NEGOTIABLE INSTRUMENTS LAW

CABAHUG,A. |CABAHUG,D. | CANE | DUMASIS

Atty. Amago
EH 402 // SY 2016-2017
VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS

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

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

Payment in due course (Sec. 88)

At or after maturity
To the holder
In good faith
Without notice of defect of title of the holder

By or on behalf of the principal debtor

Payment by maker or drawee-acceptor
Release all the parties primarily and secondarily liable
By accommodated party
As if payment made by person primarily liable
(c) By the intentional cancellation thereof by the holder;
Sec. 123. Cancellation; unintentional; burden of proof. - A cancellation made unintentionally or under a mistake or without the authority of the holder, is inoperative
but where an instrument or any signature thereon appears to have been cancelled, the burden of proof lies on the party who alleges that the cancellation was made
unintentionally or under a mistake or without authority.
It has to be intentional to be operative. It depends on the mind set of a person who actually caused the cancellation. Its a matter of mind set. You can infer it from
circumstances surrounding the acts of the person. It is a question of fact. Thus, its deemed cancelled when stamp cancelled, torn, burned, cut, destroyed, etc.

NEGOTIABLE INSTRUMENTS LAW

UY | DELAPENA | YONGCO |
CABAHUG,A. |CABAHUG,D. | CANE | DUMASIS
Atty. Amago
EH 402 // SY 2016-2017
(material). The instrument need not be fully burned, for as long as it is materially burned then you can consider it as mutilated. Mutilation of a contract would be
deemed cancellation. It has to be intentional. If the holder thought the instrument is a scratch paper and cut it into half, that may not be considered intentional. The
holder has to make the cancellation. If its the stranger who cancels, it is not operative. It is inoperative if unintentional, mistake, fraud, or no authority
If there is a cancellation of the instrument, there is a presumption that it is intentional. The burden of proof is on the person who claims that theres no intentional
cancellation.

(d) By any other act which will discharge a simple contract for the payment of money;
Extinguish obligation: payment, performance, loss of thing due, condonation, remission, confusion, merger, compensation, novation, annulment, prescription,
fulfillment of resolutory obligation
Negotiable instrument represents an obligation
If obligation is extinguished, the negotiable is likewise discharged.
(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.
There is confusion or merger.
It has to be at or after maturity when it ceased to be negotiable. If it happens before maturity, it continues continue to be negotiable and the person primarily
liable can still negotiate the instrument.
Payable on demand mature after lapse of reasonable time from issuance or last indorsement
Sec. 120. When persons secondarily liable on the instrument are
discharged. -A person secondarily liable on the instrument is discharged:
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the holder;
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party;
(e) By a release of the principal debtor unless the holder's right of
recourse against the party secondarily liable is expressly reserved;
(f) By any agreement binding upon the holder to extend the time of
payment or to postpone the holder's right to enforce the instrument
unless made with the assent of the party secondarily liable or unless
the right of recourse against such party is expressly reserved.
By any act which discharges the instrument
The same as section 119

NEGOTIABLE INSTRUMENTS LAW

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CABAHUG,A. |CABAHUG,D. | CANE | DUMASIS
Atty. Amago
EH 402 // SY 2016-2017
Discharge of instrument by primarily liable discharges the parties secondarily liable. But discharge of instrument by secondarily liable does not discharge the
persons primarily liable.
By the intentional cancellation of his signature by the holder
By striking out
By the

discharge of a prior party

It has to be intentional
Reason: it deprives subsequent parties to go after prior parties
Example: strike out of indorsement

