LECTURE & RECIT Notes on the Negotiable Instruments Law (Dean Jose R.

Sundiang)
Prepared by: Ezekiel Joshua L. Villena (3C/2H); with the help of Aaron Marc Saludo and Maria Veronica Guangco (2H)

 What are the common forms of negotiable instruments?

1. Promissory Note
2. Bill of Exchange
3. Check

 What is a promissory note?

- an unconditional promise in writing made by one person to another, signed by the maker,
engaging to pay on demand or at a fixed determinable future time, a sum certain in money to
order or to bearer

 What is a bill of exchange?

- 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
determinable future time, a sum certain in money to order or to bearer

 What is a check?
- a special kind of bill of exchange drawn on a bank payable on demand

 What is the difference between a promissory note and a bill of exchange?

PROMISSORY NOTE BILL OF EXCHANGE
- signed by a maker - signed by a drawer

- is an unconditional promise - is an unconditional order

- does not need to be presented for - needs to be presented for acceptance

acceptance before presentment for before presentment for payment
payment

 What is the difference between a bill of exchange and a check?

BILL OF EXCHANGE CHECK
- may or may not be drawn against a bank - always drawn upon a bank

- payable on demand or on a fixed - always payable on demand

determinable future time

- must be presented for acceptance - not necessary to be presented for

acceptance

- may not be drawn on a deposit or funds - drawn on a deposit

- death of drawer does not revoke the bank’s - death of drawer revokes the bank’s
authority authority

- must be presented for payment within a - must be presented for payment within a
reasonable time after its last negotiation reasonable time after its issue

 What are the incidents to the life of a negotiable instrument?

1. Issue
2. Negotiation
3. Presentment for Acceptance
4. Acceptance

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 5. Dishonor by Non-Acceptance
6. Presentment for Payment
7. Dishonor by Non-payment
8. Notice of Dishonor
9. Discharge

 What are the incidents to the life of a promissory note?

M P A B C D E

 M = maker
 P = payee

 What is E? A holder
 What is a holder? Based on Section 190 of the NIL, the “holder” is a payee or indorsee in
possession of the instrument, but it depends mainly on the instrument, to be a holder:
1. if it is an order instrument = should be a payee or indorsee + in possession thereof
2. if it is a bearer instrument = it is enough that the person is in possession thereof
 In the example, E = holder

 1st incident = M P (issue)

 2nd incident = P A B C D E (negotiation)

 With E as holder, what is the next incident to the life of a promissory note? Presentment for
payment
 If the instrument is dishonored, what should E do as the next incident? E should give a notice
of dishonor for non-payment to all the prior parties
 Based on Section 68 of the NIL, the order of how it was indorsed should be followed; if E, as
holder, wants to ask for payment for any of the prior parties, is he bound by the provision thus
he can only ask payment from D, his immediate prior party? NO, because E as a holder is not
bound by that provision because as a holder he may hold any of the prior parties accountable as
long as he has given them notices of dishonor

 What are the incidents to the life of a bill of exchange?

M P A B C D E

 M = drawer
 P = payee
 E = holder
 X = drawee

 1st incident = M P (issue)

 2nd incident = P A B C D E (negotiation)

 With E, as holder, what is the next incident to the life of the bill of exchange? Presentment for
acceptance to X as drawee
 In all cases, is presentment for acceptance for a bill of exchange required? NO, presentment for
acceptance is required only for those cases falling under Section 143 of the NIL

 If X does not accept, what should E do? E, as a holder, should give a notice of dishonor for
non-acceptance to all the prior parties

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 If X accepts, what happens? X as drawee, now becomes an acceptor, who assents to the order
of the drawer and engages to pay the instrument according to the tenor of his acceptance
(Section 62, NIL)
 What is acceptance? It is the signification of the assent of the drawee to the order of the drawer
(Section 132, NIL)
 Why is acceptance needed? Because unless and until the drawee accepts the bill, the drawee
shall not be a party to the instrument, hence shall not be liable to it

 What are the next incidents? Presentment for payment; if dishonored, the holder should give a
notice of dishonor for non-payment to the prior parties

 What is an indorsement?
- a transaction effected by writing on the instrument or on an attached paper thereto, of one’s
own name and signature, specifying to whom or to whose order the negotiable instrument is to
be payable (Section 30, NIL)

 What are the basic types of indorsement?

1. Special – specifies the person to whom or to whose order the instrument is to be payable
2. Blank - does not specify the person to whom or to whose order the instrument is to be
payable
 Other types of indorsement?
- Restrictive - Conditional
- Qualified

 Prior to acceptance, there is no party to a bill of exchange who is primarily liable, unless and
until the bank or drawee accepts or certifies the negotiable instrument

 What are the features of negotiable instruments?

1. Negotiability – that attribute or property whereby a negotiable instrument passes or may
pass from hand to hand similar to money, so as to give the holder in due course the right to
hold the instrument and collect the sum payable for himself free from defense

2. Accumulation of secondary contracts – that attribute which negotiable instruments pick up

and carry along with them as they are negotiated from one person to another, or in the course
of negotiation of a negotiable instrument, a series of juridical ties between the parties thereto
arises by law or by privity
 Indorsement is a contract in itself

 What is the difference between negotiability and assignability?

NEGOTIABILITY ASSIGNABILITY
1. Contracts pertains to a special class of more comprehensive term
contracts (negotiable instruments) pertaining to contracts in general

2. Defenses the one who takes the instrument the one who takes the instrument is
is free from available defenses subject to the defenses of original parties

3. Cause cause is presumed cause is presumed

4. Liabilities the indorser is not liable on indorsement unless there be presentment for payment
and notice

5. Warranty a general indorser warrants the an assignor does not warrant the solvency
solvency of the principal debtor of the principal debtor

 An assignee cannot acquire better rights than the assignor, because the assignee merely steps
into the shoes of the assignor

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 How is negotiability determined?
1. by what appears on the face of the instrument and not elsewhere
2. if it complies with the requisites of Section 1 of the NIL
3. by considering the whole of the instrument

SECTION 1 – An instrument to be negotiable must conform to the following requirements:

(a) it must be in writing, signed by the maker or drawer
(b) must contain an unconditional promise or order to pay a sum certain in money
(c) must be payable on demand or at a fixed determinable future time
(d) must be payable to order or to bearer
(e) where the instrument is addressed to a drawee, he must be named or otherwise indicated with
reasonable certainty

 What are the requisites for an instrument to be negotiable? Section 1

 What is a negotiable Promissory Note?
 What are the requisites? (do not include 1[e] of Section 1 of the NIL, because a PN has no
drawee)

 What is a negotiable Bill of Exchange?

 What are the requisites?

 What is the main distinction between a PN and a BE?

