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(Act No. 2031, effective June 2, 1911)

I. GENERAL CONCEPTS signing in blank being with the assumed authority to
do so.
NEGOTIABLE INSTRUMENT (NI) The NIL was enacted for the purpose of facilitating,
A written contract for the payment of money which not hindering or hampering transactions in
complies with the requirements of Sec. 1 of the NIL, commercial paper. Thus, the statute should not be
which by its form and on its face, is intended as a tampered with haphazardly or lightly. Nor should it be
substitute for money and passes from hand to hand as brushed aside in order to meet the necessities in a
money, so as to give the holder in due course (HDC) single case.
the right to hold the instrument free from defenses
available to prior parties. Kinds of NI:
Functions: An unconditional promise in writing by one person
1. To supplement the currency of the to another signed by the maker engaging to pay on
government. demand or at a fixed or determinable future time, a
2. To substitute for money and increase the sum certain in money to order or to bearer. (Sec. 184)
purchasing medium. 2. BILL OF EXCHANGE (BE)
An unconditional order in writing addressed by one
Legal tender That kind of money which the law person to another, signed by the person giving it,
compels a creditor to accept in payment of his debt requiring the person to whom it is addressed to pay on
when tendered by the debtor in the right amount. demand or at a fixed or determinable future time a
sum certain in money to order or to bearer. (Sec. 126)
Note: A NI although intended to be a substitute for
money, is not legal tender. However, a check that has Check - A bill of exchange drawn on a bank payable
been cleared and credited to the account of the on demand (Sec. 185). It is the most common form of
creditor shall be equivalent to delivery to the creditor bill of exchange.
of cash. (Sec. 60, NCBA)
Features: 1. Certificate of deposit issued by banks, payable to
1. Negotiability That attribute or property the depositor or his order, or to bearer
whereby a bill or note or check may pass from 2. Trade acceptance
hand to hand similar to money, so as to give 3. Bonds, which are in the nature of promissory
the holder in due course the right to hold the notes
instrument and to collect the sum payable for 4. Drafts, which are bills of exchange drawn by one
himself free from defenses. bank upon another
The essence of negotiability which 5. Debenture
characterizes a negotiable paper as a All of these must comply with Sec. 1, NIL.
credit instrument lies in its freedom to Note: Letters of credit are not negotiable because they
circulate freely as a substitute for money. are issued to a specified person.
2. Accumulation of Secondary Contracts
Secondary contracts are picked up and carried Instances when a BE may be treated as a PN
along with NI as they are negotiated from one a. The drawer and the drawee are the same
person to another; or in the course of person; or
negotiation of negotiable instruments, a series b. Drawee is a fictitious person; or
of juridical ties between the parties thereto c. Drawee does not have the capacity to contract.
arise either by law or by privity. (Sec. 130)
d. Where the bill is drawn on a person who is
Applicability: legally absent;
General Rule: The provisions of the NIL are not e. Where the bill is ambiguous (Sec. 17[e])
applicable if the instrument involved is not negotiable.
Exception: In the case of Borromeo vs. Amancio Sun, Parties to a NI:
317 SCRA 176, the SC applied Section 14 of the NIL by 1. Promissory Note
analogy in a case involving a Deed of Assignment of a. Maker one who makes promise and signs
shares which was signed in blank to facilitate future the instrument
assignment of the same shares. The SC observed that b. Payee party to whom the promise is
the situation is similar to Section 14 where the blanks made or the instrument is payable.
in an instrument may be filled up by the holder, the
a. Drawer one who gives the order to pay INSTRUMENT DOCUMENT OF TITLE
money to a third party Subject is money. Subject is goods.
b. Drawee person to whom the bill is Is itself the property The document is a mere
addressed and who is ordered to pay. He with value evidence of title the
becomes an acceptor when he indicates his things of value being the
willingness to pay the bill goods mentioned in the
c. Payee party in whose favor the bill is document.
drawn or is payable. Has all the requisites of Does not have these
Sec. 1 of NIL. requisites.
DISTINCTIONS: A holder of NI may run Intermediate parties are
after the secondary not secondarily liable if
NEGOTIABLE NON-NEGOTIABLE parties for payment if the document is
INSTRUMENTS INSTRUMENTS dishonored by the party dishonored.
Only NI are governed Application of the NIL is primarily liable.
by the NIL. only by analogy. A holder, if a holder in A holder can never
Transferable by Transferable only by due course, may acquire acquire rights to the
negotiation or by assignment. rights over the document better than his
assignment. instrument better than predecessors.
A transferee can be a A transferee remains to his predecessors.
HDC if all the be an assignee and can
requirements are never be a HDC. PROMISSORY BILL OF EXCHANGE
complied with. NOTE
A holder in due course All defenses available to Unconditional promise. Unconditional order.
takes the NI free from prior parties may be Involves 2 parties. Involves 3 parties.
personal defenses. raised against the last Maker is primarily Drawer is only
transferee. liable. secondarily liable.
Requires clean title, Transferee acquires a Only one presentment: Two presentments: for
one that is free from derivative title only. for payment. acceptance and for
any infirmities in the payment.
instrument and Maker of note may not Drawer may insert in the
defects of title of prior insert an express instrument an express
transferors. stipulation limiting or stipulation limiting or
Solvency of debtor is Solvency of debtor is not negativing his own negativing his own
in the sense guaranteed under Art. liability to the holder. liability to the holder.
guaranteed by the 1628 of the NCC unless
indorsers because expressly stipulated. BILLOF EXCHANGE CHECK
they engage that the Not necessarily It is necessary that a
instrument will be
drawn on a deposit. The check be drawn on a bank
accepted, paid or both
drawee need not be a deposit. Otherwise, there
and that they will pay bank. would be fraud.
if the instrument is
Death of a drawer of a Death of the drawer of a
BOE, with the check, with the
knowledge of the bank, knowledge of the bank,
does not revoke the revokes the authority of
Governed by NIL. Governed by WRL. authority of the drawee the banker to pay.
If originally payable to If payable to bearer, it to pay.
bearer, it will always will be converted into a May be presented for Must be presented for
remain so payable receipt deliverable to payment within payment within a
regardless of manner order, if indorsed reasonable time after its reasonable time after its
of indorsement. specially. last negotiation. issue.
A holder in due course The indorsee, even if May be payable on Always payable on
may obtain title better HDC, obtains only such demand or at a fixed or demand.
than that of the one title as the person who determinable future
who negotiated the caused the deposit had time.
instrument to him. over the goods.
ASSIGNMENT NEGOTIATION involved is non-negotiable. The happening of the event
Pertains to contracts Pertains to NI. does not cure the defect.
in general. The unconditional nature of the promise or order is
Holder takes the Holder in due course not affected by:
instrument subject to takes it free from a) An indication of a particular fund out of which
the defenses obtaining personal defenses reimbursement is to be made, or a particular
among the original available among the account to be debited with the amount; or
parties. parties. b) A statement of the transaction which gives
Governed by the NCC. Governed by the NIL. rise to the instrument
Where the promise or order is subject to the terms
and conditions of the transaction stated, the
II. NEGOTIABILITY instrument is rendered non-negotiable. The NI must
be burdened with the terms and conditions of that
Form of NI: (Sec. 1) Key: WUPOA agreement to destroy its negotiability.
1. Must be in Writing and signed by the maker or But an order or promise to pay out of a particular
drawer; fund is not unconditional. (Sec. 3)
2. Must contain an Unconditional promise or order
to pay a sum certain in money; FUND FOR PARTICULAR FUND FOR
3. Must be Payable on demand, or at a fixed or REIMBURSEMENT PAYMENT
determinable future time; Drawee pays the There is only one act- the
4. Must be payable to Order or to bearer; and payee from his own drawee pays directly from
5. When the instrument is addressed to a drawee, he funds; afterwards, the the particular fund
must be named or otherwise indicated therein drawee pays himself indicated. Payment is
with reasonable certainty. from the particular subject to the condition
fund indicated. that the fund is sufficient.
Determination of negotiability: Particular fund Particular fund indicated
a. Whole instrument indicated is NOT the is the direct source of
b. What appears on the face of the instrument direct source of payment.
c. Requisites enumerated in Sec.1 of the NIL payment but only the
d. Should contain words or terms of negotiability. source of
In determining the negotiability of an instrument,
the instrument in its entirety and by what appears on Postal money orders are not negotiable instruments.
its face must be considered. It must comply with the Some of the restrictions imposed by postal laws and
requirements of Sec. 1 of the NIL. regulations are inconsistent with the character of
negotiable instruments.
The acceptance of a bill of exchange is not
important in the determination of its negotiability. The Treasury warrants are non-negotiable because
nature of acceptance is important only on the there is an indication of the fund as the source of
determination of the kind of liabilities of the parties payment of the disbursement.
* Payable in sum certain in money
REQUISITES OF NEGOTIABILITY: An instrument is still negotiable although the
amount to be paid is expressed in currency that is not
a. It must be writing and signed by the maker or legal tender so long as it is expressed in money.
drawer The certainty is however not affected although to be
Any kind of material that substitutes paper is paid:
sufficient. a) With interest; or
With respect to the signature, it is enough that what b) By stated installments; or
the maker or drawer affixed shows his intent to c) By stated installments with an acceleration
authenticate the writing. clause;
d) With exchange; or
b. Unconditional Promise or Order to pay a sum e) With cost of collection or attorneys fees. (Sec.
certain in money 2)

