Relates to the quantity, quality, value or character of
the consideration of the instrument
FOR MISTAKE TO INVALIDATE CONSENT
• It should refer to the substance of the thing which is the
object of the contract, or those conditions which have
principally moved one or both parties to enter into the
contract
FRAUD IN FACTUM OR FRAUD IN ESSE CONTRACTUS IS
A LEGAL DEFENSE
• This fraud exists in those cases which a person without
negligence has signed an instrument which was in fact a
negotiable instrument but was deceived as to the
character of the instrument and without knowledge of it
• Essential element is that the maker or indorser, as the
case may be, must have exercised ordinary diligence and in
no manner contributed negligently to the imposition
MINORITY IS A LEGAL DEFENSE ONLY AVAILABLE TO
THE MINOR
WHERE THE CORPORATION IS ABSOLUTELY
PROHIBITED FROM ISSUING ANY NEGOTIABLE
INSTRUMENT, THE PAPER CANNOT BE ENFORCED
EVEN BY A HOLDER IN DUE COURSE
WHERE THE CONTRACT OR INSTRUMENT ITSELF IS
MADE VOID BY STATUTE, THE ILLEGALITY OF THE
INSTRUMENT IS A REAL DEFENSE
Alteration of an instrument
 Materially altered negotiable instruments without
the assent of the liable parties is avoided except
when it is against the party who had himself made,
authorized, or assented to the alteration and
subsequent indorsers.
 If the instrument is materially altered and it is in the
hands of the holder in due course that is not a party
to the alteration, he may enforce payment of it
according to its original tenor
An alteration which changes the following, constitutes a
material alteration:
a. Date
b. Sum payable, either for prinicipal or interest
c. Time or place of payment
d. Number or the relations to the parties
e. Medium or currency in which payment is to be made
f. Adding a place of payment where no place of payment is
specified, and any changes or addition which alters the
effect of the instrument
Fraud in factum distinguished from fraud in
inducement
Fraud in factum
 A fraud that occurs when a legal instrument as
actually executed differs from the one intended for
execution by the person that executes it, or when the
instrument may have no legal existence. Fraud in
factum occurs very rarely. It is also known as fraud
in the execution and fraud in the making.
Example: Frank requested Mosby to sign a piece of
paper telling the latter to be a fan of 5 Seconds of
Summer. Thereafter, Frank writes a complete tenor
of a negotiable promissory note in his favor for the
amount of P50,000 above the signature of Mosby.
Mosby had no intention to issue the promissory note
 only that, Frank obtained Mosby's signature through Liability of parties in a negotiable instrument
his machination.
A. Primarily liable
Fraud in inducement
Maker
 A fraud that occurs when a misrepresentation leads
another to enter into a transaction with a false Acceptor
impression of the risks, duties, or obligations
involved
 An intentional misrepresentation of a material risk B. Secondarily liable
or duty reasonably relied on thereby injuring the
other party without impairing the contract itself. Drawer
Example: Frank sold 10 Victoria's Secret perfume to
Indorser
Mosby which he said was legit VS perfume. Mosby,
the buyer, issued a promissory note in favor of
Frank. Later, it turns out that those perfumes where
just from Baclaran. In this case, Mosby had all the Persons primarily liable on instrument
intention to issue a promissory note only that he
was deceived. Had he known that the perfumes were  The person who is primarily liable on an instrument
just imitation, he wouldn't have issued the is the person who, by the terms of. The instrument,is
promissory note. absolutely required to pay the same. All other
parties are secondarily liable.
When person not deemed holder in due course
Persons primarily liable on instrument
 When an instrument on demand is negotiated on an
unreasonable length of time after its issuance, the The person primarily liable is the one who is required to
holder is not deemed a holder in due course. pay, all other parties are secondarily liable.
 Also, non-compliance with any of the requisites to Liability of a person secondarily liable when
be deemed a holder in due course under section 52 instrument dishonored
will make a holder not a holder in due course.
 One who is not a holder in due course does not When the instrument is dishonored by non-payment
automatically mean that he cannot recover from the immediately all the partied secondarily liable thereon
instrument. The negotiable instrument will just be accrues the holder.
subjected to defenses as if it were non-negotiable.
Liability of the maker
The makers of the negotiable instruments, must keep the
promised to pay to the instrument. their liability on the
instruments is primary and unconditional.
Liability of drawer
The drawer is not liable on the instrument. The nature of
the drawer's liability is only secondary. This is simply
because, the drawer is the one making the order the
command addressed to the drawee to pay the payee or
holder of the instrument.
Requisites to set the liability of the drawer.
1. The bill is presented for acceptance or payment.
2. Upon due presentment to the drawee, the bill was
dishonored by non-acceptance or non- payment
3. The necessary proceedings on dishonor be duly taken
Liability acceptor
Primarily acceptor is liable on the instrument or
particularly the bill of exchange.
Acceptor - means a person or entity that accepts a
negotiable instrument and agrees to be primarily
responsible for its payment or performance. There cannot
be two separate acceptors of a bill of exchange.
Requisites of the bill to set the liability of the drawer:
1. It is presented for acceptance or payment
2. It is dishonored
3. The necessary proceedings of dishonor are duly
taken
Liability of acceptor
The acceptor, by accepting the instrument, engages that he
will pay it according to the tenor of his acceptance and
admits:
a. The existence of the drawer, the genuineness of his
signature, and his capacity and authority to draw the
instrument; and
b. The existence of the payee and his capacity to
indorse. (Sec. 62)
Acceptor Primarily Liable
Acceptor engages to pay absolutely according to the
tenor of its acceptance. His liability is not subject to any
condition and the acceptor is the drawee who accepts the
bill. His acceptance immediately places a legal liability on
him for the payment of the bill in favor of one who became
a holder thereof after acceptance, and if he wants to escape
liability, it is up to him to show that he is a mere agent of
the drawer, or allege and prove any other defense which he
has to the liability.
Indorsement
Placing signature on the back of the negotiable instr
