REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
LECTURE NOTES
NEGOTIABLE INSTRUMENTS
NEGOTIABLE INSTRUMENTS - a written contract for the
payment of money which complies with the requirements of
Sec. 1 of the NIL, which by its form and on its face, is
intended as a substitute for money and passes from hand
to hand as money, so as to give the holder in due course
(HDC) the right to hold the instrument free from defenses
available to prior parties.
Form of Negotiable Instruments
To determine whether the instrument is negotiable or not,
the following must be considered:
1. The whole of the instrument
2. Those only appear on the face of the instrument
3. Compliance with the requirement under Section 1 of
the Act.
The instrument need not follow the language of this Act,
but any terms are sufficient which clearly indicate an
intention to conform to the requirements hereof. (Sec 10)
Two Distinctive Features of Negotiable Instrument:
1. NEGOTIABILITY - it is that attribute or property
whereby a bill or note or check 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 to collect
the sum payable for himself free from defenses.
2. ACCUMULATION OF SECONDARY CONTRACTS -
secondary contracts are picked up and carried along
with Negotiable Instruments as they are negotiated
from one person to another; or in the course of
negotiation of negotiable instruments, a series of
juridical ties between the parties thereto arise either by
law or by privity. The indorsers become secondarily
liable to the holder.
Instrument with limited negotiability
1. Letter of credit – Payable to specified person.
2. Treasury warrant – Payable out of specific fund or
appropriation, hence conditional
3. Postal money order – Subject to restriction and
limitation under postal laws and regulation. (1
indorsement is allowed)
4. Bill of lading – Not contain an unconditional promise or
order to pay a sum certain in money
5. Certificate of stock - Not contain an unconditional
promise or order to pay a sum certain in money
6. Warehouse receipt - Not contain an unconditional
promise or order to pay a sum certain in money.
7. Quedan - Not contain an unconditional promise or order
to pay a sum certain in money.
8. Now account – Not payable to order or bearer
Distinction between negotiable and non negotiable
instruments
NEGOTIABLE NON NEGOTIABLE
INSTRUMENTS INSTRUMENTS
Must contain all requisites of Does not contain all
Sec.1 of the NIL requisites of Sec.1 of the
NIL
Transferable by negotiation Transferable by
and assignment. assignment only
Holder in due course can A transferee acquires no
acquire better rights than his better right than his
transferor transferor
Prior parties warrant Prior parties do not
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payment (secondary warrant payment but
liability). merely the legality of his
title.
Governed by Negotiable Negotiable Instrument Law
Instrument Law only applies by analogy
Transferee is a holder in due Transferee is assignee
course. only.
Defenses generally not All defenses available
available. against last transferee
Special form of Promissory note
1. Certificate of deposit – It is a written acknowledgement
by a bank of the receipt of money on deposit which the
bank promises to pay to the depositors.
2. Bond – It is an evidence of indebtedness issued by a
public or private corporation, promising to pay a sum of
money on a day certain in the future.
a. Registered bond – or one payable only to the
person whose name appears on the face of the
certificate and in the books of the company. – Non
negotiable
b. Coupon bond – or one to which are attached
coupon which entitle the holder to interest when
due. The interest coupon may be detached and
negotiated just like promissory notes independent
of the main instrument.
3. Bank note – It is an instrument issued by a bank for
circulation as money payable to bearer on demand.
4. Due bill – It is a promissory note which shows on its
face an acknowledgement by a person of his
indebtedness to another.
5. Chattel mortgage note – Note secured by personal
property
6. Real estate mortgage note – Note secured by real
property
7. Title retaining note – Secured by conditional sales
contract which ordinarily provides that the title to the
goods shall remain in the payee’s name until the note
is paid in full.
8. Collateral note – It is used when the maker pledge
securities to the payee to secure the payment of the
amount of the note.
9. Judgment note – Note to which is added a power of
attorney enabling the payee to take judgment against
the maker without the formality of a trial if the note is
not paid on its due date.
Other classes of bill of exchange
1. Bank draft – a bill of exchange drawn by a bank against
its branch or another bank.
2. Trade acceptance – a draft or bill of exchange drawn by
a seller on the purchaser of goods and accepted by the
latter by signing it as drawee. If the instrumnent is
drawn against a bank instead of the purchaser, it is
called banker’s acceptance.
Special type of checks
1. Memorandum check - check with the word
“memorandum” “mem” or “memo” is written upon the
face of the check, signifying that the drawer engages to
pay the bona fide holder absolutely, and not upon a
condition to pay upon presentment at maturity and if
due notice of the presentment and non payment should
be given.
2. Cashier’s check – Drawn by the cashier of a bank upon
the bank itself and deemed accepted by the act of
issuance.
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3. Manager’s check – one drawn by the bank’s manager (b) A statement of the shall become due; or
upon the bank itself. transaction which (d) With exchange,
4. Traveler’s check – It is one upon which the holder’s gives rise to the whether at a fixed rate
signature must appear twice, one to be affixed by him instrument. or at the current rate;
at the time it is issued and the second or But an order or promise or
countersignature, to be affixed by him in the presence to pay out of a particular (e) With costs of collection
of the payee before it is paid, otherwise, it is fund is not unconditional. or an attorney's fee, in
incomplete. case payment shall not
5. Certified check – One which bears upon its face an be made at maturity.
agreement by the drawee bank that the check will be
paid on presentment.
6. Crossed check – One which bears across its face two
(c) Must be payable on demand, or at a fixed or
parallel lines drawn diagonally, usually on the upper
determinable future time;
left side.
Demand (Sec 7) Determinable future
7. Stale check – One which has not been presented for
payment within a reasonable time after its issue. It is time (Sec 4)
valueless and, therefore, should not be paid.
An instrument is payable An instrument is payable
Effectivity of Act 2031 – Sec 198 on demand - at a determinable future
Sec. 1. Form of negotiable instruments. - An time, within the meaning
instrument to be negotiable must conform to the (a) When it is so of this Act, which is
following requirements: expressed to be payable expressed to be payable -
(a) It must be in writing and signed by the maker or on demand, or at sight,
drawer;
or on presentation; or (a) At a fixed period after
"Written" includes printed, and "writing" includes print.
date or sight; or
(Sec 191) (b) In which no time for (b) On or before a fixed
payment is expressed. or determinable
Signature future time specified
No person is liable on the instrument whose signature therein; or
Where an instrument is
does not appear thereon (Sec. 18) (c) On or at a fixed
issued, accepted, or
period after the
Exception: indorsed when overdue,
occurrence of a
1. One who signs in a trade or assumed name will be it is, as regards the specified event which
liable to the same extent as if he had signed in his person so issuing, is certain to happen,
own name. (Sec 18, (2)) accepting, or indorsing though the time of
2. The principal is bound by the signature of his duly it, payable on demand. happening be
authorized agent (Sec 19) uncertain.
3. Forgery (Sec 23)
4. Acceptance by the acceptor in a separate paper (d) Must be payable to order or to bearer; and
(Sec 134) Payable to order (Sec Payable to bearer (Sec
5. Written promise by a person to accept the bill
8) 9)
before it is drawn. (Sec 135)