* Unconditional promise or order The dates of each installment must be fixed or at

Where the promise or order is made to depend on a least determinable and the amount to be paid for each
contingent event, it is conditional, and the instrument installment.
A sum is certain if the amount to be unconditionally
paid by the maker or drawee can be determined on the c. Payable on Demand or at Fixed or Determinable
face of the instrument and is not affected by the fact Future Time
that the exact amount is arrived at only after a
mathematical computation. PAYABLE ON PAYABLE AT A FIXED OR
CLAUSE CLAUSE CLAUSE a. Where expressed a. At a fixed period after
A clause that Provisions in Clauses in the to be payable on date or sight;
renders whole the contract face of the demand, at sight or on b. On or before a fixed or
debt due and which allows instrument that presentation; determinable future time
demandable the holder to extend the b. Where no period specified therein; or
upon failure of accelerate maturity dates; of payment is stated; c. On or at a fixed period
obligor to comply payment if a. At the option c. Where issued, after the occurrence of a
with certain he deems of the holder; accepted, or indorsed specified event, which is
conditions. himself b. Extension to a after maturity (only as certain to happen, though
insecure. further definite between immediate the time of happening is
time at the parties). (Sec. 7) uncertain. (Sec. 4)
option of the
maker or If the day and the month, but not the year of
acceptor payment is given, it is not negotiable due to its
c. Automatically uncertainty.
upon or after a
specified act or d. Payable to Order or to Bearer
Instrument is Instrument Instrument is * Payable to Order
still negotiable. is rendered still negotiable. The instrument is payable to order where it is
non- drawn payable to the order of a specified person, or to
negotiable him or his order. (Sec. 8)
because the The payee must be named or otherwise indicated
holders therein with reasonable certainty.
whim and The instrument may be made payable to the order
caprice of:
prevail a. A payee who is not the maker, drawer or
without the drawee
fault and b. The drawer or maker
control of c. The drawee
the maker. d. 2 or more payees jointly
e. One or some of several payees
EXTENSION EXTENSION UNDER SEC. f. The holder of an office for a time being
CLAUSE 120(f)
Stated on the face of Agreement binding the * Payable to Bearer
the instrument. holder: The instrument is payable to bearer:
a. To extend the time of a. When it is expressed to be so payable; or
payment or b. When it is payable to a person named therein
b. Postpone the holders right or to bearer; or
to enforce the instrument c. When it is payable to the order of a fictitious
Parties are bound Binds the person secondarily or non-existing person, and such fact was
because they took liable (and therefore cannot known to the person making it so payable; or
the instrument be discharged from liabilities d. When the name of the payee does not purport
knowing that there if: to be the name of any person; or
is an extension a. He consents or e. When the only or last indorsement is an
clause. b. Right of recourse is indorsement in blank. (Sec. 9)
expressly reserved.
Note: An instrument originally payable to bearer can
be negotiated by mere delivery even if it is indorsed
especially. If it is originally a BEARER instrument, it will
always be a BEARER instrument.
As opposed to an original order instrument becoming III. INTERPRETATION OF NEGOTIABLE
payable to bearer, if the same is indorsed specially, it INSTRUMENTS (Sec. 17)
can NO LONGER be negotiated further by mere
delivery, it has to be indorsed.
a. Discrepancy between the amount in
A check that is payable to the order of cash is figures and that in words the words
payable to bearer. Reason: The name of the payee does prevail; but if the words are ambiguous
not purport to be the name of any person. reference will be made to the figures to fix the
FICTITIOUS PAYEE RULE b. Payment for interest is provided for
It is not necessary that the person referred to in the interest runs from the date of the instrument;
instrument is really non-existent or fictitious to make if undated from issue thereof.
the instrument payable to bearer. The person to c. Instrument undated consider date of issue.
whose order the instrument is made payable may in d. Conflict between written and printed
fact be existing but he is till fictitious or non-existent provisions written provisions prevail.
under Sec. 9(c) of the NIL if the person making it so e. When the instrument is so ambiguous that
payable does not intend to pay the specified persons. there is doubt whether it is a bill or note
the holder may treat it as either at his
e. Identification of Drawee election.
Applicable only to a bill of exchange f. If one signs without indicating in what
A bill may be addressed to 2 or more drawees capacity he has affixed his signature he is
jointly whether they are partners or not but not to 2 or considered an indorser.
more drawees in the alternative or in succession. (Sec. g. If two or more persons sign We promise to
128) pay, their liability is joint (each liable for
his part); but if they sign I promise to pay,
OMISSIONS & ADDITONAL PROVISONS the liability is solidary (each can be
PROVISIONS THAT NOT AFFECTING compelled to comply with the entire
DO NOT AFFECT NEGOTIABILITY obligation). (Sec. 17)
b. It does not other act is required other
specify the value than or in addition to INCIDENTS IN THE LIFE OF A NEGOTIABLE
given or that any payment of money, the INSTRUMENT:
value has been instrument is not negotiable. a. Issue
given; (Sec. 5) b. Negotiation
c. It does not c. Presentment for acceptance, in certain kinds of
specify the place EXCEPTIONS: Bills of Exchange
where it is drawn or a. Authorizes the sale of d. Acceptance
where it is payable; collateral securities on h. Dishonor by non-acceptance
d. It bears a seal; default; i. Presentment for payment
e. It designates a b. Authorizes confession of j. Dishonor by non-payment
particular kind of judgment on default; k. Notice of dishonor
current money in c. Waives the benefit of l. Discharge
which payment is to law intended to protect
be made. (Sec. 6) the debtor; or MODES OF TRANSFER:
d. Allows the creditor the a. Negotiation the transfer of the instrument from
option to require one person to another so as to constitute the
something in lieu of transferee as holder thereof. (Sec.30)
money. b. Assignment The transferee does not become a
holder and he merely steps into the shoes of the
transferor. Any defense available against the
transferor is available against the transferee.

