SEC.
1 Check – a bill of exchange drawn on a bank payable on demand
The instrument must be in writing or reduced to a tangible form
to enable the instrument to be negotiated or passed from hand
to hand. Never oral, as it would be difficult to determine liability
and it would not be negotiable.
A person’s signature is prima facie evidence of his intention to
be bound as either maker or drawer. However, if his signature is
so placed upon the instrument that it is not clear in what capacity
the person intended to sign, he is deemed an indorser [Sec. 17]
and not a maker or drawer.
A full name would be preferable as signature. However, any
initials [Pangilinan example] or mark would be sufficient
provided that such signature be used as a substitute and the
maker or drawer INTENDS to bound by it. By substitute is meant
that the person usually uses the initial or mark in the course of
business.
One who signs in a trade or assumed name will be liable to the
same extent as if he had signed in his own name.
Legal tender – that currency which a debtor can legally compel
a creditor to accept in payment of a debt in money when
tendered by the debtor in the right amount
A negotiable instrument CEASES to be negotiable if the
indorsement prohibits the further negotiation of the instrument.
However, NON-negotiable instruments may still be assigned or
transferred. [Sec. 30] absent an express prohibition against
assignment or transfer written on the face of the instrument. This
transfer is governed by the Civil Code on assignment of contract
rights.
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. [Sec. 184]
The payee may be specifically designated by name, office or
title, or may be unspecified [“to bearer”] because only a drawee
is required to be named.
A payee may seek payment personally or further negotiate the
instrument. Thus, the maker promises to pay to the payee or to
a holder.
The phrase “I promise” is not necessary as long as a word of
similar import or equivalent meaning is used or substituted in its
place, signifying an unconditional promise to pay. But the mere
acknowledgement of a debt without the use of the words “order”
or “bearer” which are words of negotiability does not satisfy the
requirement.
Where no time for payment is expressed, an instrument is
payable ON DEMAND. [Sec. 7]
Bill of Exchange – 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. [Sec. 126]
A drawee assumes liability only when he accepts the bill,
thereby converting him to an “acceptor”. He now becomes
primarily liable like the maker of a note, the drawer becoming
only a surety. [Sec. 61-62]
SEC. 2
How to determine certainty as to sum: WON the holder can
determine by simple mathematical calculation or computation
based on the face of the instrument the amount payable when
the instrument is due.
The parties may agree that the obligation or transaction be
settled in any other currency at the time of payment.
SEC. 3
Indication of a particular fund out of which
REIMBURSEMENT is to be made or a particular account to
be debited with the amount.
This is still unconditional as to the reimbursement because
reimbursement and debiting can only take place where payment
by another has already been made. The fund indicated is NOT
the direct source of payment but only the source of
reimbursement which is an act SUBSEQUENT to the payment.
Indication of a particular fund out of which PAYMENT is to
be made.
Non-negotiable because the amount to be paid is made to
DEPEND upon the adequacy or existence of the fund
designated. Here, the fund specified is the DIRECT source of
payment and measure of liability. The maker or drawee in this
case is not supposed to pay if that fund should prove insufficient.
SEC. 4
The happening of a contingent event does not cure the defect.
Contingency is an uncertain future event, or an event which
may OR may not happen.
The event that someone reaches a certain age is contingent
because he may die before reaching that age. And even if he
does, it will not cure the defect.
SEC. 5
An instrument which contains an order or promise to do an act
in addition to the payment of money is not negotiable. However,
the maker may include another act in lieu of the payment of
money. This will be negotiable IF it will be at the option of the
holder, as specified in the instrument.
If it is not specified in the instrument, or if it is silent as to whom
the choice belongs to, CC declares that the choice would belong
to the maker or drawer, thereby rendering the instrument NON
negotiable because the holder cannot compel him to make
payment in money. The maker/drawer is presumed to simply
take the easier route and just perform the act in lieu of the
payment of money.
SEC. 6
Date is generally not necessary UNLESS said date is tied to the
date of issue [payable 30 days after date] or where interest is
stipulated to determine when interest is to run.
However, if none of the above, the instrument will be considered
dated as of the time it was issued. [Sec. 17]
SEC. 7
An instrument is payable on demand where it is expressed on
the face of the instrument or when no time for payment is
expressed.
*between immediate parties, there is no difference between a
holder in due course and not in due course*
SEC.8
An order instrument needs both delivery and indorsement to
effect negotiation.
It is payable to bearer when the only or last indorsement is a
special one. [Sec. 34]
SEC. 9
Bearer – the person in possession of a bill or note which is
payable to bearer or legally qualifies as a bearer instrument.
It is payable to bearer when the only or last indorsement is an
indorsement in blank.
Delivery alone is enough to effect negotiation of a bearer
