Functions and Importance of Negotiable Instruments

1. They are used as a substitute for money although they do not constitute legal tender.

2. Constitute the media of exchange for most commercial transactions as they do away with the need to
physically count coins and bills whenever payment is made in financial transactions and obligations.

3. They serve as a medium of credit transaction.

Characteristics of Negotiable Instruments

1. Negotiability. It may pass from one person to another to give the holder the right to hold the
instrument and collect the sum due.

2. Accumulation of secondary contracts. Once an instrument is issued, additional parties can become
involved.

Forms of Negotiable Instruments

1. Promissory Notes
2. Bills of Exchange
3. Checks
* The Negotiable Instruments Law deals only with two kinds of instruments (1&2). Checks are special
form of bill of exchange.
Promissory Note
1. Promissory note is an unconditional promise I writing made by one person to another, signed by the
maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to
order or to bearer.
2. Parties involved:
a. Maker- makes the promise and signs the instrument. (Primarily liable)
b. Payee- to whom the promise is made or to whom the instrument is payable.
Bill of Exchange
1. Bill of exchange is an unconditional order in writing addressed by one person to another, signed by
the person giving it, and requiring the person to whom it is addressed to pay upon demand or at a fixed
or determinable future time a sum certain in money to order or to bearer.
2. Parties involved:
a. Drawer- issues and draws the bill and gives the order to pay money a third party. (Secondarily
liable)
b. Drawee- the person to whom the bill is addresses and who is ordered and expected to pay.
(Primarily liable)
c. Payee- the party in whose favor the bill is originally issued or is payable.
Sec.1

Requisites of Negotiable Instruments

1. It must be in writing and signed by the maker or drawer.

*There is no oral negotiable instrument.

* The signature of the maker/drawer is prima facie evidence of his intention to be bound.

* Signature of the maker/drawer, general rule: placed at the lower right hand corner, however,
it may appear in any part thereof whether at the top, middle, bottom or at the margin.

* Signature is presumed valid and the party against whom it operates must provide evidence of
its invalidity if the signature is denied.

2. It must contain an unconditional promise or order to pay a sum certain in money.

3. It must be payable on demand or at a fixed or determinable future time.

4. It must be payable to order or bearer.

5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty.

* Requisite no.5 applies only to bills of exchange.