Assignment may be effected whether the

instrument is negotiable or non-negotiable.
HOW NEGOTIATION TAKES PLACE: any contract consistent with character of
indorsement (Sec. 35)
a. Issuance first delivery of the instrument complete C. ABSOLUTE One by which indorser binds himself
in form to a person who takes it as a holder. (Sec. 191) to pay:
1. Upon no other condition than failure of prior
Steps: parties to do so;
1. Mechanical act of writing the instrument 2. Upon due notice to him of such failure.
completely and in accordance with the D. CONDITIONAL Right of the indorsee is made to
requirements of Section 1; and depend on the happening of a contingent event. Party
2. The delivery of the complete instrument by required to pay may disregard the conditions. (Sec.
the maker or drawer to the payee or holder 39)
with the intention of giving effect to it. E. RESTRICTIVE An indorsement is restrictive,
when it either:
b. Subsequent Negotiation a. Prohibits further negotiation of the
1. If payable to bearer, a negotiable instrument instrument; or
may be negotiated by mere delivery. b. Constitutes the indorsee the agent of the
2. If payable to order, a NI may be negotiated by indorser; or
indorsement completed by delivery c. Vests the title in the indorsee in trust for or to
the use of some other persons. But mere
Note: In both cases, delivery must be intended to give absence of words implying power to negotiate
effect to the transfer of instrument. does not make an indorsement restrictive.
(Sec. 36)
c. Incomplete negotiation of order instrument F. QUALIFIED Constitutes the indorser a mere
Where the holder of an instrument payable to his assignor of the title to the instrument. (Sec. 38)
order transfers it for value without indorsing it, the It is made by adding to the indorser's signature
transfer vests in the transferee such title as the words like "sans recourse, without recourse",
transferor had therein and he also acquires the right to "indorser not holder", "at the indorser's own risk", etc.
have the indorsement of the transferor. But for the G. JOINT Indorsement payable to 2 or more
purpose of determining whether the transferee is a persons (Sec. 41)
holder in due course, the negotiation takes effect as of H. IRREGULAR A person who, not otherwise a
the time when the indorsement is made. (Sec. 49) party to an instrument, places thereon his signature in
blank before delivery (Sec. 64)
d. Indorsement
Legal transaction effected by the affixing one's Other rules on indorsement:
signature at the: 1. Negotiation is deemed prima facie to have been
a. Back of the instrument or effected before the instrument is overdue except if the
b. Upon a paper (allonge) attached thereto with indorsement bears a date after the maturity of the
or without additional words specifying the instrument. (Sec. 45)
person to whom or to whose order the 2. Presumed to have been made at the place where the
instrument is to be payable whereby one not instrument is dated except when the place is specified.
only transfers legal title to the paper (Sec. 46)
transferred but likewise enters into an 3. Where an instrument is payable to the order of 2 or
implied guaranty that the instrument will be more payees who are not partners, all must indorse
duly paid (Sec. 31) unless authority is given to one. (Sec. 41)
General Rule: Indorsement must be of the 4. Where a person is under obligation to indorse in a
entire instrument. representative capacity, he may indorse in such terms
Exception: Where instrument has been paid in as to negative personal liability. (Sec. 44)
part, it may be indorsed as to the residue. (Sec. 32)
Kinds of Indorsement: Where an instrument is negotiated back to a prior
A. SPECIAL Specifies the person to whom or to party, such party may reissue and further negotiate
whose order, the instrument is to be payable (Sec. 34) the same. But he is not entitled to enforce payment
B. BLANK Specifies no indorsee: thereof against any intervening party to whom he was
1. Instrument becomes payable to bearer and personally liable. Reason: To avoid circuitousness of
may be negotiated by delivery (Sec. 34) suits.
2. May be converted to special indorsement by
writing over the signature of indorser in blank
STRIKING OUT INDORSEMENT 5. May enforce payment of the instrument for the full
The holder may at any time strike out any amount thereof against all parties liable thereon.
indorsement which is not necessary to his title. The (Secs. 51 and 57)
indorser whose indorsement is struck out, and all
indorsers subsequent to him, are thereby relieved Every holder of a negotiable instrument is deemed
from liability on the instrument. (Sec. 48) prima facie a holder in due course. However, this
presumption arises only in favor of a person who is a
CONSIDERATION FOR THE ISSUANCE AND holder as defined in Section 191 of the NIL. The weight
SUBSEQUENT TRANSFER of authority sustains the view that a payee may be a
Every NI is deemed prima facie to have been issued holder in due course. Hence, the presumption that he
for a valuable consideration. Every person whose is a prima facie holder in due course applies in his
signature appears thereon is presumed to have favor.
become a party thereto for value. (Sec. 24)
Holder Not In Due Course
What constitutes value: One who became a holder of an instrument without
a. An antecedent or pre-existing debt any, some or all of the requisites under Sec. 52 of the
b. Value previously given NIL.
c. Lien arising from contract or by operation of With respect to demand instruments, if it is
law. (Sec. 27) negotiated an unreasonable length of time after its
issue, the holder is deemed not a holder in due course.
V. HOLDERS (Sec.53)
General Rule: Failure to make inquiry is not
evidence of bad faith.
HOLDER Exceptions:
A payee or endorsee of a bill or note who is in 1. Where a holders title is defective or
possession of it or the bearer thereof. (Sec. 191) suspicious that would compel a reasonable
man to investigate, it cannot be stated that the
RIGHTS OF HOLDERS IN GENERAL payee acquired the check without the
(Sec. 51) knowledge of said defect in the holders title
a . May sue thereon in his own name and for this reason the presumption that it is a
b. Payment to him in due course discharges the holder in due course or that it acquired the
instrument instrument in good faith does not exist.
The only disadvantage of a holder who is not a 2. Holder to whom cashiers check is not
holder in due course is that the negotiable instrument indorsed in due course and negotiated for
is subject to defenses as if it were non-negotiable. value is not a holder in due course.
(Chan Wan vs. Tan Kim, 109 Phil. 706)
Rights of a holder not in due course:
Holder In Due Course (HDC) 1. It can enforce the instrument and sue under it in his
A holder who has taken the instrument under the own name.
following conditions: KEY: C O G I 2. Prior parties can avail against him any defense
1. Instrument is complete and regular upon its face; among these prior parties and prevent the said holder
2. Became a holder before it was overdue and from collecting in whole or in part the amount stated
without notice that it had been previously in the instrument
3. For value and in good faith; and Note: If there are no defenses, the distinction between
4. At the time he took it, he had no notice of any a HDC and one who is not a HDC is immaterial.
infirmity in the instrument or defect in the title of
the person negotiating it. (Sec. 52) SHELTER RULE
A holder who derives his title through a holder in
Rights of a HDC: due course, and who is not himself a party to any fraud
1. May sue on the instrument in his own name; or illegality affecting the instrument, has all the rights
2. May receive payment and if payment is in due of such former holder in respect of all prior parties to
course, the instrument is discharged; the latter. (Sec. 58)
3. Holds the instrument free from any defect of title
of prior parties; ACCOMMODATION
4. He holds the instrument free from defenses A legal arrangement under which a person called
available to parties among themselves; and the accommodation party, lends his name and credit to
another called the accommodated party, without any VI. PARTIES WHO ARE LIABLE


