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INTRODUCTION
1. Kinds of negotiable instrument
Purpose: facilitate commercial transactions
Two Main Groups under Negotiable
Instruments Law (NIL)
1. PROMISSORY NOTE evidence of promise to
pay
2. BILLS OF EXCHANGE an order made by one
person to another to pay money to 3rd
person
Ex:
Checks one issues it and orders bank to
pay the person named on the check
Drafts form of BOE used mainly in
transactions between persons
physically remote from each other. An
order made by one person (buyer of
goods), addressed to person having in
his possession the funds of the buyer
ordering the addressee to pay the
purchase price to the seller of goods
Other forms
1. CERTIFICATE OF DEPOSIT instrument issued
by bank reciting deposit of a certain sum of
money, payable either at a fixed time or on
demand to the depositor named therein
2. BOND evidence of indebtedness issued by
corporation (public or private) payable at a
definite date in the future, usually for a long
term
- written promise by a corporation to
pay a definite sum of money on the
day named
NOTE: when a certificate of deposit or a bond
conforms with the requirements of the NIL,
then it is a negotiable instrument
2. Parties and the nature of their liability
a. Maker the promissor
b. Payee person to whom the promise to pay
is made
For promissory note:
Drawer person who gives the order to pay
Drawee addressee of the order
Payee to whom payment is made
For bills of exchange:
negotiated or indorsed - When the payee
transfers it the instrument to another by
signing it at the bank
Indorser the one who indorsed / signs
Indorsee to whom he negotiates and becomes
the holder of the instrument
As to nature of liability
1. Primary one who is absolutely or
unconditionally required to pay when
instrument falls due
PN - the maker
BOE no one is primarily liable unless
drawee accepts order of the drawer,
if drawee accepts he becomes an
acceptor who is absolutely bound to
pay
2. Secondary drawer of bill of exchange or the
indorser of the bill or note
Conditions of their liability:
1. Demand is made on the primary
party
2. If the primary dishonor (fail to pay),
notice be given to secondary party
2 contracts entered into by indorser
2. Selling or transferring the instrument
3. Warrants the he will pay in case
conditions above are satisfied
4. Functions of negotiable instrument
a. Substitute for money in payment for
property or service
> payment by check
b. Means of creating and transferring credit
and facilitate sale of goods
> car paid on installment with promissory
note
For international trade: DRAFT
> letter of credit
Ex:
A buyer from Manila B seller from US
B draw a draft on A ordering the latter to pay the
price of machine to Bs agent (bank). Draft
with the Bill of lading are sent to Manila
agent who will collect from A on the draft
before delivering to B.
NOTE: even if used as substitute for money, its
validity as means for payment is conditioned
on it being honored by person bound to pay
Art. 1249. X x x
The delivery of promissory notes payable to
order, or bills of exchange or other
mercantile documents shall produce the
effect of payment only when they have been
cashed, or when through the fault of the
creditor they have been impaired.
In the meantime, the action derived from the
original obligation shall be held in the
abeyance.
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Note: tender of check sufficient to redeem
foreclosed property since redemption is not
an obligation but a right. Redemptioner,
however, is not relieved from his liability to
pay the redemption price
5. Concept of negotiability
Illustration:
A buys a car. He makes a downpayment and
signs a PN for balance payable in a year.
> Otherwise, it is governed by general law on
contracts
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 merchant.

Seller converts note to cash before its due date

and sells it at a discount with a bank.

If car has defect, A may refuse to pay the bank

when the latter demands payment. Bank only
steps on shoes of seller who cannot compel A to
pay in full because of the defect on the car.

Theory: Title of subsequent holder of the note

can be no better than the title of the transferor.

HOWEVER, if note is in form specified by NIL,

bank may demand payment from A despite
failure of consideration (defective car). Defense
of A would be against seller not the bank.

Theory: person to whom NI is negotiated may

acquire better rights than its transferor.

Note:
> A person who takes a NI can rely on its face
and need not inquire itno past events which gave
rise to its execution. Inquiry would entail delay
in commercial transactions.

Two contracts involved:

a) Contract of sale
b) Promise to pay

6. Origin of negotiable instruments

> Florentine and venetian merchants

> facilitate the contract of cambium

7. History of negotiable instruments

> English Bill of Exchange (1882)

> Uniform Negotiable Instruments Law of the US
(1896)
> Uniform Commercial code (1958)

Philippines: 1911

8. Applicability of negotiable instrument law

> ONLY to negotiable instruments those which

conform with the requisites laid down by
Sec. 1 of the law

CHAPTER I
REQUISITES OF NEGOTIABILITY
Section 1. Form of negotiable instruments. - An
instrument to be negotiable must conform
to the following requirements:
a) It must be in writing and signed by the maker
or drawer;
b) Must contain an unconditional promise or
order to pay a sum certain in money;
c) Must be payable on demand, or at a fixed or
determinable future time;
d) Must be payable to order or to bearer; and
e) Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable certainty.
Sec. 184. Promissory note, defined. - A
negotiable promissory note within the
meaning of this Act is an unconditional
promise in writing made by one person to
another, signed by the maker, engaging to
pay on demand, or at a fixed or
determinable future time, a sum certain in
money to order or to bearer. Where a note is
drawn to the maker's own order, it is not
complete until indorsed by him.
Sec. 126. Bill of exchange, defined. - A bill of
exchange is an unconditional order in
writing addressed by one person to another,
signed by the person giving it, requiring the
person to whom it is addressed to pay on
demand or at a fixed or determinable future
time a sum certain in money to order or to
bearer.
Note: if instrument did not meet the requisites,
its validity will not be affected. But instead
of being governed by NIL, it will be governed
by general law on contracts
1. Written from and signature
Sec. 18. Liability of person signing in trade or
assumed name. - No person is liable on the
instrument whose signature does not appear
thereon, except as herein otherwise
expressly provided. But one who signs in a
trade or assumed name will be liable to the
same extent as if he had signed in his own
name.
Sec. 19. Signature by agent; authority; how
shown. - The signature of any party may be
made by a duly authorized agent. No
particular form of appointment is necessary
for this purpose; and the authority of the
agent may be established as in other cases of
agency.
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In writing includes print, what is written by
pen, what is typed.
Signature is binding: printed, engraved,
lithographed or photographed so long as it
is intended to be adopted as such with
signers authority and it may appear on any
part of the instrument
2. Unconditional order or promise to pay
Express promise on face of instrument
Contain promise and order to pay
Any expression equivalent to promise
or order is sufficient
Mere acknowledgment of debt
Word promise is not absolutely
necessary
Order command, imperative direction
Mere request or authority to pay
please does not itself deprive the
instrument of its characteristic as an
order
Language must clearly indicate demand
to pay
a. When unconditional
Sec. 3. When promise is unconditional. - An
unqualified order or promise to pay is
unconditional within the meaning of this Act
though coupled with:
a) An indication of a particular fund out of
which reimbursement is to be made or a
particular account to be debited with the
amount; or
b) A statement of the transaction which gives
rise to the instrument.
But an order or promise to pay out of a
particular fund is not unconditional.
Must be unqualified
Absolute right cannot be defeated by
contingency
Indication of particular fund out of
which reimbursement is to be made or
an account from which payment is to be
debited will not render an order
conditional
No statement where disbursement is to
be taken from, although drawee is
authorized to reimburse himself from
particular fund
Fact that condition has been fulfilled will
still not make instrument negotiable

3. Sum payable must be certain
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) with interest; or
b) by stated installments; or
c) by stated installments, with a provision that,
upon default in payment of any installment
or of interest, the whole shall become due;
or
d) with exchange, whether at a fixed rate or at the
current rate; or
e) with costs of collection or an attorney's fee, in
case payment shall not be made at maturity.
Agreement to pay an interest does not
make the sum uncertain, exact amount
can be computed without looking
beyond the instrument
Payable in installment as long as it is
stated (amount is fixed)
Acceleration provision
Sum in foreign currency payable in
Philippine currency at fixed rate of
exchange or the rate prevailing at time
payment is made
Payment of attorneys fees although the
amount is unspecified can be fixed by
the court
4. Payable in money
Capable of being transformed to money
Gives holder an election to require
something to be done in lieu of payment
of money (right to repossess property)
Payable in personal property
(merchandise, shares of stock, gold, etc.)
Payable partly in money and partly by
rendering service
Agreeing to pay taxes assessed upon the
note
Option is with the maker
Money not necessarily the legal tender but any
particular kind of current money
Note: if payable in currency other than Phil
currency, such stipulation is ineffective and
obligation can discharged only in legal
tender but negotiability is still unaffected.
5. Certainty of time of payment
Must be payable:
1. On demand
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2. At fixed time
3. Determinable future time
a. On demand
Sec. 7. When payable on demand. - An
instrument is payable on demand:
(a) When it is so expressed to be payable on
demand, or at sight, or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or
indorsed when overdue, it is, as regards the
person so issuing, accepting, or indorsing it,
payable on demand.
Demand instruments: Holder may call for
payment any time; maker has an option to
pay at any time, and the refusal of the
holder to accept payment will terminate the
running of interest, if any, but the obligation
to pay the note remains.
b. At fixed time
o Only on the stipulated date, and not
before, may the holder demand its
payment.
o Should he fail to demand payment, the
instrument becomes overdue but remains
valid and negotiable. It is merely
converted to a demand instrument.
c. Determinable future time
Sec. 4. Determinable future time; what
constitutes. - An instrument is payable at a
determinable future time, within the
meaning of this Act, which is expressed to
be payable:
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future
time specified therein; or
(c) On or at a fixed period after the occurrence of
a specified event which is certain to happen,
though the time of happening be uncertain.
An instrument payable upon a contingency is
not negotiable, and the happening of the
event does not cure the defect.
Sec. 11. Date, presumption as to. - Where the
instrument or an acceptance or any
indorsement thereon is dated, such date is
deemed prima facie to be the true date of
the making, drawing, acceptance, or
indorsement, as the case may be.
Sec. 17. Construction where instrument is
ambiguous. - Where the language of the
instrument is ambiguous or there are

omissions therein, the following rules of
construction apply:
(c) Where the instrument is not dated, it will be
considered to be dated as of the time it was
issued;
1.) At a fixed period after date of sight;
2.) On or before a fixed or determinable
future time specified therein;
3.) On or at a fixed period after the
occurrence of a specified event which is
certain to happen, though the time of
happening be uncertain.
d. Effect of acceleration provisions
o If option (absolute or conditional) to
accelerate maturity is on the maker, still
NEGOTIABLE.
Maker may pay earlier than the date
fixed but this option, if exercised, would
be a payment in advance of a legal
liability to pay. It is still payable on the
date fixed, and holder has no right to
enforce payment against the maker
before such date.
o If option to accelerate is on the holder:
If option can be exercised only after the
happening of a specified event/act over
which he has no control (conditional),
still NEGOTIABLE.
If option is unconditional, time of
payment is rendered uncertain, NOT
negotiable.
o Other instances where instrument still
NEGOTIABLE:
When option given to the holder to
accelerate the maturity of an installment
note upon failure of the maker to pay
any installment when due.
Acceleration, automatic upon default.
Acceleration by operation of law.
Death before maturity filed
against makers estate
Insolvent claim during
insolvency proceeding
e. Provisions extending time of payment
o General rule: Negotiability not affected.
Effect is similar with that of an acceleration
clause at the option of the maker. (same as
note payable on or before __ years from
___)
Negotiability not affected, even if the
holder is given the option to extend time
of payment by mere inaction or
indulgence for an indefinite time
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depending on his will, because with or
without this provision, the holder may
always choose to be indulgent.
Should the holder not demand payment
upon maturity, the note simply becomes
overdue and is payable upon demand.
o Exception: Where a note with a fixed
maturity provides that the maker has the
option to extend time of payment until the
happening of contingency, instrument NOT
negotiable. The time for payment may never
come at all.
6. Must be payable to order or to bearer
words of negotiability - serve as an
expression of consent that the instrument
may be transferred.
Consent is indispensable since the maker
assumes greater risks under a negotiable
instrument.
But the instrument need not follow the
language of the law; any term which clearly
indicates an intention to conform with the
legal requirements is sufficient.
Note:
2. A postal money order is not a negotiable
instrument. Although it may be indorsed
once, such indorsement does NOT covnert it
to a negotiable instrument because words of
negotiability must appear ON THE FACE of
the instrument as part of the original
contract.
3. or bearer printed on a check are cancelled by
drawer NON-NEGOTIABLE
a. When instrument is payable to order
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.
Illustrations: (ONLY 2 ways by which an
instrument may be made payable to order)
1. (I promise to) Pay to the order of Juan
2. (I promise to) Pay to Juan or order
Note:
There must be a specified person
named.
Bill or note is to be paid to the
designated person or to any person to
whom he has indorsed or delivered the
same.

Without to order or to order of, the Maker/Drawer: Lower right hand
instrument is payable only to the person
designated therein = NON NEGOTIABLE
b. When instrument is payable to
bearer
Sec. 9. When payable to bearer. - The
instrument is payable to bearer:
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein
or bearer; or
(c) When it is payable to the order of a fictitious
or non-existing person, and such fact was
known to the person making it so payable;
or
(d) When the name of the payee does not purport
to be the name of any person; or
(e) When the only or last indorsement is an
indorsement in blank.
Illustrations:
9(a): I promise to pay to bearer the sum of
P100
Pay to the holder (bec holder = bearer)
bearer, Jose (merely describe Jose)
9(b): Pay to Jose or bearer
9(c): Pay to John Doe or order
A name is fictitious when it is feigned or
pretended.
That payee is a fictitious or non-existing
person must be known to the maker or
drawer (latter mustve intended the
instrument to be transferred by mere
delivery)
If maker/drawer is NOT aware = ORDER
Payable to bearer not to order because
John Doe is a fictitious person
Payable to estate = payable to bearer
(bec it is payable to non-existing person)
9(d): pay to cash or pay to sundries
Maker intends an impersonal payee =
intends to be payable to BEARER
9(e): blank
BEARER even if originally ORDER
Blank indorsement cannot covert non-
nego note to a nego one.
7. Parties must be designated with certainty
a. Maker and Drawer
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Drawee: lower left hand
Payee/Indorsee: back
Clear in what capacity they sign if they
follow the long established and
recognized custom
DEVIATION not clear in what capacity
he signs: law considers him as an
INDORSER
b. Payee
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 may be drawn payable to the
order of:
(a) A payee who is not maker, drawer, or drawee;
or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the
payee must be named or otherwise indicated
therein with reasonable certainty.
An instrument may be made payable to anyone
of the following payees: (examples page 53)
a. Order of the payee; not the
maker/drawer/drawee
b. Order of the maker or drawer
c. Order of the drawee
d. 2 or more payees jointly
e. One or more several payees jointly
When negotiating, both of them
must indorse
f. Holder of office for time being
Payee is certain with 3
interpretations:
i. Person holding the position at
maturity
ii. Person holding the position at
time of issuance
iii. Person holding the position at any
particular moment floating
promise
3rd view is the most acceptable and
what the lawmakers have in mind
when they used the words for time
being
If name is spelled wrongly:
Sec. 43: Indorsement where name is misspelled,
and so forth. - Where the name of a payee or
indorsee is wrongly designated or
misspelled, he may indorse the instrument

as therein described adding, if he thinks fit,
his proper signature.
c. Drawee
Sec. 128. Bill addressed to more than one
drawee. - A bill may be addressed to two or
more drawees jointly, whether they are
partners or not; but not to two or more
drawees in the alternative or in succession.
Sec. 130. When bill may be treated as
promissory note. - Where in a bill the drawer
and drawee are the same person or 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 exchange or as a promissory
note.
If instrument addressed to drawee,
he must be named or indicated with
reasonable certainty
Bill may be addressed to 2 or more
drawees jointly, NOT in the
alternative = no certainty as to
whom the bill should be presented
8. Provisions not affecting negotiability
Sec. 5. Additional provisions not affecting
negotiability. - An instrument which
contains an order or promise to do any act
in addition to the payment of money is not
negotiable. But the negotiable character of
an instrument otherwise negotiable is not
affected by a provision which:
(a) authorizes the sale of collateral securities in
case the instrument be not paid at maturity;
or
(b) authorizes a confession of judgment if the
instrument be not paid at maturity; or
(c) waives the benefit of any law intended for the
advantage or protection of the obligor; or
(d) gives the holder an election to require
something to be done in lieu of payment of
money.
But nothing in this section shall validate any
provision or stipulation otherwise illegal.
1. Authorizes sale of collateral securities;
2. Authorizes confession of judgment if
instrument not paid at maturity;
3. Waives the benefit of any law intended for the
advantage or protection of the obligor; or
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4. Gives holder election to require something to
be done in lieu of payment of money. (if in
addition to money not NI)
Negotiability affected, when
instrument contains a promise or
order to do any act in addition to
the payment of money.
In common law, two kinds of judgment by
confession:
Judgment by cognovit actionem
Confession relicta verificatione
Rule on judgment by confession:
GR: void (against public policy)
E: authorized by statute
9. Omissions not affecting negotiability
Sec. 6. Omissions; seal; particular money. - The
validity and negotiable character of an
instrument are not affected by the fact that:
(a) it is not dated; or
(b) does not specify the value given, or that any
value had been given therefor; or
(c) does not specify the place where it is drawn
or the place where it is payable; or
(d) bears a seal; or
(e) designates a particular kind of current money
in which payment is to be made.
But nothing in this section shall alter or repeal
any statute requiring in certain cases the
nature of the consideration to be stated in
the instrument.
Bonds issued by corporation would bear
its corporate seal which forms part of its
signature.
Validity and negotiability of instrument
not affected by fact that it is not dated.
Remedy: law fills in the gap and
considers the date of issuance as the
date of the instrument and allows holder
to insert the true date
NO need to express that value is
received it is presumed to have been
issued for a valuable consideration
Place important (to know where the
holder must present for payment) but
not essential
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10. Rules of construction 5. Where the instrument is ambiguous

Sec. 17. Construction where instrument is
ambiguous. - Where the language of the
instrument is ambiguous or there are
omissions therein, the following rules of
construction apply:
(a) Where the sum payable is expressed in words
and also in figures and there is a
discrepancy between the two, the sum
denoted by the words is the sum payable;
but if the words are ambiguous or uncertain,
reference may be had to the figures to fix
the amount;
as to whether it is a note or a bill,
the holder may treat it as either at
his election
6. When the capacity of signatory is
not clear, he is to be deemed an
indorser
7. I promise to pay when signed by
two or more persons is deemed to
be jointly and severally signed

(b) Where the instrument provides for the

payment of interest, without specifying the
date from which interest is to run, the
interest runs from the date of the
instrument, and if the instrument is
undated, from the issue thereof;
(c) Where the instrument is not dated, it will be
considered to be dated as of the time it was
issued;

(d) Where there is a conflict between the written

and printed provisions of the instrument,
the written provisions prevail;

(e) Where the instrument is so ambiguous that

there is doubt whether it is a bill or note, the
holder may treat it as either at his election;

(f) Where a signature is so placed upon the

instrument that it is not clear in what
capacity the person making the same
intended to sign, he is to be deemed an
indorser;

(g) Where an instrument containing the word "I

promise to pay" is signed by two or more
persons, they are deemed to be jointly and
severally liable thereon.

1. Sum expressed in words takes

precedence over sum in numbers;
BUT where words are so ambiguous
or uncertain, reference to the figures
should be made
2. Where interest is stipulated, without
specification of the starting date, the
interest runs from the date of the
instrument, and if undated, from the
issue thereof
3. An undated instrument is
considered dated as of time issued.
4. Written provisions prevail over
printed provisions

CHAPTER II
TRANSFER
1. Delivery & Issuance
Sec. 16. Delivery; when effectual; when
presumed. - Every contract on a negotiable
instrument is incomplete and revocable until
delivery of the instrument for the purpose of
giving effect thereto. As between immediate
parties and as regards a remote party other than
a holder in due course, the delivery, in order to
be effectual, must be made either by or under
the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and,
in such case, the delivery may be shown to have
been conditional, or for a special purpose only,
and not for the purpose of transferring the
property in the instrument. But where the
instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties
prior to him so as to make them liable to him is
conclusively presumed. And where the
instrument is no longer in the possession of a
party whose signature appears thereon, a valid
and intentional delivery by him is presumed
until the contrary is proved.
Delivery means transfer of possession, actual or
constructive, from one person to another. It
may be accomplished by manual transfer or
by any other acct manifesting intent to
transfer right of possession.
Issuance of instrument first delivery of the
instrument complete in form to a person
who takes it as a holder.
No initial deliver = no liability on said
instrument
With intent to give effect to the instrument
Instrument is no longer in possession of
person who signed it (presumed)
Holder in due course (conclusive
presumption if instrument is complete)
Given merely for safekeeping
2. Negotiation
Sec. 30. What constitutes negotiation. - An
instrument is negotiated when it is
transferred from one person to another in
such manner as to constitute the transferee
the holder thereof. If payable to bearer, it is
negotiated by delivery; if payable to order, it
is negotiated by the indorsement of the
holder and completed by delivery.
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Sec. 191. Definition and meaning of terms. - In
this Act, unless the contract otherwise
requires:
"Bearer" means the person in possession of a
bill or note which is payable to bearer;
Holder" means the payee or indorsee of a bill or
note who is in possession of it, or the bearer
thereof;
Negotiation transfer of NI made in such a
manner that the transferee becomes the
holder and thus possibly a holder in due
course capable of acquiring a better title to
the instrument that that of his transferor.
For value as in a sale or gift rights acquired
may be different.
Transfer broader term than negotiation.
Transferred without Nego = assignment
Assignee not a holder
3. Methods of negotiations
Payable to order:
a. Indorsement by payee or present
holder
b. Delivery to the transferee or
indorsee who now becomes the
holder
> Consist of signature of the indorser (usually on
the back)
Significance:
a. Transfer or sale of the instrument
b. Signifies agreement of indorser to
answer for the amount represented by
the instrument in case of default of the
maker or party primarily liable
Payable to bearer
> negotiated by mere delivery
> common practice: indorse before delivery
>> serve as security: indorser be liable
not just as seller of the note but also in case
of default of the primay liable.
Assignment
a. Order instrument is delivered to payee
without indorsement
b. OI is delivered with improper
indorsement
>> assignee takes the place of assignor subject
to defenses which may be existing between
prior parties