Sec.2
*The “sum certain” requirement is met if the holder can determine from the instrument itself the
amount he is entitled to receive.
*Sum is certain even if it is to be paid:
a. With interest (the entire sum is still certain because the principal sum is certain and the
amount of interest can easily be computed.)
b. By stated installments (payment in each installment plus the date of each installment must be
fixed in the instrument.)
c. By stated installments with acceleration clause (the maker can avoid the acceleration by
paying on due date.)
d. With exchange (current rate of exchange at any time may be easily ascertained; applicable
only to foreign bills - if domestic, exchange may be disregarded).
e. With cost of collection or an attorney’s fee if payment is not paid until maturity (the increase
takes place after maturity when the instrument ceases to be negotiable in full commercial sense.)
*The instrument is not negotiable if:
a. It calls for an act other than payment of money.
b. It gives the maker the right to ascertain the amount payable.
c. It provides for acceleration at the option of the holder.
Sec. 3
Unconditional promise or order to pay – must not be subject to any condition or contingency except
implied condition of presentment, protests and notice of dishonor.
*Promise or order is unconditional even if there is:
a. An indication of fund out of which reimbursement is to be made
(for it is not the direct source of payment and it is an act subsequent to payment)
b. An indication of particular account to be debited with the amount
(payment does not depend upon the existence or adequacy of the account to be debited)
c. A statement of transaction which gives rise to the instrument
(as it merely states the reason of the existence of the instrument)
*Examples of conditions that makes the instrument not negotiable: “if X marries”, “if X dies within five
days”, “if certain property is sold”
*An indication of fund out of which payment is to be made – Non-negotiable (for payment depends
upon the adequacy or existence of the fund)
Sec. 4
Determinable future time – means a time that can be determined with certainty after the execution of
the instrument.
a. Fixed period after date or sight
(After sight – the instrument is seen by the drawee for acceptance)
b. On or before a fixed or determinable future time
c. On or at a fixed period after the occurrence of the event which is certain to happen, though the
time of happening be uncertain. (death with no specified time)
*Contingency – uncertain event which may or may not happen: non-negotiable. (“Pay to the order of P
the sum of P10,000 upon his reaching the age of majority.”
Sec. 5
An instrument is still negotiable although it contains provision such as:
a. Sale of collateral securities (as it takes effect after maturity and until this date, the promise is to
pay money only)
b. Confession of judgment – a written acknowledgment by the defendant of his indebtedness or
liability to the plaintiff.
c. Waiver of benefit granted by law (“Pay bearer 10,000. Notice of dishonor waived”)
d. Election of holder to require some act (“I promise to pay P or order P15,000 or an air
conditioner at the option of the holder” – here, the holder has the right to choose)
*If it requires act at the option of the obligor, it is non-negotiable.
Sec. 6
The instrument is still valid and negotiable even if:
 a. It is not dated
 if date is not necessary – date of issue
 date stated not in calendar – nearest date of the month the date intended (April 31 to
be April 30)
b. Value is not given (consideration is presumed so it is not necessary that it should be stated)
c. Place is not given (presumed to be at the place of residence or business of the maker or drawer)
d. It bears a seal (no difference in legal effect between sealed and unsealed private writings)
e. It designates a particular kind of current money payable (although negotiable instruments call
for payment of money, it is not required that payment should be made in legal tender)
Sec. 7
Payable on demand when:
a. Expressed to be payable on demand, or at sight, or on presentation
b. No time for payment is expressed (“Pay to P or order P1,000)
*An overdue instrument is necessarily a demand paper and the holder has an immediate right of
payment for the money promised or ordered to be paid.
*The indorsement after maturity, creates a new instrument payable on demand.
Sec. 8
An instrument may be drawn payable to the order of:
a. A payee who is not a maker, drawer or drawee
b. Drawer/Maker
c. Drawee
d. Two or more payees jointly (“Pay to the order of P and A the sum of P10,000”)
e. One or more several payees
f. The holder of the office for the time being
*If the payee is not named in an order instrument and there is no blank space for the name of the
payee: Non-negotiable