Requisites: SECONDARY
1. The accommodation party must sign as maker, LIABILITY OF
drawer, acceptor, or indorser; PARTIES
2. He must not receive value therefor; and Makes the parties Impose no direct obligation to
3. The purpose is to lend his name or credit. (Sec. 29) liable to pay the pay in the absence of breach
Note: without receiving value therefor, means sum certain in thereof. In case of breach, the
without receiving value by virtue of the money stated in person who breached the
instrument. the instrument. same may either be liable or
barred from asserting a
Effects: The person to whom the instrument thus particular defense.
executed is subsequently negotiated has a right of
Conditioned on Does not require presentment
recourse against the accommodation party in spite of
presentment and and notice of dishonor.
the formers knowledge that no consideration passed
notice of dishonor.
between the accommodation and accommodated
parties. (Sec. 29)
1. Primarily Liable (Sec. 60 and 62, NIL)
Rights & Legal Position:
1. AP is generally regarded as a surety for the party MAKER ACCEPTOR OR DRAWEE
accommodated; A. Engages to pay A. Engages to pay according
2. When AP makes payment to holder of the note, he according to the to the tenor of his acceptance;
has the right to sue the accommodated party for tenor of the B. Admits the existence of the
reimbursement. instrument; and drawer, the genuineness of
B. Admits the his signature and his capacity
Liability: Liable on the instrument to a holder for existence of the and authority to draw the
value notwithstanding such holder at the time of the payee and his instrument; and
taking of the instrument knew him to be only an capacity to indorse. C. Admits the existence of the
accommodation party. Hence, As regards, an AP, the payee and his capacity to
4th condition, i.e., lack of notice of infirmity in the indorse.
instrument or defect in the title of the persons
negotiating it, has no application. A bill of itself does not
operate as an assignment of
Rights of APs as against each other: May demand funds in the hands of the
contribution from his co-accommodation party drawee available for the
without first directing his action against the principal payment thereof and the
debtor provided: drawee is not liable unless
a. He made the payment by virtue of judicial and until he accepts the same
demand; or (Sec.127)
b. The principal debtor is insolvent.
2. Secondarily Liable (Sec. 61, 64 and 66, NIL)
The relation between an accommodation party is, in
effect, one of principal and surety the DRAWER GENERAL IRREGULAR
accommodation party being the surety. It is a settled INDORSER INDORSER
rule that a surety is bound equally and absolutely with
the principal and is deemed an original promissory
and debtor from the beginning. The liability is A. Admits the A. Warrants all A person, not
immediate and direct. existence of the subsequent otherwise a
payee and his HDC - party to an
Well-entrenched is the rule that the consideration capacity to a. That the instrument,
necessary to support a surety obligation need not pass indorse; instrument is places his
directly to the surety, a consideration need not pass B. Engages that genuine and in signature
directly to the surety, a consideration moving to the the instrument all respect what thereon in
principal alone being sufficient. will be it purports to blank before
accepted or be delivery. (Sec.
paid by the b. He has 64)
party primarily good title to it; A. If PERSON GENERAL INDORSER
liable; and c. All prior instrument NEGOTIATING BY
C. Engages that parties had payable to the MERE DELIVERY OR
if the capacity to order of a 3rd BY QUALIFIED
instrument is contract person, he is INDORSEMENT
dishonored and d. The liable to the No secondary liability; There is secondary
proper instrument is, payee and but is liable for breach liability, and warranties.
proceedings at the time of subsequent of warranty.
are brought, he endorsement, parties. Warrants that he has Warrants that the
will pay to the valid and B. If no knowledge of any instrument is, at the
party entitled subsisting. instrument fact which would time of his indorsement,
to be paid. B. Engages that payable to impair the validity of valid and subsisting.
the instrument order of the instrument or
will be maker or render it valueless.
accepted or drawer or to
paid, or both, as bearer, he is ORDER OF LIABILITY
the case may liable to all There is no order of liability among the indorsers as
be, according to parties against the holder. He is free to choose to recover from
its tenor; and subsequent to any indorser in case of dishonor of the instrument.
C. If the the maker or (Notes and Cases on Banks, Negotiable Instruments and
instrument is drawer. other Commercial Documents, Timoteo B. Aquino)
dishonored and C. If he signs As respect one another, indorsers are liable prima
necessary for facie in the order in which they indorse unless the
proceedings on accommoda- contrary is proven (Sec.68)
dishonor be tion of the General Rule: One whose signature does not appear
duly taken, he payee, he is on the instrument shall not be liable thereon.
will pay to the liable to all Exceptions:
party entitled parties 1. The principal who signs through an agent is
to be paid. subsequent to liable;
the payee. 2. The forger is liable;
3. One who indorses in a separate instrument
3. Limited Liability (Sec. 65, NIL) (allonge) or where an acceptance is written
on a separate paper is liable;
QUALIFIED PERSON NEGOTIATING 4. One who signs his assumed or trade name is
5. A person negotiating by delivery (as in the
Every person A. Warranties same as case of a bearer instrument) is liable to his
negotiating those of qualified immediate indorsee.
instrument by delivery indorsers; and
or by a qualified B. Warranties extend to VII. DEFENSES
endorsement warrants immediate transferee
that: only.
genuine and in all Those that attach to the Those which are
respects what it instrument itself and available only against a
purports to be; are available against all person not a holder in
B. He has good title to holders, whether in due due course or a
it; course or not, but only subsequent holder who
C. All prior parties had by the parties entitled stands in privity with
capacity to contract; to raise them. (a.k.a him. (a.k.a. equitable
D. He has no absolute defenses) defenses)
knowledge of any fact 1. Material 1. Absence or failure of
which would impair Alteration; consideration, partial or
the validity of the 2. Want of delivery of total;
instrument or render incomplete instrument; 2. Want of delivery of
it valueless. 3. Duress amounting complete instrument;
to forgery; 3. Insertion of wrong
4. Fraud in factum or date in an instrument;
fraud in esse 4. Filling up of blank consideration and for the accommodation of another
contractus; contrary to authority is ultra vires.
5. Minority (available given or not within
to the minor only); reasonable time; C. INCOMPLETE AND UNDELIVERED NI (Sec. 15)
6. Marriage in the 5. Fraud in inducement; If completed and negotiated without authority, not
case of a wife; 6. Acquisition of a valid contract against a person who has signed
7. Insanity where the instrument by force, before delivery of the contract even in the hands of
insane person has a duress, or fear; HDC, but subsequent indorsers are liable. This is a
guardian appointed by 7. Acquisition of the real defense.
the court; instrument by unlawful
8. Ultra vires acts of a means; D. INCOMPLETE BUT DELIVERED NI (Sec. 14)
corporation 8. Acquisition of the 1. Holder has prima facie authority to fill up the
9. Want of authority instrument for an illegal instrument.
of agent; consideration; 2. The instrument must be filled up strictly in
10. Execution of 9. Negotiation in breach accordance with the authority given and within
instrument between of faith; reasonable time
public enemies; 10. Negotiation under 3. HDC may enforce the instrument as if filled up
11. Illegality if circumstances that according to no. 2.
declared void for any amount to fraud;
purpose; 11. Mistake; E. COMPLETE BUT UNDELIVERED NI (Sec. 16)
12. Forgery. 12. Intoxication 1. Between immediate parties and those who are
(according to better similarly situated, delivery must be coupled with
authority); the intention of transferring title to the
13. Ultra vires acts of instrument.
corporations where the 2. As to HDC, it is conclusively presumed that there
corporation has the was valid delivery; and
power to issue 3. As against an immediate party and remote party
negotiable paper but the who is not a HDC, presumption of a valid and
issuance was not intentional delivery is rebuttable.
authorized for the
particular purpose for F. FRAUD
which it was issued; FRAUD IN FACTUM FRAUD IN ESSES
14. Want of authority of OR FRAUD IN CONTRACTUS OR
apparent authority; The person who signs The person is induced to
15. Insanity where there the instrument sign an instrument not
is no notice of insanity intends to sign the knowing its character as a
on the part of the one same as a NI but was bill or note.
contracting with the induced by fraud.
insane person; and
16. Illegality of contract G. ABSENCE OR FAILURE OF CONSIDERATION (Sec.
where the form or 28)
consideration is illegal. Personal defense to the prejudiced party and
available against any person not HDC.
A. MINORITY Refers to extinctive prescription and may be raised
Negotiation by a minor passes title to the even against a HDC. Under the Civil Code, the
instrument. (Sec.22). But the minor is not liable and prescriptive period of an action based on a written
the defense is personal to him contract is 10 years from accrual of cause of action.


