NEGOTIABLE INSTRUMENTS LAW (Sec. 195.) Application of Act.
- The provisions of this Act do not apply to negotiable
ACT NO. 2031
GENERAL PROVISIONS
(Sec. 190.) Short title. - This Act shall be known as the Negotiable Instruments Law.
(Sec. 191.) Definition and meaning of terms. - In this Act, unless the contract otherwise
requires:
"Acceptance" means an acceptance completed by delivery or notification;
"Action" includes counterclaim and set-off;
"Bank" includes any person or association of persons carrying on the
business of banking, whether incorporated or not;
"Bearer" means the person in possession of a bill or note which is payable to
bearer;
"Bill" means bill of exchange, and "note" means negotiable promissory note;
"Delivery" means transfer of possession, actual or constructive, from one
person to another;
"Holder" means the payee or indorsee of a bill or note who is in possession
of it, or the bearer thereof;
"Indorsement" means an indorsement completed by delivery;
"Instrument" means negotiable instrument;
"Issue" means the first delivery of the instrument, complete in form, to a
person who takes it as a holder;
"Person" includes a body of persons, whether incorporated or not;
"Value" means valuable consideration;
"Written" includes printed, and "writing" includes print.
(Sec. 192.) Persons primarily liable on 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. 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.
(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.
instruments made and delivered prior to the taking effect hereof.
(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.
(Sec. 197.) Repeals. - All acts and laws and parts thereof inconsistent with this Act are hereby
repealed.
(Sec. 198.) Time when Act takes effect. - This Act shall take effect ninety days after its
publication in the Official Gazette of the Philippine Islands shall have been completed.
Enacted: February 3, 1911
PROMISSORY NOTES AND CHECKS
(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. 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.
(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.
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(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.
REQUIREMENTS FOR NEGOTIABILITY (Sec. 1)
A. It must be in writing (with pen or pencil or printed, stamped or engraved)
The instrument must be written on a material such as parchment, cloth,
leather or any other substitute for paper INDISPENSABLE REQUIREMENT
so the instrument may be negotiated or transferred from hand to hand.
and signed by the maker or drawer;
Sufficiency of signature full name may be written, or at least the surname
should appear, or initials are sufficient, or any mark which the party uses to
indicate his intention to bind himself.
The party may even sign in an assumed trade name (Sec. 18).
B. Must contain an unconditional promise or order to pay (when it is not subject to a
contingency)
(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
(because the order to pay is still unconditional, and what is only
conditional is the reimbursement to be made)
FUND FOR REIMBURSEMENT the drawee pays the
payee from his own fund unconditionally; and afterwards the
drawee will be reimbursed from the particular fund indicated.
Particular account to be debited the instrument is to be
paid first, afterwards, the particular account indicated is to be
debited.
b) A statement of the transaction which gives rise to the instrument.
(even if not stated, it is presumed by law)
But an order or promise to pay out of a particular fund is not unconditional.
FUND FOR PAYMENT the drawee is directed to pay
directly out of a particular fund, which may be in his
possession the particular fund indicated may not be
sufficient to cover the amount of money to be paid.
An instrument payable upon a contingency is not
negotiable, and the happening of the event does not cure the
defect. (Sec. 4, last par.)
a sum certain in money;
(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
the requirement of certainty as to sum applies to the principal
amount rather than to the incidental addition of interest.
If however, the interest is stipulated but not specified, the
rate is determined to be the legal rate.
b) by stated installments; or
the amount to be paid in installment and the maturity date of
each installment must be known or capable of being known.
c) by stated installments, with a provision that, upon default in payment
of any installment or of interest, the whole shall become due
(acceleration clause); or
its purpose is to hasten payment of the whole note.
d) with exchange, whether at a fixed rate or at the current rate; or
while the rate of exchange is not always the same, the
current rate of exchange between two places at a particular
date is a matter of common commercial knowledge and
readily ascertainable.
e) with costs of collection or an attorney's fee, in case payment shall not
be made at maturity.
C. Must be payable 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.
or at a fixed or 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
Effect of option to accelerate maturity:
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 o If on the maker the negotiability of the instrument is not
affected, whether such option is absolute or conditional;
o If on the holder the negotiable character is not affected if
the option is to exercised upon the happening of a specified
event or act over which he has no control; it is non-
negotiable, however, if the holders right to exercise the
option is unconditional.
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 (a condition which may or may
not happen) is not negotiable, and the happening of the event does not cure
the defect.
The requirement as to certainty of time of payment is for the purpose of
informing the holder of the instrument of the date when he may enforce
payment.
D. Must be payable to order or to bearer; and
(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
An order instrument is now equivalent to a promissory note
made by the acceptor in favor of the drawer.
If the promissory note is payable to the order of the maker,
the instrument is not complete until endorsed by the maker.
c) The drawee; or
It is in effect an authorization given to the drawee to pay
himself from the funds belonging to the drawer which are in
the possession of the drawee.
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. (because the payee is
required to indorse the instrument, hence must be named or otherwise
indicated with reasonable certainty)
An instrument payable to order is negotiated by indorsement and
delivery.
(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
Fictitious person means a person who has no right to the
instrument because the drawer or the maker of it so intended
may be one who is living or dead or one who never
existed.
d) When the name of the payee does not purport to be the name of any
person; or (e.g. pay to cash)
e) When the only or last indorsement is an indorsement in blank.
A bearer instrument is negotiated by mere delivery.
E. Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty (applicable only to a bill of
exchange).
PROVISIONS NOT AFFECTTING NEGOTIABILTY
(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 (for then
the instrument would no longer be payable in sum certain in money). 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
Arises when the transaction, which gives rise to the instrument, is secured by
a mortgage or pledge.
The additional act of selling is to be executed after the date of maturity.
b) authorizes a confession of judgment if the instrument be not paid at maturity; or
the kind of confession referred here is COGNOVIT ACTIONEM which is a
written confession of an action by a defendant, subscribed, but not sealed,
and irrevocably authorizing any attorney of any court of record to confess
judgment and issue execution usually for a sum named the purpose is to
save expenses of litigation.
c) waives the benefit of any law intended for the advantage or protection of the obligor;
or (e.g. waiver of notice of dishonor)
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 d) gives the holder an election to require something to be done in lieu of payment of
money.
The instrument remains negotiable because the right to choose is in the
hands of any holder.
But nothing in this section shall validate any provision or stipulation otherwise illegal.
(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
Where the instrument is not dated, it will be considered to be dated as of the
time it was issued (Sec. 17[c]).
In the following cases, however, the date is important and necessary:
a. For determining when instrument, indorsement or acceptance is due
(maturity).
b. Determining prescription of cause of action.
b) does not specify the value given, or that any value had been given therefor; or
(valuable consideration is presumed Sec. 24)
c) does not specify the place where it is drawn or the place where it is payable; or
(Sec. 73.) Place of presentment. - Presentment for payment is made at the proper place:
a) Where a place of payment is specified in the instrument and it is there
presented;
b) Where no place of payment is specified but the address of the person to
make payment is given in the instrument and it is there presented;
c) Where no place of payment is specified and no address is given and the
instrument is presented at the usual place of business or residence of the
person to make payment;
d) In any other case if presented to the person to make payment wherever he
can be found, or if presented at his last known place of business or
residence.
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.
CONTRUCTION
(Sec. 10.) Terms, when sufficient. - The instrument need not follow the language of this Act,
but any terms are sufficient which clearly indicate an intention to conform to the requirements
hereof. (substantial compliance)
(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;
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.
PRESUMPTION AS TO DATE
(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.
Applicability of this section:
i. The instrument contains the date is issue.
ii. If bill was accepted, the acceptance is dated.
iii. If the instrument was endorsed, endorsement is dated.
Effect of antedating and post-dating (Sec. 12) the antedated or post-dated
instrument is not rendered invalid or non-negotiable unless done for an illegal
or fraudulent purpose. It may be negotiated before or after the date given as
long as it is not negotiated after its maturity.
WHEN DATE MAY BE INSERTED (Sec. 13)
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 1. When instrument is payable at a fixed period after date the holder may insert the
date of issue.
2. When the instrument is payable at a fixed period after sight the holder may insert
the date of acceptance.
Effect of insertion of a wrong date it does not avoid the instrument in the hands
of a holder in due course.
STEPS IN EXECUTION OF A NEGOTIABLE INSTRUMENT
1. The act of writing the instrument completely (must conform with the requirements set
forth in section 1)
2. The delivery of the instrument to someone with an intention of giving effect to it.
DEFECT IN THE EXECUTION, EFFECTS
INCOMPLETE AND DELIVERED (Sec. 14)
The person in possession of an instrument wanting of any material particular
(other than the amount) has prima facie authority to complete it by filling up the
blanks therein.
Requisites prima facie authority to fill up the amount:
a. Signature appearing in a blank instrument;
b. The person signing in blank delivers it in order that the paper be
converted into a negotiable instrument. Thus, mere possession is not
enough.
Requisites to hold prior parties liable:
a. The blank must be filled up in accordance with the authority given.
b. It was filled up within a reasonable time.
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.
SUMMARY: where the instrument is incomplete and delivered, but completed
contrary to the authority given, or not completed within a reasonable time:
o As to a holder in due course he can enforce the instrument as
completed against parties prior or subsequent to the completion.
o As to a holder not in due course he can enforce the instrument as
completed only against parties subsequent to completion but not against
those prior thereto.
The party signing the instrument prior to its delivery has a personal defense only.
INCOMPLETE AND UNDELIVERED (Sec. 15)
Effects of want of completion and delivery the instrument 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
o The non-delivery of an incomplete instrument is a valid defense, not only
between the original parties but also against a holder in due course.
o The holder of an originally incomplete and undelivered instrument may
enforce payment against parties signing the instrument after its
completion
The party signing the instrument prior to its delivery has a personal defense only.
