Negotiable Instruments Reviewer for Finals

PRESENTMENT FOR PAYMENT is the presentation of the instrument to the persons primarily liable for the purpose of
demanding and receiving payment [Sec 70] When necessary: to charge persons secondarily liable (drawer/indorsers) BUT: presentment first to persons primarily liable EFFECT IF NOT PRESENTED: drawer/indorsers are DISCHARGED from their secondary liability. (Gen Rule) Exceptions: (1) drawer has no right to expect or require that the drawee/acceptor will pay the instrument(ex. He has no fund/account with the drawee/acceptor) [Sec. 79]; (2) instrument was made or accepted for the indorsers accommodation (indorser is the accommodated party and at the same time the principal debtor) [Sec 80]; (3) after exercise of reasonable diligence presentment as required by this Act cannot be made [Sec 82(a)]; (4) drawee is a fictitious person [Sec 82(b)]; (5) Express or implied Waiver of presentment [Sec 82(c)] (6) Bill is dishonored by non-acceptance [Sec 151]

Note: Sec 79, 80 : presentment excused

Sec 82, 151 : presentment dispensed with

When NOT necessary: to charge persons primarily liable (maker/acceptor) (1) Liability is absolute on date for payment; therefore, the holder can sue the maker as soon as the date for payment has passed without the instrument being paid. (2) Instrument payable at a special place and he is able and willing to pay it there; equivalent to a tender and offer of payment; effect: he is not considered in delay (in case the instrument is unpaid and overdue), therefore he is not liable for costs and interests subsequently accruing. (3) Even if it is required by terms of the instrument. [Sec 71] Instrument NOT payable on demand: presentment on the day it falls due; Instrument payable on demand: a. (Promissory Note): presentment within a reasonable time after its issue; b. (Bills of Exchange): presentment within reasonable time after the last negotiation of the instrument. [Sec 72] What constitutes sufficient payment (all elements must concur) Made by the holder/person authorized to RECEIVE payment; At a reasonable hour within a business day; At a proper place as herein defined; AND To the person primarily liable/if absent or inaccessible, to any person found at the place where presentmade is made.

1. 2. 3. 4.

[Sec 73] What constitutes proper place (in order) Place specified in the instrument, and it is there presented; or if none Address of the person to make payment; or if none; Usual place of business or residence of the person to make payment; or if none Wherever he can be found, or at his last known address. [Sec 74] Valid presentment requires personal or face-to-face demand, at the proper place, exhibiting the instrument to the maker/acceptor from whom payment is demanded. When paid, the instrument must be delivered up to the party paying it.

1. 2. 3. 4.

[Sec 81) When delay of presentment excused(also for acceptance for honor) When caused by circumstances beyond the control of the holder; AND Without his default, misconduct, or negligence

Note: When reason for delay ceases to operate, presentment must be made within a reasonable
time. Summary Rules as to Presentment for Payment 1. Not necessary-PML; necessary-PSL [Sec 70] 2. Not necessary-PSL under Secs 79, 80,82,151 [Sec 83] When instrument is dishonored by non-payment a. Duly presented but REFUSED of PAYMENT CANNOT BE OBTAINED b. (1) EXCUSED and instrument is (2) OVERDUE and (3) UNPAID all 3 must concur. Note: if the presentmade is not made and it is not excused, there is no dishonor even though the instrument is overdue and unpaid. [Sec 89] What constitute PAYMENT IN DUE COURSE? (all 3 must concur) 1. Made at maturity, or after maturity to the holder thereof; 2. In good faith(of the maker/acceptor); AND 3. Without notice that his title is defective