4. How indorsement made
Allonge indorsement on a separate paper
Common law practice: allonge is valid only if
there is no longer room on the instrument
for futher indorsement.
Uniform Commercial code: paper must be firmly
attached a to become part thereof
a. By signature on instrument or on allonge
Sec. 31. Indorsement; how made. - The
indorsement must be written on the
instrument itself or upon a paper attached
thereto. The signature of the indorser,
without additional words, is a sufficient
indorsement.
b. In case of joint payees
Instrument is payable or indorse to:
A and B, they are joint payees and an
indorsement by either A or B will not
constitute a valid negotiation unless the one
indorsing is authorized by the other.
A or B they are alternative payees and either
one may validly negotiate the same.
c. If name misspelled
Sec. 43. Indorsement where name is misspelled,
and so forth. - Where the name of a payee or
indorsee is wrongly designated or
misspelled, he may indorse the instrument
as therein described adding, if he thinks fit,
his proper signature.
Indorsement should be in the manner he was
designated, otherwise, signature will prima
facie not be valid. After indorsement he may
sign his correct name.
5. Indorsement must be of entire instrument
Sec. 32. Indorsement must be of entire
instrument. - The indorsement must be an
indorsement of the entire instrument. An
indorsement which purports to transfer to
the indorsee a part only of the amount
payable, or which purports to transfer the
instrument to two or more indorsees
severally, does not operate as a negotiation
of the instrument. But where the instrument
NEGO - Quevedo 10
Camille Umali
has been paid in part, it may be indorsed as
to the residue.
Purpose: to protect the obligors from more than
one action on the instrument because the
maker and all the prior parties, in assuming
the liability, took the risk of only one cause
of action against them. L
Example of invalid insdorsements:
1. Indorsement of P50 only to 1 person
partial transfer, no valid delivery
2. Bill for 100 indorsed by the payee to
A for P50 and to B for P50
purports to transfer instrument to 2 person
severally,
thus no valid negotiation, mere assignees,
cannot sue on instrument without bringing
the other as part in the action
Example of valid indorsements:
1. Joint indorsees, Pay to A & B
instrument indorsed in its entirety to BOTH A
and B who can negotiate the instrument only
by BOTH their indorsements
Sec. 32 does not contemplate situation:
1. INSTALLMENT PAYMENT: where
there is partial payment on
instrument such as in instalment
payment instrument may still be
negotiated for remaining unpaid
(residue)
2. DISCOUNTING of the instrument:
where indorsee pays the indorser
less than face amount of instrument
(no splitting of cause of action since
It belongs wholly to purchaser who
bought it at discount; discount is in
consideration for waiting time
before maturity of instrument)
Effect of failure to comply: mere
assignment, instrument does not
become void
6. Kinds of indorsement
Sec. 33. Kinds of indorsement. - An indorsement
may be either special or in blank; and it may
also be either restrictive or qualified or
conditional.
Although signature is sufficient,
additional words may be added which
modifies rights of subsequent holders or
liabilities of indorser
BLANK indorsement when only
signature of INDORSER appears
Special and Blank future negotiations
Restrictive or Nonrestrictive kind of
title transferred
Qualified or nonqualified scope of
liability assumed by the indorser

Conditional or unconditional presence
or absence of express limitations put by
indorser upon the primary obligors
privileges of paying the holder
1. Basis of classification
Although signature is sufficient,
additional words may be added which
modifies rights of subsequent holders or
liabilities of indorser
BLANK indorsement when only
signature of INDORSER appears
Special and Blank future negotiations
Restrictive or Nonrestrictive kind of
title transferred
Qualified or nonqualified scope of
liability assumed by the indorser
Conditional or unconditional presence
or absence of express limitations put by
indorser upon the primary obligors
privileges of paying the holder
2. Special & Bank indorsements
Sec. 34. Special indorsement; indorsement in
blank. - A special indorsement specifies the
person to whom, or to whose order, the
instrument is to be payable, and the
indorsement of such indorsee is necessary
to the further negotiation of the instrument.
An indorsement in blank specifies no
indorsee, and an instrument so indorsed is
payable to bearer, and may be negotiated by
delivery.
Sec. 35. Blank indorsement; how changed to
special indorsement. - The holder may
convert a blank indorsement into a special
indorsement by writing over the signature of
General Rule: Special indorser liable to
the indorser in blank any contract consistent
with the character of the indorsement.
Exception: Unless, the instrument is originally a
Sec. 40. Indorsement of instrument payable to
bearer. - Where an instrument, payable to
bearer, is indorsed specially, it may
nevertheless be further negotiated by
delivery; but the person indorsing specially
is liable as indorser to only such holders as
make title through his indorsement.
Special Indorsement specifies to whom or
to whose order, the instrument is to be
payable
o indorsement of such INDORSEE is
necessary for further negotiation
Blank Indorsement specifies NO INDORSEE,
and
NEGO - Quevedo 11
Camille Umali
o an instrument so indorsed is
PAYABLE TO BEARER and may be
negotiated by delivery
2 forms of special indorsement:
a. Pay X, followed by
signature of indorser
b. Pay X or order, followed
by signature of indorser
Both require indorsement of SPECIAL
INDORSEE for further negotiation
Problem:
o Bearer instrument is specially
indorsed thus: Pay to X, (sgd) Y
o Is Xs signature necessary for further
negotiation?
o Sec. 34: Yes
o Sec. 40: No, may nevertheless be
negotiated by delivery as long as it
was first a bearer instrument
(caveat: but person indorsing
specially is liable as indorser to only
such holders as make title through
his indorsement)
o Conflict solved by applying Sec. 40
only to bearer instruments.
Rationale: to permit subsequent
holder of an originally bearer paper
to control the method of further
negotiation would cast upon the
obligor the risk of forged or
unauthorized indorsements of
special indorsees, a risk which he
did not assume by his contract to
pay the bearer.
Negotiation by mere deliver indorser
liable only to IMMEDIATE transferee
Negotiation by special indorsement
indorser is liable to SUBSEQUENT holders
subsequent holders
bearer instrument in which case he is liable
only to those who take title through his
indorsement.
Sec. 40 illustrated:
A (ME) bearer B (no indorsement) C, Pay
to D, (sgd) C D, Pay to E, (sgd) D E no
indorsement F
B: liable only to C, and not to D, E, and F
C and D (special indorsers): not liable to F
who does not take his title through their
indorsement
C: liable to both D and E since they take their
title through his indorsement
D: liable only to E since latter is the only one
who takes through his indorsement
E: liable to F

o Note to self: taking title through
indorsement indorser liable to all
whom indorsement was made
through special indorsement
Indorsement in blank
specifies no indorsee, only signature of
indorser appears
is payable to bearer
may be negotiated by delivery
Illustriation: only signature of indorser
appears may be negotiated further by
mere delivery regardless of whether the
instrument is on its face payable to
bearer or not.
Its not as SAFE: being negotiated by
mere delivery, a thief or finder can give a
good title to a holder in due course.
Blank indorsement may be CONVERTED
to special indorsement
HOW: by writing over the signature of the
indorser in blank ANY CONTRACT
INCONSISTENT WITH THE CHARACTER OF
THE INDORSEMENT.
EXCEPT: it was originally a bearer instrument
An instrument PAYABLE TO ORDER on
its face, may be CONVERTED into a
bearer instrument by means of a blank
indorsement, and may later be
RECONVERTED into an order instrument
by a subsequent special indorsement,
the last indorsement always controlling
the means of further negotiation.
On the other hand, instrument PAYABLE
TO BEARER on its face always remains a
bearer instrument (negotiated by
delivery alone). A special indorsement of
bearer instrument does not convert it to
an instrument payable to order
3. Qualified indorsement
Sec. 38. Qualified indorsement. - A qualified
indorsement constitutes the indorser a mere
assignor of the title to the instrument. It
may be made by adding to the indorser's
signature the words "without recourse" or
any words of similar import. Such an
indorsement does not impair the negotiable
character of the instrument.
Indorsement:
1. Contract of sale of assignment of
instrument
2. Contract to pay instrument if maker
is unable to pay on maturity
NEGO - Quevedo 12
Camille Umali
If he wants to relieve himself of 2nd
obligation (holder would have no recourse
against him should maker fail to pay on due
date), indorser must do so in clear and
express terms
o Ex. Adding without recourse, sans
recourse or at indorsees own
risk
o Ex. of words used which does not
make indorsement qualified: words
expressing assignment of title to the
instrument cannot by implication
exclude 2nd contract; words
guaranteeing makers payment on
maturity will not impliedly exclude
1st contract
mere assignor of title of instrument
does not mean that transferee merely has
rights of assignee because law itself states
that a qualified indorsement does not affect
the negotiable character of the instrument
means indorser agrees on first contract and
agrees merely to transfer legal title
transfer would still be a negotiation and
transferee would still be holder capable of
acquiring a title free from defences of prior
dates
4. Conditional indorsement
Sec. 39. Conditional indorsement. - Where an
indorsement is conditional, the party
required to pay the instrument may
disregard the condition and make payment
to the indorsee or his transferee whether the
condition has been fulfilled or not. But any
person to whom an instrument so indorsed
is negotiated will hold the same, or the
proceeds thereof, subject to the rights of the
person indorsing conditionally.
Indorser liable to pay on 2 conditions
(implied, need not be expressed):
1. Due demand or presentment made
on party primarily liable on the date
of maturity
2. (If latter fails to pay) Notice of
Dishonor sent to indorser
Unconditional no other conditions upon
which liability is based
Conditional additional condition annexed to
indorsers liability (must be expressed)
o It is only liability of particular
indorser which is unconditional, but
all subsequent holders to
conditional indorsement take
subject to such condition
Sec. 39 illustrated
1. Instrument payable on Dec. 1

2. Indorsed by payee to A if he
marries before he is 25
failure to get married before 25, A or any
holder after him, cannot compel payment by
maker to pay him on Dec. 1
however, Maker may disregard condition and
pay holder
Rationale: maker has right to terminate his
liability on the date agreed to by him and
cannot be burdened with conditions which
were not part of his contract.
Should he pay A or the holder who received
payment will hold the money subject to the
rights of the conditional indorser
5. Restrictive indorsement
Sec. 36. When indorsement restrictive. - An
indorsement is restrictive which either:
(a) Prohibits the further negotiation of the
instrument; or
(b) Constitutes the indorsee the agent of the
indorser; or
(c) Vests the title in the indorsee in trust for or
to the use of some other persons.
But the mere absence of words implying power
to negotiate does not make an indorsement
restrictive.
Sec. 37. Effect of restrictive indorsement; rights
of indorsee. - A restrictive indorsement
confers upon the indorsee the right:
(a) to receive payment of the instrument;
(b) to bring any action thereon that the indorser
could bring;
(c) to transfer his rights as such indorsee, where
the form of the indorsement authorizes him
to do so.
But all subsequent indorsees acquire only the
title of the first indorsee under the
restrictive indorsement.
Either restricts the right of the
indorsee to further negotiate the instrument,
or
reserves beneficial interest in the indorser or
3rd person (although instrument may be
further negotiated, all subsequent indorsees
take subject to the rights of the restrictive
indorser or 3rd person as the case mat be)
3 classes of restrictive indorsements:
1. Pay to X only
prohibits further negotiation
2. Pay to X for collection / Pay A for
my use / Pay A for my account
NEGO - Quevedo 13
Camille Umali
constitutes INDORSEE AN AGENT to collect in
BEHALF OF INDORSER; indorsee becomes
subagents to collect
X receive payment on the instrument and may
sue thereon in his own name
However, no title passes to indorsee, nor is the
maker deprived of any defense he might
otherwise have
restrictive indorsee may negotiate the
instrument since no prohibition to do so is
state in the instrument
3. Pay to X for Ys use
vests title of indorsee in trust for or to the use
of some other person
X may receive payment and may sue, but
whatever he collect he holds IN TRUST or
FOR USE OF Y
7. Indorsement to or by collecting bank
Holder of check may either
1. cash it with drawee bank or
2. deposit it to his credit either in the
drawee bank or in another bank
effect of payment in both
if in 2nd he deposits it in another
bank: in effect indorsee is
negotiating the check to that bank
since he would have to indorse
check before bank accepts
for deposit
1. Restrictive indorsement because it
merely makes bank an AGENT to
collect funds and credit them as a
deposit to customers account from
moment of collection
2. Nonrestrictive by treating
transaction as a PURCHASE of the
check by the bank in cash and a
DEPOSIT of such cash to the credit
of the depositer
In most cases, whatever kind of indorsement
is made by indorser, bank is treated as
COLLECTING AGENT
o Indorsement made by depositor
usually a check in blank (signature
without any words)
o Would thus not show any
restrictions to collecting banks title
except that DEPOSIT SLIP usually
states that bank is mere collecting
agent
Prior indorsements and/or lack of
indorsements guaranteed used when
forwarding negotiable instruments for
collection, indorsement by bank
1. Non-restrictive: does not prevent
holder from acquiring unlimited title

2. Restrictive: bank is collecting agent
if such phrase appears in deposit
slip
however, with respect to drawee bank to whom
it forwarded check, it (collecting bank) has
guaranteed validity of all prior indorsements
as well as the lack of any necessary
indorsements
thus if collecting bank received check from
forger, it must return to drawee bank
whatever it collected from the latter
For payees account only on left hand
corner
check should be deposited in bank which
payee has an account (also collecting agent)
8. Negotiation by joint or alternative payees
or indorsee
Sec. 41. Indorsement where payable to two or
more persons. - Where an instrument is
payable to the order of two or more payees
or indorsees who are not partners, all must
indorse unless the one indorsing has
authority to indorse for the others.
Sec. 8(d)(e) payable to the order of two or
more payees jointly one or more several
payees
valid and negotiable
Payable to A and B
both must indorse in order for it to be
a valid negotiation
joint and severally liable and an action
will lie against any of them
individually
if one should pay, the other is prima
facie liable to constribute his share
to paying indorser
if only one indorses, his indorsee can
gave no right of action (against no
splitting of action rule)
Partners: indorsement by 1 in his own name
and that of his partner is valid
Indorsement TO partnership: must be
indorsed to name of FIRM, not of A and B (if
otherwise, proceeds belong to A and B and
not to partnership
One of two joint payees, by indorsement and
delivery TO CO-PAYEE, may transfer full title
to the latter
Indorsed to alternative payees (A or B): either
one in possession is a HOLDER, he may
therefore negotiate ALONE without prejudice
to his obligation if any to account of the
alternative co-payee
NEGO - Quevedo 14
Camille Umali
9. Unendorsed instrument
Sec. 49. Transfer without indorsement; effect
of. - Where the holder of an instrument
payable to his order transfers it for value
without indorsing it, the transfer vests in the
transferee such title as the transferor had
therein, and the transferee acquires in
addition, the right to have the indorsement
of the transferor. But for the purpose of
determining whether the transferee is a
holder in due course, the negotiation takes
effect as of the time when the indorsement
is actually made.
1. Holder of instrument
2. Payable to order
3. Transfers for value
4. Without indorsement
1. Transfers vests in transferee
such title as transferor had therein
2. Transferee acquires right to
have indorsement of the transferor
Applies only to instruments payable to
order of transfer (i.e. when there is a
specified payee or special indorsee)
Thus transferor has right to sue in his
own name, but he cannot be considered
a HOLDER since he is not indorsee (no
indorsement), bearer (since payable to
order) not holder so no presumption
of ownership, has to prove he is owner
of instrument as condition precedent to
sue
But transferee becomes holder if he
obtains indorsement
Does it apply to gratuitous transferee?
a. Transferee does not acquire title
Since a negotiable instrument is a species of
property, it is subject of gift by negotiation,
However, such done does not have the right
to compel indorsement
10. Cancellation of indorsement
Sec. 48. Striking out indorsement. - The holder
may at any time strike out any indorsement
which is not necessary to his title. The
indorser whose indorsement is struck out,
and all indorsers subsequent to him, are
thereby relieved from liability on the
instrument.
If payable to bearer on its face
then WON there are indorsements on the back
of the instrument would be immaterial to
the title of the bearer, who is presumptively
the owner and holder by possession

none of the indorsements would be necessary
to his title since delivery is sufficient
holder would have right to strike out any or all
indorsements thus relieving those cancelled
out of liability
If instrument is payable to order on its
face
if all indorsements are special, then all would
be necessary to holders title
Situation where A specially indorsed to
B indorsed in blank to C C cannot
cancel Bs indorsement
Further negotiated specially to D and
again specially to E Ruling: last
indorser may STRIKE OUT all
indorsements SUBSEQUENT TO THE
BLANK INDORSEMENT and sue as
holder under the blank indorsement
o Note to self: blank indorsement
becomes cut-off point and all
subsequent to it may be struck
out
Not consistent with NIL:
1. Indorsement of special indorsee is
necessary for further negotiation of
the instrument; Ds indorsement is
therefore necessary for a valid
negotiation to E and cannot be
struck out
2. In an order instrument, the last
indorsement controls the method of
further negotiation; although in the
hands of C it was payable to bearer
because of Bs blank indorsement,
Cs special indorsement to D
converted the paper to an order one,
making Ds indorsement necessary
to Es title
Suppose instrument still in Ds hands
after Cs indorsement to him, may D
cancel Cs indorsement? YES because it
is not necessary to his title
Striking out proper in order instruments
when after several negotiations,
instrument is indorsed to a previous
indorser
11. Indorsement by agent
Sec. 44. Indorsement in representative
capacity. - Where any person is under
obligation to indorse in a representative
capacity, he may indorse in such terms as to
negative personal liability
Instrument may be indorsed either
personally or by agent whose authority
need not be in writing
NEGO - Quevedo 15
Camille Umali
Agent who signs must make it plain that
he is merely signing in behalf of the
principal, otherwise he may be held
personally liable
Common form: Pedro Reyes by Jose
Santos, agent
12. Presumption as to indorsements
Sec. 45. Time of indorsement; presumption. -
Except where an indorsement bears date
after the maturity of the instrument, every
negotiation is deemed prima facie to have
been effected before the instrument was
overdue.
Sec. 46. Place of indorsement; presumption. -
Except where the contrary appears, every
indorsement is presumed prima facie to
have been made at the place where the
instrument is dated.
Sec. 42. Effect of instrument drawn or indorsed
to a person as cashier. - Where an
instrument is drawn or indorsed to a person
as "cashier" or other fiscal officer of a bank
or corporation, it is deemed prima facie to
be payable to the bank or corporation of
which he is such officer, and may be
negotiated by either the indorsement of the
bank or corporation or the indorsement of
the officer.
Indorsements after maturity
although are good to transfer title, they
prevent a holder from becoming a holder in
due course, thus subjecting him to defences
if any.
presumption that every negotiation made
before instrument was overdue is therefore
significant since indorsements are usually
not dated
In case of conflict of laws, law of place
of dating governs
(Sec. 42)
Pay to ABC Corp usual indorsement
when made to corporation
Pay to Cashier, ABC Corporation
rebuttable presumption that instrument is
payable to corporation
indorsement should be made by officer as
such or by the usual way the corporation
signs,
i.e. Juan Cruz, Cashier, ABC Corporation or
ABC Corporation, by Juan Cruz, Cashier
 NEGO - Quevedo 16
Camille Umali

Juan Cruz may prove indorsement was

made for him personally in which case
his personal indorsement would be the
proper one.
corporation in Sec. 42 does not
include cities and towns and confers no
authority upon the town treasurer

13. Continuation of negotiable character

Sec. 47. Continuation of negotiable character. -

An instrument negotiable in its origin
continues to be negotiable until it has been
restrictively indorsed or discharged by
payment or otherwise.

Overdue negotiable instrument retains

negotiability unless
1. Paid or
2. Restrictively indorsed so as to
prohibit further negotiation (other
forms of restrictive indorsement do
not destroy negotiability)
Effect of negotiating overdue
instrument:
1. Still negotiable
2. Merely prejudices status of
subsequent holders as they cannot
be considered holder in due course

CHAPTER III
HOLDER IN DUE COURSE
Sec. 52. What constitutes a holder in due
course. - A holder in due course is a holder
who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its
face;
(b) That he became the holder of it before it was
overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he
had no notice of any infirmity in the
instrument or defect in the title of the
person negotiating it.
HOLDER (Sec. 191, NIL) - Payee or indorsee of a
bill or note who is in possession of it, or the
bearer thereof.
1. Rights of a Holder in Due course
Sec. 57. Rights of holder in due course. - A
holder in due course holds the instrument
free from any defect of title of prior parties,
and free from defenses available to prior
parties among themselves, and may enforce
payment of the instrument for the full
amount thereof against all parties liable
thereon.
Sec. 58. When subject to original defense. - In
the hands of any holder other than a holder
in due course, a negotiable instrument is
subject to the same defenses as if it were
non-negotiable. But a holder who derives his
title through a holder in due course, and
who is not himself a party to any fraud or
illegality affecting the instrument, has all the
rights of such former holder in respect of all
parties prior to the latter.
Significance of holder in due course:
1. Acquire better title
2. Free from any defect of title of prior
parties
3. Free from defenses available to prior
parties among themselves (Except: real
defenses which attach to the instrument
itself)
It will not affect the negotiability just
the rights of the holder
Significant only when there is an existing
defense between prior parties,
otherwise, it will not matter whether a
holder is a holder in due course
NEGO - Quevedo 17
Camille Umali
2. Holder for value
a. What constitutes value
Sec. 24. Presumption of consideration. - Every
negotiable instrument is deemed prima
facie to have been issued for a valuable
consideration; and every person whose
signature appears thereon to have become a
party thereto for value.
Sec. 25. Value, what constitutes. Value is any
consideration sufficient to support a simple
contract. An antecedent or pre-existing debt
constitutes value; and is deemed such
whether the instrument is payable on
demand or at a future time.
Value v. Consideration
General Rule: convertible terms
Exception: (when more accurate to use one and
not the other)
Consideration payee sues the maker or
payee sues the drawer or indorser sues
immediate indorser
Value holder sues any party to the
instrument with whom he has not dealt
Be given as a gift any defense against
the transferor can be set up against
transferee
For valuable consideration free from
any defense
Holder may give less than the face value,
it need not be full.
b. Bank credit for value
Holder deposits check with bank and bank
credits it to the account of the holder:
1. Mere bookkeeping
2. Becomes holder when holder withdraws
the amount, before maturity and before
bank receives notice of any defense on
instrument
What if theres continuous flow of deposit and
withdrawal?
First money in, first money out
As long as balance exceeds/equals the
amount of instrument considered NOT
withdrawn
c. What constitutes holder for value
Sec. 26. What constitutes holder for value. -
Where value has at any time been given for
the instrument, the holder is deemed a
holder for value in respect to all parties who
become such prior to that time.