COMPLETE AND UNDELIVERED (Sec. 16)
Simplified Rules:
a. Every complete instrument must be delivered;
b. Before delivery, such instrument is revocable;
c. The delivery must ne authorized;
d. If properly authorized, the delivery as against parties who know, may be
shown to have been made conditionally or for a special purpose;
e. Where the instrument is no longer in the possession of a party whose
signature appears thereon, delivery by him is disputably presumed it
can be shown by evidence that there was delivery or that the bill or note
was stolen.
f. If the instrument is in the hands of a holder in due course, a valid delivery
is conclusively presumed and prior parties may therefore be held liable.
GENERAL RULE: No person is liable upon an instrument whose signature does not appear
thereon. (Sec. 18)
EXCEPTIONS:
1. Signing in a trade or assumed name (Sec. 18)
2. Signature of a duly authorized agent (Sec. 19-21) principal is liable.
Requisites in order for an agent to escape liability:
a. Agent is duly authorized.
b. He must indicate his capacity as an agent.
c. He must disclose or declare his principal.
Procuration is the act by which the principal gives power to another to act in his
place as he could himself. It is a warning that the agent has limited authority
3. Acceptance on a separate paper (Sec. 134)
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 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.
4. A promise to accept bill before it is drawn (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.
5. In case of forgery of signature of another person (Sec. 23)
FORGERY is the counterfeit making or fraudulent alteration of any writing, and
may consist in the signing of anothers name, or alteration in the name, amount,
description of the person and the like with intent to defraud.
o Forgery is a REAL DEFENSE a person whose signature was forged as
maker, drawer, payee or indorsee of a note or check was never a party or
never gave his consent to the contract which gave rise to the instrument.
o The burden of proving lies on the party alleging forgery.
EFFECTS:
a. It is wholly inoperative;
Extent and effect of forgery:
i. Only the signature forged or made without authority is the one
inoperative, the instrument itself and the genuine signatures are
valid.
ii. The instrument can be enforced by the holder to whose title over
the instrument the forged signature is not necessary, such as, an
instrument indorsed which on its face is payable to bearer.
b. No right to retain the instrument;
c. No right to give discharge therefore;
d. No right to enforce payment thereof against any party thereto.
General Rule: No right or title can be acquired through or under a forged or
unauthorized signature.
o Exceptions:
a. Unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.
Person precluded from setting defense of forgery:
1. Those persons who by their acts, silence, or negligence are
estopped from setting the defense of forgery (persons by
estoppel).
2. Those persons by specific provisions of law warrant the
genuineness of the signatures appearing in the instrument,
such as, the indorser, acceptor, and person negotiating by
delivery.
b. Forged signature is not necessary to the holders title, in which case,
the forgery may be disregarded.
Rights of parties whose signature was forged:
o He may claim from prior parties;
o He may ask for the execution of another instrument from the
maker/drawer.
Rights of the holder after forgery.
o If payable to bearer: (the issue is on the delivery, thus, determine
whether or not the holder is in due course)
a. All parties are liable to a holder.
b. The forgery is immaterial because the instrument is negotiated by
mere delivery without indorsement.
o If payable to order:
a. Where the indorsement is forged, the parties prior to the forgery are
not liable while the subsequent parties are the ones liable because
the instrument is negotiated by delivery with indorsement.
In a bill of exchange, where the drawee bank accepts and pays a forged check,
the remedy is against the party responsible for the alteration. It is true that when
the indorsement is forged, the collecting bank or last indorser, as a general rule,
bears the loss BUT the unqualified indorsement of the collecting bank on the
check should be read together with the 24-hour regulation on the clearing house
operations. Once the 24-hour period is over, the liability of the collecting bank in
such an indorsement has ceased.
Forgery of the drawers signature must be distinguished from the forgery of the
indorsers signature.
o The drawee is in a position to verify the drawers signature by
comparison with one in his hands, but has ordinarily no opportunity to
verify an indorsement.
o Thus, a drawee bank is generally liable to its depositor in paying a check
which bears a forgery of the drawers signature or a forged indorsement.
But the bank may as, a general rule, recover back the money which it
has paid on a check bearing a forged indorsement, whereas it has not
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 this right to the same extent with reference to a check bearing a forgery
of the drawers signature.
Right of drawee to recover payment where payees or indorsers signature was
forged.
o From the encasher or last indorser
The drawee bank does not have the duty to ascertain whether
the signature of the payee or indorser is genuine or not. The
indorser is supposed to warrant to the drawee bank that the
signatures of the payee and previous indorsers are genuine,
warranty not extending only to holders in due course.
One who purchases a check or draft is bound to satisfy himself
that the paper is genuine and that by indorsing it or presenting it
for payment or putting into circulation before presentation, he
impliedly asserts that he has performed his duty and the drawee
who has paid the forged check, without negligence on his part,
may recover the money from such negligent purchasers.
o From the drawer or depositor.
As a rule, the drawee bank cannot debit or charge the drawers
account for the amount of said check and is not entitled to
indemnification from the drawer, EXCEPT when the drawer is
guilty of such negligence which causes the bank to honor such
check.
EFFECT OF INDORSEMENT BY AN INFANT OR CORPORATION (Sec. 22)
The indorsement or assignment passes the property therein, notwithstanding that
for want of capacity the corporation or infant may incur no liability thereon.
As a rule, a minor cannot give consent and a contract entered into by him is
VOIDABLE. In like manner, a corporation cannot perform acts beyond the scope
of their authority.
CONSIDERATION
(Sec. 24.) Presumption of consideration. - Every negotiable instrument is deemed prima facie
to have been issued for a valuable consideration (not necessarily adequate or enough); and
every person whose signature appears thereon to have become a party thereto for value.
The party who did not receive any value must prove absence of such.
(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.
In general, consideration means the inducement to a contract, that is, the casue,
price, or impelling influence which induces a contracting party to enter into a
contract.
(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.
If the loan is greater is less than the value of the instrument, the excess will be
held by the holder as trustee for the pledger.
(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.
Kinds of Holder:
a. Holder for value;
b. Holder in due course; and
c. Holder not in due course.
(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.
If there is a total absence or failure of consideration, the defense is only against
persons who are not holders in due course.
o With respect to holders in due course, the presumption of valuable
consideration is conclusive.
And only partial defense if it is partial failure.
Distinguish: WANT or ABSENCE of consideration embraces transactions where no
consideration was intended to pass, while FAILURE of consideration implies that the
giving of valuable consideration was contemplated but that it failed to pass.
(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 (definition). 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. (Collateral Assurance)
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NEGOTIATION
(Sec. 30.) NEGOTIATION is the transfer of an instrument from one person to another in
such manner as to constitute the transferee the holder of the instrument.
How Negotiation is effected:
1. If the instrument is payable to order by indorsement AND delivery.
Without a valid indorsement, the instrument in effect is transferred not
through negotiation but only through assignment; in which, the assignee
is merely placed in the position of the assignor.
2. If the instrument is payable to bearer by delivery ONLY.
DELIVERY is the transfer of possession, actual or constructive, from
person to another.
INDORSEMENT is the writing of the name of the payee on the
instrument with the intent either to transfer the title to the same, or to
strengthen the security of the holder by assuming a contingent liability for
its future payment, or both.
Assignment and Negotiation, Distinguished:
a. Assignability pertains to contracts in general, while negotiability pertains
only to a special class of contracts, negotiable instruments.
b. A person who takes the instrument by negotiation takes it free from all
equities; while a person who takes an instrument by assignment takes it
subject to the equities incident to it.
c. One who negotiates a negotiable instrument is not liable unless there be
presentment for payment at maturity and in certain cases presentment
for protest and prompt notice of dishonor, while an assignor is not entitled
to notice of non-payment at maturity.
d. One who negotiates a negotiable instrument is liable to a holder in due
course on the face of the instrument without regards to the consideration
received and without regards to the solvency or insolvency of the party
primarily liable on the instrument; while an assignor is liable only for the
loss suffered by the assignee for any breach of warranties by the
assignor.
e. A holder in due course is subject only to real defenses and may acquire a
better title or greater rights under the instrument than those possessed
by the transferor; while an assignee is subject to both real and personal
defenses as the latter generally steps into the shoes of the assignor.
(Sec. 31.) How indorsement made. it must be WRITTEN:
a) On the instrument itself
b) Upon a paper attached thereto (ALLONGE) it must be tacked or pasted on the
instrument so as to become part of it.
(Sec. 32.) General Rule: Indorsement must be of the entire instrument.
Purpose: To avoid multiplicity of suits.
Exception: If part of the amount has already been paid, the unpaid balance may be
Indorsed as this is expressly authorized by law.
A partial indorsement leaving the balance without unpaid, is not a
valid negotiation, thus, the instrument becomes non-negotiable. And
the indorsee will not be considered as a holder but merely an
assignee.
RULES:
1. An indorsement which purports to transfer to the indorsee a part only of
the amount payable is NOT a valid negotiation, EXCEPT where the
instrument has been paid in part, it may be indorsed as to the residue.
2. An indorsement which purports to transfer the instrument to two or more
indorsees severally, is likewise NOT a valid negotiation.
KINDS OF INDORSEMENT (Sec. 33.)
1. SPECIAL (Sec. 34.) specifies the person to whom, or to whose order, the
instrument is payable; Indorsement of the indorsee is necessary to the further
negotiation.
a) Instrument is originally payable to order Where the instrument is negotiated by
the payee by blank indorsement, in which case, an indorsee is not specified, the
instrument so indorsed becomes payable to bearer, and thus, may be negotiated
by delivery.
b) Instrument is originally payable to bearer it can further be negotiated by mere
delivery, even if the original bearer negotiated it by special indorsement.
(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.
2. BLANK (Sec. 35.) where the indorsement is signed by the indorser but without
specifying or naming the indorsee; the holder may convert a blank instrument into a
special indorsement by writing over the signature of the indorser in blank any contract
consistent with the character of the indorsement.
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 EFFECT: it does not destroy the negotiability of the instrument.