ument to transfer or ensure the tool or to recognize payme
nt, sometimes with an extra notation.
Indorsement, how made
The indorsement must be:
1. Written on the instrument itself or
2. Upon a paper attached thereto
The signature of the indorser, without additional words,
is a sufficient indorsement. (Sec. 31)
Indorsement must be of entire instrument
The general rule is that the instrument must be indo
rsed as a whole. Consequent-
ly, an indication of a part of the instrument does not functio
n as a negotiation of it.
Illustration:
28 September 2019
I promise to pay Alfonso or order Php 150,000.
Transfer without indorsement
Sgd. Jack
Where the holder of an instrument payable to his
order transfers it for value without indorsing it, the
transfer vests in the transferee such title as the transferor
had therein, and the transferee acquires in addition, the
right to have the indorsement of the transferor. But for the
purpose of determining whether the transferee is a holder
in due course, the negotiation takes effect as of the time
when the indorsement is actually made. (Sec. 49)
Rights of transferees for value
1. The transferee acquires only the rights of the
transferor. This means that if a defense is
available against the transferor, that defense is
also available against the transferees
2. The transferee has also the right to require the
transferor to indorse the instrument
When a person deemed indorser
A person placing his signature upon an instrument
otherwise than as maker, drawer, or acceptor, is deemed to
be indorser unless he clearly indicates by appropriate
words his intention to be bound in some other capacity.
(Sec. 63)
Order in which indorsers are liable
As respect one another, indorsers are liable prima
facie in the order in which they indorse; but evidence is
admissible to show that, as between or among themselves,
they have agreed otherwise. Joint payees or joint indorsees
who indorse are deemed to indorse jointly and severally.
(Sec. 68)
ORDER IN WHICH INDORSERS ARE LIABLE
As respect one another, indorsers are liable prima
facie in the order in which they indorse; but evidence is
admissible to show that, as between or among themselves,
they have agreed otherwise. Joint payees or joint indorsees
who indorsed are deemed to indorse jointly and severally.
 Section 68 governs the liability of indorsers only as
among themselves.
 Every indorser is liable to all indorsers subsequent
to him.
  As to the holder of the instrument, he can intend
payment to the indorsers because they are liable in
any order and none of them can invoke that there
was an agreement among them that they are not
liable in the order of their indorsements.
 If they prove on their agreement among themselves
that other indorsers are first held liable, the one who
pays may demand reimbursement from the others.
ILLUSTRATION: R (drawer) issued bill to P (payee).
P, payable to P or order. The drawee is DW.
P indorsed and deliver the bill to A, A to B, B to C and
H.
In the above illustration, the indorsers are P, A, B
and C
-D can enforce payment to any of the indorsee and
need not to follow the order of indorsement.
However, the following order of liability among
indorsers:
-If D recovered from C, C had the right to reimbursed
to B but cannot go directly to P.
-If B paid C, B also had the right to reimbursed to A
and not from P.
WARRANTY OF INDORSER
A. Liability of person negotiating by delivery (Sec.65)
B. Liability of general indorser (Sec. 66)
C. Liability of irregular indorser (Sec. 64)
Liability of person negotiating by delivery
1. He warrants that the instrument is genuine and in
all respects what it purports to be.
2. He warrants that he has good title to it.
3. He warrants that all prior parties had capacity to
contract.
4. He warrants that he has knowledge of any fact
which would impair the validity of the instrument or
render it valueless.
When instrument is payable to bearer, the liabilities
of a person negotiating by delivery are:
1. A person negotiating by delivery has the same
liabilities as as qualified indorser, except that his
warranty extends only in favor of his immediate
transferee.
2. Liability of agent or broker when he negotiates
without indorsement.
Warranties of qualified indorser extend to all
subsequent parties who acquire title through his
indorsement whether they are holders in due course or
not.
ILLUSTRATION: M makes a promissory note payable
to P or bearer for P80,000 and P negotiates it by
delivery to A, A to B, B to C and C to D.
a. If there was a material alteration in the
instrument, he cannot claim that the instrument
is invalid because of “want of delivery of
incomplete instrument.”
b. If the instrument is attained for an illegal
consideration, he is liable to the holder because
he warrants that he has good title to it.
 c. If the drawer, maker, or any indorser prior to
him is a minor, insane, incapacitated or a
corporation performing ultra vires act, he is
liable because he warrants that they have
capacity to contract.
d. If at the time of the indorsement the maker is
insolvent, he is liable because he had knowledge
of it during indorsement.
Definition of general indorser
 Is one who indorsed the instrument without any
qualification.
Liabilities of a general indorser
1. He warrants that the instrument is genuine and in
all respects what it purports to be
2. He warrants that he has good title to it.
3. He warrants that all prior parties had capacity to
contract.
4. That the instrument is, at the time of his
indorsement valid and subsisting,
5. He engages that due on presentment, the bill will be
accepted or paid or both and that in case of
dishonor, he shall pay the bill to the holder or to any
subsequent indorsee who may be compelled to pay
it.
Warranties of general indorser extend to:
o Subsequent holders in due course
o Persons who derive their title from holders in
due course.
o Immediate transferees although they are not
holder in due course.
ILLUSTRATION: M makes a promissory note payable
to P or bearer for P80,000 and P negotiates it by
delivery to A, A to B, B to C and C to D.
a. If the person primarily liable is insolvent, a
general indorser is liable even if he was not
aware of such facts because he warrants that the
instrument is valid and subsisting.
Definition of irregular indorser
 A person who is not really a party to the instrument,
but he affixed his signature on the instrument before
its delivery.
 Usually, he is an accommodation party.
Liabilities of an irregular indorser
1. If the instrument is payable to the order of a third
person, he is liable to the payee and to all
subsequent parties.
2. If the instrument is payable to the order of the