By a valid tender of payment made by a prior party

If holder accepted, discharge the instrument whether due or not
If holder refused without justifiable reason, discharges the instrument when overdue
-dishonored by primarily liable
35:00:00-52:00:00
Whether due or not due, as long as there is tender of payment by the party, the effect is: it will cause the discharge of the parties secondarily liable. Just like in
cancellation, you need not receive anything, in letter D, there is actual receipt of money by the holder as there is valid tender of payment. But even if there is no
actual receipt of money, if there is supposed to be a valid tender of payment and the holder refuse to accept it, then there is also still discharge.
When does that happen?
-when the instrument is already overdue, when the instrument has already been dishonoured and here is a party secondarily liable who is willing to pay it and the
holder does not want to receive payment on the instrument.
Why will it only happen when the instrument is overdue?
-because tender of payment will then be considered valid tender. lets us say that it is invalid if the tender happens before maturity, its just there is no reason for the
holder to refuse payment if the instrument is already overdue and it is already dishonoured by the party primarily liable.
If the instrument is not yet over due and there is payment made by the party secondarily liable, can the holder refuse payment? Yes because the instrument after all is
not yet overdue and you are not the party who is supposed to pay it to me. But if the instrument is already overdue and the party has been dishonoured by the person
primarily liable then there is no reason for the holder not to accept payment from a party secondarily liable. So if there is refusal, then parties who could have been
discharged from the receipt of the payment, the parties secondarily liable will also be discharged.
LETTER E.
SIR: before the instrument is overdue, the holder of the instrument renounces the liability of the party primarily liable. (condonation, remission) The current holder
nullifies the liability of the person primarily liable. What will be the effect?
-parties after the person primarily liable, that means all parties secondarily liable will be discharged unless there is a written
What will be the effect if there is a written reservation of the liabilities of the parties secondarily liable?
-they are not discharged. Their right to go after the person primarily liable is also reserved. So while the holder now of the instrument nullifies the liability of the
person primarily liable, so there is no more liability but because in a way he also reserved the rights of these parties secondarily liable, so that means he will only
expect payment from parties secondarily liable. If ever one of the parties secondarily liable made the payment, that person who made the payment may still go after
the person primarily liable. Supposedly, there is no need to do so, because from the moment there is condonation of remission of the liability primarily liable, all
parties would have been discharged of their liabilities. But because there was a reservation made, the parties secondarily liable accepted such reservation, then they

NEGOTIABLE INSTRUMENTS LAW

UY | DELAPENA | YONGCO |
CABAHUG,A. |CABAHUG,D. | CANE | DUMASIS
Atty. Amago
EH 402 // SY 2016-2017
may still be held liable on the instrument not yet discharged but in a way because they are still liable on the instrument, the law deems it to go after the person
primarily liable.
After all who should have been liable in the immediate set up?-the person primarily liable. So in a way, there is no use of the discharge of the persons primarily liable if
there is reservation of persons secondarily liables liabilities.
52:00:00-1:09:00

- Adrian

Sec. 122. Renunciation by holder. - The holder may expressly renounce his rights against any party to the instrument before, at, or after its
maturity. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument
discharges the instrument. But a renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing
unless the instrument is delivered up to the person primarily liable thereon.
If there is remission or condonation of the debt, then there is a discharge on the negotiable instrument if it happens at or after maturity.
If there is a remission or condonation in favor of the indorser, it will only release the person who is secondarily liable plus all parties subsequent to such an indorser.
However, it will not cause the discharge on the instrument since we dont know if the person who is primarily liable would pay on the instrument. So at, or after
maturity would only be applicable only if there is a renunciation of the liability of the person primarily liable.
E.g.
A B C D E(HDC) B(Holder)
D renounced the liability of A here who is a person primarily liable. But reserved the rights of any of the persons who are secondarily liable.
Q: E does not have notice of the renunciation and E is made to pay on the instrument, can he still go after A?
Yes, in fact, E will be discharged on the instrument since D made a renunciation on the instrument without notifying him. Normally, if a prior partys liability is
renounced then the liability of subsequent parties would be renounced as well.
A could still be made liable on the instrument.
E.g. A B C D E(HDC) B X Y Z
If B renounced the liability of A before maturity, B is not precluded from negotiating the instrument further.
Q: So if the instrument was negotiated further to X, Y, and Z, and Z doesnt know of the renunciation, could Z go after E?
A: Yes, because he doesnt have notice that E was discharged of his liability. It cannot prejudice a party without notice.
BUT that is so absurd because the renunciation must be made in writing. In fact, you have to attach it to the instrument. Otherwise, parties who do not know about
the renunciation would not be bound by such.
EXCEPTION: When you deliver the instrument to person primarily liable. Because it is as if the instrument has already been paid. Supposedly if payment has already
been made, the instrument should be delivered to person PRIMARILY LIABLE.