Nota bene: The instrument is payable The instrument is payable

a. Where a signature is so placed upon the instrument to order where it is drawn to bearer -
that it is not clear in what capacity the person payable to the order of a
making the same intended to sign, he is to be specified person or to him a. When it is expressed to
deemed an indorser; (Sec 17, f) or his order. It may be be so payable; or
b. A person placing his signature upon an instrument b. When it is payable to a
drawn payable to the
otherwise than as maker, drawer, or acceptor, is person named therein
order of – or bearer; or
deemed to be indorser unless he clearly indicates
by appropriate words his intention to be bound in c. When it is payable to
some other capacity. (Sec 63) (a) A payee who is not the order of a fictitious
maker, drawer, or or non-existing person,
(b) Must contain an unconditional promise or order to drawee; or and such fact was
pay a sum certain in money; (b) The drawer or known to the person
maker; or making it so payable;
Unconditional promise Certainty as to sum
(c) The drawee; or or
(Sec 3) (Sec 2)
(d) Two or more payees d. When the name of the
jointly; or payee does not purport
Unqualified order or The sum payable is a sum (e) One or some of to be the name of any
promise to pay is certain within the meaning several payees; or person; or
unconditional within the of this act, although it is to (f) The holder of an e. When the only or last
meaning of this Act be paid - office for the time being. indorsement is an
though coupled with: indorsement in blank.
(a) With interest; or Where the instrument is
(a) An indication of a (b) By stated installments; payable to order, the
particular fund out of or payee must be named or
which reimbursement (c) By stated installments,
otherwise indicated
is to be made or a with a provision that,
upon default in therein with reasonable
particular account to
be debited with the payment of any certainty.
amount; or installment or of
interest, the whole

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(e) Where the instrument is addressed to a drawee,
he must be named or otherwise indicated therein * An instrument which
with reasonable certainty. contains an order or promise
A bill may be addressed to two or more drawees to do any act in addition to
jointly, whether they are partners or not; but not to the payment of money is not
two or more drawees in the alternative or in negotiable.
succession. (Sec 128)
Provisions on Joint parties
(payees/drawees/indorsers)
Distinction of requisites of promissory note, bill of
 Two or more payees jointly. (Sec 8 d)
exchange and a check:
 One or some of several payees. (Sec 8 e)
Promissory note Bill of Check (Sec
 I promise to pay" is signed by two or more persons,
(Sec. 184) exchange (Sec 185) they are deemed to be jointly and severally liable
126) thereon. (Sec 17 g)
 Where an instrument is payable to the order of two or
It must be in It must be in It must be in more payees or indorsees who are not partners, all
writing and signed writing and writing and must indorse unless the one indorsing has authority to
by the maker signed by the signed by the indorse for the others. (Sec 41)
drawer drawer  Joint payees or joint indorsees who indorse are deemed
to indorse jointly and severally. (Sec 68)
 Where there are several persons, not partners (Joint
Must contain an Must contain an Must contain an
debtors), primarily liable on the instrument and no
unconditional unconditional unconditional
place of payment is specified, presentment must be
promise to pay a order to pay a order to pay a made to them all (Sec 78)
sum certain in sum certain in sum certain in  Notice to joint persons who are not partners must be
money money money given to each of them unless one of them has authority
to receive such notice for the others. (Sec 100)
Must be payable Must be payable Must be payable  A bill may be addressed to two or more drawees
on demand, or at on demand, or at on demand jointly, whether they are partners or not; but not to
two or more drawees in the alternative or in
a fixed or a fixed or
succession. (Sec 128)
determinable determinable
 Where a bill is addressed to two or more drawees who
future time future time are not partners, presentment must be made to them
all unless one has authority to accept or refuse
Must be payable Must be payable Must be payable acceptance for all, in which case presentment may be
to order or to to order or to to order or to made to him only. (Sec 145)
bearer bearer bearer  An indorsement which purports to transfer to two or
more indorsees severally, does not operate as a
Where the Where the negotiation of the instrument. (Sec 32)
instrument is instrument is  Where two or more persons offer to pay a bill for the
honor of different parties, the person whose payment
addressed to a addressed to a
will discharge most parties to the bill is to be given the
drawee, he must bank, it must be preference. (Sec 174)
be named or named or
otherwise otherwise Rules on Date:
indicated therein indicated therein  The validity and negotiable character of an instrument
with reasonable with reasonable are not affected by the fact that (a) It is not dated;
(Sec 6)
certainty. certainty
 Where the instrument or an acceptance or any
indorsement thereon is dated, such date is deemed
prima facie to be the true date of the making, drawing,
acceptance, or indorsement, as the case may be. (Sec
11)
 The instrument is not invalid for the reason only that it
is ante-dated or post-dated, provided this is not done
Additional provisions not Omissions; seal; for an illegal or fraudulent purpose. The person to
affecting negotiability (Sec 5) particular money (Sec 6) whom an instrument so dated is delivered acquires the
title thereto as of the date of delivery. (Sec 12)
a. Authorizes the sale of a. It is not dated;  When date may be inserted
collateral securities in b. Does not specify the a. Where an instrument expressed to be payable at a
case the instrument be value given, or that fixed period after date is issued undated (e.g. 30
not paid at maturity; any value had been days after date, pay to the order of X (Sgd Y)
b. Authorizes a confession of given therefor; b. Where the acceptance of an instrument payable at
judgment if the c. Does not specify the a fixed period after sight is undated (e.g. 30 days
instrument be not paid at place where it is after sight, pay to the order of X (sgd Y))
maturity; drawn or the place Any holder may insert therein the true date of issue or
c. Waives the benefit of any where it is payable; acceptance, and the instrument shall be payable
law intended for the or accordingly. The insertion of a wrong date does not
advantage or protection of d. Bears a seal;
avoid the instrument in the hands of a subsequent
the obligor; e. Designates a
d. Gives the holder an particular kind of holder in due course; but as to him, the date so
election to require current money in inserted is to be regarded as the true date.
something to be done in which payment is to
lieu of payment of money. be made.