maker or drawer, or is payable to bearer, he is liable
to all parties subsequent to the maker or drawer.
3. If he signs for the accommodation of the payee, he is
liable to all parties subsequent to the payee.
LIABILITY OF INDORSER WHERE INSTRUMENT IS
NEGOTIATED BY DELIVERY
 Section 67 explained that he incurs all the liabilities
of an indorser depending on the kind of his
indorsement
KINDS OF INDORSEMENT An instrument Negotiated by Can be further
originally: the payee negotiated by
 According to Section 33, an indorsement may be applying: the indorsee:
either special or in blank, and it may also be a.) Payable to Special Indorsement +
restrictive, qualified or conditional. order Indorsement Delivery
1. Special indorsement (Sec. 34) b.) Payable to Blank Mere Delivery
2. Blank indorsement (Sec. 35) order Indorsement
3. Restrictive indorsement (Sec. 36) c.) Payable to Special / Blank Mere Delivery
4. Qualified indorsement (Sec. 38)
bearer
5. Conditional indorsement (Sec. 39)
*for letter c, once a bearer instrument, always a bearer
6. Joint indorsement (Sec. 41)
instrument. Special indorser is liable only to such
7. Successive indorsement (Sec. 50,68)
holders who may acquire title through his indorsement.
8. Irregular indorsement (Sec. 64)
3. RESTRICTIVE INDORSEMENT
Indorsement of Instrument – Payable to Bearer
 If indorsement prohibits further negotiation of the
 If indorsed specially, it may nevertheless be further
instrument; or
negotiated by delivery.
 If it constitutes the indorsee the agent of the
 Person indorsing specially is liable as indorser to
indorser; or
only such holders as make title through his
 If it vests the title in the indorsee in trust for or to
indorsement.
the use of some other persons.
2. BLANK INDORSEMENT
*Mere absence of words implying power to
 No indorsee negotiate does not make an indorsement
 Instrument is payable to bearer restrictive.
 May be negotiated by delivery.  Rights of indorsee:
 Can be converted to special indorsement by writing a. To receive payment of the instrument;
over the signature of the indorser in blank any b. To bring any action thereon that the indorser
contract consistent with the character of the could bring;
instrument. c. To transfer his rights as such indorsee, where
Note: An instrument originally: the form of the indorsement authorizes him to
do so
 *All subsequent indorsees acquires only the title
of the first indorsee under the restrictive
indorsement.
4. QUALIFIED INDORSEMENT
 Indorser is a mere assignor of the title to the
instrument
 Does not impair the negotiable character of the
instrument.
 Relieves the indorser of the general to pay if the
instrument is dishonored but not of the liability
arising from warranties on the instrument.
 Words or phrases for qualified indorsement:
1. Without recourse3. Indorsee’s own risk 5.
With no recourse
2. Sans recourse 4. No recourse
5. CONDITIONAL INDORSEMENT
 The party required to pay the instrument may
disregard the condition and make payment to the
indorsee or his transferee whether the condition has
been fulfilled or not.
 Does not render the instrument non-negotiable.
 Non-fulfillment of the condition carries with it a
caveat to the indorsee or transferee that the
indorser does not intend to be bound on the
instrument.
6. JOINT INDORSEMENT
 Indorsement payable to two or more persons.
General Rule: If there are two (2) payees in the
instrument, the said two (2) must indorse. The law
requires that ALL must indorse.
Exception: If such payees are partner; only one payee
may indorse if he has the authority to indorse for
others.
7. SUCCESSIVE INDORSEMENT
 An instrument negotiated back to a prior party can
be reissued and further negotiated by such party,
subject to the provision of the Act.
 Prior party is not entitled to enforce payment
thereof against any intervening party to whom he
was personally liable.
Effect of instrument drawn or indorsed to a person as
CASHIER or other FISCAL OFFICER of a bank or
corporation
 It is deemed prima facie to be payable to the bank or
corporation of which he is such officer, andmay be
negotiated by either the indorsement of the bank
or corporation or the indorsement of the officer.
Indorsers are:
1. Bank
2. Corporation
3. Officer to whom the instrument is payable
Indorsement where name is misspelled, and so forth
 Does not destroy the character of indorsement.
  Remedy: Indorse the instrument as it is or add the
real name of the indorsee and his signature as well.
Indorsement in representative capacity
 A person may indorse an instrument personally or
through agent. The agent has the authority though
its is not in writing.
 The agent may escape from liability if the following
requirements are met:
 He is duly authorized
 He adds words to his signature indicating
that he signs as an agent, that is, for or on
behalf of a principal, or in representative
capacity; and
 He discloses his principal
Example:
“(SGD.) Jennie Kim
As agent of Irene Bae”
Time of Indorsement; presumption
 If the indorsement bears a date, it is presumed to be
the true date. If happens that the indorsement bears
no date, it is presumed to be negotiated on or before
the maturity date.
 In case that a person insist that the indorsement is
dated after the maturity, that person needs to
present proofs.
 It is important to determine if the indorsement is
taken up before maturity because it is one of the
requirements to be a holder in due course.
Place of indorsement; presumption
 Unless proven otherwise, the place where the
instrument is dated would be presumed as the place
of indorsement.
Example:
Suppose a note dated as:
“Manila, September 26, 2019”
If there was no place indicated as place of
indorsement, it is presumed that the indorsement
was negotiated in Manila unless proven otherwise.
Continuation of Negotiable Character
 Once an instrument is originally negotiable will
always be negotiable even if it is already overdue,
but that holder acquires the instrument will not be
treated as holder in due course (Sec. 52).
 Here are the exceptions of the rule:
 When restrictively indorsed
 By discharge payment or otherwise
 Not all restrictive indorsement prohibits further
negotiation unless otherwise stated.
 An instrument not only can be discharge by payment
but also with the actions provided by Sec. 119
Striking out indorsement
 An instrument originally payable to bearer may be
negotiated through mere delivery, but if it is
indorsed, it could still be a bearer instrument.
 A holder may strike out indorsements unnecessary
to his title as stated to Sec 48.
 Here are the following persons discharged in stiking
out indorsement:
 The indorser whom indorsement is struck
out
 All the indorsers subsequent to him