Mere fact that present holder paid nothing for a
value or is not a holder for value does not
preclude recovery, but only lets in all
defenses, if any, that might be urged against
the original payee.
A B : issues without consideration
B C : indorses without consideration
C D : indorses for value
D is holder for value as regards to A, B, C
A B : signs a note without consideration
B C : negotiates for value
C D : as a gift
D is holder for value against A, B but not C
d. Where holder has a lien on instrument
Sec. 27. When lien on instrument constitutes
holder for value. Where the holder has a
lien on the instrument arising either from
contract or by implication of law, he is
deemed a holder for value to the extent of
his lien.
When pledgee may recover all:
1. Amount < principal debt secured by
instrument
2. Debt < amount of instrument, no
existing defenses; but only as trustee for
whomsoever is entitled
When pledgee may only recover amt of debt:
1. Debt < amount of instrument, with
defenses which pledge has no
knowledge = HFV but only to extent of
lien
e. Burden of proof
Sec. 24. Presumption of consideration. - Every
negotiable instrument is deemed prima
facie to have been issued for a valuable
consideration; and every person whose
signature appears thereon to have become a
party thereto for value.
Sec. 28. Effect of want of consideration. -
Absence or failure of consideration is a
matter of defense as against any person not
a holder in due course; and partial failure of
consideration is a defense pro tanto,
whether the failure is an ascertained and
liquidated amount or otherwise.
This is a rebuttable presumption.
Presence of words for value received will not
preclude evidence to show lack of
consideration.
NEGO - Quevedo 18
Camille Umali
3. Holder in good faith
Sec. 55. When title defective. - The title of a
person who negotiates an instrument is
defective within the meaning of this Act
when he obtained the instrument, or any
signature thereto, by fraud, duress, or force
and fear, or other unlawful means, or for an
illegal consideration, or when he negotiates
it in breach of faith, or under such
circumstances as amount to a fraud.
Sec. 56. What constitutes notice of defect. - To
constitutes notice of an infirmity in the
instrument or defect in the title of the
person negotiating the same, the person to
whom it is negotiated must have had actual
knowledge of the infirmity or defect, or
knowledge of such facts that his action in
taking the instrument amounted to bad
faith.
Actual and not merely constructive
Gross negligence not equivalent to bad
faith nor actual knowledge
Knowledge after taking the instrument
a. Notice; bad faith effect of suspicious
circumstances
Bad faith is a state of mind that can only be
proven by circumstantial evidence. It is a
question of fact which must be determined
in accordance with the particular
circumstances of the case.
Rule that purchaser is put on inquiry is not
applicable in full extent to NIL.
> time is of the essence and investigation
would hamper the functions of NI to
facilitate exchange
Bad faith:
1. Suspicious circumstances are so cogent
and obvious that to remain passive
would amount to bad faith.
2. He suspects but did not make an
investigation
3. Had notice that there was something
wrong about assignors acquisition of
title
4. Had knowledge of other suspicious
transactions

b. Financing company not a holder in good
faith as to buyer
Situation: installment sales.
> Buyer issues PN to seller to cover price
> finance company pays the full price
> seller indorsed the note to finance company
> FC subrogated in to rights of seller
In such cases, the tendency of the court is to
protect the buyer, not the financing
company such that when the item is
defective, FC cannot recover the purchase
price
Ratio: FC is better able to bear the risk of the
dealers insolvency than the buyer and in a
far better position to protect his interests
against unscrupulous and insolvent dealers.
c. Effect of purchase at a discount
General rule: purchase at a discount is not, in
itself, constitute bad faith
Reason: influenced by financial condition of
the issuer rather than the possibility that it
was obtained subject to a defense
Exceptions: tantamount to bad faith
1. purchased at a heavy discount when
maker is known to be solvent, or if note
is amply secured or is taken from a total
stranger
d. Effect of notice before full payment
Sec. 54. Notice before full amount is paid. -
Where the transferee receives notice of any
infirmity in the instrument or defect in the
title of the person negotiating the same
before he has paid the full amount agreed to
be paid therefor, he will be deemed a holder
in due course only to the extent of the
amount therefore paid by him.
Rules:
1. NOT HIDC = notice of defense before
acquisition of title and before payment of
any portion
2. HIDC = receives notice after partially paying
the instrument (but only to that extent)
paid:
1. Payment of money
2. Giving of credit
3. Assumption of obligation
4. Rendition of service
5. Transfer of title of property
6. Performance of any other promise
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> HIDC has the right to stop payment and is
released from obligation upon discovery of
infirmity.
> this does not apply to holder who has given a
promise which he must perform = same
position as one who paid money or property
at time of transfer
Example:
A B : payable to order
B borrows from C on the condition that X signs
the note too.
X agrees to sign the note but on condition that
As note be given as collateral.
B X : indorses the note of A
A refused to pay alleging that it was procured by
fraud.
Debt to C falls due and B defaulted.
X paid full amount to C.
A invokes Sec. 54
Held: Sec. 54 does not apply. X signed the note
and become unconditionally obligated to C
and cannot be released from such obligation
by mere fact that the collateral (As note) is a
result a fraud.
X is a holder in due course at time it was
negotiated to him by B.
X can recover from A.
e. Constructive notice not sufficient
Purchaser of NI is not put on inquiry. He is also
not charged with notice of defenses or
equities disclosed by public records such as
lis pendens. This is chargeable to the
principal.
f. Notice of accommodation not notice of
defect
Sec. 29. Liability of accommodation party. - An
accommodation party is one who has signed
the instrument as maker, drawer, acceptor,
or indorser, without receiving value therefor,
and for the purpose of lending his name to
some other person. Such a person is liable
on the instrument to a holder for value,
notwithstanding such holder, at the time of
taking the instrument, knew him to be only
an accommodation party.
Accommodation party is a surety for the
principal debtor.
Example: A borrower B lender C- A.P.
B X : indorse (X knew that C is an A.P.)
Upon maturity, C cannot refuse to pay X. X is a
holder in due course and his title is not
rendered defective by his knowledge that C
is just an A.P.
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4. Complete and regular Differences

Sec. 52 (a) Sec. 52 (c) and (d)
Sec. 124. Alteration of instrument; effect of. - Matters evidencing BF Deals with issues of BF
Where a negotiable instrument is materially found on the when evidence is not
altered without the assent of all parties instrument on the face of the
liable thereon, it is avoided, except as instrument
against a party who has himself made, Purchaser put to General rule that
authorized, or assented to the alteration and inquiry as to all purchaser is put to
subsequent indorsers. defenses and equity inquiry does not apply
on NI because it would
But when an instrument has been materially hamper the main
altered and is in the hands of a holder in due function of such kind
course not a party to the alteration, he may Subordinate to (c) and (d) such that purchaser
enforce payment thereof according to its will be deemed not HIDC only if instrument is
original tenor. incomplete/irregular that the purchaser must
have had actual knowledge and action in taking
Not HIDC, Not Complete instrument amounted to BF
Purchaser takes prior to completion or
contemporaneously with the act of
completion 5. Holder at or after maturity & without
Payable within ___ days after date notice of dishonor
Specifies date but not year
Blank as to the payee holder can sue * The fact that the instrument is overdue is a
without filling the payees name strong indication that it was dishonored and
the law puts the potential holder on inquiry
Complete, HIDC as to whether it was dishonored and the
Failed to affix revenue stamps as required by reason therefor.
law
Executed in blank, subsequently filled up Dishonored:
and issued to first holder who has no 1. Non-acceptance
knowledge of execution in blank - can refer only to BOE and takes place
If holder has knowledge of original when drawee refuses to accept the
execution in blank order of the drawer before the date
of maturity of the bill
Effect of taking of incomplete instrument - possible for a bill to be dishonored
1. Lets in all defenses and equities, WON before maturity
connected with the execution in blank.
> inconsistent with the rule that purchaser of NI 2. Non-payment
is not put to inquiry - occurs at time of maturity
> same effect as irregular instruments - when party primarily liable (maker of
note or acceptor of bill, fails to pay
Alteration most common type of irregularity at maturity
- not overdue at time of maturity
Irregular: alteration is apparent on its face even
if change is authorized or assented to by the Payable after sight: maturity is fixed at time of
parties presentment
> purchaser is put to inquiry as to all defenses Payable on occurrence of specified event certain
and equities, WON connected to the to happen: maturity fixed by happening of
alteration. such event
> Unauthorized alteration is apparent and
material = VOID = real defense against Sec. 53. When person not deemed holder in due
enforcement course. - Where an instrument payable on
demand is negotiated on an unreasonable
* Requirement of completion is separate and length of time after its issue, the holder is
distinct from general good faith rule not deemed a holder in due course.
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Purchaser of overdue instrument 6. Effect of postdating and ante dating

purchase of demand instrument made outside
of the reasonable time after issue Sec. 12. Ante-dated and post-dated. - The
instrument is not invalid for the reason only
Reasonable time that it is ante-dated or post-dated, provided
Sec. 193: nature of the instrument, usage of this is not done for an illegal or fraudulent
trade or business and facts of particular case purpose. The person to whom an instrument
so dated is delivered acquires the title
1. Nature = function of the instrument thereto as of the date of delivery.
demand notes circulate longer than
checks
Effect:
demand BOE longer than checks but still negotiable and valid
not longer than demand notes holder is still HIDC and not put to inquiry by
demand certificate of deposits
the mere fact of its being antedated or
(primarily investment papers) longer
postdated
than demand notes
Checks < BOE < Notes < Cert. of Deposits
Postdated check
payable either at the fixed or determinable
2. Usage of trade or business = show lapse of
future time specified therein or if not time
reasonable time
of payment is expressed, on demand or on
Must not only be general, but also
after the date of the instrument
local bank has no right to debit the amount of a
postdated check against the depositor
3. Facts of particular case = vary in each case
account before the date of the check
Payment of interest may be a factor
in determining reasonableness
Illegal if:
antedated to evade the effects of Usury Law
For instruments with acceleration clause: postdates check in payment of an obligation
Ultimate date of maturity is the date of
without having sufficient funds in the bank
maturity unless purchaser has prior
(estafa)
knowledge of earlier maturity at the time he
acquired title.
7. Effect of qualified, conditional and
Undated indorsement
restrictive indorsements
establishes prima facie that it was negotiated
before it was overdue and one who denies
Qualified indorsement
that the holder of such instrument is a HIDC
status as HIDC not affected
has the burden of proving his allegation
previous holder does not want to assume full
liability of a general indorser because he
Effect:
not void may have doubts as to the solvency of the
still negotiable an instrument remains primary party
holder is free from any defense base on defect
negotiable and may pass from hand to hand
if:
ad infinitum until it is paid, since instrument
1. Not aware of any defect
continues to be negotiable until discharged
2. Took the instrument for value
or restrictively indorsed.
3. Good faith
4. Before instrument was overdue
Transferee before Transferee after
maturity maturity
Conditional indorsement
Not Takes instrument
status as HIDC not affected if Sec. 52 is
subject to all defenses
complied with
and equities
immune to all personal defenses between
Better right than the Acquires only the
prior parties
transferor actual right and title of fact that condition is imposed does not
the transferor
necessarily mean that there is some defect
of title or infirmity in the instrument.
merely subjects him to the rights of
the conditional indorser should he receive
payment before the condition was fulfilled

Restrictive indorsement
prohibits further negotiation
Pay to A only
GR: not affect status as HIDC
E: if he violates the prohibition and indorse the
instrument to another. The latter cannot be a
holder in due course.
1. there is no valid negotiation, hence,
transferee is not a holder.
2. RI serves as notice to any prospective
purchaser of the prohibition to negotiate
RI which constitutes an indorsee as an agent of
the indorser can vest the former with the
rights of HIDC if his principal is a HIDC.
if principal is not HIDC, agent is also
not HIDC
if indorsee sued the maker, he will be
immune from personal defenses if his
principal was a HIDC.
all subsequent indorsees will have the
same rights as the latter but such
subsequent holders can never acquire rights
which are antagonistic to the indorser-
principal (for he is merely a subagent)
RI vests title for indorsee in trust or for the
use of another
One POV: Sec. 47 negotiability continues
until it is restrictively indorsed
>> R.I. for the benefit of a 3rd party
cannot be a HIDC as regards to defenses to
which the R.Indorser was subject
Better view: R.Indorsee who holds
instrument in trust may be a HIDC
regardless of the status of the R.Indorser
>> after the R.I., all subsequent
indorsees take subjects to the rights created
and disclosed by the indorsement. To this
extent negotiability has been interfered with,
but not otherwise.
8. Payee as holder in due course
General Rule: Payee cannot be HIDC
he dealt directly with the maker or drawer
and thus must have knowledge of the facts
which may create the defense
Exception: circumstances under which he is
insulated from the maker or the drawer by a
3rd party, such as a remitter
meets requirements of Sec. 52
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Examples:
1. A(manila) buys goods from B(zamboanga)
A obtains a bank draft payable to B.
A sends the draft to B.
B took it for value and without notice.
Drawee bank is liable to payee-seller B
despite any defense it may have against
remitter-buyer, A.
2. A induces B to sign as co-maker (fraud)
Note is payable to C.
A delivers the note C contrary to authority
given by B.
If C took it for value, he is protected from
defenses of B.
3. A draws check with payees name in blank.
A gave it to his agent
A instructed agent to fill in name of B.
Agent wrote name of C instead.
Agent delivers the note to C.
C took it for value and without notice.
C is free from As defenses.
Main center of discussion: requirement of
negotiation to the payee by a 3rd person in the
ordinary course of business
Negative view: rights of HIDC may be
acquired only by negotiation. Payee acquires
the instrument not by negotiation as it is
issued and not indorsed to him.
Positive view: Holder includes payee. Sec. 30
uses person and not holder. Hence,
negotiation includes not just transfer by the
holder but also include transfer by the
maker or drawer.
last sentence of Sec. 30 = understood to
apply to negotiation after the instrument has
come to possession of payee
view adopted by Phil. Supreme Court
9. Rights of a purchaser from a holder in due
course
Sec. 58. When subject to original defense. - In
the hands of any holder other than a holder
in due course, a negotiable instrument is
subject to the same defenses as if it were
non-negotiable. But a holder who derives his
title through a holder in due course, and
who is not himself a party to any fraud or
illegality affecting the instrument, has all the
rights of such former holder in respect of all
parties prior to the latter.

Rule: holder who derives title from HIDC has all
the rights of the latter even though he
himself satisfies none of the requirements of
due course holding
Applied to:
1. One with notice of defect
2. Purchaser after maturity
3. Not holder for value
Rationale for the rule:
if a HIDC cannot invest his transferee the
rights which come with his improved
position, his status as HIDC would
oftentimes lose its significance because the
marketability of the instrument would be
seriously hampered.
Exception:
1. Purchaser from HIDC is party to the fraud or
illegality
> payee who knows of the defect cannot
sell the instrument and buy it back again
2. Not a party to the instrument but is party to
the fraud
3. Party who reacquires from HIDC but had
knowledge of the defense of the prior party
Purchaser with Acquires from HIDC
notice Prior party
Not prior party
Both not a party to the illegality or fraud
His act does not His act of negotiating the
harm the maker instrument to HIDC is
indispensable to the cutting
off of the makers defense
Becomes party to the fraud
by his negotiation
See Sec. 55
Still HIDC:
reacquirer is a holder who at the time he first
held title was not a HIDC solely because he
was a done
Transferor not HIDC + Transferee not for
value:
transferee not a party to the fraud/illegality
transferee acquires title through HIDC
Fraud & illegality
not be construed literally to exclude other
personal defenses
should be taken as mere illustration of
defenses which may preclude the operation
of the rule if the holder were a party thereto
Note: rights of HIDC are granted only in respect
to parties prior to the HIDC through whom
title is acquired
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10. Presumption in favor of due course
holding
Sec. 59. Who is deemed holder in due course. -
Every holder is deemed prima facie to be a
holder in due course; but when it is shown
that the title of any person who has
negotiated the instrument was defective, the
burden is on the holder to prove that he or
some person under whom he claims
acquired the title as holder in due course.
But the last-mentioned rule does not apply
in favor of a party who became bound on the
instrument prior to the acquisition of such
defective title.
Application:
1. only to the holder and not any other kind of
transferees
2. only to present holder
if present rights depends on previous
holders status as HIDC, must prove
such fact as the presumption would not
apply
Required to be proved:
1. That he is a holder
2. Genuineness of makers or drawers
signature
to establish the existence of
obligation
3. Genuineness of the indorsements necessary
to his title
to establish his link to the maker and
status as holder
Rules of Court:
if defendants wants to deny genuineness of a
document he must do so specifically underoath
otherwise, deemed to admit due execution
and genuineness of the documents
Effect relieved from proving genuineness of
makers signature but NOT the indorsements
Effect of presumption
defendant must prove personal claims
if able to do so, BOP shifts to -holder
Exception:
s defense is not his own BOP of due course
holding will not be on the if the became
bound on the instrument prior to the acquisition
of the defective title relied on by him as a
defense
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Example:
A issues NP to the order of B.
B C (special indorsement)
C D (blank + deliver)
D loses the note.
X finds the note.
X Y (delivery)
Y sued A.

Assumption: Y establishes status as a holder

Effect:As evidence must be such that it
convinces the court not only that there was no
valid delivery to X but also, since he is a party
prior to Xs defective title, and the defenses he
uses is not his, that Y does satisfy the
requirements of Sec. 52

11. Transfer of unendorsed instrument

Sec. 49. Transfer without indorsement; effect

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

Rights of a transferee without indorsement:

1. Sec. 49 title as the transferor had in
the instrument
2. Sec. 58 rights of HIDC*

* different views
a. Sec. 58 favors a holder and not to transferees
without indorsement. Indorsement is needed
to acquire rights of HIDC.
b. Sec. 49/58 must be taken together transferee
acquires title from previous HIDC free from
defenses.

Uniform Commercial Code favors

interpretation (b)
transfer without indorsement vests in the
transferee the rights as the transferor had
therein

If transferor is not HIDC, no indorsement

transferee subject to all defenses as if
instrument is not negotiable although he,
himself, satisfies the requirements of Sec. 52
UNLESS he obtains an indorsement
IF transferee knew of the defense at time
of such indorsement >> indorsement will not
improve his status as status of being HIDC is
determined at time of indorsement.
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CHAPTER IV H(not)IDC = GR on contracts would apply

DEFENSES AND EQUITIES no distinction is necessary for real or
personal defenses
1. In General assignee cannot acquire better right than
his transferor
Liability of signatories to a NI depends on
WON there are existing defenses or claims of Sec. 55
ownership thereto enumerates circumstances which render a
holders title defective and implies right of
2 kinds of defenses: the real owner of the instrument who was
1. Real - available against all HIDC deprived of his possession through any of
Attach to instrument itself and the circumstance to get the instrument back
generally disclose absence of one of from the guilty holder or any subsequent
the essential elements of a contract holder who is not HIDC
Where contract is void for all if in hands of HIDC, HIDC is free from the
purposes for reason of public policy defect of title of any prior party and true
owner will not have the right to recover its
2. Personal available only against H(not)IDC possession from him
A true contract appears, but where
for some reason, such as fraud, the Real defenses:
defendant is excused from the 1. forgery
obligation to perform 2. incapacity
3. fraud in execution
2 kinds of claim of ownership (equities) 4. some types of duress
1. Legal one who has legal title may recover 5. lack of delivery of incomplete
possession even from HIDC instrument

2. Equitable may not recover its possession Personal defenses

from HIDC but may do so from a H(not)IDC 1. Sec. 55
2. Want of consideration
Sec. 57. Rights of holder in due course. - A 3. Incompleteness of instrument
holder in due course holds the instrument 4. Lack of delivery of completed
free from any defect of title of prior parties, instrument
and free from defenses available to prior
parties among themselves, and may enforce
payment of the instrument for the full 2. Incapacity
amount thereof against all parties liable
thereon. robles virtual law library Sec. 22. Effect of indorsement by infant or
corporation.- The indorsement or
Sec. 58. When subject to original defense. - In assignment of the instrument by a
the hands of any holder other than a holder corporation or by an infant passes the
in due course, a negotiable instrument is property therein, notwithstanding that from
subject to the same defenses as if it were want of capacity, the corporation or infant
non-negotiable. But a holder who derives his may incur no liability thereon.
title through a holder in due course, and
who is not himself a party to any fraud or not change rule on minors
illegality affecting the instrument, has all the Contracts entered into by minors are
rights of such former holder in respect of all voidable
parties prior to the latter. Minor not liable unless he ratifies it
upon reaching age of majority
Not required to restore except to
Sec. 55. When title defective. - The title of a
extent he benefits
person who negotiates an instrument is
defective within the meaning of this Act
Rule: minority is a real defense available only to
when he obtained the instrument, or any
the minor and is not a personal defense
signature thereto, by fraud, duress, or force
which may be availed by parties other than
and fear, or other unlawful means, or for an
the minor.
illegal consideration, or when he negotiates
same rule with corporation that has no
it in breach of faith, or under such
capacity to indorse under its charter
circumstances as amount to a fraud.
Sec. 58

applies to those who have no capacity to give
consent
a. Insane
b. Demented
c. Deaf mute who does not know how
to read or write
maker, drawer, acceptor and indorser admit
the capacity of the payee to indorse and
therefor cannot set up such incapacity as a
defense
Required:
Indorser minor
Indorsee - HIDC
title passes to indorsee
indorsee can recover from maker free from
defense of minority and free from personal
defenses
Example:
A B ; B is a minor
BC
CD
D sues A
A cant set up defense of minority against D
A cannot pay. D sues B.
B may set up defense of minority
contract is voidable
D sues C instead
C cant set up defense of minority
like A, he warrants the capacity of all
prior parties
D knew that B is a minor at time of indorsement
D can still be a HIDC
his knowledge would not constitute a
defect or infirmity, sec. 22 cures that defect
3. Illegality
GR: personal defense not available against HIDC
E: Sec. 55: Illegal consideration is only a personal
defense
although contract lacks the essential element
of a lawful cause or consideration, law treats
the defect only a defense against a H(not)IDC
CC and NIL not inconsistent
different situations
CC: specifies what are void and inexistent
NIL: provides that though a NI may have
been issued or negotiated for an illegal
consideration, only parties involved in the
illegality and subsequent parties who are
H(not)IDC can be adversely affected by such
defect
defense of usury PERSONAL
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statute may declare a contract void for all
purposes, in which case the defense of
illegality becomes real
Art. 1409, CC
Art. 1409. The following contracts are inexistent
and void from the beginning:
(1) Those whose cause, object or purpose is
contrary to law, morals, good customs,
public order or public policy;
(2) Those which are absolutely simulated or
fictitious;
(3) Those whose cause or object did not exist at
the time of the transaction;
(4) Those whose object is outside the commerce
of men;
(5) Those which contemplate an impossible
service;
(6) Those where the intention of the parties
relative to the principal object of the
contract cannot be ascertained;
(7) Those expressly prohibited or declared void
by law.
4. Forgery
a. In general
Sec. 23. Forged signature; effect of. - When a
signature is forged or made without the
authority of the person whose signature it
purports to be, it is wholly inoperative, and
no right to retain the instrument, or to give a
discharge therefor, or to enforce payment
thereof against any party thereto, can be
acquired through or under such signature,
unless the party against whom it is sought to
enforce such right is precluded from setting
up the forgery or want of authority.
Sec. 18. Liability of person signing in trade or
assumed name. - No person is liable on the
instrument whose signature does not appear
thereon, except as herein otherwise
expressly provided. But one who signs in a
trade or assumed name will be liable to the
same extent as if he had signed in his own
name.
a REAL defense
person who didnt sign was never a party and
never consented to the contract.
since his signature does not appear on the
instrument, he cannot be held liable thereon
fact that the holder is a HIDC is immaterial
since there is not true maker or drawer of
the instrument
2 situations in Sec. 23