NOTICE OF DISHONOR
[Sec 89] To whom must be given? 1. To the drawer; AND

2. To each indorser Effect if not given: Discharges one of liability but he is still liable for breach of warranties pertaining to the instrument [Sec 65 and 66] When instrument is considered dishonored 1. If it is not accepted when presented for acceptance; 2. If it is not paid when presented for payment; 3. If presentment is excused or waived and the instrument is past due and unpaid. [Sec 90,91,92] Notice may be given by: 1. The holder; 2. On behalf of the holder; Effect: it inures to the benefit of all subsequent holders and all prior parties who have a right of recourse against the party to whom notice is given [Sec 92] 3. Any party to the instrument who might be compelled to pay the holder, and upon taking it up, would have a right to reimbursement from the party to whom notice is given. Effect: Inures to the benefit of the holder and all parties subsequent to the party to whom notice is given. 4. By an agent either in his own name or in the name of the party entitled to give notice. [Sec 91] Note: AGENTauthority to receive notice NECESSARY authority to give notice NOT NECESSARY Notice to Partnersany one of them Notice to Joint Partieseach of them Notice to Bankruptparty himself or his trustee ot assignee TIME FIXED FOR GIVING NOTICE(also for presentment for payment to acceptor for honor-103,104) [Sec 103, 104, 107] (Sec 103) When parties reside in the same place and notice is given at the: 1. business place before the close of the business hour on the day following 2. residence before the usual hours of rest on the day 3. mail deposited in the post office in time to reach him in the usual course on the day following. (Sec 104) Different place: 1. by mail must be deposited in time to go by mail the day following the day of dishonor if there be no mail at a convenient hour on that day, by the next mail thereafter 2. otherwise than by mail(ex.personal messenger) recipient shall receive the notice not later than the time he would receive it had it been mailed. (Sec 107) Time of Notice to Subsequent Parties: same time as that of antecedent parties What constitute Due Notice [Sec 106] 1. The notice of dishonor is DULY ADDRESSED; AND 2. DEPOSITED IN THE POST OFFICE

post office any branch of post office any letter box under the control of the post office PLACE WHERE NOTICE MUST BE GIVEN Address added in his signature; If none, either to post office nearest his place or that where he is accustomed to receive his letters; Either at his residence or business place(if both are not in the same place); Place where he is sojourning Note: When protest is waived, presentment and notice of dishonor are also deemed waived When delay of giving notice is excused [same as Sec 81] When Notice to Drawer Not Required Drawer and drawee are the same person; Drawee is a fictitious person; Drawee is a person not having capacity to contract; Drawer is the person to whom the instrument is presented for payment; Drawer has no right to expect or require that the drawee or acceptor will honor the instrument; Drawer has countermanded payment.

1. 2. 3. 4.

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

When Notice to Indorser Not Required 1. Indorser was aware of #2 and #3 above; 2. The indorser is the person to whom the instrument was presented; 3. Indorser is the accommodated party(and the principal debtor) Effect where notice of non-acceptance already given 1. If subsequently accepted, holder must present the instrument for payment upon maturity; 2. If not paid, holder must give the subsequent notice of dishonor. Effect of omission to give notice of non-acceptance by the previous holder A holder in due course(subsequent holder) is not prejudiced. He may still present the instrument to the drawee for acceptance and notify the drawer and indorsers if acceptance is refused. When Protest Required 1. Foreign bills of exchange 2. SUMMARY OF RULES AS TO NOTICE OF DISHONOR 1. 2. a. b. c. d. e. Like presentment for payment, notice of dishonor is not necessary to charge the persons primarily liable but is necessary to charge persons secondarily liable; When notice of dishonor NOT necessary: Notice is waived; Protest is waived; Notice is dispensed with; As to drawer under Sec 114; As to indorser under Sec 115;

f. Where due notice of dishonor by non-acceptance has been given under Sec 116; and g. As to holder in due course, without notice of dishonor by non-acceptance, subsequent to the omission to give notice under Sec 117.

Is the formal instrument executed usually by (1) a notary public, or (2) by any respectable resident of the place where the bill was dishonored, in the presence of two or more credible witness certifying that the legal steps necessary to fix the liability of the drawee and the indorsers have been taken Made on the day of its dishonor, unless delay is excused At the place where the instrument is dishonored, if not thereat, at the place where it is expressed to be payable Protest for better security Protest before maturity where acceptor has been adjudged a bankrupt or insolvent, or has made an assignment for the benefit of his creditors When necessary: 1. In case of a foreign bill of exchange; 2. Reasons for requiring protest in case of a foreign bill of exchange 1. It makes for uniformity in international transactions because most countries require it; 2. It furnishes authentic and satisfactory evidence of dishonor to the drawer who, from his residence abroad, would experience difficulty in verifying the matter and thus be compelled to rely on the presentation of the holder. How made: Must be annexed to the bill or must contain a copy thereof; Must be under the hand and seal of the notary making it; Must specify the matters enumerated as follows: Time and place of presentment; The fact that presentment was made and the manner thereof; The cause or reason for protesting the bill; The demand made and the answer given, if any, or the fact that the drawee or acceptor cannot be found. When protest is dispensed with: same as that of presentment and notice of dishonor DULY NOTED- means written by the notary public on his logbook or on the instrument Note: formal paper may subsequently be prepared after it has been duly noted as of the date of noting.

PROTEST

1. 2. 3. a. b. c. d.