 Is a bill of exchange an order instrument because it is “payable to order”? NO , because a bill
of exchange is “an order to pay” regardless of whether it may be payable to order or to bearer

SECTION 2 – The sum payable is a sum certain within the meaning of this Act, although it is to be
paid:
(a) with interest;
(b) by stated instalments;
(c) by stated instalments, with a provision that, upon default in payment of any instalment or of
interest, the whole shall become due
(d) with exchange, whether at a fixed rate or at the current rate
(e) with costs of collection or an attorney’s fee, in case payment shall not be made at maturity

 If an instrument has a stipulation of interest, is it rendered non-negotiable? NO

 If an instrument has a stipulation of installments, is it rendered non-negotiable? NO
 What is required when there are instalments?
(1) must be stated
(2) maturity of each instalment must be fixed or determinable

 If there is no stipulation as to the time of payment, how is the instrument payable? Payable on
demand (Section 7, NIL)
 If an instrument has a stipulation of currency, is it rendered non-negotiable? NO, RA 8183
(which repealed RA 529 or the Uniform Currency Act), states that parties may validly agree
provided it can be paid in foreign currency

 What is an acceleration clause? Section 2(3), NIL

 Will it affect the negotiability of an instrument? NO, Sec.1 are the only requisites, Sec.2
provides for an acceleration clause

SECTION 3 – An unqualified order or promise to pay is unconditional within the meaning of this Act
though coupled with:

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(a) An indication of a particular fund out of which reimbursement is to be made or a particular
account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument. But an order or promise to
pay out of a particular fun is not unconditional.

 If an instrument indicates a particular fund out of which payment shall be made, is it rendered
non-negotiable? YES (Section 3[2], NIL)
 Difference between fund for reimbursement and fund for payment

 Would a fund for reimbursement apply to a PN? NO, because there is no drawee in a PN

 Supposing, the drawee is authorized to reimburse P10,000, but was ordered to pay P20,000,
will the instrument become non-negotiable? NO, because the drawee may refuse to pay the
instrument, dishonour by non-payment

SECTION 4 – An instrument is payable at a determinable future time, within the meaning of this Act,
which is expressed to be payable:
(a) at a fixed period after date or sight; or
(b) on or before a fixed or determinable future time specified therein; or
(c) on or at a fixed period after the occurrence of a specified event which is certain to happen,
though the time of happening be uncertain
An instrument payable upon a contingency is not negotiable, and the happening of the event
does not cure the defect.

 Based on Section 4, when is an instrument payable at a determinable future time?

 In Section 4(3), why is it “on or after” not “before”? Because for example, the event is the
death of the person, if it is “before”, by the time the person dies, the instrument shall have been
overdue, hence the holder thereafter will not be a holder in due course

SECTION 5 – An instrument which contains an order or promise to do any act in addition to the
payment of money is not negotiable.
But the negotiable character of an instrument otherwise negotiable is not affected by a
provision which:
(a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
(b) authorizes a confession of judgment if the instrument be not paid at maturity; or
(c) waives the benefit of any law intended for the advantage or protection of the obligor; or
(d) gives the holder the election to require something to be done in lieu of payment of money .
But nothing in this section shall validate any provision or stipulation otherwise illegal.

 What if there are additions aside from the obligation to pay in money, is the instrument
rendered non-negotiable? YES
 What are the exceptions? Section 5, NIL
 What is the effect of a waiver? Will be subject to defenses available
 If there is an additional act required to be done, what will happen to the instrument? Non-
negotiable
 If the maker has the option of what to do, what will happen to the instrument? Non-negotiable
 But if the holder is given the option of what to do, in lieu of payment in money, what will
happen to the instrument? Still negotiable, Section 5(4), NIL

SECTION 6 – The validity and negotiable character of an instrument are not affected by the fact
that:
(a) it is not dated; or
(b) does not specify the value given, or that any value had been given therefor; or
(c) does not specify the place where it is drawn or the place where it is payable; or
(d) bears a seal; or
(e) designates a particular kind of current money in which payment is to be made.

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 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.

SECTION 7 – 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.

 According to Section 7, how is an instrument payable on demand?

SECTION 8 – The instrument is payable to order where it is drawn payable to the order of a
specified person or to him or his order. It may be drawn payable to the order of:
(a) a payee who is not maker, drawer, or drawee; or
(b) the drawer or maker; or
(c) the drawee; or
(d) two or more payees jointly; or
(e) one or some of several payees; or
(f) the holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicate
therein with reasonable certainty.

 Is “pay to the order of X” the same as “pay to X or order”? YES

 Is “pay to the order of bearer” the same as “pay X or bearer”? NO, it’s different, the 1st is an
order instrument, the 2nd is a bearer instrument
 What is the rationale behind the last paragraph of Section 8? Because an order instrument
requires indorsement

SECTION 9 – The instrument is payable to bearer:

(a) when it is Expressed to be so payable; or
(b) when it is payable to a Person named therein or bearer; or
(c) when it is payable to the order of a Fictitious or non-existing person, and such fact was known to
the person making it so payable; or
(d) when the Name of the payee does not purport to be a name of any person; or
(e) when the Only or last indorsement is an indorsement in blank.

(OPEN-F)

SECTION 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.

 “Fictitious person”, is this to be interpreted literally? NO, because it is a person who has no
right to the instrument
 What is material in determining whether a person is “fictitious”? the intention of the maker
 What is the relation of Section 9(e) with Section 40 of the NIL? Section 40 states that an
instrument, “once a bearer instrument, always a bearer instrument”
 What is a blank indorsement? An indorsement where the name of the payee is not indicated or
it does not indicate to whom the instrument shall be payable; a blank instrument is done by
merely signing the instrument
 Why should the special indorsers be held liable when their actions were unnecessary in the first
place? Because of accumulation of secondary contracts (a feature of negotiable instruments),
hence with this, an indorsement is a contract in itself

Under Section 9(e)

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 Order
M P A B C D E F
(blank) delivery Pay to C (blank) delivery delivery
(special)

 C to D = when the only or last indorsement is an indorsement in blank

Under Section 40

Bearer (special)
M P A B C D E F
(special) delivery (special) delivery delivery delivery

 Is a postal money order a negotiable instrument? NO, Philippine Education Co. case, and
Caltex Phils. case
 Which of the requirements under Section 1, NIL does it not comply with? It is not an
unconditional promise or order to pay
 Is a warehouse receipt a negotiable instrument? NO
 Which of the requirements under Section 1, NIL does it not comply with? It is not in the
payment of money
 Is a bill of lading a negotiable instrument? NO
 Which of the requirements under Section 1, NIL does it not comply with? It is not in the
payment of money
 Is a certificate of stock a negotiable instrument? NO
 Which of the requirements under Section 1, NIL does it not comply with? It is not in the
payment of money; what it represents is shares of stock, not money

 What again are the requisites for a negotiable instrument? Section 1, NIL
 What again are the requisites for a negotiable promissory note? Section 1, NIL, except Sec.1(e)
 What again are the requisites for a negotiable bill of exchange? Section 1, NIL

 Although under Section 6, the date in the instrument is not necessary, what are the instances
where date is necessary, under Section 13?
1. Where an instrument expressed to be payable at a fixed period after date
2. Where the acceptance of an instrument payable at a fixed period after sight
3. Where the interest is stipulated, not for negotiability, but to determine when it is to run
4. To determine whether a party has acted within a reasonable time

 “After sight” of whom? Drawee

 What if the drawee is blind? “after sight” is not to be interpreted literally
 Only those under Section 143 requires acceptance
 Section 143(a)

(undated)

M P 120 days after date

Bill ACCEPTED 7/2/09

 Joke of Dean Sundiang: If there is a wrong insertion, the instrument will make an illegal
discharge; well, what is more interesting than instruments

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SECTION 12 - The instrument is not invalid for the reason only that it is ante-dated or post-dated,
provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so
dated is delivered acquires the title thereto as of the date of delivery.