1) Signature is affixed by one who purports to
be an agent but who does not have authority
to bind the alleged principal
2) Signature is affixed by one who does not
claim to be an agent and who has no
authority to bind the apparent signer
in BOTH cases, signature is WHOLLY
INOPERATIVE and NO ONE can gain title
from the instrument
GR: any party subsequent to the forgery
would be unable to acquire rights against
any party prior to the forgery
E: party against whom it is sought to enforce a
right is precluded from setting up forgery or
want of authority
Precluded estoppels or ratification
For ratification: 2 views
1. Forged signature cannot be ratified because
ratification involves relation of agency and
forger does not assume to act for another
2. Distinguish forgery that amounts to a crime
and one that does not. Ratification is
allowed in the latter case (not a crime).
others does not make a distinction. One
whose signature has been forged and who,
knowing all the circumstances,
acknowledges the signature is bound as if
note was signed by him originally, regardless
WON there is estoppel.
NIL: 2 situation when party is precluded
1. General indorser subsequent to the forgery
warrants that the instrument is genuine and
that it is valid and subsisting at time of
indorsement. His warranty precludes him
from setting up forgery as a defense.
2. An acceptor is precluded from claiming that
the drawer signature is forged because
under Sec. 62, he warrants genuineness.
Rule: Sec. 23 does not avoid the instrument but
only the forged signature.
rights and obligations may therefore exist by
virtue of such instrument.
Example: when payable to order
A B (PN payable to order)
BC
D stole the instrument and forges Cs signature.
D E (sale)
E F (F = HIDC)
F cannot go against A or B.
Fs rights have been cut off by the forgery.
F cannot go against C.
C has no privity with him.
F can go against E.
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as general indorser, E warrants that the
instrument is genuine and valid at time of
indorsement
C has right against A and B.
he is the real owner of the instrument and
his rights were not affected by the forgery
As and Bs signature were genuine, hence
they are liable as to C.
C may recover from F even if F is a HIDC
because F has no right to retain the
instrument and must surrender it to the real
owner, C. C may then enforce it against A or
B.
When payable to bearer
holder who is not aware of the forgery may
still enforce it against the drawer or maker
because he can cancel the forged
indorsement as not necessary to his title.
he did NOT acquire his right through or
under such (forged) indorsement
If theres a subsequent to the forged one and
holder was unable to recover from the maker
holder has right of recourse against the
subsequent indorser on the latters warranty
that the instrument is genuine and valid at
the time of his indorsement
Burden of proof
GR person basing his claim on the
genuineness of the signature
E unless the signature is deemed admitted by
the pleadings
b. Acceptance & Payment under mistake
(1) When drawee accepts or pays forged
instrument
Situation: drawers signature is forged on bill or
check + drawee pays it without detecting the
forgery
Rule:
Drawee CANNOT charge the amount to the
drawers account
forged signature is wholly inoperative and
does not give right to discharge it
Forger is usually insolvent, hence drawee
must find recourse from someone else
Q: Can drawee recover from whom he has paid?
GR money paid under mistake may be
recovered
E Price v. Neal case (by Lord Mansfield)

Price v. Neal
drawee who had paid the accepted bills as
well as non-accepted bill, each of which bore
the forged signature could not recover the
money paid out on either bill.
drawee is bound to know the signature of the
drawer and must therefore bear the loss in
case it turns out to be forged
Jurisprudence varies
1. Base solely on drawers negligence
2. Natural justice
3. Commercial convenience and necessity
confidence in negotiable paper would
greatly diminish and instability of
commercial transaction would surely result
from a situation where the drawee who had
already paid the bill could get back what he
paid should forgery be later discovered
there should be final settlement as
between the drawee and the recipient
Neal doctrine followed by majority of the
courts
Considered to be embodied in Sec. 62, NIL
Sec. 62. Liability of acceptor. - The acceptor, by
accepting the instrument, engages that he
will pay it according to the tenor of his
acceptance and admits:
(a) The existence of the drawer, the genuineness
of his signature, and his capacity and
authority to draw the instrument; and
(b) The existence of the payee and his then
capacity to indorse.
Clear in the provision that since the acceptor
admits the genuineness of the drawers
signature, he would be precluded by Sec. 23
from denying liability
Q: drawee pays without accepting the bill
A: second view
Different views:
1. Sec. 62 applies only to accepted bills cannot
cover one paid outright without acceptance.
payment and acceptance has different
meaning.
PAYMENT discharges the instrument and
converts it to a mere voucher
ACCEPTANCE implies continued existence and
possible negotiations
2. Sec. 62 incorporates Neal rule.
payment is more than acceptance because
while the latter is merely an obligation to
pay, the former is discharge of such
obligation and if one binds the drawee, it is
inconceivable why the other would not.
one who pays, necessarily accepts
NEGO - Quevedo 28
Camille Umali
no conflict = Neal rule applies to bills paid
without acceptance by virtue of sec. 196
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
merchant.
since NIL is silent, law of merchant is the Price
v. Neal case.
Exceptions to the Price v. Neal rule
1. Person guilty of fraud or negligence in
obtaining the bill
2. Person who had not given value therefor
3. Person who bought from a known forger
4. Purchaser who took from a complete
stranger without making inquiries
negligent!
(2) Extension of price v. Neal doctrine
(a) Over draft
drawee of the bill who honors an overdraft
Overdraft check is issued when check is issued
for an amount more than what the drawer
has in deposit with the drawee bank
CANNOT RECOVER WHAT HE PAID BY
MISTAKE
his duty before accepting and paying to find
out WON he owed the drawer that amount
payee or holder has no means of knowing
what the actual account of the drawer was
and had the right to assume that drawee
would not accept or pay the bill unless he
had sufficient funds
holder must be a bonafide purchaser
drawee has claim against the drawer for the
same
(b) Stop payment order
Stop payment order issued by drawer of a
check countermanding his first order to the
drawee bank to pay said check (drawer
orders drawee bank NOT TO PAY the check
issued by him)
drawee is bound to follow the order
Neal rule applies when bank proceeds with
payment despite the stop order.
payment was voluntary
its negligence bars it from claiming from the
drawer

GR cannot charge the amount to the drawers
account
E such payment discharged a legitimate debt
of the drawer
bank is subrogated to the rights of a HIDC
and may not be compelled to recredit the
amount to the drawers account
holder could recover from drawer anyway
if bank did not honor the check
E to E bank paid to a fraudulent payee or one
who is not HIDC
not a legitimate obligation
Stop order came after the acceptance
bank is under legal duty to pay the holder
not liable to the drawer for doing so
(3) Effect of negligence of depositor
Rule: drawer must fill up the check stub that will
contain the date of issue, name of payee and
the amount so he would have a complete
record of the checks he issues
custom of the bank to send its depositors
monthly statement of account together with
all the cancelled checks
duty of the depositor to carefully examine the
bank statements, cancelled checks and his
check stubs and other pertinent records
should his delay cause the bank to honor a
forged check or prevent bank from
recovering amount paid on such check,
depositor CANNOT later complain should
bank refuse recredit
(4) Effect of payment under forged
instrument
no exception lies in the case of drawees
acceptance or payment of a genuine bill
where only an indorsement has been forged
drawee CAN RECOVER since it does not make
any warranty as to the genuineness of any
indorsement
should notify the holder to whom he has
paid as promptly as possible if forgery is
discovered
right to recovery is not affected
but failure to act promptly, may lose right
to recovery
when holder suffers loss (insolvency
of prior party, forger supervene or
forger escapes)
drawee fails to recover from holder, he cannot
recover his loss by charging to drawers
account
E instrument was payable to bearer
NEGO - Quevedo 29
Camille Umali
Negligence of drawee bank is proximate cause of
collecting banks payment
drawee bank is liable to the collecting bank
Both collecting and drawee bank are negligent
degree of negligence of each will be weighed
in considering the amount of loss which
each should bear
(5) Effect of negligence of drawee in
informing recipient of forgery
> Clearfield Trust co. v. US
(6) Effect of negligence of drawer in
case of forged instruments on
checks
drawer cannot be charged by the drawee bank
who has paid a check on which an
indorsement has been forged
If a check was stolen from payee or special
indorsee
drawer cannot possibly discover the forged
instrument by mere examination of
cancelled checks
although depositor owes duty to his drawee
bank to examine cancelled checks for
forgery of own signature, he has NO SIMILAR
DUTY as to forged indorsement
Indorsement was forged by an employee or
agent of drawer
almost all cases of agents forgery involves
payees indorsement
drawer and payee would oftentimes have
business relation
some leak will show on drawers books and if
these are under careful observation by the
drawer or an employee who is not a party to
the fraud, the discovery will be discovered
only a matter of time until forgery is
pinpointed as the cause of the business
leakage
if due to negligence, forgery was not
discovered:
drawee may properly charge the amount
on drawers account
drawer must promptly notify the drawee
should his negligent delay be the
proximate cause of any subsequent loss by
the drawee, the latter may properly charge I
to the drawers account
5. Material Alteration

a. In General
Sec. 124. Alteration of instrument; effect of. -
Where a negotiable instrument is materially
altered without the assent of all parties
liable thereon, it is avoided, except as
against a party who has himself made,
authorized, or assented to the alteration and
subsequent indorsers.
But when an instrument has been materially
altered and is in the hands of a holder in due
course not a party to the alteration, he may
enforce payment thereof according to its
original tenor.
Sec. 125. What constitutes a material
alteration. - Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or
interest;
(c) The time or place of payment:
(d) The number or the relations of the parties;
(e) The medium or currency in which payment
is to be made;
(f) Or which adds a place of payment where no
place of payment is specified, or any other
change or addition which alters the effect of
the instrument in any respect, is a material
alteration.
General Rule: A material alteration:
Changes the nature of the
contract of parties
Avoids the instrument and
discharges all parties
Exception as to who can be held liable against
materially altered instrument:
1) Subsequent indorser is liable since by
indorsement he warrants that the
instrument is in all respects what it
purports to be and that it is valid and
subsisting at the time of his
indorsement
2) Party who made, authorized, or assented
to the alreation
Exception as to who may enforce a materially
altered instrument which is thus void
1) HIDC may enforce the altered
instrument according to its original
tenor.
presupposes that alteration was not apparent
on face of instrument, otherwise, it would be
irregular and holder would not be HIDC
AMOUNT is altered: HIDC can
recover original sum and drawee
bank can likewise charge the
drawers account for the original
amount
NEGO - Quevedo 30
Camille Umali
INTEREST RATE is altered: HIDC can
recover the principal sum with
original rate of interest
DATE OF PAYMENT is altered:
original date of maturity controls in
determining whether or not holder
is HIDC
THEREFORE, material alteration is a
PERSONAL defense when used to
deny liability according to the
original tenor of the instrument but
is a REAL defense when relied to
deny liability according to altered
terms.
Intent in alteration is irrelevant
since Sec. 124 does not distinguish,
instrument is avoided whether the
material alteration was made with or
without fraudulent intent and
whether it was beneficial or
prejudicial to the interest of prior
parties.
Alteration outside of Sec. 125 is
non-material would not affect the
liability of any prior party on
instrument
Ex. of nonmaterial alterations the changing
marginal figures to make them conform to
the sum expressed in words
Ex. of material alterations:
1. Changing payees name, which may
be done by erasing original payees
name and writing another
2. Changing and to or when
instrument is payable to joint
payees, thus making instrument
payable to alternative payees
3. Addition of a name, either as
primary party or as secondary party
Erasure BEFORE issuance of maker or drawer
No alteration there being no signatures at
the time (instrument has no legal existence
prior to issuance).
Erasure AFTER issuance no purchaser
though innocent can derive title as regard
the payee and the prior parties
Common law rule on spoliation or a material
alteration by a STRANGER did not avoid
instrument
Sec. 124 does not distinguish, but cases in NIL
have continued to apply common law rule:
spoliation does not affect instrument,
provided original meaning can be
ascertained.
b. Effect of negligence of drawer of checks
General rule: Drawee cannot charge drawers
account for altered check

Exception: Negligence of drawer may estop him
from setting up alteration as against an
innocent drawee bank who has paid the
check.
Ex. of negligence of drawer when fills out
check negligently by leaving spaces and
making it possible for words or figures to be
inserted therein, the drawer cannot complain
should the bank pay and charge the amount
as altered against his account.
Conflict of opinion as to whether estoppel
can apply in favor of HIDC:
1) Refusal to apply estoppel against HIDC:
since bank has duty of honouring checks
drawn against it by its depositors, the
drawer owes a corresponding duty to his
bank to fill in his checks carefully.
2) Apply estoppel against HIDC: One to
whom check is negotiated has no duty to
take it, therefore, drawer owes him no
duty of diligence
Uniform Commercial Code rejects view and
provides that drawer is liable to a HIDC for
terms as altered
Negligence in failing to discover alterations
previously made rule is similar to forged
check, thus in several alterations, if drawer
could have discovered the alteration by
comparison with cancelled checks and his
check stubs, or by diligent observation of his
record, drawee can charge his account
c. Effect of drawees payment or acceptance
of altered check
from the recipient-HIDC the difference
between the original and he altered amount?
Can a drawee bank who paid on a check with
altered payees name recover back the
money paid?
FINAL RULE from discussion: payment
by drawee bank of altered check would
be a mistake and should be effective
only to the extent of the original and not
the altered tenor of the instrument
2 opinions:
Majority View (prevailing view)
o Yes. Allow recovery on ground of
payment by mistake AND since in
Sec. 124 an HIDC can recover only
according to the original and not the
altered tenor of the instrument
o Supported by the following:
1) Acceptance (Sec. 132)signification of the
drawee of his assent to the order of the
drawer; Sec. 62 should be related to this
Assent to the order of drawer means
assent to the ACTUAL, not apparent order of
the drawer
NEGO - Quevedo 31
Camille Umali
2) General acceptance (Sec. 139) assent
without qualification to the order of the
drawer
Qualified acceptance ---in express terms varies
the effect of the bill as drawn.
o In both instances, acceptance is
associated with the order of the drawer
and not what appears to the drawers
order after alteration
o Sec. 62s according to the tenor of his
acceptance should therefore be
construed to mean the kind of
acceptance, whether general or qualified
3) Sec. 124 avoids instrument except against
part who made, authorized, or assented to
alteration and subsequent indorsers
an acceptor has not assented to alteration
since assent can only mean assent with
knowledge of the facts; neither is he a
subsequent indorser
4) Sec. 124 expressly provides that HIDC can
only recover as to the original tenor of the
instrument
o In case of forgery, drawee bank
cannot recover based on better
financial position of bank and since
drawee should know drawers
signature for this reason Sec. 62
incorporates drawee banks
warranty of the genuiness of the
drawers signature
in case of altered check no similar basis since
it would be unfair to burden drawee bank
with knowledge of drawers handwriting
(check may be typewritten or in print)
Minority view
o No. Sec. 62: acceptor engages to pay
according to the tenor of his
acceptance and is therefore
estopped from recovering.
o Desirable Effect: stability of checks +
between holder and drawee bank,
latter is in better financial position
to shoulder the loss
o SC has come to same conclusion as
minority view in HSBC v Peoples
bank but the basis was different:
drawee bank denied recovery based
on CB Circular regulating clearing of
cecks and limiting period within
which drawee bank may return a
spurious check (since been
amedende)
6. Fraud
Sec. 55 fraud is a personal defense;
fraud in the inducement as when signer
knows the paper is NI but is deceived as
to its value

o EXCEPTION (fraud is a real
defense): when it is fraud in
factum/fraud in execution since
in such situation no real consent
to be bound is given although
signature is genuine
Ex. fraud is of such nature that signer is tricked
into signing paper which he does not know
is a NI
Still a personal defense when signer
does not know the nature of the
instrument he signs but by exercise of
ordinary care he could have discovered
it
3 factors in determining presence of
negligence
1) Legal character of instrument signed
(lesser duty on someone who thinks
he is signing paper which has no
legal obligation)
2) Physical condition of signer and
ability to read (inability to read
would show absence of negligence,
but he is negligent if 3rd party was
present and he does not request the
latter to read instrument to him)
3) Whether signer had opportunity to
ascertain the legal nature of the
paper he is executing
7. Duress
General Rule: personal defense
Except: If due to duress there was no contractual
intent to be bound; If signer acted not in
accordance to his will but to a well-founded
fear of an imminent or serious injury
8. Complete Instrument which is undelivered
Sec. 16. Delivery; when effectual; when
presumed. - Every contract on a negotiable
instrument is incomplete and revocable until
delivery of the instrument for the purpose of
giving effect thereto. As between immediate
parties and as regards a remote party other
than a holder in due course, the delivery, in
order to be effectual, must be made either
by or under the authority of the party
making, drawing, accepting, or indorsing, as
the case may be; and, in such case, the
delivery may be shown to have been
conditional, or for a special purpose only,
and not for the purpose of transferring the
property in the instrument. But where the
instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties
prior to him so as to make them liable to
NEGO - Quevedo 32
Camille Umali
him is conclusively presumed. And where
the instrument is no longer in the
possession of a party whose signature
appears thereon, a valid and intentional
delivery by him is presumed until the
contrary is proved.
Nondelivery of complete instrument
personal defense
Delivery is a prerequisite for liability
even if instrument is complete but there
is no delivery no contract
Presumption of delivery
arises when instrument is no longer in
possession of party who signed it
becomes conclusive presumption if holder is
HIDC
Thus, if instrument is stolen from maker and
drawer, and negotiated to HIDC, maker or
drawer cannot setup nondelivery defense
because it is a personal defense available
only between immediate parties and as
regards remote parties who are not HIDC
9. Incomplete Instrument which is
undelivered
Sec. 15. Incomplete instrument not delivered. -
Where an incomplete instrument has not
been delivered, it will not, if completed and
negotiated without authority, be a valid
contract in the hands of any holder, as
against any person whose signature was
placed thereon before delivery.
Sec. 15
refers to undelivered and incomplete
instrument
real defense since the law is specific that it is
invalid against ANY holder
conclusive presumption of delivery for HIDC
in Sec. 16 does not apply, although
possession of an incomplete instrument
gives rise to prima facie presumption of
delivery
Determining which between Sec. 15 or
Sec. 16 applies:
o Sec. 15:
applies when instrument is incomplete; lack of
delivery may be proven and if so proven,
HIDC can recover thereon against prior
parties who had not authorized its delivery
and/or completion
applies when instrument is blank as to payee
or as to amount
o Sec. 16 (instrument is complete):
when instrument contains all requisites for
making it negotiable, it should be considered
complete though it in fact may have blanks
as to non-essentials, so as to give rise to a

conclusive presumption of delivery in favour
of HIDC
complete even if date of issue or attys frees
left bank (minor details)
EXCEPTION (when drawer still liable
even if instrument was undelivered and
incomplete):
Majority of the court has previously held that
drawer is ESTOPPED from relying on Sec. 15
if his negligent custody of the checks, after
partial execution, contributed to its escape.
Some courts go further and protect HIDC
although others refuse to do so and apply
Sec. 15 strictly in favour of issuer and
against the HIDC, regardless of formers
negligence
o Reason for difference in treating
drawee and HIDC antecedent
contract relations that exist between
depositor and bank operate to
impose duty of care on depositor but
not so on HIDC who is free to refuse
the instrument without risk to
himself, thus no duty is owed by an
obligor on a NI to use care in the
custody of the instrument after
partial execution
o Campos: Sec. 15 uses any holder,
thus impliedly excluding any one who
is not a holder as defined by NIL a
drawee is not such a holder
10. Incomplete Instrument which is delivered
Sec. 14. Blanks; when may be filled. - Where the
instrument is wanting in any material
particular, the person in possession thereof
has a prima facie authority to complete it by
filling up the blanks therein. And a signature
on a blank paper delivered by the person
making the signature in order that the paper
may be converted into a negotiable
instrument operates as a prima facie
authority to fill it up as such for any
amount. In order, however, that any such
instrument when completed may be
enforced against any person who became a
party thereto prior to its completion, it must
be filled up strictly in accordance with the
authority given and within a reasonable
time. But if any such instrument, after
completion, is negotiated to a holder in due
course, it is valid and effectual for all
purposes in his hands, and he may enforce it
as if it had been filled up strictly in
accordance with the authority given and
within a reasonable time.
A personal defense
2 kinds of writings:
NEGO - Quevedo 33
Camille Umali
1) Incomplete instruments
although containing blanks, writing recites all
the formal requisites to make evident the
intention to make writing operate as a
negotiable instrument
any person in possession has prima facie
authority to complete it by filling up the
blanks
contemplates a delivered instrument and not
an undelivered instrument which is voered
by Sec. 15
o Thus, person in possession
does not apply to a thief or a
finder, but means lawful
possession, one to whom the
instrument was delivered to by
maker or drawer
2) blank paper or paper so far incomplete
that it does not constitute an instrument
within the meaning of the definition of
this term but signed
so far incomplete that it is not an instrument
2 conditions for presumption of authority to
complete to arise:
a) delivery of the instrument
b) delivery must have been for
purpose of converting it
into a NI
if delivered without such intention, subsequent
conversion into NI will not render person
signing liable to anybody, not even HIDC
HIDC may still enforce instrument even
if completion was made in excess of
authority granted
Holders not in due course may not
enforce such instrument since it was not
filled up strictly in accordance with
authority given
law in effect avoids the instrument in the
hands of non HIDC
As to signed blank paper
prima facie authority to fill it up for any
amount
includes authority to fill up other banks,
specially as to all missing requirements to
make it negotiable, since otherwise it would
not be such an instrument
whether incomplete instrument or mere
signed blank paper authority extends to
insertion of date, place of payment, amount,
name of payee and time of payment
Sec 14 is broad enough to include matter
of filling in blanks for time of payment
while Sec. 13 covers with more
particularity some aspects of this right:
insertion of a wrong date by one having
knowledge of true date of issue, will avoid
the instrument as to him but innocent party
may enforce the same notwithstanding
improper date
 NEGO - Quevedo 34
Camille Umali

Instrument blank as to payees name If C were ignorant of such failure, C can

first/subsequent holder may insert his own recover from A
name or the name of the person to whom he Partial failure of consideration part of
negotiates the instrument unless express the consideration did not materialize
authority to the contrary (same example) if A delivered part of
but unless authorized, he cannot fill in merchandise and failed to deliver the rest,
predecessors name because that would partial failure may be set up by B as defense
entitle holder to compel his (predecessors) pro tanto against A or a nonHIDCi.e. B is
indorsement, thus enlarging the latters liable to extent of price of the undelivered
liability beyond his contract portion
he may sue on the instrument without filling
up the blank but in such case he cannot
claim rights of a HIDC
Authority to fill up is limited as to time
must be filled up within reasonable
time which is reckoned from time of
issuance of the instrument and not from
the time of each successive negotiation

11. Consideration

Sec. 28. Effect of want of consideration. -

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

Personal defense
Sec. 24
every instrument is deemed prima facie to
have been issued for valuable consideration
validity and negotiability is not affected by fact
that it does not specify that any value has
been given therefor
Sec. 28 goes further by providing that
absence/failure of consideration is a
personal defense available only against
nonHIDC
Absence of consideration total lack of
consideration
Ex. A makes PN payable to B as a gift (absence of
consideration)
As between A & B, there can be no recovery on
the note
If B negotiates it to C, an HIDC, C can recover
against A, As defense of absence of
consideration is purely personal
Failure of consideration something
was agreed upon as consideration for a
contract but for some reason the
consideration did not materialize
Ex. A sold merchandise to B, who makes a PN
payable to A as advance payment
If A fails to deliver merchandise, there is
failure of consideration so that A cannot
recover from B
If B then negotiates the note to C who knew of
such failure, cannot recover from A
 NEGO - Quevedo 35
Camille Umali

CHAPTER V b. Liability of maker

LIABILITIES
Sec. 60. Liability of maker. - The maker of a
negotiable instrument, by making it, engages
1. Liability of primary parties that he will pay it according to its tenor, and
admits the existence of the payee and his
a. In General then capacity to indorse.

