NEGOTIABLE INSTRUMENTS LAW (Sec. 195.) Application of Act.

- The provisions of this Act do not apply to negotiable

GENERAL PROVISIONS
(Sec. 196.) Cases not provided for in Act. - Any case not provided for in this Act shall be
governed by the provisions of existing legislation or in default thereof, by the rules of the law
(Sec. 190.) Short title. - This Act shall be known as the Negotiable Instruments Law.
merchant.

(Sec. 191.) Definition and meaning of terms. - In this Act, unless the contract otherwise
(Sec. 197.) Repeals. - All acts and laws and parts thereof inconsistent with this Act are
requires:
hereby repealed.
"Acceptance" means an acceptance completed by delivery or notification;
"Action" includes counterclaim and set-off;
(Sec. 198.) Time when Act takes effect. - This Act shall take effect ninety days after its
"Bank" includes any person or association of persons carrying on the
publication in the Official Gazette of the Philippine Islands shall have been completed.
business of banking, whether incorporated or not;
"Bearer" means the person in possession of a bill or note which is payable to
Enacted: February 3, 1911
bearer;
"Bill" means bill of exchange, and "note" means negotiable promissory note;
"Delivery" means transfer of possession, actual or constructive, from one PROMISSORY NOTES AND CHECKS
person to another;
"Holder" means the payee or indorsee of a bill or note who is in possession (Sec. 184.) Promissory note, defined. - A negotiable promissory note within the meaning of
of it, or the bearer thereof; this Act is an unconditional promise in writing made by one person to another, signed by the
"Indorsement" means an indorsement completed by delivery; maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in
"Instrument" means negotiable instrument; money to order or to bearer. Where a note is drawn to the maker's own order, it is not
"Issue" means the first delivery of the instrument, complete in form, to a complete until indorsed by him.
person who takes it as a holder;
"Person" includes a body of persons, whether incorporated or not; (Sec. 185.) Check, defined. - A check is a bill of exchange drawn on a bank payable on
"Value" means valuable consideration; demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of
"Written" includes printed, and "writing" includes print. exchange payable on demand apply to a check.

(Sec. 192.) Persons primarily liable on instrument. - The person "primarily" liable on an (Sec. 186.) Within what time a check must be presented. - A check must be presented for
instrument is the person who, by the terms of the instrument, is absolutely required to pay the payment within a reasonable time after its issue or the drawer will be discharged from liability
same. All other parties are "secondarily" liable. thereon to the extent of the loss caused by the delay.

(Sec. 193.) Reasonable time, what constitutes. - In determining what is a "reasonable time" (Sec. 187.) Certification of check; effect of. - Where a check is certified by the bank on which
regard is to be had to the nature of the instrument, the usage of trade or business with it is drawn, the certification is equivalent to an acceptance.
respect to such instruments, and the facts of the particular case.
(Sec. 188.) Effect where the holder of check procures it to be certified. - Where the holder of
(Sec. 194.) Time, how computed; when last day falls on holiday. - Where the day, or the last a check procures it to be accepted or certified, the drawer and all indorsers are discharged
day for doing any act herein required or permitted to be done falls on a Sunday or on a from liability thereon.
holiday, the act may be done on the next succeeding secular or business day.

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(Sec. 189.) When check operates as an assignment. - A check of itself does not operate as  “An instrument payable upon a contingency is not
an assignment of any part of the funds to the credit of the drawer with the bank, and the bank negotiable, and the happening of the event does not cure the
is not liable to the holder unless and until it accepts or certifies the check. defect.” (Sec. 4, last par.)
a sum certain in money;
REQUIREMENTS FOR NEGOTIABILITY (Sec. 1)  (Sec. 2.) What constitutes certainty as to sum. - The sum payable is a sum
certain within the meaning of this Act, although it is to be paid:
A. It must be in writing (with pen or pencil or printed, stamped or engraved) a) with interest; or
 The instrument must be written on a material such as parchment, cloth,  the requirement of certainty as to sum applies to the principal
leather or any other substitute for paper – INDISPENSABLE amount rather than to the incidental addition of interest.
REQUIREMENT – so the instrument may be negotiated or transferred from  If however, the interest is stipulated but not specified, the
hand to hand. rate is determined to be the legal rate.
and signed by the maker or drawer; b) by stated installments; or
 Sufficiency of signature – full name may be written, or at least the surname  the amount to be paid in installment and the maturity date of
should appear, or initials are sufficient, or any mark which the party uses to each installment must be known or capable of being known.
indicate his intention to bind himself. c) by stated installments, with a provision that, upon default in payment
 The party may even sign in an assumed trade name (Sec. 18). of any installment or of interest, the whole shall become due
(acceleration clause); or
B. Must contain an unconditional promise or order to pay (when it is not subject to a  its purpose is to hasten payment of the whole note.
contingency) d) with exchange, whether at a fixed rate or at the current rate; or
 (Sec. 3.) When promise is unconditional. - An unqualified order or promise to  while the rate of exchange is not always the same, the
pay is unconditional within the meaning of this Act though coupled with: current rate of exchange between two places at a particular
a) An indication of a particular fund out of which reimbursement is to be date is a matter of common commercial knowledge and
made or a particular account to be debited with the amount; or readily ascertainable.
(because the order to pay is still unconditional, and what is only e) with costs of collection or an attorney's fee, in case payment shall not
conditional is the reimbursement to be made) be made at maturity.
 FUND FOR REIMBURSEMENT – the drawee pays the
payee from his own fund unconditionally; and afterwards the C. Must be payable on demand,
drawee will be reimbursed from the particular fund indicated.  (Sec. 7.) When payable on demand. - An instrument is payable on demand:
 Particular account to be debited – the instrument is to be a) When it is so expressed to be payable on demand, or at sight, or on
paid first, afterwards, the particular account indicated is to be presentation; or
debited. b) In which no time for payment is expressed.
b) A statement of the transaction which gives rise to the instrument. Where an instrument is issued, accepted, or indorsed when overdue, it is, as
(even if not stated, it is presumed by law) regards the person so issuing, accepting, or indorsing it, payable on demand.
But an order or promise to pay out of a particular fund is not unconditional. or at a fixed or determinable future time;
 FUND FOR PAYMENT – the drawee is directed to pay  (Sec. 4.) Determinable future time; what constitutes. - An instrument is
directly out of a particular fund, which may be in his payable at a determinable future time, within the meaning of this Act, which is
possession – the particular fund indicated may not be expressed to be payable:
sufficient to cover the amount of money to be paid. a) At a fixed period after date or sight; or
b) On or before a fixed or determinable future time specified therein; or

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  Effect of option to accelerate maturity:  An instrument payable to order is negotiated by indorsement and
o If on the maker – the negotiability of the instrument is not delivery.
affected, whether such option is absolute or conditional;  (Sec. 9.) When payable to bearer. - The instrument is payable to bearer:
o If on the holder – the negotiable character is not affected if a) When it is expressed to be so payable; or
the option is to exercised upon the happening of a specified b) When it is payable to a person named therein or bearer; or
event or act over which he has no control; it is non- c) When it is payable to the order of a fictitious or non-existing person,
negotiable, however, if the holder’s right to exercise the and such fact was known to the person making it so payable; or
option is unconditional.  “Fictitious person” – means a person who has no right to the
c) On or at a fixed period after the occurrence of a specified event instrument because the drawer or the maker of it so intended
which is certain to happen, though the time of happening be – may be one who is living or dead or one who never
uncertain. existed.
An instrument payable upon a contingency (a condition which may or may d) When the name of the payee does not purport to be the name of any
not happen) is not negotiable, and the happening of the event does not cure person; or (e.g. pay to cash)
the defect. e) When the only or last indorsement is an indorsement in blank.
 The requirement as to certainty of time of payment is for the purpose of  A bearer instrument is negotiated by mere delivery.
informing the holder of the instrument of the date when he may enforce
payment. E. Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty (applicable only to a bill of
D. Must be payable to order or to bearer; and exchange).
 (Sec. 8.) When payable to order. - The instrument is payable to order where
it is drawn payable to the order of a specified person or to him or his order. It PROVISIONS NOT AFFECTTING NEGOTIABILTY
may be drawn payable to the order of:
a) A payee who is not maker, drawer, or drawee; or (Sec. 5.) Additional provisions not affecting negotiability. - An instrument which contains an
b) The drawer or maker; or order or promise to do any act in addition to the payment of money is not negotiable (for then
 An order instrument is now equivalent to a promissory note the instrument would no longer be payable in sum certain in money). But the negotiable
made by the acceptor in favor of the drawer. character of an instrument otherwise negotiable is not affected by a provision which:
 If the promissory note is payable to the order of the maker, a) authorizes the sale of collateral securities in case the instrument be not paid at
the instrument is not complete until endorsed by the maker. maturity; or
c) The drawee; or  Arises when the transaction, which gives rise to the instrument, is secured by
 It is in effect an authorization given to the drawee to pay a mortgage or pledge.
himself from the funds belonging to the drawer which are in  The additional act of selling is to be executed after the date of maturity.
the possession of the drawee. b) authorizes a confession of judgment if the instrument be not paid at maturity; or
d) Two or more payees jointly; or  the kind of confession referred here is COGNOVIT ACTIONEM – which is a
e) One or some of several payees; or written confession of an action by a defendant, subscribed, but not sealed,
f) The holder of an office for the time being. and irrevocably authorizing any attorney of any court of record to confess
Where the instrument is payable to order, the payee must be named or judgment and issue execution usually for a sum named – the purpose is to
otherwise indicated therein with reasonable certainty. (because the payee is save expenses of litigation.
required to indorse the instrument, hence must be named or otherwise c) waives the benefit of any law intended for the advantage or protection of the obligor;
indicated with reasonable certainty) or (e.g. waiver of notice of dishonor)

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 d) gives the holder an election to require something to be done in lieu of payment of (Sec. 17.) Construction where instrument is ambiguous. - Where the language of the
money. instrument is ambiguous or there are omissions therein, the following rules of construction
 The instrument remains negotiable because the right to choose is in the apply:
hands of any holder. a) Where the sum payable is expressed in words and also in figures and there is a
But nothing in this section shall validate any provision or stipulation otherwise illegal. 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
(Sec. 6.) Omissions; seal; particular money. - The validity and negotiable character of an the amount;
instrument are not affected by the fact that: b) Where the instrument provides for the payment of interest, without specifying the
a) it is not dated; or date from which interest is to run, the interest runs from the date of the instrument,
 Where the instrument is not dated, it will be considered to be dated as of the and if the instrument is undated, from the issue thereof;
time it was issued (Sec. 17[c]). c) Where the instrument is not dated, it will be considered to be dated as of the time it
 In the following cases, however, the date is important and necessary: was issued;
a. For determining when instrument, indorsement or acceptance is due d) Where there is a conflict between the written and printed provisions of the instrument,
(maturity). the written provisions prevail;
b. Determining prescription of cause of action. e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note,
b) does not specify the value given, or that any value had been given therefor; or the holder may treat it as either at his election;
(valuable consideration is presumed – Sec. 24) f) Where a signature is so placed upon the instrument that it is not clear in what
c) does not specify the place where it is drawn or the place where it is payable; or capacity the person making the same intended to sign, he is to be deemed an
(Sec. 73.) Place of presentment. - Presentment for payment is made at the proper place: indorser;
a) Where a place of payment is specified in the instrument and it is there g) Where an instrument containing the word "I promise to pay" is signed by two or more
presented; persons, they are deemed to be jointly and severally liable thereon.
b) Where no place of payment is specified but the address of the person to
make payment is given in the instrument and it is there presented; PRESUMPTION AS TO DATE
c) Where no place of payment is specified and no address is given and the
instrument is presented at the usual place of business or residence of the
person to make payment;
(Sec. 11.) Date, presumption as to. - Where the instrument or an acceptance or any
d) In any other case if presented to the person to make payment wherever he indorsement thereon is dated, such date is deemed prima facie to be the true date of the
can be found, or if presented at his last known place of business or making, drawing, acceptance, or indorsement, as the case may be.
residence.  Applicability of this section:
d) bears a seal; or i. The instrument contains the date is issue.
e) designates a particular kind of current money in which payment is to be made. ii. If bill was accepted, the acceptance is dated.
But nothing in this section shall alter or repeal any statute requiring in certain cases the iii. If the instrument was endorsed, endorsement is dated.
nature of the consideration to be stated in the instrument.  Effect of antedating and post-dating (Sec. 12) – the antedated or post-dated
instrument is not rendered invalid or non-negotiable unless done for an illegal
CONTRUCTION or fraudulent purpose. It may be negotiated before or after the date given as
long as it is not negotiated after its maturity.
(Sec. 10.) Terms, when sufficient. - The instrument need not follow the language of this Act,
but any terms are sufficient which clearly indicate an intention to conform to the requirements
hereof. (substantial compliance)