 What is the purpose of a wrong insertion? To hasten the maturity date of the instrument, by
ante-dating it
 What kind of defense is it? Personal defense
 What is the effect if the instrument is negotiated to a holder in due course? The wrong insertion
will be deemed as the true date of issue
 Why will a holder ante-date or post date an instrument? Section 12, NIL

SECTION 14 - Blanks; when may be filled. - Where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it by filling up
the blanks therein. And a signature on a blank paper delivered by the person making the signature
in order that the paper may be converted into a negotiable instrument operates as a prima facie
authority to fill it up as such for any amount. In order, however, that any such instrument when
completed may be enforced against any person who became a party thereto prior to its completion,
it must be filled up strictly in accordance with the authority given and within a reasonable time. But
if any such instrument, after completion, is negotiated to a holder in due course, it is valid and
effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in
accordance with the authority given and within a reasonable time.

 What are the two steps in creating a valid negotiable instrument?

1. the mechanical act of writing the instrument completely and in accordance with Section 1 of
the NIL
2. delivery of the instrument with the intention of giving effect to it

 Delivery, in order to be valid should be coupled with? Should be coupled with the intention to
transfer the property of the instrument

 What is the effect of Section 14?

 Under Section 14, what are the situations contemplated?
1. person in possession has prima facie authority to fill in the blanks of a NI wanting in a
material particular
2. a signature on a blank paper delivered by the maker or drawer with the intention to convert it
into a NI, is prima facie authority to fill the instrument for any such amount

 Is the 2nd situation automatically applicable? NO, the maker or drawer should have intended to
convert the paper containing the signature into a NI
 Supposing, Vilma Aunor...
 What is the 3rd paragraph of Section 14? What is its effect if it the instrument is not filled
strictly in accordance with the authority given and within reasonable time? It may not be
enforced against parties prior to the completion
 What is the effect of the 4th paragraph of Sec.14? What kind of defense may be raised? It is a
personal defense

SECTION 15 – Incomplete instrument not delivered. - Where an incomplete instrument has not been
delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands
of any holder, as against any person whose signature was placed thereon before delivery.

 Supposing, a blank check was stolen, then it was completed and negotiated:
a. May the holder to whom it is negotiated enforce the instrument? NO, because it was signed
without authority
b. Will your answer be the same if it was negotiated to a holder in due course? YES, because it
an invalid contract in the hands of ANY holder

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 c. Who may be held liable? The indorsers subsequent to the completion (because as general
indorsers, they warrant the genuineness of the signature on the instrument) and may be held
against any person whose signature was placed thereon before delivery

SECTION 16 – Delivery; when effectual; when presumed. - Every contract on a negotiable instrument
is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto.
As between immediate parties and as regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or under the authority of the party
making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be
shown to have been conditional, or for a special purpose only, and not for the purpose of
transferring the property in the instrument. But where the instrument is in the hands of a holder in
due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer in the possession of a party whose
signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is
proved.

 What is the rule on delivery under Section 16 of the NIL? The instrument is incomplete and
revocable until delivery is made for the purpose of giving effect thereto
 Who may deliver the instrument? The person making, drawing, accepting, indorsing the
instrument as the case may be
 What if there was delivery to a person not a holder in due course, in the 3rd paragraph?
 When the provision says “immediate” and “remote” parties does this mean proximity? NO, it
means privity or knowledge to the transaction or contract
 What is the effect if the holder is a holder in due course? A valid delivery thereof by all parties
prior to him so as to make them liable to him is conclusively presumed
 What kind of presumption? Conclusive

SECTION 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.

 When will the provisions of Section 17 apply? When (1) the language is ambiguous, (2) there
are omissions
 When there is a conflict between the written and printed provisions of an instrument, what
shall prevail? the written provisions shall prevail
 Why? Because the written provisions show the true intention of the maker or drawer
 What are the rules on the date of an instrument?

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 If there is an ambiguity on whether an instrument is a bill or a note? The holder may elect as to
whether to treat it as a bill or note; the holder is given a option
 Which is a better choice, bill or note, why, which is more beneficial? Bill of exchange, because
there is no provision in the law that talks about the liability of a drawer, Section 60, 127, 189

SECTION 18 - No person is liable on the instrument whose signature does not appear thereon, except
as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable
to the same extent as if he had signed in his own name.

 The general rule in law is that no person shall be liable on the instrument whose signature does
not appear on the instrument, what are the exceptions? (Check the 2009 Commercial Law
Memory Aid for the other exceptions, p.157)
1. A duly authorized agent signs for a person
2. Person who forges the signature of another
3. Person sought to be charged signs on an allonge
4. One who signs in an assumed or trade name, liable as a party by any designation he desires

SECTION 19 – The signature of any party may be made by a duly authorized agent. No particular
form of appointment is necessary for this purpose; and the authority of the agent may be
established as in other cases of agency.

SECTION 20 - Liability of person signing as agent, and so forth. - Where the instrument contains or a
person adds to his signature words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent, or as filling a representative character, without
disclosing his principal, does not exempt him from personal liability.

 What are the requisites for having an agent? (DARD)

1. must be Duly authorized
2. must Add words to his signature indicating that he signs as an agent
3. must be signing in a Representative capacity
4. must Disclose his principal
 Why must the agent disclose the principal? To disclose the real party in interest

SECTION 22 - Effect of indorsement by infant or corporation.- The indorsement or assignment of the

instrument by a corporation or by an infant passes the property therein, notwithstanding that from
want of capacity, the corporation or infant may incur no liability thereon.

 “infant” does it really mean a baby? NO, not literally taken, should be taken as “incapacitated”

M Infant/Corporation A

 Can A hold the I/C liable?