Sec.192. Persons primarily liable on Maker party primarily liable

instrument. - The person "primarily" liable
on an instrument is the person who, by the
terms of the instrument, is absolutely
required to pay the same. All other parties
are "secondarily" liable.
Sec. 70. Effect of want of demand on principal
debtor. - Presentment for payment is not
necessary in order to charge the person
primarily liable on the instrument; but if the
instrument is, by its terms, payable at a
special place, and he is able and willing to
pay it there at maturity, such ability and
willingness are equivalent to a tender of
payment upon his part. But except as herein
otherwise provided, presentment for
payment is necessary in order to charge the
drawer and indorsers.
applies only to PN
1. engages to pay a note according to its tenor,
subject to no condition, whatsoever
2. warrants that the payee in the instrument is
existing and cannot therefore deny liability
on the ground that no such payee exists
3. represents to the world that the payee
named has the capacity to indorse at the
time of the making of such note
4. represents that the named payee can
transfer a good and valid title to the note by
indorsement
5. precluded from raising the defense of
minority, insanity of payee or ultra vires act
of corporation
c. Status of drawee prior to acceptance or
payment; effect of stop order

From the point of view of liability, the parties Sec. 127. Bill not an assignment of funds in
are: hands of drawee. - A bill of itself does not
1. Primary operate as an assignment of the funds in the
a. Maker of promissory note hands of the drawee available for the
b. Acceptor of a bill payment thereof, and the drawee is not
Drawee not a party unless he accepts, liable on the bill unless and until he accepts
in such case, he becomes an the same.
acceptor
Sec. 189. When check operates as an
2. Secondary assignment. - A check of itself does not
a. Indorser of bill or note operate as an assignment of any part of the
b. Drawer of a bill funds to the credit of the drawer with the
bank, and the bank is not liable to the holder
Primary Secondary unless and until it accepts or certifies the
Unconditionally liable Conditionally liable check.
Duty bound to pay the Not bound to pay
holder at the date of unless: Drawee person on whom BOE or check is
maturity, WON the 1. Due presentment drawn and who is ordered to pay
holder demands or demand to the not liable on the instrument until he accepts
payment from him primary party even a HIDC cannot sue him before
2. Dishonor of such acceptance
Not relieved from party issuance of a bill does not make the drawee
liability even if the 3. Taking of liable thereon because it does not operate as
instrument become proceedings an assignment of the funds in the hands of
overdue to the failure required by law the drawee
of the holder to make after dishonor once accepted, he becomes PRIMARILY liable
such demand notice of dishonor
protest of the bill Presumption: every bill of exchange is drawn on
account of some indebtedness from the
drawee to the drawer
acceptance is appropriation of funds of
drawer in the hands of drawee

Drawee bank
General rule
not liable on a check until it accepts
drawer may countermand the order and
payment to payee thereafter is wrongful
no obligation to the holder of the
unaccepted or uncertified check
Except: the payment discharge a legitimate
obligation of the drawer
Stop order
Usually, the drawee bank requires the drawer
to sign a waiver of the banks liability should
it pay due to oversight or inadvertence
validity of such waiver has not been raised
before our Supreme Court yet
Bill of exchange
presupposes a debtor-creditor relationship
between drawer and drawee
although a drawee is not liable to the holder
unless he accepts, the drawee may be made
liable to the drawer for BREACH OF
CONTRACT or DAMAGES based on tort
When drawer may recover damages (for injury,
credit or reputation):
1. Bank refuses
2. Without just reason
3. Although there is sufficient fund to
cover the check
d. Liability of acceptor
Sec. 62. Liability of acceptor. - The acceptor, by
accepting the instrument, engages that he
will pay it according to the tenor of his
acceptance and admits:
(a) The existence of the drawer, the genuineness
of his signature, and his capacity and
authority to draw the instrument; and
(b) The existence of the payee and his then
capacity to indorse.
Presented to drawee for:
Payment Acceptance
BOE is payable If BOE is payable at
immediately some future time
(before it is due)
GR Drawee has no liability
E he accepts
When accepted:
becomes primarily liable
engages to pay the instrument according to
the tenor of his acceptance, subject to NO
condition whatsoever
admits genuineness of drawers signature
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Effect to defenses that can be raised:
1. CANNOT raise the defense of forgery of
drawers signature
2. CANNOT raise lack of consideration and
other personal defenses
3. Liable on altered check as to the original
amount and can recover the excess
Rules on altered instrument:
Altered AMOUNT
Paid before the Recover the excess between
knowledge of altered and original amount
alteration/Paid Can charge the original
to HIDC amount to the drawer
Paid to a non- Recover the whole amount
HIDC instrument is avoided (Sec.
124) and payment was a
mistake
Cannot charge the amount
to the drawer, but only from
the holder
Altered PAYEES NAME
Cannot charge to drawers account
Can recover from the recipient
2. Formal requisites of acceptance
Sec. 191. Definition and meaning of terms. - In
this Act, unless the contract otherwise
requires:
"Acceptance" means an acceptance completed
by delivery or notification;
Sec. 132. Acceptance; how made, by and so
forth. - The acceptance of a bill is the
signification by the drawee of his assent to
the order of the drawer. The acceptance
must be in writing and signed by the drawee.
It must not express that the drawee will
perform his promise by any other means
than the payment of money.
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 request is refused, may treat the bill as
dishonored.
Sec. 138. Acceptance of incomplete bill. - A bill
may be accepted before it has been signed
by the drawer, or while otherwise
incomplete, or when it is overdue, or after it
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has been dishonored by a previous refusal to
accept, or by non payment. But when a bill
payable after sight is dishonored by non-
acceptance and the drawee subsequently
accepts it, the holder, in the absence of any
different agreement, is entitled to have the
bill accepted as of the date of the first
presentment.
Acceptance
applies only to BOE
object is to bind the drawee and make him an
actual and bound party to the instrument
Requisites:
1. In writing
writing the word accepted
bill accepted or non-accepted to the holder,
he will be deemed to have accepted the
same.
Sec. 150. Duty of holder where bill not
accepted. - Where a bill is duly presented for
acceptance and is not accepted within the
prescribed time, the person presenting it
must treat the bill as dishonored by non-
acceptance or he loses the right of recourse
against the drawer and indorsers.
Rule: Drawee has 24 hours after presentment
within which to make up his mind WON to
accept the bill
if accepted, it will retroact too the date of
presentation

2. Signed by the drawee Reckoning point: delivery of the instrument

signing immediately below (NOT demand for return of the bill)
signature alone is NOT sufficient
Application:
3. Not change the implied promise of acceptor
to pay only in money Returned Not necessarily
unaccepted dishonored
Oral can still be accepted
Implied within 24 hours before the lapse of 24
hours
Constructive acceptance (Sec. 137) Returned holder must treat the
unaccepted bill dishonored or else
Even after it is overdue or dishonored he will lose right
instrument does not lose its After 24 hours against prior parties
negotiability by the mere fact that its
Returned with even before the 24
maturity date has passed or that the
statement of hour period lapsed, the
drawee has refused to pay it
refusal to accept bill should be
considered dishonored
While it is incomplete (Sec. 138)
Destroys the bill GR Considered as
does not mean the person to whom
instead of accepted
the bill is transferred may become HIDC
returning or E destruction is
accepting accidental or not
Not required that acceptance be in the same
willfully done
instrument
Demand to return Constructive acceptance
If not accepted, can be treated by the holder
Within 24 hours
as DISHONORED and go against the parties
Refused to return it
secondarily liable (drawer and indorsers)
No demand 2 views*
Kept until after 24 Rule (clearing house)
a. Constructive acceptance
hours failure to return within
No express prescribed time will be
Sec. 136. Time allowed drawee to accept. - The
acceptance or deemed payment or
drawee is allowed twenty-four hours after
refusal acceptance of the check
presentment in which to decide whether or E waived
not he will accept the bill; the acceptance, if
given, dates as of the day of presentation.

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 delivery or within such other
period as the holder may allow, to return the

Two views: does not apply to checks
1. Mere failure to accept within the prescribed
time even without previous demand for the
return of the bill constitutes CONSTRUCTIVE
ACCEPTANCE
followed by American Courts
2. Not acceptance but DISHONOR
Sec. 137 uses refusal which implies
a previous demand for return
Sec. 150 declares that if no
acceptance is made within prescribed
period, holder should treat it as
dishonored
3. Acceptance on separate instrument
Sec. 134. Acceptance by separate instrument. -
Where an acceptance is written on a paper
other than the bill itself, it does not bind the
acceptor except in favor of a person to
whom it is shown and who, on the faith
thereof, receives the bill for value.
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.
Need not be in the instrument itself but may
be on a separate instrument as in a letter or
telegram
Extrinsic acceptance acceptance of an
existing bill on a separate instrument
Virtual acceptance acceptance of a future
bill on a separate instrument
Required:
1. Must identify the bill to which acceptance
refers to
2. Must be clear and unequivocal
3. Must be shown (physical exhibition)
not required for acceptance of future
bills
4. Must be relied on by the purchaser for value
reliance is more important than
physical exhibition
not binding on those who never saw
the acceptance letter
if purchaser knew and relied on the
acceptance, mere fact that it was not
actually shown to him should not be
sufficient to free the acceptor from
liability
5. For future bills, it must be unconditional
Reliance on Extrinsic or Virtual acceptance of
subsequent holders who have NO knowledge
of the acceptance:
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acquire rights of the relying party from whom
they take the instrument (Sec. 58 and 49)
4. Kinds of acceptance
a. General acceptance
Sec. 139. Kinds of acceptance. - An acceptance
is either general or qualified. A general
acceptance assents without qualification to
the order of the drawer. A qualified
acceptance in express terms varies the effect
of the bill as drawn.
Sec. 140. What constitutes a general
acceptance. - An acceptance to pay at a
particular place is a general acceptance
unless it expressly states that the bill is to be
paid there only and not elsewhere.
b. Qualified acceptance
Sec. 141. Qualified acceptance. - An acceptance
is qualified which is:
(a) Conditional; that is to say, which makes
payment by the acceptor dependent on the
fulfillment of a condition therein stated;
(b) Partial; that is to say, an acceptance to pay
part only of the amount for which the bill is
drawn;
(c) Local; that is to say, an acceptance to pay only
at a particular place;
(d) Qualified as to time;
(e) The acceptance of some, one or more of the
drawees but not of all.
Sec. 142. Rights of parties as to qualified
acceptance. - The holder may refuse to take
a qualified acceptance and if he does not
obtain an unqualified acceptance, he may
treat the bill as dishonored by non-
acceptance. Where a qualified acceptance is
taken, the drawer and indorsers are
discharged from liability on the bill unless
they have expressly or impliedly authorized
the holder to take a qualified acceptance, or
subsequently assent thereto. When the
drawer or an indorser receives notice of a
qualified acceptance, he must, within a
reasonable time, express his dissent to the
holder or he will be deemed to have
assented thereto.
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(a) Conditional
Trade acceptance
Example: Acceptance reads: Will pay as soon as draft or BOE with a definite maturity, drawn
proceeds of sale is available by seller on a buyer for the purchase price of
goods, bearing across its face the acceptance
Rules: of the buyer
1. Not affect negotiability if the condition usually payable to order
qualifies only the acceptance and not the used in transaction wherein goods are bought
order to pay from wholesaler and instead of taking the
2. Instrument is negotiable as long as the PN, the latter executes a bill on the buyer
requirements of Sec.1 is complied with who writes accepted across the bills face
3. Nature of acceptance is important only and signs it
in determining the kind of liabilities of limited to domestic transactions
the parties involved
Trade Acceptance Ordinary bill
(b) Partial Always states on its Not always
face the transaction
Example: Accepted for P____ only from which it arose
Confined in sale of May cover any kind of
Rules: goods transaction
1. Not affect negotiability Has fixed maturity May be payable on
2. Not like partial indorsement Sec. 32 date demand or at a fixed
which is not considered as negotiation or determinable future
time
(c) Local Usually easier to raise May arise from a stale
money because it debt of a less
Example: Accepted, payment to be made at the arises from a current commercial nature
___Bank sales transaction
between merchants
Rules:
1. Gneral acceptance under Sec. 140
2. Qualified as to place d. Bankers acceptance

(d) As to time Bankers acceptance

negotiable time draft or BOE drawn on and
Example: Accepted, payment to be made 6 accepted by a commercial bank
months from date more versatile and more popular
used also in international trade for financial,
(e) As to drawee import and export transaction
used when buyer or seller is not known to
Rules: each other and credit references are difficult
Addressed to more Treated as a qualified to obtain
than 1 drawee and acceptance* allows seller to receive immediate payment
only one accepts and buyer need not tender payment until
Holder took the Deemed to have goods are received
instrument after QA assented to a QA
Rule:
* bank is irrevocably and unconditionally liable
holder may choose not to take a qualified drawer and indorsers are secondarily liable
acceptance and demand for a general
acceptance, upon failure to obtain the latter, Bankers acceptance Trade acceptance
may treat the instrument as dishonored Drawn on and Accepted by the buyer
if holder agrees to a QA, he should give notice accepted by the bank
to the drawer and indorsers Specifies transaction which gave rise to it
>> IF NOT, the latter will be discharged
from liability NOTE: TA and BA are now being replace by letter
>> IF NOTIFIED and latter did not of credit
dissent within reasonable time, they
remain liable
c. Trade acceptance

5. Checks
Sec. 185. Check, defined. - A check is a bill of
exchange drawn on a bank payable on
demand. Except as herein otherwise
provided, the provisions of this Act
applicable to a bill of exchange payable on
demand apply to a check.
Sec. 63. When a person deemed indorser. - A
person placing his signature upon an
instrument otherwise than as maker, drawer,
or acceptor, is deemed to be indorser unless
he clearly indicates by appropriate words his
intention to be bound in some other
capacity.
Check
instrument that it is in the form and nature of
BOE
unlike an ordinary bill, it is payable on
demand and drawn on a bank
drawer is a depositor of the bank
Check Ordinary bill
Must contain:
1. An order
2. Must be unconditional
3. Order must be for payment of money
which is certain
May be transferred by indorsement or delivery
(depends if bearer or order)
Always payable on May be payable on a
demand future time
Convenient
Conditional will be considered as absolute
only when the check has been honored by
the bank by payment or certification
no obligation to the holder to pay or accept
the check, but refusal to pay may give rise to
its liability
Kinds
1. Personal check
2. Cashiers or managers check
drawn by a bank on itself
issuance has the effect of acceptance
holder may treat it as BOE or PN and
bank may be held primarily liable as the
maker of the note
used when persons involved hardly
know each other and where on would
have no reason to trust the other
NOT a legal tender, NOT operate as
payment until honored by the bank
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3. Memorandum check
Where Memorandum or Memo is
written across its face signifying
that the drawer will pay the holder
absolutely, without need of
presentment
drawn on a bank and has same effect
as ordinary check
need not be presented at the bank
if presented, it is generally accepted
4. Travelers check
NI where holders signature must
appear twice on the instrument
1. When issued
2. When cashed
safest and most convenient substitute
for money
payable anywhere, accepted not only
by banks but also hotels, stores,
restaurants, ship or airline companies
first signed by the purchaser in the
presence of the issuer at time of
issuance
to be effective, must be countersigned
when used as insurance against use by
unauthorized person
a. Certification and its effects
Sec. 187. Certification of check; effect of. -
Where a check is certified by the bank on
which it is drawn, the certification is
equivalent to an acceptance.
Sec. 188. Effect where the holder of check
procures it to be certified. - Where the
holder of a check procures it to be accepted
or certified, the drawer and all indorsers are
discharged from liability thereon.
Sec. 189. When check operates as an
assignment. - A check of itself does not
operate as an assignment of any part of the
funds to the credit of the drawer with the
bank, and the bank is not liable to the holder
unless and until it accepts or certifies the
check.
Certification of a check
agreement by which a bank promises to pay
the check at any time it is presented for
payment
Before: Not liable to the holder with whom he
has no privity and is not obliged to certify
the checks (agreement is to PAY the check)
After: equivalent to acceptance
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Required: b. Distinction between surrender of check

1. In writing upon payment and negotiation
2. Made on the check itself or on another
instrument check presupposes debtor-creditor
no particular words are necessary relationship between drawer and drawee
date and signature is sufficient delivery of holder of the check to drawee bank
is NOT negotiation as holder is NOT
Rule: transferring title but merely demanding that
refusal to certify is NOT dishonor the bank discharge its contractual obligation
* refusal may give rise to liability for damages in to holder
favor of drawer By paying, bank extinguishes it as NI and
converts it to mere VOUCHER and does NOT
Certification Acceptance become holder of the check
At request of holder By signing, holder does NOT become an
Bank becomes solitary Does not release indorser but merely acknowledges receipt of
debtor and drawer and the parties the payment
indorsers are discharged secondarily liable
Circulates as representing Drawee (ordinary c. Clearing of checks
so much cash in the bank bill) is not a
payable on demand to depositary of cash Clearing check collection
holder as if the bank paid of
in cash and holder Process >> See page 601 (Campos)
deposited it with the bank
Personal defenses of GR checks not returned are considered
drawer not available to cleared
drawee even against non- E defects that drawee bank could not possibly
HIDC detect until it has returned the cancelled
Stop order payment is checks to the drawer and the latter has
inoperative informed it of the defect
At request of drawer
Secondary parties not Forgery of Cannot charge the account of
released drawers drawer
Personal defense of signature Cannot recover from
drawer will be available to collecting bank
the drawee against payee Forgery Cannot charge the account of
and non-HIDC indorsement drawer
Stop order payment is Can recover from collecting
effective bank, subject to clearing
house rules
Note: Material Cannot charge the account of
1. Sec. 188 applies only to indorsers at time of alteration drawer
certification and not to those who indorse Can recover from collecting
subsequent to certification bank, subject to clearing
2. Bank has same liabilities and make same house rules*
warranties as an acceptor (Sec. 62) *Majority view
Question genuineness
Refuse to pay on ground of forgery 6. Liability of secondary parties
subsequent to certification but prior
to payment Sec. 70. Effect of want of demand on principal
Recover on ground of mistaken debtor. - Presentment for payment is not
payment, if discovery comes after necessary in order to charge the person
payment (E holder is guilty of primarily liable on the instrument; but if the
fraud or negligence) instrument is, by its terms, payable at a
3. Bound to know the signature of depositor special place, and he is able and willing to
and admits genuineness of drawers pay it there at maturity, such ability and
signature willingness are equivalent to a tender of
Charge the account of drawer whose payment upon his part. But except as herein
signature was forged otherwise provided, presentment for
payment is necessary in order to charge the
drawer and indorsers.

Secondarily liable
Drawer and indorsers
liability is contingent upon presentment and
notice of dishonor (without which they are
not liable at all)
Presentment instrument presented at maturity
to the party primarily liable for purpose of
obtaining payment
a. Liability of drawer
Sec. 61. Liability of drawer. - The drawer by
drawing the instrument admits the existence
of the payee and his then capacity to
indorse; and engages that, on due
presentment, the instrument will be
accepted or paid, or both, according to its
tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the
holder or to any subsequent indorser who
may be compelled to pay it. But the drawer
may insert in the instrument an express
stipulation negativing or limiting his own
liability to the holder.
conditional
Required:
1. Presentment
2. Dishonor
3. Taking of necessary proceedings for
dishonor
(a) Protest
(b) Notice of dishonor
GR warrants the existence and capacity to
indorse of payee
E draft made upon swindlers request to a
fictitious payee
b. Criminal liability for bouncing checks
(1) Under BP 22
Bounced check is dishonored by the drawee
bank for lack or insufficiency of the drawers
funds
cause prejudice not only to the banking
system, but even more so, to the smooth
flow of business and trade
2 acts covered:
1. Making, drawing and issuing a check
knowing at the time of issue that the
drawer has no sufficient funds or credit
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2. Failure to keep sufficient funds or credit
to cover the check for a period of 90
days from date of said check
Section 1. Checks without sufficient funds. - Any
person who makes or draws and issues any
check to apply on account or for value,
knowing at the time of issue that he does
not have sufficient funds in or credit with
the drawee bank for the payment of such
check in full upon its presentment, which
check is subsequently dishonored by the
drawee bank for insufficiency of funds or
credit or would have been dishonored for
the same reason had not the drawer, without
any valid reason, ordered the bank to stop
payment, shall be punished by
imprisonment of not less than thirty days
but not more than one (1) year or by a fine
of not less than but not more than double
the amount of the check which fine shall in
no case exceed Two Hundred Thousand
Pesos, or both such fine and imprisonment
at the discretion of the court.
The same penalty shall be imposed upon any
person who, having sufficient funds in or
credit with the drawee bank when he makes
or draws and issues a check, shall fail to
keep sufficient funds or to maintain a credit
to cover the full amount of the check if
presented within a period of ninety (90) days
from the date appearing thereon, for which
reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation,
company or entity, the person or persons
who actually signed the check in behalf of
such drawer shall be liable under this Act.
For the first paragraph:
Required:
1. Drawer has knowledge of insufficiency
2. Dishonor for lack of sufficient funds
GR drawing or issuing is prima facie evidence
of knowledge of insufficiency if presented
within 90 days from issuance
E pays the holder within 5 days from notice of
dishonor or makes arrangement for payment
in full
not erase criminal liability
only prevents the issuance from being
prima facie evidence of knowledge
of insufficiency
knowledge can still proved by other
evidence
Duty of the bank:

1. Stamp or write the reason for dishonor
2. State in the notice of dishonor that there
is no sufficient fund or credit
Check with stamp or writing giving the reason of
dishonor prima facie evidence of:
1. Issuance
2. Due presentment
3. Subsequent dishonor
4. Reason for dishonor
Stop order payment may give rise to criminal
liability if it is done without valid reason
constitute deceit if done with knowledge
of insufficiency of funds which is
penalize under RPC
For the second paragraph:
knowledge not required at time of issuance
90 days within which the sufficiency of funds
must be maintained
different from the reasonable time
requirement under NIL
Additional requirements for both:
1. On account or for value
On account any claim arising out of an
already existing contractual or financial
relationship, as well as one arising
simultaneously with the issuance of the
check
(2) Estafa under the Revised Penal
Code
BP 22 is without prejudice to liability under
RPC
A. 315(2). By means of any of the following false
pretenses or fraudulent acts executed prior
to or simultaneously with the commission of
the fraud:
(d) By post-dating a check, or issuing a check in
payment of an obligation when the offender
therein were not sufficient to cover the
amount of the check. The failure of the
drawer of the check to deposit the amount
necessary to cover his check within three (3)
days from receipt of notice from the bank
and/or the payee or holder that said check
has been dishonored for lack of insufficiency
of funds shall be prima facie evidence of
deceit constituting false pretense or
fraudulent act.
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Required:
1. Deceit or fraud (not required under BP
22)
2. Post-dating a check or issuing a check
3. No funds in the bank or is insufficient
4. Failed to deposit amount necessary
within 3 days from receipt of notice
5. Dishonored for lack or insufficiency of
funds
BP 22
covers all kinds: present or postdated, issued
for payment of preexisting obligation or
given in mutual or simultaneous exchange
for something for value
BP 22 and RPC
issued for an obligation incurred
simultaneously with both knowledge and
deceit
c. Liability of qualified indorser and one
negotiating by delivery
Sec. 65. Warranty where negotiation by
delivery and so forth. Every person
negotiating an instrument by delivery or by a
qualified indorsement warrants:
(a) That the instrument is genuine and in all
respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which
would impair the validity of the instrument
or render it valueless.
But when the negotiation is by delivery only, the
warranty extends in favor of no holder other
than the immediate transferee.
The provisions of subdivision (c) of this section
do not apply to a person negotiating public
or corporation securities other than bills and
notes.
A qualified indorser and one who negotiates by
mere delivery do not undertake to pay the
instrument in the event of dishonor.
purpose of negotiator is to pass title to the
instrument without incurring liability for its
payment
like an assignor, he gives no assurance that
the parties primarily liable will or can pay
the instrument
merely assigning the credit and is not a party
secondarily liable
like a seller, he makes implied warranties
pertaining to the instrument Sec. 65
as to bearer instrument liability extends only
to the immediate indorsee
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EFFECT of Sec 65: (b) That the instrument is, at the time of his
although the qualified indorser does not indorsement, valid and subsisting;
engage to pay upon dishonor, by virtue of And, in addition, he engages that, on due
his indorsement, he makes certain implied presentment, it shall be accepted or paid, or
warranties (those enumerated in Sec. 65) and both, as the case may be, according to its
should there be a breach in any of them, he tenor, and that if it be dishonored and the
will be held absolutely liable for any loss necessary proceedings on dishonor be duly
suffered by the holder taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who
Qualified Indorser One who negotiates by may be compelled to pay it.
mere delivery
Liable for breach of Liable for breach of Sec. 67. Liability of indorser where paper
warranty ALL warranty but negotiable by delivery. Where a person
subsequent liability extends in places his indorsement on an instrument
holders favor only of his negotiable by delivery, he incurs all the
immediate liability of an indorser.
transferee
Sec. 63. When a person deemed indorser. - A
Par. a
person placing his signature upon an
covers forged and materially altered
instrument otherwise than as maker, drawer,
instruments
or acceptor, is deemed to be indorser unless
Par. b
he clearly indicates by appropriate words his
covers real defense of non-delivery
intention to be bound in some other
capacity.
General rule: warranties in Sec. 65 par. a could
cover most real defences as well as such
personal defences as would fall within the Sec. 40. Indorsement of instrument payable to
meaning of genuine and in all respects bearer. - Where an instrument, payable to
what it purports to be bearer, is indorsed specially, it may
the qualified indorser cannot plead any of nevertheless be further negotiated by
these defences because they are covered by delivery; but the person indorsing specially
the warranties implied from his sale is liable as indorser to only such holders as
make title through his indorsement.
Par. d
distinction with Par. is not clear A general indorser makes 2 contracts:
knowledge of transferor necessary to make 1) Assignment or sale
him liable on an invalid or valueless 2) Special contract of indorsement
instrument is sufficient: if defect of the liability in 2nd contract is similar to that of
instrument has nothing to do with the drawer and is expressed in Sec. 66 par. 2
warranty that it is genuine and in all difference with qualified indorser: latter is not
respects is what it purports to be secondarily liable
Ex.
if he has knowledge of insolvency of prior Action on special contract Action on breach
parties, he is liable under par. d for then he of indorsement of warranty
knows that the instrument is valueless Conditioned upon Not so
same applies when he knew note was invalid presentment and conditioned
for lack of consideration notice of dishonour
Cannot be brought until May be brought at
maturity of the any time
d. Liability of general, or unqualified instrument
indorser
Implied warranty of Implied warranty of
Sec. 66. Liability of general indorser. - Every qualified indorser unqualified
indorser who indorses without qualification, and transferor by indorser
warrants to all subsequent holders in due delivery
course: Sec. 66 incorporates Sec. 65 a, b, c
(a) The matters and things mentioned in Sec. 65 (d): warranty as Sec. 66 (b): imposes
subdivisions (a), (b), and (c) of the next to validity and value liability on the
preceding section; and of instrument general indorser if
depends on instrument is not
 NEGO - Quevedo 45
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knowledge valid and subsisting Then, B would be liable to both A & C since
at the time of his under Sec. 67 he incurs all the liabilities of
indorsement, an indorser, in this case the liabilities of an
whether or not he indorser under Sec. 66
was ignorant or not
of the cause thereof BA (SI)
As to parties in whose favor warranty is made: AC (BI)?
Sec. 65: warranties of Sec. 66: warranties of
one who negotiates unqualified indorser When maker issues not payable to his own order,
by delivery extends run to all it is not complete until indorsed by him.
to immediate subsequent holders his indorsement does not make him liable as
transferees while it in due course seller-warrantor and any defense which he
extends to all may have as maker is not lost
subsequent holders no special contract of indorsement is made
in case of qualified makers indorsement is merely a step which
indorser completes the issuance of the instrument so
that first transferee may become a holder
all subsequent holders in due course
has been interpreted to mean merely that Practice of drawee banks of requiring holder who
indorsee should not have had knowledge of is presenting it for payment to sign at back
the breach of warranty at the time the of instrument
instrument is indorsed to him signature is not an indorsement but merely an
it should not be required that holder fulfil acknowledgement of the receipt from
requisites of due course holding otherwise drawee bank of the cash represented by the
result may be unjust check

Instrument payable to bearer need not be
indorsed, but if it is
liability will be governed by Sec. 66, not Sec.
65, but his liability runs in favour only to
those who make title through his
indorsement if it is special
may be relieved if his indorsement is stricken
out
Collecting banks expressed warranty (all prior
and/lack of indorsement guaranteed) when
forwarding check for clearing
liability of collecting bank as a result of a
forged instrument is a result of such
expressed warranty, not Sec. 66
not an indorsement under NIL

Payable to bearer: e. Liability of restrictive indorser

BA (SI)
AC (by mere delivery) Type Liability of restrictive indorser
1. Prohibits instrument ceases to be
Then, B is liable as general indorser to A only further negotiable but indorser is still
and not to C, because only A takes title negotiation liable to immediate transferees
through his indorsement any subsequent transferee
C takes title only by delivery to him by A cannot acquire the rights of a
holder because instrument
BA (SI) has become nonnegotiable,
AC (SI) and his rights if any will
merely be as assignee
Then, B is liable as general indorser to both A 2. indorsee may further be negotiated but
and C is made an any indorsee subsequent to
agent of restrictive indorsee acquires only
BA (BI) indorser the rights of the latter
AC (SI) since restrictive indorsee is
merely an agent, the latter and all
Then, B would be liable to both A and C subsequent indorsees cannot
because his was not a special indorsement acquire rights antagonistic to the
restrictive indorser
BA (BI) also the latter cannot be liable
AC (BI) to them under Sec. 65 or 66
3. for restrictive indorser is liable as
benefit of general indorser unless he

3d party otherwise indicates
For identification of payee only, (sgd) A
Signor is not an indorser and is thus not liable
as restrictive indorser
in signing he does not assume the liabilities of
an indorser since it is clear that he signs
merely to identify the payee
f. Order of liability among indorser
Sec. 68. Order in which indorsers are liable. -
As respect one another, indorsers are
liable prima facie in the order in which they
indorse; but evidence is admissible to show
that, as between or among themselves, they
have agreed otherwise. Joint payees or joint
indorsees who indorse are deemed to
indorse jointly and severally.
Instrument payable to order of A bears the ff.
indorsements on its back:
A B
B C
C D
DE
E F
Present holder is X
1. X in case of dishonour may go against
ANY of the indorsers
2. If he goes against D and D pays him, D
may go against A, B, or C but not against
E or F because they indorsed subsequent
to him
3. If Y signs before A to accommodate the
latter, D after paying X, may go against Y
although the latter is only an
accommodation indorser.
4. If instead of D, it is A who pays holder X,
A should have no right of recourse
against the prior indorser Y because A
by asking Y to accommodate him, has
agreed not to hold Y responsible to him
Sec. 68 does not bind the holder and he may
sue any of the indorsers regardless of order
7. Liability of accommodation party
Sec. 29. Liability of accommodation party. - An
accommodation party is one who has signed
the instrument as maker, drawer, acceptor,
or indorser, without receiving value therefor,
and for the purpose of lending his name to
some other person. Such a person is liable
on the instrument to a holder for value,
notwithstanding such holder, at the time of
NEGO - Quevedo 46
Camille Umali
taking the instrument, knew him to be only
an accommodation party.
Sec. 63. When a person deemed indorser. - A
person placing his signature upon an
instrument otherwise than as maker, drawer,
or acceptor, is deemed to be indorser unless
he clearly indicates by appropriate words his
intention to be bound in some other
capacity.
Sec. 64. Liability of irregular indorser. - Where
a person, not otherwise a party to an
instrument, places thereon his signature in
blank before delivery, he is liable as
indorser, in accordance with the following
rules:
(a) If the instrument is payable to the order of a
third person, he is liable to the payee and to
all subsequent parties.
(b) If the instrument is payable to the order of
the maker or drawer, or is payable to bearer,
he is liable to all parties subsequent to the
maker or drawer.
(c) If he signs for the accommodation of the
payee, he is liable to all parties subsequent
to the payee.
Accommodation party (AP)
is in effect a surety for the accommodated
party
lends his name to enable accommodated party
to obtain credit or to raise money but he
receives no part in of the consideration
assumes liability to the other parties thereto
relationship between accommodating and
accommodated party is principal and surety
should the accommodation party pay to the
holder, he has a right to claim
reimbursement from the accommodated
party
Whether APs liability is primary or secondary
will depend on whether he signs as maker,
acceptor, drawer or indorser.
if he signs as indorser, he will be entitled to a
notice of dishonour before becoming liable
if he signs as drawee-acceptor, he is primarily
and personally liable on note
Example
C signs on promissory note for P1000 where A is
payee-debtor and B is maker:
B A with C
C may sign alone or both A and C may sign as
co-makers
B can hold C directly liable for P1000

C will pay B regardless of whether A supplies
him the funds or not
After paying, C can then recover from B
amount paid
Example when AP signs as indorser:
BA
A with C D
at maturity, C is liable to D should the maker B
fail to pay; D need not bother to charge A,
his immediate transferor, since he may go
against C
Should D choose to recover from A, A after
paying cannot go against C although C is a
prior indorser
AP is liable to all subsequent parties excepting
always party whom he accommodated
Sec. 29
makes the AP liable to holder for value even if
such holder knew of his being an AP
Does this mean that AP is liable to holder even
if he is not HIDC as long as he is holder for
value?
SC: No, when a holder knows of his being an
AP, AP is liable only to a HIDC
General rule: Corporation has no power to sign
as AP and cannot be held liable even for HFV
but officers who acted without authority will
be personally responsible for such ultra
vires act
Except: authorized by its charter
If AP signs alone as a maker, not suffers from
absence of consideration.
in case indorsed to Y, Y cannot recover from
AP because of defense of lack of
consideration since Y is not an HIDC
If AP signs as co-maker with accommdated party,
there is considerationthat which
accommodated party receives from payee-
creditor.
Without receiving value therefor
AP loses his status as such only when he
receives value not for lending his name, but
for the instrument itself
Irregular indorser
one who indorses instrument in an unusual,
singular, peculiar manner
name appears where one would naturally
expect the name of another
Ex. instrument payable to order of A as payee.
NEGO - Quevedo 47
Camille Umali
As name should appear on back as first
indorser, but instead Bs name appears
B is an irregular indorser and in most cases he
is an accommodation indorser and is liable
to the person indicated in Sec. 64, but is
never liable to the party accommodated
a. Accommodation maker:
B with C A
AC
--Bs name appears first on the back of the
instrument followed by As indorsement: B is
liable to A, the payee, and to all subsequent
parties
b. Payable to order of M, maker or
drawer, or to bearer.
M with B payee
--B is not liable to M but only to parties
subsequent to M so that even if the first
indorsement is Bs and the second is Ms, B is
not liable to the latter, but only to parties
subsequent to M
c. B signs to accommodate a payee
liability of B extends only to parties
subsequent to the payee
General rule: AP is liable as general indorser
under Sec. 66
Except: when he indicates otherwise
8. Liability of agent
Sec. 19. Signature by agent; authority; how
shown. - The signature of any party may be
made by a duly authorized agent. No
particular form of appointment is necessary
for this purpose; and the authority of the
agent may be established as in other cases of
agency.
Sec. 20. Liability of person signing as agent,
and so forth. - Where the instrument
contains or a person adds to his signature
words indicating that he signs for or on
behalf of a principal or in a representative
capacity, he is not liable on the instrument if
he was duly authorized; but the mere
addition of words describing him as an
agent, or as filling a representative character,
without disclosing his principal, does not
exempt him from personal liability.
Sec. 21. Signature by procuration; effect of. - A
signature by "procuration" operates as notice
that the agent has but a limited authority to

sign, and the principal is bound only in case
the agent in so signing acted within the
actual limits of his authority.
Sec. 69. Liability of an agent or broker. - Where
a broker or other agent negotiates an
instrument without indorsement, he incurs
all the liabilities prescribed by Section Sixty-
five of this Act, unless he discloses the name
of his principal and the fact that he is acting
only as agent.
General rule: Principal whose name is
undisclosed cannot be held liable; signing
agent will be personally liable either as
maker, acceptor, drawer, indorser as the
case may be
Except: when principals signature appears
thereon
When agent negotiates without indorsing it
+ he does not disclose his principal
+ nor that he is merely an agent
he is liable like one who negotiates by delivery
under Sec. 65 and not as a general indorser
under Sec. 66
4 types of situation where question of agents
personal liability is presented
1. Where agent signs name but does not
disclose:
--fact that he was acting in representative
capacity
--nor name of principal
EFFECT: agent is personally liable and not
allowed to prove agency, principal not liable;
without prejudice to any remedy agent
might have against the principal
2. Agent signs name + indicates he is acting
in representative capacity
--but does not disclose name of principal
EFFECT: parol evidence not admissible to avoid
agents personal liability (same effect as
above)
3. Agent signs his name + discloses name of
principal
--but he does not indicate that he acted as agent
EFFECT: agent is presumptively liable but parol
evidence is admissible to show that he was
signing as agent of such person
4. Agent has disclosed on instrument fact
that he acted as representative + discloses
name of principal
EFFECT: evidence is admissible to exonerate
agent
NEGO - Quevedo 48
Camille Umali
Where one signing discloses name of a 3 rd part +
expresses representative capacity
EFFECT: principal is bound and agent cannot be
held personally liable UNLESS he had no
authority from his principal to act
Ex.
1) Manila Publishing Co.,
By Pedro Reyes, Treasurer
2) Pedro Reyes, Treasurer
For and in behalf of
Manila Publishing Co.
in both cases, principal is bound if agent had
authority to sign for it
if agent has no authority, principal is not
bound since this would have effect same as
forgery
Agent would be personally liable
Effect when agent signs by procuration:
Serves as notice that agents authority is
limited (person who takes bill is bound at his
peril to inquire into nature and extent of
agents authority)
principal not liable to instrument even to HIDC
if agent has exceeded actual limits of his
authority
per proc or procuration
must appear on the not for this section to be
applicable
this method of signing is not in current use
9. Signature by trade name
Sec. 18. Liability of person signing in trade or
assumed name. - No person is liable on the
instrument whose signature does not appear
thereon, except as herein otherwise
expressly provided. But one who signs in a
trade or assumed name will be liable to the
same extent as if he had signed in his own
name.
this case does not constitute an exception to
the rule which forbids an action on a
negotiable instrument against one whose
name does not appear thereon, but rather it
is an instance in which the defendants
business name serves the same purpose that
would be served by the use of his given
name an surname
10. Presentment for acceptance
a. When necessary, effect of non-
presentment

Sec. 143. When presentment for acceptance
must be made. - Presentment for acceptance
must be made:
(a) Where the bill is payable after sight, or in any
other case, where presentment for
acceptance is necessary in order to fix the
maturity of the instrument; or
(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 business of
the drawee.
In no other case is presentment for acceptance
necessary in order to render any party to the
bill liable.
Sec. 144. When failure to present releases
drawer and indorser. - Except as herein
otherwise provided, the holder of a bill
which is required by the next preceding
section to be presented for acceptance must
either present it for acceptance or negotiate
it within a reasonable time. If he fails to do
so, the drawer and all indorsers are
discharged.
Sec. 193. Reasonable time, what constitutes. - In
determining what is a "reasonable
time" regard is to be had to the nature of the
instrument, the usage of trade or business
with respect to such instruments, and the
facts of the particular case.
Presentment for acceptance
refers to bill of exchange only
means the production or exhibition of the bill
of exchange to the drawee for the purpose of
obtaining his acceptance or his assent to the
order of the drawer
Sec. 143
enumerates instances when presentation is
necessary
bills duly presented for acceptance under this
section and not accepted are deemed
dishonoured by non-acceptance
no definite time to present is required, only a
reasonable time, otherwise drawers and
indorsers will be discharged for they have an
interest in having the bills accepted
immediately in order to shorten the time of
payment and thus put a limit to the period
of their liability
also enable them to protect themselves by
other means if the bill is not accepted and
paid within the originally contemplated time
Time bills or bills paid at a day certain or at a
fixed time
NEGO - Quevedo 49
Camille Umali
do not fall under Sec. 143 (b)(c) and need not
be presented
it may be presented if the holder wishes, but if
drawee refuses to accept, bill will be deemed
dishonoured by non-acceptance
Checks, bills payable on demand
not meant to be presented for acceptance or
certification and if so presented and refused,
will not be deemed dishonoured
b. How and when made
Sec. 145. Presentment; how made. - Presentment
for acceptance must be made by or on behalf
of the holder at a reasonable hour, on a
business day and before the bill is overdue,
to the drawee or some person authorized to
accept or refuse acceptance on his behalf;
and
(a) Where a bill is addressed to two or more
drawees who are not partners, presentment
must be made to them all unless one has
authority to accept or refuse acceptance for
all, in which case presentment may be made
to him only;
(b) Where the drawee is dead, presentment may
be made to his personal representative;
(c) Where the drawee has been adjudged a
bankrupt or an insolvent or has made an
assignment for the benefit of creditors,
presentment may be made to him or to his
trustee or assignee.
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
under the provisions of Sections seventy-two
and eighty-five of this Act. When Saturday is
not otherwise a holiday, presentment for
acceptance may be made before twelve
o'clock noon on that day.
Failure to present to proper party and at time
and manner provided by law
presentment is irregular and ineffective and
refusal by drawee would not be a dishonour
of the bill
Presentment for Presentment for
payment acceptance
Law does Law does not prescribe
prescribes place for presentment
place for as long as it is made
presentment to proper party, it
doesnt matter where
it takes place

When drawee is dead
presentment to personal representative is
merely permissive since Sec. 148(a) excuses
presentment
When drawee is insolvent
word may is merely permission to adopt
either two alternativespresent to insolvent
himself or his trusteebut not permission
to omit presentment altogether
c. When excused
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 exercise of reasonable
diligence, to present the bill for acceptance
before presenting it for payment on the day
that it falls due, the delay caused by
presenting the bill for acceptance before
presenting it for payment is excused and
does not discharge the drawers and
indorsers.
Sec. 148. Where presentment is excused. -
Presentment for acceptance is excused and
a bill may be treated as dishonored by non-
acceptance in either of the following cases:
(a) Where the drawee is dead, or has absconded,
or is a fictitious person or a person not
having capacity to contract by bill.
(b) Where, after the exercise of reasonable
diligence, presentment can not be made.
(c) Where, although presentment has been
irregular, acceptance has been refused on
some other ground.
Sec. 147 Sec. 148
Excuses delay Excuses nonpresentment for
acceptance
Example of delay
delay of the mails is sufficient excuse for
omission to present immediately, and
presentment immediately after its reception
is in time to charge indorsers
Example of Sec. 148(c)
Bill presented after business hours/on holiday
and drawee refuses to accept because
drawer has no funds with him
NEGO - Quevedo 50
Camille Umali
d. Dishonor and its effects
Sec.149. When dishonored by nonacceptance. -
A bill is dishonored by non-acceptance:
(a) When it is duly presented for acceptance and
such an acceptance as is prescribed by this
Act is refused or can not be obtained; or
(b) When presentment for acceptance is excused
and the bill is not accepted.
Sec. 150. Duty of holder where bill not
accepted. - Where a bill is duly presented for
acceptance and is not accepted within the
prescribed time, the person presenting it
must treat the bill as dishonored by
nonacceptance or he loses the right of
recourse against the drawer and indorsers.
Sec. 151. Rights of holder where bill not
accepted. - When a bill is dishonored by
nonacceptance, an immediate right of
recourse against the drawer and indorsers
accrues to the holder and no presentment
for payment is necessary.
Sec. 89. To whom notice of dishonor must be
given. - Except as herein otherwise provided,
when a negotiable instrument has been
dishonored by non-acceptance or non-
payment, notice of dishonor must be given
to the drawer and to each indorser, and any
drawer or indorser to whom such notice is
not given is discharged.
Sec. 117. Effect of omission to give notice of
non-acceptance. - An omission to give notice
of dishonor by non-acceptance does not
prejudice the rights of a holder in due
course subsequent to the omission.
Bill is dishonored
when acceptance as prescribed by NIL is
refused or cannot be obtained
holder is entitled to an unqualified acceptance,
written on the bill itself
Holder may agree to a qualified acceptance
however drawer and indorsers are discharged
unless they consent
Acceptance on a separate instrument
makes acceptor liable only to one who takes
bill for value
Holders failure to give notice of dishonour to
secondary parties will discharge such parties
but will not prejudice rights of subsequent
HIDC.
 NEGO - Quevedo 51
Camille Umali