instrument. [Sec. 30] No need for indorsement. However, the
holder may require indorsement for added security.
When an instrument is payable to bearer, payment to ANY
person in GOOD FAITH and WITHOUT notice that his title is
defective, at or after maturity, discharges the instrument. [Sec.
88, 119]
Fictitious Payee Rule – even an actual, existing, and living
person may be considered as fictitious if the maker of the
instrument did NOT intend for the named payee to receive the
proceeds thereof. Thus, it depends upon the INTENTION of the
maker. PROVIDED, the fictitious person is known to be fictitious
by the person making it so payable [maker].
SEC. 17 – CONSTRUCTION IN CASE OF AMBIGUITY
A. Sum denoted by words shall prevail; if words are
ambiguous, figures prevail.
B. If with interest without specifying the date from which
interest is to run, the interest runs from the date of the
instrument. But if undated, from the issue thereof.
C. If instrument undated, it will be considered dated as of
the time it was issued.
D. Conflict between written and printed: written prevails
E. Ambiguity as to whether bill or note: the holder may
treat it as EITHER at his election.
F. If signature is placed without indication of any intended
capacity, he is deemed to be an indorser.
G. If promissory note signed by two or more persons, they
are deemed to be jointly and severally liable.
SEC. 18
No person is liable on the instrument whose signature does not
appear thereon, EXCEPT:
A. Where he signs in a trade or assumed name
B. If a duly authorized agent expressly signs on a
principal’s behalf [therefore principal is bound]
C. A forger, in case of forgery [Sec. 23]
D. When acceptor makes his acceptance on a separate
paper [allonge]
E. Where a person makes a written promise to accept a
bill before it is drawn
As to the agent, he must indicate CLEARLY that he is signing
ON BEHALF of the principal for the principal to be bound. A
mere mention that he is the agent of the principal on the
signature does not amount to signing on behalf of a principal. In
case of a mere mention of agency, the agent shall be personally
liable, and not the principal.
SEC. 29
Accommodation Party – one who has signed the instrument
as maker, drawer, acceptor, or indorser, WITHOUT receiving
value therefore and for the purpose of lending his name to
another party.
He basically lends his name because he has credit for the
accommodated party to be able to acquire loans.
Absence of consideration is not a defense on the part of the
accommodation because it is presumed that both parties were
well informed of the circumstances.
He is also a surety, in a way. Since the accommodation party
can recover from the accommodated party what he has paid to
the holder.
SEC. 30 – NEGOTIATION
If order instrument, negotiation is completed by indorsement
completed by delivery. First, indorsement by the payee or
present holder; and secondly, its delivery to the next holder.
An order instrument is payable to an indorsee or to a person
authorized by the payee to collect.
If an order instrument is negotiated by delivery ONLY, there
would only be an assignment and not a negotiation. The
assignee/transferee will not be considered a holder or bearer of
the instrument. He will only be acquiring the instrument subject
to all defenses, real and personal, available against the
assignor.
If bearer instrument, it is negotiated by mere delivery without
need of indorsement.
Acquisition by stealing does not constitute delivery. There is no
negotiation to the thief because delivery must be VOLUNTARY.
However, while a thief or finder cannot acquire title to the
instrument by virtue of theft, he can transfer title to a subsequent
innocent purchaser who acts in good faith, and this will
constitute negotiation.
SEC. 31 – INDORSEMENT
Indorsement alone without delivery conveys no title and creates
no holder. It must be completed with delivery. Otherwise, it shall
be inoperative.
Indorsement is necessary for order instruments, but not bearer.
The indorsement must be written on the instrument itself or on a
paper attached thereto, called an allonge. The signature of the
indorser without additional words is a sufficient indorsement,
and is called a blank indorsement. When the name of the
indorsee is specified, it is called a special indorsement.
SEC. 32
Indorsement must be of entire instrument. But where the
instrument has already been paid in part, it may be indorsed as
to what remains or as to the balance.
SEC. 34 – SPECIAL AND BLANK INDORSEMENT
A special or blank indorsement indicates that the indorser, in
addition to transferring title to the instrument, is guaranteeing its
payment IF the holder is unable to obtain payment from the
maker, acceptor, or drawee at maturity.
Special indorsement is that wherein the indorsee is specified,
followed by the signature of the indorser. This is usually done for
order instruments. This negotiation needs indorsement
completed with delivery.
Blank indorsement is one which specifies NO particular
indorsee and consists only of the signature of the indorser. This
is for bearer instruments, because bearer instruments require no
particular names. It is payable to bearer or whoever possesses
it and may be negotiated by mere delivery without need of
indorsement.
SEC. 35
An order instrument may be converted to a bearer instrument
when the last indorsement is in blank. Likewise, a bearer
instrument may be converted to an order instrument when the
last or subsequent indorsement is special.
HOWEVER, a bearer instrument remains a bearer instrument
negotiable by MERE DELIVERY regardless of conversion or
whether the last indorsement was blank or special.
SEC. 36 – RESTRICTIVE INDORSEMENT
