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Negotiable Instruments | Justice Caldona Javier | Tiambeng

The Negotiable Instruments Law Negotiable Instruments in General

Applicability Form & Interpretation
o Applies only to negotiable instruments
Section 1: Form of negotiable instruments
o Supplementary application of other laws

Function & importance An instrument to be negotiable must conform to the

o Used as substitute for money following requirements:
o Media of exchange for most commercial transactions
o Serve as a medium of credit transactions a. It must be in writing and signed by the maker or drawer;
b. Must contain an unconditional promise or order to pay
Characteristics / Features a sum certain in money;
Negotiability c. Must be payable on demand or at a fixed or
▪ It may pass from one person to another similar to determinable future time;
money, so as to give the holder in due course the
d. Must be payable to order or bearer; and
right to collect on the instrument the sum payable
for himself free from any defect in the title of any e. Where the instrument is addressed to a drawee, he must
of the prior parties / defenses available to them be named or otherwise indicated therein with reasonable
among themselves certainty.
Accumulation of secondary contracts
▪ Once an instrument is issued, add’l parties can Commercial Paper
become involved • Written promises / obligations that arise out
Forms of commercial transactions from the use of
such instruments as promissory notes & bills of
Common forms exchange
▪ Promissory notes Formal requirements of negotiability in general
▪ Bills of exchange
o Issuer has ordered a 3rd person to pay • Form & content
o *checks: special form / kind of bill of • Matters to be considered
exchange o The whole of the instrument
o Only what appears on the face of the
Special types instrument
▪ Promissory notes o Provisions of Nego
o Certificates of deposits, bank notes, due
bills, bonds Formal requirements
▪ Bills of exchange • In writing
o Drafts, trade acceptances, banker’s • Signed by maker / drawer
acceptances • Contain an unconditional promise
(promissory note) / order (bills of exchange)
Doubts resolved in favor of negotiability to pay
o To encourage the free circulation of the negotiable • Payable in a sum certain in money
papers because of the admittedly indispensable • Payable at a fixed / determinable future time
function that they perform in commercial business / on demand
transactions in any given country & the world at large • Payable to order
• Payable to bearer
Instruments w/ Limited Negotiability • Drawee must be named
o Letter of credit
o Trust receipt Non-negotiable instrument
o Treasury warrant • Does not meet the requirements to qualify as
o Postal money order a negotiable one
o Bill of lading • Negotiable in its inception, has lost its
o Certificate of stock quality of negotiability
o Warehouse receipt • Simple contract in writing
o Pawn ticket • May not be negotiated