Example:

Pay to Chiara
(Sgd.) Jane
Pay to Mae
(Sgd.) MJ
Pay to Chichi
(Sgd.) Jenlice

 Chichi, the present holder, may strike out all

indorsements as they may not necessary to
his title. Although, the instruments are
indorsed, it remains as bearer instrument as
it is on its face.
 If Chichi strike out the indorsement of Jane,
MJ and Jenlice as subsequent indorsers to
Jane will be freed from liability.
 CHAPTER 5
PRESENTMENT
Kinds of Presentment
A. Presentment for payment
B. Presentment for acceptance
C. Presentment for payment to acceptor for honor
A. Presentment for payment
* Production of instrument
* Holder of instrument is making demand for payment
1. In order to constitute a sufficient payment it must be
made:
a. By the holder or authorized person
b. Reasonable hour on business day
c. Proper place
2. Presentment where instrument is not payable on
demand and where payable on demand
a. It is not payable on demand when presentment was
made on day it falls due
b. Payable on demand when made on reasonable time
after its issue
c. In bill of exchange it must be made on reasonable
time after last negotiation
REASONABLE TIME - so much time is
necessary under circumstances for reasonable
prudent and diligent man to do conveniently
3. Presentment where instrument is payable to bank
a. Must be payable on banking hours
b. Person to make payment has no funds at any time of
the day. Presentment at any hour before the bank
closes on the day is sufficient.
4. Presentment where principal debtor is dead
a. If no specified place of payment, must be made on
his personal representative.
b. If with specified place, presentment must be made
on specified place
5. Presentment to persons liable to partners
a. Presentment of payment can be made on any one of
the partners.
6. Presentment to joint debtors
a. When there are several people, not partners,
primarily liable on instrument, presentment must be
made on them all.
7. When delay of making presentment is excused
a. Circumstances was beyond the control of holder
b. Must be made on reasonable diligence
B. Presentment for acceptance
Presentment was made for acceptance
1. Presentment of payment must be made:
a. Payable after sight
b. Expressly stipulate that it shall be presented for
acceptance
c. Drawn payable elsewhere
2. Presentment for acceptance must be made:
a. By or behalf of the holder
b. Reasonable hour on business day
 c. Before bill is overdue 2. Presented in some other place than the place where it
d. Drawee or person authorized was protested, it must be forwarded within specified in sec
e. When made to two or more drawee, not partners 104
presentment must be to them all
f. When drawee is dead, presentment must be made to
personal representative
g. When drawee is bankrupt, presentment must be
made to his assignee or trustee

3. On what days presentment must be made

Any day under the provisions of sec 72 and 85
a. When Saturday is not holiday, presentment must be
made before 12 noon
b. Presentment where time is insufficient
c. Payable elsewhere than at the place of business or
residence of drawee
d. Has no time, with exercise of reasonable diligence,
to present the bill for acceptance before presenting
it for payment on the day it falls due
4. When presentment for acceptance is excused
a. When drawee is dead, pr fictitious person or person
having no capacity to contract by bill
b. After exercise of reasonable diligence, presentment
can not be made
c. Presentment is irregular, acceptance has been
refused

C. Presentment for payment to acceptor for honor

It must be made as follows:
1. Presented in the place of where protest for nonpayment
has been made, it must be presented not later than the day
following its maturity.
 CHAPTER 6 2. Acceptance by separate instrument
Acceptance is written on separate paper, does not bind
ACCEPTANCE the acceptor EXCEPT favor of a person to whom it is shown
Acceptance and on the faith receives the bill for value

 Completed by delivery or notification
 Signifies the drawee will perform his obligation by
payment of money.
Maybe done:
 In writing by drawee in the bill or
 Separate instrument
Requisites:
1. In writing, EXCEPT constructive acceptance and
foreign bill payable to another state.
2. Signed by the drawee
3. Must express a promise to pay in money
Forms:
Promise to Accept
Unconditional promise in writing = Actual acceptance
in to accept a bill before it is drawn favor of
every person receives the bill for value
Period for Drawee to accept
24 hours after presentment in which to decide
whether or not he will accept the bill; if acceptance is given,
it dates as of the day of presentation.
Holder:
 Can’t demand for response as to status of
acceptance
 No right to treat the bill as accepted

Bill is deemed accepted when:

 Acceptance in general
 Acceptance for honor
Acceptance of bill
 Signification by drawee of his assent to the order of
drawer
1. Holder entitled to acceptance on the face of bill
Checks, No Acceptance required
Holder of the bill presenting the same for acceptance
may require that the acceptance be written on the bill, and
if such request is refused, may treat the bill as dishonored.
1. Drawee destroy the bill
2. Refuses within 24 hours after delivery or
3. Retain the bill after the allowed period to accept of
not- accepted, holder will ne deemed to have
accepted the same.
1. Check is a bill of exchange payable on demand.
2. Checks are not to be accepted, but presented at
once for payment.
 3. Check is not instrument that needs acceptance
unlike in ordinary course of business.
Incomplete bill may be accepted:
1. Before it has been signed by the drawer
2. While otherwise incomplete
3. When it is overdue
4. After it has been dishonored by previous refusal to
accept, or by non payment
5. Bill payable after sight, dishonored by non-acceptance
and drawee afterwards accepts it. Holder is entitled to
have the bill accepted as of the date of presentment.
Kinds of Acceptance (Sec. 139)
A. General Acceptance – It accents without qualification
to the order of the drawer
What constitute a general acceptance - An
acceptance to pay at a particular place is a general
acceptance unless it expressly states that the bill is to be
paid there only and not elsewhere (Sec. 140). Simply, it
is an acceptance without any qualification. Example: By
stamping at the back of the bill solely the word
‘’accepted’’.
B. Qualified Acceptance – In express terms varies the
effect of the bill as drawn.
1. An acceptance is qualified which is (Sec 141):
a. Conditional – makes payment by the acceptor
dependent on the fulfillment of a condition as
stated in such acceptance.
“Accepted. Payable if the payee delivers the items I
bought from him with seals unbroken.” (Sgd.) B
b. Partial – to pay part only of the amount for
which the bill is drawn.
The bill is drawn by A against B for ₱100,000.
“Accepted. Accepted for ₱ 80,000.” (Sgd.) B
c. Local – to pay only at a particular place
“Accepted. Payable at BPI Pasig only.” (Sgd.) B
d. Qualified as to time – varies the time of payment
“Accepted. Payable 30 days after sight.” (Sgd.) B
e. Acceptance by one or more, but not all of the
drawees.
“Accepted.” (Sgd.) B
2. Rights of parties as to qualified acceptance (Sec.142)
a. The holder may refuse to take a qualified
acceptance, and if he does not obtain an
unqualified acceptance, he may treat the bill as
dishonored by non-acceptance.
b. Where a qualified acceptance is taken, the
drawer and indorsers are discharged from a
liability on the bill unless they have expressly or
impliedly authorized the holder to take a
qualified acceptance, or subsequently assent
thereto.
c. When the drawer or an indorser receives notice
of a qualified acceptance, he must, within a
reasonable time, express his dissent to the
holder or he will be deemed to have assented
thereto.
 Acceptance for Honor
Acceptance for Honor or Acceptance Supra
Protest is an undertaking by a stranger to a bill after
protest for the benefit of any party liable thereon, or
for the honor of the person for whose account the
bill is drawn which acceptance inures also to the
benefit of all parties subsequent to the person for
whose honor it is accepted, and conditioned to pay
the bill when it becomes due if the original drawee
does not pay it.
A. Purpose of acceptance of honor
The purpose of acceptance of honor is to
preserve the credit of the parties to the instrument
or some party to it for whose honor the acceptance
is made, as the drawer, drawee, or indorser or
somebody else. Someone desires to protect the
credit of another on the bill, and he does so by
writing ‘’accepted‘’ on the bill. Where a bill is
accepted for honor, consideration is presumed, and
the presumption is that the acceptor has funds or
money of the party for whose honor he accepts.
B. Requisite of acceptance for honor
The following requisite must concur before
an acceptance for honor may be made (Sec.161).
1. The bill must have been protested for dishonor
by non-acceptance or for better security;
2. The acceptor for honor must be a person not a
party already liable thereon, that is, a stranger to
the bill;
3. The bill must not be overdue at the time of the
acceptance for honor; and
4. The acceptance for must be with the consent of
the holder of the instrument.
As a rule, no one but the drawee may accept,
except the acceptor for honor who must not be a
party already liable on the bill like an indorser
because if he is already liable thereon, his
acceptance obviously would not give additional
security to the holder. The consent of the holder is
required because his right is suspended until the
maturity of the bill.
C. Acceptance for honor; How made (Sec.162)
An acceptance for honor must conform the
following requirements:
1. Must be in writing;
2. Must indicate that it is an acceptance for honor;
3. Must be signed by the acceptor for honor;
4. Must contain an express or implied promise to
pay money; and
5. Accepted bill of honor must be delivered to the
holder.
D. When deemed to be an acceptance for honor
of the drawer (Sec. 163)
Where an acceptance for honor does not
expressly state for whose honor it is made, it is
deemed to be an acceptance for the honor of the
drawer. Naturally, it is the drawer who makes the
order or the command to pay addressed to a
drawee. Thus, if the acceptance is silent, it is deemed
to be an acceptance for honor of the drawer.
E. Liability of the acceptor for honor (Sec.164)
The acceptor for honor is liable to the holder
and to all parties to the bill subsequent to the party
for whose honor he has accepted.