A real defense but the negotiation passes title to the Any change in the instrument which affects or
instrument. (Sec. 22) changes the liability of the parties in any way.
Note: A corporation cannot act as an Effects:
accommodation party. The issuance or indorsement of 1. Alteration by a party Avoids the instrument
negotiable instrument by a corporation without except as against the party who made,
authorized, or assented to the alteration and
subsequent indorsers.
However, if an altered instrument is
negotiated to a HDC, he may enforce payment
thereof according to its original tenor
regardless of whether the alteration was
innocent or fraudulent.

Note: Since no distinction is made, it does not

matter whether it is favorable or unfavorable
to the party making the alteration. The intent
of the law is to preserve the integrity of the
negotiable instruments.

2. Alteration by a stranger (spoliation)- the effect

is the same as where the alteration is made by
a party which a HDC can recover on the
original tenor of the instrument. (Sec. 124)

Changes in the following constitute material

a. Date;
b. Sum payable, either for principal or interest;
c. Time or place of payment;
d. Number or relations of the parties;
e. Medium or currency in which payment is to
be made;
f. That which adds a place of payment where no
place of payment is specified; and
g. Any other change or addition which alters the
effect of the instrument in any respect. (Sec.

A serial number is an item which is not an essential

requisite for negotiability under Sec. 1, NIL, and which
does not affect the rights of the parties, hence its
alteration is not material.
Comparison of Sections 14, 15 and 16 of the Negotiable Instruments Law:

As to: Section 14 Section 15 Section 16

Delivery Delivered Undelivered Undelivered
Note: Delivery may be made for a
conditional or for a special purpose only
and not for the purpose of transferring
the property in the instrument.
Completeness Wanting in any material Blank paper with Mechanically incomplete Mechanically complete
particular signature
Authority of Prima facie authority to Signature operates as a No authority to complete and/or May negotiate if delivered to him by or
person in complete it by filling up the prima facie authority to negotiate instrument under the authority of the party making,
possession blanks therein fill it up as such for any indorsing, drawing or accepting, as the
amount case may be.
When If filled up strictly in accordance with authority given Not enforceable When delivery is made by or under
enforceable and within a reasonable time authority of the party making, indorsing,
drawing or accepting, as the case may be.
Kind of defense Personal Real Personal
Rights of holder 1. If HDC, he can enforce the instrument as None in the hands of any holder. Can enforce the instrument.
completed against parties prior or subsequent to However, the invalidity of the Note: Where the instrument is in the
the completion instrument is only with reference to hands of a HDC, a valid delivery thereof
2. If not a HDC, he can enforce the instrument as parties whose signatures appear on by all parties prior to him so as to make
completed only against parties subsequent to the the instrument after delivery, the them liable to him is conclusively
completion but not against those prior thereto. instrument is valid. presumed. Where the instrument is no
longer in the possession of a party whose
signature appears thereon, a valid and
intentional delivery to him is presumed
until the contrary is proved.
J. FORGERY forgery are holder)
Counterfeit making or fraudulent alteration of any liable. b. Party who made
writing, which may consist of: c. Party who the forgery is liable
1. Signing of anothers name with intent to made the
defraud; or forgery is
2. Alteration of an instrument in the name, liable.
amount, name of payee, etc. with intent to Indorsers a. Maker, a. Maker is liable.
defraud. signature payee and (indorsement is not
General Rule: When a signature is forged or made forged indorser necessary to title
without the authority of the person, the signature (not whose and the maker
instrument itself and the genuine signatures) is wholly signature was engages to pay the
inoperative forged is not holder)
Legal Effects: liable. b. Indorser whose
1. No right to retain the instrument b. Indorsers signature was
2. To give a discharge therefore subsequent to forged not liable to
3. To enforce payment thereof against any party forgery are one who is not a
thereto, can be acquired through or under liable. HDC provided the
such signature (because of instrument is
Exception: Unless the party against whom it is their mechanically
sought to enforce such right is precluded from setting warranties) complete before the
up the forgery or want of authority. (Sec. 23) c. Party who forgery.
made the c. Party who made
Persons precluded from setting up defense of forgery is the forgery is liable.
forgery: liable.
1. Those who warrant or admit the genuineness
of the signature in question. This includes B. Bills of Exchange
indorsers, persons negotiating by delivery Order Bearer Instrument
and acceptors. Instrument
2. Those who, by their acts, silence, or Drawers a. Drawer is a. Drawer is not
negligence, are estopped from setting up the signature not liable liable.
defense of forgery. forged because he b. Drawee is liable if
was never a it paid. Drawee
RULES ON FORGERY: party to the cannot recover from
instrument. the collecting bank.
A. Promissory Notes b. Drawee is c. Party who made
Order Bearer Instrument liable if it paid the forgery is liable.
Instrument (no recourse to
Makers a. Maker is not a. Maker is not drawer)
signature liable because liable. because he
forged he never b. Party who made admitted the
became a party the forgery is liable. genuineness of
to the c. Indorsers may be the drawers
instrument. made liable to those signature.
b. Indorsers persons who obtain Drawee cannot
subsequent to title through their recover from
forgery are indorsements. the collecting
liable because bank because
of their there is no
warranties. privity
c. Party who between the
made the collecting bank
forgery is and the
liable. drawer. The
Payees a. Maker and a. Maker is liable. latter does not
signature payee not (Indorsement is not give any
forged liable. necessary to title warranty
b. Indorsers and the maker regarding the
subsequent to engages to pay
signature of in order for the liability to accrue. Presentment for
the drawer. payment is all that is necessary.
c. Indorsers
subsequent to b. Secondary Liability
forgery liable 1. Steps in promissory note: (indorsers)
(such as a. Presentment for payment to the
collecting bank maker.
or last b. Notice of dishonor should be given, if
endorser). dishonored by non-payment.
d. Party who 2. Steps in bill of exchange:
made the A. Presentment for acceptance in the
forgery is following instances:
liable. a. Where the bill is payable after sight,
Payees a. Drawer, a. Drawer is liable or when it is necessary in order to fix
signature drawee and b. Drawee is liable the maturity of the instrument;
forged payee not c. Payee is not liable b. Where the bill expressly stipulates
liable. d. Collecting bank is that it shall be presented for
b. Indorsers liable because of acceptance;
subsequent to warranty c. Where the bill is drawn payable
forgery are e. Party who made elsewhere than at the residence or
liable. (such as the forgery is liable place of business of the drawee. (Sec.
collecting 143)
bank) Note: In all the above cases, the holder must either
c. Party who present the bill for acceptance or negotiate it within a
made the reasonable time; otherwise, the drawer and all
forgery is indorsers are discharged. (Sec. 144)
liable. B. If dishonored by non-acceptance:
Indorsers a. Drawer, a. Drawer is liable. a. Notice of dishonor given to drawer
signature payee and (indorsement not and indorsers.
forged indorser necessary to title) b. Protest in case of a foreign bill.
whose b. Drawee is liable. C. If bill is accepted:
signature was c. Indorser whose a. Presentment for payment to the
forged not signature was acceptor.
liable. forged is liable D. If dishonored upon presentment for
b. Drawee is because payment:
liable if it paid. indorsement is not a. Notice of dishonor to persons
c. Indorsers necessary to title. secondarily liable.
subsequent to d. Party who made b. Protest for dishonor by non-payment
forgery are the forgery is liable. in case of foreign bill.
liable. (such as
collecting B. PRESENTMENT
bank) The production of a BE to the drawee for his
d. Party who acceptance, or to the drawee or acceptor for payment
made the or the production of a PN to the party liable for the
forgery is payment of the same. (Sec. 70)
1. Personal demand for payment at the proper
2. Readiness to exhibit the instrument if
a. Primary Liability required, and to receive payment and to
The unconditional promise attaches the moment the surrender the instrument if the debtor is
maker makes the instrument while the acceptors willing to pay.
assent to the unconditional order attaches the moment
he accepts the instrument. No further act is necessary
Requisites: * EXHIBITION
1. Made by the holder or any person authorized
to receive payment on his behalf; Purposes:
2. At a reasonable hour on a business day; 1. To enable the debtor to determine the
3. At a proper place; genuineness of the instrument and the right of
4. To the person primarily liable or if he is the holder to receive payment; and
absent or inaccessible, to any person found at 2. To enable him to reclaim possession upon
the place where the presentment is made. payment.
(Sec. 72)
When excused:
When should be made: 1. When debtor does not demand to see the
1. PN payable on demand: within reasonable instrument but refuses payment on some
time after its issue; other grounds, and
2. BE payable on demand: within reasonable 2. When the instrument is lost or destroyed.
time after its last negotiation;
3. Instrument payable on a specified date: on the Special cases:
date it falls due. (Sec. 71) 1. Instrument payable at a bank Must be made
during banking hours unless there are no funds to
Proper place: meet it at any time during the day, presentment at
1. Place specified; any hour before the bank is closed on that day is
2. Address of the person to make payment is sufficient. (Sec. 75)
given, in case no place is specified; 2. Person liable is dead May be made to his
3. Usual place of business or residence of the personal representative, if there be one, and if he
person to make payment, in case no place is can be found. (Sec. 76)
specified and no address is given;
4. In any other case, wherever the person to C. PRESENTMENT FOR ACCEPTANCE
make payment can be found, or at his last
known place of business or residence. (Sec. When required:
73) 1. Where the bill is payable after sight, or when
it is necessary in order to fix the maturity of
When not required: the instrument;
1. In order to charge the drawer where he has 2. Where the bill expressly stipulates that it shall
no right to expect or require that the drawee be presented for acceptance;
or acceptor will pay the instrument; (Sec. 79) 3. Where the bill is drawn payable elsewhere
2. In order to charge an indorser when the than at the residence or place of business of
instrument was made or accepted for his the drawee. (Sec. 143)
accommodation and he has no reason to
expect that the instrument will be paid if How made:
presented. (Sec. 80) 1. Where a bill is addressed to 2 or more
drawees who are not partners, presentment
When delay in making presentment or of giving must be made to all;
notice is excused: 2. Where drawee is dead, presentment may be
1. When caused by circumstances beyond the made to his personal representative;
control of the holder; and 3. Where the drawee is adjudged a bankrupt,
2. Not imputable to his default, misconduct, or insolvent or made an assignment to his
negligence. (Sec. 81) creditors, presentment may be made to him
or his trustee or assignee.
When presentment for payment is excused:
1. After exercise of reasonable diligence, it When excused:
cannot be made; 1. Where the drawee is dead, or has absconded,
2. Drawee is a fictitious person; or is a fictitious person or a person not having
3. Express or implied waiver. (Sec. 82) capacity to contract by bill;
2. After exercise of reasonable diligence,
presentment cannot be made;
3. Although presentment has been irregular,
acceptance has been refused on some other
ground. (Sec. 148)
If bill is duly presented for acceptance and it is not Requisites:
accepted within the prescribed time, the person 1. Given by holder or his agent, or by any party
presenting it must treat the bill as dishonored by non- who may be compelled by the holder to pay
acceptance or he loses the right of recourse against the (Sec. 90);
drawer and indorsers. (Sec. 150) 2. Given to secondary party or his agent (Sec.
D. ACCEPTANCE 3. Given within the periods provided by law
The signification by the drawee of his assent to the (Sec. 102); and
order of the drawer. 4. Given at the proper place (Secs. 103 and 104)
It is the act by which the drawee manifests his
consent to comply with the request contained in the When dispensed with:
bill of exchange directed to him. 1. When party to be notified knows about the
Form: Must be in writing and signed by the drawee dishonor, actually or constructively (Secs.
and must not express that the drawee will perform his 114-117);
promise by any other means than the payment of 2. If waived (Sec. 109); and
money. (Sec. 132) 3. When after due diligence, it cannot be given
The holder of the bill presenting the same for (Sec. 112).
acceptance may require that the acceptance be written
on the bill, and if such request is refused, may treat the How given:
bill as dishonored. (Sec. 133) 1. By bringing verbally; or
2. By writing to the knowledge of the person
Kinds: liable the fact that a specified instrument,
1. GENERAL assents without qualification to the upon proper proceedings taken, has not been
order of the drawer. accepted or has not been paid, and that the
2. QUALIFIED which in express terms varies the party notified is expected to pay it.
effect of the bill as drawn.
a. Conditional makes payment by the To whom given:
acceptor dependent on the fulfillment of a 1. Non-acceptance (bill) to persons secondarily
condition therein stated. liable, namely, the drawer and indorsers as
b. Partial an acceptance to pay part only of the the case may be.
amount for which the bill is drawn. 2. Non-payment (both bill and note) indorsers.
c. Local an acceptance to pay only at a Note: Notice must be given to persons
particular place. secondarily liable. Otherwise, such parties are
d. Qualified - as to time. discharged. Notice may be given to the party
e. The acceptance of some one or more of the himself or to his agent.
drawees but not of all. (Sec. 141)
By whom given:
Form: 1. The holder;
1. Must be made by or on behalf of the holder; 2. Another on behalf of the holder;
2. At a reasonable hour on a business day; 3. Any party to the instrument who may be
3. Before the bill is overdue; and compelled to pay it to the holder, and who
4. To the drawee or some person authorized to would have a right of reimbursement from the
accept or refuse to accept on his behalf. party to whom notice is given. (Sec. 90)