When bill is dishonored by non-acceptance

presentment for payment is not necessary and Right to require Right to expect that
holder acquires immediate right of recourse payment by drawee will pay
against persons secondarily liable drawee
There is a pre- Although there is no
existing contractual duty then owed
11. Presentment for payment contract by the drawee to the
between drawer to pay, a course of
a. When presentment necessary; effect of drawer and dealing between the
non-presentment drawee which drawer and drawee
makes it a justifies the reasonable
Sec. 70. Effect of want of demand on principal duty on the expectation on the part of
debtor. - Presentment for payment is not part of the the drawer that the drawee
necessary in order to charge the person drawee or will pay
primarily liable on the instrument; but if the acceptor to
instrument is, by its terms, payable at a pay
special place, and he is able and willing to Ex.
pay it there at maturity, such ability and -drawer has no funds with
willingness are equivalent to a tender of the drawee
payment upon his part. But except as herein -bank balance is less than
otherwise provided, presentment for amount of his check
payment is necessary in order to charge the -drawer stopped payment
drawer and indorsers. thereof
-drawer is insolvent
Presentment for payment
presentation of the instrument to a person (2) As to indorser
primarily liable for purpose of demanding
and obtaining payment Sec. 80. When presentment not required to
not needed to charge primary party as maker charge the indorser. - Presentment is not
and acceptor are obliged to pay instrument required in order to charge an indorser
although no demand is made on due date where the instrument was made or accepted
maker and acceptor also remain liable even if for his accommodation and he has no reason
instrument is overdue to expect that the instrument will be paid if
presented.
Same is true even if instrument is payable at
special place General Rule: Indorser is entitled to
however the ability and willingness of the presentment to the primary party because
primary party to pay at special place on date the latter is normally the principal debtor
of maturity constitutes tender of payment Exception: Sec. 80 where indorser is the
the effect of which is to: principal debtor and thus has no right to
a) Relieve him from payment of costs in deman payment from the accommodation
case of suits maker or acceptor
b) Relieve him from payment of interest
accruing after maturity 2 conditions must concur so that presentment
such tender of payment may however result in becomes unnecessary:
discharge of secondary parties 1) instrument was made or accepted for
indorsers accommodation
does not refer to indorser for whom bill is
b. When presentment not necessary drawn (in such a case, accommodated
indorser cannot be charged by the holder
(1) As to drawer unless presentment is made to the drawee)
Sec. 79. When presentment not required to 2) he has no reason to expect its payment
charge the drawer. - Presentment for
payment is not required in order to charge Ex.
the drawer where he has no right to expect Instrument not made or accepted for indorsers
or require that the drawee or acceptor will accommodation but indorser has knowledge
pay the instrument. of primary partys insolvency (thus indorser
has no reason to expect payment)

does not free holder from duty to present,
though he would have no reason to expect
its payment
Loan for which note was given may merely be
partly for the benefit of the indorser (not
necessary that it be for his sole benefit).
(3) As to secondary parties
Sec. 82. When presentment for payment is
excused. - Presentment for payment is
excused:
(a) Where, after the exercise of reasonable
diligence, presentment, as required by this
Act, cannot be made;
(b) Where the drawee is a fictitious person;
(c) By waiver of presentment, express or implied.
Sec. 151. Rights of holder where bill not
accepted. - When a bill is dishonored by
nonacceptance, an immediate right of
recourse against the drawer and indorsers
accrues to the holder and no presentment
for payment is necessary.
Sec. 111. Waiver of protest. - A waiver of
protest, whether in the case of a foreign bill
of exchange or other negotiable instrument,
is deemed to be a waiver not only of a
formal protest but also of presentment and
notice of dishonor.
Presentment may be dispensed when
1) Drawee bank is closed by government
but insolvency of party to whom instrument is
to be presented does not dispense with
presentment
2) Drawee is fictitious person
holder may also treat instrument as bill or
note and hold drawer liable as maker who as
a primary party is not entitled to
presentment
Instances where waiver of presentment may be
implied:
1) From conduct or act of drawer when he
misleads or prevents the holder from
treating the bill as he otherwise would
Ex. drawer promises from time to time to pay
the bill, or drawer makes part payment
knowing bill has not been presented to the
drawee
2) Consent given by indorser to holder that
time of payment may be extended
3) A tender of a renewal note by an
indorser implies waiver of presentment
of the original
NEGO - Quevedo 52
Camille Umali
Waiver of presentment by maker DOES NOT
operate as waiver by indorser.
Conflicting opinions in:
1) Whether waiver of notice of dishonour
includes waiver of presentment
2) Whether waiver of presentment includes
waiver of notice of dishonour
Campos opinion: waiver of notice does not carry
with it waiver of presentment or vice versa
2 distinct acts
both condition precedents to liability of
secondary parties
Waiver of protest
carries with it waiver of both presentment and
notice since nature of protest necessitates
both presentment and notice
To bind indorser or drawer, waiver must be with
knowledge of the facts which release him
if he pays in ignorance of fact that demand
and notice was not given, he can recover
back money paid
ignorance as to legal effect will not relieve him
from liability
c. Date and time of presentment of
instrument bearing fixed maturity
Sec. 71. Presentment where instrument is not
payable on demand and where payable on
demand. - Where the instrument is not
payable on demand, presentment must be
made on the day it falls due. Where it is
payable on demand, presentment must be
made within a reasonable time after its
issue, except that in the case of a bill of
exchange, presentment for payment will be
sufficient if made within a reasonable time
after the last negotiation thereof.
Sec. 85. Time of maturity. - Every negotiable
instrument is payable at the time fixed
therein without grace. When the day of
maturity falls upon Sunday or a holiday, the
instruments falling due or becoming payable
on Saturday are to be presented for payment
on the next succeeding business day except
that instruments payable on demand may, at
the option of the holder, be presented for
payment before twelve o'clock noon on
Saturday when that entire day is not a
holiday.
Sec. 86. Time; how computed. - When the
instrument is payable at a fixed period after
date, after sight, or after that happening of a
specified event, the time of payment is

determined by excluding the day from which
the time is to begin to run, and by including
the date of payment.
Sec. 194. Time, how computed; when last day
falls on holiday. - Where the day, or the last
day for doing any act herein required or
permitted to be done falls on a Sunday or on
a holiday, the act may be done on the next
succeeding secular or business day.
Instrument with fixed date of maturity
must present on day instrument falls due
presentment before maturity is not effective
notice to makes before maturity reminding
them of date note falls due is not proper
presentment
Presentment cannot be made on Sunday or legal
holiday so it must be presented on next
business day
MANDATORY provision such that holder
cannot elect between making presentment
on Saturday before due date or making it on
succeeding business day
Time instrument falling due on a Saturday
should be presented on Monday or next
succeeding business day if Monday is a
holiday
If presented on a Saturday, presentment will
be ineffective to charge secondary parties
Time instrument falls due on a Friday which is a
holiday
it becomes payable on a Saturday in which
case presentment should be on next
succeeding business day and not on
Saturday
Payable on demand
holder may present it on any business day,
even a Saturday so long as it is made before
12 noon and Saturday is not a holiday
Determining proper date for presentment
exclude date from which it is to run and
include date of payment
Ex. note payable 6 months from Nov. 8, 1994
pay on Nov. 8, 1995 (not Nov. 9)
Suit instituted on day of maturity is premature
may still be presented anytime that day
NEGO - Quevedo 53
Camille Umali
d. Date of presentment of demand notes
Sec. 71. Presentment where instrument is not
payable on demand and where payable on
demand. - Where the instrument is not
payable on demand, presentment must be
made on the day it falls due. Where it is
payable on demand, presentment must be
made within a reasonable time after its
issue, except that in the case of a bill of
exchange, presentment for payment will be
sufficient if made within a reasonable time
after the last negotiation thereof.
Demand notes
must be presented within reasonable time
from DATE OF ISSUE, not date indorser signs
EFFECT: liability of all indorsers expires at the
same time
Note payable on demand issued as evidence of
crop loan and contract of loan specifies
funds will be used for expenses of planting,
harvesting, and milling for agricultural year
repayment can be demanded only at end of the
agricultural year
No difference between interest bearing and non-
bearing demand notes
but fact that demand note bears interest may
be taken into consideration as one of the
circumstances of the case in determining
what constitutes a reasonable time
Note indorsed after maturity
becomes payable on demand as to person so
indorsing and must be paid within
reasonable time
e. Date of presentment of demand bills of
exchange
Demand Note Demand Bill of
Exchange
Present within Present within
reasonable time reasonable time
from date of issue after last
negotiation thereof
Sec. 71
since presentment is after last negotiation,
liability of drawer and indorsers may be
preserved indefinitely
but under Sec. 53, in order for holder to be
HIDC, demand note must be presented
within reasonable time after ISSUE
EFFECT: Holder who takes instrument after lapse
of reasonable time from its issue will be
subject to personal defences

f. Date of presentment of checks
Sec. 185. Check, defined. - A check is a bill of
exchange drawn on a bank payable on
demand. Except as herein otherwise
provided, the provisions of this Act
applicable to a bill of exchange payable on
demand apply to a check.
Sec. 186. Within what time a check must be
presented. - A check must be presented for
payment within a reasonable time after its
issue or the drawer will be discharged from
liability thereon to the extent of the loss
caused by the delay.
General rule: Ordinary demand bills of exchange
must be presented within reasonable time
after last negotiation
Exception: Checks wherein presentment should
be made within a reasonable time after date
of issue.
unlike ordinary bills of exchange, transfer of
check does not extend time of presentment
Drawer is discharged by delay in presentment
only to extent of any loss cause by such
delay.
if no loss is shown, he remains liable despite
the delay
Insolvency of drawee bank when drawer had
sufficient funds is the most frequent cause
of loss to drawer which could have been
prevented by prompt presentment
Sec. 186 does not mention indorser: What is the
rule on unreasonable delay in presentment
of a check on indorser? Would he be fully
discharged or discharged only to the extent
of his loss?
SC: indorser would be FULLY discharged,
regardless of loss suffered.
Not being covered by Sec. 186, he is governed
by provisions on bills of exchange under
which he is fully discharged for
unreasonable delay.
Date upon which reasonableness is
determined: DATE OF LAST NEGOTIATION
as in ordinary bills of exchange
Sec. 186
does not dispense with presentment
if no presentment at all, drawer cannot be held
liable irrespective of loss unless
presentment is excused
When drawer, drawee and payee reside or are
located in same city
presentment of check should be made on the
business day next succeeding that on which
it was issued
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does not mean that checks cease to be
negotiable after end of next business day
merely means that in order that the holder
may charge the drawer, presentment to the
drawee bank should be made within a
reasonable time after its issue or the drawer,
if he suffers any loss, will be discharged to
extent thereof
but rule that check should be presented no
later than next business day after its issue is
not inflexible and circumstances may
warrant longer period
Stale checks
banks will refuse to honor checks which
remained outstanding for more than 6
months
Check with memorandum across its face
need not be presented to charge the drawer
thereof
g. When delay in presentment excused
Sec. 81. When delay in making presentment is
excused. - Delay in making presentment for
payment is excused when the delay is caused
by circumstances beyond the control of the
holder and not imputable to his default,
misconduct, or negligence. When the cause
of delay ceases to operate, presentment
must be made with reasonable diligence.
Causes of delay
inevitable or unavoidable causes not
attributable to the fault of holder
making presentment morally or
physically impossible
Examples:
1. strong typhoon
2. malignant disease
3. war
4. suspension of commercial relations by
public enemy
5. impracticability of finding the maker at
his place of residence
Note: Duty to make presentment is REVIVED
upon removal of the cause which prevented
the making of presentment at the time it
normally shouldve been made
h. Manner of presentment
Sec. 74. Instrument must be exhibited. - The
instrument must be exhibited to the person
from whom payment is demanded, and

when it is paid, must be delivered up to the
party paying it.
How:
1. Exhibited to the party from whom payment
is demanded
otherwise, presentment is ineffective
this is for the benefit of both the
primary and secondary parties
2. Surrender of the instrument
Inseparable from exhibition
Purpose:
Exhibition to be certain that the one
demanding is the holder
Surrender to guard against a lawsuit by a
subsequent holder
Exception to requirement of exhibition:
1. when the maker expressly waived demand,
presentment, protest and notice of protest
and non-payment of the note
where personal demand made by the
holder who is NOT in possession the
instrument is refused on some other
grounds by the payor
2. Instrument is lost or destroyed
may recover only upon execution of
sufficient bond
Inoperative presentment:
1. Demand by holder upon payor by telephone
2. Personal demand but did not have the
instrument with him at time of demand
i. What constitutes sufficient presentment
Sec. 72. What constitutes a sufficient
presentment. - Presentment for payment, to
be sufficient, must be made:
(a) By the holder, or by some person authorized
to receive payment on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the
instrument, or if he is absent or inaccessible,
to any person found at the place where the
presentment is made.
(1) By whom
Rule: by the HOLDER or person AUTHORIZED by
him to receive payment
Holder:
1. Owner of the instrument in his own
right
2. Non-owner, as a restrictive indorsee, for
the benefit of 3rd person
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Not a holder:
1. Party in wrongful possession
2. Possessor of forged instrument
Crossed checks
check issued that presentment can be made
only by a bank
parallel lines are drawn across its face or
across a corner thereof
Name of Bank
specially crossed
payment should be made only if presented by
the named bank
Generally crossed
payment should be made only upon
presentment by some bank
Presentment by anyone else would be
improper
How presentment is made:
1. Holder or payee deposit the crossed
check in his bank
2. Bank makes the proper presentment
Rules:
1. Negotiability is not affected
2. Can be negotiated as long as the one
who encashes the check with the drawee
bank is another bank
For Payees account only
bank cannot credit it to anyone elses account
but the payee
bank could be held liable to the payee should
the latter suffer loss due to the banks
wrongful act
(2) Time of presentment
Sec. 72. Presentment for payment, to be
sufficient, must be made
(b) at a reasonable hour on a business day
Sec. 75. Presentment where instrument payable
at bank. - Where the instrument is payable
at a bank, presentment for payment must be
made during banking hours, unless the
person to make payment has no funds there
to meet it at any time during the day, in
which case presentment at any hour before
the bank is closed on that day is sufficient.
Reasonable hour on a business day
 NEGO - Quevedo 56
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usual office hours if presentment is made at Rule: presentment made upon proper party at a
the drawees or makers place of business place not authorized is NOT due
and the usual hours before rest if presentment
presentment is made at the place of his
residence Place of payment
may be a street address of any particular
If payable at a bank person
during banking hours
when bank is open for transaction of business Address
with the public in general designation of a building by number, street
depends on local usage and policy of the bank and city or by name of city alone
General Banking Act: Minimum of 6hrs a day
banks may notify the Monetary Board if itll be Payable at a bank Sufficient presentment
open for longer hours Presence in the bank
awaiting payment
Presented before or Presentment is on day of maturity
after banking hours ineffective if Payable at a Not sufficient
payment is refused designated branch
by the bank Presented at principal
Maker has no funds at Presentment is office
any time on the date sufficient to charge No place of payment Must be made in usual
of maturity the secondary is specified place of business
Presentment is made parties Usual place of
after banking hours Person to make business is stated
but during office payment has until No usual place of 1. Whenever he may be
hours the close of banking business found
hours and demand 2. Last known place of
earlier is premature business
Note payable at a bank Presumed to have 3. Last known residence
and presented on been presented
the day of maturity during business
hours (4) To whom presentment must be
Note was in the bank 3 Presumed that it was made
days before properly presented
maturity at maturity Sec. 76. Presentment where principal debtor is
dead. - Where the person primarily liable on
the instrument is dead and no place of
(3) Place of presentment payment is specified, presentment for
payment must be made to his personal
Sec. 73. Place of presentment. - Presentment for representative, if such there be, and if, with
payment is made at the proper place: the exercise of reasonable diligence, he can
(a) Where a place of payment is specified in the be found.
instrument and it is there presented;
Sec. 77. Presentment to persons liable as
(b) Where no place of payment is specified but partners. - Where the persons primarily
the address of the person to make payment liable on the instrument are liable as
is given in the instrument and it is there partners and no place of payment is
presented; specified, presentment for payment may be
made to any one of them, even though there
(c) Where no place of payment is specified and has been a dissolution of the firm.
no address is given and the instrument is
presented at the usual place of business or Sec. 78. Presentment to joint debtors. - Where
residence of the person to make payment; there are several persons, not partners,
primarily liable on the instrument and no
(d) In any other case if presented to the person place of payment is specified, presentment
to make payment wherever he can be found, must be made to them all.
or if presented at his last known place of Rule: presentment must be made to the primary
business or residence. party
PN maker
Accepted bill acceptor
 NEGO - Quevedo 57
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BOE/check (usually no acceptor) drawee Notice of dishonor

bringing either verbally or in writing, to the
Primary party Present the instrument to any knowledge of the drawer or the indorser of
is absent or person of sufficient discretion the instrument the fact that a specified NI,
inaccessible at proper place of presentment upon proper proceeding taken, has not been
Primary party GR: Reasonable diligence in accepted or has not been paid and that the
is dead making presentment to his party notified is expected to pay it
representative
E: instrument specified a place Purpose:
of payment presentment Notify the drawer or indorser that the holder
must be made at such place is enforcing his right against them
and sufficient if made to any
person found therein To charge the indorser
1. Complaint must allege and prove
presentment to maker and notice of
j. What constitutes dishonor by non- dishonor (or that it is dispense with or
payment not required)
2. BOP holder
Sec. 83. When instrument dishonored by non- 3. Indorsers knowledge does not dispense
payment. - The instrument is dishonored by with notice of dishonor
non-payment when:
(a) It is duly presented for payment and payment Primary party is dead Notice of
is refused or cannot be obtained; or Presentment is excused dishonor must be
(b) Presentment is excused and the instrument is because theres no given to the
overdue and unpaid. administrator appointed indorser
Instrument is overdue and
Dishonored not paid on presentment, unpaid
irrespective of how non-payment results Accommodation Entitled to notice
party
k. Effect of dishonor by non-payment Joint maker Not entitled to notice
Primarily liable
Sec. 84. Liability of person secondarily liable, No acceleration Failure not notify an
when instrument dishonored. - Subject to clause indorser of nonpayment
the provisions of this Act, when the of previous installment
instrument is dishonored by non-payment, does NOT affect his
an immediate right of recourse to all parties liability for later
secondarily liable thereon accrues to the installments which has
holder. been duly notified
With acceleration Bringing of action against
clause maker or indorser
Dishonor is one of the facts which operates as
Optional on constitute valid exercise
a condition precedent to the enforcement of
holder of option and at the same
the liability of secondary parties
time a notice of dishonor
indorser whose liability has become fixed by
demand and notice is, as to the holder, a With acceleration Notice must be given at
principal debtor clause once
Automatic Not sufficient if only given
12. Notice of dishonor upon commencement of
action
a. When necessary
b. Forms and contents of notice
Sec. 89. To whom notice of dishonor must be
Sec. 95. When notice sufficient. - A written
given. - Except as herein otherwise provided,
notice need not be signed and an insufficient
when a negotiable instrument has been
written notice may be supplemented and
dishonored by non-acceptance or non-
validated by verbal communication. A
payment, notice of dishonor must be given
misdescription of the instrument does not
to the drawer and to each indorser, and any
vitiate the notice unless the party to whom
drawer or indorser to whom such notice is
the notice is given is in fact misled thereby.
not given is discharged.

Sec. 96. Form of notice. - The notice may be in
writing or merely oral and may be given in
any terms which sufficiently identify the
instrument, and indicate that it has been
dishonored by non-acceptance or non-
payment. It may in all cases be given by
delivering it personally or through the mails.
Orally or in writing
Via telephone clearly shown that the party
to be notified is fully identified as the party
at receiving end of the line
By telegraph
By service of process served within the
time prescribed by law
Required:
1. Must identify the instrument
2. Make known the fact that it has been
dishonored by non-acceptance or non-
payment
Accompanied by language which will inform
the party addressed that the instrument was
duly presented
General language
Informal letter stating the amount, date of
maturity, names of makers and indorsers
and that the note was attended to and
demanding payment
Failed to state the date of making and
maturity and name of payee
Misdescription of amount, date and names
of parties
Mere recital in a notice that the instrument
was not paid
Mere statement that the note was payable
and due
Misdescription misleads the party to whom
it is sent
Personal service
must show actual or personal service or an
ordinarily intelligent, diligent effort to make
personals service at indorsers place of
business during business hours
NOT necessary to call a second time
notice may be left with anyone found in
charge
if no one is in charge giving of notice is
deemed waived
c. Time within which notice must be given
Sec. 102. Time within which notice must be
given. - Notice may be given as soon as the
instrument is dishonored and, unless delay
is excused as hereinafter provided, must be
given within the time fixed by this Act.
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Sec. 103. Where parties reside in same place. -
Where the person giving and the person to
receive notice reside in the same place,
notice must be given within the following
times:
(a) If given at the place of business of the person
to receive notice, it must be given before the
close of business hours on the day
following.
(b) If given at his residence, it must be given
before the usual hours of rest on the day
following.
(c) If sent by mail, it must be deposited in the
post office in time to reach him in usual
course on the day following.
Sec. 104. Where parties reside in different
places. - Where the person giving and the
person to receive notice reside in different
places, the notice must be given within the
following times:
(a) If sent by mail, it must be deposited in the
post office in time to go by mail the day
following the day of dishonor, or if there be
no mail at a convenient hour on last day, by
the next mail thereafter.
(b) If given otherwise than through the post
office, then within the time that notice
would have been received in due course of
mail, if it had been deposited in the post
office within the time specified in the last
subdivision.
Sec. 105. When sender deemed to have given
due notice. - Where notice of dishonor is
duly addressed and deposited in the post
office, the sender is deemed to have given
due notice, notwithstanding any miscarriage
in the mails.
Sec. 106. Deposit in post office; what
constitutes. - Notice is deemed to have been
deposited in the post-office when deposited
in any branch post office or in any letter box
under the control of the post-office
department.
Sec. 107. Notice to subsequent party; time of. -
Where a party receives notice of dishonor, he
has, after the receipt of such notice, the
same time for giving notice to antecedent
parties that the holder has after the
dishonor.
Sec. 113. Delay in giving notice; how excused. -
Delay in giving notice of dishonor is excused
when the delay is caused by circumstances
beyond the control of the holder and not
imputable to his default, misconduct, or
negligence. When the cause of delay ceases

to operate, notice must be given with
reasonable diligence.
Scope: cases of dishonor either by non-payment
or non-acceptance
Premature: Notice of dishonor by non-payment
before maturity
Earliest time: after dishonor
Latest time: depends on WON the party to give
notice and the party to be notified are in
same place (See Sec. 103/104)
Presented 17 Notice is inoperative
Told to go back on 22 Dishonor took place
On 22, maker on 17th
absconded, notice was
given
Time for giving notice Sufficient if given on
falls on Sunday or that day
Holiday May send notice on
the next succeeding
business day
Delay in giving notice Drawer is discharged
Inconsistency: Sec. 186 provides that delay in
notice discharge drawer only to extent of
loss suffered by him due to delay
applicable to delay in presentment
Solution: (Common law) drawer is discharged
only to the extent of loss by delay in BOTH
presetnmetn and notice
Party to be notified has different place of
business and residence
Place: holder has the option
Time: fixed by location of place which he
chooses
Convenient convenient to the SENDER
depends on usual hours of opening of
business and post office and time required
for the postman to pickup mail and get it to
the central office
Duly addressed and deposited to post office
holder is deemed conclusively to have given
notice
conclusive that the receiver receives it
evidence of non-receipt relevant as to the
question WON the notice was actually mailed
Duly addressed
when a letter or post card has been written by
the sender and properly stamped, containing
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the information required by Sec. 96 and
bears the name of the party on whom notice
is sent and designation of proper place
Notice to corporation is NOT notice to the
president when both are indorsers
Deposited post office
Depositing in a mail chute under control of
the post office
Large business firms testimony as to the
customary procedure which normally results
in the deposit to post office
Notice was left in notarys office where mail
is usually collected by the postman
Note: presumption of receipt under Sec. 105 is
merely rebuttable
Rule: (Sec. 107) each party who receives notice is
given the same period of time within which
to notify prior indorsers that the last
indorser had to give notice to those
indorsers notified by him
Illustration:
A,B,C indorsers
D holder
(all residing in the same place)
June 1 D presents instrument for payment to
maker, maker refused to pay
Rule: D must give notice to the indorsers not
later than the next day
June 2 D notifies C
Rule: if C wants to go against A and B, he
must notify either or both not later than
June 3
June 3 C notifies B
Rule: if B wants to go against A, he must
notify A not later than June 4
d. Place where notice must be given
Sec. 108. Where notice must be sent. - Where a
party has added an address to his signature,
notice of dishonor must be sent to that
address; but if he has not given such
address, then the notice must be sent as
follows:
(a) Either to the post-office nearest to his place
of residence or to the post-office where he is
accustomed to receive his letters; or
(b) If he lives in one place and has his place of
business in another, notice may be sent to
either place; or
(c) If he is sojourning in another place, notice
may be sent to the place where he is so
sojourning.