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Promissory note o W/ acceleration clause
• Negotiable promissory note: unconditional ▪ Acceleration dependent on
promise in writing made by one person to maker
another, signed by the maker, engaging to ▪ Acceleration at option of holder =
pay on demand, or at a fixed / non-negotiable
determinable future time, a sum certain in
With exchange
money to order / to bearer
• Written promise to pay a sum of money o Charge for the expense of providing funds
• Maker - payee at the place where the instrument is payable
to meet the instrument w/c is issued at
Bill of exchange another place
o May be at a fixed rate or at the current rate
• Negotiable bill of exchange: unconditional
o Payment in foreign currency
order in writing addressed by one person to
o Payment w/ exchange rate
another, signed by the person giving it, &
▪ Drawn in one country, payable in
requiring the person to whom it is addressed
to pay upon demand / at a fixed /
determinable future time a sum certain in With costs of collection / atty’s fee
money to order / to bearer o Increase in amount due effective after
• Order made by one person to another to maturity
pay money to a 3rd person ▪ “To pay all costs, charges &
• Drawer – drawee - payee expenses including atty’s fee
Section 2: Certainty as to sum; what constitutes incurred by the payee in any legal
proceedings for the collection of
the debt” – non-negotiable
The sum payable is a sum certain within the meaning of o Liability for atty’s fee
this Act, although it is to be paid – ▪ May be reduced by courts if
found unconscionable
a. With interest; or o Acquisition of instrument after maturity
b. By stated installments; or ▪ Would not be a holder in due
c. By stated installments with a provision that, upon ▪ Non-negotiable
default in payment of any installment or of interest, the whole
shall become due; or Section 3: When promise is unconditional
d. With exchange, whether at a fixed rate or at the current
rate; or An unqualified order or promise to pay is unconditional
within the meaning of this Act though coupled with –
e. With costs of collection or an attorney’s fee, in case
payment shall not be made at maturity. a. An indication of a particular fund out of which
reimbursement is to be made or a particular account to be
debited with the amount; or
▪ To assure clarity & certainty in determining the
value of the instrument b. A statement of the transaction which gives rise to the
Payment of fixed amount of money
But an order or promise to pay out of a particular fund is
• Intended as substitute for money
not unconditional.
Permissible clauses / stipulations
• w/ interest, by stated installments, w/ Implied promise to pay
exchange, w/ costs of collection, / w/ atty’s
• Any words equivalent to a promise /
assumption of responsibility for the payment
With interest of the note on the face of an instrument are
o At a fixed rate sufficient to constitute a promise to pay
o At increased / reduced rate
o Accrual / rate of interest not specified Bear acknowledgment of indebtedness
Stated installments • Not a negotiable instrument
o Interest of each installment & due date must • Unless stated to be paid on 30 Sept
be fixed
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Bill of exchange Section 4: Determinable future time; what
• “order”, “let the bearer”, “drawee will much constitutes
oblige drawer to pay P or order”
• Mere request to pay is insufficient
• Immaterial whether drawee obeys order to An instrument is payable at a determinable future time,
pay / not within the meaning of this Act, which is expressed to be
payable –
Particular Fund a. At a fixed period after date or sight; or
b. On or before a fixed or determinable future time
o “Pay to the order of P 1000 & reimburse
specified therein; or
yourself from the rentals of my house”
▪ Drawee may pay amount out of c. On or at a fixed period after the occurrence of a specified
any fund event which is certain to happen, though the time of happening
▪ Still negotiable be uncertain.
Payment An instrument payable upon a contingency is not
o Non-negotiable negotiable, and the happening of the event does not cure the
o Amount to be paid is made to depend defect.
upon the adequacy / existence of the fund
Examples of non-negotiable
Particular Account to be debited • Payable before the occurrence of the
• Negotiable specified event
• Promise / order is not made conditional o Can only be ascertained after it has
become overdue
Statement of transaction w/c gives rise to • Payable upon contingency
instrument o “upon reaching age of majority”
Mere recital of consideration for instrument / o May die before reaching age of
origin of transaction
o Contingency: an uncertain future
o Negotiable event, an event which may or may not
o “I promise to pay to the order of P400 000 happen
being the price of a car this day sold &
delivered to me”, “asper our contract”, “in Section 5: Additional provisions not affecting
accordance w/ our contract” negotiability
Terms & conditions contained in another paper
o Not negotiable An instrument which contains an order or promise to do
o Obligation to pay is burdened w/ the terms any act in addition to the payment of money is not negotiable.
& conditions of another contract But the negotiable character of an instrument otherwise
o “subject to / governed by the terms & negotiable is not affected by a provision which -
conditions of our contract executed by us
on ___” a. Authorizes the sale of collateral securities in case the
instrument be not paid at maturity; or
b. Authorizes a confession of judgment if the instrument
be not paid at maturity; or
c. Waives the benefit of any law intended for the advantage
or protection of the obligor; or
d. Gives the holder an election to require something to be
done in lieu of payment of money.
But nothing in this section shall validate any provision or
stipulation otherwise illegal.

Negotiable Instruments | Justice Caldona Javier | Tiambeng
General Rule o For purpose of determining whether a party
• Instrument is non-negotiable if it contains a acted w/in a reasonable time in making
promise or order to do any act in addition presentment for payment
to payment of money ▪ In the case of promissory note,
date of issue & in the case of bill
Exceptions of exchange, the date of the last
Sale of collateral securities negotiation thereof
o Add’l act is to be performed after the date Date Stated not in Calendar
of maturity when the instrument is no longer o Nearest date of month will be considered
negotiable date intended
Confession of Judgment
Effect of Omission of Value
o Enables the holder to obtain a judgment
w/o delay usually incident to a lawsuit • Usual to state that it is given for “value
o Eliminates the necessity of trial received” w/o specifying what that value is
o Warrants of atty to confess judgment are not
authorized nor contemplated by our law Effect of Omission of Place
▪ Does not render instrument non- • Presumed to be payable at the place of
negotiable residence or business of the maker / drawer
o Confession of judgment given after the
action is brought to save expenses is valid Effect of Presence of Seal
• Does not destroy its negotiability
Waiver of Benefit Granted by Law • Advisable to have bill / note appear in a
o Notice of dishonor public instrument so that it will be included
o Protest, presentment for payment, demand among the preferred credits w/ respect to
other property of debtor
Section 6: Omissions; Seal; Particular Money
Effect of Designation of Particular Kind of
The validity and negotiable character of an instrument are Current Money Payable
not affected by the fact that – • Money is not necessarily limited to “legal
a. It is not dated; or
b. Does not specify the value given, or that any value has Section 7: When Payable on Demand
been given therefor; or
c. Does not specify the place where it is drawn or the place An instrument is payable on demand –
where it is payable; or a. Where it is expressed to be payable on demand, or at
d. Bears a seal; or sight, or on presentation; or