 Why not the maker? Because the maker admits to the existence of the payee and his capacity to
indorse
 Even if a holder in due course? YES, because it is a real defense which is personal only to
minor or corporation
 Can a corporation issue checks? Prohibited acts only refer to ultra vires acts

SECTION 23 - Forged signature; effect of. - When a signature is forged or made without the authority
of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto,
can be acquired through or under such signature, unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of authority.

 What does “it” mean in the statement; what is wholly inoperative, the instrument? NO, only the
signature that was forged or made without authority

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 What are the effects of forgery? (WRDE)
1. the signature is Wholly inoperative
2. no right to Retain
3. no right to give a Discharge thereof
4. no right to Enforce payment against any party

Promissory Note

forged
M - - - - - -P A B C

 Is M liable? NO, the signature is wholly inoperative

order
M P- - - - - -A B C
stolen

 Is M liable? NO, because of the cut-off rule

 It is an order instrument hence it cannot be negotiated without indorsement; payee’s signature
was forged presumably

 Who are the persons precluded from raising the defense of forgery?
1. those who warrant or admit the genuineness of the signature in question, i.e. indorsers,
acceptors, persons negotiating by delivery
2. those who by their acts, silence, negligence, are estopped from setting up the defense of
forgery

 Why are indorsers liable? Because as general indorsers, they warrant the genuineness of the
signature
 Why are acceptors liable? Because by their acceptance, there is a signification of their assent
to the order of the drawer

 Why is the drawee liable when the drawee accepts the instrument under Section 62? Because
the drawee as an acceptor admits to the existence of the drawer and his capacity to draw and
the genuineness of his signature

Bill of Exchange

forged
D-----F A B C

For acceptance
X
(accepted)

 Can the drawee refuse payment? NO, he is estopped as he has accepted the bill
 Can C, the holder, hold the drawer liable? NO, because the forged signature is wholly
inoperative, hence he is not a party to the forgery

forged
D F----- A B C

11 ejlvillena.2009//
 Can the drawer be held liable? NO, because it is an instrument payable to F or order, in the
case A is not the order of F
 The cut-off rule applies ONLY to instruments payable to order

 Jai-Alai v. BPI
 Republic Bank v. Ebrada
 Ilusorio v. CA
 MWSS v. PNB

 What constitutes material alteration? Section 125

 What is the effect of material alteration? Section 124
 Except to who?
1. those who made the alteration
2. those who authorized or assented to the alteration
3. subsequent indorsers after the alteration

P10,000(original tenor)
altered P100,000
M P A B C

 If C is a holder in due course, for how much may he hold against M? May enforce P10,000
 How much can C enforce from P, A, B? P100,000 because they are parties privy to the material
alteration

 Supposing, you alter the name of the payee, material alteration? YES
 Can you enforce the instrument? NO, the SC held that an instrument in such a case cannot be
enforced even in its original tenor, Montinola case

 Supposing, what was altered was the serial number of a check, is that material alteration? NO,
PNB v. CA

 What was held in Associated Bank v. CA, who should bear the loss? Since there was negligence
on both the Province of Tarlac and of the drawee bank, both should bear the loss and is liable
for 50% each, using a Solomonic method of judgment

SECTION 24 - Presumption of consideration. - Every negotiable instrument is deemed prima facie to

have been issued for a valuable consideration; and every person whose signature appears thereon to
have become a party thereto for value.

 If there is no consideration stated in the instrument, is it non-negotiable? NO, Section 24, there
is a presumption

SECTION 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.

 What kind of consideration is necessary under the law? There must be sufficient consideration
 Should it be in money for it to be negotiable? YES
 What is considered as sufficient consideration? Section 25, should be able to support a simple
contract for money
 Is LOVE considered as sufficient consideration? NO
 What defense may a drawee raise?

SECTION 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

12 ejlvillena.2009//
to that time.

 What is the presumption under Section 26? The holder is deemed a holder for value

SECTION 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.

P20,000
M P A B C
P1,000

 If C presents the instrument for payment to M, can M raise the defense of absence or want of
consideration?
 If C presents the instrument for payment to P, can P raise the defense of absence or want of
consideration? NO, no reimbursement
 What kind of defense is absence or want of consideration? Personal defense, this cannot be
interposed against a holder in due course

SECTION 29 – Liability of accommodation party. - An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be
only an accommodation party.

 What is an accommodation party? One who signs the instrument as maker, drawer, indorser, or
acceptor, without receiving value thereof and for the purpose of lending his name to some other
person
 Between an accommodation party and an accommodated party, is absence or want of
consideration a defense? NO, because between them, there is no consideration
 When is an accommodation party primarily liable, as what? As accommodation maker or
accommodation acceptor
 When is an accommodation party secondarily liable, as what? As accommodation indorser or
accommodation drawer
 Even if a holder for value knew that he was an accommodation party, can it be raised as a
defense against a holder in due course? NO, such accommodation party is still liable

 Can a corporation be an accommodation party? NO, because such act is an ultra vires act
 If such act happens, who are liable? Those who appear to have signed the instrument in
accommodation (Crisologo-Jose v. CA)

 Can co-makers of a promissory note be considered as accommodation parties? NO, they are by
law considered as co-guarantors and can only demand reimbursement from each of them
ONLY if either: (1) there is judicial demand, or (2) one of them has been declared insolvent
(Sadaya v. Sevilla)
 Can the bank demand payment from any of them? YES

SECTION 30 - What constitutes negotiation. - An instrument is negotiated when it is transferred from

one person to another in such manner as to constitute the transferee the holder thereof. If payable
to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the
holder and completed by delivery.

 What is negotiation? Section 30

 Are all transfers considered as negotiation? NO, there is assignment

 HOLDER (for valid negotiation)

- payable to order = the holder must be a payee or indorsee; holder must be in possession

13 ejlvillena.2009//
- payable to bearer = the holder may be anyone in possession of the instrument

M P

 Supposing, a bearer instrument with the payee as “CASH” was presented to a bank, which
required the holder to sign his name on the instrument, was the bank correct in requiring him to
sign?
- Legally, NO because it is a bearer instrument, it does not need indorsement for negotiation
only mere delivery
- Practically, YES, for safety and security purposes

 How is an instrument negotiated? Depends on whether it is a bearer instrument or an order

instrument

SECTION 31 – Indorsement; how made. - The indorsement must be written on the instrument itself
or upon a paper attached thereto. The signature of the indorser, without additional words, is a
sufficient indorsement.

SECTION 32 – Indorsement must be of entire instrument. - The indorsement must be an indorsement

of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of
the amount payable, or which purports to transfer the instrument to two or more indorsees
severally, does not operate as a negotiation of the instrument. But where the instrument has been
paid in part, it may be indorsed as to the residue.

SECTION 33 – Kinds of indorsement. - An indorsement may be either special or in blank; and it may
also be either restrictive or qualified or conditional.

SECTION 34 – Special indorsement; indorsement in blank. - A special indorsement specifies the

person to whom, or to whose order, the instrument is to be payable, and the indorsement of such
indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies
no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery.