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 Where the instrument is not dated, it will be considered
to be dated as of the time it was issued. (Sec 17,c)
 Except where an indorsement bears date after the
maturity of the instrument, every negotiation is
deemed prima facie to have been effected before the
instrument was overdue. (Sec 45)
 Material alteration. Any alteration which changes the:
a.) The date; (Sec 124)
Construction where instrument is ambiguous. (Sec
17)
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;
Instances where the holder may treat the instrument
as bill or notes at his option:
1. Where the instrument is so ambiguous that there is
doubt whether it is a bill or note (Sec 17, e)
2. When the drawer and the drawee is the same
person
3. Where the drawee is a fictitious person
4. When the drawee is a person not having capacity to
contract
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;
 A person placing his signature upon an instrument
otherwise than as maker, drawer, or acceptor, is
deemed to be indorser unless he clearly indicates
by appropriate words his intention to be bound in
some other capacity. (Sec 63)
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
 A signature by "procuration" operates as notice that the
agent has but a limited authority to sign, and the
principal is bound only in case the agent in so signing
acted within the actual limits of his authority. (Sec 21)
 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.
(Sec 22)
 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. (Sec 23)
Cases of forgery
Cases of forgery of negotiable instrument may be divided
as follows:
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 Promissory note
a. Forgery of the maker’s signature
b. Forgery of the indorser’s signature
 Bill of exchange or check
a. Forgery of the drawer’s signature
1. With acceptance by the drawee
2. Without acceptance of the drawee but the bill is
paid by the drawee
b. Forgery of the indorser’s signature
RULES IN CASES OF FORGED
SIGNATURE:
 Where the drawer’s signature is forged and the drawee
pays it without having detected the forgery, he cannot
charge the amount thereof to the drawer’s account.
MOREOVER: The drawee who has paid a forged bill
whether previously accepted or not, is prevented from
recovering from the recipient the amount he paid
because he is bound to know the drawer’s signature.
EXCEPT, if the person to whom it was paid was guilty of
fraud, negligence, or who has not given value
therefore.
RECOURSE: Recover from the forger.
 Where the payee’s indorsement is forged and the
drawee bank pays it, he cannot charge the account of
the drawer BUT he can recover from the one to whom
he paid since he makes no warranty as to genuineness
of any indorsement.
BUT IF BEARER instrument, the drawee may debit the
drawer’s account since the indorsement may be
disregarded.
HOWEVER: if the DRAWEE’S negligence is the
proximate cause of the payment under a forged
instrument, the drawee is liable to the collecting bank.
BUT: Where both the drawee and the collecting banks
are guilty of negligence, the degree of negligence of
each shall be weighed in considering the amount of loss
which each should bear.
 Where a check has several indorsements on it and one
of the indorser’s signatures is forged, it was held that it
is only the negotiation based on the forged or
unauthorized signature, which is inoperative. Thus,
where the drawee bank paid it to the encasher, the
drawee bank can recover since the indorser [Sec. 65-
66] is supposed to warrant to the drawee that the
signature of the payee and previous indorsers are
genuine. One who purchases a check is bound to
satisfy himself that the paper is genuine and that by
indorsing it or presenting it for payment, he impliedly
assets that he has performed his duty.
 Prior parties are not liable to forgery of signature.
NOTE: CUT-OFF RULE – only if forged signature is
necessary to vest title to subsequent parties will prior
parties be excused from liability.
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. (Sec 24)
 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. (Sec 25)
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 What constitutes holder for value. — Where value has
at any time been given for the instrument, the holder is
deemed a holder for value in respect to all parties who
become such prior to that time. (Sec 26)
 When lien on instrument constitutes holder for value. —
Where the holder has a lien on the instrument arising
either from contract or by implication of law, he is
deemed a holder for value to the extent of his lien.
(Sec 27)
 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. (Sec 28)
 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. (Sec. 29)
NEGOTIATION
Mode of transfer of negotiable instruments
a. Issue - means the first delivery of the instrument,
complete in form, to a person who takes it as a holder;
(Sec 191)
b. 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. (Sec
30)
Instrument Negotiation
Payable to bearer Delivey
Payable to order Indorsement + Delivery
c. Assignment – Transfer of order instrument without
indorsement.
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. (Sec 40)
 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. (Sec 48)
 Where a person places his indorsement on an
instrument negotiable by delivery, he incurs all the
liability of an indorser. (Sec. 67)
 Every person negotiating an instrument by delivery
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. The warranty however, extends in
favor of no holder other than the immediate transferee.
(Sec 65)
Indorsement
1. Indorsement means an indorsement completed by
deliver (Sec 191)
2. The indorsement must be written on the instrument
itself or upon paper attached thereto (allonged) (Sec
31)
3. The indorsement must be an indorsement of the entire
instrument.
Tenor of the Instrument: Pay to the order of X P10,000
(Sgd Y)
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a. Pay to A P8,000 – Partial indorsement
b. Pay to A P5,000 and B P5,000 (Sgd X) – two or
more indorsee severally
Exception: When the instrument has been paid in part,
it may indorsed as to the residue.
Allowed indorsement:
a. Pay to A and B
b. Pay to A or B
Distinction between negotiation and assignment
Negotiation Assignment
Only negotiable instrument Ordinary contract
Transferee is a holder Transferee is an assignee
Holder in due course acquire Assignee merely step into
better title than his the shoes of his transferor
transferor
Holder in due course is Assignee is subject to
subject to real defense only personal and real defense
General indorser warrants Assignor does not warrant
the solvency of prior parties the solvency of prior parties
Governed by Negotiable Governed by Civil code on
instrument law assignment of credits.
Kinds of Indorsement
1. Special (Sec 34) – specify the indorsee
2. Blank (ibid) – specify no indorsee
3. Restrictive
1. Prohibit further negotiation (i.e. Pay to “A ony”; “A
and no other person”)
2. Constitute the indorsee the agent of the indorser
(i.e., pay to A for “Collecton”; “collection or
remittance”; “collection only”; “deposit”)
3. Vests the title in the indorsee in trust for another
(i.e., Pay to A “in trust for B”; as trustee for B”;
“for my use”; for the use of B”)
But all subsequent indorsees acquire only the title of
the first indorsee under the restrictive indorsement.
(Sec 36)
Effect: (Sec 37)
1.) Receive payment
2.) Bring any action thereon that the indorser could
bring;
3.) Transfer his rights as such indorsee, where the
form of the indorsement authorizes him to do so.
Note: Only restrictive indorsement which prohibit the
further negotiation of the instrument rendered the
instrument non negotiable.
4. Non restrictive
5. Qualified – Constitute the indorser as a mere assignor
of the title to the instrument. (i.e. Pay to A “without
recourse”; “indorser not holder”; sans recourse”; “at
indorsee’s own risk”; “indorser not holder”. (Sec 38)
Such an indorsement does not impair the negotiable
character of the instrument.
6. Unqualified or general – no condition
7. Conditional – 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. (Sec 39)
8. Unconditional
9. Joint - Where an instrument is payable to the order of
two or more payees or indorsees who are not partners,
all must indorse unless the one indorsing has authority
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to indorse for the others. (Sec 41)
10. Successive - 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. (Sec 50) As respects 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. (Sec 68)
11. Irregular or anomalous - 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: (Sec
64)
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.
12. Facultative (Sec 111)
Holder
1. Holder – means a payee or indorsee of a bill or a note
who, is in possession of it, or the bearer thereof. (Sec
191)
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. (Sec. 58)
2. Holder in due course (Sec 52)
Holder who has taken the instrument under the
following condition:
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.
* Every holder is deemed prima facie to be a holder in
due course.
Exception: 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. (Sec 59)
Right of a holder in due course
a. He may sue in its own name; (Sec 51)
b. A holder in due course holds the instrument free
from any defect of title of prior parties,
c. Free from defenses available to prior parties among
themselves; (Sec 57)
d. May enforce payment of the instrument for the full
amount thereof against all parties liable thereon.
(Sec 57) and payment to hi in due course
discharged the instrument. (Sec 51)
3. Holder for value (Sec 26) – Where value has at any
time given for the instrument.
4. Partial holder in due course (Sec 54)
Page 6 of 14
Where the transferee receives notice of any infirmity in
the instrument or defect in the title of the person
negotiating the same before he has paid the full
amount agreed to be paid therefor, he will be deemed
a holder in due course only to the extent of the amount
therefore paid by him.
5. Holder in due course by subrogation (Sec 58)
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.
Classification of parties according to liability
Parties to a negotiable instrument (e.g. promissory note,
bill of exchange and checks) are classified according to
their liability as follows:
1. Primarily liable
Maker of a promissory note (Sec 60)
Acceptor of a bill of exchange (Sec. 62)
Certifier of a check (Sec. 187)
2. Secondarily liable
Drawer of a bill (Sec. 61)
General indorser of a bill or note (Sec. 66)
Acceptor for honor (Sec 165)
3. Not liable on the instrument
a. Drawee of a bill unless he accepts the bill.
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.
(Sec 127)
b. Drawee bank in a check unless it accepts or
certifies the check.
A check of itself does not operate as an assignment
of any part of the funds to the credit of the drawer
with the bank, and the bank is not liable to the
holder unless and until it accepts or certifies the
check. (Sec. 189)
Condition of Drawer for Secondary liability (Sec 61)
1. That the bill is presented for acceptance (Sec. 143)
when required or presented for payment (Sec. 70), as
the case may be, to the drawer.
2. That the bill is dishonored by non acceptance (Sec.
149) or non payment (Sec 83) as the case may be.
3. That the necessary proceedings on dishonor be duly
taken such as notice of dishonor is given to the drawer
or in case of a foreign bills, protest is made followed by
a notice of protest. (Sec 152)
Condition of General indorser for Secondary liability
(Sec. 66)
1. That the instrument is presented for acceptance (Sec.
143) when required or presented for payment (Sec.
70), as the case may be, to the drawer.
2. That the instrument is dishonored by non acceptance
(Sec. 149) or non payment (Sec 83) as the case may
be.
3. That the necessary proceedings on dishonor be duly
made .
Non acceptance (Sec Non payment (Sec 83)
149)
A bill is dishonored by The instrument is dishonored
nonacceptance — by non-payment when:
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(a) When it is duly
presented for acceptance
and such an acceptance as
is prescribed by this Act is
refused or can not be
obtained; or
(b) When presentment
for acceptance is excused
and the bill is not accepted.
Distinction between Maker and Drawer
Maker
Party to a Promissory note
Primary liable
(a) It is duly presented 1. Real defense – are defense that are available against
for payment and payment is all parties including a holder in due course because the
refused or cannot be defect is attached to the res or instrument itself.
2. Personal defense – are defenses available to prior
obtained; or
parties among themselves but not against a holder in
due course.
(b) Presentment is
Personal Defense Real defense
excused and the instrument
is overdue and unpaid. Incomplete but delivered Incomplete and undelivered
(Sec 14) (Sec 15)
Complete but undelivered Indorsement by infant or
(Sec 16) corporation (available to
minor or corporation only)
Drawer
(Sec 22)
Party to a bill of exchange
Insertion of a wrong date Forgery (Sec 23)
Secondary liable (Sec 13)