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WHEN DATE MAY BE INSERTED (Sec. 13) INCOMPLETE AND UNDELIVERED (Sec. 15)
1. When instrument is payable at a fixed period after date – the holder may insert the  Effects of want of completion and delivery – the instrument will not, if completed
date of issue. and negotiated, without authority, be a valid contract in the hands of any holder,
2. When the instrument is payable at a fixed period after sight – the holder may insert as against any person whose signature was placed thereon before delivery
the date of acceptance. o The non-delivery of an incomplete instrument is a valid defense, not only
 Effect of insertion of a wrong date – it does not avoid the instrument in the hands between the original parties but also against a holder in due course.
of a holder in due course. o The holder of an originally incomplete and undelivered instrument may
enforce payment against parties signing the instrument after its
STEPS IN EXECUTION OF A NEGOTIABLE INSTRUMENT completion
 The party signing the instrument prior to its delivery has a personal defense only.
1. The act of writing the instrument completely (must conform with the requirements set
forth in section 1) COMPLETE AND UNDELIVERED (Sec. 16)
2. The delivery of the instrument to someone with an intention of giving effect to it.  Simplified Rules:
a. Every complete instrument must be delivered;
DEFECT IN THE EXECUTION, EFFECTS b. Before delivery, such instrument is revocable;
c. The delivery must ne authorized;
INCOMPLETE AND DELIVERED (Sec. 14) d. If properly authorized, the delivery as against parties who know, may be
 The person in possession of an instrument wanting of any material particular shown to have been made conditionally or for a special purpose;
(other than the amount) has prima facie authority to complete it by filling up the e. Where the instrument is no longer in the possession of a party whose
blanks therein. signature appears thereon, delivery by him is disputably presumed – it
 Requisites – prima facie authority to fill up the amount: can be shown by evidence that there was delivery or that the bill or note
a. Signature appearing in a blank instrument; was stolen.
b. The person signing in blank delivers it in order that the paper be f. If the instrument is in the hands of a holder in due course, a valid delivery
converted into a negotiable instrument. Thus, mere possession is not is conclusively presumed and prior parties may therefore be held liable.
enough.
 Requisites to hold prior parties liable: GENERAL RULE: No person is liable upon an instrument whose signature does not appear
a. The blank must be filled up in accordance with the authority given. thereon. (Sec. 18)
b. It was filled up within a reasonable time.
 Sec. 193. Reasonable time, what constitutes. - In determining what is a EXCEPTIONS:
"reasonable time" regard is to be had to the nature of the instrument, the 1. Signing in a trade or assumed name (Sec. 18)
usage of trade or business with respect to such instruments, and the facts of
the particular case. 2. Signature of a duly authorized agent (Sec. 19-21) – principal is liable.
 SUMMARY: where the instrument is incomplete and delivered, but completed  Requisites in order for an agent to escape liability:
contrary to the authority given, or not completed within a reasonable time: a. Agent is duly authorized.
o As to a holder in due course – he can enforce the instrument as b. He must indicate his capacity as an agent.
completed against parties prior or subsequent to the completion. c. He must disclose or declare his principal.
o As to a holder not in due course – he can enforce the instrument as
 Procuration – is the act by which the principal gives power to another to act in his
completed only against parties subsequent to completion but not against
place as he could himself. It is a warning that the agent has limited authority
those prior thereto.
 The party signing the instrument prior to its delivery has a personal defense only.
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  Person precluded from setting defense of forgery:
3. Acceptance on a separate paper (Sec. 134) 1. Those persons who by their acts, silence, or negligence are
 “Acceptance by separate instrument. - Where an acceptance is written on a estopped from setting the defense of forgery (persons by
paper other than the bill itself, it does not bind the acceptor except in favor of a estoppel).
person to whom it is shown and who, on the faith thereof, receives the bill for 2. Those persons by specific provisions of law warrant the
value.” genuineness of the signatures appearing in the instrument,
such as, the indorser, acceptor, and person negotiating by
4. A promise to accept bill before it is drawn (Sec. 135) delivery.
 “Promise to accept; when equivalent to acceptance. - An unconditional promise b. Forged signature is not necessary to the holder’s title, in which case,
in writing to accept a bill before it is drawn is deemed an actual acceptance in the forgery may be disregarded.
favor of every person who, upon the faith thereof, receives the bill for value.”
 Rights of parties whose signature was forged:
5. In case of forgery of signature of another person (Sec. 23) o He may claim from prior parties;
 FORGERY – is the counterfeit making or fraudulent alteration of any writing, and o He may ask for the execution of another instrument from the
may consist in the signing of another’s name, or alteration in the name, amount, maker/drawer.
description of the person and the like with intent to defraud.
o Forgery is a REAL DEFENSE – a person whose signature was forged as  Rights of the holder after forgery.
maker, drawer, payee or indorsee of a note or check was never a party o If payable to bearer: (the issue is on the delivery, thus, determine
or never gave his consent to the contract which gave rise to the whether or not the holder is in due course)
instrument. a. All parties are liable to a holder.
o The burden of proving lies on the party alleging forgery. b. The forgery is immaterial because the instrument is negotiated by
 EFFECTS: mere delivery without indorsement.
a. It is wholly inoperative; o If payable to order:
 Extent and effect of forgery: a. Where the indorsement is forged, the parties prior to the forgery are
i. Only the signature forged or made without authority is the one not liable while the subsequent parties are the ones liable – because
inoperative, the instrument itself and the genuine signatures are the instrument is negotiated by delivery with indorsement.
valid.
ii. The instrument can be enforced by the holder to whose title over  In a bill of exchange, where the drawee bank accepts and pays a forged check,
the instrument the forged signature is not necessary, such as, an the remedy is against the party responsible for the alteration. It is true that when
instrument indorsed which on its face is payable to bearer. the indorsement is forged, the collecting bank or last indorser, as a general rule,
b. No right to retain the instrument; bears the loss BUT the unqualified indorsement of the collecting bank on the
c. No right to give discharge therefore; check should be read together with the 24-hour regulation on the clearing house
d. No right to enforce payment thereof against any party thereto. operations. Once the 24-hour period is over, the liability of the collecting bank in
such an indorsement has ceased.
 General Rule: No right or title can be acquired through or under a forged or
unauthorized signature.  Forgery of the drawer’s signature must be distinguished from the forgery of the
o Exceptions: indorser’s signature.
a. Unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.

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 o The drawee is in a position to verify the drawer’s signature by CONSIDERATION
comparison with one in his hands, but has ordinarily no opportunity to
verify an indorsement. (Sec. 24.) Presumption of consideration. - Every negotiable instrument is deemed prima facie
o Thus, a drawee bank is generally liable to its depositor in paying a check to have been issued for a valuable consideration (not necessarily adequate or enough); and
which bears a forgery of the drawer’s signature or a forged indorsement. every person whose signature appears thereon to have become a party thereto for value.
But the bank may as, a general rule, recover back the money which it  The party who did not receive any value must prove absence of such.
has paid on a check bearing a forged indorsement, whereas it has not
this right to the same extent with reference to a check bearing a forgery (Sec. 25.) Value, what constitutes. — Value is any consideration sufficient to support a simple
of the drawer’s signature. 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.
 Right of drawee to recover payment where payee’s or indorser’s signature was  In general, consideration means the inducement to a contract, that is, the casue,
forged. price, or impelling influence which induces a contracting party to enter into a
o From the encasher or last indorser contract.
 The drawee bank does not have the duty to ascertain whether
the signature of the payee or indorser is genuine or not. The (Sec. 27.) When lien on instrument constitutes holder for value. - Where the holder has a lien
indorser is supposed to warrant to the drawee bank that the on the instrument arising either from contract or by implication of law, he is deemed a holder
signatures of the payee and previous indorsers are genuine, for value to the extent of his lien.
warranty not extending only to holders in due course.  If the loan is greater is less than the value of the instrument, the excess will be
 One who purchases a check or draft is bound to satisfy himself held by the holder as trustee for the pledger.
that the paper is genuine and that by indorsing it or presenting it
for payment or putting into circulation before presentation, he (Sec. 26.) What constitutes holder for value. - Where value has at any time been given for the
impliedly asserts that he has performed his duty and the drawee instrument, the holder is deemed a holder for value in respect to all parties who become such
who has paid the forged check, without negligence on his part, prior to that time.
may recover the money from such negligent purchasers.  Kinds of Holder:
o From the drawer or depositor. a. Holder for value;
 As a rule, the drawee bank cannot debit or charge the drawer’s b. Holder in due course; and
account for the amount of said check and is not entitled to c. Holder not in due course.
indemnification from the drawer, EXCEPT when the drawer is
guilty of such negligence which causes the bank to honor such (Sec. 28.) Effect of want of consideration. - Absence or failure of consideration is a matter of
check. defense as against any person not a holder in due course; and partial failure of consideration
is a defense pro tanto, whether the failure is an ascertained and liquidated amount or
EFFECT OF INDORSEMENT BY AN INFANT OR CORPORATION (Sec. 22) otherwise.
 The indorsement or assignment passes the property therein, notwithstanding that  If there is a total absence or failure of consideration, the defense is only against
for want of capacity the corporation or infant may incur no liability thereon. persons who are not holders in due course.
 As a rule, a minor cannot give consent and a contract entered into by him is o With respect to holders in due course, the presumption of valuable
VOIDABLE. In like manner, a corporation cannot perform acts beyond the scope consideration is conclusive.
of their authority.  And only partial defense if it is partial failure.

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  Distinguish: WANT or ABSENCE of consideration embraces transactions where no d. One who negotiates a negotiable instrument is liable to a holder in due
consideration was intended to pass, while FAILURE of consideration implies that the course on the face of the instrument without regards to the consideration
giving of valuable consideration was contemplated but that it failed to pass. received and without regards to the solvency or insolvency of the party
primarily liable on the instrument; while an assignor is liable only for the
(Sec. 29.) Liability of accommodation party. - An accommodation party is one who has signed loss suffered by the assignee for any breach of warranties by the
the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and assignor.
for the purpose of lending his name to some other person (definition). Such a person is liable e. A holder in due course is subject only to real defenses and may acquire
on the instrument to a holder for value, notwithstanding such holder, at the time of taking the a better title or greater rights under the instrument than those possessed
instrument, knew him to be only an accommodation party. (Collateral Assurance) by the transferor; while an assignee is subject to both real and personal
defenses as the latter generally steps into the shoes of the assignor.
NEGOTIATION
(Sec. 31.) How indorsement made. – it must be WRITTEN:
(Sec. 30.) NEGOTIATION – is the transfer of an instrument from one person to another in a) On the instrument itself
such manner as to constitute the transferee the holder of the instrument. b) Upon a paper attached thereto (ALLONGE) – it must be tacked or pasted on the
instrument so as to become part of it.
 How Negotiation is effected:
1. If the instrument is payable to order – by indorsement AND delivery. (Sec. 32.) General Rule: Indorsement must be of the entire instrument.
 Without a valid indorsement, the instrument in effect is transferred not Purpose: To avoid multiplicity of suits.
through negotiation but only through assignment; in which, the assignee Exception: If part of the amount has already been paid, the unpaid balance may be
is merely placed in the position of the assignor. Indorsed as this is expressly authorized by law.
2. If the instrument is payable to bearer – by delivery ONLY.  A partial indorsement leaving the balance without unpaid, is not a
 DELIVERY – is the transfer of possession, actual or constructive, from valid negotiation, thus, the instrument becomes non-negotiable. And
person to another. the indorsee will not be considered as a holder but merely an
 INDORSEMENT – is the writing of the name of the payee on the assignee.
instrument with the intent either to transfer the title to the same, or to
strengthen the security of the holder by assuming a contingent liability for RULES:
its future payment, or both. 1. An indorsement which purports to transfer to the indorsee a part only of
the amount payable is NOT a valid negotiation, EXCEPT where the
 Assignment and Negotiation, Distinguished: instrument has been paid in part, it may be indorsed as to the residue.
a. Assignability pertains to contracts in general, while negotiability pertains 2. An indorsement which purports to transfer the instrument to two or more
only to a special class of contracts, negotiable instruments. indorsees severally, is likewise NOT a valid negotiation.
b. A person who takes the instrument by negotiation takes it free from all
equities; while a person who takes an instrument by assignment takes it KINDS OF INDORSEMENT (Sec. 33.)
subject to the equities incident to it.
c. One who negotiates a negotiable instrument is not liable unless there be 1. SPECIAL (Sec. 34.) – specifies the person to whom, or to whose order, the
presentment for payment at maturity and in certain cases presentment instrument is payable; Indorsement of the indorsee is necessary to the further
for protest and prompt notice of dishonor, while an assignor is not negotiation.
entitled to notice of non-payment at maturity. a) Instrument is originally payable to order – Where the instrument is negotiated by
the payee by blank indorsement, in which case, an indorsee is not specified, the

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 instrument so indorsed becomes payable to bearer, and thus, may be negotiated  A restrictive indorsement operates as notice to all persons that
by delivery. the indorser has not parted with his title to the instrument, and
b) Instrument is originally payable to bearer – it can further be negotiated by mere did not intend to transfer it or its proceeds to the indorsee, but
delivery, even if the original bearer negotiated it by special indorsement. the indorsee is only constituted as an agent for collection, and
(Sec. 40.) Indorsement of instrument payable to bearer. - Where an any subsequent holder taking the instrument from the indorsee
instrument, payable to bearer, is indorsed specially, it may nevertheless be will be liable to him for the instrument or its proceeds when
further negotiated by delivery; but the person indorsing specially is liable as collected.
indorser to only such holders as make title through his indorsement.
4. QUALIFIED (Sec. 38.) – constitutes the indorser a mere assignor of the title to the
2. BLANK (Sec. 35.) – where the indorsement is signed by the indorser but without instrument. Thus, he does not warrant the solvency or financial responsibility of the
specifying or naming the indorsee; the holder may convert a blank instrument into a maker.
special indorsement by writing over the signature of the indorser in blank any contract HOW MADE: By adding to the indorser’s signature the words “without recourse”
consistent with the character of the indorsement. or any words of similar import – to limit the liability of the indorser, which renders
him a mere assignor of the title to the indorsement and relieves him from all
3. RESTRICTIVE (Sec. 36.) – one which prohibits the negotiability of the instrument to a responsibility for its payment except as to other warranties provided by law.
particular person or for a particular purpose; an indorsement is restrictive, which Qualified indorser warrants that the instrument is genuine.
EITHER: EFFECT: it does not destroy the negotiability of the instrument.
a) Prohibits the further negotiation of the instrument; or
b) Constitutes the indorsee the agent of the indorser; or 5. ABSOLUTE – one by which the indorser binds himself to pay, upon no other
c) Vests title in the indorsee in trust for or to the use of some other person. condition than the failure of prior parties to do so, and of due notice to him of such
BUT the mere absence of words implying power to negotiate does not make an failure.
indorsement restrictive.
 A restrictive indorsee is always named. 6. CONDITIONAL (Sec. 39.) – one by which the indorser annexes some other condition
 Restrictive indorsements is generally categorized into two (2): to his liability, that is, where there is some condition in the indorsement.
a. That which limits, restricts, modifies rights of the indorsee or
holder; EFFECTS:
b. That which stops or prohibits altogether further negotiation of the
instrument. I. MAKER or ACCEPTOR
1. Before the condition is fulfilled:
(Sec. 37.) Rights of Indorsee, in case of restrictive indorsement: a) He may refuse to pay, or
1) To receive payment b) Pay to the indorsee or transferee even before the condition
2) To sue or to bring any action thereon that the indorser could bring – but is fulfilled – person who receives the payment holds the
he takes the instrument subject to all equities between the indorser and proceeds only in trust for the person indorsing conditionally,
the maker. and does not acquire title until the condition is fulfilled.
3) To transfer his rights, where the form of the indorsement authorizes him 2. After fulfillment of the condition:
to do so. a) He is obliged to pay.
BUT all subsequent indorsees acquire only the title of the first indorsee
under the restrictive indorsement.