3. RESTRICTIVE (Sec. 36.) one which prohibits the negotiability of the instrument to a
particular person or for a particular purpose; an indorsement is restrictive, which 5. ABSOLUTE one by which the indorser binds himself to pay, upon no other
EITHER: condition than the failure of prior parties to do so, and of due notice to him of such
a) Prohibits the further negotiation of the instrument; or failure.
b) Constitutes the indorsee the agent of the indorser; or
c) Vests title in the indorsee in trust for or to the use of some other person. 6. CONDITIONAL (Sec. 39.) one by which the indorser annexes some other condition
BUT the mere absence of words implying power to negotiate does not make an to his liability, that is, where there is some condition in the indorsement.
indorsement restrictive.
A restrictive indorsee is always named.
EFFECTS:
Restrictive indorsements is generally categorized into two (2):
a. That which limits, restricts, modifies rights of the indorsee or
holder; I. MAKER or ACCEPTOR
b. That which stops or prohibits altogether further negotiation of the 1. Before the condition is fulfilled:
a) He may refuse to pay, or
instrument.
b) Pay to the indorsee or transferee even before the condition
is fulfilled person who receives the payment holds the
(Sec. 37.) Rights of Indorsee, in case of restrictive indorsement:
1) To receive payment proceeds only in trust for the person indorsing conditionally,
2) To sue or to bring any action thereon that the indorser could bring but and does not acquire title until the condition is fulfilled.
2. After fulfillment of the condition:
he takes the instrument subject to all equities between the indorser and
a) He is obliged to pay.
the maker.
3) To transfer his rights, where the form of the indorsement authorizes him
to do so.
BUT all subsequent indorsees acquire only the title of the first indorsee
II. INDORSER
under the restrictive indorsement.
A restrictive indorsement operates as notice to all persons that
1. When the condition was not fulfilled the indorsement carries with
it notice of the condition expressed, and is not binding on the
the indorser has not parted with his title to the instrument, and
indorser, if the condition was not fulfilled.
did not intend to transfer it or its proceeds to the indorsee, but
the indorsee is only constituted as an agent for collection, and
2. After the condition was fulfilled a conditional indorsement is a
any subsequent holder taking the instrument from the indorsee contract, and the person who makes it is bound by it, provided the
will be liable to him for the instrument or its proceeds when conditions were fulfilled.
III. INDORSEE
collected.
1. Before condition is fulfilled any person to whom an instrument
4. QUALIFIED (Sec. 38.) constitutes the indorser a mere assignor of the title to the conditionally indorsed is negotiated, will hold the same or the
instrument. Thus, he does not warrant the solvency or financial responsibility of the proceeds thereof subject to the rights of the person indorsing
maker. conditionally.
HOW MADE: By adding to the indorsers signature the words without recourse 2. After fulfillment of the condition if the condition was fulfilled, the
or any words of similar import to limit the liability of the indorser, which renders indorsee or his transferee will acquire ownership of the instrument or
him a mere assignor of the title to the indorsement and relieves him from all the proceeds thereof.
responsibility for its payment except as to other warranties provided by law.
Qualified indorser warrants that the instrument is genuine.

9
 6. JOINT (Sec. 41.) where an instrument is payable to the order of two or more
payees or indorsees, ALL must indorse. If only one will indorse, it will not pass title to
the instrument because to be valid, indorsement must be for the entire instrument.
EXCEPTIONS:
a) When the payee or indorsee indorsing has authority to indorse for the
others;
b) Where the payees or indorsees are partners.
7. SUCCESSIVE (Sec. 68.) with respect one another, indorsers are liable prima facie
in the order in which they indorse.
The liability of the every indorser extends to all indorsers subsequent to him but
not those prior to him.
8. IRREGULAR (Sec. 64.) one who indorses the instrument in an unusual manner, or
in a singular or peculiar manner. His name appears where we would naturally expect
another name.
RULES: LIABILITY, where a person, not otherwise a party to an instrument,
places his signature thereon in blank before delivery, he is liable as an indorser:
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.
9. FACULTATIVE (Sec. 111.) the indorser enlarges his liability by waiving usual
demand and notice of dishonor.
(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.
Who may indorse?
1. The corporation or bank itself, represented by the officers as provided for
in the by-laws.
2. Officers to whom the instrument is payable.
(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 (a) indorse the instrument as therein
described (b) adding, if he thinks fit, his proper signature.
(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. (same rule as agent)
(Sec. 45.) Time of indorsement; presumption. (Exception) Except where an indorsement
bears date after the maturity of the instrument, (General Rule) every negotiation is deemed
prima facie to have been effected before the instrument was overdue.
Importance: to determine whether or not the holder is in due course.
(Sec. 46.) Place of indorsement; presumption. (Exception) Except where the contrary
appears, (General Rule) every indorsement is presumed prima facie to have been made at
the place where the instrument is dated.
Importance: the place of indorsement is sometimes material because an
instrument is governed by the laws of the state where it was indorsed, although
the instrument was drawn or made in a different state. It shall also determine the
venue of action in case a party decides to file a case against an indorser.
(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.
An instrument originally negotiable can be rendered non-negotiable only by:
a) Restrictive indorsement do not refer to every restrictive indorsement
but only to restrictive indorsement that prohibits the further negotiation of
the instrument.
An instrument restrictively indorsed ceases to be negotiable only to
the extent of the restriction indicated by the indorsement.
b) By discharge thereof by payment or otherwise.
After maturity date the instrument continues to be negotiable but
the transferee after maturity is not a holder in due course, and
therefore, is not free from defenses obtaining between prior parties.
Transfer to such transferees would be equivalent to a mere
assignment and subject to defenses.
Rights of a holder NOT in due course he may still collect from the
persons liable on the instrument, but is subject to the defenses as if it
were non-negotiable.
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(Sec. 48.) Striking out indorsement. - The holder may at any time strike out any indorsement
which is not necessary to his title. (EFFECT) The indorser whose indorsement is struck out,
and all indorsers subsequent to him, are thereby relieved from liability on the instrument.
a) Indorsement NOT necessary to holders title:
The holder may at any time strike out any indorsement which is not
necessary to his title.
He may strike out all intervening indorsements and aver that the first
holder indorsed immediately to him.
The striking out of such indorsement does not destroy the presumption
that the one in possessions is the holder thereof.
b) Indorsement necessary to holders title:
Where the instrument is transferred by a special indorsement, the holder
has no right to strike out the name of the person mentioned in such
indorsement and insert his name in the place thereof.
Nor can strike out such name and convert such special indorsement into
a blank indorsement.
The holder who acquires title subsequent to the succeeding special
indorsement must trace his title not only through the blank indorsement
but through the special indorsement as well.
(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.
Applicability: applies only to an instrument payable to order. It contemplates a
situation where there is delivery and payment of value but the instrument was not
indorsed.
Transferee herein, cannot be considered as HOLDER because the instrument was
not indorsed to him. The legal terms are possessor, transferee or assignee.
The bill, in effect, is merely assigned and not negotiated.
Rights of the transferee:
a) He can collect payment from maker/drawer because the transfer vests in the
transferee such title as the transferor had therein.
b) He has also the right to require the transferor to indorse the instrument to him.
c) If the instrument was indorsed, he can now negotiate the instrument.
The time in determining when the transferee is a holder in due course is at the time of
actual indorsement and not at the time of delivery.
Since the transferee does not become a holder but a mere assignee, he cannot
therefore have the rights of a holder in due course. In the event that the bill is later on
indorsed to the transferee, as such he becomes a holder, it is only at that time that
the law will determine whether or not he is a holder in due course.
(Sec. 50.) When prior party may negotiate instrument. - Where an instrument is negotiated
back to a prior party, such party may, subject to the provisions of this Act, reissue and further
negotiate the same. But he is not entitled to enforce payment thereof against any intervening
party to whom he was personally liable.
Rights of a prior party to negotiate:
a) He may reissue and further negotiate the same, EXCEPT:
1. Where it is payable to the order of a third person, and has been paid by the
drawer;
2. Where it was made or accepted for accommodation, and has been paid by
the party accommodated.
b) But he is not entitled to enforce payment thereof against any intervening party
whom he was personally liable the purpose is to avoid circuity of suits.
RIGHTS OF THE HOLDER
Who is a HOLDER? He is the PAYEE or INDORSEE of a bill or note who is in
possession of it, or the bearer thereof.
o A drawee, therefore, cannot be considered as a holder of a negotiable paper
because when he accepts and pays the instrument, he reduces it to mere
voucher or proof of payment.
(Sec. 51.) Right of holder to sue; payment. - The holder of a negotiable instrument may to sue
thereon in his own name; and payment to him in due course discharges the instrument.
Rights of a holder in general:
a. To sue on the instrument in his own name;
The party holding the instrument with legal title to it may sue in his own
name, although there are parties beneficially interested in it.
Thus, an agent or pledgee can collect from the person principally liable,
and if the instrument is dishonored because of non-payment, the agent
or pledgee can file an action in his own name.
b. To receive payment and if payment is in due course, the instrument is
discharged.
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 (Sec. 88.) What constitutes payment in due course. - Payment is made in due
course when it is made at or after the maturity of the payment to the holder
thereof in good faith and without notice that his title is defective.
(Sec. 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:
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
(instance when the burden of proving is shifted to the holder). 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.
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;
Art. 1355, NCC states that except in cases specified in law, lesion or
inadequacy of cause shall not invalidate a contract, unless there has
been fraud, mistake or undue influence.
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.
(Sec. 53.) When person not deemed holder in due course. - Where an instrument payable on
demand is negotiated on an unreasonable length of time after its issue (depends upon the
circumstances of time, person and place), the holder is not deemed a holder in due course.
Applicability: only to instruments which are payable on demand.
When the instrument is payable at a fixed or determinable future time, the
holder is not considered a holder in due course after maturity date.