NEGOTIABLE INSTRUMENTS LAW

CABAHUG,A. |CABAHUG,D. | CANE | DUMASIS
Atty. Amago
EH 402 // SY 2016-2017

UY | DELAPENA | YONGCO |

That means that if the instrument is in the hands of the person primarily liable, the instrument is deemed to have been paid. The renunciation, in such case, no longer
needs to be in writing.
Q: What if the delivery of the instrument to the person primarily liable was by mistake or fraud?
E.g.
Deliver the instrument first and I will pay you later on but the drawee or maker does not pay on the instrument.
A: No, because Sec. 122 talks about intentional renunciation. In this case, there was no intention to renounce the liability of the person.
If payment was not made by the person primarily liable, then the instrument is to be deemed dishonored. Procedures for dishonor have to be complied with.
FOREIGN BILL:
1.) Protest
2.) Notices of dishonor
LOCAL BILL
1.) Notices of dishonor
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.
Q: To whom do you give the notice of dishonor?
A: To all parties secondarily liable otherwise, they would be discharged.
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.
Q: Who
1.
2.
3.
4.

should give the notices?

Holder
Any person on behalf of the holder
Any person who might be compelled to pay the holder
In behalf of the person who might be compelled to pay the holder

It would seem that it is the holder and all parties secondarily liable should give the notices of dishonor.
These parties secondarily liable are given a right to give notices of dishonor to those who are secondarily liable as well. The reason for this is because he has the right
of reimbursement for the amount that he paid.
E.g.
A B C D E(holder)

NEGOTIABLE INSTRUMENTS LAW

CABAHUG,A. |CABAHUG,D. | CANE | DUMASIS
Atty. Amago
EH 402 // SY 2016-2017

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E gave a notice of dishonor to C. In this case, D is discharged of his liability. However, C has to give notices of dishonor to A and B. So that if he is made to pay on the
instrument, he could ask reimbursement from A and B.
Those parties who are closer to the person primarily liable should be asked to reimburse you.
Q: Why do you think the payee is made liable on the instrument if the indorsers do not pay?
A: Because he actually caused the indorsement of the instrument. He should have held on to the instrument and not let other parties be liable on it. Although, he
could still go after the person who is primarily liable on the instrument which is the acceptor or the maker.
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 give
notice, whether that party be his principal or not.
Q: If there is notice given by an agent, would it redound to the benefit of the principal?
A: Yes, it would. There is no form of agency required just as long as the agent wants to give notices of dishonor. He could use his name or the name of the principal. It
is not required that he indicates under what capacity he is issuing the notices of dishonor and under whose authority.
But if you creating a liability for your principal, you must sign your name, indicate your principal, and state as to what authority you have to make your principal liable.
Sec. 92. Effect of notice on behalf of holder. - Where notice is given by or on behalf of the holder, it inures to the benefit of all subsequent holders
and all prior parties who have a right of recourse against the party to whom it is given.
E.g.
A B C D E(holder)
If E gave notices of dishonor to D, C, and B, D was made to pay on the instrument, does he have to give notices to C and B?
The notice made By E would already suffice.
1:09:00 - 1:26:00
Does D have to give notice of dishonor to C and B? Will the notice given by E suffice?
The notice of E will already suffice because as mentioned under
SECTION 92. Effect of notice on behalf of holder. - Where notice is given by or on behalf of the holder, it inures to the benefit of all subsequent holders and all
prior parties who have a right of recourse against the party to whom it is given.
In this case D has right of recourse against C and B, when notice was given by E to B and C, since D has right of recourse against B and C, then the notice of given by
E is deemed a notice given by D. Since you only need to receive ONCE a notice of dishonor, ONCE will suffice.
SECTION 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.
it inures to the benefit of the holder and all parties subsequent to the party to whom notice is given.
EXAMPLE: E gave a notice of dishonor to D alone, D gave a notice of dishonor to C and B. Can E hold C and B liable?
YES, because the notice given by D inures to the benefit of the holder, the holder happens to be E. Thus, the notice given by D to C and B inures to the benefit of E.