9
 II. INDORSER c) If he signs for the accommodation of the payee, he is liable to all parties
1. When the condition was not fulfilled – the indorsement carries with subsequent to the payee.
it notice of the condition expressed, and is not binding on the
indorser, if the condition was not fulfilled. 9. FACULTATIVE (Sec. 111.) – the indorser enlarges his liability by waiving usual
2. After the condition was fulfilled – a conditional indorsement is a demand and notice of dishonor.
contract, and the person who makes it is bound by it, provided the
conditions were fulfilled. (Sec. 42.) Effect of instrument drawn or indorsed to a person as cashier. - Where an
III. INDORSEE instrument is drawn or indorsed to a person as "cashier" or other fiscal officer of a bank or
1. Before condition is fulfilled – any person to whom an instrument corporation, it is deemed prima facie to be payable to the bank or corporation of which he is
conditionally indorsed is negotiated, will hold the same or the such officer, and may be negotiated by either the indorsement of the bank or corporation or
proceeds thereof subject to the rights of the person indorsing the indorsement of the officer.
conditionally.  Who may indorse?
2. After fulfillment of the condition – if the condition was fulfilled, the 1. The corporation or bank itself, represented by the officers as provided for
indorsee or his transferee will acquire ownership of the instrument or in the by-laws.
the proceeds thereof. 2. Officers to whom the instrument is payable.

6. JOINT (Sec. 41.) – where an instrument is payable to the order of two or more (Sec. 43.) Indorsement where name is misspelled, and so forth. - Where the name of a payee
payees or indorsees, ALL must indorse. If only one will indorse, it will not pass title to or indorsee is wrongly designated or misspelled, he may (a) indorse the instrument as therein
the instrument because to be valid, ‘indorsement must be for the entire instrument’. described (b) adding, if he thinks fit, his proper signature.
EXCEPTIONS:
a) When the payee or indorsee indorsing has authority to indorse for the (Sec. 44.) Indorsement in representative capacity. - Where any person is under obligation to
others; indorse in a representative capacity, he may indorse in such terms as to negative personal
b) Where the payees or indorsees are partners. liability. (same rule as agent)

7. SUCCESSIVE (Sec. 68.) – with respect one another, indorsers are liable prima facie (Sec. 45.) Time of indorsement; presumption. – (Exception) Except where an indorsement
in the order in which they indorse. bears date after the maturity of the instrument, (General Rule) every negotiation is deemed
 The liability of the every indorser extends to all indorsers subsequent to him but prima facie to have been effected before the instrument was overdue.
not those prior to him.  Importance: to determine whether or not the holder is in due course.

8. IRREGULAR (Sec. 64.) – one who indorses the instrument in an unusual manner, or (Sec. 46.) Place of indorsement; presumption. – (Exception) Except where the contrary
in a singular or peculiar manner. His name appears where we would naturally expect appears, (General Rule) every indorsement is presumed prima facie to have been made at
another name. the place where the instrument is dated.
 RULES: LIABILITY, where a person, not otherwise a party to an instrument,  Importance: the place of indorsement is sometimes material because an
places his signature thereon in blank before delivery, he is liable as an indorser: instrument is governed by the laws of the state where it was indorsed, although
a) If the instrument is payable to the order of a third person, he is liable to the instrument was drawn or made in a different state. It shall also determine the
the payee and to all subsequent parties. venue of action in case a party decides to file a case against an indorser.
b) If the instrument is payable to the order of the maker or drawer, or is
payable to bearer, he is liable to all parties subsequent to the maker or
drawer.

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(Sec. 47.) Continuation of negotiable character. - An instrument negotiable in its origin (Sec. 49.) Transfer without indorsement; effect of. - Where the holder of an instrument
continues to be negotiable until it has been restrictively indorsed or discharged by payment or payable to his order transfers it for value without indorsing it, the transfer vests in the
otherwise. transferee such title as the transferor had therein, and the transferee acquires in addition, the
 An instrument originally negotiable can be rendered non-negotiable only by: right to have the indorsement of the transferor. But for the purpose of determining whether
a) Restrictive indorsement – do not refer to every restrictive indorsement the transferee is a holder in due course, the negotiation takes effect as of the time when the
but only to restrictive indorsement that prohibits the further negotiation of indorsement is actually made.
the instrument.  Applicability: applies only to an instrument payable to order. It contemplates a
 An instrument restrictively indorsed ceases to be negotiable only to situation where there is delivery and payment of value but the instrument was not
the extent of the restriction indicated by the indorsement. indorsed.
b) By discharge thereof by payment or otherwise.  Transferee herein, cannot be considered as HOLDER because the instrument was
 After maturity date – the instrument continues to be negotiable but not indorsed to him. The legal terms are possessor, transferee or assignee.
the transferee after maturity is not a holder in due course, and  The bill, in effect, is merely assigned and not negotiated.
therefore, is not free from defenses obtaining between prior parties.  Rights of the transferee:
Transfer to such transferees would be equivalent to a mere a) He can collect payment from maker/drawer because the transfer vests in the
assignment and subject to defenses. transferee such title as the transferor had therein.
 Rights of a holder NOT in due course – he may still collect from the b) He has also the right to require the transferor to indorse the instrument to him.
persons liable on the instrument, but is subject to the defenses as if it c) If the instrument was indorsed, he can now negotiate the instrument.
were non-negotiable.  The time in determining when the transferee is a holder in due course is at the time of
actual indorsement and not at the time of delivery.
(Sec. 48.) Striking out indorsement. - The holder may at any time strike out any indorsement  Since the transferee does not become a holder but a mere assignee, he cannot
which is not necessary to his title. (EFFECT) The indorser whose indorsement is struck out, therefore have the rights of a holder in due course. In the event that the bill is later on
and all indorsers subsequent to him, are thereby relieved from liability on the instrument. indorsed to the transferee, as such he becomes a holder, it is only at that time that
a) Indorsement NOT necessary to holder’s title: the law will determine whether or not he is a holder in due course.
 The holder may at any time strike out any indorsement which is not
necessary to his title. (Sec. 50.) When prior party may negotiate instrument. - Where an instrument is negotiated
 He may strike out all intervening indorsements and aver that the first back to a prior party, such party may, subject to the provisions of this Act, reissue and further
holder indorsed immediately to him. negotiate the same. But he is not entitled to enforce payment thereof against any intervening
 The striking out of such indorsement does not destroy the presumption party to whom he was personally liable.
that the one in possessions is the holder thereof.  Rights of a prior party to negotiate:
b) Indorsement necessary to holder’s title: a) He may reissue and further negotiate the same, EXCEPT:
 Where the instrument is transferred by a special indorsement, the holder 1. Where it is payable to the order of a third person, and has been paid by the
has no right to strike out the name of the person mentioned in such drawer;
indorsement and insert his name in the place thereof. 2. Where it was made or accepted for accommodation, and has been paid by
 Nor can strike out such name and convert such special indorsement into the party accommodated.
a blank indorsement. b) But he is not entitled to enforce payment thereof against any intervening party
 The holder who acquires title subsequent to the succeeding special whom he was personally liable – the purpose is to avoid circuity of suits.
indorsement must trace his title not only through the blank indorsement
but through the special indorsement as well.

11
RIGHTS OF THE HOLDER d. That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
 Who is a HOLDER? He is the PAYEE or INDORSEE of a bill or note who is in
possession of it, or the bearer thereof. (Sec. 53.) When person not deemed holder in due course. - Where an instrument payable on
o A drawee, therefore, cannot be considered as a holder of a negotiable paper demand is negotiated on an unreasonable length of time after its issue (depends upon the
because when he accepts and pays the instrument, he reduces it to mere circumstances of time, person and place), the holder is not deemed a holder in due course.
voucher or proof of payment.  Applicability: only to instruments which are payable on demand.
 When the instrument is payable at a fixed or determinable future time, the
(Sec. 51.) Right of holder to sue; payment. - The holder of a negotiable instrument may to sue holder is not considered a holder in due course after maturity date.
thereon in his own name; and payment to him in due course discharges the instrument.
 Rights of a holder in general: (Sec. 54.) Notice before full amount is paid. - Where the transferee receives notice of any
a. To sue on the instrument in his own name; infirmity in the instrument or defect in the title of the person negotiating the same before he
 The party holding the instrument with legal title to it may sue in his own has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course
name, although there are parties beneficially interested in it. only to the extent of the amount therefore paid by him.
 Thus, an agent or pledgee can collect from the person principally liable,
and if the instrument is dishonored because of non-payment, the agent (Sec. 55.) When title defective. - The title of a person who negotiates an instrument is
or pledgee can file an action in his own name. defective within the meaning of this Act when he (a) obtained the instrument, or any signature
b. To receive payment and if payment is in due course, the instrument is thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal
discharged. consideration, or (b) when he negotiates it in breach of faith, or under such circumstances as
 (Sec. 88.) What constitutes payment in due course. - Payment is made in due amount to a fraud.
course when it is made at or after the maturity of the payment to the holder
thereof in good faith and without notice that his title is defective. (Sec. 56.) What constitutes notice of defect. - To constitute notice of an infirmity in the
instrument or defect in the title of the person negotiating the same, the person to whom it is
(Sec. 52.) What constitutes a holder in due course. - A holder in due course is a holder who negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such
has taken the instrument under the following conditions: facts that his action in taking the instrument amounted to bad faith.
 Sec. 59. Who is deemed holder in due course. - Every holder is deemed prima facie
 A holder in due course – can acquire a better title than his predecessors because he
to be a holder in due course; but when it is shown that the title of any person who has
takes the instrument free from defenses available to prior parties.
negotiated the instrument was defective, the burden is on the holder to prove that he
or some person under whom he claims acquired the title as holder in due course  A holder not in due course – on the other hand, takes the instrument subject to all
(instance when the burden of proving is shifted to the holder). But the last-mentioned defenses because he is treated as a transferee of a non-negotiable paper.
rule does not apply in favor of a party who became bound on the instrument prior to
the acquisition of such defective title. (Sec. 57.) Rights of holder in due course. - A holder in due course holds the instrument free
a. That it is complete and regular upon its face; from any defect of title of prior parties, and free from defenses available to prior parties
b. That he became the holder of it before it was overdue, and without notice that it among themselves, and may enforce payment of the instrument for the full amount thereof
has been previously dishonored, if such was the fact; against all parties liable thereon.
c. That he took it in good faith and for value;  In sum, a holder in due course has the following rights:
 Art. 1355, NCC states that “except in cases specified in law, lesion or 1. He may sue on the instrument in his own name.
inadequacy of cause shall not invalidate a contract, unless there has 2. He may receive payment and if payment is in due course, the instrument is
been fraud, mistake or undue influence”. discharged.
3. He holds the instrument free from any defect of title of prior parties.