e. Designates a particular kind of current money in which b. In which no time for payment is expressed.
payment is to be made. Where an instrument is issued, accepted or indorsed when
But nothing in this section shall alter or repeal any statute overdue, it is, as regards the person so issuing, accepting, or
requiring in certain cases the nature of the consideration to be indorsing it, payable on demand.
stated in the instrument.
▪ Expressed to be payable on demand
o Overdue instrument is necessarily a demand
Effect of Omission of Date paper
Date of instrument generally not necessary ▪ No time for payment is expressed
o Considered to be dated as of the time it ▪ Payable on demand as regards the maker
was issued ▪ Payable on demand as regards the acceptor
▪ Payable on demand as regards the indorser
When date necessary
o Where said date is tied to the date of issue
▪ Undated note is payable 30 days
after date
o Where interest is stipulated for determining
when the interest is to run

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 8: When Payable to Order1 ▪ Fictitious person
o One who has no right to an instrument bec
maker / drawer so intended
The instrument is payable to order where it is drawn
o Doesn’t matter if living, dead, / never existed
payable to the order of a specified person or to him or his order. o GR [Fictitious Payee Rule]: drawee bank
It may be drawn payable to the order of: isn’t liable for such checks & drawer bears
a. A payee who is not maker, drawer, or drawee; or the loss
o Exception: commercial bad faith = bank is
b. The drawer or maker; or liable
c. The drawee; or ▪ Blank indorsement cannot make a non-
negotiable instrument – negotiable as a bearer
d. Two or more payees jointly; or instrument
e. One or more of several payees; or Section 10: Terms, when sufficient
f. The holder of an office for the time being.
Where the instrument is payable to order, the payee must The instrument need not follow the language of this Act,
be named or otherwise indicated therein with reasonable but any terms are sufficient which clearly indicate an intention
certainty. to conform to the requirements hereof.

▪ Any other words may be used indicating a similar ▪ Advisable to conform to forms prescribed by law
intention on the part of the maker / drawer to in order to avoid uncertainty
make the instrument freely transferable to some ▪ Not required to use exact words of law
person / persons other than the one to whom it ▪ As long as the clear intention of the parties to
was originally issued make the instrument negotiable can be
▪ Not essential that the words “to the order of” / “or determined, the law will give it force & effect
order” be used ▪ An instrument may be negotiable though written
o To “P & assigns” in a foreign language
▪ If payee is not named / described = non- ▪ Mere defect in language / grammatical error
negotiable does not render an instrument non-negotiable

Section 9: When Payable to Bearer Section 11: Date, presumption as to

The instrument is payable to bearer – Where the instrument or an acceptance or any

indorsement thereon is dated, such date is deemed prima facie
a. When it is expressed to be so payable; or to be the true date of the making, drawing, acceptance or
b. When it is payable to a person named therein or bearer; indorsement, as the case may be.
c. When it is payable to the order of a fictitious or non- ▪ Presumed to be date when:
existing person, and such fact was known to the person making o Made by maker
it so payable; or o Drawn by drawer
o Accepted by drawee
d. When the name of the payee does not purport to be the o Indorsed by payee / holder
name of any person; or ▪ When date necessary to determine maturity
o Where instrument is payable at a fixed
e. When the only or last indorsement is an indorsement in
period after date
o Where instrument is payable at a fixed
period after sight / presentment
▪ Bearer: person in possession of a bill / note w/c ▪ Date of issue of PN / date of last negotiation of
is payable to bearer / legally qualifies as a BoE is essential for determining whether a party
bearer instrument has acted w/in a reasonable time
▪ Payment to any person in possession thereof in o Otherwise, persons secondarily liable may
good faith & w/o notice that his title is defective, be released from their liability
/ after maturity = discharges instrument
▪ Delivery is enough to effect negotiation

Postal money orders: payable to a specific person
Treasury warrant: limited to a particular allocation, not unconditional
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 12: Ante-dated & Post-dated Section 14: Blanks, when may be filled