An instrument that is so worded that it either restricts or prohibits
entirely the further negotiation of an instrument or modifies the
rights of the holder or the liabilities of the indorser.
Such indorsement destroys the negotiability of the indorsement
and bars further negotiation to a holder in due course. [ex. pay
to A for deposit only]
SEC. 38 – QUALIFIED INDORSEMENT
Qualified indorsement is one which constitutes the indorser a
mere assignor of the title to the instrument. An indorsement may
be qualified by adding to the indorser’s signature the words
“without recourse” etc to either a blank or a special indorsement.
The purpose of a qualified indorsement is to transfer title without
guaranteeing payment. Therefore, it makes the indorser a mere
assignor to the instrument. However, he shall still be
SECONDARILY liable for breach of his warranties, unless such
indorsement specifically excludes warranties.
But the qualified indorser is not liable to the indorsee if the
instrument is dishonored for some other reason like the
insolvency of the person liable.
A person who does not specify that he is a qualified indorser
[does not indicate ‘sans recourse’] is deemed a general indorser.
SEC. 39 – CONDITIONAL INDORSEMENT
An instrument by which an indorser imposes some other
condition to his liability, or on the indorsee’s right to collect the
proceeds of the instrument.
It does not prohibit further negotiation. While a condition in an
indorsement does not destroy negotiability, a condition
appearing on the face of the instrument does.
SEC. 40
In case there has been a conversion of instruments and a mix of
indorsement and delivery, the person indorsing specially an
instrument that was originally payable to bearer, is liable ONLY
to those holders who can trace their title to the instrument by a
series of unbroken indorsements from such SPECIAL indorser.
He shall be a general indorser.
This means that the holder who acquired his title through special
indorsement can ONLY recover from persons who previously
also indorsed specially, but NOT from persons who previously
indorsed in blank.
This does not apply to an order instrument of which the last
indorsement was NOT in blank. Because it is not therefore
converted to a bearer instrument.
SEC. 48 – STRIKING OUT INDORSEMENTS
In an instrument originally payable to bearer, the holder may
strike out all intervening indorsements or any of them for none
of them is necessary for his title.
Ex. If there are 4 indorsers; BCDE, holder F may strike out B
and can recover only from A, the maker. Because the striking
out of B also strikes out all subsequent indorsements. This is
because as the instrument is originally a bearer instrument, it
does not need any indorsement; only delivery.
Ex. If there are 4 indorsers; BCDE, holder F may strike out D
and in effect also strikes out all subsequent indorsements and
can recover only from maker A and indorsers B and C.
In an instrument originally payable to order, and the last
indorsement was in blank, it therefore converts it to a bearer
instrument. The holder may therefore strike out all intervening
indorsements after such indorsement in blank.
In effect, if you strike out in the middle, everything else beneath
that will also be stricken out.
SEC. 52 – HOLDER IN DUE COURSE
A holder means the payee or indorsee of a bill or note who is IN
POSSESSION of it, or the bearer thereof. [Sec. 191]
A holder in due course is a holder who has taken the
instrument under the following conditions: [conditions MUST be
complete]
A. It is complete and regular upon its face
B. He became the holder of it before it was overdue, and
WITHOUT notice that it had been previously
dishonored, if such was the fact
C. He took it in GOOD FAITH and for value
D. 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 a holder in due course. Anyone who
alleges otherwise has the burden of proof.
A drawee does not become a holder in due course because his
acceptance and payment strips the instrument of all negotiability
and reduces it to a mere proof of payment. Payment of drawee
would be the end of the life of the instrument.
Knowledge of an agent acting within the scope of his authority
is a constructive knowledge of the principal. Thus, bad faith on
the agent’s part as to knowledge of any infirmity or defect will
render the principal not a holder in due course.
SEC. 55 – WHEN TITLE DEFECTIVE
The title of the person who negotiates is defective if:
1. INSTRUMENT obtained by fraud, duress, force or fear,
or other unlawful means
2. SIGNATURE obtained by fraud, duress, force or fear,
or other unlawful means
3. Illegal consideration
SEC. 56 – NOTICE OF INFIRMITY OR DEFECT
The transferee must have had ACTUAL knowledge of such
infirmity or defect, or knowledge of such facts [which do not
appear on the instrument] that his action in taking the instrument
amounted to bad faith.
Mere negligence to make inquiries is not sufficient as bad faith
or actual knowledge.
SEC. 57 – RIGHTS OF A HOLDER IN DUE COURSE
1. He may sue on the instrument in his own name
2. He may receive payment and if the payment is in due
course, the instrument is discharged
3. He holds the instrument free from any defect of title of
prior parties
4. He holds the instrument free from defenses available
to prior parties among themselves
5. He may enforce payment of the instrument for the full
amount thereof against all parties liable thereon
SEC. 58 – DEFENSES
There are immediate, remote, and prior parties. Immediate
parties – those who are in direct contractual relation with each
other.
Defenses – grounds pleaded by a defendant showing why the
plaintiff should NOT be given the relief he seeks.
Real Defenses are those ascertainable against all parties, both