12
 4. He holds the instrument free from defenses available to prior parties among contract which, without them, he would not have agreed to.” This is
themselves. a matter of negligence.
5. He may enforce payment of the instrument for the full amount thereof against o Filing up of blanks not in accordance with the authority given
all parties liable. o Want of delivery of complete instrument
 Only PERSONAL defenses are covered in this section, to which a holder in due o Innocent alteration or spoliation – are alterations made by
course is free. Thus, only REAL defenses are available against a holder in due strangers to the instrument
course. o Acquisition of the signature in the instrument by force or fear
 Kinds of defenses in general:
a. REAL or ABSOLUTE or LEGAL defenses – attached to the instrument (Sec. 58.) When subject to original defense. - In the hands of any holder other than a holder
itself and can be set up against the whole world including the holder in in due course, a negotiable instrument is subject to the same defenses as if it were non-
due course. It is a defense against everybody because the right to be negotiable. But a holder who derives his title through a holder in due course, and who is not
enforced has never existed, or ceased to exist. himself a party to any fraud or illegality affecting the instrument, has all the rights of such
 Although an instrument subject to a real defense cannot be enforced, former holder in respect of all parties prior to the latter.
this refers only against persons to whom the legal defense is  Rights of a holder NOT in due course:
available. 1. He may sue on the instrument.
 Examples: 2. He may receive payment.
o Incapacity of the party 3. He holds the instrument subject to the same defenses as if it were non-
o Illegal contract negotiable.
o Forgery 4. He may enforce payment provided he is not himself a party to any fraud or
o Fraud in factum – exists in those cases in which a person, illegality.
without negligence, has signed an instrument, which, in fact,  GENERAL RULE: equitable or personal defenses can be set up or interposed
a negotiable instrument, but was deceived as to the against a holder not in due course.
character of the instrument and without knowledge of it. The  EXCEPTION: if a holder derives his title through a holder in due course and who
instrument is procured in such a manner that it is without the is not a party to any fraud or illegality affecting the instrument, because the
assent of the signer and not a voluntary act on his part. former has all the rights of such holder in respect to all parties prior to the latter.
o Fraudulent alteration o However, a holder not in due course reacquiring the instrument from a
o Incomplete and undelivered instrument holder in due course shall be subject to the same defenses to which it
would have been subject as if the paper had never passed through the
b. PERSONAL and EQUITABLE defenses – those which are personal to hands of holder in due course.
the person or subsequent holder against whom the instrument is being
enforced. These defenses grow out of the agreement or conduct of a
particular person which renders it inequitable for him to enforce it against
the party sought to be made liable, but not available against the holder in
due course.
 Examples:
o Absence or failure of consideration
o Simple fraud or fraud in inducement – under Art. 1338, NCC
“there is fraud when, through insidious words or machination of one
of the contracting parties, the other is induced to enter into a

13
LIABILITIES (or warranties) OF PARTIES  While the maker engages to pay the instrument according to its original tenor, an
acceptor engages to pay instead according to the tenor of his acceptance.
 Classification of parties according to liability:  The tenor of acceptance may be different from the tenor of the bill – but if the
a. Primarily liable – unconditionally liable; the primary party is absolutely acceptor accepts the bill in general terms or unqualifiedly, then the tenor of the bill is
required to pay the instrument upon its maturity. the tenor of its acceptance.
i. Maker  Where the original tenor is altered before acceptance:
ii. Acceptor of a bill of exchange  Sec. 132. Acceptance; how made, by and so forth. - The acceptance of a bill is the
 The DRAWEE is not liable, until he accepts the instrument, in signification by the drawee of his assent to the order of the drawer. The acceptance must
which case he becomes an acceptor. be in writing and signed by the drawee. It must not express that the drawee will perform
b. Secondarily liable – undertakes to pay the instrument only after certain his promise by any other means than the payment of money.
 Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially
conditions have been fulfilled, to wit; due presentment for payment or
altered without the assent of all parties liable thereon, it is avoided, except as against a
acceptance to primary party; dishonor by such party; and the taking of
party who has himself made, authorized, or assented to the alteration and subsequent
proceedings required by law after dishonor indorsers.
i. Drawer But when an instrument has been materially altered and is in the hands of a holder in due
ii. Indorser course not a party to the alteration, he may enforce payment thereof according to its
 Sec. 192. Persons primarily liable on instrument. - The person "primarily" liable on an original tenor.
instrument is the person who, by the terms of the instrument, is absolutely required to pay the  It follows, therefore, that the acceptor is liable to the actual amount he is ordered
same. All other parties are "secondarily" liable. to pay, such that, if a bank as drawee encashed a check on which the amount is
altered, the bank can recover from the recipient the excess amount paid because
(Sec. 60.) Liability of MAKER. - The maker of a negotiable instrument, by making it, engages this is considered payment by mistake.
(a) that he will pay it according to its tenor, and (b) admits the existence of the payee and his and (b) admits:
then capacity to indorse. a. The existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument; and
(Sec. 61.) Liability of DRAWER. - The drawer by drawing the instrument (a) admits the b. The existence of the payee and his then capacity to indorse.
existence of the payee and his then capacity to indorse; and (b) engages that, on due  The acceptor by his acceptance admits:
presentment, the instrument will be accepted or paid, or both, according to its tenor, and (c) a. The drawer’s existence.
that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay b. The genuineness of the drawer’s signature.
the amount thereof to the holder or to any subsequent indorser who may be compelled to pay c. The capacity and authority of the drawer to draw the instrument.
it. But the drawer may insert in the instrument an express stipulation negativing or limiting his d. The existence of the payee and his then capacity to indorse.
own liability to the holder (exclusive to a drawer, and not available to a maker).  Effect of drawee’s admission:
 The following conditions are necessary to make the drawer liable: a. Acceptor is precluded from setting up the defense that the drawer is non-
a. The bill is presented to the drawee for acceptance or for payment. existent or fictitious because of his admission of the drawer’s existence.
b. The drawee dishonored the bill by non-acceptance or non-payment. b. Precluded from setting up forgery because he admits the genuineness of the
c. The necessary proceedings on dishonor are duly taken, such as notice of drawer’s signature.
dishonor to the drawer, if inland bill, or protest and notice of protest for foreign c. Cannot escape liability by alleging:
bills. i. Want of consideration between and the drawer;
ii. Drawer is incapacitated, because upon acceptance he warrants
(Sec. 62.) Liability of ACCEPTOR. - The acceptor, by accepting the instrument, (a) engages the capacity and authority of the drawer to draw the instrument.
that he will pay it according to the tenor of his acceptance,

14
(Sec. 63.) When a person deemed INDORSER - A person placing his signature upon an e. That the instrument, on due presentment, shall be accepted or paid,
instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser unless he or both, and if dishonored and the necessary proceedings on
clearly indicates by appropriate words his intention to be bound in some other capacity. dishonor be duly taken, he will pay the amount thereof to the holder,
 Sec. 17 (f): Where a signature is so placed upon the instrument that it is not clear in what or to any subsequent indorser who may be compelled to pay.
capacity the person making the same intended to sign, he is to be deemed an indorser;  Distinction: a GENERAL INDORSER warrants that the instrument he is
 An indorser is chargeable only after presentment and notice of dishonor. indorsing is valid and subsisting regardless of whether he is ignorant of the
fact or not, while a QUALIFIED INDORSER or Person negotiating by delivery
A. Liability of irregular indorser (Sec. 64) - where a person, not otherwise a party to an warrants that he is ignorant of any fact that will render the instrument
instrument, places thereon his signature in blank before delivery, he is liable as valueless or impair its validity.
indorser, in accordance with the following rules:
a. If the instrument is payable to the order of a third person, he is liable to the  To whom warranties extend?
payee and to all subsequent parties. a. Subsequent holders in due course (Sec. 66).
b. If the instrument is payable to the order of the maker or drawer, or is payable b. Persons who derive their title from holders in due course (Sec. 58).
to bearer, he is liable to all parties subsequent to the maker or drawer. c. Immediate transferee, even if they are not holders in due course.
c. If he signs for the accommodation of the payee, he is liable to all parties
 A general indorser warrants the solvency of the principal debtor, such that, if
subsequent to the payee.
the holder of the instrument cannot collect from the maker because of
 IRREGULAR INDORSER – one who indorses the instrument in an unusual insolvency, the general indorser is liable.
(anomalous) manner, or in a singular or peculiar manner.
 This section is applicable only when a person, who is not a party to the C. Warranty where negotiation by delivery and so forth (Sec. 65.) — Every person
instrument, places his signature on an instrument in blank before the initial negotiating an instrument by delivery or by a qualified indorsement warrants:
delivery. a. That the instrument is genuine and in all respects what it purports to be;
b. That he has a good title to it;
B. Liability of general indorser (Sec. 66) - Every indorser who indorses without c. That all prior parties had capacity to contract;
qualification, warrants to all subsequent holders in due course: d. That he has no knowledge of any fact which would impair the validity of the
a. The matters and things mentioned in subdivisions (a), (b), and (c) of the next instrument or render it valueless.
preceding section; and But when the negotiation is by delivery only, the warranty extends in favor of no
b. That the instrument is, at the time of his indorsement, valid and subsisting; holder other than the immediate transferee.
And, in addition, he engages that, on due presentment, it shall be accepted or The provisions of subdivision (c) of this section do not apply to a person
paid, or both, as the case may be, according to its tenor, and that if it be negotiating public or corporation securities other than bills and notes.
dishonored and the necessary proceedings on dishonor be duly taken, he will  Qualified Indorsement – is made by adding words “without recourse”, or
pay the amount thereof to the holder, or to any subsequent indorser who may be “sans recourse”, or “ at the indorsee’s own risk. It means that the
compelled to pay it. indorser is not liable if the maker is insolvent.
 A general indorser warrants:  A qualified indorser or a person negotiating by delivery does not
a. That the instrument is genuine and in all respects what it purports to guarantee the financial responsibility of parties on the instrument. Neither
be. the solvency or refusal of the party primarily liable shall render him liable
b. That he has good title to it. to the holder, unless he is guilty of violating any of the four warranties
c. That all prior parties had capacity to contract. stated in this section.
d. That the instrument is, at the time of his indorsement, valid and
subsisting.
 To whom warranties extend?

15
 o Person negotiating by delivery – warranties extends in favor of  It consists of a personal demand for payment at the proper place with the bill or note
no holder other than the immediate transferee. in readiness to exhibit it if required, and to receive payment and surrender it if the
 Liability of indorser where paper negotiable by delivery (Sec. debtor is willing to pay.
67) — Where a person places his indorsement on an  Summary of Rules as to Presentment for payment:
instrument negotiable by delivery, he incurs all the liability of an
1) Presentment is not necessary to charge persons primarily liable but is necessary
indorser.
to charge persons secondarily liable (Sec. 70).
o Qualified indorser – warranties extends to all parties who derive
2) Presentment is not necessary to charge persons secondarily liable, in the
title through his indorsement.
following cases:
a. As to drawer, under Sec. 79.
(Sec. 68.) Order in which indorsers are liable. - As respect one another, indorsers are liable
b. As to indorser, under Sec. 80.
prima facie in the order in which they indorse (contemplates successive indorsements and
c. When presentment is dispensed with under Sec. 82.
negotiation); but evidence is admissible to show that, as between or among themselves, they
d. When the bill has been dishonored by non-acceptance as provided in
have agreed otherwise. Joint payees or joint indorsees who indorse are deemed to indorse
Sec. 151.
jointly and severally (solidary).
 Coverage: This section applies only among indorsers. The liability of every indorser
(Sec. 70.) Effect of want of demand on principal debtor. - Presentment for payment is not
extends to all indorsers subsequent to him but not to those prior to him.
necessary in order to charge the person primarily liable on the instrument; but if the
 As to the holder, they are liable in any order. An indorser cannot allege against the
instrument is, by its terms, payable at a special place, and he is able and willing to pay it
holder that there was an agreement among themselves that one indorser should be
there at maturity, such ability and willingness are equivalent to a tender of payment upon his
held liable.
part. But except as herein otherwise provided, presentment for payment is necessary in order
to charge the drawer and indorsers.
Sec. 69. Liability of an AGENT or BROKER. - Where a broker or other agent negotiates an
 Necessity of presentment:
instrument without indorsement, he incurs all the liabilities prescribed by Section Sixty-five of
o Against person secondarily liable: unless presentment for payment is
this Act, unless he discloses the name of his principal and the fact that he is acting only as
dispensed with under Sec. 88, presentment is required to charge the parties
agent.
secondarily liable, otherwise they are discharged from liability.
 Application: applies only to an instrument payable to bearer.
o Against a party principally liable: the holder of a note or bill does not have to
 The warranties are those states in Sec. 65. make a presentment of a note or bill in order that he may have right of action
 To escape personal liability, he must: against a party primarily liable. The failure to make the presentment would
o Disclose his principal, not even put the holder in default notwithstanding that the instrument is
o And state that he is only acting as an agent. overdue and unpaid.
 BROKER – one whose occupation is to bring the parties together, in matters of trade,  The operative act that makes a drawee liable is his acceptance of the bill.
commerce or navigation.  When instrument payable at a special place? When it is payable at a particular bank
 AGENT – maintains a relation not only with his principal and purchasers or vendors or firm or a particular address.
but also with the property, which is the subject matter of the transaction. o Presentment at such place is not necessary to charge the maker, but merely
to relieve him from liability for damages.
PRESENTATION FOR PAYMENT o In like manner, if the holder of a note does not present his note for payment
 “Presentment of payment” means the production of a bill of exchange to the drawee where payment is tendered, he does not thereby forfeit his debt, but only the
or acceptor for payment or the production of a promissory note to the party liable for costs of collecting it elsewhere.
payment of the same.  Necessary steps to charge persons secondarily liable:
o In a PROMISSORY NOTE:

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 a. Unless excused, presentment for payment must be made within the
period required (see secs. 143 and 144), to the persons primarily (Sec. 72.) What constitutes a sufficient presentment. - Presentment for payment, to be
liable. sufficient, must be made: (the effect of failure to comply with any of the requisites is the
b. Unless excused, if the note is dishonored by non-payment, notice of same as if no presentment is made and consequently, the persons secondarily liable are
dishonor by non-payment must be given to the persons secondarily discharged.
liable. a. (By whom?) By the holder, or by some person authorized to receive payment on his
o In a BILL OF EXCHANGE: behalf;
a. Presentment for acceptance to the drawee must be within a b. (When?) At a reasonable hour on a business day;
reasonable time after acquisition unless excused in the three case  must be during business hours, which depends upon the general custom of the
provided by law under secs. 143, 144, and 148. place of the particular transaction.
b. If bill is dishonored by non-acceptance. c. (Where?) At a proper place as herein defined; (discussed in sec. 73)
i. Notice of dishonor by non-acceptance must be given to d. (To whom?) To the person primarily liable on the instrument, or if he is absent or
persons secondarily liable unless excused and, inaccessible, to any person found at the place where the presentment is made.
ii. In case of foreign bills, protest for dishonor by non-  Presentment for payment must be made to the person principally liable; the
acceptance must be made unless excused. maker, in case of promissory note; and the acceptor, in case of bill of
c. If the bill is accepted, or if bill is not required to be presented for exchange.
payment to the persons primarily liable, unless excused.  If the bill of exchange if payable on demand, the presentment must be made
d. If the bill is dishonored by non-payment. to the drawee although he is not liable on the bill.
i. Notice o dishonor by non-payment must also be given to  If the person is absent or inaccessible, it is sufficient that presentment be
person secondarily liable, unless excused and, made to any person found at the place of presentment.
ii. In case of foreign bills a protest for dishonor by non-
payment must be made, unless excused. (Sec. 73.) Place of presentment. - Presentment for payment is made at the proper place:
a. Where a place of payment is specified in the instrument and it is there presented;
(Sec. 71.) Presentment where instrument is not payable on demand and where payable on b. Where no place of payment is specified but the address of the person to make
demand. - Where the instrument is not payable on demand, presentment must be made on payment is given in the instrument and it is there presented;
the day it falls due. Where it is payable on demand, presentment must be made within a c. Where no place of payment is specified and no address is given and the instrument
reasonable time after its issue, except that in the case of a bill of exchange, presentment for is presented at the usual place of business or residence of the person to make
payment will be sufficient if made within a reasonable time after the last negotiation thereof. payment;
 Instrument payable at a fixed or determinable future time – presentment must be d. In any other case if presented to the person to make payment wherever he can be
made on the date of maturity. Payment before maturity is not proper and is not found, or if presented at his last known place of business or residence.
considered as payment in due course.  The enumeration is alternatively in order such that, the succeeding enumeration
o Presentment before maturity is not sufficient notice to the makers shall not be proper if the one enumerated prior is to be applied.
reminding them of the date when the note would fall due.
 Instrument payable on demand (Sec. 74.) Instrument must be exhibited. - The instrument must be exhibited to the person
o Promissory note – presentment for payment must be made within a from whom payment is demanded, and when it is paid, must be delivered up to the party
reasonable time after its issuance. paying it.
o Bill of exchange – presentment for payment must be made within a  The person demanding payment must present the note in his possession by
reasonable time after the last negotiation (which is the last transfer for exhibiting it to the person required to pay. Thus, a mere informal talk asking
value) thereof.

17
 payment of a note, not accompanied with actual presentment or exhibition of the i. When they are partners; or
instrument is not considered as presentment for payment. ii. When one is authorized by the other.
 Absent such required exhibition would make the presentment ineffectual. But the
instrument need not actually be exhibited unless such exhibition is demanded. (Sec. 79.) When presentment not required to charge the drawer. - Presentment for payment
 When the instrument is paid, it must be delivered to the party paying it, to give is not required in order to charge the drawer where he has no right to expect or require that
protection to the one paying as proof that there was already payment made. the drawee or acceptor will pay the instrument.
 Presentment for payment is not required to charge a drawer of a check upon which
(Sec. 75.) Presentment where instrument payable at bank. - Where the instrument is payable payment has been stopped.
at a bank, presentment for payment must be made during banking hours, unless the person  Neither is it necessary to charge the drawer of a check where his bank balance is
to make payment has no funds there to meet it at any time during the day, in which case less than the amount of the check, or the making of a check was a fraud upon the
presentment at any hour before the bank is closed on that day is sufficient. part of the drawer, he is giving no funds in the bank, and no ground for a reasonable
 Where the instrument is payable to a bank, it is equivalent to an order to the bank expectation that it would be paid.
to make payment, for the account of the principal debtor (Sec. 87).  Indorsers, however, are discharged if the bill is not presented for payment.

(Sec. 76.) Presentment where principal debtor is dead. - Where the person primarily liable on (Sec. 80.) When presentment not required to charge the indorser. - Presentment is not
the instrument is dead and no place of payment is specified, presentment for payment must required in order to charge an indorser where the instrument was made or accepted for his
be made to his personal representative, if such there be, and if, with the exercise of accommodation and he has no reason to expect that the instrument will be paid if presented.
reasonable diligence, he can be found.  REASON: the accommodated payee-indorser is the real debtor, and not the
 If a place of payment is specified, the payee is not required to present the note for maker or acceptor. Hence, he is not discharged even if no presentment for
payment to the deceased maker’s representative at maturity. Presentment must be payment is made to the maker or acceptor who, in substance, is a surety for the
made at the place specified in the instrument. debt.
 If the place of payment is, however, not specified, presentment for payment must be
made to his personal representative, if such there be, and if, with exercise of (Sec. 81.) When delay in making presentment is excused. - Delay in making presentment for
reasonable diligence, he can be found. payment is excused when the delay is caused by circumstances beyond the control of the
holder and not imputable to his default, misconduct, or negligence. When the cause of delay
(Sec. 77.) Presentment to persons liable as partners. - Where the persons primarily liable on ceases to operate, presentment must be made with reasonable diligence.
the instrument are liable as partners and no place of payment is specified, presentment for  Excusable circumstances, are those events which could not be foreseen, or which
payment may be made to any one of them, even though there has been a dissolution of the though foreseen, are inevitable, or accidents which are unavoidable, and not
firm. attributable to the fault of the holder.

(Sec. 78.) Presentment to joint debtors. - Where there are several persons, not partners, (Sec. 82.) When presentment for payment is excused. - Presentment for payment is excused:
primarily liable on the instrument and no place of payment is specified, presentment must be What is excused is the failure to make presentment for payment, not just the delay
made to them all. of presenting the same, which is covered by Sec. 81.
a) Where, after the exercise of reasonable diligence, presentment, as
 When two or more persons are primarily liable: required by this Act, cannot be made; (impossibility of presentment)
o Place of payment specified – presentment should be made at the place  Reasonable diligence implies active search.
specified in the instrument. b) Where the drawee is a fictitious person;
o Place of payment not specified – presentment must be made to them all. A  Because there is no one to whom presentment is to be made and,
demand on one of several joint debtors my be made: therefore, it is dispensed with.

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 c) By waiver of presentment, express or implied. (waiver may be before or (Sec. 87.) Rule where instrument payable at bank. - Where the instrument is made payable at
after maturity) a bank, it is equivalent to an order to the bank to pay the same for the account of the principal
debtor thereon.
(Sec. 83.) When instrument dishonored by non-payment. - The instrument is dishonored by
non-payment when: (Sec. 88.) What constitutes payment in due course. - Payment is made in due course when it
a) It is duly presented for payment and payment is refused or cannot be is made at or after the maturity of the payment to the holder thereof in good faith and without
obtained; or notice that his title is defective.
 An instrument is dishonored by non-payment as long as it is not paid  Requisites of payment in due course:
although the primary party may be willing to pay. a) It must be made at or after maturity – consequently payment made before
b) Presentment is excused and the instrument is overdue and unpaid. maturity will not discharge the instrument.
 I.e.: if presentment is waived, the instrument is deemed dishonored if b) It must be paid to the holder of the instrument – payment to a person other than
it is overdue and unpaid even if the holder did not make any the holder is at the risk of the party so paying if the person was not authorized by
presentment. the holder to receive payment.
 Although presentment may be excused, the indorser is still entitled to notice of c) It must be made in good faith and without notice that the holder’s title is defective
dishonor of the instrument by its being overdue and unpaid. But where there has – thus, where the payee notified the drawee of a cashier’s check not to pay it
been no presentment for payment and presentment is not excused, the instrument is because he had lost it in gambling, it was held that payment to the winner under
not dishonored although it is already overdue and unpaid. payee’s indorsement did not discharge the bank’s obligation to the payee.
 The party making the payment must insist on the presentment of the paper by the
(Sec. 84.) Liability of person secondarily liable, when instrument dishonored. - Subject to the party demanding payment in order to make sure that it is at that time in his
provisions of this Act, when the instrument is dishonored by non-payment, an immediate right possession. After payment is made, the instrument must be delivered up to the one
of recourse to all parties secondarily liable thereon accrues to the holder. paying it.
 When an instrument is dishonored and due notice is given to the parties secondarily
liable, that is, drawers and indorsers, the holder may proceed against any of them.
These parties cannot allege that the person principally liable is solvent. Right after NOTICE OF DISHONOR
the dishonor and notice is given to them that they are considered as principal
debtors, unless notice is excused or dispensed with.  Notice of dishonor is the bringing either verbally or in writing, to the knowledge of the
drawer or indorser of an instrument, the fact that a specified negotiable instrument,
(Sec. 85.) Time of maturity. - Every negotiable instrument is payable at the time fixed therein upon proper proceedings taken, has not been accepted, or has not been paid, and
without grace. When the day of maturity falls upon Sunday or a holiday, the instrument is that the party is expected to pay it.
payable on the next succeeding business day. Instruments falling due or becoming payable  Summary as to notice of dishonor:
on Saturday are to be presented for payment on the next succeeding business day except 1. Like presentment for payment, notice of dishonor need not be given to
that instruments payable on demand may, at the option of the holder, be presented for persons principally or primarily liable in order to charge them.
payment before twelve o'clock noon on Saturday when that entire day is not a holiday. 2. But aside from presentment for payment to persons primarily liable, notice of
dishonor to persons secondarily liable is necessary charge the latter, except:
(Sec. 86.) Time; how computed. - When the instrument is payable at a fixed period after date, a. When notice is waived.
after sight, or after that happening of a specified event, the time of payment is determined by b. When notice is dispensed with under Sec. 112.
excluding the day from which the time is to begin to run, and by including the date of c. To the drawer under Sec. 114.
payment. d. Where due notice of dishonor by non-acceptance has been given.
e. As to the holder in due course without notice.

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 holder, and who, upon taking it up, would have a right of reimbursement from the
(Sec. 89.) To whom notice of dishonor must be given. - Except as herein otherwise provided, party to whom notice is given. Such notice given inures to the benefit of:
when a negotiable instrument has been dishonored by non-acceptance or non-payment, a. The party giving the notice;
notice of dishonor must be given to the drawer and to each indorser, and any drawer or b. The holder;
indorser to whom such notice is not given is discharged. c. All the parties subsequent to the party to whom notice is given.
 Grounds: (a) non-acceptance; (b) non-payment.
 Necessity of giving notice: (Sec. 94.) When agent may give notice. - Where the instrument has been dishonored in the
a. Persons primarily liable – notice of dishonor need not be given the maker of note hands of an agent, he may either himself give notice to the parties liable thereon, or he may
or acceptor of a bill. give notice to his principal. If he gives notice to his principal, he must do so within the same
b. Persons secondarily liable – notice must be given to the drawer and to each time as if he were the holder, and the principal, upon the receipt of such notice, has himself
indorser. the same time for giving notice as if the agent had been an independent holder.
 Purpose of notice: to enable the party to be charged to preserve and protect his  Where an instrument is dishonored in the hands pf an agent, he may give notice:
rights against prior parties and to make him liable to the holder. a. To the parties liable thereon, or
 Effect of failure to give notice – any drawer or indorser to whom notice is nt given is b. To his principal.
discharged, unless notice is dispensed with.  Should the principal receive notice of dishonor from his agent, he is required to send
notice of dishonor to the drawer and each indorser. Upon receipt of such notice he
(Sec. 90.) By whom given. - The notice may be given (a) by or on behalf of the holder, or (b) has the same time for giving notice as if the agent had been an independent holder.
by or on behalf of any party to the instrument who might be compelled to pay it to the holder,
and who, upon taking it up, would have a right to reimbursement from the (prior) party to (Sec. 95.) When notice sufficient. - A written notice need not be signed and an insufficient
whom the notice is given. written notice may be supplemented and validated by verbal communication. A
misdescription of the instrument does not vitiate the notice unless the party to whom the
(Sec. 91.) Notice given by agent. - Notice of dishonor may be given by any agent either in his notice is given is in fact misled thereby.
own name or in the name of any party entitled to given notice, whether that party be his
principal or not. (Sec. 96.) Form of notice. - The notice may be in writing or merely oral and may be given in
 The agent need not be authorized. 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
(Sec. 92.) Effect of notice on behalf of holder. - Where notice is given by or on behalf of the through the mails.
holder, it inures to the benefit of all subsequent holders and all prior parties who have a right
of recourse against the party to whom it is given.  Notice of dishonor may be ORAL or WRITTEN.
 Persons benefited by notice by or on behalf of the holder: o If the notice is in writing, the same need not be signed, and if sufficient, the
a. Holder himself. same may be supplemented and validated by verbal communication.
b. All subsequent holders.  It must contain the following:
c. All prior parties who have a right of recourse against the party notified. a. Sufficient description of the instrument to identify it.
b. A statement that it has been presented fro payment or for acceptance, and that it
(Sec. 93.) Effect where notice is given by party entitled thereto. - Where notice is given by or has been dishonored.
on behalf of a party entitled to give notice, it inures to the benefit of the holder and all parties c. If protest is required, a statement that it has been made.
subsequent to the party to whom notice is given. d. A statement that the party giving notice intends to look to the party addressed for
 This section applies when notice is given not by the holder, but by a party entitled to payment.
give notice under Sec. 60, that is, “ by a party who might be compelled to pay it to the  Manner of giving notice: may be by personal delivery or by mail.