But where the notice is actually received by the
party within the time specified in this Act, it
will be sufficient, though not sent in
accordance with the requirement of this
section.
Rule:
1. Sending of notice to an address designated
by the indorser is SUFFICIENT even if the
address is incorrect
2. Sending notice to address other than the one
designated is SUFFICIENT upon proof of
actual receipt
no presumption of receipt
BOP of actual receipt is on party
giving notice
e. By whom notice may be given
Sec. 90. By whom given. - The notice may be
given by or on behalf of the holder, or by or
on behalf of any party to the instrument who
might be compelled to pay it to the holder,
and who, upon taking it up, would have a
right to reimbursement from the party to
whom the notice is given.
Sec. 91. Notice given by agent. - Notice of
dishonor may be given by any agent either in
his own name or in the name of any party
entitled to given notice, whether that party
be his principal or not.
Rule: holder (owner of instrument or not)
1. Restrictive indorsee
2. Indorsee for collection
3. One duly authorized
Notary
Attorney
4. Prior indorser to parties prior to him
(because he is a party who may be
compelled to pay and will have the right
to reimbursement)
(indorsers)
A B C D(holder)
D may notify any or all prior indorsers
C may notify A or B
B may notify A
B and C may give notice before after notice from
D to a personal representative, if there be one,
Rule: notice by maker is NOT binding
Exception: he has been authorized (express or
implied)
f. To whom notice must be given
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(1) If given by agent
Sec. 94. When agent may give notice. - Where
the instrument has been dishonored in the
hands of an agent, he may either himself
give notice to the parties liable thereon, or
he may give notice to his principal. If he
gives notice to his principal, he must do so
within the same time as if he were the
holder, and the principal, upon the receipt of
such notice, has himself the same time for
giving notice as if the agent had been an
independent holder.
Example of agent: bank with whom a check has
been deposited by the holder for collection
If check is CB should notify either the
dishonored drawer directly or his
by drawee principal
bank If CB fails to notify, CB will be
liable to holder
If CB notifies Holder has the same time to
the holder notify the secondary parties
as if CB were an independent
holder
If holder fails to notify,
drawers and indorsers are
discharged and cannot hold
CB liable
(2) To whom in general
Sec. 97. To whom notice may be given. - Notice
of dishonor may be given either to the party
himself or to his agent in that behalf.
Rule: an agent to be competent to receive notice
of dishonor must be an agent in that
behalf
Leaving notice at the window of the cashier
of a hotel corporation
Oral notice by telephone to the clerk of an
indorsing corporation
(3) If party is dead
Sec. 98. Notice where party is dead. - When any
party is dead and his death is known to the
party giving notice, the notice must be given
and if with reasonable diligence, he can be
found. If there be no personal
representative, notice may be sent to the last
residence or last place of business of the
deceased.
If known to the holder

put on inquiry to find out WON theres a
representative
if he neglects and personal representative
couldve been found with reasonable
diligence notice to last residence or place
of business is INEFFECTIVE
If not known to the holder
no duty to inform the representative even if
he couldve known the death by exercise of
reasonable diligence
(4) To partners
Sec. 99. Notice to partners. - Where the parties
to be notified are partners, notice to any one
partner is notice to the firm, even though
there has been a dissolution.
Notice to partner notice to the firm
even if fraudulently suppressed by that
partner
(5) Too joint parties
Sec. 100. Notice to persons jointly liable. -
Notice to joint persons who are not partners
must be given to each of them unless one of
them has authority to receive such notice for
the others.
Interpreted with Sec. 68
Joint payees/indorsees are deemed to indorse
jointly and severally
notice to only one of them is sufficient to
charge the notified indorser and failure to
notify the others will not discharge the
notified indorser
Joint drawers not jointly or severally liable
Sec. 100 applies
notice to each of them is necessary to charge
any of them UNLESS one notified was given
authority to receive for the others
if only one is notified ALL are discharged
(6) To bankrupt
Sec. 101. Notice to bankrupt. - Where a party
has been adjudged a bankrupt or an
insolvent, or has made an assignment for the
benefit of creditors, notice may be given
either to the party himself or to his trustee
or assignee.
g. In whose favor notice operates
Sec. 92. Effect of notice on behalf of holder. -
Where notice is given by or on behalf of the
holder, it inures to the benefit of all
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subsequent holders and all prior parties who
have a right of recourse against the party to
whom it is given.
Sec. 93. Effect where notice is given by party
entitled thereto. - Where notice is given by
or on behalf of a party entitled to give
notice, it inures to the benefit of the holder
and all parties subsequent to the party to
whom notice is given.
Illustration
(indorsers)
ABCDEF
E holder who gives notice
If E gives notice to B and C, such notice operates
for benefit of F
Notice to B also operates for benefit of C
Should C pay E, C can go after B even if C
himself has not given notice to B.
If C upon receipt of notice from E, also notifies
A, such notice will also benefit B and E. E can
go after A even if he did not notify A.
Notice by C to A also operates in favor of F.
Purpose: avoid repetitious notice
h. When rule requiring notice not applied
(1) In general
Sec. 112. When notice is dispensed with. - Notice
of dishonor is dispensed with when, after
the exercise of reasonable diligence, it
cannot be given to or does not reach the
parties sought to be charged.
Reasonable diligence depends upon the
circumstances of the case
Holder examined the telephone directory for
address but failed to find it, mailed the
notice to a co-indorser whose address he
knew
Inquired with payee and mailed notice to
address given by the payee and mailed
another notice upon knowledge of indorsers
address
Notice is sent to a town where the indorser
had never lived and which was not received
Note: difficult to draw a line between this
section and Sec. 113 which enumerates the
circumstances excusing delay in giving
notice but which requires notice to be given
where the cause for delay ceases
(2) When notice of non-acceptance
already given

Sec. 116. Notice of non-payment where
acceptance refused. - Where due notice of
dishonor by non-acceptance has been given,
notice of a subsequent dishonor by non-
payment is not necessary unless in the
meantime the instrument has been
accepted.
Reason: a dishonor by non-acceptance confers
upon the holder an immediate right against
all secondary parties
if he gives notice may enforce right by
action
if he fails to give notice right against
secondary parties are lost and not revived by
subsequent presentment for payment
(3) Waiver
Sec. 109. Waiver of notice. - Notice of dishonor
may be waived either before the time of
giving notice has arrived or after the
omission to give due notice, and the waiver
may be expressed or implied.
Sec. 110. Whom affected by waiver. - Where the
waiver is embodied in the instrument itself,
it is binding upon all parties; but, where it is
written above the signature of an indorser, it
binds him only.
may be made before or after maturity of the
instrument
may be express or implied
Letter from indorser to the holder after
dishonor admitting liability
Note was dishonored and no notice given,
but indorser procure the holder to consent
to an extension of time of payment and
accept a renewal note
BOP holder by clear and unequivocal evidence
Parties affected depends on where the waiver
is written
1. Body or face of instrument all parties
2. Specific parties if so worded
3. Back of instrument conflict opinion
a. Only the indorser whose signature
first appears under the waiver
b. All indorsers
depends on wording of the waiver
(4) When not necessary to charge
drawer
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Sec. 114. When notice need not be given to
drawer. - Notice of dishonor is not required
to be given to the drawer in either of the
following cases:
(a) Where the drawer and drawee are the same
person;
(b) When the drawee is fictitious person or a
person not having capacity to contract;
(c) When the drawer is the person to whom the
instrument is presented for payment;
(d) Where the drawer has no right to expect or
require that the drawee or acceptor will
honor the instrument;
(e) Where the drawer has countermanded
payment.
Par (a) and (b)
Reason: holder is given the option under Sec.
130 of treating the instrument as PN
Examples:
1. Cashiers check
2. BOE drawn on agent of drawer upon
their principal
3. Travelers check
Par (c)
Reason: such demand for payment, itself,
constitutes notice of dishonor of the bill
Example:
1. Presentment has been made upon the
drawee who dishonors the bill
2. Presentment is not required or is
dispensed with
holder demands payment from drawer within
such time that he should give notice to
drawer
Par (d)
No antecedent relation between drawer and
drawee because drawer has no right to
require that the drawee to accept of pay
Example
1. Drawer has no account of sufficient
fund with the drawee bank
Exception: expectation by drawer that drawee
will accept or pay which may arise from
course of dealing between drawer and
drawee or because of business or other
relationship between them
Other case when notice is not required:
1. Drawer countermanded the payment
because of its own act which causes
dishonor (countermanding = stop
payment)
(5) When not necessary to charge
indorser

Sec. 89. To whom notice of dishonor must be
given. - Except as herein otherwise provided,
when a negotiable instrument has been
dishonored by non-acceptance or non-
payment, notice of dishonor must be given
to the drawer and to each indorser, and any
drawer or indorser to whom such notice is
not given is discharged.
Sec. 117. Effect of omission to give notice of
non-acceptance. - An omission to give notice
of dishonor by non-acceptance does not
prejudice the rights of a holder in due
course subsequent to the omission.
Par (a)
same as Sec. 114(b)
Except that the indorser must have knowledge
Par (b)
same as Sec.114
the presentment to the indorser must he after
the dishonor by the maker, drawee or
acceptor and within the time that the holder
is entitled to give notice to such indorser
Par (c)
indorser is principal debtor
Note:
1. Insolvency of the maker will not excuse
notice to the indorser even if indorser
was aware of such fact
2. Intention of holder to make him liable
must be expressed by the notice
i. Legal effect of failure to give notice
Sec. 89. To whom notice of dishonor must be
given. - Except as herein otherwise provided,
when a negotiable instrument has been
dishonored by non-acceptance or non-
payment, notice of dishonor must be given
to the drawer and to each indorser, and any
drawer or indorser to whom such notice is
not given is discharged.
Sec. 117. Effect of omission to give notice of
non-acceptance. - An omission to give notice
of dishonor by non-acceptance does not
prejudice the rights of a holder in due
course subsequent to the omission.
Necessary proceedings
notice of dishonor
protest (foreign bills)
Liability is conditioned on the notice, among
other things and if not given, he is
discharged.
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Non-acceptance
HIDC is NOT prejudiced by failure or neglect of a
previous holder to give a notice of dishonor
by non acceptance.
if holder knew of such dishonor cannot be
a HIDC
Non-payment
A dishonor by nonpayment presupposes that the
instrument has matured and therefore, no
holder subsequent thereto can be a HIDC.
Such dishonor will prejudice ALL subsequent
holders.
13. Protest
a. Definition and method
Protest
testimony of some proper person, usually a
notary and in the form of an affidavit, that
the regular legal steps to fix liability of the
drawer and indorsers have been taken
Method:
1. Notary presents the instrument and
demands acceptance
2. If refused, he makes a minute thereof
consisting of his initials, year/month/day of
dishonor and his charges done on the day of
dishonor
3. Notary extends the protest by embodying in
a certificate the facts of the protest and his
acts in making presentment, demand and
giving notice
4. Notary appends his official seal
b. When necessary
Sec. 152. In what cases protest necessary. -
Where a foreign bill appearing on its face to
be such is dishonored by nonacceptance, it
must be duly protested for nonacceptance,
by nonacceptance is dishonored and where
such a bill which has not previously been
dishonored by nonpayment, it must be duly
protested for nonpayment. If it is not so
protested, the drawer 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. 129. Inland and foreign bills of exchange. -
An inland bill of exchange is a bill which is,
or on its face purports to be, both drawn
and payable within the Philippines. Any
other bill is a foreign bill. Unless the
contrary appears on the face of the bill, the
holder may treat it as an inland bill.
Sec. 157. Protest both for non-acceptance and
non-payment. - A bill which has been

protested for non-acceptance may be
subsequently protested for non-payment.
a condition precedent
absent of which will discharge the secondary
parties
necessity is confined in foreign bills including
foreign checks but not foreign PN because in
the latter the maker is unconditionally liable
may be applied to other bills if the holder so
wishes
a bill protested for non-acceptance need not
be protested again for non-payment
Foreign
on its face, purports to be drawn in the
Philippines and payable in another country
drawn in another country and payable in the
Philippines
c. Forms and contents of certificate of
protest
Sec. 153. Protest; how made. - The protest must
be annexed to the bill or must contain a
copy thereof, and must be under the hand
and seal of the notary making it and must
specify:
(a) The time and place of presentment;
(b) The fact that presentment was made and the
manner thereof;
(c) The cause or reason for protesting the bill;
(d) The demand made and the answer given, if
any, or the fact that the drawee or acceptor
could not be found.
Protest
certificate of the notary or other person
attesting to the acts constituting protest
d. Purpose of certificate of protest
Certificate of protest is same as deposition
admissible in evidence of the facts set forth
and production does away with the necessity
of proving by witness in court
Purpose: furnish the holder legal testimony of
presentment, demand and notice of
dishonor to be used in actions against the
drawer and indorsers
Note: only prima facie evidence and may be
disproved by competent evidence showing
the statements to be false
e. By whom made
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Sec. 154. Protest, by whom made. - Protest may
be made by:
(a) A notary public; or
(b) By any respectable resident of the place
where the bill is dishonored, in the presence
of two or more credible witnesses.
Capacity of notary
Protest Acknowledgment
Making written Notary attests to the
statement of facts fact that the affiant
which are within his made a statement
knowledge under oath
Stating that he, Not concerned with the
himself, presented the truth or falsity of the
instrument for statement
acceptance or payment
Must present the
instrument in person
If person making the protest is NOT a notary
2 witnesses must be present
f. Time and place of protest
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 duly noted, the protest may be
subsequently extended as of the date of the
noting.
Sec. 156. Protest; where made. - A bill must be
protested at the place where it is
dishonored, except that when a bill drawn
payable at the place of business or residence
of some person other than the drawee has
been dishonored by nonacceptance, it must
be protested for non-payment at the place
where it is expressed to be payable, and no
further presentment for payment to, or
demand on, the drawee is necessary.
When: on the day of dishonor
notation is for the purpose of requiring the
commitment of the facts to writing while
they are fresh in the mind of the notary
notary does not have to make the formal
certificate of protest on the same day the
instrument is protested to him, if he makes
a notation on the bill to show that the
instrument was dishonored and on what
date
may be made at any time before bringing
an action against the secondary parties
effect retroacts to date of noting
must be given within the prescribed time

g. Protest for better security
Sec. 158. Protest before maturity where
acceptor insolvent. - Where the acceptor has
been adjudged a bankrupt or an insolvent or
has made an assignment for the benefit of
creditors before the bill matures, the holder
may cause the bill to be protested for better
security against the drawer and indorsers.
obsolete practice
Purpose: merely to inform the drawer of the
failure of the acceptor to enable the former
to arrange for the payment of the bill at
maturity
h. When delay is excused and protest id
dispensed with
Sec. 159. When protest dispensed with. - Protest
is dispensed with by any circumstances
which would dispense with notice of
dishonor. Delay in noting or protesting is
excused when delay is caused by
circumstances beyond the control of the
holder and not imputable to his default,
misconduct, or negligence. When the cause
of delay ceases to operate, the bill must be
noted or protested with reasonable
diligence.
Sec. 112. When notice is dispensed with. - Notice
of dishonor is dispensed with when, after
the exercise of reasonable diligence, it
cannot be given to or does not reach the
parties sought to be charged.
same as notice for dishonor
incorporates not only Sec. 122 but also by Sec.
114 by implication
i. Waiver of protest
Sec. 111. Waiver of protest. - A waiver of
protest, whether in the case of a foreign bill
of exchange or other negotiable instrument,
is deemed to be a waiver not only of a
formal protest but also of presentment and
notice of dishonor.
j. Protest in case of loss of instrument
Sec. 160. Protest where bill is lost and so
forth. - When a bill is lost or destroyed or is
wrongly detained from the person entitled to
hold it, protest may be made on a copy or
written particulars thereof.
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in consonance with the general principle that
the loss of an instrument does not affect the
rights and liabilities of parties thereto and
the contents of the instrument may be
proven as in other cases of lost instrument
14. Acceptance for honor
Sec. 161. When bill may be accepted for
honor. - When a bill 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 consent
of the holder, intervene and accept the
bill supra protest for the honor of any party
liable thereon or for the honor of the person
for whose account the bill is drawn. The
acceptance for honor may be for part only of
the sum for which the bill is drawn; and
where there has been an acceptance for
honor for one party, there may be a further
acceptance by a different person for the
honor of another party.
Sec. 131. Referee in case of need. - The drawer
of a bill and any indorser may insert thereon
the name of a person to whom the holder
may resort in case of need; that is to say, in
case the bill is dishonored by non-
acceptance or non-payment. Such person is
called a referee in case of need. It is in the
option of the holder to resort to the referee
in case of need or not as he may see fit.
obsolete
refer to Sec. 162-170
Acceptance for honor
proper only after a bill has been protested for
dishonor by non-acceptance or for better
security
made to save credit of some party
if name of referee is inserted holder may
resort to him in case of dishonor and his
acceptance would be acceptance for honor
Required:
1. In writing
2. Indicate that it is an acceptance for
honor
3. State for whom made (otherwise,
deemed to be for the honor of drawer)
Effect
1. make the acceptor liable on the bill to the
holder and all the parties subsequent to the
party for whose honor he accepted

liability is not absolute but conditioned on
the drawees failure to pay upon
presentment at maturity
protest must be made and notice of
dishonor be given
2. holders rights against secondary parties are
postponed until the following conditions
take place:
a. presentment for payment to drawee
b. dishonor by drawee
c. notice to acceptor for honor and
secondary parties
d. protest
e. presentment to acceptor for honor
f. dishonor by acceptor for honor
g. notice to secondary parties
Rule: acceptor for honor has right of recourse
against the party for whose honor he
accepted and against all parties the latter
has recourse
15. Payment for honor
Sec. 171. Who may make payment for honor. -
Where a bill has been protested for non-
payment, any person may intervene and pay
it supra protest for the honor of any person
liable thereon or for the honor of the person
for whose account it was drawn.
Refer to Sec. 171 to 177
obsolete (letter of credit and other financial
arrangements in international trade)
only a bill which has been protested can be
paid for honor
in order not to operate as voluntary payment:
a. Made before a notary
b. After declaration by payor of intention
to pay for honor
may be made by anyone, even if not the
acceptor for honor as long as requisites are
complied with
holder who refuse such payment loses his
right of recourse against party who wouldve
been discharged by such payment
payor is subrogated to rights and duties of
holder as regards the parties for whose
honor he pays and all parties liable to the
latter
Purpose: free some party to the bill from the
obligation of immediate payment on
maturity
16. Liability of party on indorsement after
maturity
Sec. 7. When payable on demand. - An
instrument is payable on demand:
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(a) When it is so expressed to be payable on
demand, or at sight, or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or
indorsed when overdue, it is, as regards the
person so issuing, accepting, or indorsing it,
payable on demand.
new bill
the indorser, issuer or acceptor after maturity
is consider to have drawn an entirely new
bill
17. Instruments payable at a bank
Sec. 87. Rule where instrument payable at
bank. - Where the instrument is made
payable at a bank, it is equivalent to an order
to the bank to pay the same for the account
of the principal debtor thereon.
Liability of maker or acceptor of instrument
payable at a bank is PRIMARY.
presentment is not necessary
Sec. 186 is not applicable
18. Liability of transferors or assignors of
negotiable instruments
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. - The
acceptance may be written on any part and it
must be written on one part only. 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 the part at maturity is outstanding in
the hands of a holder in due course, he is
liable to the holder thereon.
Sec. 183. Effect of discharging one of a set. -
Except as herein otherwise provided, where
any one part of a bill drawn in a set is
discharged by payment or otherwise, the
whole bill is discharged.
Bills in set
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:
It is usually availed of in cases where a bill
had to be sent to a distant place through
some conveyance.
obviate difficulties which would arise incase
of miscarriage brought by irregular
communication and transportation
If each part is sent by different means of
conveyances, the chance that at least one
part of the set would reach its destination
would be greater.
Rule: all rules applicable to BOE generally are
applicable to bills issued in sets
Except: special rules because of the nature of the
bills
Illustration:
A B (3 bills in a set)
All parts reach B
Rule: B should negotiate only one of the bills
Exception: if B negotiates the bill to 3 different
people, he shall be liable on each part
1st part C (May 1)
2nd part D (May 2)
3rd part E (May 3)
C is the true owner.
If all 3 simultaneously goes to the drawee:
drawee should only accept or pay Cs part.
Otherwise, payment will not be in due
course.
Rule: payment of a part discharges the whole bill
Exception:
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If E goes to the drawee first:
Drawee did not know that the other parts
were negotiated to other people,
drawees payment is valid and binding
drawee may later on reject Cs claim
if drawee accepts Cs claim, drawee is
liable to both E and C as if they were
different bills
Upon payment, acceptor must ask for delivery of
the part to him to prevent further
negotiation.
liable to HIDC if he fails to do so
Rights of holders where parts are negotiated
separately
1. If both are HDC, the holder whose title first
accrues is considered the true owner of the
bill.
2. But the person who accepts or pays in due
course shall not be prejudiced. (Sec. 179)
Obligations of holder who indorses 2 or more
parts of the bill in set
1. The person shall be liable on every such
part;
2. Every indorser subsequent to him is liable on
the part he has himself indorsed, as if such
parts were separate bills. (Sec. 180)
19. Liability of transferors and assignors of
negotiable instrument
Art. 1628. The vendor in good faith shall be
responsible for the existence and legality of
the credit at the time of the sale, unless it
should have been sold as doubtful; but not
for the solvency of the debtor, unless it has
been so expressly stipulated or unless the
insolvency was prior to the sale and of
common knowledge.
Even in these cases he shall only be liable for the
price received and for the expenses specified
in No. 1 of Article 1616.
The vendor in bad faith shall always be
answerable for the payment of all expenses,
and for damages. (1529)
Rule: NI must be transferred via negotiation
Exception: without negotiation
transferee is mere vendee or assignee and not
a holder even if he has all the requisites to
be HIDC
right to collect is subject to existing defenses
available to such party
has right as a vendee against his transferor
Assignment Indorsement
Liability of vendor/indorser
 NEGO - Quevedo 68
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warrants the existence Warrants genuineness

and legality of credit but do not warrant
at time of sale but not existence and legality
solvency the debtor only that they do
not have knowledge of
any fact that would
impair its validity
Liability is broader Limited
rights of subsequent
holders against them
is limited
Rights of assignee/indorsee
not a holder unless holder subsequent to
and until he exercises QI or nego by delivery
his right to compel has all the rights of
indorsement under HIDC provided that
Sec. 49 and until then, the requirement of
he cannot be a HIDC Sec. 52 are met
Subject to all defenses Free from all defenses