SECTION 35 – Blank indorsement; how changed to special indorsement. - The holder may convert a
blank indorsement into a special indorsement by writing over the signature of the indorser in blank
any contract consistent with the character of the indorsement.

SECTION 36 – When indorsement restrictive. - An indorsement is restrictive which either:

(a) Prohibits the further negotiation of the instrument; or

(b) constitutes the indorsee the Agent of the indorser; or

(c) vests the title in the indorsee in Trust for or to the use of some other persons.
But the mere absence of words implying power to negotiate does not make an indorsement
restrictive.
(PAT)

 What are the kinds of indorsement? special or blank, restrictive or qualified or conditional
 What is a special indorsement? specifies the person to whom or to whose order the instrument
is to be payable, and the indorsement of such indorsee is necessary to the further negotiation of
the instrument (Section 33)
 What is a blank indorsement? specifies no indorsee, is considered as payable to bearer and
may be negotiated by delivery (Section 33)

14 ejlvillena.2009//
SECTION 38 – Qualified indorsement. - A qualified indorsement constitutes the indorser a mere
assignor of the title to the instrument. It may be made by adding to the indorser's signature the
words "without recourse" or any words of similar import. Such an indorsement does not impair the
negotiable character of the instrument.

 Qualified? One that constitutes the indorser a mere assignor of the title to the instrument. It
may be made by adding to the indorser’s signature the words “without recourse” or any words
of similar import (Section 38)
 What is “without recourse”? without resort to a person who is secondarily liable after default of
the person who is primarily liable
 Without recourse to who? Indorser
 In all instances? NO
 What is a qualified indorser? Limited secondary liability; liable on the warranties he made as
an indorser

 Restrictive? One which either (1) prohibits the further negotiation of the instrument, (2)
constitutes the indorsee the agent of the indorser, or (3) vests the title in the indorsee in trust for
or to the use of some other persons (Section 36)
 What is the effect of a restrictive indorsement? (PAT also) the indorsee shall have the right (1)
to receive Payment of the instrument, (2) to bring any Action thereon that the indorser could
bring, (3) to Transfer his rights as such indorsee, where the form of the indorsement authorizes
him to do so

SECTION 39 – Conditional indorsement. - Where an indorsement is conditional, the party required to

pay the instrument may disregard the condition and make payment to the indorsee or his transferee
whether the condition has been fulfilled or not. But any person to whom an instrument so indorsed
is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person
indorsing conditionally.

 What is a conditional indorsement? one where the party required to pay the instrument may
disregard the condition and make payment to the indorsee or his transferee whether the
condition has been fulfilled or not, but any person to whom an instrument so indorsed is
negotiated will hold the same, or the proceeds thereof, subject to the rights of the person
indorsing conditionally
 What is conditional, the promise or the order? NO, it is the indorsement that is conditional

M P A

 May M pay A? YES

 Does A have the right to hold the money? NO, agent for P
 A, if the condition is not fulfilled, he has to return it to M

SECTION 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.

 Under this section, an instrument is negotiable until what? (1) restrictive indorsement, (2)
payment of the instrument
 When an instrument is restrictively indorsed, does it mean it will cease to be negotiable? NO,
only when it prohibits further negotiation

SECTION 48 – Striking out indorsement. - The holder may at any time strike out any indorsement
which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers
subsequent to him, are thereby relieved from liability on the instrument.

order blank special blank

M P A B C D
(delivered) (delivered)

15 ejlvillena.2009//
 Whose indorsement may be stricken out?
 P? NO, he’s indorsement is necessary for further negotiations
 B? YES
 What is the effect of prior party negotiation? May reissue and further negotiate the instrument
but cannot enforce it to intervening parties to whom he is personally liable

 What is the shelter rule? It is when the holder acquires the instrument from a holder in due
course
 What rights can be acquired by an assignee? All the rights of the assignor, nothing more

 Does Section 68 apply to a holder in due course? NO

SECTION 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 negotiable
the same. But he is not entitled to enforce payment thereof against any intervening party to whom
he was personally liable.

M P A B C A

 Prior parties are liable to subsequent parties

 1st negotiation to A = to whom is he liable to as an indorser? B and C
 2nd negotiation to A = who are liable to him? Not B and C, because that will be compensation

 How is an instrument payable to order negotiated? Indorsement completed with delivery

 What kind of transfer is that between a transferee and transferor, negotiation? NO, only mere
assignment
 Is the transferee a holder in due course? NO, because indorsement will complete negotiation

 What’s the difference between a holder in due course and a person not a holder in due course?
Holder in Due Course -
NOT a Holder in Due Course -

SECTION 52 – What constitutes a holder in due course. - A holder in due course is a holder who has
taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.

 Under Section 52, what is a holder in due course?

C – omplete and regular upon its face
O - verdue
F – aith (good faith)
I - infirmity

 If the instrument is incomplete but delivered, can he still be a holder in due course?
 No notice of “previous dishonour”, does this refer to dishonour for non-payment or non-
acceptance? The law does not distinguish
 Sundiang: ONLY for dishonour for non-acceptance

 Who is a holder in due course (HDC)?

16 ejlvillena.2009//
 What are the rights of a HDC and a non-HDC?
 Does it mean that a person not a holder in due course cannot enforce payment? NO, what he
cannot do is to negotiate
 When does the instrument become overdue?
 What are the rules when the instrument is payable at a fixed determinable future time?
 Payable on demand?
 Does the same rule apply to a Promissory Note and Bill of Exchange

SECTION 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, the holder is not deemed a
holder in due course.

 Does Section 53 apply only to a Bill of Exchange? In relation to Section 117

 When is the holder in good faith?
 What are examples of infirmity in the instrument?

SECTION 55 – When title defective. - The title of a person who negotiates an instrument is defective
within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud,
duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he
negotiates it in breach of faith, or under such circumstances as amount to a fraud.

 When is title defective? When a person obtains an instrument, or any signature, by fraud,
duress, force or fear, or other unlawful means, or for an illegal consideration, in breach of faith,
or any circumstance amounting to fraud

 What are real defenses? Those that attach to the instrument itself and can be set up against the
whole world, including a holder in due course
 What are examples of real defenses?
1. Minority
2. Fraud in factum or fraud esse contractus
3. Ultra vires acts where the corporation is absolutely prohibited to issue NIs
4. Duress amounting to forgery
5. Alteration
6. Want of delivery of an incomplete instrument (Section 15)
7. Marriage
8. Want of authority of an agent

 What are personal defenses? Those that grow out of the agreement or conduct of a particular
person in regard to the instrument
 What are examples of personal defenses?
1. Absence or failure of consideration
2. Acquisition of the instrument through duress, force or fear
3. Acquisition for an illegal consideration
4. Acquisition through unlawful means
5. Negotiation in breach of faith
6. Ultra vires acts where the corporation is authorized to issue negotiable instruments
7. Fraud in inducement
8. Mistake
9. Intoxication
10. Insertion of wrong date
11. Filling up of blanks
12. Want of delivery of complete instrument

 May a payee be a holder in due course?