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  Notice by phone: may be allowed if it be clearly shown that the party to be notified as (Sec. 100.) Notice to persons jointly liable. - Notice to joint persons who are not partners must
the party is at the receiving end of the line. be given to each of them unless one of them has authority to receive such notice for the
 Effect of misdescription: No misdescription of the amount, or of the date or of the others. (compare with Sec. 78)
names of the parties, or of the time the paper falls due, or other defect vitiates the  Applicability: This section applies to joint parties other than joint payees or indorsees
notice of dishonor, unless it misleads the party to whom notice is sent. who indorse, such as drawers who sign a bill jointly, or to joint accommodation
indorsers who are jointly and severally liable under Sec. 68, as they are neither
(Sec. 97.) To whom notice may be given. - Notice of dishonor may be given either (a) to the payees or indorsees.
party himself or (b) to his agent in that behalf.
 Consequently: (Sec. 101.) Notice to bankrupt. - Where a party has been adjudged a bankrupt or an
o An accommodation indorser is entitled to notice. insolvent, or has made an assignment for the benefit of creditors, notice may be given either
o An irregular indorser must also be given notice if he is to be charged. to the party himself or to his trustee or assignee.
o If notice is given to an agent, he must be duly authorized to receive notice of
dishonor. If he is not, the notice is not valid.
(Sec. 102.) Time within which notice must be given. - Notice may be given as soon as the
(Sec. 98.) Notice where party is dead. - When any party is dead and his death is known to the instrument is dishonored and, unless delay is excused as hereinafter provided, must be given
party giving notice, the notice must be given to a personal representative, if there be one, and within the time fixed by this Act.
if with reasonable diligence, he can be found. If there be no personal representative, notice  Notice of dishonor should not be given before the date of maturity because an
may be sent to the last residence or last place of business of the deceased. instrument cannot be said to be dishonored for non-payment unless presented, and
 Requisites for notice to representative (when person to whom notice of dishonor is to this must be made on the date of maturity, unless excused. (Secs. 78 and 88)
be given):  It may be given on the date of maturity IF instrument was presented for payment and
a) His death is known to the party giving notice. has been dishonored. But if the instrument is payable at a bank, it is not dishonored if
b) There is a personal representative. the drawer deposits the amount of the instrument before close of banking hours.
c) If with reasonable diligence he could be found.  Purpose of prompt notice: To give the parties secondarily liable every opportunity to
 Where the death is unknown to the party giving notice, and sent notice to the last secure themselves, such as, to enable the party to be charged to preserve and
residence of the deceased, the notice of dishonor is held to be sufficient. protect his rights against prior parties.
 When notice of dishonor may be sent to the last residence or last place of business
of the deceased: (compare with Sec. 76) (Sec. 103.) Where parties reside in same place. - Where the person giving and the person to
a) If his death is unknown to the party giving notice of dishonor. receive notice reside in the same place, notice must be given within the following times:
b) If there is no personal representative, even if death is known to the party a) If given at the place of business of the person to receive notice, it must be given
giving notice of dishonor. before the close of business hours on the day following.
c) Even if there is a personal representative and death is known to the party b) If given at his residence, it must be given before the usual hours of rest on the
giving notice of dishonor, if the personal representative cannot be found day following.
with reasonable diligence. c) If sent by mail, it must be deposited in the post office in time to reach him in usual
course on the day following.
(Sec. 99.) Notice to partners. - Where the parties to be notified are partners, notice to any one  “the same place” refers to the corporate limits of a town or city where the
partner is notice to the firm, even though there has been a dissolution. presentment is made or where the holder resides
 REASON: each partner is an agent of the partnership of which he is a member.
(compare with Sec. 77)

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(Sec. 104.) Where parties reside in different places. - Where the person giving and the (Sec. 109.) Waiver of notice. – (When?) Notice of dishonor may be waived either (a) before
person to receive notice reside in different places, the notice must be given within the the time of giving notice has arrived or (b) after the omission to give due notice, and the
following times: waiver may be expressed or implied.
a) If sent by mail, it must be deposited in the post office in time to go by mail the day  Waiver is the intentional abandonment of a right, or the relinquishment/renunciation
following the day of dishonor, or if there be no mail at a convenient hour on last of a right acquired.
day, by the next mail thereafter. o It may be express or implied from one’s acts, declaration or silence.
b) If given otherwise than through the post office, then within the time that notice
would have been received in due course of mail, if it had been deposited in the (Sec. 110.) Whom affected by waiver. - Where the waiver is embodied in the instrument itself,
post office within the time specified in the last subdivision. it is binding upon all parties; but, where it is written above the signature of an indorser, it
binds him only.
 Unless excused, if notice is given out of time it would be considered not to have been
given. The concerned parties are therefore discharged. (Sec. 111.) Waiver of protest. - A waiver of protest, whether in the case of a foreign bill of
exchange or other negotiable instrument, is deemed to be a waiver not only of a formal
(Sec. 105.) When sender deemed to have given due notice. - Where notice of dishonor is protest but also of presentment and notice of dishonor.
duly addressed and deposited in the post office, the sender is deemed to have given due
notice, notwithstanding any miscarriage in the mails. (Sec. 112.) When notice is dispensed with. - Notice of dishonor is dispensed with when, after
the exercise of reasonable diligence, it cannot be given to or does not reach the parties
(Sec. 106.) Deposit in post office; what constitutes. - Notice is deemed to have been sought to be charged. (compare with Sec. 82)
deposited in the post-office when deposited in any branch post office or in any letterbox under
the control of the post-office department. (Sec. 113.) Delay in giving notice; how excused. - Delay in giving notice of dishonor is
excused when the delay is caused by circumstances beyond the control of the holder and not
(Sec. 107.) Notice to subsequent party; time of. - Where a party receives notice of dishonor, imputable to his default, misconduct, or negligence. When the cause of delay ceases to
he has, after the receipt of such notice, the same time for giving notice to antecedent parties operate, notice must be given with reasonable diligence. (compare with Sec. 81)
that the holder has after the dishonor.
(Sec. 114.) When notice need not be given to drawer. - Notice of dishonor is not required to
(Sec. 108.) Where notice must be sent. - Where a party has added an address to his be given to the drawer in either of the following cases:
signature, notice of dishonor must be sent to that address; but if he has not given such a) Where the drawer and drawee are the same person;
address, then the notice must be sent as follows: b) When the drawee is fictitious person or a person not having capacity to contract;
a) Either to the post-office nearest to his place of residence or to the post-office c) When the drawer is the person to whom the instrument is presented for payment;
where he is accustomed to receive his letters; or d) Where the drawer has no right to expect or require that the drawee or acceptor
b) If he lives in one place and has his place of business in another, notice may be will honor the instrument;
sent to either place; or o If the drawer’s funds at the bank are not sufficient to meet the check, notice
c) If he is sojourning in another place, notice may be sent to the place where he is of dishonor is not necessary to charge the drawer.
so sojourning. e) Where the drawer has countermanded payment.
But where the notice is actually received by the party within the time specified in this Act, it o The drawer who made a stop payment order to the bank, need not be
will be sufficient, though not sent in accordance with the requirement of this section. notified of the fact of dishonor.

(Sec. 115.) When notice need not be given to indorser. — Notice of dishonor is not required
to be given to an indorser in either of the following cases:

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 a) When the drawee is a fictitious person or person not having capacity to contract,  A payment in due course.
and the indorser was aware of that fact at the time he indorsed the instrument;  And by the principal debtor.
o If, therefore, the drawer, acceptor, or maker be an infant, or are incapacitated o If the payment is made before the date of maturity, the instrument is not
to contract and not liable, the indorser’s warranty is broken. He can be sued discharged as the payment is not in due course. This will be a negotiation
upon without notice of dishonor. back to the principal debtor who can renegotiate the instrument. However, if
b) Where the indorser is the person to whom the instrument is presented for the instrument is payable “on or before” a certain date, payment before the
payment; day fixed extinguishes the instrument.
c) Where the instrument was made or accepted for his accommodation.
o The accommodated party has no reason to expect that the instrument will be o Payment by a party secondarily liable:
paid if presented.  By the indorsers: Payment by an indorser cancels only his own
 The fact that the indorser knew the maker to be insolvent does not excuse notice. liability and those who are obligated after him (subsequent parties).
 The fact that the indorser knew that the instrument was dishonored does not All parties prior to him are liable to the paying indorser, and such
dispense with the necessity of notice. indorser may cancel indorsements subsequent to his own and re-
issue the same, and it will be valid as against prior parties.
(Sec. 116.) Notice of non-payment where acceptance refused. - Where due notice of  By the drawer: Payment by the drawer of an accepted bill does not
dishonor by non-acceptance has been given, notice of a subsequent dishonor by non- discharge the instrument so as to release the acceptor from liability
payment is not necessary unless in the meantime the instrument has been accepted. to the drawer unless the acceptance is for the accommodation of the
 The non-acceptance of a bill and the giving of notice to the parties secondarily liable drawer. But such payment will discharge the liability of an indorser.
fixes the rights and obligations of the parties to an instrument. It will therefore be  By third persons:
unnecessary to present it for payment, unless in the meantime the instrument is  If authorized and made in behalf of the principal debtor, the
accepted. instrument is discharged.
 If not authorized, the same is considered as a purchase of a
(Sec. 117.) Effect of omission to give notice of non-acceptance. - An omission to give notice negotiable paper, the buyer being considered as an
of dishonor by non-acceptance does not prejudice the rights of a holder in due course assignee of an instrument. If a bill or note is paid after
subsequent to the omission. maturity by a stranger to the paper, it will generally be held to
be purchase and not a payment of the instrument, unless
(Sec. 118.) When protest need not be made; when must be made. - Where any negotiable such payment be made on behalf of the principal debtor.
instrument has been dishonored, it may be protested for non-acceptance or non-payment, as b. By payment in due course by the party accommodated, where the instrument is
the case may be; but protest is not required except in the case of foreign bills of exchange. made or accepted for his accommodation;
o Payment made in due course by the accommodated party discharges the
instrument. But if payment is made by the accommodation party, the
DISCHARGE OF NEGOTIABLE INSTRUMENTS instrument can still be negotiated, or the party paying may proceed against
the accommodated party and ask reimbursement based on an implied
(Sec. 119.) Instrument; how discharged. - A negotiable instrument is discharged: contract.
a. By payment in due course by or on behalf of the principal debtor;
o “Principal debtor” refers to the person ultimately bound to pay the debt,  Summary of discharge by payment:
whether he is a party to the instrument or not, or whether he appears to be 1. Payment by the person ultimately liable, whatever his position on the paper,
liable primarily or secondarily in the instrument. discharges the instrument.
o In order to discharge an instrument, the payment must be:

23
 2. Payment by an accommodation party is not a discharge of the instrument, o If the holder reserves hi rights against parties secondarily liable, the right of
whatever his position thereon. this parties to ask reimbursement from the person principally liable is also
3. Payment by the drawer or indorser is not a discharge of the instrument. impliedly reserved.
o Reservation must be express, and cannot be implied from acts and conduct.
c. By the intentional cancellation thereof by the holder; o The release contemplated herein must be for value. If not for value, the
o Intention is an essential element. parties secondarily liable are not discharged. Unlike in the cancellation of the
signature by the holder, no consideration is necessary.
d. By any other act which will discharge a simple contract for the payment of f) By any agreement binding upon the holder to extend the time of payment or to
money; postpone the holder's right to enforce the instrument unless made with the assent
o This means extinguishing an obligation in a contract for the payment of of the party secondarily liable or unless the right of recourse against such party is
money or acts, which will extinguish an ordinary obligation such as expressly reserved.
compensation, novation, confusion or remission.
(Sec. 121.) Right of party who discharges instrument. - Where the instrument is paid by a
e. When the principal debtor becomes the holder of the instrument at or after party secondarily liable thereon, it is not discharged; but the party so paying it is remitted to
maturity in his own right. his former rights as regard all prior parties, and he may strike out his own and all subsequent
o Reacquisition of the instrument by the principal debtor, in his own right and indorsements and against negotiate the instrument, except:
after the date of maturity. a) Where it is payable to the order of a third person and has been paid by the
drawer; and
 An instrument may be discharged by operation of law. If a judgment is obtained on a b) Where it was made or accepted for accommodation and has been paid by the
bill or note, the bill or note is thereby extinguished and merged in the judgment. But party accommodated.
the judgment alone, without actual satisfaction, is not extinguishment as between the
plaintiff and other parties not jointly liable with the original defendant, whether those (Sec. 122.) Renunciation by holder. - The holder may expressly renounce his rights against
parties be prior or subsequent to the defendant. 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
(Sec. 120.) When persons secondarily liable on the instrument are discharged. - A person instrument discharges the instrument. But a renunciation does not affect the rights of a holder
secondarily liable on the instrument is discharged: in due course without notice. A renunciation must be in writing unless the instrument is
a) By any act which discharges the instrument; delivered up to the person primarily liable thereon.
b) By the intentional cancellation of his (person secondarily liable) signature by the  RENUNCIATION – is the act of surrendering a right or claim without recompense, but
holder; it can be applied with equal propriety to the relinquishment of a demand upon an
c) By the discharge of a prior party; agreement supported by a consideration.
o The discharge of a prior party referred to herein must be one that arises from  The holder of an instrument may renounce his rights against parties liable, with or
the act of the holder. Discharge by operation of law are not included, such without consideration.
as:  Form: Renunciation must be expressed in writing. However, if the instrument is
 By reason of bankruptcy. delivered to the person primarily liable, renunciation may be oral.
 Of a party not given due notice of dishonor.  Effects:
 By the Statute of Limitations o As against a principal debtor – it operates to discharge the instrument and all
d) By a valid tender or payment made by a prior party; parties thereto, but it will not affect the rights of a holder in due course
e) By a release of the principal debtor unless the holder's right of recourse against without notice.
the party secondarily liable is expressly reserved;

24
 o As against a party secondarily liable – the instrument is not discharged. But c) The time or place of payment:
the party obtaining the renunciation, as well as parties subsequent to him, o Whether time of payment is thereby curtailed, shortened, or extended.
are discharged. d) The number or the relations of the parties;
 When renunciation discharges the instrument: o Change in the payee’s name or the addition of a co-maker without the
o It is absolute and unconditional; first maker’s consent is a material alteration.
o It is made at or after maturity; e) The medium or currency in which payment is to be made;
o It is made in favor of the person primarily liable. Or which adds a place of payment where no place of payment is specified, or any
o It is done in writing, or if done orally, the instrument must be delivered up to other change or addition which alters the effect of the instrument in any respect,
the person primarily liable. is a material alteration.