*If the payee is not named but is described with reasonable certainty (administrator of the estate of P):
Negotiable
Sec. 9
Bearer – a person in possession of an instrument which is payable to bearer.
An instrument is payable to bearer:
a. When expressed (“Payable to bearer P10,000)
*” Pay to bearer A”: Non-negotiable, because it is payable only to a definite person, A.
b. Payable to person named therein or bearer (“I promise to pay to X or bearer”)
c. Payable to order of a fictitious person (“Pay to John Doe or order”)
*Fictitious person – a payee without right to the instrument because the maker or drawer does not
intend him to receive payment.
*In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss.
*The maker/drawer should know that the payee is fictitious, otherwise, order instrument.
d. Payable to order of a non-existing person (“Pay to the order of the King of the Pacific Ocean”)
e. Name of the payee not name of a person (“Pay to cash”) – the maker/drawer intends the
instrument to be payable to bearer because indorsement of the payee is impossible.
f. The only or last indorsement is an indorsement in blank
*Blank indorsement enables any holder to claim payment as no payee is specified.
Sec. 10
*It is not required to use the exact words of the law, as long as the clear intention of the parties to make
the instrument negotiable can be determined, the law will give it force and effect.
*Use of foreign language, mere defect in language, grammatical error: do not affect negotiability
Sec. 11
*Instrument/acceptance/indorsement is dated: presumed that the said date is the date when the
instrument was made/accepted/indorsed.
*He who claims that the date is not the true date, has the burden to establish the claim.
*Demand instrument need not be dated as it is demandable any time. However, a promissory note must
be presented for payment within a reasonable time after issue, and within a reasonable time after the
last indorsement for a bill of exchange.
Sec. 12
*Ante-dated – Date of the instrument: May 15,2017 ; Date issued: May 30, 2017
*Post-dated – Date of the instrument: May 30, 2017 ; Date issued: May 15,2017
*The instrument is still valid as long as ante-dating or post-dating is not done for illegal or fraudulent
purpose.
*It can be negotiated before or after the date given, but not after maturity.
Sec. 13
*When date is important to determine the maturity (payable at a fixed period after date or sight), and it
is undated, any holder may insert the true date of issue or acceptance.
*Insertion of a wrong date by the person who knows the true date of issue or acceptance: avoid the
instrument as to him, but not as to a subsequent holder in due course.
Sec. 14
Incomplete and delivered (personal defense)
*The holder has prima facie authority to complete by filling up the blanks therein.
*Authority to complete is not an authority to alter. The holder has no authority to change the amount
after it has been filled in, or to insert “or order” or “or bearer” after the name of the payee.
*Material particular – any particular proper to be inserted in an instrument to make it complete, such
as:
a. Date
b. Due date
c. Name of payee
d. Amount
e. Rate of interest
f. Name of drawer
g. Place of payment
*A signature on a blank paper delivered with the purpose of converting it to a negotiable instrument is a
prima facie authority to fill it up for any amount.
*It is presumed that the blank was filled in accordance with the authority given and within reasonable
time. If not, a holder not in due course cannot collect.
Sec. 15
Incomplete and not delivered (real defense)
*Any holder, in due course or not, cannot collect.
*The instrument is valid as to the parties whose signatures appear after delivery.
Example: M – P (who steals the note) – A – B –C –D (holder in due course)
*P : liable not merely as indorser but also as the one responsible for theft and completion and
negotiation of the instrument.
*A, B, C : liable as indorsers (warranty)
*M : not liable (signature appears before delivery). However, under certain circumstances, negligence
on his part may render him liable to a holder in due course.
Sec. 16
Complete and undelivered (personal defense)
*Delivery – transfer of possession, actual or constructive (mailing an instrument), from one person to
another with the intent to transfer title thereto.
*An instrument, although completely written, is incomplete and revocable until its delivery.
*There is no liability until delivery.
*Complete instrument found in the possession of a holder not in due course: presumed delivered but
subject to rebuttal.
*Immediate parties (in this section) – parties who have knowledge of the limitations and conditions
placed upon the delivery of the instrument. (a holder in due course is not an immediate party with
respect to section 16)
*Remote parties – parties who are not in direct contractual relation with each other.