NEGOTIABLE INSTRUMENTS LAW

UY | DELAPENA | YONGCO |
CABAHUG,A. |CABAHUG,D. | CANE | DUMASIS
Atty. Amago
EH 402 // SY 2016-2017
EXAMPLE: Instead of D giving a notice of dishonor to C, D only gave a notice of dishonor to B. Will that redound to the benefit of C in case C will be made liable to the
instrument?
YES, although in this case it is impossible that C will be made liable on the instrument since D and E didnt gave him notice of dishonor which will in effect discharge
him. But in a case where D and C where given a notice of dishonor and further D gave notice of dishonor to B, then the notice of B by D will redound to the benefit of
C.
Who is the party subsequent to the party to whom notice is given? C
Who is the holder? D
Thus B and C are benefited by the notice given by D.
If C makes payment in the instrument, does he have to make notice of dishonor in order to hold B liable? NO
SECTION 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: E is the holder of an instrument, he has an agent, X. X was the one who presented the instrument for payment to the person primarily liable. The
instrument was dishonored in the hands of X, being the agent of E, he can give notice of dishonor to C and D or to whomsoever parties or he may just give the notice
of dishonor to E.
What is the advantage if he gave the notice of dishonor to E?
E will have a fresh period within which to give notice of dishonor to D and C, which will only be 24 hours from the time you received a notice of dishonor within which
you will give a notice of dishonor to other parties.
In the present case, if X in whose hands the instrument was dishonored then he will have 24 hours within which to give notice of dishonor to all parties including his
principal but he could just give the notice of dishonor to E as his principal so that E will have another 24 hours within which to give notice of dishonor to D, C, B, or A.
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. only means the principal will have a fresh period of 24 hours to give the notice of
dishonor to the parties.
SECTION 95. When notice sufficient. A written notice need not be signed and an insufficient written notice may be supplemented and validated by verbal
communication. A misdescription of the instrument does not vitiate the notice unless the party to whom the notice is given is in fact misled thereby.
Can a notice be verbal? Will that suffice?
YES, but the problem is it is as if no actual notice was not given, the best way to give the notice is in writing signed by yourself however, if you dont sign it is okay for
as long as you validate it by oral communication.
A misdescription of the instrument does not vitiate the notice unless the party to whom the notice is given is in fact misled thereby.
EXAMPLE: The instrument is supposed to be numbered A, Y and Z but what was given to you was A, Y, and X (referring to serial numbers in a negotiable instrument
like a check) if you are given the wrong check number for a certain instrument and you were misled by such fact then you can vitiate the notice as if no notice was
given to you But if NOT since you only issued one check then you will not be misled therefore the notice given to you in such case will already suffice.
SECTION 98. Notice where party is dead. When any party is dead and his death is known to the party giving notice, the notice must be given to a personal
representative, if there be one, and if with reasonable diligence, he can be found. If there be no personal representative, notice may be sent to the last residence or
last place of business of the deceased
What happen if the party is dead? As a rule when you present it, it is always to a representative. Notice is to be given to the personal representative, that if the person
who is supposed to give notice knew about the death of such party, if he doesnt know, a notice may be sent to the last residence or last place of business of the
deceased. If you give the notice to the last known address that is deemed reasonable diligence of such a party.

NEGOTIABLE INSTRUMENTS LAW

UY | DELAPENA | YONGCO |
CABAHUG,A. |CABAHUG,D. | CANE | DUMASIS
Atty. Amago
EH 402 // SY 2016-2017
In reality, this is difficult since there will be no way for you to know the address of all the parties who signed the instrument since they dont write their addresses only
their signature. Most likely, you will only give notice to the party from whom you received the instrument.
SECTION 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 any one of them will be deemed notice to partnership because they are partners.
If they are only jointly liable?
Each of them must be given notice of dishonor UNLESS one of them is authorized to represent them all.
SECTION 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 his trustee or assignee.
The same as presentment.
SECTION 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.
What is the time fixed by this Act? 24 hours
SECTION 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. 24 hours
(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. - unreasonable because you only live in the
same place
SECTION 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
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 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. maybe the thought was just to ask someone else to send it. So if in the ordinary course of a
mail courier, it will be received in 3 days time The person you asked to send it must also give it to the other party in 3 days time.
Not so important. Just remember that if different places, the mail could be distributed or shipped the next day. However, if the same places, the mail should be
received by the other party the next day.
NOTE: the provisions on mail will not be included in the exam. but remember BP 22 will be included.
SECTION 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.
Granting that you have complied with Sections 103 and 104, as to the time and day that it will be sent or received. IF NOT, though you have given the proper address
to the post office, that is not deemed notice of dishonor duly given.
EXAMPLE: The instrument was dishonored today, supposedly when are you supposed to give notice of dishonor? Today until tomorrow. If you live in different places,
be sure that the notices will be sent tomorrow or distributed. But if you live in the same place, be sure it will be received the next day. If you give notice of dishonor 2
days after, even the address is right and you deposited it there, that will not be deemed a due notice of dishonor. After all you didnt comply with sections 103 and
104.
1:26:00-1:43:00
After all, you did not comply with Sec 103 and 104. Section 105 presupposes that you have complied with Sections 103 and 104.