immediate and remote, including holders in due course or
holders through the latter. They are called real because the
attach to the res or the instrument itself regardless of the merits
or demerits of the holder. They challenge the validity of the
INSTRUMENT itself.
Personal Defenses are those available to prior parties among
themselves, but which are not good against a holder in due
course. It recognizes the validity of the instrument but affects the
validity of the AGREEMENT for which the instrument was
issued.
Rights of Holder NOT in Due Course
1. He may sue on the instrument in his own name
2. He may receive payment and if the payment is in due
course, the instrument is discharged
3. He is entitled to the instrument but holds it subject to
the same defenses as if it were non-negotiable
4. The shelter rule
The Shelter Rule – A holder who is NOT in due course but
acquires his title from 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 the former holder in respect of all parties
prior to the latter.
Ex. B induces A by fraud to execute a note payable to B. B
indorsed the note to C, a holder in due course. C indorses to D,
a holder NOT in due course because apparently, D had
knowledge of the fraud employed by B to A. However, because
D was not a party to the fraud employed by B, and because he
acquired his title from C, a holder in due course, then he can still
recover from A.
SEC. 60 – LIABILITY OF MAKER
The maker of a negotiable instrument by making it engages that:
A. He will pay it according to its tenor
B. Admits the existence of the payee
C. Admits his THEN capacity to indorse (at the time of
signing of the note)
A person becomes party to an instrument by signing his name
thereon.
A maker promises to pay not only to the payee but to any
subsequent holder who is legally entitled to the instrument at its
maturity date even if the holder does not demand payment at
that time. He remains fully liable despite the fact that the
instrument is presented for payment late unless prescription has
run.
Due presentment for payment, and due notice of dishonor are
NOT necessary to fix the liability of the maker; only the drawer
or indorser.
SEC. 61 – LIABILITY OF DRAWER
In a bill, the drawee is primarily liable, not the drawer. The
drawer is only secondarily liable to the holder, or to any
subsequent indorser [called intervening indorsers – those
between the drawer and holder], who may be compelled to pay.
However, they may recover from each other.
Note that the drawer may also insert an express stipulation in
the instrument negativing or limiting his own liability to the
holder. He may, through express stipulation, become a qualified
indorser by indicating “without recourse” or “I shall not be bound
in case this instrument is dishonored”.
The drawer therefore, upon signing the bill, admits:
A. The existence of the payee
B. His THEN capacity to indorse
However, the drawer makes no warranty or promise to pay the
bill absolutely. He engages to pay ONLY after certain conditions:
A. Bill is presented for acceptance or payment to drawee
 B. Bill is DISHONORED by: non-acceptance or non-
payment by drawee
C. The necessary proceedings of dishonor are taken
SEC. 62 – LIABILITY OF ACCEPTOR
By accepting the instrument:
A. Engages that he will pay it according to the tenor of HIS
ACCEPTANCE [acceptance may be expressly
qualified]
B. Admits the existence of the drawer; the genuineness of
his signature, and his capacity and authority to draw
the instrument
C. Admits the existence of the payee and his then
capacity to indorse
The drawee is NOT liable before acceptance. However, once he
accepts, he becomes and acceptor and becomes primarily
liable to pay. He CANNOT retract his acceptance against a
holder for value.
A refusal by the drawee to accept a bill constitutes a dishonor of
the instrument which triggers the liability of secondary parties
[drawers and indorsers] except those indorsing qualifiedly
without guaranteeing payment.
SEC. 63 – WHEN DEEMED INDORSER
A person signing upon an instrument is, nothing else appearing,
deemed to be a general indorser. Unless he signs and
expressly indicates his intention to be bound in some other
capacity. Being indorser, he is only chargeable after the due
process of presentment and notice of dishonor.
Guarantor or Surety
A person must write, in addition to his signature, his express
intention to be bound as a guarantor or surety, in which case he
will NOT be discharged from liability merely because of the lack
of due presentment or due notice of dishonor. He waives the
need for presentment, protest, or notice of dishonor.
However, a GUARANTOR is only subsidiarily liable [unlike
indorser] AFTER the assets of the principal debtor have been
exhausted.
A SURETY is primarily and absolutely liable with the principal
debtor without benefit of exhaustion of the latter’s properties,
and without also necessity of presentment or notice of dishonor.
SEC. 64 – IRREGULAR INDORSER
Irregular or Anomalous Indorser – a person NOT otherwise a
party to the instrument [not a maker, drawer, acceptor, regular
indorser] but places his signature in blank BEFORE delivery.
His name appears where we would naturally expect another
name. He is usually an accommodation indorser, the purpose
of which is usually to add the signer’s credit to the instrument.
[pang-back up] He does not receive any valuable consideration.
He merely lends his name and credit.
His warranties are the same as a general indorser.
SEC. 65 – WARRANTIES
*Only indorsers have warranties. Makers and drawers have
liabilities.
Every person negotiating an instrument BY DELIVERY or BY
QUALIFIED INDORSEMENT warrants:
A. That the instrument is genuine 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
[MISPC]
D. That he has no knowledge of any fact which would
impair the validity of the instrument or render it
valueless
NOTE: If by delivery only, the warranty extends in favor of no
holder other than the immediate transferee only. If qualified
indorser, liability extends to ALL subsequent holders who make
title through indorsement for a breach of any of his warranties.
Every indorser makes certain warranties or guarantees about
the instrument he is negotiating. This warranty liability is
unconditional.
The person involved here makes NO INDORSEMENT AT ALL,
not even a blank indorsement; ONLY by delivery.
SEC. 66 – WARRANTIES OF GENERAL INDOSER
Every indorser who indorses WITHOUT qualification warrants to
all subsequent holders in due course: GVS
A. Sec. 65, A-C [genuine]
B. That the instrument is, at the time of his indorsement,
valid and subsisting.
He also engages that, on due presentment , it shall be accepted
or paid, or both, according to its tenor. And that if it be
dishonored and the necessary steps be taken, he will pay the
amount to the holder or any subsequent indorser who may be
compelled to pay it.
If the instrument turns out to be invalid, the general indorser is
still liable because of the valid and subsisting warranty, but the
qualified indorser is NOT liable because of Sec. 65(D) unless he
was aware of the cause of invalidity.
FINALS
SEC. 11 – DATE
If the instrument bears a date, it shall be presumed to be the
date when it was made by the maker, drawn by drawer,
accepted by drawee, or indorsed by payee or holder.
If an instrument is not dated and there is no fixed period/date by
which it is to be paid, it shall be payable on demand.
Generally, a date is not essential to make an instrument
negotiable. However, it shall be necessary if the instrument is
stated to be payable at a fixed PERIOD after date or
sight/presentment because then the date will be the basis and
is thus necessary.
SEC. 13 – INSERTION OF DATE
If an instrument is stated to be payable at a fixed period after
date/sight and the instrument is NOT dated, ANY holder may
insert therein the true date of issue/acceptance and that
instrument shall be payable accordingly.
A holder in due course who inserts a wrong date shall be bound
by that date and shall be regarded as the true date. However, if
holder is not in due course, it will avoid the instrument as to him
because it shall be considered as a material alteration.
SEC. 12
Ante-dating or post-dating is valid and will not render an
instrument non-negotiable, provided it is not done for an illegal
or fraudulent purpose.
DEFECTIVE INSTRUMENTS
SEC. 14 – BLANKS; INCOMPLETE BUT DELIVERED
A holder has the prima facie authority to:
1. Fill up the blanks to complete an incomplete instrument
- The authority to complete however, is not an
authority to alter. The holder cannot alter,
change, or erase anything that has already
been written on the instrument when he
received it. He may only fill up the blanks.
2. Put any amount
- PROVIDED the holder can show that the
actual intention of the maker in delivering to
him the blank paper with signature was to
convert the same to a negotiable instrument.
Otherwise, the maker will not be liable against
a holder not in due course.
- If the maker expressly authorizes holder to put
a specific amount, he cannot put any other
amount he wishes. He cannot exceed his
authority.
The presumption is that the holder filed up the blanks in
accordance with the authority given to them and within a
reasonable time. Otherwise, it will not be enforceable.
SEC. 15 – INCOMPLETE AND UNDELIVERED
Where an incomplete instrument has not been delivered and is
subsequently completed and negotiated without authority, [ex.
stolen, defrauded] it will not be a valid contract in the hands of
ANY HOLDER against any person whose signature was placed
BEFORE delivery.
Thus, even against a holder in due course because it may be
considered as a forgery, having been done without authority.
However, only those who placed their signatures before the
unauthorized completion and negotiation will be exempt from
liability. All others [indorsers] who signed AFTER may still be
liable because as indorsers, they warrant that the instrument is
genuine and in all respects what it purports to be. Thus, the
instrument is valid as to them.
SEC. 16 – COMPLETE BUT UNDELIVERED
Any instrument, even if completely written, is incomplete and
revocable until its delivery for the purpose of giving it effect.
Thus, even if an instrument has already been completed, the
maker thereof will never assume liability and the payee will
never acquire any right against the maker if there has been no
delivery.
However, if it so happens that the complete instrument is found
in the possession of a person OTHER THAN a holder in due
course, it shall be presumed to have been validly delivered until
contrary is proved. [subject to rebuttal]
But if the complete instrument is found in possession of a holder
in due course, then valid delivery shall be conclusively
presumed.
SEC. 23 - FORGERY
Applies only to signatures made without authority. Other
alterations shall be governed by Sec. 124 on material alteration.
No right to retain the instrument, or to give discharge therefor,
or to enforce payment thereof against any party thereto, can be
acquired through or under such signature, UNLESS:
1. The party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of
authority, namely:
A. Those who by their acts, silence, or negligence,
are ESTOPPED from setting up the defense of
forgery
B. Those who warrant or admit the genuineness of
the signatures in question, namely:
- Indorsers, acceptors, and persons negotiating
BY DELIVERY [Sec. 65]
2. Where the forged signature is not necessary to the
holder’s title, in which case the forgery may be
disregarded [Sec. 48]
Cut-Off Rule – All indorsers subsequent to the forgery can be
held liable as they warrant that the instrument is genuine and in
all respects what it purports to be. Other parties prior to the
forgery, including the maker, cannot be held liable. This applies
only to order instruments.
If the note is payable to order, then the parties prior to the
party whose signature is forged, are NOT liable to any holder,
whether in due course or not. Because as an order instrument,
negotiation can only be done through indorsement completed by
delivery, and since the indorsement was forged, then it is
INOPERATIVE and therefore cannot operate to transfer any
right or title.
If the note is payable to bearer, then the parties prior to the
party whose signature is forged, MAY be held liable to a holder
in due course. The reason is that a bearer instrument is
negotiated only through mere delivery, without necessity of any
indorsement. Hence, the forgery may be disregarded. The
holder may simply strike out the forged indorsement and thus
the prior parties can be liable.
Forgery does not declare the instrument totally void. Only the
forged signatures are declared to be inoperative. Thus, rights
may still exist and be enforced as to those whose signatures
thereto are found to be genuine.
SEC. 24 – PRESUMPTION OF CONSIDERATION
Every negotiable instrument is deemed prima facie [rebuttable]
to have been issued for a valuable consideration, and every
person whose signature appears thereon to have become a
party thereto for value.
SEC. 26
Holder for value – one who has given a valuable consideration
for the instrument issued or negotiated to him
SEC. 28 – WANT OF CONSIDERATION
This can be either a total or partial absence or failure of
consideration. [ex. M makes a note to P for payment of parcel of
land which does not exist, or there indeed exists a land but P
failed to deliver it to M]
It is a matter of defense as against any person NOT a holder in
due course. Holders in due course [no knowledge of
fraud/defect] can still recover from the maker because absence
of consideration is only a personal defense not available against
a holder in due course.
PRESENTMENT FOR PAYMENT
It is the presentation of an instrument to the person primarily
liable for the purpose of personally demanding and receiving
payment or showing a bill to the drawee and requesting its
acceptance or payment.
Where presentment is necessary, the holder must present the
original instrument; not a copy, even if certified. It must be
exhibited to the maker or drawee as he is entitled to see the
instrument and demand its surrender upon payment.
SEC. 70
If primarily liable: maker, acceptor
Presentment is not necessary in order to charge persons
PRIMARILY liable on the instrument since their liability is
absolute. Thus, the holder can sue the maker or acceptor even
without a demand made on him, as soon as the date for payment
has passed without the instrument being paid.
In case of a BILL, presentment must be made to the drawee
although he is not primarily liable on the bill because as a
drawee, he has to first accept the same.
If secondarily liable: drawer, indorsers
However, presentment is necessary in order to charge persons
SECONDARILY liable. Since they undertake to pay only if the
instrument is dishonored, a demand must FIRST be made upon
persons primarily liable.
If demand is not made to persons primarily liable, then those
secondarily liable are DISCHARGED from their liability unless
such presentment is excused [Sec. 79, 80] or dispensed with.
[Sec. 82, 151]
SEC. 71
Presentment made BEFORE maturity is not effective.
Where instrument is NOT payable on demand [fixed or
determinable future time], presentment must be made on the
day it falls due without period of grace. [Sec. 85] Otherwise, the
drawer and indorsers will be discharged from liability.
Where instrument is payable on demand, presentment must
be within a reasonable time after its issue, or after last
negotiation of the instrument. [Note: 6 months for check]
SEC. 72 – REQUISITES FOR SUFFICIENT PRESENTMENT
It must be made:
1. By the holder, or by some person authorized to receive
payment on his behalf
2. At a reasonable hour on a business day
3. At a proper place
4. To the person PRIMARILY liable, or if he is absent or
inaccessible, to ANY person of sufficient discretion
found at the place where the presentment is made, so
long as such person is not incapacited.
Absence of any requisite discharges persons secondarily liable.
SEC. 76-78
Presentment when persons liable are:
1. Dead – present to either the specified place of
payment, or if none, then to his personal representative
2. Partners – present to any one of them, even upon
dissolution of the firm, because solidary liability
3. Joint debtors – present to all, because joint liability
SEC. 79 – PRESENTMENT NOT NEEDED FOR DRAWER
Presentment is not required in order to charge the drawer where
he [drawer] has no right to expect or require that the
drawee/acceptor will pay the instrument. [ex. drawer has no
funds with drawee, or drawer and drawee the same person]
SEC. 80 – PRESENTMENT NOT NEEDED FOR INDORSER
Presentment is not required in order to charge an indorser where
the instrument was made or accepted for his accommodation
[Sec. 29] and he has no reason to expect that the instrument will
be paid if presented.
This is because the accommodated-payee/indorser is the real
debtor and not the maker or acceptor. He merely lent his name
and credit. Hence, he is NOT discharged even if no presentment