Implied Acceptance * DISHONOR BY NON-PAYMENT

If after 24 hours, the drawee fails to return the 1. Payment is refused or cannot be obtained after
instrument. He is also deemed to have accepted the due presentment for payment;
instrument when he destroys the same. 2. Presentment is excused and the instrument is
overdue and unpaid. (Sec. 83)
Notice given by holder or his agent to party or Effect: There is an immediate right of recourse by
parties secondarily liable that the instrument was the holder against persons secondarily liable.
dishonored by non-acceptance by the drawee of a bill However, notice of dishonor is generally required.
or by non-payment by the acceptor of a bill or by non- (Sec. 84)
payment by the maker of a note. (Sec. 89)
* DISHONOR BY NON-ACCEPTANCE Waiver of Notice of Dishonor
Either before the time of giving notice, or after the
Instances: omission to give due notice. Waiver may be expressed
1. When it is duly presented for acceptance and or implied. (Sec. 109)
such an acceptance is refused or cannot be As to who are affected by an express waiver
obtained; or depends on where the waiver is written:
2. When presentment for acceptance is excused, 1. If it appears in the body or on the face of the
and the bill is not accepted. (Sec. 149) instrument, it binds all parties; but
2. If it is written above the signature of an
Effect: Immediate right of recourse against the indorser, it binds him only. (Sec. 110)
drawer and indorsers accrues to the holder and no
presentment for payment is necessary. (Sec. 151) Notice of dishonor is not required to be given to
the drawer in any of the ff. cases:
Effect of lack of notice of dishonor on NI which are 1. Drawer and drawee are the same;
payable in installments: 2. Drawee is a fictitious person or not having the
1. No acceleration clause failure to give notice of capacity to contract;
dishonor on a previous installment does not 3. Drawer is the person to whom the instrument
discharge drawers and indorsers as to succeeding is presented for payment;
installments. 4. The drawer has no right to expect or require
2. With acceleration clause failure to give notice that the drawee or acceptor will honor the
of dishonor as to previous installment will instrument;
discharge the persons secondarily liable as to the 5. Where the drawer has countermanded
succeeding installments. payment. (Sec. 114)

To whose benefit does a notice of dishonor inure: Notice of dishonor is not required to be given to an
1. When given by or on behalf of a holder: indorser in the ff. cases:
a. All parties prior to the holder, who have a 1. Drawee is a fictitious person or does not have
right of recourse against the party to whom the capacity to contract, and indorser was
the notice is given; and aware of that fact at the time he indorsed the
b. All holders subsequent to the holder giving instrument;
notice. (Sec. 92) 2. Indorser is the person to whom the
2. When given by or on behalf of a party entitled to instrument is presented for payment;
give notice: 3. Instrument was made or accepted for his
a. The holder; and accommodation. (Sec. 115)
b. All parties subsequent to the party to whom
notice is given. (Sec. 93) If an instrument is not accepted by the drawee,
there is no sense presenting it again for payment, and
Dishonor in the hands of an Agent notice of dishonor must at once be given. If there was
Agent can do either of the following: acceptance, presentment for payment is still required
1. Directly give notice to persons secondarily and if payment is refused, there is a need for notice of
liable thereon; or dishonor. (Sec. 116)
2. Give notice to his principal. In such case, he
must give notice within the time allowed by An omission to give notice of dishonor by non-
law as if he were a holder. (Sec. 94) acceptance does not prejudice the rights of a holder in
due course subsequent to the omission. (Sec. 117)
A party giving notice is deemed to have given due
1. The notice of dishonor is duly addressed, and 1. Drawn in the Philippines but payable outside the
2. Deposited in the post-office, even when there Philippines.
is miscarriage of mail. (Sec. 105) 2. Payable in the Philippines but drawn outside the
Where a party receives notice of dishonor, he has,
after the receipt of such notice, the same time for INLAND BOE FOREIGN BOE
giving notice to antecedent parties that the holder has A bill which or on its face One which is or on its
after the dishonor. (Sec. 107) purports to be both face purports to be
drawn and payable drawn or payable
within the Philippines. outside the Philippines.
NOTICE OF PROTEST Formal requisites:
DISHONOR 1. Must be in writing;
Required in inland bill. Required in foreign bill. 2. Must indicate that it is an acceptance for honor;
May be oral or written. Always written. 3. Signed by the acceptor for honor;
May be made by a party Made by a notary public 4. Must contain an express or implied promise to pay
or agent. or a respectable resident money;
in the presence of 5. The accepted bill for honor must be delivered to
witness. the holder.
Made in residence of Made in the place of
PROTEST No previous protest Previous protest is required.
The formal instrument executed usually by a notary is required.
public certifying that the legal steps necessary to fix Consent of holder is Consent of holder is
the liability of the drawee and the indorsers have been implied. required.
taken. Drawee is acceptor. Acceptor must be stranger to
the bill.
Who makes the Protest: Acceptor is primarily Acceptor is secondarily
1. A notary public; or liable. liable.
2. Any respectable resident of the place where the
bill is dishonored, in the presence of 2 or more PAYMENT FOR HONOR
credible witnesses. (Sec. 154) Payment made by a person, whether a party to the
bill or not, after it has been protested for non-
Protest for better security One made by the payment, for the benefit of any party liable thereon or
holder of a bill after it has been accepted but before it for the benefit of the person for whose account it was
matures, against the drawer and indorsers, where the drawn. (Secs. 171-177)
acceptor has been adjudged a bankrupt or an
insolvent, or has made an assignment for the benefit of Requisites:
the creditors. (Sec. 158) 1. The bill has been dishonored by non-payment;
2. It has been protested for non-payment;
Protest is necessary only in case of foreign bills of 3. Payment supra protest (another term for payment
exchange, which have been dishonored by non- for honor because prior protest for non-payment
acceptance or non-payment, as the case may be. If it is is required) is made by any person, even by a
not so protested, the drawer and indorsers are party thereto;
discharged. (Sec. 118) 4. The payment is attested by a notarial act of honor
which must be appended to the protest or form an
ACCEPTANCE FOR HONOR extension of it;
An undertaking by a stranger to a bill after protest 5. The notarial act must be based on the declaration
for the benefit of any party liable thereon or for the made by the payor for honor or his agent of his
honor of the person for whose account the bill is intention to pay the bill for honor and for whose
drawn which acceptance inures also to the benefit of honor he pays.
all parties subsequent to the person for whose honor it
is accepted, and conditioned to pay the bill when it Note: If the above formalities are not complied with,
becomes due if the original drawee does not pay it. payment will operate as a mere voluntary payment
(Secs. 161-170) and the payor will acquire no right to full
reimbursement against the party for whose honor he
Requisites: pays.
1. The bill must have been protested for dishonor by
non-acceptance or for better security; In payment for honor, the payee cannot refuse
2. The acceptor for honor must be a stranger and not payment. If he refuses, he cannot recover from the
a party already liable on the instrument; parties who would have been discharged had he
3. Bill must not be overdue; accepted the same. In acceptance for honor, the
4. Acceptance for honor must be with the consent of holders consent is necessary.
the holder of the instrument.
The payor for honor is given the right to receive By whom made:
both the bill and the protest obviously to enable him to a. By maker or acceptor; or
enforce his rights against the parties who are liable to b. Surety if a primary party; or
him. c. By an agent on behalf of the principal