F. Maturity of bill payable after sight, accepted

for honor (Sec.166)
Where a bill payable after sight is accepted
for honor, its maturity is calculated from the date of
the noting for non-acceptance and not from the date
of the acceptance for honor.
Example: A bill payable 30 days after sight is
presented for acceptance to the drawer on Nov. 1. If
acceptance is refused, the noting of its dishonor by
non-acceptance should be made on the same date of
dishonor. If the bill is accepted supra protest on Nov.
5, the date of maturity is on December 1, not Dec. 5,
as the 30-day period must be counted from
November 1, the date of the noting.
 CHAPTER7
DISCHARGED AND PAYMENT FOR HONOR
that paymentis made in due course when it is made at or
after thematurity of the payment to the holder thereof in
good faithand without notice that his titleis defective.
Discharged Defined
If the instrument is discharged under sec. 119,
itceases tohave force and effect. Hence, all parties, primary
orsecondary, will also be discharged since there is
noinstrument to be liable on. But the discharge of the
secondaryparties does not necessarily bring about the
discharge of theinstrument.
How an Instrument will be Discharged?
Section 119 of the Negotiable Instrument Law
enumerates five ways of how an instrument will be
discharged. Each of five ways was enumerated below:
1. By payment in due course by or on behalf of
theprincipaldebtor;
2. By payment in due course by the
partyaccommodated, where the instrument is
made oraccepted for his accommodation;
3. By the intentional cancellation thereof by
theholder;
4. By any other act which will discharge a
simplecontract for the payment of money;
5. When the principal debtor becomes the holderof
the instrument at or after maturity in his
ownright.
1. What constitute payment in due course?
Section 88 of the Negotiable Instrument Law describes
What are the requisites for payment in due course?
a. Payment must be made at or after the date
ofmaturity;
Payment made before maturity
wouldconstitute a negotiation back the
personprimarily liable and he can re-negotiate it
(sec.50).
b. Payment must be the holder; and
Payment to indorsee who is not in
possessionofthe instrument is not payment in
due courseand is at the risk of the party so
paying. Partymaking payment must insist on the
presentmentof the paper by the person
demanding paymentinorder to make sure that it
is at the time in hispossession and not
outstanding in other.
c. Payment must be made by the debtor in good
faith and without notice that the holder’s title is
defective.
Payment to a person by the debtor who
knowsthat such person stole it, is not payment in
duecourse, as such payment is not in good
faith.The maker or acceptor must satisfy
himself,when it ispresented for payment, that
 theholder traces his title through
genuineindorsements.
Medium of payment the payment of debts in money
shall be made in the currency stipulated and if not possible,
in the currency which legal tender in the Philippines. When
payment of an instrument is made by giving (other than
legal tender), as a general such payment will not be
considered absolute until the paper given has been itself
paid except when parties agree otherwise. A check
presented by the holder to the bank where it is drawn and
receive as a deposit and credited to his amount, this
amounts to a payment of the checks.
2. Payment by accommodated party.
The one ultimately liable on the accommodation
instrument is the latter. Hence, his payment in due course
discharges the instrument as if payment was made by the
principal debtor under paragraph.
3. By intentional cancellation thereof by the holder.
The cancellation must be intentional and made by the
holder. There must be an intention to cancel a negotiable
instrument by the holder there of as such intention is an
essential element of discharge on a negotiable instrument
and a negotiable note in a torn condition is presumed
cancelled by the holder thereof.
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.
4. By any other act which will discharge a simple
contract for the payment of money.
The acts which will discharge a simple contract for the
payment of money are determined by other existing
legislations since Section 119 does not specify what these
acts. As such Article 1231 of the Civil Code enumerates the
modes of extinguishing obligations, to wit:
a. By payment or performance;
b. By the loss of the thing due;
c. By the condonation or remission of the debt;
d. By the confusion or merger of the rights of creditor
and debtor;
e. By compensation;
f. By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition,
and prescription, are governed elsewhere in this Code.
Renunciation by holder.
a. Applies only to renunciation by the unilateral act
of the holder without consideration and in cases
where the instrument is not delivered up to the
person intended to be released
b. Renunciation—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
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. (Section 122)
Form of renunciation
It must be in writing and must be express
Time for making renunciation
a. Before maturity
b. At maturity
c. After maturity
When renunciation discharges instrument
a. Renunciation discharges the instrument when it
is absolute and unconditional
b. It is made in favor of the person primarily liable
c. It is made at or after maturity
d.
5. Principal debtor acquires instrument
Reacquisition must be by the principal debtor and in his
own right at or after the date of maturity. In his own right—
not in a representative capacity
When instrument reacquired before maturity will
the instrument will be discharged?
A reacquisition by the principal debt or in his own
right but before maturity will not discharge the
instrument. It will merely be a negotiation back to the
principal debtor.
When persons secondarily liable on the instrument are
discharged
A person secondarily liable on the instrument is
discharged:
1. By any act which discharges the instrument;
2. By the intentional cancellation of his signature
by the holder;
3. By the discharge of a prior party;
4. By a valid tender or payment made by a prior
party;
5. By a release of the principal debtor unless the
holder's right of recourse against the party
secondarily liable is expressly reserved;
6. By any agreement binding upon the holder to
extend the time of payment or to postpone the
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.
1. By any act which discharges the instrument
It was stated in the section 84 of this act that when the
instrument is dishonored by non-payment, an immediate
right of recourse to all parties secondarily liable there on
accrues to the holder.
2. By the intentional cancellation of his signature by
the holder
Illustration: Person A signed a negotiable instrument
payable to Person B or order for P100.00. Person B
indorsed the negotiable instrument to Person C, Person C to
Person D and Person D indorsed the negotiable instrument
to person E.
When Person E cancels the signature of his indorser’s
indorser (Person C), his indorser (Person D) and the
indorser (Person C) of his indorser are discharged from
their obligation but the indorser prior to Person C are not
discharged.
3. By discharge of a prior party
Illustration: Person A signed a negotiable instrument
payable to Person B or order for P100.00. Person B
indorsed the negotiable instrument to Person C, Person C to
Person D and Person D indorsed the negotiable instrument
to person E.
When Person E cancelled the signature of Person C,
the effect is to discharge likewise Person D being a prion
party to Person E.
4. By a valid tender or payment made by a prior party
Illustration: Person A signed a negotiable instrument
payable to Person B or order for P100.00. Person B
indorsed the negotiable instrument to Person C, Person C to
Person D and Person D indorsed the negotiable instrument
to person E.
Person C validly tender payment and Person E