The instrument is not invalid for the reason that it is ante- Where the instrument is wanting in any material
dated or post-dated, provided this is not done for an illegal or particular, the person in possession thereof has a prima facie
fraudulent purpose. The person to whom an instrument so authority to complete it by filling up the blanks therein. And
dated is delivered acquires the title thereto as of the date of a signature on a blank paper delivered by the person making
delivery. the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill
it up as such for any amount. In order, however, that any such
▪ Ante-dated: contains a date earlier than the
instrument, when completed, may be enforced against any
true date of its issuance
▪ Post-dated: contains a date later than the true person who became a party thereto prior to its completion, it
date of its issuance must be filled up strictly in accordance with the authority given
▪ If done for an illegal / fraudulent purpose = and within a reasonable time. But if any such instrument, after
instrument invalid completion, is negotiated to a holder in due course, it is valid
o Ante-dating: to conceal the charge of and effectual for all purposes in his hands, and he may enforce
usurious interest it as if it had been filled up strictly in accordance with the
o Post-dating: issuing PDC in payment of an authority given and within a reasonable time.
obligation bec of insufficiency of funds w/o
bona fide intention to cover the amt of ▪ Applies to an incomplete instrument w/c has
check been delivered by the maker / drawer to the
▪ If payee was informed, no estafa (no payee
deceit) ▪ Authority to fill up blanks for date, due date,
Section 13: When date may be inserted name of payee, amount, rate of interest, / name
of drawer
▪ No authority to alter amount, or insert words “or
Where an instrument expressed to be payable at a fixed order” / “or bearer” after name of payee
period after date is issued undated, or where the acceptance of ▪ Defense that instrument had not been filled up in
an instrument payable at a fixed period after sight is undated, accordance w/ authority given & w/in
any holder may insert therein the true date of issue or reasonable time is not available as against a
acceptance, and the instrument shall be payable accordingly. holder in due course
The insertion of a wrong date does not avoid the instrument in
the hands of a subsequent holder in due course; but as to him
Section 15: Incomplete instrument not
the date so inserted is to be regarded as the true date. delivered

Where an incomplete instrument has not been delivered it

When holder is authorized to put a date in an will not, if completed and negotiated without authority, be a
instrument valid contract in the hands of any holder, as against any person
• Where an instrument is payable at a fixed whose signature was placed thereon before delivery.
period after date but is issued undated
• Where an instrument is payable at a fixed
period after sight but the acceptance is ▪ Applies to an incomplete instrument undelivered
undated ▪ Defense even against a holder in due course
o Under certain circumstances, negligence on
Effect of insertion of wrong date the part of the maker may render him liable
to a holder in due course
Holder w/ knowledge ▪ Instrument can be enforced against indorsers
o Avoid instrument as to him o They warrant that the instrument is genuine &
As to subsequent holder in due course in all respects what it purports to be
o Date inserted, even if wrong, is to be
regarded as the true date

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 16: Delivery; when effectual; when Section 17: Construction where instrument is
presumed ambiguous

Every contract on a negotiable instrument is incomplete Where the language of the instrument is ambiguous or
and revocable until delivery of the instrument for the purpose there are omissions therein, the following rules of construction
of giving effect thereto. As between immediate parties and as apply:
regards a remote party other than a holder in due course, the
a. Where the sum payable is expressed in words and also
delivery, in order to be effectual, must be made either by or
in figures and there is a discrepancy between the two, the sum
under the authority of the party making, drawing, accepting or
denoted by the words is the sum payable; but if the words are
indorsing, as the case may be; and in such case, the delivery may
ambiguous or uncertain, reference may be had to the figures to
be shown to have been conditional, or for a special purpose
fix the amount;
only, and not for the purpose of transferring the property in
the instrument. But where the instrument is in the hands of a b. Where the instrument provides for the payment of
holder in due course, a valid delivery thereof by all parties prior interest, without specifying the date from which interest is to
to him so as to make them liable to him is conclusively run, the interest runs from the date of the instrument, and if
presumed. And where the instrument is no longer in the the instrument is undated, from the issue thereof;
possession of a party whose signature appears thereon, a valid
c. Where the instrument is not dated, it will be considered
and intentional delivery by him is presumed until the contrary
to be dated as of the time it was issued;
is proved.
d. Where there is a conflict between the written and
printed provisions of the instrument, the written provisions
▪ Applies to a complete instrument but undelivered
▪ Every contract on negotiable instrument is prevail;
incomplete & revocable until its delivery for the e. Where the instrument is so ambiguous that there is
purpose of giving it effect doubt whether it is a bill or note, the holder may treat it as
o Delivery: transfer of possession, actual / either at his election;
constructive, from 1 person to another
o Issue: 1st delivery of instrument, in complete f. Where a signature is so placed upon the instrument that
form, to a person who takes it as holder it is not clear in what capacity the person making the same
o Holder: payee / indorsee of a bill / note intended to sign, he is to be deemed an indorser;
who is in possession of it, / bearer thereof g. Where an instrument containing the words “I promise
▪ Complete instrument found in the possession of to pay” is signed by two or more persons, they are deemed to
an immediate party / a remote party other than
be jointly and severally liable thereon.
a holder in due course
o Prima facie presumption of delivery, but
subject to rebuttal ▪ Applicable only when the instrument is ambiguous
o Undelivered instrument is inoperative / uncertain / when there are omissions
▪ Delivery is a prerequisite to liability ▪ Sums expressed in words & figures different
o Immediate Parties o Sum expressed in words controls
▪ Having / being held to know of the ▪ Words ambiguous / uncertain
conditions / limitations placed upon o Refer to figures to determine true amt
the delivery of the instrument ▪ Date when stipulated interest to run not specified
▪ Contemplates privity not proximity o Fr date of inst / if undated, fr date of issue
o Remote Parties: not in direct contractual ▪ Instrument undated
relation to each other o Considered dated as of the date of its issue
▪ Delivered conditionally / for a special purpose ▪ Written & printed words in conflict
o If delivery was made / authorized, it may be o Deemed to express true intention bec they
shown to have been conditional, / for a are placed there by himself
special purpose only & not to transfer the ▪ Whether instrument bill / note in doubt
property (title) to the instrument o Holder may treat either at his election
▪ When delivery is made = presumed to ▪ Capacity in w/c person signed in doubt
be made w/ intention to transfer o He is deemed to be an indorser
ownership of instrument to payee o Drawer’s signature: lower right-hand corner
▪ In the hands of a holder in due course o Drawee’s name: lower left-hand corner
o Conclusive presumption: valid delivery by all o Holder negotiates by signing on the back
parties prior to him ▪ Instrument signed by 2 or more persons
▪ Admission of evidence to the contrary o “I promise to pay” = solidary liability
is not allowed o “We promise to pay” = joint liability