17 ejlvillena.2009//
 Does the law require that an inquiry be made before accepting an instrument, according to De
Ocampo v. Gatchalian? NO, it would defeat the purpose of being a holder in due course
 When is inquiry necessary? Only when there are certain special circumstances that should put
the indorsee into inquiry

 What is the function of a negotiable instrument? Substitute for money, but not legal tender

 What are the rights of a holder in due course, under Section 57? (1) free from any defect of
prior parties, (2) free from defenses available to prior parties, (3) enforce payment for the full
amount thereon

 Is insolvency a defense?
 When is insolvency or bankruptcy a defense? Consider the time when the instrument is
indorsed

 Is marriage a defense? YES if the wife signs the negotiable instrument

 If a wife signs a promissory note, is that a defense? YES, real defense
 In all instances? NO, (1) when the wife is authorized to sign on behalf of the conjugal
partnership as administrator, (2) when the property relations agreed upon is separate property
 If it is the husband who signs? NO not a defense, because husbands are deemed administrators
of the property relations under the Civil Code

SECTION 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.

 What is the shelter rule?

 What is the reason for this rule, in relation to assignment? In assignment, the assignee acquires
all the rights of the assignor, nothing more, hence, under the shelter rule, the holder shall be
entitled to the rights of the holder in due course from whom he acquired the instrument

SECTION 59 – Who is deemed holder in due course. - Every holder is deemed prima facie to be a
holder in due course; but when it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove that he or some person under whom
he claims acquired the title as holder in due course. But the last-mentioned rule does not apply in
favor of a party who became bound on the instrument prior to the acquisition of such defective title.

 What is the presumption as to a holder in due course?

 Rule – exception to the rule – exception to the exception – back to the rule
 To whom does the last paragraph apply?
 Simultaneously not prior?

SECTION 60 – Liability of maker. - The maker of a negotiable instrument, by making it, engages that
he will pay it according to its tenor, and admits the existence of the payee and his then capacity to
indorse.

SECTION 61 – Liability of drawer. - The drawer by drawing the instrument admits the existence of
the payee and his then capacity to indorse; and engages that, on due presentment, the instrument
will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to
any subsequent indorser who may be compelled to pay it. But the drawer may insert in the
instrument an express stipulation negativing or limiting his own liability to the holder.

SECTION 62 – Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will
pay it according to the tenor of his acceptance and admits:

18 ejlvillena.2009//
(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.

(Liabilities of the maker, drawer, acceptor)

SECTION 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

 Generally, in what capacity is an agent liable? As an indorser

 When is an agent liable as such? When he (1) does not disclose his principal, (2) does not
indicate that he is acting in a representative capacity

SECTION 64 – Liability of irregular indorser. - Where a person, not otherwise a party to an

instrument, places thereon his signature in blank before delivery, he is liable as indorser, in
accordance with the following rules:
(a) If the instrument is payable to the order of a third person, he is liable to the payee and to all
subsequent parties.

(b) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is
liable to all parties subsequent to the maker or drawer.

(c) If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.

 Why is an irregular indorser called as such? Because he indorses in an unusual, singular, or

peculiar manner, and his name appears where we would naturally expect another name
 What kind of indorsement is involved? Blank
 To whom is he liable? Section 64
 Why do persons sign as an irregular indorser? For added protection, to hold someone else
liable aside from the person primarily liable

SECTION 65 – Warranty where negotiation by delivery and so forth. — Every person negotiating an
instrument by delivery or by a qualified indorsement warrants:
(a) That the instrument is Genuine and in all respects what it purports to be;

(b) That he has a Good title to it;

(c) That all prior parties had Capacity to contract;

(d) That he has no Knowledge of any fact which would impair the validity of the instrument or
render it valueless.
(GGCK)

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.

SECTION 66 – Liability of general indorser. - 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

(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

19 ejlvillena.2009//
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.

 What are the warranties under Section 65?

 In the fifth paragraph, why only to an immediate transferee?
 What is the difference between the warranties under Section 65 and 66? What are the
additional warranties? In Section 66, aside from (a), (b), (c) of Section 65, a general indorser
warrants that (1) the instrument is valid and subsisting, and (2) the engagement similar to that
of a drawer, but he does not warrant Sec.65(d)
 In Section 66, to whom does the warranties extend?
 Give an example of infirmities.
 When do infirmities arise?
 To whom is a person indorsing a bearer instrument payable to? Why?

SECTION 68 – Order in which indorsers are liable. - As respect one another, indorsers are liable
prima facie in the order in which they indorse; but evidence is admissible to show that, as between
or among themselves, they have agreed otherwise. Joint payees or joint indorsees who indorse are
deemed to indorse jointly and severally.

 In what order are the parties liable? Section 68

 Does it apply to a holder in due course? NO, because he may hold any prior party in whatever
order

SECTION 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.

 In a promissory note, who is primarily liable? Maker

 Secondarily liable? Indorsers

Promissory Note

M P A B C D (holder)

 Is presentment for payment necessary? For the maker, NO; for indorsers, YES, unless they are
excused
 Supposing, the instrument indicates a special place on where payment must be made, i.e. bank,
on the day of supposed payment, the maker was present and is able and willing to pay, but the
holder did not appear, hence no payment was made, then holder thereafter filed a case for
collection of sum of money with damages and attorney’s fees. Decide. The maker’s ability and
willingness to pay is considered tender of payment, but this just means an offer to pay, NOT
actual payment. To effect payment, the maker should have gone to court for consignation, that
is the remedy in order to extinguish his obligation
 Can interest accrue? NO, because the maker was able and willing to pay on time
 Can attorney’s fees be charged? NO, because there was no need to file an action for collection

SECTION 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.

 When should an instrument be presented for payment?

1. If it is payable on a fixed or determinable future time (or not payable on demand),
regardless of whether a bill or note = on the maturity date, or on the day it falls due

20 ejlvillena.2009//
 2. If it is payable on demand = within a reasonable time after its issue
3. In the case of a bill of exchange = within a reasonable time after its last negotiation
 Who is primarily liable in the 3rd instance? Drawee/Acceptor, NOT the Drawer

SECTION 72 – What constitutes a sufficient presentment. - Presentment for payment, to be sufficient,

must be made:
(a) By the Holder, or by some person authorized to receive payment on his behalf;

(b) At a Reasonable hour on a business day;

(c) At a Proper place as herein defined;

(d) To the Person primarily liable on the instrument, or if he is absent or inaccessible, to any person
found at the place where the presentment is made.