(Sec. 54.) Notice before full amount is paid. - Where the transferee receives notice of any
infirmity in the instrument or defect in the title of the person negotiating the same before he
has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course
only to the extent of the amount therefore paid by him.
(Sec. 55.) When title defective. - The title of a person who negotiates an instrument is
defective within the meaning of this Act when he (a) obtained the instrument, or any signature
thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal
consideration, or (b) 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 constitute notice of an infirmity in the
instrument or defect in the title of the person negotiating the same, the person to whom it is
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.
A holder in due course can acquire a better title than his predecessors because he
takes the instrument free from defenses available to prior parties.
A holder not in due course on the other hand, takes the instrument subject to all
defenses because he is treated as a transferee of a non-negotiable paper.
(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.
In sum, a holder in due course has the following rights:
1. He may sue on the instrument in his own name.
2. He may receive payment and if payment is in due course, the instrument is
discharged.
3. He holds the instrument free from any defect of title of prior parties.
4. He holds the instrument free from defenses available to prior parties among
themselves.
5. He may enforce payment of the instrument for the full amount thereof against
all parties liable.
Only PERSONAL defenses are covered in this section, to which a holder in due
course is free. Thus, only REAL defenses are available against a holder in due
course.
Kinds of defenses in general:
a. REAL or ABSOLUTE or LEGAL defenses attached to the instrument
itself and can be set up against the whole world including the holder in
due course. It is a defense against everybody because the right to be
enforced has never existed, or ceased to exist.
Although an instrument subject to a real defense cannot be enforced,
this refers only against persons to whom the legal defense is
available.
Examples:
o Incapacity of the party
o Illegal contract
o Forgery
o Fraud in factum exists in those cases in which a person,
without negligence, has signed an instrument, which, in fact,
a negotiable instrument, but was deceived as to the
12
 character of the instrument and without knowledge of it. The
instrument is procured in such a manner that it is without the
assent of the signer and not a voluntary act on his part.
o Fraudulent alteration
o Incomplete and undelivered instrument
b. PERSONAL and EQUITABLE defenses those which are personal to
the person or subsequent holder against whom the instrument is being
enforced. These defenses grow out of the agreement or conduct of a
particular person which renders it inequitable for him to enforce it against
the party sought to be made liable, but not available against the holder in
due course.
Examples:
o Absence or failure of consideration
o Simple fraud or fraud in inducement under Art. 1338, NCC
there is fraud when, through insidious words or machination of one
of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. This is
a matter of negligence.
o Filing up of blanks not in accordance with the authority given
o Want of delivery of complete instrument
o Innocent alteration or spoliation are alterations made by
strangers to the instrument
o Acquisition of the signature in the instrument by force or fear
(Sec. 58.) When subject to original defense. - In the hands of any holder other than a holder
in due course, a negotiable instrument is subject to the same defenses as if it were non-
negotiable. But a holder who derives his title through a holder in due course, and who is not
himself a party to any fraud or illegality affecting the instrument, has all the rights of such
former holder in respect of all parties prior to the latter.
Rights of a holder NOT in due course:
1. He may sue on the instrument.
2. He may receive payment.
3. He holds the instrument subject to the same defenses as if it were non-
negotiable.
4. He may enforce payment provided he is not himself a party to any fraud or
illegality.
GENERAL RULE: equitable or personal defenses can be set up or interposed against
a holder not in due course.
EXCEPTION: if a holder derives his title through a holder in due course and who
is not a party to any fraud or illegality affecting the instrument, because the
former has all the rights of such holder in respect to all parties prior to the latter.
o However, a holder not in due course reacquiring the instrument from a
holder in due course shall be subject to the same defenses to which it
would have been subject as if the paper had never passed through the
hands of holder in due course.
LIABILITIES (or warranties) OF PARTIES
Classification of parties according to liability:
a. Primarily liable unconditionally liable; the primary party is absolutely
required to pay the instrument upon its maturity.
i. Maker
ii. Acceptor of a bill of exchange
The DRAWEE is not liable, until he accepts the instrument, in
which case he becomes an acceptor.
b. Secondarily liable undertakes to pay the instrument only after certain
conditions have been fulfilled, to wit; due presentment for payment or
acceptance to primary party; dishonor by such party; and the taking of
proceedings required by law after dishonor
i. Drawer
ii. Indorser
Sec. 192. Persons primarily liable on 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. 60.) Liability of MAKER. - The maker of a negotiable instrument, by making it, engages
(a) that he will pay it according to its tenor, and (b) admits the existence of the payee and his
then capacity to indorse.
13
(Sec. 61.) Liability of DRAWER. - The drawer by drawing the instrument (a) admits the
existence of the payee and his then capacity to indorse; and (b) engages that, on due
presentment, the instrument will be accepted or paid, or both, according to its tenor, and (c)
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 (exclusive to a drawer, and not available to a maker).
The following conditions are necessary to make the drawer liable:
a. The bill is presented to the drawee for acceptance or for payment.
b. The drawee dishonored the bill by non-acceptance or non-payment.
c. The necessary proceedings on dishonor are duly taken, such as notice of
dishonor to the drawer, if inland bill, or protest and notice of protest for foreign
bills.
(Sec. 62.) Liability of ACCEPTOR. - The acceptor, by accepting the instrument, (a) engages
that he will pay it according to the tenor of his acceptance,
While the maker engages to pay the instrument according to its original tenor, an
acceptor engages to pay instead according to the tenor of his acceptance.
The tenor of acceptance may be different from the tenor of the bill but if the
acceptor accepts the bill in general terms or unqualifiedly, then the tenor of the bill is
the tenor of its acceptance.
Where the original tenor is altered before acceptance:
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. 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.
It follows, therefore, that the acceptor is liable to the actual amount he is ordered
to pay, such that, if a bank as drawee encashed a check on which the amount is
altered, the bank can recover from the recipient the excess amount paid because
this is considered payment by mistake.
and (b) 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.
The acceptor by his acceptance admits:
a. The drawers existence.
b. The genuineness of the drawers signature.
c. The capacity and authority of the drawer to draw the instrument.
d. The existence of the payee and his then capacity to indorse.
Effect of drawees admission:
a. Acceptor is precluded from setting up the defense that the drawer is non-
existent or fictitious because of his admission of the drawers existence.
b. Precluded from setting up forgery because he admits the genuineness of the
drawers signature.
c. Cannot escape liability by alleging:
i. Want of consideration between and the drawer;
ii. Drawer is incapacitated, because upon acceptance he warrants
the capacity and authority of the drawer to draw the instrument.
(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. 17 (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;
An indorser is chargeable only after presentment and notice of dishonor.
A. Liability of irregular indorser (Sec. 64) - 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.
IRREGULAR INDORSER one who indorses the instrument in an unusual
(anomalous) manner, or in a singular or peculiar manner.
This section is applicable only when a person, who is not a party to the
instrument, places his signature on an instrument in blank before the initial
delivery.
B. Liability of general indorser (Sec. 66) - Every indorser who indorses without
qualification, warrants to all subsequent holders in due course:
a. The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; and
14
 b. That the instrument is, at the time of his indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or
paid, or both, as the case may be, 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.
A general indorser warrants:
a. That the instrument is genuine and in all respects what it purports to
be.
b. That he has good title to it.
c. That all prior parties had capacity to contract.
d. That the instrument is, at the time of his indorsement, valid and
subsisting.
e. That the instrument, on due presentment, shall be accepted or paid,
or both, and if 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.
Distinction: a GENERAL INDORSER warrants that the instrument he is
indorsing is valid and subsisting regardless of whether he is ignorant of the
fact or not, while a QUALIFIED INDORSER or Person negotiating by delivery
warrants that he is ignorant of any fact that will render the instrument
valueless or impair its validity.
To whom warranties extend?
a. Subsequent holders in due course (Sec. 66).
b. Persons who derive their title from holders in due course (Sec. 58).
c. Immediate transferee, even if they are not holders in due course.
A general indorser warrants the solvency of the principal debtor, such that, if
the holder of the instrument cannot collect from the maker because of
insolvency, the general indorser is liable.
C. Warranty where negotiation by delivery and so forth (Sec. 65.) 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.
Qualified Indorsement is made by adding words without recourse, or
sans recourse, or at the indorsees own risk. It means that the indorser
is not liable if the maker is insolvent.
A qualified indorser or a person negotiating by delivery does not
guarantee the financial responsibility of parties on the instrument. Neither
the solvency or refusal of the party primarily liable shall render him liable
to the holder, unless he is guilty of violating any of the four warranties
stated in this section.
To whom warranties extend?
o Person negotiating by delivery warranties extends in favor of
no holder other than the immediate transferee.
Liability of indorser where paper negotiable by delivery (Sec.
67) Where a person places his indorsement on an
instrument negotiable by delivery, he incurs all the liability of an
indorser.
o Qualified indorser warranties extends to all parties who derive
title through his indorsement.
(Sec. 68.) Order in which indorsers are liable. - As respect one another, indorsers are liable
prima facie in the order in which they indorse (contemplates successive indorsements and
negotiation); 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 (solidary).
Coverage: This section applies only among indorsers. The liability of every indorser
extends to all indorsers subsequent to him but not to those prior to him.
As to the holder, they are liable in any order. An indorser cannot allege against the
holder that there was an agreement among themselves that one indorser should be
held liable.
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.
Application: applies only to an instrument payable to bearer.
The warranties are those states in Sec. 65.
To escape personal liability, he must:
o Disclose his principal,
o And state that he is only acting as an agent.
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 BROKER one whose occupation is to bring the parties together, in matters of trade,
commerce or navigation.
AGENT maintains a relation not only with his principal and purchasers or vendors
but also with the property, which is the subject matter of the transaction.
PRESENTATION FOR PAYMENT
Presentment of payment means the production of a bill of exchange to the drawee
or acceptor for payment or the production of a promissory note to the party liable for
payment of the same.