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 18: Liability of person signing in trade Section 20: Liability of person signing as agent,
or assumed name etc.

No person is liable on the instrument whose signature does Where the instrument contains or a person adds to his
not appear thereon, except as herein otherwise expressly signature words indicating that he signs for or on behalf of a
provided. But one who signs in a trade or assumed name will principal, or in a representative capacity, he is not liable on the
be liable to the same extent as if he had signed in his own name. instrument if he was duly authorized; but the mere addition of
words describing him as an agent, or as filling a representative
character, without disclosing his principal, does not exempt
Persons Liable on an Instrument him from personal liability.
• General rule
o Only persons whose signatures appear
▪ In order that agent who signs a negotiable
on an instrument
instrument may escape personal liability:
• Exceptions
o He is duly authorized
o Where a person signs in a trade /
o He adds words to his signature indicating
assumed name
that he signs as an agent, that is, for or on
o Principal is liable if a duly authorized
behalf of a principal, or in a representative
agent signs on his own behalf
o In case of forgery, the forger is liable
o He discloses his principal
even if his signature does not appear
▪ If he does not disclose his principal, he is
on the instrument
personally liable on the instrument by a 3rd party
o Where the acceptor makes his
acceptance of a bill on a separate
o If sued by payee, he may introduce
evidence that he signed only in a
o Where a person makes a written
representative capacity & payee knew this
promise to accept a bill before it is
to be the case
• One who signs in a trade name / assumed Section 21: Signature by Procuration; Effect of
name is liable as if he signed his own name
o Necessary that the party who signed
intended to be bound by his signature A signature by “procuration” operates as notice that the
o Person’s business name serves the same agent has but limited authority to sign, and the principal is
purpose that would be served by his bound only in case the agent in so signing acted within the
signature actual limits of his authority

Section 19: Signature by Agent; Authority;

▪ Procuration
How shown o Act by w/c a principal gives power to
another to act in his place as he could
The signature of any party may be made by a duly himself
authorized agent. No particular form of appointment is o Agency / proxy
necessary for this purpose and the authority of the agent may ▪ Effect of signature by procuration
be established as in other cases of agency. o Gives a warning that the agent has but a
limited authority
o Duty of the person dealing w/ him to inquire
into the extent of his authority
▪ Principal is not bound if agent has exceeded
actual limits of his authority