(HRPP)

 What constitutes sufficient payment? Section 72

 In Section 72(d), can it be any person found at that place? NO, he should capacitated to be
presented payment

SECTION 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.

 Where should presentment be made? Section 73

SECTION 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.

 What are banking hours?

 What is “reasonable hour”? It depends, if the maker is a security guard who works in an
overnight shift, presentment at 12MN is reasonable, but ordinarily, maker may validly refuse
payment if presented at 12MN under normal circumstances

SECTION 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.

SECTION 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.

SECTION 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.

 Sections 76-78 apply only when? When there is no time or place specified in the instrument

21 ejlvillena.2009//
 In Section 78, if two or more persons liable are not partners? Presentment must be made to all
of them
 Unless? One of them is duly authorized to be presented for payment in behalf of the others

SECTION 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.

SECTION 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.

 When is presentment not required? Section 79 and 80

 Give an example: when the instrument has been paid by the maker or the maker has been
discharged

SECTION 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.

 When is delay excused? Section 81

SECTION 82 – When presentment for payment is excused. - Presentment for payment is excused:
(a) Where, after the Exercise of reasonable diligence, presentment, as required by this Act, cannot
be made;

(b) Where the drawee is a Fictitious person;

(c) By Waiver of presentment, express or implied.

(FEW)

 When is presentment for payment excused? Section 82

SECTION 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

(b) Presentment is excused and the instrument is overdue and unpaid.

 When is an instrument dishonoured by non-payment? Section 83

SECTION 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.

 Does the right of recourse accrue immediately at that moment when dishonored? NO, there
should be notice of dishonor, then necessary proceedings for dishonour should be taken

SECTION 85 – Time of maturity. - Every negotiable instrument is payable at the time fixed therein
without grace. When the day of maturity falls upon Sunday or a holiday, the instruments falling
due or becoming payable on Saturday are to be presented for payment on the next succeeding
business day except that instruments payable on demand may, at the option of the holder, be
presented for payment before twelve o'clock noon on Saturday when that entire day is not a
holiday.

SECTION 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.

22 ejlvillena.2009//
 What are the rules on time?

SECTION 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.

 Is notice necessary to charge the maker? NO, under Section 89 only the drawer or each
indorser may be held liable
 Why not the maker? because the maker is the person to whom the instrument is presented for
payment
 What is the purpose of the law for giving notice? So as to hold the parties liable and to charge
them on the instrument
 Notice is given by whom? By or on behalf of the holder

M P A B C D

 D presents the instrument to M, if the instrument is paid = discharged

 If the instrument is dishonoured = D must give notice to P, A, B, C
 What is the effect of failure to give notice? Failure to give notice will discharge them from the
instrument unless, he has no right to expect that notice shall be given to him

 What is the rule on notice given by an agent? The agent need not be authorized
 What is the difference between Sections 91 and 97?
 Why the difference? Because giving notice = benefits the party who gives notice; while,
receiving notice = creates an obligation or liability
 To whom is he liable? Prior parties to the holder; Section 68 – liable in the order which they
indorsed

SECTION 92 – Effect of notice on behalf of holder. - Where notice is given by or on behalf of the
holder, it inures to the benefit of all subsequent holders and all prior parties who have a right of
recourse against the party to whom it is given.

SECTION 93 – Effect where notice is given by party entitled thereto. - Where notice is given by or on
behalf of a party entitled to give notice, it inures to the benefit of the holder and all parties
subsequent to the party to whom notice is given.

 Under Section 93, what does “inures to the benefit” mean? That the person entitled has a right
to charge persons secondarily liable even if he himself has not given notice
 Under Section 93, for the benefit of who? The holder and subsequent parties

 What is the time for giving notice? Day following the dishonour

SECTION 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.

 Under Section 107, same time from when?

 Supposing, B will give notice to P & A tomorrow or the day after the date of dishonour, will it
still benefit D? NO, as far as P & A are concerned, they are already discharged, beyond the
time; you have to consider the time

SECTION 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.

23 ejlvillena.2009//
 Is there a particular form of notice? NO, WOIIG

SECTION 98 – Notice where party is dead. - When any party is dead and his death is known to the
party giving notice, the notice must be given to a personal representative, if there be one, and if with
reasonable diligence, he can be found. If there be no personal representative, notice may be sent to
the last residence or last place of business of the deceased.

SECTION 99 – Notice to partners. - Where the parties to be notified are partners, notice to any one
partner is notice to the firm, even though there has been a dissolution.

SECTION 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.

SECTION 101 – Notice to bankrupt. - Where a party has been adjudged a bankrupt or an insolvent,
or has made an assignment for the benefit of creditors, notice may be given either to the party
himself or to his trustee or assignee.

 What if the person is dead? Notice to the personal representative

 To partners? Notice to anyone of them is notice to the partnership
 Joint persons? Notice should be given to all of them unless one of them is authorized to receive
notice
 To a person bankrupt or insolvent? To the insolvent person himself, to his trustee or assignee

SECTION 103 – Where parties reside in same place. - Where the person giving and the person to
receive notice reside in the same place, notice must be given within the following times:
(a) If given at the place of business of the person to receive notice, it must be given before the close
of business hours on the day following.

(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.

SECTION 104 – Where parties reside in different places. - Where the person giving and the person to
receive notice reside in different places, the notice must be 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.

SECTION 105 – When sender deemed to have given due notice. - Where notice of dishonor is duly
addressed and deposited in the post office, the sender is deemed to have given due notice,
notwithstanding any miscarriage in the mails.

SECTION 106 – Deposit in post office; what constitutes. - Notice is deemed to have been deposited in
the post-office when deposited in any branch post office or in any letter box under the control of the
post-office department.

SECTION 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.

SECTION 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

24 ejlvillena.2009//
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.

 When and where should notice be given?

SECTION 109 – Waiver of notice. - Notice of dishonor may be waived either before the time of giving
notice has arrived or after the omission to give due notice, and the waiver may be expressed or
implied.

 What is a waiver? The intentional abandonment of a right. It may be express or implied

 What is the effect of a waiver?

SECTION 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.

 What is a protest? A formal statement in writing made by a notary under his seal of office at
the request of the holder of a bill or note, in which it is declared that the same was on a certain
day presented for payment (or acceptance as the case may be) and such payment (or
acceptance) was refused, whereupon the notary protests against all parties to such instrument
and declares that they will be held responsible for all loss or damage arising from its dishonor.
(Agbayani, 1992; pp.435-436)
 What is an inland bill? A bill which is or on its face purports to be both drawn and payable
within the Philippines
 What is foreign bill? any other bill that is not an inland bill; drawn outside the Philippines
 Protests are only for foreign bills
 What are deemed included in the waiver of a protest? Presentment and notice of dishonor

SECTION 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.

 What is the effect of failure?

 Unless excused?