*Conditional delivery/ delivery for a special purpose only: (M delivers to P for collection only and not for
the purpose of transferring title to P) – P cannot enforce the instrument against M.
*If the instrument is in the hands of a holder in due course, delivery by the parties prior to him is
conclusively presumed.
Sec. 17
In case of ambiguity or omission, what prevails:
a. Sums in words or in figure: in words
b. Date when the interest is to run not specified: date of the instrument or if none, date of issue
c. Undated instrument: date of issue
d. Conflict between written and printed provision: written
e. Instrument, a bill or a note: discretion of the holder
f. Capacity in which person signed in doubt (ambiguous location of signature): deemed indorser
g. “I promise to pay”- signed by two persons: solidary liability/any of the signors may be held liable
for the whole amount
h. “We promise to pay” – signed by two persons: joint liability
Sec. 18
A person who signed in a trade or assumed name is liable as if he signed in his own name, provided that
he intended to be bond b his signature.
Sec. 19
*The agent has authority to sign principal’s name and may show his authority to do so by other
evidence.
*The agent’s right to indorse must be expressly granted.
Sec. 20
*An agent who signs an instrument for his principal may be personally liable unless:
a. He is duly authorized
b. He adds words to his signature indicating that he signs as an agent
c. He discloses his principal
*Adding descriptive words such as “agent”, “trustee”, etc. without disclosing principal: Agent is
personally bound
Sec. 21
Signature by procuration:
a. Serves as a warning that the agent has limited authority and the principal will be bound only if
the agent acted within his authority.
b. If the agent exceeded within the given authority, the principal will not be bound (e.g, right to
collect is not an implied right to indorse)
Sec. 22
 a. Indorsement by minors:
*Real defense available to the minor
*May recover the instrument even against innocent indorsee or subsequent holder for value
*May be bound if guilty of fraud (stating that he is of age, when in fact not)
b. Indorsement by insane/demented persons and deaf mutes who do not know how to write:
*Real defense available even against a holder in due course
c. Indorsement by corporation (committed acts beyond its power):
*Not liable on notes in a suit thereon by an indorsee where it has no capacity to make the
contract in fulfillment in which they were executed
Sec. 23
Forged signature (real defense):
a. inoperative and no right can be acquired
b. the person whose signature was forged was never a party, therefore, he cannot be held liable
Example: M – P – A / - B – C – D (A’s signature was forged)
*M, P and A are not liable to D (D’s right against them is cut off by the forged signature of A)
*B and C are liable to D (as general indorsers, they warrant that the instrument is genuine and valid)
*M and P are liable to A (A’s right against them is not affected by the forgery)
*B, C and D has right of recourse against the forger
Right can be acquired if:
a. The person whose signature was forged is estopped from setting up the defense of forgery (by
acts, silence, negligence, or by giving warrant to the forged signature)
b. Forged signature is not necessary to the holder’s title
*Drawer’s signature was forged: drawee has no right to recover payment made from the innocent
person who received it
*Right of drawee to recover payment when payee’s/indorser’s signature was forged:
a. From the encasher/last indorser: allowed
b. From the drawer/depositor: not allowed, unless the drawer/depositor is guilty of negligence
Sec. 24
*Consideration – cause, price, or impelling influence that induces the contracting party to enter a
contract.
*Consideration is presumed but may be rebutted by evidence to the contrary
Sec. 25
*Valuable consideration – either right, interest, profit or benefit accruing to the party who makes the
contract or loss, responsibility, act, labor or services on the other side.
-need not be adequate. Inadequacy is not a ground for relief unless there is fraud, mistake or
undue influence.
*Antecedent/ pre-existing debt is a valuable consideration. (issuing a check for an amount not paid in
cash)
Sec. 26
*Holder for value – one who had given a valuable consideration in exchange of the instrument issued or
negotiated to him.
Example: M – P (w/o consideration) – A (w/o consideration) – B (w/ value)
*B is a holder for value
*If B is a holder in due course, M, P and A are liable
*If B is not a holder in due course, M can set up the defense of lack of consideration
Sec. 27
*Person who has lien on instrument: one who had taken the instrument as a collateral for an existing
debt.
*He is a holder for value up to the extent of his lien
Sec. 28
*Absence of consideration: personal defense