It consists of a personal demand for payment at the proper place with the bill or note
in readiness to exhibit it if required, and to receive payment and surrender it if the
debtor is willing to pay.
Summary of Rules as to Presentment for payment:
1) Presentment is not necessary to charge persons primarily liable but is necessary
to charge persons secondarily liable (Sec. 70).
2) Presentment is not necessary to charge persons secondarily liable, in the
following cases:
a. As to drawer, under Sec. 79.
b. As to indorser, under Sec. 80.
c. When presentment is dispensed with under Sec. 82.
d. When the bill has been dishonored by non-acceptance as provided in
Sec. 151.
(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.
Necessity of presentment:
o Against person secondarily liable: unless presentment for payment is
dispensed with under Sec. 88, presentment is required to charge the parties
secondarily liable, otherwise they are discharged from liability.
o Against a party principally liable: the holder of a note or bill does not have to
make a presentment of a note or bill in order that he may have right of action
against a party primarily liable. The failure to make the presentment would
not even put the holder in default notwithstanding that the instrument is
overdue and unpaid.
The operative act that makes a drawee liable is his acceptance of the bill.
When instrument payable at a special place? When it is payable at a particular bank
or firm or a particular address.
o Presentment at such place is not necessary to charge the maker, but merely
to relieve him from liability for damages.
o In like manner, if the holder of a note does not present his note for payment
where payment is tendered, he does not thereby forfeit his debt, but only the
costs of collecting it elsewhere.
Necessary steps to charge persons secondarily liable:
o In a PROMISSORY NOTE:
a. Unless excused, presentment for payment must be made within the
period required (see secs. 143 and 144), to the persons primarily
liable.
b. Unless excused, if the note is dishonored by non-payment, notice of
dishonor by non-payment must be given to the persons secondarily
liable.
o In a BILL OF EXCHANGE:
a. Presentment for acceptance to the drawee must be within a
reasonable time after acquisition unless excused in the three case
provided by law under secs. 143, 144, and 148.
b. If bill is dishonored by non-acceptance.
i. Notice of dishonor by non-acceptance must be given to
persons secondarily liable unless excused and,
ii. In case of foreign bills, protest for dishonor by non-
acceptance must be made unless excused.
c. If the bill is accepted, or if bill is not required to be presented for
payment to the persons primarily liable, unless excused.
d. If the bill is dishonored by non-payment.
i. Notice o dishonor by non-payment must also be given to
person secondarily liable, unless excused and,
ii. In case of foreign bills a protest for dishonor by non-
payment must be made, unless excused.
(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.
Instrument payable at a fixed or determinable future time presentment must be
made on the date of maturity. Payment before maturity is not proper and is not
considered as payment in due course.
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 o Presentment before maturity is not sufficient notice to the makers
reminding them of the date when the note would fall due.
Instrument payable on demand
o Promissory note presentment for payment must be made within a
reasonable time after its issuance.
o Bill of exchange presentment for payment must be made within a
reasonable time after the last negotiation (which is the last transfer for
value) thereof.
(Sec. 72.) What constitutes a sufficient presentment. - Presentment for payment, to be
sufficient, must be made: (the effect of failure to comply with any of the requisites is the same
as if no presentment is made and consequently, the persons secondarily liable are
discharged.
a. (By whom?) By the holder, or by some person authorized to receive payment on his
behalf;
b. (When?) At a reasonable hour on a business day;
must be during business hours, which depends upon the general custom of the
place of the particular transaction.
c. (Where?) At a proper place as herein defined; (discussed in sec. 73)
d. (To whom?) 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.
Presentment for payment must be made to the person principally liable; the
maker, in case of promissory note; and the acceptor, in case of bill of
exchange.
If the bill of exchange if payable on demand, the presentment must be made
to the drawee although he is not liable on the bill.
If the person is absent or inaccessible, it is sufficient that presentment be
made to any person found at the place of presentment.
(Sec. 73.) Place of presentment. - Presentment for payment is made at the proper place:
a. Where a place of payment is specified in the instrument and it is there presented;
b. Where no place of payment is specified but the address of the person to make
payment is given in the instrument and it is there presented;
c. Where no place of payment is specified and no address is given and the instrument
is presented at the usual place of business or residence of the person to make
payment;
d. In any other case if presented to the person to make payment wherever he can be
found, or if presented at his last known place of business or residence.
The enumeration is alternatively in order such that, the succeeding enumeration
shall not be proper if the one enumerated prior is to be applied.
(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.
The person demanding payment must present the note in his possession by
exhibiting it to the person required to pay. Thus, a mere informal talk asking
payment of a note, not accompanied with actual presentment or exhibition of the
instrument is not considered as presentment for payment.
Absent such required exhibition would make the presentment ineffectual. But the
instrument need not actually be exhibited unless such exhibition is demanded.
When the instrument is paid, it must be delivered to the party paying it, to give
protection to the one paying as proof that there was already payment made.
(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.
Where the instrument is payable to a bank, it is equivalent to an order to the bank
to make payment, for the account of the principal debtor (Sec. 87).
(Sec. 76.) Presentment where principal debtor is dead. - Where the person primarily liable on
the instrument is dead and no place of payment is specified, presentment for payment must
be made to his personal representative, if such there be, and if, with the exercise of
reasonable diligence, he can be found.
If a place of payment is specified, the payee is not required to present the note for
payment to the deceased makers representative at maturity. Presentment must be
made at the place specified in the instrument.
If the place of payment is, however, not specified, presentment for payment must be
made to his personal representative, if such there be, and if, with exercise of
reasonable diligence, he can be found.
(Sec. 77.) Presentment to persons liable as partners. - Where the persons primarily liable on
the instrument are liable as partners and no place of payment is specified, presentment for
payment may be made to any one of them, even though there has been a dissolution of the
firm.
(Sec. 78.) Presentment to joint debtors. - Where there are several persons, not partners,
primarily liable on the instrument and no place of payment is specified, presentment must be
made to them all.
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When two or more persons are primarily liable:
o Place of payment specified presentment should be made at the place
specified in the instrument.
o Place of payment not specified presentment must be made to them all. A
demand on one of several joint debtors my be made:
i. When they are partners; or
ii. When one is authorized by the other.
(Sec. 79.) When presentment not required to charge the drawer. - Presentment for payment
is not required in order to charge the drawer where he has no right to expect or require that
the drawee or acceptor will pay the instrument.
Presentment for payment is not required to charge a drawer of a check upon which
payment has been stopped.
Neither is it necessary to charge the drawer of a check where his bank balance is
less than the amount of the check, or the making of a check was a fraud upon the
part of the drawer, he is giving no funds in the bank, and no ground for a reasonable
expectation that it would be paid.
Indorsers, however, are discharged if the bill is not presented for payment.
(Sec. 80.) When presentment not required to charge the indorser. - Presentment is not
required in order to charge an indorser where the instrument was made or accepted for his
accommodation and he has no reason to expect that the instrument will be paid if presented.
REASON: the accommodated payee-indorser is the real debtor, and not the
maker or acceptor. Hence, he is not discharged even if no presentment for
payment is made to the maker or acceptor who, in substance, is a surety for the
debt.
(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.
Excusable circumstances, are those events which could not be foreseen, or which
though foreseen, are inevitable, or accidents which are unavoidable, and not
attributable to the fault of the holder.
(Sec. 82.) When presentment for payment is excused. - Presentment for payment is excused:
What is excused is the failure to make presentment for payment, not just the delay
of presenting the same, which is covered by Sec. 81.
a) Where, after the exercise of reasonable diligence, presentment, as
required by this Act, cannot be made; (impossibility of presentment)
Reasonable diligence implies active search.
b) Where the drawee is a fictitious person;
Because there is no one to whom presentment is to be made and,
therefore, it is dispensed with.
c) By waiver of presentment, express or implied. (waiver may be before or
after maturity)
(Sec. 83.) When instrument dishonored by non-payment. - The instrument is dishonored by
non-payment when:
a) It is duly presented for payment and payment is refused or cannot be
obtained; or
An instrument is dishonored by non-payment as long as it is not paid
although the primary party may be willing to pay.
b) Presentment is excused and the instrument is overdue and unpaid.
I.e.: if presentment is waived, the instrument is deemed dishonored if
it is overdue and unpaid even if the holder did not make any
presentment.
Although presentment may be excused, the indorser is still entitled to notice of
dishonor of the instrument by its being overdue and unpaid. But where there has
been no presentment for payment and presentment is not excused, the instrument is
not dishonored although it is already overdue and unpaid.
(Sec. 84.) Liability of person secondarily liable, when instrument dishonored. - Subject to the
provisions of this Act, when the instrument is dishonored by non-payment, an immediate right
of recourse to all parties secondarily liable thereon accrues to the holder.
When an instrument is dishonored and due notice is given to the parties secondarily
liable, that is, drawers and indorsers, the holder may proceed against any of them.
These parties cannot allege that the person principally liable is solvent. Right after
the dishonor and notice is given to them that they are considered as principal
debtors, unless notice is excused or dispensed with.
(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 instrument is
payable on the next succeeding business day. 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.
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(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. 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.
(Sec. 88.) What constitutes payment in due course. - Payment is made in due course when it
is made at or after the maturity of the payment to the holder thereof in good faith and without
notice that his title is defective.
Requisites of payment in due course:
a) It must be made at or after maturity consequently payment made before
maturity will not discharge the instrument.
b) It must be paid to the holder of the instrument payment to a person other than
the holder is at the risk of the party so paying if the person was not authorized by
the holder to receive payment.
c) It must be made in good faith and without notice that the holders title is defective
thus, where the payee notified the drawee of a cashiers check not to pay it
because he had lost it in gambling, it was held that payment to the winner under
payees indorsement did not discharge the banks obligation to the payee.
The party making the payment must insist on the presentment of the paper by the
party demanding payment in order to make sure that it is at that time in his
possession. After payment is made, the instrument must be delivered up to the one
paying it.