(Sec. 123.) Cancellation; unintentional; burden of proof. - A cancellation made unintentionally  An alteration is material if it alters the effect of the instrument.
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 BILLS OF EXCHANGE
without authority.
 CANCELLATION signifies not only the drawing of crisscross lines but also tearing, FORM AND INTERPRETATION
obliterations, erasures, or burning, by which the intention to cancel is evident.
 When cancellation is INOPERATIVE: (Sec. 126.) Bill of exchange, defined. - A bill of exchange is an unconditional order in writing
o When made unintentionally; addressed by one person to another, signed by the person giving it, requiring the person to
o When made under mistake; whom it is addressed to pay on demand or at a fixed or determinable future time a sum
o When made without authority of the holder certain in money to order or to bearer.
 KINDS:
(Sec. 124.) Alteration of instrument; effect of. - Where a negotiable instrument is materially o DRAFT – payable on demand or at some future determinable time.
altered without the assent of all parties liable thereon, it is avoided, except as against a party o TRADE ACCEPTANCE – a draft drawn by the seller on the purchaser of
who has himself made, authorized, or assented to the alteration and subsequent indorsers. goods and accepted by the latter.
But when an instrument has been materially altered and is in the hands of a holder in due o CHECK – drawn on a bank payable on demand.
course not a party to the alteration, he may enforce payment thereof according to its original o BANKER’S ACCEPTANCE – of which, the acceptor is a bank or banker
tenor. engaged generally in the business of granting banker’s acceptance
 Rights of a drawer if drawee pays a check at altered amount – drawee should only be credit.
allowed to debit the amount only for the correct amount altered. o TREASURY WARRANT – an order to pay, issued by a government
agency to the Treasurer of the Philippines, to pay money out of a
(Sec. 125.) What constitutes a material alteration. - Any alteration which changes: particular appropriation.
a) The date; o MONEY ORDER – drawn by a post office upon another, for an amount of
o A change of date is material whether the date hastens or postpones the money deposited at the first office by the person purchasing the money
time of payment. order and payable at the second office to a payee named in the order.
b) The sum payable, either for principal or interest; o CLEAN AND DOCUMENTARY –one that is not attached documents of
o Any alteration that changes the amount of the principal, by an increase or title to be delivered to the person against whom the bill is drawn when he
alteration thereof, constitutes a material alteration. Likewise, adding the either accepts or pays the bill.
words “with interest” with or without a fixed rate is a material alteration. o SIGHT BILLS – payable upon presentation or at sight or on demand.

25
 o TIME OR USANCE BILLS – payable at a fixed future time or at a (Sec. 131.) Referee in case of need. - The drawer of a bill and any indorser may insert
determinable future time. thereon the name of a person to whom the holder may resort in case of need; that is to say,
o INLAND BILLS – one which, on its face purports to be, both drawn and in case the bill is dishonored by non-acceptance or non-payment. Such person is called a
payable within the Philippines. referee in case of need. It is in the option of the holder to resort to the referee in case of need
o FOREIGN BILL OF EXCHANGE – one which, on its face purports to be, or not as he may see fit.
both drawn and payable outside the Philippines.

(Sec. 127.) Bill not an assignment of funds in hands of drawee. - A bill of itself does not ACCEPTANCE
operate as an assignment of the funds in the hands of the drawee available for the payment
thereof, and the drawee is not liable on the bill unless and until he accepts the same.  It is the signification by the drawee of his assent to the order of the drawer.
 If the drawee accepts the bill, his obligation is principal, as he becomes an  Kinds of acceptance:
acceptor of a bill. The liability is not premised on the assignment of funds in his a) Actual (Sec. 132)
hands belonging to the drawer but solely because it is by virtue of his b) Constructive (Sec. 137)
acceptance. c) General (Sec. 139)
d) Qualified (Sec. 141)
(Sec. 128.) Bill addressed to more than one drawee. - A bill may be addressed to two or more e) Acceptance supra protest (Sec. 161)
drawees jointly, whether they are partners or not; but not to two or more drawees in the  Effect – Until the bill is accepted, the drawer is the only person liable. After
alternative or in succession. acceptance, the principal liability shifts to the acceptor-drawee, and the drawer’s
liability becomes secondary.
(Sec. 129.) Inland and foreign bills of exchange. - An inland bill of exchange is a bill which is,  The payment of the check is not equivalent to acceptance because acceptance is not
or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a required for check for the same is payable on demand. Acceptance is a promise to
foreign bill. Unless the contrary appears on the face of the bill, the holder may treat it as an perform an act, while payment, is the actual performance of the act.
inland bill.
 Importance of distinguishing an inland bill and a foreign bill: Foreign bills are (Sec. 132.) Acceptance; how made, by and so forth. - The acceptance of a bill is the
required to be protested because failure to do so will discharge parties signification by the drawee of his assent to the order of the drawer. The acceptance must be
secondarily liable thereon. The distinction is determinative of the law applicable. in writing and signed by the drawee. It must not express that the drawee will perform his
 A bill is foreign if, on its face, it purports: promise by any other means than the payment of money.
a) To be drawn in the Philippines but payable outside the Philippines.
b) To be payable in the Philippines but drawn in outside the Philippines (Sec. 133.) Holder entitled to acceptance on face of bill. - The holder of a bill presenting the
same for acceptance may require that the acceptance be written on the bill, and, if such
(Sec. 130.) When bill may be treated as promissory note. - Where in a bill (a) the drawer and request is refused, may treat the bill as dishonored.
drawee are the same person or (b) where the drawee is a fictitious person or a person not
having capacity to contract, the holder may treat the instrument at his option either as a bill of (Sec. 134.) Acceptance by separate instrument. - Where an acceptance is written on a paper
exchange or as a promissory note. (c) where the instrument is so ambiguous that there is other than the bill itself, it does not bind the acceptor except in favor of a person to whom it is
doubt whether it is a bill or note [Sec. 17 (c)]. shown and who, on the faith thereof, receives the bill for value.
 Effect: If a bill is treated as a note, the drawer becomes the maker, therefore,
presentment and notice of dishonor are, with respect to the drawer, dispensed with. (Sec. 135.) Promise to accept; when equivalent to acceptance. - An unconditional promise in
writing to accept a bill before it is drawn is deemed an actual acceptance in favor of every
person who, upon the faith thereof, receives the bill for value.

26
 b) Partial; that is to say, an acceptance to pay part only of the amount for
 Acceptance may be on the face of the bill or on a separate paper. which the bill is drawn;
 Secs. 134 and 135, compared: Sec. 134 is applicable to an existing bill of exchange c) Local; that is to say, an acceptance to pay only at a particular place;
and the acceptance written on another piece of paper is good only to persons to d) Qualified as to time;
whom the acceptance was shown, while Sec. 135 is a promise to accept the bill even e) The acceptance of some, one or more of the drawees but not of all.
before the bill is drawn, which promise to accept good to any person, who upon the
faith thereof, receives the bill for value; the promise to accept need not be shown to (Sec. 142.) Rights of parties as to qualified acceptance. - The holder may refuse to take a
the holder. qualified acceptance and if he does not obtain an unqualified acceptance, he may treat the
bill as dishonored by non-acceptance. Where a qualified acceptance is taken, the drawer and
(Sec. 136.) Time allowed drawee to accept. - The drawee is allowed twenty-four hours after indorsers are discharged from liability on the bill unless they have expressly or impliedly
presentment in which to decide whether or not he will accept the bill; the acceptance, if given, authorized the holder to take a qualified acceptance, or subsequently assent thereto. When
dates as of the day of presentation. the drawer or an indorser receives notice of a qualified acceptance, he must, within a
 This rule is not applicable to checks, since checks are presented for payment and not reasonable time, express his dissent to the holder or he will be deemed to have assented
acceptance. thereto.

(Sec. 137.) Liability of drawee returning or destroying bill. - Where a drawee to whom a bill is
delivered for acceptance destroys the same, or refuses within twenty-four hours after such PRESENTMENT FOR ACCEPTANCE
delivery or within such other period as the holder may allow, to return the bill accepted or
non-accepted to the holder, he will be deemed to have accepted the same.  It is the production of a bill of exchange to the drawee for his acceptance.

(Sec. 138.) Acceptance of incomplete bill. - A bill may be accepted before it has been signed (Sec. 143.) When presentment for acceptance must be made. - Presentment for acceptance
by the drawer, or while otherwise incomplete, or when it is overdue, or after it has been must be made:
dishonored by a previous refusal to accept, or by non payment. But when a bill payable after  Bill of exchange need not be presented for acceptance, except:
sight is dishonored by non-acceptance and the drawee subsequently accepts it, the holder, in a) Where the bill is payable after sight, or in any other case, where presentment for
the absence of any different agreement, is entitled to have the bill accepted as of the date of acceptance is necessary in order to fix the maturity of the instrument; or
the first presentment. b) Where the bill expressly stipulates that it shall be presented for acceptance; or
c) Where the bill is drawn payable elsewhere than at the residence or place of
(Sec. 139.) Kinds of acceptance. - An acceptance is either general or qualified. A general business of the drawee.
acceptance assents without qualification to the order of the drawer. A qualified acceptance in In no other case is presentment for acceptance necessary in order to render any
express terms varies the effect of the bill as drawn. party to the bill liable.

(Sec. 140.) What constitutes a general acceptance. - An acceptance to pay at a particular (Sec. 144.) When failure to present releases drawer and indorser. - Except as herein
place is a general acceptance unless it expressly states that the bill is to be paid there only otherwise provided, the holder of a bill which is required by the next preceding section to be
and not elsewhere. presented for acceptance must either (a) present it for acceptance or (b) negotiate it within a
reasonable time. If he fails to do so, the drawer and all indorsers are discharged (because the
(Sec. 141.) Qualified acceptance. - An acceptance is qualified which is: latter have an interest in having the bill accepted immediately in order to shorten the time for
a) Conditional; that is to say, which makes payment by the acceptor payment and the time of their liability).
dependent on the fulfillment of a condition therein stated;

27
(Sec. 145.) Presentment; how made. - Presentment for acceptance must be made (by o Refusal of the drawee to accept the bill.
whom?) by or on behalf of the holder at a reasonable hour, on a business day and before the o Refusal of the drawee to write or place his acceptance on the bill itself.
bill is overdue, (to whom?) to the drawee or some person authorized to accept or refuse o Refusal of the drawee to give a general acceptance
acceptance on his behalf; and
a) Where a bill is addressed to two or more drawees who are not partners, (Sec. 150.) Duty of holder where bill not accepted. - Where a bill is duly presented for
presentment must be made to them all unless one has authority to accept or acceptance and is not accepted within the prescribed time, the person presenting it must treat
refuse acceptance for all, in which case presentment may be made to him only; the bill as dishonored by non-acceptance or he loses the right of recourse against the drawer
b) Where the drawee is dead, presentment may be made to his personal and indorsers.
representative;
c) Where the drawee has been adjudged a bankrupt or an insolvent or has made an (Sec. 151.) Rights of holder where bill not accepted. - When a bill is dishonored by non-
assignment for the benefit of creditors, presentment may be made to him or to his acceptance, an immediate right of recourse against the drawer and indorsers accrues to the
trustee or assignee. (compare with secs 76, 78, 98, 99 and 101) holder and no presentment for payment is necessary.