SECTION 114 – When notice need not be given to drawer. - Notice of dishonor is not required to be
given to the drawer in either of the following cases:
(a) Where the Drawer and drawee are the same person;

(b) When the drawee is Fictitious person or a person not having capacity to contract;

(c) When the drawer is the Person to whom the instrument is presented for payment;

(d) Where the drawer has No right to expect or require that the drawee or acceptor will honor the
instrument;

(e) Where the drawer has Countermanded payment.

(DFPNC)

 Does a “fictitious person” mean that he does not exist? NO, it means not realizing that it was a
different designation
 Is there no drawee contemplated? There’s still a drawee

 What is an example of a person who has no right to expect? No funds available, No account,
previous drafts have been dishonored

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 What is countermanded payment? Means that payment was stopped

 What are the reasons for Section 114?

1. it is presumed that they can receive notice in some other way; or there is no use in giving
notice to them because they already have knowledge
2. they have no right to expect

SECTION 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;

(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.

(FPA)

 How can a drawee order a non-existing person to pay? Under Section 130, he can hold the
drawer directly liable
 Under Section 72(d), he is presented for payment not a drawer or indorser

 BILL = do not present it to the drawer

NOTE = do not present it to the maker

SECTION 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.

 Will not later on pay

(Skip Sections 119-125 because you are not yet ready to be discharged)

SECTION 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.

 What is a Bill of Exchange? Section 126

 Prior to acceptance, who is the person primarily liable? No party is primarily liable because the
drawee is only liable unless and until he accepts the bill
 What are the different bills of exchange?
1. trust receipts
2. trade acceptance
3. money orders
4. banker’s acceptance
5. drafts
6. treasury warrants
7. clean bills of exchange
8. D/A bills of exchange
9. D/P bills of exchange
10. documentary bills of exchange
11. bills in set
12. Inland bills

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13. foreign bills

SECTION 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.

 Supposing, a check was drawn against PNB, the drawee-bank, which through the negligence of
its teller failed to pay the check upon presentment by the payee, would the payee have a cause
of action against the bank? NO, the action should be brought against the drawer, then the
drawer in turn shall have a right of action against the drawee for not paying the check; a bill of
itself does not operate as an assignment of funds
 What is the relationship between the client and the bank? Creditor-debtor relationship, not
depositor-depositary

 What is the effect of a certified check or cashier’s check? The effect is as if the check has been
accepted, the bank becomes a maker thus primarily liable; it is as good as cash or good as
withdrawn
 Supposing, a bank account is worth P1,000,000; then, a first check, a certified check was
drawn in the amount of P200,000, then a second check was drawn in the amount of
P1,000,000. When the second check was presented, the bank dishonored the check for
insufficiency of funds, was the bank correct? YES, because the P200,000 is no longer
considered part of the funds of the account because the amount is deemed withdrawn when the
bank issued the certified check

SECTION 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.

 May a bill be addressed to two or more drawees? YES, not alternatively or in succession
 Why not alternatively or in succession? Because the drawee must be named or identified
reasonable certainty, OR it thus becomes conditional with such situation

SECTION 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.

 What is an inland bill? A bill which is or on its face purports to be both drawn and payable
within the Philippines
 Foreign bill – any other bill that is not an inland bill; drawn outside the Philippines
 Why is it important to know the distinction between an inland or foreign bill?
1. foreign bills are required to be protested; failure to protest foreign bills will discharge
persons secondarily liable thereon
2. the distinction is also important for the determination of the law applicable

SECTION 130 – When bill may be treated as promissory note. - Where in a bill the drawer and drawee
are the same person or where the drawee is a fictitious person or a person not having capacity to
contract, the holder may treat the instrument at his option either as a bill of exchange or as a
promissory note.

 When may a holder treat an instrument as a bill or note? When:

1. the drawer and drawee are the same person
2. the drawee is a fictitious person
3. the drawee has no capacity to contract
4. when it is not clear in what capacity is the indorser signing (Sec. 17[f], NIL)

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 What is better, a note or a bill? NOTE, because in a bill of exchange, before acceptance, no
party is primarily liable unlike a note where you can immediately go after the maker after
dishonor and proper notice

SECTION 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.

 Who is a referee? A person whose name may be inserted in the instrument and to whom the
holder may resort to in case of need, when dishonored by non-acceptance or non-payment
 Who may insert the name of the referee? The drawer and any indorser

(Midterm Examinations up to Section 118)

SECTION 131 –

 What is acceptance? The signification of the drawee’s assent to the order of the drawer
 What are the requisites for acceptance?
 May it be written on a separate paper? YES
 Can the holder refuse to accept the acceptance on a separate paper? YES, the holder can treat it
as dishonored if his request to have the acceptance written on the face of the bill is refused
(Section 133)
 In a bill of exchange, what is the difference between acceptance and payment?
 Payment – performance

 Can an acceptance be made when a bill is not yet drawn or an acceptance in advance? YES
 What is the effect of a promise to accept? Actual acceptance (Section 135)

 What are the kinds of acceptance?

1. general – assents without qualification the order of the drawer, Section 139
2. qualified – by express terms varies the effect of the bill as drawn, Section 139
3. constructive – Section 137
4. actual – Section 135

 Kinds of qualified acceptance under Section 141

1. conditional
2. partial
3. local
4. qualified as to time
5. there are

 What is the effect if a qualified acceptance is accepted? The drawer and indorsers are
discharged
 Within what time should the drawee accept? 24 hours after presentment
 Supposing, the drawee took the bill and refused to return it, what is the effect? Constructive
acceptance (Section 137)

 Why return it within 24 hours? Because the instrument is the property of the holder, not of the
acceptor

 May a drawee accept an incomplete bill? YES

 Incomplete in what sense?

28 ejlvillena.2009//
 What is the effect of accepting an incomplete bill? PDA

 If a holder agrees to a partial qualified acceptance, what is the effect? The qualified acceptance
shall discharge the drawer and indorsers unless they warrant the taking of the qualified
acceptance
 Supposing, the holder gave notice to the drawer and indorsers, how are the latter parties liable?
Only as to the qualified amount because they are liable as to the drawee’s tenor of acceptance

SECTION 143 –

 Whose sight? Drawee

 What is its relation to Section 13 on an instrument that is undated?
 The period commences only after the sight of the drawee

 What is the rationale behind Section 143(2)? Autonomy of contracts

 If there is a delay in presentment, what is the effect? Section 144 & 150
 When may the drawer and indorsers still be held liable? When the bill is presented for payment

 How is presentment made?

1. by or on behalf of the holder
2. within a reasonable time
3. on a business day
4. before it is overdue
5. to the drawee, or
6. to some other person authorized to accept or refuse acceptance

 Other situations?
1. two or more drawees
2. drawee is dead
3. drawee is bankrupt or insolvent or has made an assignment of funds

 In what days may presentment be made? Following Sections 72 and 85

S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
s

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