Ante date or post dated (Sec Want of authority, apparent

Cannot limit his liability
Unconditionally bound to pay
the instrument
Can limit his liability
12) and real (Sec 23)
Conditionally bound to pay
Absence or failure of Material alteration (Sec
the instrument
consideration (Sec 28) 124)

Distinction between Maker and Acceptor Simple fraud or fraud in Prescription

Maker Acceptor inducement (Sec 55)

Party to a promissory note Party to a bill of exchange Acquisition of instrument by Fraud in factum or fraud in
fraud, duress, or force and esse contractus
Engage to pay the Engage to pay the fear
instrument according to its instrument according to its
tenor acceptance. Acquisition of instrument by
unlawful means
Do not admit the existence Admit the existence of the
of the drawer. drawer, the genuineness of Acquisition of instrument for
his signature, and his an illegal consideration
capacity and authority to
draw the instrument By negotiation of the
instrument in breach of faith

Distinction between qualified indorser (Sec. 65) and By negotiation under

general indorser (Sec. 66) circumstances that amount
Qualified indorser General indorser to fraud.

(Sec 65) (Sec 66)

 Incomplete but delivered - Where the instrument is
1. That the instrument is wanting in any material particular, the person in
genuine and in all possession thereof has a prima facie authority to
respects what it Same complete it by filling up the blanks therein. And a
purports to be; signature on a blank paper delivered by the person
2. That he has a good making the signature in order that the paper may be
title to it; converted into a negotiable instrument operates as a
3. That all prior parties prima facie authority to fill it up as such for any
had capacity to amount. In order, however, that any such instrument
contract when completed may be enforced against any person
Warrant that he has no Warrant that the instrument who became a party thereto prior to its completion, it
knowledge of any fact is, at the time of his must be filled up strictly in accordance with the
which would impair the indorsement, valid and authority given and within a reasonable time. But if any
such instrument, after completion, is negotiated to a
validity of the instrument subsisting
holder in due course, it is valid and effectual for all
or render it valueless purposes in his hands, and he may enforce it as if it
had been filled up strictly in accordance with the
There is no secondary There is secondary liability. authority given and within a reasonable time. (Sec 14)
liability.  Incomplete and undelivered - Where an incomplete
instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid
Defenses contract in the hands of any holder, as against any
person whose signature was placed thereon before
delivery. (Sec. 15)