(Sec. 146.) On what days presentment may be made. - A bill may be presented for
acceptance on any day on which negotiable instruments may be presented for payment PROTEST
under the provisions of Sections seventy-two (72) and eighty-five (85) of this Act. When
Saturday is not otherwise a holiday, presentment for acceptance may be made before twelve  It is a formal declaration of a fact of non-acceptance or non-payment usually
o'clock noon on that day. executed by notary, and in popular sense all the steps accompanying the dishonor of
a bill or note necessary to charge the charge the drawer or an indorser.
(Sec. 147.) Presentment where time is insufficient. - Where the holder of a bill drawn payable
elsewhere than at the place of business or the residence of the drawee has no time, with the (Sec. 152.) In what cases protest necessary. - Where a foreign bill appearing on its face to be
exercise of reasonable diligence, to present the bill for acceptance before presenting it for such is dishonored by non-acceptance, it must be duly protested for non-acceptance, by non-
payment on the day that it falls due, the delay caused by presenting the bill for acceptance acceptance is dishonored and where such a bill which has not previously been dishonored by
before presenting it for payment is excused and does not discharge the drawers and non-payment, it must be duly protested for non-payment. If it is not so protested, the drawer
indorsers. and indorsers are discharged. Where a bill does not appear on its face to be a foreign bill,
protest thereof in case of dishonor is unnecessary.
(Sec. 148.) Where presentment is excused. - Presentment for acceptance is excused and a  Only foreign bills are required to be protested:
bill may be treated as dishonored by non-acceptance in either of the following cases: o When dishonored by non-acceptance.
a) Where the drawee is dead, or has absconded, or is a fictitious person or a person o When dishonored by non-payment. If protested by non-acceptance, protest
not having capacity to contract by bill. for non-payment is only optional.
b) Where, after the exercise of reasonable diligence, presentment can not be made.  When protest necessary:
c) Where, although presentment has been irregular, acceptance has been refused o INLAND bills – protest is not mandatory, but only optional on the part of the
on some other ground. holder.
o FOREIGN bills – must be protested, if it appears on its face to be such.
(Sec. 149.) When dishonored by non-acceptance. - A bill is dishonored by non-acceptance: Otherwise, protest is not necessary.
a) When it is duly presented for acceptance and such an acceptance as is o Notes – may be optionally protested in order to hold persons liable thereon.
prescribed by this Act is refused or can not be obtained; or  Effect if not protested: If a foreign bill is not protested after its dishonor, the drawer
b) When presentment for acceptance is excused and the bill is not accepted. and indorsers are discharged, unless protest is dispensed with under Sec. 159.
 Instances of dishonor:  Why protest is required:

28
 a) For uniformity in international transactions because it is required in most protested for non-payment at the place where it is expressed to be payable, and no further
countries. presentment for payment to, or demand on, the drawee is necessary.
b) In order to furnish evidence of dishonor to the drawer who, from his
residence abroad, may experience difficulty in verifying the matter and may (Sec. 157.) Protest both for non-acceptance and non-payment. - A bill which has been
be forced to rely on the representation of the holder. protested for non-acceptance may be subsequently protested for non-payment.

(Sec. 153.) Protest; how made. - The protest must be annexed to the bill or must contain a (Sec. 158.) Protest before maturity where acceptor insolvent. - Where the acceptor has been
copy thereof, and must be under the hand and seal of the notary making it and must specify: adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors
a) The time and place of presentment; before the bill matures, the holder may cause the bill to be protested for better security
b) The fact that presentment was made and the manner thereof; against the drawer and indorsers.
c) The cause or reason for protesting the bill;  Protest must be made after acceptance but before maturity.
d) The demand made and the answer given, if any, or the fact that the drawee or  PURPOSE: to let the drawer and indorsers know that in all probability, the instrument
acceptor could not be found. will not be honored upon its maturity, so that they may take the necessary steps to
insure payment, otherwise they will be held liable.
 PROCEDURE for Protest:
a. After the instrument is dishonored by non-payment or non-acceptance, (Sec. 159.) When protest dispensed with. - Protest is dispensed with by any circumstances
the instrument is taken by the notary public to the party and such party which would dispense with notice of dishonor. Delay in noting or protesting is excused when
may state that he refuses to pay (or accept) it. delay is caused by circumstances beyond the control of the holder and not imputable to his
b. “Noting”. The notary public makes a statement to that effect and attaches default, misconduct, or negligence. When the cause of delay ceases to operate, the bill must
his seal, that it has been dishonored and protested. be noted or protested with reasonable diligence.
c. The notary keeps this or he may send his sworn statement, one copy to  Protest is dispensed with by any of the circumstances stated in Secs. 112, 114, and
one person and one to another. 115.
d. After it was protested, he must send notice to all the parties in the
instrument. The holder, after the notices were sent, may now recocer (Sec. 160.) Protest where bill is lost and so forth. - When a bill is lost or destroyed or is
from the parties liable. wrongly detained from the person entitled to hold it, protest may be made on a copy or written
particulars thereof.
(Sec. 154.) Protest, by whom made. - Protest may be made by:  The loss or destruction of a bill does not excuse the making of protest because such
a) A notary public; or loss or destruction does not change the contract of the parties.
b) By any respectable resident of the place where the bill is dishonored, in the
presence of two or more credible witnesses.
ACCEPTANCE FOR HONOR
(Sec. 155.) 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 herein provided. When a bill has been (Sec. 161.) When bill may be accepted for honor. – (Acceptance “supra protest”) When a bill
duly noted, the protest may be subsequently extended as of the date of the noting. of exchange has been protested for dishonor by non-acceptance or protested for better
security and is not overdue, any person not being a party already liable thereon may, with the
(Sec. 156.) Protest; where made. - A bill must be protested at the place where it is consent of the holder, intervene and accept the bill supra protest for the honor of any party
dishonored, except that when a bill drawn payable at the place of business or residence of liable thereon or for the honor of the person for whose account the bill is drawn. The
some person other than the drawee has been dishonored by non-acceptance, it must be acceptance for honor may be for part only of the sum for which the bill is drawn; and where

29
there has been an acceptance for honor for one party, there may be a further acceptance by Likewise, when there has been an acceptance of honor for one party, there
a different person for the honor of another party. maybe further acceptance by a different person for the honor of another party.
 PURPOSE: an acceptance for honor is done to save the credit of the parties to the However, an acceptor for honor cannot accept the bill for the honor of two or more
instrument or some party to it, like the drawee, indorsers, or somebody else. This persons. Neither can there be two or more acceptors for the honor of the same party.
acceptance is made when the original drawee refuses to accept the bill for the honor
of someone of the parties thereto, which acceptance will inure to the benefit of all the (Sec. 163.) When deemed to be an acceptance for honor of the drawer. - Where an
parties subsequent to him for whose honor it was accepted. acceptance for honor does not expressly state for whose honor it is made, it is deemed to be
 Requisites for acceptance for honor: an acceptance for the honor of the drawer.
a. The bill must have been protested fro non-acceptance or better security.
b. The bill is not overdue at the time of the acceptance fro honor. (Sec. 164.) Liability of the acceptor for honor. - The acceptor for honor is liable to the holder
c. The acceptor for honor must be a stranger to the bill. and to all parties to the bill subsequent to the party for whose honor he has accepted.
d. The holder must give his consent.
(Sec. 165.) Agreement of acceptor for honor. - The acceptor for honor, by such acceptance,
 Acceptance for honor / Ordinary acceptance, distinguished: engages that he will, on due presentment, pay the bill according to the terms of his
acceptance [provided] it shall (a) not have been paid by the drawee and provided also that is
ACCEPTANCE FOR HONOR ORDINARY ACCEPTANCE shall (b) have been duly presented for payment and (c) protested for non-payment and (d)
The acceptor is a stranger to the bill The acceptor is the drawee notice of dishonor given to him.
The bill must have been previously Protest is not required
protested fro non-acceptance or for  The acceptor for honor, after payment to the holder, can ask reimbursement from the
better security party honored and to all parties liable on the bill to him. However, the acceptor should
There may be several acceptors for There is only one acceptor give notice for whose honor he pays, otherwise, the honored person is not obliged to
honor of different parties refund.
Consent of the holder is required Consent of the holder is not required  The acceptor’s liability is in the nature of a conditional acceptance. He promises to
The acceptor for honor is secondarily The acceptor is primarily liable pay if the original drawee, upon presentment to him for payment, should persist in
liable dishonoring the bill, and notice thereof by protest be given to the person so
When the bill is dishonored by the Protest is not required to be made even accepting. Thus, requisites of acceptor’s liability, are as follows:
acceptor for honor, it must be protested if the bill is dishonored by the acceptor, a. The bill must be presented for payment to the drawee on maturity.
fro non-payment by him save in cases of foreign bills b. If payment is refused, the bill must be protested for non-payment.
Payment by the acceptor for honor does Payment in due course by the acceptor c. Notice of protest should be given to the acceptor for honor.
not discharge the bill discharges the bill
(Sec. 166.) Maturity of bill payable after sight; accepted for honor. - Where a bill payable after
sight is accepted for honor, its maturity is calculated from the date of the noting for non-
(Sec. 162.) Acceptance for honor; how made. - An acceptance for honor supra protest must
acceptance and not from the date of the acceptance for honor.
be in writing and indicate that it is an acceptance for honor and must be signed by the
acceptor for honor.
(Sec. 167.) Protest of bill accepted for honor, and so forth. – (a) Where a dishonored bill has
 Procedure: The acceptor for honor appears before a notary public, with witnesses,
been accepted for honor supra protest or (b) contains a referee in case of need, it must be
and declares that he accepts such protested bill in honor of the drawer or indorser.
protested for non-payment before it is presented for payment to the acceptor for honor or
The acceptance for honor maybe for the whole or part only of the sum for which the
referee in case of need.
bill is drawn.

30
(Sec. 168.) Presentment for payment to acceptor for honor, how made. - Presentment for  Requisites fro payment for honor:
payment to the acceptor for honor must be made as follows: a. The bill has been protested for non-payment.
a) If it is to be presented in the place where the protest for non-payment was made, b. It must be attested by a notarial act of honor which may be appended to the
it must be presented not later than the day following its maturity. protest or form an extension to it.
b) If it is to be presented in some other place than the place where it was protested, c. The notarial act must be based on the declaration by the payor for honor of his
then it must be forwarded within the time specified in Section one hundred and intention to pay the ill for whose honor he pays
four.
 PROCEDURE:
(Sec. 169.) When delay in making presentment is excused. - The provisions of Section a. The payor or his agent goes to a notary public and declares his intention to pay
eighty-one (81) apply where there is delay in making presentment to the acceptor for honor or the bill and for whose honor he pays.
referee in case of need. b. The notary then records the declaration in the protest or in a separate paper
attached to it.
(Sec. 170.) Dishonor of bill by acceptor for honor. - When the bill is dishonored by the c. The payor then notifies the person fro whose honor he pays within reasonable
acceptor for honor, it must be protested for non-payment by him (in order to fix the liabilities time.
of the indorsers).
(Sec. 174.) 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
PAYMENT FOR HONOR parties to the bill is to be given the preference.

 Confined to bills of exchange and does not extend to promissory notes. (Sec. 175.) Effect on subsequent parties where bill is paid for honor. - Where a bill has been
 CONCEPT: Where the bill has been protested for non-payment, any person may paid for honor, (a) all parties subsequent to the party for whose honor it is paid are
intervene and pay it supra protest fro the honor of any person liable thereon or for the discharged but (b) the payer for honor is subrogated for, and succeeds to, both the rights and
honor of the person fro whose account it was drawn. duties of the holder as regards the party for whose honor he pays and all parties liable to the
 When made: After notice of dishonor has been duly given to the drawer and after the latter.
instrument has been protested.
(Sec. 176.) Where holder refuses to receive payment supra protest. - Where the holder of a
(Sec. 171.) Who may make payment for honor. - Where a bill has been protested for non- bill refuses to receive payment supra protest, he loses his right of recourse against any party
payment, any person may intervene and pay it supra protest for the honor of any person who would have been discharged by such payment.
liable thereon or for the honor of the person for whose account it was drawn.
(Sec. 177.) Rights of payer for honor. - The payer for honor, on paying to the holder the
(Sec. 172.) Payment for honor; how made. - The payment for honor supra protest, in order to amount of the bill and the notarial expenses incidental to its dishonor, is entitled to receive
operate as such and not as a mere voluntary payment, must be attested by a notarial act of both the bill itself and the protest.
honor which may be appended to the protest or form an extension to it.
 Rights of payer for honor:
(Sec. 173.) Declaration before payment for honor. - The notarial act of honor must be a. He acquires the rights of the holder.
founded on a declaration made by the payer for honor or by his agent in that behalf declaring b. To receive both the bill and the protest. This is to enable him to enforce
his intention to pay the bill for honor and for whose honor he pays. his rights against those who are liable to him under Sec. 175.

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  Distinction: the part at maturity is outstanding in the hands of a holder in due course, he is liable to the
holder thereon.
ACCEPTANCE FOR HONOR PAYMENT FOR HONOR
Protested fro non-acceptance or for Protested fro non-payment (Sec. 183.) Effect of discharging one of a set. - Except as herein otherwise provided, where
better security any one part of a bill drawn in a set is discharged by payment or otherwise, the whole bill is
Bill must not be overdue Bill may be overdue discharged.
Acceptor must not be a party already Payor may be a party to the bill
liable on the bill
Consent of holder required Consent of holder not required.

BILLS IN SET

 It is one composed of several parts, each part being numbered and containing a
reference to the other parts, the whole of the parts constituting but one bill.
 PURPOSE: to increase the probability of the bill reaching its destination.

(Sec. 178.) Bills 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
constitutes one bill.

(Sec. 179.) 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. 180.) Liability of holder who indorses two or more parts of a set to different persons. –
Where the holder of a set indorses two or more parts to different persons 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. 181.) Acceptance of bill drawn in sets. – (a) The acceptance may be written on any part
and it must be written on one part only. (b) If the drawee accepts more than one part and
such accepted parts negotiated to different holders in due course, he is liable on every such
part as if it were a separate bill.

(Sec. 182.) 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

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