Protest and Notice of Dishonor distinguished

PROTEST Where required Form Scope foreign bill Written Includes presentment, notice of dishonor, and all the steps accompanying dishonor Notary public or any respectable resident where the instrument was dishonored in the presence of two or more credible witnesses At the place of dishonor On the day of dishonor

NOTICE OF DISHONOR any negotiable instrument Verbal or written Limited to notice of dishonor only

Made by

By a party or his agent

Where made When made

Not essential Within the prescribed time

DISCHARGE
Negotiable Instruments are discharged by [Sec 119]: a. Payment in due course by or on behalf of the principal debtor; b. Payment in due course by the accommodated party; c. Intentional cancellation thereof by the holder; how cancellation is done: 1. By writing the word Cancelled or Paid on the face of the instrument 2. Instrument is torn up, burned, or mutilated d. Any act which discharges the instrument under Art. 1231 of the Civil Code: 1. Payment or performance; 2. Loss of the thing due; 3. Remission of the debt or condonation; 4. Merger of the rights of the creditor and debtor or confusion; 5. Compensation; 6. Novation; 7. Others: annulment, rescission, fulfillment of a resolutory condition and prescription e. The principal debtor reacquires the instrument in his own right at or after the date of maturity Note: If reacquisition is made before maturity, the instrument can be re-negotiated. Therefore, the reacquisition of the principal debtor before maturity does not operate to discharge the instrument. Methods of discharge of secondary parties 1. Under Sec 119 above; 2. Holder intentionally cancels the signature of parties secondarily liable on the instrument as if he has never been a party thereto under Sec.48

Sec.48-When holder may strike out indorsement not necessary to his title and the indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument. a. A bearer instrument may be negotiated by mere delivery. In case it is indorsed, it remains a bearer instrument and may be further negotiated by DELIVERY. b. An order instrument may be negotiated only by the indorsement of the payee completed by delivery. Special Indorsement is necessary for further negotiation. Blank Indorsement (the last indorsement) makes the order instrument a bearer instrument and may be negotiated by mere delivery. Hence, the Special Indorsements are not necessary to the holders title. He may therefore strike out the signature of the special indorser. In effect, the special indorser and all indorsers subsequent to him are relieved of their liabilities to the instrument. 3. By the discharge of a prior party by act of holder( not by operation of law); 4. Valid tender of payment made by a prior party; 5. By release of the principal debtor by the act of the holder( not by operation of law). REASON: With the release of the principal debtor, subsequent parties lose their right of recourse against him. SUBSEQUENT PARTIES ARE RELEASED UNLESS: Holder reserved his right of recourse against the said subsequent parties. In effect, there is an implied reservation by the subsequent parties of their right of recourse against the principal debtor. Effect of reacquisition by prior party 1. The reacquirer (who paid for the instrument), for the most part, is remitted to his former position, and consequently, he may strike out his own and all subsequent indorsements as they are not necessary to his title under Sec 48. 2. Payment at or after maturity by a party secondarily liable does not discharges the instrument but only cancels his own liability and that of parties subsequent to him. 3. If the party so paying was formerly a HDC, he may recover from prior parties as such a HDC even though at that time he had already notice of defenses. Effect of Renunciation 1. Made before, at, or after maturity In favor of secondary party made by the holder effect:discharge of secondary party only, not the instrument which will remain in force 2. Made at or after maturity in favor of the principal debtor effect:discharge of PD and all parties prior thereto Provided: renunciation is absolute and unconditional. When cancellation inoperative 1. Made unintentionally; or 2. By mistake or through fraud; or 3. Without authority Material Alteration- refers to any change in the instrument which affects the liability of the parties in any way as specified in Sec 125, or changes the contract of the parties in any respect. Spoilation- material alteration made by a stranger Effect of alteration in the instrument

1.

Regardless if the instrument is innocently or fraudulently altered, the instrument is discharged/void but the innocent party can sue upon the original debt for which it has been given; BUT the instrument is not discharged/void as against (1) the party who has made the alteration, and (2) a party who authorized or assented to the alteration, and (3) indorsers who indorsed subsequent to the alteration. 2. Spoilation has same effect as alteration, it has no effect upon the instrument is the original meaning can be ascertained. 3. If an altered instrument is negotiated to a HDC, he may enforce payment thereof according to its original tenor regardless if innocently or fraudulently altered.