NOTICE OF DISHONOR
Notice of dishonor is the bringing either verbally or in writing, to the knowledge of the
drawer or indorser of an instrument, the fact that a specified negotiable instrument,
upon proper proceedings taken, has not been accepted, or has not been paid, and
that the party is expected to pay it.
Summary as to notice of dishonor:
1. Like presentment for payment, notice of dishonor need not be given to
persons principally or primarily liable in order to charge them.
2. But aside from presentment for payment to persons primarily liable, notice of
dishonor to persons secondarily liable is necessary charge the latter, except:
a. When notice is waived.
b. When notice is dispensed with under Sec. 112.
c. To the drawer under Sec. 114.
d. Where due notice of dishonor by non-acceptance has been given.
e. As to the holder in due course without 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.
Grounds: (a) non-acceptance; (b) non-payment.
Necessity of giving notice:
a. Persons primarily liable notice of dishonor need not be given the maker of note
or acceptor of a bill.
b. Persons secondarily liable notice must be given to the drawer and to each
indorser.
Purpose of notice: to enable the party to be charged to preserve and protect his
rights against prior parties and to make him liable to the holder.
Effect of failure to give notice any drawer or indorser to whom notice is nt given is
discharged, unless notice is dispensed with.
(Sec. 90.) By whom given. - The notice may be given (a) by or on behalf of the holder, or (b)
by or on behalf of any party to the instrument who might be compelled to pay it to the holder,
and who, upon taking it up, would have a right to reimbursement from the (prior) party to
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.
The agent need not be authorized.
(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.
Persons benefited by notice by or on behalf of the holder:
a. Holder himself.
b. All subsequent holders.
c. All prior parties who have a right of recourse against the party notified.
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(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.
This section applies when notice is given not by the holder, but by a party entitled to
give notice under Sec. 60, that is, by a party who might be compelled to pay it to the
holder, and who, upon taking it up, would have a right of reimbursement from the
party to whom notice is given. Such notice given inures to the benefit of:
a. The party giving the notice;
b. The holder;
c. All the parties subsequent to the party to whom notice is given.
(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.
Where an instrument is dishonored in the hands pf an agent, he may give notice:
a. To the parties liable thereon, or
b. To his principal.
Should the principal receive notice of dishonor from his agent, he is required to send
notice of dishonor to the drawer and each indorser. Upon receipt of such notice he
has the same time for giving notice as if the agent had been an independent holder.
(Sec. 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.
(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.
Notice of dishonor may be ORAL or WRITTEN.
o If the notice is in writing, the same need not be signed, and if sufficient, the
same may be supplemented and validated by verbal communication.
It must contain the following:
a. Sufficient description of the instrument to identify it.
b. A statement that it has been presented fro payment or for acceptance, and that it
has been dishonored.
c. If protest is required, a statement that it has been made.
d. A statement that the party giving notice intends to look to the party addressed for
payment.
Manner of giving notice: may be by personal delivery or by mail.
Notice by phone: may be allowed if it be clearly shown that the party to be notified as
the party is at the receiving end of the line.
Effect of misdescription: No misdescription of the amount, or of the date or of the
names of the parties, or of the time the paper falls due, or other defect vitiates the
notice of dishonor, unless it misleads the party to whom notice is sent.
(Sec. 97.) To whom notice may be given. - Notice of dishonor may be given either (a) to the
party himself or (b) to his agent in that behalf.
Consequently:
o An accommodation indorser is entitled to notice.
o An irregular indorser must also be given notice if he is to be charged.
o If notice is given to an agent, he must be duly authorized to receive notice of
dishonor. If he is not, the notice is not valid.
(Sec. 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.
Requisites for notice to representative (when person to whom notice of dishonor is to
be given):
a) His death is known to the party giving notice.
b) There is a personal representative.
c) If with reasonable diligence he could be found.
Where the death is unknown to the party giving notice, and sent notice to the last
residence of the deceased, the notice of dishonor is held to be sufficient.
When notice of dishonor may be sent to the last residence or last place of business
of the deceased: (compare with Sec. 76)
a) If his death is unknown to the party giving notice of dishonor.
b) If there is no personal representative, even if death is known to the party
giving notice of dishonor.
c) Even if there is a personal representative and death is known to the party
giving notice of dishonor, if the personal representative cannot be found
with reasonable diligence.
(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.
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 REASON: each partner is an agent of the partnership of which he is a member.
(compare with Sec. 77)
(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. (compare with Sec. 78)
Applicability: This section applies to joint parties other than joint payees or indorsees
who indorse, such as drawers who sign a bill jointly, or to joint accommodation
indorsers who are jointly and severally liable under Sec. 68, as they are neither
payees or indorsees.
(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.
(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.
Notice of dishonor should not be given before the date of maturity because an
instrument cannot be said to be dishonored for non-payment unless presented, and
this must be made on the date of maturity, unless excused. (Secs. 78 and 88)
It may be given on the date of maturity IF instrument was presented for payment and
has been dishonored. But if the instrument is payable at a bank, it is not dishonored if
the drawer deposits the amount of the instrument before close of banking hours.
Purpose of prompt notice: To give the parties secondarily liable every opportunity to
secure themselves, such as, to enable the party to be charged to preserve and
protect his rights against prior parties.
(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.
the same place refers to the corporate limits of a town or city where the (Sec. 109.) Waiver of notice. (When?) Notice of dishonor may be waived either (a) before
presentment is made or where the holder resides
(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.
Unless excused, if notice is given out of time it would be considered not to have been
given. The concerned parties are therefore discharged.
(Sec. 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 letterbox 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. 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.
the time of giving notice has arrived or (b) after the omission to give due notice, and the
waiver may be expressed or implied.
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 Waiver is the intentional abandonment of a right, or the relinquishment/renunciation
of a right acquired.
o It may be express or implied from ones acts, declaration or silence.
(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.
(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.
(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. (compare with Sec. 82)
(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. (compare with Sec. 81)
(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;
o If the drawers funds at the bank are not sufficient to meet the check, notice
of dishonor is not necessary to charge the drawer.
e) Where the drawer has countermanded payment.
o The drawer who made a stop payment order to the bank, need not be notified
of the fact of dishonor.
(Sec. 115.) When notice need not be given to indorser. Notice of dishonor is not required
to be given to an indorser in either of the following cases:
a) When the drawee is a fictitious person or person not having capacity to contract,
and the indorser was aware of that fact at the time he indorsed the instrument;
o If, therefore, the drawer, acceptor, or maker be an infant, or are incapacitated
to contract and not liable, the indorsers warranty is broken. He can be sued
upon without notice of dishonor.
b) Where the indorser is the person to whom the instrument is presented for
payment;
c) Where the instrument was made or accepted for his accommodation.
o The accommodated party has no reason to expect that the instrument will be
paid if presented.
The fact that the indorser knew the maker to be insolvent does not excuse notice.
The fact that the indorser knew that the instrument was dishonored does not
dispense with the necessity of notice.
(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.
The non-acceptance of a bill and the giving of notice to the parties secondarily liable
fixes the rights and obligations of the parties to an instrument. It will therefore be
unnecessary to present it for payment, unless in the meantime the instrument is
accepted.
(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.
(Sec. 118.) When protest need not be made; when must be made. - Where any negotiable
instrument has been dishonored, it may be protested for non-acceptance or non-payment, as
the case may be; but protest is not required except in the case of foreign bills of exchange.
DISCHARGE OF NEGOTIABLE INSTRUMENTS
(Sec. 119.) Instrument; how discharged. - A negotiable instrument is discharged:
a. By payment in due course by or on behalf of the principal debtor;
o Principal debtor refers to the person ultimately bound to pay the debt,
whether he is a party to the instrument or not, or whether he appears to be
liable primarily or secondarily in the instrument.
o In order to discharge an instrument, the payment must be:
A payment in due course.
And by the principal debtor.
22
 o If the payment is made before the date of maturity, the instrument is not
discharged as the payment is not in due course. This will be a negotiation
back to the principal debtor who can renegotiate the instrument. However, if
the instrument is payable on or before a certain date, payment before the
day fixed extinguishes the instrument.
o Payment by a party secondarily liable:
By the indorsers: Payment by an indorser cancels only his own
liability and those who are obligated after him (subsequent parties).
All parties prior to him are liable to the paying indorser, and such
indorser may cancel indorsements subsequent to his own and re-
issue the same, and it will be valid as against prior parties.
By the drawer: Payment by the drawer of an accepted bill does not
discharge the instrument so as to release the acceptor from liability
to the drawer unless the acceptance is for the accommodation of the
drawer. But such payment will discharge the liability of an indorser.
By third persons:
If authorized and made in behalf of the principal debtor, the
instrument is discharged.
If not authorized, the same is considered as a purchase of a
negotiable paper, the buyer being considered as an assignee
of an instrument. If a bill or note is paid after maturity by a
stranger to the paper, it will generally be held to be purchase
and not a payment of the instrument, unless such payment
be made 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;
o Payment made in due course by the accommodated party discharges the
instrument. But if payment is made by the accommodation party, the
instrument can still be negotiated, or the party paying may proceed against
the accommodated party and ask reimbursement based on an implied
contract.
Summary of discharge by payment:
1. Payment by the person ultimately liable, whatever his position on the paper,
discharges the instrument.
2. Payment by an accommodation party is not a discharge of the instrument,
whatever his position thereon.
3. Payment by the drawer or indorser is not a discharge of the instrument.
c. By the intentional cancellation thereof by the holder;
o Intention is an essential element.
d. By any other act which will discharge a simple contract for the payment of
money;
o This means extinguishing an obligation in a contract for the payment of
money or acts, which will extinguish an ordinary obligation such as
compensation, novation, confusion or remission.
e. When the principal debtor becomes the holder of the instrument at or after
maturity in his own right.
o Reacquisition of the instrument by the principal debtor, in his own right and
after the date of maturity.