unjustifiably refuses to do accept, Person D is discharged.
Tender of payment: act by which one 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.
5. By a release of the principal debtor unless the
holder’s right of recourse against the party
secondarily liable is expressly reserved
General rule is that he is not discharged by the holder’s
release of the principal debt or even if there lease be made
with know ledge or true relation of the parties and,
conversely, there lease of the accommodation maker or
accept or doesn’t discharge the principal debtor through
the latter occupies the position of a party secondarily liable
on the instrument.
6. Extension of time
If the holder agrees to extend the time of payment, the
indorsers are discharged. However, where the extension of
time is consented to by the party secondarily liable, he is
not discharged. Also, where the holder expressly reserves
his right of recourse against the party secondarily liable,
the latter is not discharged.
Requisites of agreement for extension of time
 1. It must be a binding contract, supported by
valuable consideration and for a definite period.
2. It must be made with the principal debtor and
not with a third party.
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:
1. Where it is payable to the order of a third person
and has been paid by the drawer; and
2. Where it was made or accepted for accommodation
and has been paid by the party accommodated.
PAYMENT FOR HONOR
Who may make payment for honor?
Where a bill has been protested for non-payment,
any person may intervene and pay it supra protest for the
honor of any person liable thereon or for the honor of the
person for whose account it was drawn.
Payment for honor; how made
1. 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. Where a bill has been protested for non-payment,
any person may intervene and pay it supra protest
for the honor of any person liable thereon or for the
honor of the person for whose account it was drawn.
3. The payment for honor supra protests, in order to
operate as such and not as a mere voluntary
payment, must be attested by a notarial act of honor
which may be appended to the protest or form an
extension to it.
4. The notarial act of honor must be founded on a
declaration made by the payer for honor or by his
agent in that behalf declaring his intention to pay
the bill for honor and for whose honor he pays.
What is payment for honor?
Payment for honor is payment made by a person,
whether a party to the bill or not, after it has been
protested for non-payment, for the benefit of any party
liable thereon, or for the benefit of the person whose
account it was drawn. It is also called payment supra
protest because prior protest for non-payment is required.
It is not applicable to promissory notes. Payment for honor
may be availed of when the holder, knowing that the bill
has already been dishonored for nonpayment, does not
want to indorse the bill and there by incur the liabilities of
an indorser.
What is the difference between acceptance for honor
and payment of honor?
 In acceptance for honor, there is an acceptor for
honor. In payment for honor, there is a payor for honor.
The difference between the two is that while in the former,
the acceptor must be a stranger to the bill, in the latter, the
payer for honor may be a party liable on the bill. Further, in
the former, the bill must not be overdue. In the latter, it is
overdue. Also, in the former, there may be several
acceptors while, in the latter, there can only be one payer.
Finally, in the former, the protest must be for non-
acceptance or for better security, while, in the latter, it is for
non-payment.
What are the requisites to perform a valid payment for
honor?
1. The bill has been dishonored for non-payment
2. The bill has been protested for non-payment
3. Payment supra protest is made by any person, even
a party thereto and as to form
4. The payment must be attested by notarial act
appended to the protest, or form an extension to it
5. The notarial act must be based on the declaration by
the payer for honor or his agent of his intention to
pay the bill for honor and for whose honor he pays.
What is the procedure for payment for honor?
1. The payer or his agent goes to a notary public and
declares his intention to pay the bill and for whose
honor he pays.
2. The notary then records the declaration in the protest
or in a separate paper attached to it.
3. The payer then notifies the person for whose honor he
pays within reasonable time.
What if the payment for honor is not attested by a
notarial act?
It will operate as a mere voluntary payment and the
payer acquires no right to full reimbursement against the
party for whose honor he pays. (Art. 1236-1237, NCC). He
acquires the right of reimbursement only up to the extent
that the party for whose honor he paid is benefited there
by. Similarly, failure to notify the person for whose honor
he pays within reasonable time will result in the payment
being considered in the same manner.
Preference of parties offering to pay for honor
Where two or more persons offer to pay a bill for the
honor of different parties, the person whose payment will
discharge most parties to the bill is to be given the
preference.
Illustration: A draws a bill payable to B, with X as
drawee. B negotiates it to C, C to D, D to E, E to F, holder. X
refuses to honor it and F duly protests non-payment. If Y
offers to pay for the honor of C, while Z offers to pay for the
honor of B, the latter’s (Z) will be preferred as Z’s payment
will discharge more (C, D, E). Y’s offer will only work to
discharge D & E.
Effect on subsequent parties where bill is paid for
honor
What are the effects of payment for honor?
1. All parties subsequent to the party whose
honor it is paid are discharged; and
 2. The payer for honor is subrogated for, and
succeeds to, both the rights and duties of the
holder as regards the party whose honor he
pays and all parties liable to the latter.
Illustration: In the example above, suppose Z did not
offer and, as a result, Y made payment. What are the
effects?
a. D and E are discharged because they are parties
subsequent to the party for whose honor it is paid (C).
b. Y acquires the rights of F, holder, as against C, B, A
and X because C is the party for whose honor he pays and
the rest are considered as parties liable to C.
Where holder refuses to receive payment supra protest
Where the holder of a bill refuses to receive
payment supra protest, he loses his right of recourse
against any party who would have been discharged by such
payment.
Note: In payment for honor, the holder cannot
refuse payment. If he does, he cannot recover from
the parties who would have been discharged had he
accepted it. The rule is different from acceptance for
honor because in such a case, the holder’s consent is
necessary.
Illustration: In the above example, if Y offers to pay
for the honor of C and F refuses, F loses the right of
recourse against D and E as they are parties who would
have been discharged had the holder accepted payment.
But as to C, the party in whose honor Y offers to pay, is not
discharged because, as to him, even if F accepted, C would
not be discharged. The party for whom the instrument is
paid for is never discharged from liability by the payment
for honor of the payer.
Rights of payer for honor
The payer for honor, on paying to the holder the
amount of the bill and the notarial expenses incidental to
its dishonor, is entitled to receive both the bill itself and the
protest.
What are the rights of the rights of the payer for honor?
1. He acquires the rights of the holder (Sec. 175); and
2. He has also the right to receive the bill and the
protest.
The purpose of (2) is to enable him to enforce his
rights against those who are liable to him by virtue of
Sec. 175.
 CHAPTER 8 - When presentment for acceptance is excused and the
bill is
NOTICE OF DISHONOR
not accepted.