One composed of several parts, each part being The act of surrendering a right or claim without
numbered and containing a reference to the other recompense, but it can be applied with equal propriety
parts, the whole of the parts constituting but one bill. to the relinquishing of a demand upon an agreement
supported by a consideration. (1 Agbayani 1992 ed.)
Purpose: It is usually availed of in cases where a Effects:
bill had to be sent to a distant place through some 1. A renunciation in favor of a secondary party may
conveyance. If each part is sent by different means of be made by the holder before, at or after maturity
conveyances, the chance that at least one part of the of the instrument. The effect is to discharge only
set would reach its destination would be greater. such secondary party and all parties subsequent
to him but the instrument itself remains in force.
Rights of holders where parts are negotiated 2. A renunciation in favor of the principal debtor
separately: may be effected at or after maturity. The effect is
1. If both are HDC, the holder whose title first to discharge the instrument and all parties thereto
accrues is considered the true owner of the bill; provided the renunciation is made
2. But the person who accepts or pays in due course unconditionally and absolutely.
shall not be prejudiced. (Sec. 179) Note: In either case, renunciation does not affect the
rights of a holder in due course without notice.
Obligations of holder who indorses 2 or more
parts of the bill in set: CANCELLATION
1. The person shall be liable on every such part; It includes the act of tearing, erasing, obliterating,
2. Every indorser subsequent to him is liable on the or burning. It is not limited to writing of the word
part he has himself indorsed, as if such parts cancelled, or paid, or drawing of criss-cross lines
were separate bills. (Sec. 180) across the instrument. (Sec. 123) It may be made by
any other means by which the intention to cancel the
IX. DISCHARGE instrument may be evident.


A release of all parties, whether primary or 1. By any act which discharges the instrument;
secondary, from the obligations arising thereunder. It 2. By the intentional cancellation of his signature by
renders the instrument without force and effect and, the holder;
consequently, it can no longer be negotiated. 3. By the discharge of a prior party;
4. By a valid tender of payment made by a prior
Instances: party;
1. By payment in due course by or on behalf of the 5. By the release of the principal debtor, unless the
principal debtor; holders right of recourse against the party
2. Payment by accommodated party; secondarily liable is expressly reserved;
3. Intentional cancellation by the holder; 6. By any agreement binding upon the holder to
4. By any act which will discharge a simple contract extend the time of payment or to postpone the
for the payment of money; (Sec. 119) holders right to enforce the instrument. (Sec. 120)
5. When the principal debtor becomes the holder of In the following cases, the agreement to extend
the instrument at or after maturity in his own the time of payment does not discharge a party
right. secondarily liable:
a) where the extension of time is consented to by
Requisites: b) where the holder expressly reserves his right
1. Payment must be made at or after maturity. of recourse against such party.
2. Payment must be made to the holder.
3. Payment must be made in good faith and without Payment at or after maturity by a party secondarily
notice that the holders title is defective. (Sec. 88) liable does not discharge the instrument. It only
cancels his own liability and that of the parties
subsequent to him. (Sec. 121)
X. CHECKS redeemed by the maker himself when the loan falls
due and which understanding is evidenced by writing
the word memorandum, memo or mem on the
A bill of exchange drawn on a bank payable on check.
demand (Sec. 185)
2. Cashiers Check
CONCEPTS: One drawn by the cashier of a bank, in the name of
the bank against the bank itself payable to a third
1. Certification of Checks person. It is a primary obligation of the issuing bank
An agreement whereby the bank against whom a and accepted in advance upon issuance.
check is drawn, undertakes to pay it at any future time
when presented for payment. 3. Managers Check
Effects: A check drawn by the manager of a bank in the
a. Equivalent to acceptance (Sec. 187) and is the name of the bank itself payable to a third person. It is
operative act that makes banks liable similar to the cashiers check and certified check as to
b. Assignment of the funds of the drawer in the the effect and use, which, in the commercial world, is
hands of the drawee (Sec. 189) regarded substantially to be good as the money it
c. If obtained by the holder, discharges the represents.
persons secondarily liable thereon (Sec. 188)
4. Travelers Check
2. A check of itself does not operate as an assignment It is one upon which the holders signature must
of any part of the funds to the credit of the drawer appear twice; one, to be affixed by him at the time it is
with the bank. The bank is not liable to the holder, issued and the second, for counter-signature, to be
unless and until it accepts or certifies the check. (Sec. affixed by him in the presence of the payee before it is
189) paid, otherwise, it is incomplete.
3. A check must be presented for payment within 5. Certified Check
reasonable time after its issue or the drawer will be It is one which bears upon its face an agreement by
discharged from liability thereon to the extent of the the drawee-bank that the check will be paid on
loss caused by the delay. (Sec. 186) presentation. The usual practice is by stamping or
Reasonable time: (Sec. 193, NIL) writing the word certified upon the check.
a. Nature of the instrument
b. Usage of business or trade 6. Crossed Check
c. The facts of the particular case A check (in addition to the usual contents of an
ordinary check) contains also the name of a certain
4. Where the holder of a check procures it to be banker or business entity through whom it must be
accepted or certified, the drawer and all indorsers are presented for payment. One which bears upon its face
discharged from liability thereon. (Sec. 186) two parallel lines diagonally, usually on the upper left
corner between which are either the name of a bank
5. Refusal of drawee bank to certify or the words and company in full or abbreviated.
The holder has no action against the bank but he Effects:
has a right of action against the drawer. The drawer in a) That the check may not be encashed; it may only
turn has right of action against the bank based on the be deposited with the bank;
original contact of deposit between them. b) That the check may be negotiated only once to a
person who has an account with the bank; and
IRON CLAD RULE c) That it serves as a warning to the holder that the
It prohibits the countermanding of payment of check has been issued for a definite purpose.
certified checks. (Republic of the Philippines vs. PNB)
Note: The holder must be a holder in due course The NIL is silent with respect to crossed checks,
before the stop payment order may not be successfully although the Code of Commerce makes reference to
invoked against him. such instrument. Nonetheless, this Court has taken
judicial cognizance of the practice that a check with 2
TYPES OF CHECKS: parallel lines in the upper left hand corner means that
it could only be deposited and not converted into cash.
1. Memorandum Check The effects of crossing a check thus, relates to the mode
A check given by a borrower to a lender for the of payment, meaning that the drawer had intended the
amount of a short loan, with the understanding that it check for deposit only by the rightful person, i.e., the
is not to be presented at the bank, but will be payee named therein.