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 22: Effect of Indorsement by Infant or Cases of Forgery
Corporation • Signature is affixed by one who does not
claim to act as an agent & who has no
authority to bind the person whose signature
The indorsement or assignment of the instrument by a he has forged
corporation or by an infant passes the property therein, • Signature is affixed by one who purports to
notwithstanding that from want of capacity, the corporation be an agent but has no authority to bind
or infant may incur no liability thereon. the alleged principal
Promissory Notes
Effect of Indorsement by Incapacitated Persons o Forgery of an indorsement on the note
• Minors o Forgery of the maker’s signature
o Voidable
Bills of Exchange
o Not bound by his indorsement for lack
of capacity o Forgery of an indorsement on the bill
o Not incapacitated to transfer certain o Forgery of the drawer’s signature
rights ▪ w/ acceptance by the drawee, or
o Not a personal defense, but a real ▪ w/o such acceptance but the bill
defense is paid by the drawee
▪ May also disaffirm & recover
instrument from a holder in due Effect of Forged Signature
course • Signature is wholly inoperative
o May be held bound by his signature in • No right can be acquired
an instrument • A real defense even against a holder in due
▪ Guilty of actual fraud committed course
by specifically stating that he is of
age when, in fact he is not
• Other incapacitated persons o If the party against whom it is sought to
o Real defense enforce such right is precluded from setting
▪ Available even against a holder in up the forgery / want of authority
due course ▪ Those who by their acts, silence, /
negligence, are estopped from
Effect of Indorsement by a Corporation setting up the defense of forgery
▪ Those who warrant / admit the
• Corporation committed ultra vires acts / acts
genuineness of the signatures
beyond its powers
• Indorsers
o Not liable on notes in a suit thereon by
• Acceptors
an indorsee, where the corporation is
• Persons negotiating by
w/o capacity to make the contract in
fulfillment of w/c they were executed
o Warranty extends
• One who deals w/ officers / agents of a
only to immediate
corporation is bound to know, at his own
peril, their powers & extent of authority
o Where the forged signature is not necessary
Section 23: Forged Signature; Effect to the holder’s title, in w/c case the forgery
may be disregarded

When a signature is forged or made without the authority Rights of Parties in Cases of Forged
of the person whose signature it purports to be, it is wholly Indorsements
inoperative, and no right to retain the instrument, or to give a • Rights may still exist & be enforced by virtue
discharge therefor, or to enforce payment thereof against any of such instrument as to those whose
party thereto, can be acquired through or under such signature signatures thereto are found to be genuine
unless the party against whom it is sought to enforce such right
is precluded from setting up the forgery or want of authority. Note Payable to Order
o Party whose indorsement is forged is NOT
liable to any holder, even a holder in due
▪ Forgery: counterfeit-making or fraudulent
alteration of any writing, & may consist in the
signing of another’s name or the alteration of an Note Payable to Bearer
instrument in the name, amount, description of the o Party whose indorsement is forged is liable
person and the like, w/ intent thereby to defraud to a holder in due course
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Bill Payable to Order Section 125: What constitutes a material
o Party whose indorsement is forged is NOT alteration – Any alteration which changes:
liable to any holder, even a holder in due
a. The date;
Bill Payable to Bearer
b. The sum payable, either for principal or interest;
o Drawee may debit the drawer’s acct in spite
of forged indorsement c. The time or place of payment;
o Drawee cannot recover from the holder
d. The number or the relations of the parties;
Proof of Forgery e. The medium or currency in which payment is to be
• Clear & convincing evidence made; or which adds a place of payment where no place of
• Not presumed payment is specified, or any other change or addition which
alters the effect of the instrument in any respect, is a material
Section 124: Alteration of Instrument; Effect of alteration.

Where a negotiable instrument is materially altered ▪ Any other alteration is immaterial & will not
without the assent of all parties liable thereon, it is avoided discharge the instrument
except as against a party who has himself made, authorized or ▪ The ff. are included:
assented to the alteration and subsequent indorsers. o Substitution of the words “or bearer” for “or
But when an instrument has been materially altered and is order”
in the hands of a holder in due course not a party to the o Writing “ protest waived” above a blank
alteration, he may enforce payment thereof according to its indorsement”
original tenor.
o Erasure of “without recourse” above the
signature of an indorser
▪ All checks w/ erasures, alterations &/ deficiency,
▪ Material Alteration: any change in the regardless of any signature or initials that appear
instrument w/c affects the liability of the parties in to indicate authorization of the alteration or
any way as specified in Sec 125, / changes the erasure, shall no longer be eligible or
contract of the parties in any respect acceptable for clearing
▪ Refers to physical alterations of the instrument o Does not indicate date, payee, amount
payable, etc
Alteration by a Party o Except PDCs bearing the specified Bank
• Discharges the instrument to all & prior Stamp
parties thereto who did not give their
consent to such alteration Consideration
• Exceptions: does not discharge as against
o Party who has made the alteration Section 24: Presumption of Consideration
o Party who authorized / assented to
alteration Every negotiable instrument is deemed prima facie to have
o Indorsers who indorsed subsequent to been issued for a valuable consideration, and every person
alteration whose signature appears thereon to have become a party
thereto for value.
Alteration by a Stranger
• Called spoliation
• Has no effect upon the instrument if the ▪ Consideration: immediate, direct, / essential
original meaning can be ascertained reason w/c induces a party to enter into a
Right of Holder in Due Course ▪ Not necessary that consideration be expressly
• May enforce payment according to its
▪ Presumed to have been executed for a valuable
original tenor
consideration & every person whose signature
appears thereon has become a party thereto for
▪ May be rebutted / disproved by evidence to the