*Partial failure of consideration: liability will arise only up to the consideration given
Sec. 29
*Accommodation party:
- signs the instrument as a maker, drawer, acceptor, or indorser only for the purpose of lending his
name to the accommodated party
- liable to a holder for value even if the holder knew that he is only an accommodation party
-in effect a surety
-may revoke or rescind accommodation by cancellation or by giving notice to those interested BEFORE
the instrument is negotiated for value
-after paying the holder, has the right to obtain reimbursement from the accommodated party
*Sec 29 does not apply to corporations because it is an act beyond its authority and the signatories may
be held liable personally
Sec. 30
Negotiation – transfer of instrument from one person to another, making the transferee a holder
>Payable to order – indorsement + delivery (if w/o indorsement, transfer operates only as assignment
making the transferee subject to all defenses available against the transferor)
>Payable to bearer – indorsement
*Delivery-actual or constructive transfer of possession
Sec. 31
Indorsement:
-writing the name of the payee on the instrument, with the intent to transfer title or to strengthen the
security of the holder
-w/o delivery, it conveys no title and create no holder
-must be written (incudes print)
-signature by the indorser alone w/o additional words is sufficient
-usually written at the back of the instrument, but may be written also on the face (may also be on
another paper attached to the instrument
Sec. 32
*Indorsement must be of the whole instrument
*Partial indorsement is allowed if there is remaining unpaid balance
*For joint payees, all must indorse
*For alternative payees, either of them may indorse
Sec. 34
*Special indorsement-name of the payee is specified (“Pay to A” or “Pay to the order of A”)
a. If originally payable to order: indorsement is necessary for further negotiation
b. If originally payable to bearer: may be further negotiated by mere delivery, but the special
indorser will be liable only to those who acquired title through his indorsement
*Blank indorsement-no payee is specified
a. Whether originally payable to order o to bearer: may be further negotiated by mere delivery
Sec. 35
*Order instrument turned into a bearer instrument by indorsement in blank: may be converted to order
instrument by writing over the signature of the indorser any contract consistent w/ the character of the
indorsement.
*Bearer instrument: remains bearer instrument whether indorsed in blank or specially
Sec. 36
Restrictive indorsement - adding words that:
a. Prohibit the further negotiation of the instrument (“Pay to A only”)
b. Constitutes indorsee an agent (“Pay to A for collection only”)
c. Vest title in indorsee for the benefit of the indorser or third party (“Pay to A for the use of
B”)
Sec. 37
In a restrictive indorsement, the indorsee has the right to:
a. Receive payment
b. Sue there on in his name
c. Negotiate the instrument unless prohibited in the indorsement
*The subsequent indorsees only acquire the title of the indorsee subject to restrictive indorsement
Ex.: M – P – A (for collection only) – B
*B’s right as a subsequent indorsee is also to collect only
Sec. 38
Qualified indorsement – makes the indorser a mere assignor by adding words such as “without
recourse”, which means that the indorser is not willing to answer for the insolvency of prior parties
*For qualified indorser, warranty liablity is still present
Sec. 39
*Indorsement with condition – negotiable
*Condition upon the face of the instrument – non negotiable
*In a conditional indorsement, the party required to pay may disregard the condition, thus can pay
whether the condition has been fulfilled or not
Sec. 40
*Bearer instrument indorsed specially: can still be negotiated by mere delivery
*The person indorsing specially is liable only to those who got their title from his indorsement
Ex.: M – P(indorsed specially) – A(delivered only) - B
 P is not liable to B (B did not obtain right through the indorsement of P
 Only M and A are liable to B
*This only applies to instrument originally payable to bearer and not to order instrument turned to
bearer instrument by blank indorsement.
Sec. 41
*Instrument payable to 2 or more payees jointly: all must indorse, unless:
> They are partners
>One has authority to indorse for the others
Sec. 42
*Instrument indorsed to the cashier or other fiscal officer of a bank or corporation: prima facie payable
to the bank or corporation
Sec. 43
*Name of payee or indorsee misspelled: may be indorsed as is or by adding his proper signature,
provided that the intention of the maker or drawer is to make the instrument payable to the person
making the correction.
Sec. 44
Indorsement by an agent: agent’s authority to indorse need not to be in writing
Sec. 45
Date of indorsement:

 indorsement bears a date: presumed to be the true date

 indorsement not dated: presumed to be negotiated before maturity

Sec. 46

Place of indorsement: presumed to have been made at the place where it is dated

Sec. 47

*A negotiable instrument continues to be negotiable until it is paid, except when:

 It is restrictively indorsed, in a way that it prohibits further negotiation

 It has been discharged by payment or otherwise

*Non-negotiable instrument indorsed to “order” or “bearer” , becomes negotiable between the indorser
and subsequent holders

Sec. 48

*One can strike out an indorsement not necessary to his title.

*Originally bearer instrument: the holder may strike out all the indorsements

*Originally order instrument turned to bearer instrument by blank indorsement: may strike out all
indorsements subsequent to blank indorsement

*All indorsers subsequent to the indorser whose indorsement is cancelled are released from liability.

Sec. 49

*Order instrument transferred for value without indorsement: transferee cannot be considered as
holder. He only acquires the right of the transferor

*Since the transfer is for value, the transferee may compel the transferor to do the indorsement

*In determining if the holder is in due course or not, the time of indorsement will be the basis, instead
of the time of delivery.

Sec. 50

A prior party who reacquired an instrument, may negotiate it but may not enforce payment against the
intervening party.
Example: M – P – A – B – C – D – B – E

 B cannot enforce payment against C and D because he is personally liable to them.