NEGOTIABLE INSTRUMENTS LAW

CABAHUG,A. |CABAHUG,D. | CANE | DUMASIS
Atty. Amago
EH 402 // SY 2016-2017
(Insert Sec 106 here)
If you gave the PO box that is already deemed as deposit in the post office.

UY | DELAPENA | YONGCO |

(Insert Sec 107)

So if you are a party who receive a notice of dishonor, how much time are you given? The same time so meaning another 24 hours from the receipt of notice of
dishonor.
If the instrument was dishonored today, it was given to you the next day so you have 24 hours from the next day to give a notice of dishonor to antecedent parties.
(Insert Sec 108)
Where must be the notice be sent? In the address provided in the negotiable instrument, if no address then either to sub paragraph (a) to (c).
Can there be waiver of notice of dishonor? YES (insert sec 109)
This can be given on the instrument itself or in the indorsement.
How do you call that indorsement when there is waiver for notice of dishonor? Facultative Indorsement
(Insert sec 110)
Who are affected by the waiver?
If it is on the face itself, then all parties secondarily liable has deemed waived rights for notice of dishonor.
If it is on the indorsement, only the party who waived his right to the notice of dishonor.
(Insert Sec 111)
Can there be waiver of protest? Yes. If there is waiver of formal protest, effect is there is also waiver of presentment and notice of dishonor.
When can you dispense with the notice of dishonor? (Insert sec 112)
Just like you
present it for acceptance or presentment for payment that you exercise reasonable diligence but you
still cannot
achieved what you want then it is deemed excused. But take note, there has to be exercise of
reasonable
diligence.
When
can
The
same,
course and

delay in giving notice of dishonor be excused? (Section 113)

when beyond the control of the holder certain events precludes them from giving the notice in due
due time. Only the delay is excused in this instance.

When

notice need not to be given to the drawer? (insert section 114)

can

Par (d) This happens in an accommodation party, when he has no funds, and when in the first place he does not know the drawee.
Par (e) when he tried to escape.
When can notice need not to be given to the indorser? (Insert section115)

NEGOTIABLE INSTRUMENTS LAW

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EH 402 // SY 2016-2017

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This happens when holder E gives a notice of dishonor to C and it is also to C whom he presented it for payment. In that case if E also gave notice of dishonor to D, D
does not need to give notice to C again. After all, E already gave notice to C. In that case, C dishonored the instrument. D does not anymore need to give C notice just
so he can claim for payment.
Another instance is when the instrument was made or accepted for his accommodation. For example, you have A who sells construction materials and P want to buy
from A on credit but A does not believe that he can pay so P asked M to lend his name for credit so M agreed and executed a negotiable instrument accommodating P
so in this case P indorsed the instrument to A, P is the accommodated indorser. Is it necessary that P be given notice of dishonor?
No because P does not have an expectation that M will pay the instrument because it was by accommodation.
Where you already have a Notice of Dishonor by non-acceptance, what happens when the instrument is not paid? Is there a need notice of dishonor for non-payment?
(Sec 116 ) No unless the instrument was not yet overdue but consequently the instrument has been accepted.
If 10 days after the instrument was dishonored by non-acceptance and then it was then accepted by a person primarily liable, the instrument will be due 10 days after
the instrument was accepted and then the acceptor refused to pay on the due date, do you need to serve notices of dishonor to those parties whom you already
provided notice of dishonor for non-acceptance? YES because in the meantime the instrument has been accepted prior to it being dishonor by non-payment.
What is the effect if you dont give notice of dishonor?
Sec 117.

C presented the instrument for acceptance to DE. DE refused to accept the instrument. C did not give notice dishonor to parties secondarily liable. So all parties
secondarily liable should be discharge. But C negotiated it further to X, Y and Z. Now Z presented it for payment to DE and then refused. Will XYZ prejudiced by the
lack of notice of dishonor? No because you go after B, A and P. So XYZ are not prejudiced. Take note that only in case of a person who is a holder in due course.
When does protest of dishonor need not be made and when must it be made?
Sec. 118
BILL OF EXCHANGE