Payment made by a person, whether a party to the bill or not, after it has been protested for non-payment, for the benefit of any party liable thereon or for the benefit of the person for whose account it was drawn. SINALO LANG Who may make payment By a party to the bill; By a stranger; By the drawee after he has refused to accept the bill Drawe of a check which has been dishonored and protested has a right to intervene and pay it to

PAYMENT FOR HONOR

1. 2. 3. 4.

protest his honor.

Requisites of a Valid Payment for Honor The bill has been dishonored by non-payment; It has been protested for non-payment; Payment supra protest is made by any person, even a party thereto; The payment is attested by a notarial act of honor which must be appended to the protest or form an extention of it; 5. The notarial act must be based on the declaration made by the payer for honor or his agent of his intention to pay the bill for honor and for whose honor he pays. Effect if the above formalities is not followed Payment will operate as a mere voluntary payment; AND The payer has no right of full reimbursement against the party for whose honor he pays. 1. 2. 3. 4. Preference of parties offering to pay for honor To the person whose payment will discharge the greatest number of parties to the bill. The rule is different in acceptance for honor. Effect where bill is paid for honor 1. Discharge of subsequent parties; and 2. Subrogation Right of payer for honor right to receive the bill itself and the protest Effect of holders refusal to receive payment for honor he cannot recover from the parties who would have been discharged had he accepted the same.

 An undertaking by a stranger to a bill after protest for the benefit of any party liable thereon, or for the honor of the person for whose account the bill is drawn which acceptance inures to the benefit of all the parties subsequent to the person for whose honor it is accepted, and conditioned to pay the bill when it becomes due if the original drawee does not pay. Purpose: to preserve the credit of the parties to the instrument or some party to it for whose honor the acceptance is made. Requisites: The bill must have been protested for dishonor by non-acceptance or for better security; The acceptor for honor must be a person not a party already liable thereon; The bill must not be overdue at the time of the acceptance for honor; and The acceptance must be with the consent of the holder of the instrument. Must be in writing; Must indicate that it is an acceptance for honor; Must be signed by the acceptor for honor; and Must contain an express or implied promise to pay money. Must be delivered (the accepted bill) to the holder. Accepted for the honor of P (Signed) X Agreement of Acceptor for Honor engages that he will, on due presentment, pay the bill according to the terms of his acceptance, provided that the (1) bill was not paid by the drawer, (2) it shall have been duly presented for payment and (3) protested for non-payment, and (4) notice of dishonor was given to him. Bill payable after sight: the date of maturity is calculated from the date of the noting of nonacceptance and not from the date of the acceptance for honor. Protest for non-payment by acceptor for honor 1. Protest for dishonor by non-acceptance or for better security 2. Protest for non-payment by the drawee in order to hold the acceptor for honor liable 3. Protest for non-payment by the acceptor for honor in order to hold the drawer and indorsers whose liabilities have not yet become fixed because of the acceptance for honor. Acceptance for Honor and Ordinary Acceptance Distinguished AFH Previous protest required Stranger Required Secondary OA Protest required Drawee Not required Primary

ACCEPTANCE FOR HONOR

1. 2. 3. 4. 5. 6. 7. 8. 9.

As to protest

not

Acceptor Consent holder Liability

of

No. of acceptors

May be several AFH for different parties in the bill Not discharged even upon payment by the AFH

No acceptors in the alternative or in succession Discharged upon payment by the acceptor

When instruments discharged

is

BILLS IN SET
PARTIES: Payee (P) Drawer (R) Drawee (W) BILSS: First Part---neg.by P to A on Sept 20further negotiated to D Second Part---neg. by P to B on Sept 25---further negotiated to E Third Part---neg. by P to C on Sept 30further negotiated to F Note: Each part may be negotiated by P although hes not supposed to do that A is the true owner(the holder whose first title accrued) If W pays B in due course, he can refuse to accept and pay the true owner, A. Where the bill is indorsed separately, the holder is liable to that part, every indorser subsequent to him is liable on that part that he himself has indorsed. W is required to accept only one part of a bill in set. If he accepts two or more, and those were negotiated to a HDC, W is liable to every holder as if the parts were separate bills. If P, before negotiating to A,B and C, presented the 3 bills for acceptance to W, then negotiates the parts to A,B and C(all HDCs), then W is liable to A,B,C for each amount of the part. If P presented the 3 parts to W for acceptance but afterwhich does not negotiate them, W is liable only the amount on one part to P. W must require the surrender of the bill upon his payment, otherwise, he will be liable to that part not surrendered and to subsequent holder thereof. If part of the bill is discharged by payment, the whole bill is discharged, as far as R is concerned. This is because a bill in a set constitute only one bill

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.