2. Duty of the holder where bill not accepted

1. The instrument is not discharged when it is:
1.a Dishonored by non-payment
1.b Dishonored by non-acceptance
1.c Protested in case of foreign bills
 The person presenting it must treat the bill as
dishonored by non-acceptance
 He loses the right of recourse against the
drawer and indorsers.
3. Rights of holder where bill not accepted

 An immediate right of recourse against

1.a Dishonored by non payment the drawer and indorsers accrues to the
holder
- It is duly presented for payment and payment is  No presentment for payment is necessary
refused or

cannot be obtained. Life of negotiable instruments:

- Presentment is excused and the instrument is - Applicability
overdue and unpaid. - Negotiability
- Issuance
1.b Dishonored by non acceptance - Negotiation
- Presentment
- When it is duly presented for acceptance and such an - Acceptance
- Discharge & Payment for Honor
acceptance as is prescribed by this Act is refused or can not - Notice of Dishonor
be obtained.
 4. Notice of Dishonor
 It must be given to the drawer and to each indorser
 Any drawer or indorser to whom such notice is not
given is discharge.
5. A Presentment for payment is excused when:
 Where, after the exercise of reasonable diligence,
 Where the drawee is fictitious person
 By waiver of presentment, express or implied.
5.B Presentment for acceptance is excused and a bill may
be treated as dishonored by non-acceptance in either of the
following case:
 Drawee (dead; abandoned; fictitious person or not
having capacity)
 Presentment cannot be made after the exercise of
reasonable diligence.
 Acceptance has been refused on some other ground.
6. Conditions to charge parties secondarily liable
 Presentment for payment
 Notice of dishonor
7. Grounds for notice of dishonor
 Dishonor for non acceptance
 Dishonor for non payment
8. When notice is dispensed with
 After the exercise of reasonable diligence, it cannot
be given to or does not reach the parties sought to
be charged.
9. Party to give notice of dishonor
 By or on behalf of the holder
 By or on behalf of any party
 By any agent
10. Effect of notice on behalf of holder
 Where notice is given by or on behalf of the holder,
it insures 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.
11. Effect where notice is given by party entitles 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.
12. 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.
13. When notice sufficient
 A written notice need not be signed and an
insufficient written notice may be supplemented
and validated by verbal communication.
FORM OF NOTICE
1. In writing or
2. Merely oral
 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. (Sec.
96)
1. To whom the notice of dishonor may be given
1. To the party himself or
2. To his agent in that behalf. (Sec. 97)
3. When any party is dead
4. Notice to partners
5. Notice to persons jointly liable
6. Notice to bankrupt
2. 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.
2.A. 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:
1. Place of business of the person to receive
notice, it must be given before the close of
business hours on the day following.
2. Residence, it must be given before the usual
hours of rest on the day following.
3. By mail, it must be deposited in the post
office in time to reach him in usual course.
2.b. 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:
1. 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.
2. If given otherwise than though 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. (Sec. 104)
3. 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.
 3.a. Where notice must be sent
Where a party has added 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:
1. Either to the post-office where he is accustomed
to receive his letters; or
2. If he lives in one place and has his place of
business in another, notice may be sent to either
place; or
3. If he is sojourning in another place, notice may
be sent to the place where he is so sojourning.
4. Waiver of notice of dishonor
Notice of dishonor may be waived either:
1. Before the time of giving notice has arrived or
2. After the omission to give due notice
a. The waiver may be expressed or
b. Implied.
5. 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.
6. 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.
6.a 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:
 Drawer and drawee are the same person;
 When the draw is fictitious person or a
person not having capacity to contract;
 When the drawer is the person to whom the
instrument is presented for payment;
 Where the drawer has no right to expect or
require that the drawee or acceptor will
honor the instrument;
 Where the drawer has countermanded
payment.
6.b 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:
 When the drawee is fictitious person or
person not having capacity to contract,
and then indorser was aware of that fact
at the time he indorsed the instrument;
 Where the indorser is the person to
whom the instrument is presented for
payment;
 Where the instrument was made or
accepted for his accommodation. (Sec.
115)
7. Notice of non-payment where the 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.
8. Effect of omission to give notice of non-acceptance
 2. When protest need to be made; when must made
Does not prejudice the rights of a holder in due
course subsequent to the omission
9. Referee in case of need
The drawer of a bill and any indorser may insert thereon
the name of a person to whom the holder may resort in
case of need; that is to say, in case the bill is dishonored by
non acceptance or non-payment.
PROTEST
honor supra protest or contains a referee in case of
need, it must be protested for non-payment before it
is presented for payment to the acceptor for hnor or
referee in case of need.

 When the bill is dishonored by the acceptor for
honor,it must be protested for non-payment by him.


Where any negotiable instrument has been dishonored, it
may be protested for non-acceptance or non-payment, as
the case ay be; but protest is not required except in the case
of foreign bills of exchange.
3. Protest; how made

The protest must be annexed to the bill or must contain a
copy thereof, and must be under the hand and seal of the
notary making it and must specify:

1. In what cases protest necessary 1. The time and place of presentment

 A foreign bill appearing on its face to be such is 2. The fact that presentment was made and manner thereof.
dishonored by non-acceptance.
 3. The cause or reason for protesting the bill.
4. The
 It must be duly protested for non-acceptance. demand made and the answer given, if any, or the face that
 Where such bill which has not previously been the drawee and acceptor could not be found.
dishonored by non-payment, it must be duly
protested for non-payment.
 4. Protest; by whom made
 If it is not so protested, the drawer and indorsers are
discharged.
  A notary public.
 Where a bill does not appear on its face to be a  By any respectable resident of the place where the
foreign bill, protest thereof in case of dishonor is bill is dishonored, in the presence of two or more
unnecessary.
 credible witnesses.
 Where a dishonored bill has been accepted for
5.Protest; when to be made
 
When a bill is protested, such protest must be made on the
day of its dishonor unless delay is excused as a herein
provided. When a bill has been duly noted the pretest may
be subsequently extended as of the date of the noting.
 Protest is dispensed with by any circumstances
which would dispense with notice of dishonor.
 Delay in noting is protesting is excused when delay
is caused by circumstances beyond control of the
holder and not imputable to his default, misconduct
or negligence.
 When the cause of delay ceases to operate, the bill
must be noted or protested with reasonable
diligence.
7.Protest; where made
A bill must be protested at the place where it is
dishonored, expect that when a bill drawn payable at the
place of business of some person other that the drawee has
been dishonored by non-acceptance, it must be protested
for non-payment at the place where it is expressed to be
payable, and no further presentment to, or demand on, the
drawee necessary.
Protest before maturity where acceptor
Where the acceptor has been adjudged:
1. A bankrupt
2. An insolvent
Has made an assignment for the benefit of
creditors before the bill matures, the holder
may cause the bill to be protested for better
security against the drawer and indorser.
 Protest where bill is lost and so forth
When a bill is lost or destroyed or is wrongly
detained from the person entitled to hold it,
protest may be made on a copy or written
particulars thereof.
9. Waiver of protest
A waiver of protest, whether n the case of a foreign bill of
exchange or other negotiable instrument, is deemed to be a
waiver of:
 A formal protest but
 Also of presentment
 Notice of dishonor

8. Protest both for non-acceptance and non-payment


A bill which has been protested for non-acceptance

may be subsequently protested for non-payment. As
such, because of the word "may", once the bill has
been protested for non-acceptance, protest for non-
payment is therefore optional.