10

NEGOTIABLE INSTRUMENTS LAW

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EH 402 // SY 2016-2017

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Sec. 127. Bill not an assignment of funds in hands of drawee. - A bill of itself does not operate as an assignment of the funds in the hands of the drawee available for
the payment thereof, and the drawee is not liable on the bill unless and until he accepts the same.
Even if the drawer does have funds in the hands of the drawee, it doesnt mean that it is just intended for that instrument. When it says bill of itself does not operate
as an assignment of the funds in the hands of the drawee it means that a drawee can refuse to pay on the instrument because the funds of the drawee is not
sufficient, even if at the time the instrument was drawn it was still sufficient. There really is no assignment of funds just because the drawer made a negotiable
instrument in relation to such fund. In the same way, the bank can actually refuse payment of the instrument the moment that the deposit of its client is already less
than instrument thats due for payment.
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.
Succession:

Pay to A, 1 million pesos and in case its not available, to B, 1 million pesos.
Alternative:

Pay to A, 1 million pesos or B, 1 million pesos, whichever of them is available.

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.
An inland bill of exchange must be both drawn and payable within the Philippines. If its drawn in the Philippines and payable abroad its still considered foreign bill. If
its drawn abroad but payable in the Philippines is a foreign bill.
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.
When we treat the bill as a promissory note, the drawer becomes the maker or the person primarily liable.
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.
An acceptor for honor is like a referee in case of need. Its just that the referee in case of need need not have certain formalities as that of an acceptor for honor. If its
already mention in the bill of exchange that theres referee in case of need, the moment the instrument is dishonored by non-acceptance or non-payment, a referee in
case of need may be resorted. Unlike in acceptance for honor, you have to comply with certain formalities. The referee in case of need is like a guarantor. After you
pursue the acceptor and he refuse to pay the instrument then you can go to the referee in case of need.
Bills in Set
A bill of exchange may also be issued in terms of sets.
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.

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NEGOTIABLE INSTRUMENTS LAW

CABAHUG,A. |CABAHUG,D. | CANE | DUMASIS
Atty. Amago
EH 402 // SY 2016-2017

UY | DELAPENA | YONGCO |

Example: These are the bills of exchange and they refer to one and the same bills. All of these will contain the same statement. They all constitute one and the same
bill. They shouldnt be take separately. It will be taken as if theres only one bill that all of these bills of exchange is considered P1,000,000 only.
Reason: Before when it is still not sure whether a ship can land in its destination, you have to give several bills to different ships. Whichever ship will arrive first, that
will be considered as the one that most likely the holder/payee will get to hold and present for payment. In case one part will not reach the party to whom it is
intended for, then at least some of the parts is still available. Although, such bills are no longer these days since the ships are certain to arrive.
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.
Its possible that all ships will reach their destination and the bills might end up to different persons thinking that the other parts werent received by some other
persons. The right is the holder whose title first accrues is, as between such holders, the true owner of the bill.
Example: Bill 1 will arrive on September 13, 2016; Bill 2 will arrive on September 14, 2016; Bill 3 will arrive on September 15, 2016.
Among these 3 bills, the holder of Bill 1 has the better right. First delivery, first in right. First receipt, first in right. Holder of Bill 1s right accrues first for having
received first.
But if Bill 3 first presented for payment and he received payment, the party who made payment will not be prejudiced, if these parties are all holders in due
course.
The recourse of parties who werent paid, being holders in due course, is to go to the drawer because after all the drawer is the one who presented the
instrument to them.
If the payee already received it and what he did he separated the bills and gave them to different persons, it is the payee who is liable. Because the payee
caused the delivery of instrument or to whoever received the bill and distributed it to different parties. After all, its supposed to be treated as 1 bill then there
should only be 1 issuance to these bill.
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.
Theres only one acceptance for the entire bill. The drawee may accept each part, the risk is that if it will be distributed to different parties, he will be liable as if each
parts are separate.
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.
Bill 1

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Bill 2

Bill 3

Bill 4

NEGOTIABLE INSTRUMENTS LAW

CABAHUG,A. |CABAHUG,D. | CANE | DUMASIS
Atty. Amago
EH 402 // SY 2016-2017

UY | DELAPENA | YONGCO |

Example: These are the instruments. Bill 1 was accepted but what was presented was bill 2 which doesnt bare his acceptance and yet he paid on this instrument. If
this instrument will be transferred to other person and that person presented it to him again, he will be liable because Bill 2 ought to have been accepted. The
acceptor must look for the instrument bearing his acceptance cause if he failed to do so and that instrument happens to be in the hands of some other party, he would
be liable to that part that has his acceptance.
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.
Theres only 1 bill to speak of.

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