 C and D are still liable to E.
 If B strikes out his indorsement to C, C and D will be released from liability.
Sec. 51
Rights of holder in general:
 To sue in his own name (even a holder for collection only, an indorsee/pledgee of a note)
 To receive payment (if payment in due course, instrument is discharged)
*Payment in due course – payment made at or after maturity (because if before maturity, prior party
who reacquires the instrument may negotiate it further) to a holder in good faith and w/o notice that his
title is defective.
Sec. 52
Holder in due course – holder who takes the instrument free of most defenses and who took the
instrument under the following conditions:
 Complete and regular upon its face (no alteration visible on the face of the instrument)
 Became the holder before it was overdue or w/o notice of its dishonor
 In good faith and for value
 Had no actual/chargeable knowledge of any infirmity in the instrument or defect in the title of
the person negotiating it
*All must be complied for a holder to be in due course.
Sec. 53
Demand instrument negotiated beyond a reasonable length of time: holder will not be in due course
Sec. 54
If the purchaser has already taken the instrument and then receives notice of infirmity in it or defect in
the title of the person negotiating it:
 Before paying any amount – he is relieved from the obligation of making payment
 After paying an amount – he is considered a holder in due course for the amount paid before
receiving the notice
Sec. 55
Title of a person is defective when he obtained the instrument or signature by fraud, force or fear (e.g.
forcing someone to indorse by the use of violence or intimidation), or other unlawful means (stealing).
Sec. 56
Notice of infirmity or defect:
 Must be an actual knowledge
 Knowledge that his action will be of bad faith
 Mere suspicious circumstances may not be enough
Sec. 57
Rights of holder in due course:
 Holds the instrument free from defect of title of prior parties
 Holds the instrument free from defenses available to prior parties among themselves (personal
defense)
 May enforce payment for the full amount against all liable parties
*Real defenses, which attach to the instrument would be available against a holder in due course.
Sec. 58
*Real defense – available to all parties (questions the legal validity of the instrument)
Examples are: incomplete and undelivered instrument, forgery, fraud in factum (a person, w/o
negligence, signed a negotiable instrument not knowing that it is a negotiable instrument)
*Personal defense – not available to holders in due course (affects only the validity of agreement)
Examples are: absence of consideration, complete but undelivered instrument, fraud in inducement
(relates to the quality, quantity or value of the consideration)
*A holder who derives his title from a holder in due course and is not a party to any fraud or illegality
has the rights of a holder in due course.
Sec. 59
*Every holder is presumed to be a holder in due course.
*When shown that the title of the person who negotiated is defective, the holder must prove that he is
a holder in due course (but not to the parties who became bound on the instrument before acquisition
of defective title).
Sec. 60
*Primarily liable party - absolutely required to pay upon maturity (maker, acceptor)
*Secondarily liable party – will pay only after these conditions are met: due presentment or acceptance
to primary party, dishonor by such party and the taking of proceedings required by law after dishonor
(drawer, indorser)
*A person placing his name on the face of the instrument is deemed prima facie a maker.
*Due presentment for payment and due notice of dishonor is not needed to charge the maker liable.
Sec. 61
Drawer is liable to pay only if the conditions for secondarily liable parties are met.
Sec. 62
*Drawee is not liable until acceptance.
*Drawee after acceptance, becomes acceptor and virtually in the same position as the maker of a note.
Sec. 63
A person placing signature at the back of the instrument is deemed an indorser, unless he specifically
indicated to be of other capacity.
Sec. 64
Irregular indorser – person not otherwise a party to the instrument (not a maker, drawer, acceptor, or
regular indorser) who placed his signature in blank before delivery.
*Instrument payable to order of third person: M (had first X’s indorsement in blank) – P - A
 X is liable to P and A but not to M
*Payable to order of maker/drawer or to bearer: M (had first X’s indorsement in blank) – A. Here, maker
and payee are the same person.
 X is liable to A.
 M, as first indorser is liable to X as the second indorser.
*For accommodation of payee: M- P (secured X to accommodate him) – A
 X is liable to A.
 P is the first indorser while X is the second indorser
Sec. 65
Warranty liability of a person negotiating by delivery and of a qualified indorser: M – P - A
a. Instrument is genuine (P is liable if the instrument is forged)
b. He has a good title to it. (P is liable if he stole the instrument from M)
c. All prior parties had capacity to contract. (P is liable if M is a minor)
d. He has no knowledge of the fact that would impair the validity of the instrument or render it
valueless. (if P knew that M is insolvent but concealed it)
*A qualified indorser is liable to all subsequent holders obtaining title through his indorsement, while a
person negotiating through delivery is liable only to his immediate transferee.
Sec. 66
Warranty liability of general or unqualified indorser:
a. Warranties a, b and c of sec. 65
b. Instrument is valid and subsisting
c. Instrument will be honored (still liable if the instrument is not paid because of insolvency)
d. Prior indorsements are genuine
Sec. 67
A person who indorsed a bearer instrument will be governed by Section 65 or 66, depending upon
whether the indorsement is qualified or not.
Sec. 68
*As to the indorsers themselves, they are liable in the order in which they indorse.
*As to the holder, indorsers are liable in any order.
*Joint payees or joint indorsees who indorse are liable jointly and severally.
Sec. 69
An agent or broker who negotiates by mere delivery:
*Acquires liablity stated in sec. 65
*Except if he discloses his principal and the fact that he is acting only as an agent.
Sec. 70
Presentment for payment – presenting the instrument to the person primary liable for the purpose of
demanding payment.
*Presentment of payment is not necessary to charge the person primarily liable. The holder can sue the
party primarily liable as soon as the date of instrument has passed.
*If the instrument is payable at a special place, the ability and willingness of the primary party to pay
there at maturity is equivalent to a tender of payment.
*Presentment is necessary to charge the secondary parties, otherwise, they will be released from their
secondary liability.
Sec. 71
Date of presentment:
a. Instrument payable at a fixed or determinable future time: at the date it falls due
b. Instrument payable on demand:
 Promissory notes: reasonable time after issue or delivery
 Bill of exchange: reasonable time after the last negotiation
Sec. 72
Requisites for a sufficient presentment for payment: Made:
a. By the holder, or any authorized person.
b. Made during business hour (if payable at the bank: banking hours; if presented at a place of
business: during usual business hours; if at the residence of the debtor: usual hours of rising and
retiring)
c. To the maker or acceptor
Sec. 73
Place of presentment (in order)
a. Place of payment specified in the instrument
b. Address of the debtor, if given in the instrument
c. Usual place of business or residence of the debtor
d. Wherever the person to make payment can be found, or at his last known place of business or
residence
Sec. 74
*During presentment, the instrument must be exhibited to the maker or acceptor, otherwise,
presentment would be ineffectual.
*Instrument may not be exhibited if not demanded by the maker or acceptor.
Sec. 75
Presentment where instrument payable at a bank:
a. Person to make payment has funds in the bank: during banking hours
b. Person to make payment has no funds in the bank: any hour before the bank is closed
Sec. 76, 77, 78
Presentment may be made:
a. If the principal debtor is dead: to his executor or administrator
b. To persons liable as partners: to any one of them
c. To joint debtors: to all of them
Sec. 79
Presentment is not required to charge the drawer:
a. He has no funds with the drawee
b. He has stopped payment
c. He has withdrawn funds from the drawee-bank leaving nothing to pay the check
Sec. 80
Presentment is not required to charge the indorser in case of accommodation, for he is the real debtor
of the instrument, not the maker.
Sec. 81
Delay in making presentment is excused if the reason is beyond the control of the holder. However,
once that cause is removed, presentment should be made with reasonable diligence.
Sec. 82
Presentment may be dispensed with when:
a. Reasonable diligence has been exercised, yet presentment cannot be performed
b. The drawee is fictitious
c. There is a waiver
Sec. 83, 84
Instrument is dishonored by non-payment when:
a. It is presented but payment is refused or cannot be obtained.
b. Presentment is excused and the instrument is overdue but still unpaid.
*Then, the persons secondarily liable become the principal debtors.
Sec. 85
Presentment must be made:
a. If maturity falls on Sunday or holiday: next succeeding business day
b. On a Saturday: if it is a time instrument: next succeeding business day; if on demand: before
12:00 noon on Saturday or on Monday, at the option of the holder
Sec. 86
Computation of time of maturity: exclude the first day, include the last day.
Sec. 88
Payment in due course (payment must be made):
a. At or after date of maturity
b. To the holder
c. In good faith and without notice that the holder’s title is defective
Sec. 89
*Notice of dishonor must be given to the drawer and each indorser.
*Any person to whom such notice is not given is discharged
Sec. 90
Notice of dishonor must be given by:
a. The holder or other person on his behalf
b. The person who may be compelled to pay and have the right of reimbursement from the party
to whom the notice is given, or other person on his behalf
Sec. 92, 93
Notice given by:
a. The holder: inures to the benefit all the parties subsequent to the person whom the notice is
given
b. The party entitled thereto: inures to the benefit of the holder and all parties subsequent to the
person whom the notice is given
Sec. 95, 96
*Notice may be in writing or merely oral.
*Defects in notice such as lack of signature and misdescription of the instrument do not invalidate it.
Sec. 91, 97
*The agent to whom notice is given must be authorized.
*The agent giving the notice may not be authorized.
Sec. 98
Notice where the party is dead must be given to his personal representative provided that:
 a. His death is known to the party giving notice
b. There is a personal representative and he can be found
*Otherwise, notice may be sent to the last residence or last place of business of the deceased.
Sec. 103, 104
Time within which notice must be given:
a. Parties residing in same place: (if at the place of business: before the close of business hours; if
at his residence: usual hours of rest; if sent by mail: be deposited in the post office in time to
reach him in the usual course on the day following)
b. Parties residing in different places: if sent by mail: must be deposited in the post office in time to
go by mail the day following the day of dishonor
Sec. 107
The instrument is considered dishonored on the hands of the party receiving the notice on the date he
received such notice and not on the actual date of dishonor.
Sec. 108
Notice may be sent: (if no address given)
a. Nearest post office
b. In his place of business or residence
c. If he is staying temporarily in another place: in that place
Sec. 109, 110
Waiver of notice:
a. If embodied in the instrument: binds all parties
b. If written above the signature of an indorser: binds him only
Sec. 112
Notice may be dispensed with if:
a. Reasonable diligence has been exercised, and
b. Notice cannot be given or does not reach the party whom it must be given
Sec. 119
Discharge of instrument:
a. Payment by the principal debtor or by the accommodated party
b. Intentional cancellation by the holder
c. Any act which discharges a contract
d. Reacquisition by the principal debtor
Sec. 120
Discharge of a person secondarily liable:
a. Any act on sec. 119
 b. If the holder intentionally strikes out the signature of that person
c. Release of the principal debtor by the act of the holder
d. Extension of time of payment agreed by the holder and principal debtor, without the consent of
the person secondarily liable
Sec. 121
Payment by a party secondarily liable does not discharge the instrument. It only cancels his own
liability and that of parties subsequent to him.
Sec. 122
a. Renunciation in favor of a secondary party: discharge only such secondary party
b. Renunciation in favor of the principal debtor: discharge the instrument and all parties.
Sec. 123
*Unintentional cancellation, cancellation by mistake or through fraud, or without authority: inoperative
*Cancellation is presumed to be intentional. The burden of proof is on the holder claiming its
ineffectiveness.
Sec. 124
*Material alterations made by the holder discharge the instrument and all prior parties except:
 party who has made the alteration
 party who authorized the alteration
*Material alteration made by the stranger has no effect on the instrument.
*Material alteration is not a defense against a holder in due course.
Sec. 125
Material alteration: Alteration which changes:
a. date
b. sum payable
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. any change or addition which changes the effect of the instrument