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 Complete but undelivered - 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. (Sec. 16)
Summary on Presentment for payment
General Rule: Presentment for payment is not necessary to
charge the person primarily liable but it is necessary to
charge the Drawer and Indorser.
Exception:
a. Drawer - The drawer has no right to expect or require
that the drawee or acceptor will pay the instrument.
(Sec 79)
b. Indorser – The instrument was made or accepted for
indorser accomodation and he has no reason to expect
that the instrument will be paid if presented. (Sec 80)
c. When presentment is dispensed with (Sec 82)
1. Presentment cannot be made after exercise of
reasonable diligence
2. Drawee is a fictitious person
3. Waiver f presentment, express or implied
d. When the bill is dishonored by non acceptance (Sec
151)
c. Has fund - during banking hours
d. No funds to meet it at any time
during the day – Any hour before
the bank is closed
It is equivalent to an order to the bank to pay
the same for the account of the principal
debtor. (Sec 87)
Time of maturity (Sec 85)
1. Time fixed – At the time fixed without
grace
2. Maturity fall on Sunday, holiday – next
succeeding business day
3. Maturity fall on Saturday
a. Payable on demand – Before 12:00
noon if Saturday is not a holiday
b. Not payable on demand - next
succeeding business day
Note: The time of payment is determined by
excluding the day from which the time is to
begin to run, and by excluding the date of
payment.
Where 1. Place of payment specified – Place
specified (Sec 73)
2. Place not specified but the address of the
person to make is given - Address
indicated in the instrument;
3. Place of payment and address not given –
Usual place of business or residence of the
person to make payment.
4. Other cases – Where the person to make
payment he can be found or if presented
at his last known place of business or
residence.

Requisites for sufficient presentment Dishonored by non payment (Sec 83)

The instrument must be exhibited to the person from whom a. Duly presented for payment and payment is refused or
payment is demanded and when it is paid must be cannot be obtained.
b. Presentment is excused and the instrument is overdue
delivered up to the party paying it. (Sec 74)
and unpaid.
By Whom Holder or person authorized to received Effect: Subject to the provision of the act, an immediate
payment on his behalf right of recourse to all parties secondary liable thereon
accrues to the holder. (Sec 84)
To whom General Rule:

- Person primarily liable or in his absence,

any person found at the place where
presentment is made.
Exception: When no place of payment is
specified

1. When principal debtor Dead (Sec. 76)

o Personal representative if there be,
and if, with the exercise of reasonable
diligence he can be found.
2. Persons liable as Partners (Sec 77)
o Any partner
3. Joint Debtor (Sec 78)
o Each of them
When 1. Not payable on demand (Sec 71)
a. On the day it falls due
2. Payable on demand
a. Promissory note – Reasonable time
after its issue
b. Bill of exchange – Reasonable time Notice of Dishonor
after the last negotiation General Rule:
3. Payable at bank (Sec 75)