is made to the maker or acceptor who, in substance, is a surety
for the debt.
SEC. 81 – DELAY
Delay in presentment is excused by circumstances beyond the
control of the holder and not imputable to his default,
misconduct, or negligence. [fortuitous]
However, when the cause of delay ceases, presentment must
be made. Only the delay is excused and not the actual act of
presentment. You must still present if necessary.
SEC. 82 – WHEN PRESENTMENT MAY BE DISPENSED W/
1. Where after exercise of reasonable diligence,
presentment cannot be made [this implies active
search]
2. Where drawee is a fictitious person
3. By express or implied WAIVER of presentment
[indicates “presentment waived”]
SEC. 83 – WHEN DISHONORED BY NON-PAYMENT
1. When instrument is duly presented for payment to
person/s primarily liable and payment is refused or
cannot be obtained
 - There is non-payment even if primary party is
willing to pay [ex. upon presentment, primary
party promises to pay 5 days later]
2. When presentment is excused [Sec. 79, 80, 82] and the
instrument is overdue and unpaid
The immediate right of recourse to all parties secondarily liable
accrues to the holder when instrument is dishonored by non-
payment.
NOTICE OF DISHONOR
It is the act of informing the persons secondarily liable that the
instrument has not been accepted or has not been paid by the
primary party, upon proper proceedings taken, and that the party
notified is expected to pay it.
It may be done either verbally or by writing, personally or by mail;
it need not be signed.
Mere knowledge of non-payment or dishonor is NOT sufficient.
The knowledge must be ACTUAL; not constructive.
Protest – formal instrument executed usually by a notary public
certifying that the legal steps necessary to fix the liability of the
drawee and the indorsers have been taken.
SEC. 89 – WHEN DISHONORED
An instrument is considered to be dishonored:
1. By non-acceptance
2. By non-payment
3. If presentment is excused or waived and instrument is
past due and unpaid. [Sec. 83]
Notice must be given to the drawer and to each indorser, and
any drawer or indorser to whom such notice is NOT given shall
be discharged. It may be given to the party himself or to his
agent in that behalf.
Although an indorser to whom notice is NOT given shall be
discharged, he is still liable for breach of warranties pertaining
to the instrument.
SEC. 108
Where a party has added an address to his name, the notice
must be sent to that address, and it will be sufficient even though
the address is an incorrect one.
SEC. 109 – WAIVER OF NOTICE
It is the willingness on the part of the drawer or the indorser
concerned to be bound even without due notice of dishonor.
Waiver may be made BEFORE the time of giving notice, or
AFTER omission to give due notice.
SEC. 111 – WAIVER OF PROTEST
Where protest is waived, presentment and notice of dishonor are
also deemed waived. This is so because “protest” means all the
steps accompanying dishonor necessary charge a party
secondarily liable.
SEC. 112 – WHEN NOTICE 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. 114 – NOTICE NOT NEEDED TO DRAWER
1. Where drawer and drawee are the same person
2. When drawee is a fictitious or incapacitated person
3. When drawer is the person to whom the instrument is
presented for payment – reason is that he has
knowledge of dishonor because he is the one who
dishonored it
4. Where drawer has no right to expect or require that the
drawee or acceptor will honor the instrument
5. Where drawer has countermanded [stopped] payment
SEC. 115 – NOTICE NOT NEEDED TO INDORSER
1. When drawee is a fictitious or incapacitated person,
and the indorser was aware of that fact at the time of
his indorsement
2. Where indorser is the person to whom the instrument
is presented for payment
3. Where the instrument was made or accepted for his
accommodation
ACCEPTANCE
Presentment for acceptance is necessary when the bill:
1. Is payable after sight, or where it is necessary to fix the
maturity date
2. Expressly stipulates that presentment is necessary
3. Is drawn payable elsewhere than drawee’s residence
or place of business
Even if a bill is not required for presentment, it is better to present
it for acceptance for additional security so that when it is
dishonored, holder has an immediate recourse against parties
secondarily liable.
Requisites for valid acceptance
1. Must be in writing and signed by the drawee
2. Must not express that drawee will perform his promise
by any other means than payment of money
3. Must be given within the period allowed by holder or
within 24hrs from presentment, if no period provided for
Rules on presentment for acceptance
A. Drawer’s destruction of bill when presented to him for
acceptance is deemed acceptance
B. Drawee’s refusal to return bill within period allowed by
holder, accepted or not, is acceptance
C. An unconditional promise to accept before a bill is
drawn is deemed ACTUAL acceptance in favor or
every person who received the bill for value
D. Certification of a check by the drawee bank is
acceptance
E. Mere retention is equivalent to acceptance.
F. Upon acceptance, the drawee becomes primarily liable
as an acceptor
Acceptance may be:
A. Actual – in writing, signed by drawee, and must not
express that the drawee will perform his promise by
any other means than payment of money. There must
be delivery or notification of the acceptance. However,
indication of “accepted” etc is not necessary because
signature of the drawee is sufficient.
 B. General – assents without qualification, according to
the tenor of the bill
C. Qualified – makes the payment dependent on a
condition, or agrees to pay only part of the amount