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 25: Value; What Constitutes Section 29: Liability of Accommodation Party

Value is any consideration sufficient to support a simple An accommodation party is one who has signed the
contract. An antecedent or pre-existing debt constitutes value; instrument as maker, drawer, acceptor or indorser, without
and is deemed such whether the instrument is payable on receiving value therefor, and for the purpose of lending his
demand or at a future time. 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
▪ Valuable consideration need not be adequate;
accommodation party.
it is sufficient if it is a valuable one
Section 26: What Constitutes Holder for Value ▪ Accommodation note / bill: one to w/c the
accommodation party has put his name, w/o
Where value has at any time been given for the instrument, consideration
the holder is deemed a holder for value in respect to all parties o Loan of one’s credit
who become such prior to that time. ▪ Accommodation party: one who has signed the
instrument as maker, acceptor, or indorser, w/o
receiving value therefor & for purpose of lending
▪ Holder for value: one who has given a valuable his name to another party
consideration for the instrument issued / ▪ Accommodated party: one in whose favor a
negotiated to him person signs an instrument for the purpose of
▪ A holder of a negotiable instrument is presumed lending his credit & enabling said party to raise
to be a holder for value money upon it
o Impliedly agrees to take up the instrument at
Section 27: When lien on instrument
maturity & indemnify the accommodation
constitutes holder for value party against the consequences of non-
Where the holder has a lien on the instrument arising ▪ W/o receiving value therefor: no value has
either from contract or by implication of law, he is deemed a been received for the negotiable instrument, not
holder for value to the extent of his lien. w/o receiving payment for lending his name

Liability of Accommodation Party to Holder

▪ One who has taken a negotiable instrument as • Absence of consideration, not a defense
collateral security for a debt has a lien on the o Absence of consideration bet
instrument accommodation party &
▪ Amt of instrument > debt secured accommodated party does not of itself
o Pledgee is holder for value to the extent of constitute a valid defense against
his lien holder for value
o Must deliver surplus to pledgor • Accommodation party, in effect, a surety
▪ Amt of instrument ≤ debt secured o Accommodation party may recover
o Pledgee is holder for value for full amt from the accommodated party for
▪ Party liable has defenses reimbursement
o If defenses of party liable on instrument are
real defenses, then pledgee can recover Accommodation Party v Regular Party
nothing upon the instrument
Accommodation Party Regular Party
Section 28: Effect of Want of Consideration Signs w/o receiving value Signs instrument for value
Signs to lend his name to some Not for that purpose
other person
Absence or failure of consideration is a matter of defense May always show by parol Cannot disclaim / limit personal
as against any person not a holder in due course; and partial evidence that he is only such liability as appearing on the
failure of consideration is a defense pro tanto, whether the instrument by parol evidence
failure is an ascertained and liquidated amount or otherwise. Cannot avail of defense of May avail of said defense
absence / failure of against a holder not in due
▪ Absence of consideration: total lack of any consideration against a holder course
valid consideration for the contract not in due course
▪ Failure of consideration: failure / refusal of 1 of May sue accommodated party May not sue any subsequent
the parties to do, perform / comply w/ for reimbursement party for reimbursement
consideration agreed upon
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Negotiation Negotiation v Assignment
Negotiation Assignment
Section 30: What Constitutes Negotiation Refers only to negotiable Refers generally to an ordinary
instruments contract
An instrument is negotiated when it is transferred from Transferee is a holder Transferee is an assignee
one person to another in such manner as to constitute the Holder in due course is subject Assignee is subject to both real
transferee the holder thereof. If payable to bearer, it is only to real defenses & personal defenses
negotiated by delivery; if payable to order, it is negotiated by Holder in due course may Assignee merely steps into
the indorsement of the holder completed by delivery. acquire a better title / greater shoes of assignor
rights under the instrument than
those possessed by transferor /
Modes of Transfer of a Negotiable Instrument prior party
General indorser warrants Assignor does not warrant the
Issue solvency of prior parties solvency of prior parties unless
o 1st delivery of instrument complete in form, to expressly stipulated /
a person who takes it as holder insolvency is known to him
Negotiation Indorser is not liable unless Assignor is liable even w/o
there be presentment of notice notice of dishonor
o Operates to make transferee of a
of dishonor
negotiable instrument the holder thereof
Negotiation is governed by Assignment is governed by Art.
o Ordinarily involves indorsement
NIL 1624 - 1635
o No negotiation if transfer does not make the
transferee the holder of the instrument
Can there be a negotiation to a payee?
o Payment of instrument by drawee is not
negotiation • 1st delivery of instrument to payee
▪ Discharge of instrument, not a o Payee acquires title to instrument not
transfer of title by negotiation but by issue / issuance
• 1st delivery of instrument to other than payee
Methods of Negotiation o Delivery by maker / drawer is made to
❖ Payable to Order a person other than payee such as an
o Indorsement + delivery agent of maker / drawer, payee
❖ Payable to Bearer acquires title by negotiation
o Negotiated by mere delivery • Delivery of instrument to payee by last
❖ *delivery = actual / constructive transfer of holder
possession o Indorsement of last holder is
Delivery of Order Instrument w/o Indorsement
unnecessary bec payee is remitted to
his former rights
❖ Transfer operates as an ordinary assignment
o All intervening parties are discharged
o Assignee is merely placed in the
from liability
position of the assignor
❖ Transferee does not become holder Section 31: Indorsement; How Made
❖ Where indorsement subsequently obtained
o Assignee acquires right to have
indorsement of assignor The indorsement must be written on the instrument itself
o Operates as negotiation only as of or upon a paper attached thereto. The signature of the indorser,
time indorsement is actually made without additional words, is a sufficient indorsement.