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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.
Exception:
1. Notice of dishonor is waived (Sec 109)
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.
2. Protest is waived (Sec 111)
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.
3. Notice is dispensed with (Sec 112)
Notice of dishonor is dispensed with when, after the
exercise of reasonable diligence, it cannot be given to
or does not reach the parties sought to be charged.
4. To the drawer (Sec 114)
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.
5. To the indorser (Sec 115)
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.
6. Due notice of dishonor by non acceptance has been
given (Sec 116)
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
7. An omission to give notice of dishonor by non-
acceptance does not prejudice the rights of a holder in
due course subsequent to the omission (Sec 117)
Delay in giving notice of dishonor
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. (Sec 113)
 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. (Sec. 92)
Page 9 of 14
 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. (Sec. 93)
 Where the instrument has been dishonored in the
hands of an agent, he may either himself give notice to
the parties liable thereon, or he may give notice to his
principal. If he gives notice to his principal, he must do
so within the same time as if he were the holder, and
the principal, upon the receipt of such notice, has
himself the same time for giving notice as if the agent
had been an independent holder. (Sec. 94)
Summary on Notice of Dishonor
By Whom By or on behalf of the holder, or by or on
behalf of any party to the instrument who
might be compelled to pay it to the holder.
(Sec 90)
To whom General Rule:
- Party himself
- Duly authorized agent
Exception:
1. When party is Dead (Sec. 98)
o Personal representative
o Last residence or last place of business
2. Notice to partner (Sec 99)
o Any partner
3. Joint person (Sec 100)
o Each of them
4. Bankrupt/insolvent (Sec 101)
o Party himself, or
o Trustee or assignee
When 1. Parties residing in the same place (Sec
103)
b. 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.
c. If given at his residence, it must be
given before the usual hours of rest on
the day following.
d. If sent by mail, it must be deposited in
the post office in time to reach him in
usual course on the day following
2. Parties not residing in the same place (Sec
104)
c. 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.
d. 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.
Where 1. Address given - Address indicated in the
instrument;
2. Address not given
a. Either to the post-office nearest to his
place of residence or to the post-office
where he is accustomed to receive his
letters; or
b. If he lives in one place and has his
place of business in another, notice
may be sent to either place; or
c. If he is sojourning in another place,
notice may be sent to the place where
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he is so sojourning. (Sec 108)
DISCHARGEOF NEGOTIABLE INSTRUMENTS
Discharge of instrument - a release of all parties, whether
primary or secondary, from the obligations arising
thereunder. It renders the instrument without force and
effect and, consequently, it can no longer be negotiated.
 A negotiable instrument is discharged: (Sec 119)
a. By payment in due course by or on behalf of the
principal debtor;
b. By payment in due course by the party
accommodated, where the instrument is made or
accepted for his accommodation;
c. By the intentional cancellation thereof by the
holder;
d. By any other act which will discharge a simple
contract for the payment of money;
e. When the principal debtor becomes the holder of
the instrument at or after maturity in his own right.
 A person secondarily liable on the instrument is
discharged: (Sec 120)
a. By any act which discharges the instrument;
b. By the intentional cancellation of his signature by
the holder;
c. By the discharge of a prior party;
d. By a valid tender or payment made by a prior
party;
e. By a release of the principal debtor unless the
holder's right of recourse against the party
secondarily liable is expressly reserved;
f. By any agreement binding upon the holder to
extend the time of payment or to postpone the
holder's right to enforce the instrument unless
made with the assent of the party secondarily liable
or unless the right of recourse against such party is
expressly reserved.
 Spoliation – alteration made by a stranger.
 Where the instrument is paid by a party secondarily
liable thereon, it is not discharged; but the party so
paying it is remitted to his former rights as regard all
prior parties, and he may strike out his own and all
subsequent indorsements and against negotiate the
instrument, except:
a. Where it is payable to the order of a third person
and has been paid by the drawer; and
b. Where it was made or accepted for accommodation
and has been paid by the party accommodated.
 The holder may expressly renounce his rights against
any party to the instrument before, at, or after its
maturity. An absolute and unconditional renunciation of
his rights against the principal debtor made at or after
the maturity of the instrument discharges the
instrument. But a renunciation does not affect the
rights of a holder in due course without notice. A
renunciation must be in writing unless the instrument is
delivered up to the person primarily liable thereon.
(Sec 122)
Effects of Renunciation:
1. A renunciation in favor of a secondary party may be
made by the holder before, at or after maturity of the
instrument.
Effect: only such secondary party is discharged and all
parties subsequent to him but the instrument itself
remains in force.
2. A renunciation in favor of the principal debtor may be
effected at or after maturity.
Effect: the instrument is discharged and all parties
thereto provided the renunciation is made
Page 10 of 14
 A cancellation made unintentionally or under a mistake
or without the authority of the holder, is inoperative
but where an instrument or any signature thereon
appears to have been cancelled, the burden of proof
lies on the party who alleges that the cancellation was
made unintentionally or under a mistake or without
authority. (Sec 123)
 Where a negotiable instrument is materially altered
without the assent of all parties liable thereon, it is
avoided, except as against a party who has himself
made, authorized, or assented to the alteration and
subsequent indorsers. But when an instrument has
been materially altered and is in the hands of a holder
in due course not a party to the alteration, he may
enforce payment thereof according to its original
tenor. (Sec. 124)
 What constitutes a material alteration - Any alteration
which changes:
a. The date;
b. The sum payable, either for principal or interest;
c. The time or place of payment:
d. The number or the relations of the parties;
e. The medium or currency in which payment is to be
made;
f. Or which adds a place of payment where no place
of payment is specified, or any other change or
addition which alters the effect of the
instrument in any respect, is a material
alteration.
BILL 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. (Sec 129)
 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. (Sec 131)
Acceptance
 The acceptance of a bill is the signification by the
drawee of his assent to the order of the drawer. The
acceptance must be in writing and signed by the
drawee. It must not express that the drawee will
perform his promise by any other means than the
payment of money. (Sec 132)
 The holder of a bill presenting the same for acceptance
may require that the acceptance be written on the bill,
and, if such request is refused, may treat the bill as
dishonored. (Sec 133)
 Where an acceptance is written on a paper other than
the bill itself, it does not bind the acceptor except in
favor of a person to whom it is shown and who, on the
faith thereof, receives the bill for value. (Sec 134)
 The drawee is allowed twenty-four hours after
presentment in which to decide whether or not he will
accept the bill; the acceptance, if given, dates as of the
day of presentation. (Sec 136)
 Where a drawee to whom a bill is delivered for
acceptance destroys the same, or refuses within
twenty-four hours after such delivery or within such
other period as the holder may allow, to return the bill
accepted or non-accepted to the holder, he will be
deemed to have accepted the same. (Sec 137)
 A bill may be accepted before it has been signed by the
drawer, or while otherwise incomplete, or when it is
overdue, or after it has been dishonored by a previous
refusal to accept, or by non payment. But when a bill
payable after sight is dishonored by non-acceptance
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and the drawee subsequently accepts it, the holder, in
the absence of any different agreement, is entitled to
have the bill accepted as of the date of the first
presentment. (Sec 138)
 Kinds of acceptance (Sec 139)
a. General acceptance. — assents without qualification
to the order of the drawer. An acceptance to pay at
a particular place is a general acceptance unless it
expressly states that the bill is to be paid there
only and not elsewhere. (Sec 140)
b. Qualified acceptance - An acceptance is qualified
which is: (Sec 141)
1. Conditional - that is to say, which makes payment
by the acceptor dependent on the fulfillment of a
condition therein stated;
2. Partial - that is to say, an acceptance to pay part
only of the amount for which the bill is drawn;