The holder MAY REFUSE to take a qualified acceptance. He

may treat the bill as dishonored by non-acceptance.

Referee in case of need – a person named by the drawer or

any indorser to whom presentment may be made in case the
instrument is dishonored by non-acceptance or non-payment.
The holder may or may not resort to such person, at his option.

Iron clad rule – if the instrument is a check, you cannot

countermand payment

SEC. 116

When a bill is dishonored by non-acceptance [made to the

drawee], no presentment for payment is necessary since
dishonor by non-payment is to be expected.

DISCHARGE OF INSTRUMENT

This means a release of all parties, whether primary or

secondary, from the obligations arising under the instrument
rendering it without force and effect and no longer negotiable.

SEC. 119 – HOW DISCHARGED

1. By payment by or on behalf of the principal debtor

2. By payment by the accommodated party
- Because the real debtor is the accommodated
party, and not the accommodation party.
Hence, payment by accommodated party is
actually payment by principal debtor.
3. By the intentional cancellation thereof by the holder
- Indicating “cancelled” or “paid”, instrument is
torn, burned, mutilated
4. By any other act which will discharge a simple contract
for the payment of money
5. When the principal debtor becomes the holder of the
instrument at or after maturity in his own right
[reacquisition by the debtor]

The methods enumerated are exclusive.