An instrument may be discharged by operation of law. If a judgment is obtained on a
bill or note, the bill or note is thereby extinguished and merged in the judgment. But
the judgment alone, without actual satisfaction, is not extinguishment as between the
plaintiff and other parties not jointly liable with the original defendant, whether those
parties be prior or subsequent to the defendant.
(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 (person secondarily liable) signature by the
holder;
c) By the discharge of a prior party;
o The discharge of a prior party referred to herein must be one that arises from
the act of the holder. Discharge by operation of law are not included, such as:
By reason of bankruptcy.
Of a party not given due notice of dishonor.
By the Statute of Limitations
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;
o If the holder reserves hi rights against parties secondarily liable, the right of
this parties to ask reimbursement from the person principally liable is also
impliedly reserved.
o Reservation must be express, and cannot be implied from acts and conduct.
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 o The release contemplated herein must be for value. If not for value, the
parties secondarily liable are not discharged. Unlike in the cancellation of the
signature by the holder, no consideration is necessary.
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.
(Sec. 121.) Right of party who discharges instrument. - Where the instrument is paid by a
party secondarily liable thereon, it is not discharged; but the party so paying it is remitted to
his former rights as regard all prior parties, and he may strike out his own and all subsequent
indorsements and against negotiate the instrument, except:
a) Where it is payable to the order of a third person and has been paid by the
drawer; and
b) Where it was made or accepted for accommodation and has been paid by the
party accommodated.
(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.
RENUNCIATION is the act of surrendering a right or claim without recompense, but
it can be applied with equal propriety to the relinquishment of a demand upon an
agreement supported by a consideration.
The holder of an instrument may renounce his rights against parties liable, with or
without consideration.
Form: Renunciation must be expressed in writing. However, if the instrument is
delivered to the person primarily liable, renunciation may be oral.
Effects:
o As against a principal debtor it operates to discharge the instrument and all
parties thereto, but it will not affect the rights of a holder in due course
without notice.
o As against a party secondarily liable the instrument is not discharged. But
the party obtaining the renunciation, as well as parties subsequent to him,
are discharged.
When renunciation discharges the instrument:
o It is absolute and unconditional;
o It is made at or after maturity;
o It is made in favor of the person primarily liable.
o It is done in writing, or if done orally, the instrument must be delivered up to
the person primarily liable.
(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.
CANCELLATION signifies not only the drawing of crisscross lines but also tearing,
obliterations, erasures, or burning, by which the intention to cancel is evident.
When cancellation is INOPERATIVE:
o When made unintentionally;
o When made under mistake;
o When made without authority of the holder
(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.
Rights of a drawer if drawee pays a check at altered amount drawee should only be
allowed to debit the amount only for the correct amount altered.
(Sec. 125.) What constitutes a material alteration. - Any alteration which changes:
a) The date;
o A change of date is material whether the date hastens or postpones the
time of payment.
b) The sum payable, either for principal or interest;
o Any alteration that changes the amount of the principal, by an increase or
alteration thereof, constitutes a material alteration. Likewise, adding the
words with interest with or without a fixed rate is a material alteration.
c) The time or place of payment:
o Whether time of payment is thereby curtailed, shortened, or extended.
d) The number or the relations of the parties;
o Change in the payees name or the addition of a co-maker without the
first makers consent is a material alteration.
e) The medium or currency in which payment is to be made;
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 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.
An alteration is material if it alters the effect of the instrument.
BILLS OF EXCHANGE
FORM AND INTERPRETATION
(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.
KINDS:
o DRAFT payable on demand or at some future determinable time.
o TRADE ACCEPTANCE a draft drawn by the seller on the purchaser of
goods and accepted by the latter.
o CHECK drawn on a bank payable on demand.
o BANKERS ACCEPTANCE of which, the acceptor is a bank or banker
engaged generally in the business of granting bankers acceptance
credit.
o TREASURY WARRANT an order to pay, issued by a government
agency to the Treasurer of the Philippines, to pay money out of a
particular appropriation.
o MONEY ORDER drawn by a post office upon another, for an amount of
money deposited at the first office by the person purchasing the money
order and payable at the second office to a payee named in the order.
o CLEAN AND DOCUMENTARY one that is not attached documents of
title to be delivered to the person against whom the bill is drawn when he
either accepts or pays the bill.
o SIGHT BILLS payable upon presentation or at sight or on demand.
o TIME OR USANCE BILLS payable at a fixed future time or at a
determinable future time.
o INLAND BILLS one which, on its face purports to be, both drawn and
payable within the Philippines.
o FOREIGN BILL OF EXCHANGE one which, on its face purports to be,
both drawn and payable outside the Philippines.
(Sec. 127.) Bill not an assignment of funds in hands of drawee. - A bill of itself does not
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.
If the drawee accepts the bill, his obligation is principal, as he becomes an
acceptor of a bill. The liability is not premised on the assignment of funds in his
hands belonging to the drawer but solely because it is by virtue of his
acceptance.
(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. 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.
Importance of distinguishing an inland bill and a foreign bill: Foreign bills are
required to be protested because failure to do so will discharge parties
secondarily liable thereon. The distinction is determinative of the law applicable.
A bill is foreign if, on its face, it purports:
a) To be drawn in the Philippines but payable outside the Philippines.
b) To be payable in the Philippines but drawn in outside the Philippines
(Sec. 130.) When bill may be treated as promissory note. - Where in a bill (a) the drawer and
drawee are the same person or (b) where the drawee is a fictitious person or a person not
having capacity to contract, the holder may treat the instrument at his option either as a bill of
exchange or as a promissory note. (c) where the instrument is so ambiguous that there is
doubt whether it is a bill or note [Sec. 17 (c)].
Effect: If a bill is treated as a note, the drawer becomes the maker, therefore,
presentment and notice of dishonor are, with respect to the drawer, dispensed with.
(Sec. 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.
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ACCEPTANCE
It is the signification by the drawee of his assent to the order of the drawer.
Kinds of acceptance:
a) Actual (Sec. 132)
b) Constructive (Sec. 137)
c) General (Sec. 139)
d) Qualified (Sec. 141)
e) Acceptance supra protest (Sec. 161)
Effect Until the bill is accepted, the drawer is the only person liable. After
acceptance, the principal liability shifts to the acceptor-drawee, and the drawers
liability becomes secondary.
The payment of the check is not equivalent to acceptance because acceptance is not
required for check for the same is payable on demand. Acceptance is a promise to
perform an act, while payment, is the actual performance of the act.
(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. 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.
Acceptance may be on the face of the bill or on a separate paper.
Secs. 134 and 135, compared: Sec. 134 is applicable to an existing bill of exchange
and the acceptance written on another piece of paper is good only to persons to
whom the acceptance was shown, while Sec. 135 is a promise to accept the bill even
before the bill is drawn, which promise to accept good to any person, who upon the
faith thereof, receives the bill for value; the promise to accept need not be shown to
the holder.
(Sec. 136.) Time allowed drawee to accept. - The drawee is allowed twenty-four hours after
presentment in which to decide whether or not he will accept the bill; the acceptance, if given,
dates as of the day of presentation.
This rule is not applicable to checks, since checks are presented for payment and not
acceptance.
(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 bill accepted or non-
accepted to the holder, he will be deemed to have accepted the same.
(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 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.
(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.
(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
26
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.
PRESENTMENT FOR ACCEPTANCE
It is the production of a bill of exchange to the drawee for his acceptance.
(Sec. 143.) When presentment for acceptance must be made. - Presentment for acceptance
must be made:
Bill of exchange need not be presented for acceptance, except:
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 (a) present it for acceptance or (b) negotiate it within a
reasonable time. If he fails to do so, the drawer and all indorsers are discharged (because the
latter have an interest in having the bill accepted immediately in order to shorten the time for
payment and the time of their liability).
(Sec. 145.) Presentment; how made. - Presentment for acceptance must be made (by
whom?) by or on behalf of the holder at a reasonable hour, on a business day and before the
bill is overdue, (to whom?) 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. (compare with secs 76, 78, 98, 99 and 101)
(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 (72) and eighty-five (85) of this Act. When
Saturday is not otherwise a holiday, presentment for acceptance may be made before twelve
o'clock noon on that day.
(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. 149.) When dishonored by non-acceptance. - 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.
Instances of dishonor:
o Refusal of the drawee to accept the bill.
o Refusal of the drawee to write or place his acceptance on the bill itself.
o Refusal of the drawee to give a general acceptance
(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.
27
(Sec. 151.) Rights of holder where bill not accepted. - When a bill is dishonored by non-
acceptance, an immediate right of recourse against the drawer and indorsers accrues to the
holder and no presentment for payment is necessary.
PROTEST
It is a formal declaration of a fact of non-acceptance or non-payment usually
executed by notary, and in popular sense all the steps accompanying the dishonor of
a bill or note necessary to charge the charge the drawer or an indorser.
(Sec. 152.) In what cases protest necessary. - Where a foreign bill appearing on its face to be
such is dishonored by non-acceptance, it must be duly protested for non-acceptance, by non-
acceptance is dishonored and where such a bill which has not previously been dishonored by
non-payment, it must be duly protested for non-payment. 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.
Only foreign bills are required to be protested:
o When dishonored by non-acceptance.
o When dishonored by non-payment. If protested by non-acceptance, protest
for non-payment is only optional.
When protest necessary:
o INLAND bills protest is not mandatory, but only optional on the part of the
holder.
o FOREIGN bills must be protested, if it appears on its face to be such.
Otherwise, protest is not necessary.
o Notes may be optionally protested in order to hold persons liable thereon.
Effect if not protested: If a foreign bill is not protested after its dishonor, the drawer
and indorsers are discharged, unless protest is dispensed with under Sec. 159.
Why protest is required:
a) For uniformity in international transactions because it is required in most
countries.
b) In order to furnish evidence of dishonor to the drawer who, from his
residence abroad, may experience difficulty in verifying the matter and may
be forced to rely on the representation of the holder.