3. Local - that is to say, an acceptance to pay only at
a particular place;
4. Qualified as to time;
5. The acceptance of some, one or more of the
drawees but not of all.
 The holder may refuse to take a qualified acceptance
and if he does not obtain an unqualified acceptance, he
may treat the bill as dishonored by non-acceptance.
Where a qualified acceptance is taken, the drawer and
indorsers are discharged from liability on the bill unless
they have expressly or impliedly authorized the holder
to take a qualified acceptance, or subsequently assent
thereto. When the drawer or an indorser receives
notice of a qualified acceptance, he must, within a
reasonable time, express his dissent to the holder or he
will be deemed to have assented thereto. (Sec 142)
PRESENTMENT FOR ACCEPTANCE
 Presentment for acceptance must be made: (Sec 143)
a. Where the bill is payable after sight, or in any other
case, where presentment for acceptance is
necessary in order to fix the maturity of the
instrument; or
b. Where the bill expressly stipulates that it shall be
presented for acceptance; or
c. Where the bill is drawn payable elsewhere than at
the residence or place of business of the drawee.
In no other case is presentment for acceptance
necessary in order to render any party to the bill liable.
General Rule:
The holder of a bill which is required to present it for
acceptance must either present it for acceptance or
negotiate it within a reasonable time. If he fails to do so,
the drawer and all indorsers are discharged.
Exception:
Presentment for acceptance is excused and a bill may be
treated as dishonored by non-acceptance in either of the
following cases: (Sec 148)
a. Where the drawee is dead, or has absconded, or is a
fictitious person or a person not having capacity to
contract by bill.
b. Where, after the exercise of reasonable diligence,
presentment can not be made.
c. Where, although presentment has been irregular,
acceptance has been refused on some other ground.
 Presentment for acceptance must be made by or on
behalf of the holder at a reasonable hour, on a business
day and before the bill is overdue, to the drawee or
some person authorized to accept or refuse acceptance
on his behalf; and (Sec 145)
a. Where a bill is addressed to two or more drawees
who are not partners, presentment must be made
Page 11 of 14
to them all unless one has authority to accept or
refuse acceptance for all, in which case
presentment may be made to him only;
b. Where the drawee is dead, presentment may be
made to his personal representative;
c. Where the drawee has been adjudged a bankrupt
or an insolvent or has made an assignment for the
benefit of creditors, presentment may be made to
him or to his trustee or assignee.
 A bill may be presented for acceptance on any day on
which negotiable instruments may be presented for
payment under the provisions of Sections seventy-two
and eighty-five of this Act. When Saturday is not
otherwise a holiday, presentment for acceptance may
be made before twelve o'clock noon on that day. (Sec
146)
Sec. 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.
Sec 85. Time of maturity. — Every negotiable
instrument is payable at the time fixed therein without
grace. When the day of maturity falls upon Sunday or a
holiday, the 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..
 Where the holder of a bill drawn payable elsewhere
than at the place of business or the residence of the
drawee has no time, with the exercise of reasonable
diligence, to present the bill for acceptance before
presenting it for payment on the day that it falls due,
the delay caused by presenting the bill for acceptance
before presenting it for payment is excused and does
not discharge the drawers and indorsers. (Sec 147)
 Where a bill is duly presented for acceptance and is not
accepted within the prescribed time, the person
presenting it must treat the bill as dishonored by
nonacceptance or he loses the right of recourse against
the drawer and indorsers. (Sec 150)
 When a bill is dishonored by nonacceptance, an
immediate right of recourse against the drawer and
indorsers accrues to the holder and no presentment for
payment is necessary. (Sec 151)
PROTEST
General Rule:
Where a foreign bill appearing on its face to be such is
dishonored by nonacceptance, it must be duly protested for
nonacceptance, by nonacceptance is dishonored and where
such a bill which has not previously been dishonored by
nonpayment, it must be duly protested for nonpayment. If
it is not so protested, the drawer and indorsers are
discharged. Where a bill does not appear on its face to be
a foreign bill, protest thereof in case of dishonor is
unnecessary. (Sec 152)
Exception:
Protest is dispensed with by any circumstances which
would dispense with notice of dishonor.
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A notice of dishonor is dispensed with when, after the
exercise of reasonable diligence, it cannot be given to or
does not reach the parties sought to be charged. (Sec 112)
Delay in noting or protesting is excused when delay
is:
1. Caused by circumstances beyond the control of the
holder and not imputable to his default, misconduct, or
negligence.
2. When the cause of delay ceases to operate, the bill
must be noted or protested with reasonable diligence
Summary on PROTEST
How The protest must be annexed to the bill or
must contain a copy thereof, and must be
under the hand and seal of the notary
making it and must specify:
(a) The time and place of presentment;
(b) The fact that presentment was made
and the manner thereof;
(c) The cause or reason for protesting
the bill;
(d) The demand made and the answer
given, if any, or the fact that the drawee or
acceptor could not be found. (Sec 153)
By whom Protest may be made by — (Sec 154)
(a) A notary public; or
(b) By any respectable resident of the
place where the bill is dishonored, in the
presence of two or more credible witnesses
When When a bill is protested, such protest must
be made on the day of its dishonor unless
delay is excused as herein provided. When a
bill has been duly noted, the protest may be
subsequently extended as of the date of the
noting. (Sec 155)
Where A bill must be protested at the place where it
is dishonored, except that when a bill drawn
payable at the place of business or residence
of some person other than the drawee has
been dishonored by nonacceptance, it must
be protested for non-payment at the place
where it is expressed to be payable, and no
further presentment for payment to, or
demand on, the drawee is necessary. (Sec
156)
 A bill which has been protested for non-acceptance
may be subsequently protested for non-payment. (Sec
157)
 Protest before maturity where acceptor insolvent. —
Where the acceptor has been adjudged a bankrupt or
an insolvent or has made an assignment for the benefit
of creditors before the bill matures, the holder may
cause the bill to be protested for better security against
the drawer and indorsers. (Sec. 158)
 When a bill is lost or destroyed or is wrongly detained
from the person entitled to hold it, protest may be
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made on a copy or written particulars thereof. (Sec
160)
ACCEPTANCE FOR HONOR
Sec. 161. When bill may be accepted for honor. — When a
bill of exchange has been protested for dishonor by non-
acceptance or protested for better security and is not
overdue, any person not being a party already liable
thereon may, with the consent of the holder, intervene and
accept the bill supra protest for the honor of any party
liable thereon or for the honor of the person for whose
account the bill is drawn. The acceptance for honor may be
for part only of the sum for which the bill is drawn; and
where there has been an acceptance for honor for one
party, there may be a further acceptance by a different
person for the honor of another party.
Sec. 162. Acceptance for honor; how made. — An
acceptance for honor supra protest must be in writing and
indicate that it is an acceptance for honor and must be
signed by the acceptor for honor.
Sec. 163. When deemed to be an acceptance for honor of
the drawer. — Where an acceptance for honor does not
expressly state for whose honor it is made, it is deemed to
be an acceptance for the honor of the drawer.
Sec. 164. Liability of the acceptor for honor. — The
acceptor for honor is liable to the holder and to all parties
to the bill subsequent to the party for whose honor he has
accepted.
Sec. 165. Agreement of acceptor for honor. — The acceptor
for honor, by such acceptance, engages that he will, on due
presentment, pay the bill according to the terms of his
acceptance provided it shall not have been paid by the
drawee and provided also that is shall have been duly
presented for payment and protested for non-payment and
notice of dishonor given to him.
Sec. 166. Maturity of bill payable after sight; accepted for
honor. — Where a bill payable after sight is accepted for
honor, its maturity is calculated from the date of the noting
for non-acceptance and not from the date of the
acceptance for honor.
Sec. 167. Protest of bill accepted for honor, and so forth. —
Where a dishonored bill has been accepted for honor supra
protest or contains a referee in case of need, it must be
protested for non-payment before it is presented for
payment to the acceptor for honor or referee in case of
need.
Sec. 168. Presentment for payment to acceptor for honor,
how
made. — Presentment for payment to the acceptor for
honor must be made as follows:
(a) If it is to be presented in the place where the
protest for non-payment was made, it must be presented
not later than the day following its maturity.
(b) If it is to be presented in some other place than the
place where it was protested, then it must be forwarded
within the time specified in Section one hundred and four.
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Sec. 169. When delay in making presentment is excused.
— The provisions of Section eighty-one apply where there
is delay in making presentment to the acceptor for honor or
referee in case of need.
Sec. 170. Dishonor of bill by acceptor for honor. — When
the bill is dishonored by the acceptor for honor, it must be
protested for non-payment by him.
XIV — PAYMENT FOR HONOR
Payment for Honor - payment made by a person, whether
a party to the bill or not, after it has been protested for
non-payment, for the benefit of any party liable thereon or
for the benefit of the person for whose account it was
drawn. (Secs. 171-177)
Requisites:
1. the bill has been dishonored by nonpayment
2. it has been protested for non-payment;
3. payment supra protest (another term for payment for
honor because prior protest for non-payment is
required) is made by any person, even by a party
thereto;
4. the payment is attested by a notarial act of honor
which must be appended to the protest or form an
extension of it;
5. the notarial act must be based on the declaration made
by the payor for honor or his agent of his intention to
pay the bill for honor and for whose honor he pays.
Note: If the above formalities are not complied with,
payment will operate as a mere voluntary payment and the
payor will acquire no right to full reimbursement against
the party for whose honor he pays.
Sec. 171. Who may make payment for honor. — Where a
bill has been protested for non-payment, any person may
intervene and pay it supra protest for the honor of any
person liable thereon or for the honor of the person for
whose account it was drawn.
Sec. 172. Payment for honor; how made. — The payment
for honor supra protest, in order to operate as such and not
as a mere voluntary payment, must be attested by a
notarial act of honor which may be appended to the protest
or form an extension to it.
Sec. 173. Declaration before payment for honor. — The
notarial act of honor must be founded on a declaration
made by the payer for honor or by his agent in that behalf
declaring his intention to pay the bill for honor and for
whose honor he pays.
Sec. 174. Preference of parties offering to pay for honor. —
Where two or more persons offer to pay a bill for the honor
of different parties, the person whose payment will
discharge most parties to the bill is to be given the
preference.
Sec. 175. Effect on subsequent parties where bill is paid for
honor. — Where a bill has been paid for honor, all parties
subsequent to the party for whose honor it is paid are
discharged but the payer for honor is subrogated for, and
succeeds to, both the rights and duties of the holder as
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regards the party for whose honor he pays and all parties
liable to the latter.
Sec. 176. Where holder refuses to receive payment supra
protest. — Where the holder of a bill refuses to receive
payment supra protest, he loses his right of recourse
against any party who would have been discharged by such
payment.
Sec. 177. Rights of payer for honor. — The payer for honor,
on paying to the holder the amount of the bill and the
notarial expenses incidental to its dishonor, is entitled to
receive both the bill itself and the protest.
BILLS IN SET
 Where a bill is drawn in a set, each part of the set
being numbered and containing a reference to the
other parts, the whole of the parts constitutes one bill.
(Sec 178)
 Where two or more parts of a set are negotiated to
different holders in due course, the holder whose title
first accrues is, as between such holders, the true
owner of the bill. But nothing in this section affects the
right of a person who, in due course, accepts or pays
the parts first presented to him. (Sec. 179)
 Where the holder of a set indorses two or more parts to
different persons he is liable on every such part, and
every indorser subsequent to him is liable on the part
he has himself indorsed, as if such parts were separate
bills. (Sec 180)
 The acceptance may be written on any part and it must
be written on one part only. If the drawee accepts
more than one part and such accepted parts negotiated
to different holders in due course, he is liable on every
such part as if it were a separate bill. (Sec 181)
 Payment by acceptor of bills drawn in sets. — When the
acceptor of a bill drawn in a set pays it without
requiring the part bearing his acceptance to be
delivered up to him, and the part at maturity is
outstanding in the hands of a holder in due course, he
is liable to the holder thereon. (Sec 182)
 Except as herein otherwise provided, where any one
part of a bill drawn in a set is discharged by payment
or otherwise, the whole bill is discharged. (Sec 183)
XVI — PROMISSORY NOTES AND CHECKS
 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 or
determinable future time, a sum certain in money to
order or to bearer. Where a note is drawn to the
maker's own order, it is not complete until indorsed by
him. (Sec 184)
 CHECK - A check is a bill of exchange drawn on a bank
payable on demand. Except as herein otherwise
provided, the provisions of this Act applicable to a bill
of exchange payable on demand apply to a check.
(Sec 185)
a. A check must be presented for payment within a
reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of
the loss caused by the delay. (Sec 186)
b. Where a check is certified by the bank on which it
is drawn, the certification is equivalent to an
acceptance. (Sec 187)
c. Where the holder of a check procures it to be
accepted or certified, the drawer and all
indorsers are discharged from liability
thereon. (Sec 188)
d. A check of itself does not operate as an assignment
of any part of the funds to the credit of the drawer
with the bank, and the bank is not liable to the
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holder unless and until it accepts or certifies the
check. (Sec 189)
BATAS PAMBANSA BLG. 22
AN ACT PENALIZING THE MAKING OR DRAWING AND
ISSUANCE OF A CHECK WITHOUT SUFFICIENT FUNDS OR
CREDIT AND FOR OTHER PURPOSES.
Checks without sufficient funds.
 Any person who makes or draws and issues any
check to apply on account or for value, knowing at
the time of issue that he does not have sufficient
funds in or credit* with the drawee bank for the
payment of such check in full upon its presentment,
which check is subsequently dishonored by the drawee
bank for insufficiency of funds or credit or would have
been dishonored for the same reason had not the
drawer, without any valid reason, ordered the bank to
stop payment.
 Any person who, having sufficient funds in or credit
with the drawee bank when he makes or draws and
issues a check, shall fail to keep sufficient funds or to
maintain a credit to cover the full amount of the check
if presented within a period of ninety (90) days from
the date appearing thereon, for which reason it is
dishonored by the drawee bank.
Where the check is drawn by a corporation, company
or entity, the person or persons who actually signed
the check in behalf of such drawer shall be liable under
this Act. (Sec 1)
Penalty
1. Imprisonment of not less than thirty days but not more
than one (1) year or
2. By a fine of not less than but not more than double the
amount of the check which fine shall in no case exceed
Two Hundred Thousand Pesos, or
3. Both such fine and imprisonment at the discretion of
the court.
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Note: * The word "credit" as used herein shall be construed
to mean an arrangement or understanding with the bank
for the payment of such check (Sec 4)
Evidence of knowledge of insufficient funds
 The making, drawing and issuance of a check payment
of which is refused by the drawee because of
insufficient funds in or credit with such bank, when
presented within ninety (90) days from the date of
the check, shall be prima facie evidence of knowledge
of such insufficiency of funds or credit unless such
maker or drawer pays the holder thereof the
amount due thereon, or makes arrangements for
payment in full by the drawee of such check
within (5) banking days after receiving notice
that such check has not been paid by the drawee.
(Sec 2)
Duty of drawee; rules of evidence
 It shall be the duty of the drawee of any check, when
refusing to pay the same to the holder thereof upon
presentment, to cause to be written, printed, or
stamped in plain language thereon, or attached
thereto, the reason for drawee's dishonor or refusal to
pay the same: Provided, That where there are no
sufficient funds in or credit with such drawee bank,
such fact shall always be explicitly stated in the notice
of dishonor or refusal. In all prosecutions under this
Act, the introduction in evidence of any unpaid and
dishonored check, having the drawee's refusal to pay
stamped or written thereon or attached thereto, with
the reason therefor as aforesaid, shall be prima facie
evidence of the making or issuance of said check, and
the due presentment to the drawee for payment and
the dishonor thereof, and that the same was properly
dishonored for the reason written, stamped or attached
by the drawee on such dishonored check.
Notwithstanding receipt of an order to stop payment,
the drawee shall state in the notice that there were no
sufficient funds in or credit with such bank for the
payment in full of such check, if such be the fact. (Sec
3)
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