(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.
PROCEDURE for Protest:
a. After the instrument is dishonored by non-payment or non-acceptance,
the instrument is taken by the notary public to the party and such party
may state that he refuses to pay (or accept) it.
b. Noting. The notary public makes a statement to that effect and attaches
his seal, that it has been dishonored and protested.
c. The notary keeps this or he may send his sworn statement, one copy to
one person and one to another.
d. After it was protested, he must send notice to all the parties in the
instrument. The holder, after the notices were sent, may now recocer
from the parties liable.
(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.
(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 non-acceptance, 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.
(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.
(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.
Protest must be made after acceptance but before maturity.
28
 PURPOSE: to let the drawer and indorsers know that in all probability, the instrument Acceptance for honor / Ordinary acceptance, distinguished:
will not be honored upon its maturity, so that they may take the necessary steps to
insure payment, otherwise they will be held liable. ACCEPTANCE FOR HONOR ORDINARY ACCEPTANCE
The acceptor is a stranger to the bill The acceptor is the drawee
(Sec. 159.) When protest dispensed with. - Protest is dispensed with by any circumstances The bill must have been previously Protest is not required
which would dispense with notice of dishonor. Delay in noting or protesting is excused when protested fro non-acceptance or for
delay is caused by circumstances beyond the control of the holder and not imputable to his better security
default, misconduct, or negligence. When the cause of delay ceases to operate, the bill must There may be several acceptors for There is only one acceptor
be noted or protested with reasonable diligence. honor of different parties
Protest is dispensed with by any of the circumstances stated in Secs. 112, 114, and Consent of the holder is required Consent of the holder is not required
The acceptor for honor is secondarily The acceptor is primarily liable
115.
liable
When the bill is dishonored by the Protest is not required to be made even
(Sec. 160.) Protest where bill is lost and so forth. - When a bill is lost or destroyed or is
acceptor for honor, it must be protested if the bill is dishonored by the acceptor,
wrongly detained from the person entitled to hold it, protest may be made on a copy or written
fro non-payment by him save in cases of foreign bills
particulars thereof. Payment by the acceptor for honor does Payment in due course by the acceptor
The loss or destruction of a bill does not excuse the making of protest because such not discharge the bill discharges the bill
loss or destruction does not change the contract of the parties.
(Sec. 162.) Acceptance for honor; how made. - An acceptance for honor supra protest must
be in writing and indicate that it is an acceptance for honor and must be signed by the
ACCEPTANCE FOR HONOR acceptor for honor.
Procedure: The acceptor for honor appears before a notary public, with witnesses,
(Sec. 161.) When bill may be accepted for honor. (Acceptance supra protest) When a bill and declares that he accepts such protested bill in honor of the drawer or indorser.
of exchange has been protested for dishonor by non-acceptance or protested for better The acceptance for honor maybe for the whole or part only of the sum for which the
security and is not overdue, any person not being a party already liable thereon may, with the bill is drawn.
consent of the holder, intervene and accept the bill supra protest for the honor of any party Likewise, when there has been an acceptance of honor for one party, there
liable thereon or for the honor of the person for whose account the bill is drawn. The maybe further acceptance by a different person for the honor of another party.
acceptance for honor may be for part only of the sum for which the bill is drawn; and where However, an acceptor for honor cannot accept the bill for the honor of two or more
there has been an acceptance for honor for one party, there may be a further acceptance by persons. Neither can there be two or more acceptors for the honor of the same party.
a different person for the honor of another party.
PURPOSE: an acceptance for honor is done to save the credit of the parties to the (Sec. 163.) When deemed to be an acceptance for honor of the drawer. - Where an
instrument or some party to it, like the drawee, indorsers, or somebody else. This acceptance for honor does not expressly state for whose honor it is made, it is deemed to be
acceptance is made when the original drawee refuses to accept the bill for the honor an acceptance for the honor of the drawer.
of someone of the parties thereto, which acceptance will inure to the benefit of all the
parties subsequent to him for whose honor it was accepted. (Sec. 164.) Liability of the acceptor for honor. - The acceptor for honor is liable to the holder
Requisites for acceptance for honor: and to all parties to the bill subsequent to the party for whose honor he has accepted.
a. The bill must have been protested fro non-acceptance or better security.
b. The bill is not overdue at the time of the acceptance fro honor.
c. The acceptor for honor must be a stranger to the bill. (Sec. 165.) Agreement of acceptor for honor. - The acceptor for honor, by such acceptance,
d. The holder must give his consent. engages that he will, on due presentment, pay the bill according to the terms of his
acceptance [provided] it shall (a) not have been paid by the drawee and provided also that is

29
shall (b) have been duly presented for payment and (c) protested for non-payment and (d)
notice of dishonor given to him.
The acceptor for honor, after payment to the holder, can ask reimbursement from the
party honored and to all parties liable on the bill to him. However, the acceptor should
give notice for whose honor he pays, otherwise, the honored person is not obliged to
refund.
The acceptors liability is in the nature of a conditional acceptance. He promises to
pay if the original drawee, upon presentment to him for payment, should persist in
dishonoring the bill, and notice thereof by protest be given to the person so
accepting. Thus, requisites of acceptors liability, are as follows:
a. The bill must be presented for payment to the drawee on maturity.
b. If payment is refused, the bill must be protested for non-payment.
c. Notice of protest should be given to the acceptor for honor.
(Sec. 166.) Maturity of bill payable after sight; accepted for honor. - Where a bill payable after
sight is accepted for honor, its maturity is calculated from the date of the noting for non-
acceptance and not from the date of the acceptance for honor.
(Sec. 167.) Protest of bill accepted for honor, and so forth. (a) Where a dishonored bill has
been accepted for honor supra protest or (b) contains a referee in case of need, it must be
protested for non-payment before it is presented for payment to the acceptor for honor or
referee in case of need.
(Sec. 168.) Presentment for payment to acceptor for honor, how made. - Presentment for
payment to the acceptor for honor must be made as follows:
a) If it is to be presented in the place where the protest for non-payment was made,
it must be presented not later than the day following its maturity.
b) If it is to be presented in some other place than the place where it was protested,
then it must be forwarded within the time specified in Section one hundred and
four.
(Sec. 169.) When delay in making presentment is excused. - The provisions of Section
eighty-one (81) apply where there is delay in making presentment to the acceptor for honor or
referee in case of need.
(Sec. 170.) Dishonor of bill by acceptor for honor. - When the bill is dishonored by the
acceptor for honor, it must be protested for non-payment by him (in order to fix the liabilities of
the indorsers).
PAYMENT FOR HONOR
Confined to bills of exchange and does not extend to promissory notes.
CONCEPT: Where the bill has been protested for non-payment, any person may
intervene and pay it supra protest fro the honor of any person liable thereon or for the
honor of the person fro whose account it was drawn.
When made: After notice of dishonor has been duly given to the drawer and after the
instrument has been protested.
(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.
(Sec. 172.) Payment for honor; how made. - The payment for honor supra protest, in order to
operate as such and not as a mere voluntary payment, must be attested by a notarial act of
honor which may be appended to the protest or form an extension to it.
(Sec. 173.) Declaration before payment for honor. - The notarial act of honor must be founded
on a declaration made by the payer for honor or by his agent in that behalf declaring his
intention to pay the bill for honor and for whose honor he pays.
Requisites fro payment for honor:
a. The bill has been protested for non-payment.
b. It must be attested by a notarial act of honor which may be appended to the
protest or form an extension to it.
c. The notarial act must be based on the declaration by the payor for honor of his
intention to pay the ill for whose honor he pays
PROCEDURE:
a. The payor or his agent goes to a notary public and declares his intention to pay
the bill and for whose honor he pays.
b. The notary then records the declaration in the protest or in a separate paper
attached to it.
c. The payor then notifies the person fro whose honor he pays within reasonable
time.
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(Sec. 174.) Preference of parties offering to pay for honor. - Where two or more persons offer
to pay a bill for the honor of different parties, the person whose payment will discharge most
parties to the bill is to be given the preference.
(Sec. 175.) Effect on subsequent parties where bill is paid for honor. - Where a bill has been
paid for honor, (a) all parties subsequent to the party for whose honor it is paid are
discharged but (b) the payer for honor is subrogated for, and succeeds to, both the rights and
duties of the holder as regards the party for whose honor he pays and all parties liable to the
latter.
(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. 176.) Where holder refuses to receive payment supra protest. - Where the holder of a (Sec. 180.) Liability of holder who indorses two or more parts of a set to different persons.
bill refuses to receive payment supra protest, he loses his right of recourse against any party Where the holder of a set indorses two or more parts to different persons he is liable on every
who would have been discharged by such payment. 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. 177.) Rights of payer for honor. - The payer for honor, on paying to the holder the
amount of the bill and the notarial expenses incidental to its dishonor, is entitled to receive (Sec. 181.) Acceptance of bill drawn in sets. (a) The acceptance may be written on any part
both the bill itself and the protest. and it must be written on one part only. (b) If the drawee accepts more than one part and
such accepted parts negotiated to different holders in due course, he is liable on every such
Rights of payer for honor: part as if it were a separate bill.
a. He acquires the rights of the holder.
b. To receive both the bill and the protest. This is to enable him to enforce (Sec. 182.) Payment by acceptor of bills drawn in sets. - When the acceptor of a bill drawn in
his rights against those who are liable to him under Sec. 175. 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.
Distinction:
(Sec. 183.) Effect of discharging one of a set. - Except as herein otherwise provided, where
ACCEPTANCE FOR HONOR PAYMENT FOR HONOR any one part of a bill drawn in a set is discharged by payment or otherwise, the whole bill is
Protested fro non-acceptance or for Protested fro non-payment discharged.
better security
Bill must not be overdue Bill may be overdue
Acceptor must not be a party already Payor may be a party to the bill
liable on the bill
Consent of holder required Consent of holder not required.

BILLS IN SET

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

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