o Transfer of rights under a contract ▪ Indorsement: writing the name of the payee on
o Transfer of title to an instrument, w/ assignee the instrument w/ the intent either to transfer the
generally taking only such title / rights as his title to the same, / to strengthen the security of
assignor has the holder by assuming a contingent liability for
▪ Subject to all defenses available its future payment, / both
against his assignor o Payee by signing & delivering it to another
person becomes an indorser
o Indorsement alone w/o delivery conveys no
title & creates no holder
▪ Involves a new contract & an obligation on the
part of the indorser
o Implied guaranty that the instrument will be
duly paid according to the terms thereof
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Necessity of Indorsement When Partial Indorsement is Allowed
• Essential to the execution of an instrument • If part of the amt has already been paid, the
payable to the order of the maker / drawer unpaid balance may be indorsed as this is
• Essential to negotiation of an order expressly authorized by law
o Not a bearer instrument Section 33: Kinds of Indorsement
• Not necessary to a mere assignment
An indorsement may be either special or in blank; and it
Form of Indorsement may also be either restrictive or qualified or conditional.
• Law does not require an exclusive form but
must be in writing
o Includes print, rubber stamp, typewritten Section 34: Special Indorsement; Indorsement
• Use of the word “assign” does not make a in Blank
negotiation a mere assignment
• Signature of indorser w/o add’l words is a
A special indorsement specifies the person to whom, or to
sufficient indorsement = blank indorsement
• Name of indorsee is specified = special whose order, the instrument is to be payable, and the
indorsement indorsement of such indorsee is necessary to the further
o May add words w/c prohibit / limit negotiation of the instrument. An indorsement in blank
further negotiation of instrument specifies no indorsee, and an instrument so indorsed is payable
to bearer, and may be negotiated by delivery.
Place of Indorsement
• On the instrument itself ▪ Special indorsement: name of payee is
• Upon a paper attached thereto – called specified
allonge o Specific indorsement
• When it is not clear in what capacity a o Indorsement in full
person intended to sign, he shall be
deemed an indorser Forms
• One that specifies the person to whom the
Section 32: Indorsement must be of entire
instrument is to be paid
instrument • One that specifies the person to whose
order the instrument is to be payable
The indorsement must be an indorsement of the entire • Words of negotiability are not necessary &
instrument. An indorsement which purports to transfer to the their omission does not affect the
indorsee a part only of the amount payable or which purports negotiability of an instrument w/c is
to transfer the instrument to two or more indorsees severally, negotiable on its face
does not operate as a negotiation of the instrument. But where
the instrument has been paid in part, it may be indorsed as to
Negotiation of Order & Bearer Instruments
the residue. • Originally payable to order
o Negotiated by payee by special
indorsement, indorsement of indorsee is
▪ Instrument must be delivered to the indorsee & necessary to further negotiation of
cannot be partial delivery of one instrument instrument
• Originally payable to bearer
Indorsement to Multiple Payees / Indorsees o May be further negotiated by mere
• Joint payees delivery
o Negotiation is valid o Special indorser is liable to only such
o Indorsement of all indorsees are holder as make title through his
required for a further negotiation of the indorsement
• Alternative payees ▪ Blank Indorsement: one w/c specifies no
o Negotiation of instrument may be particular indorsee
made by indorsement of either of the o Ordinarily consists only of signature of
payees payee / indorser
o Cannot be alternative indorsers o Payable to bearer & may be negotiated by
mere delivery
o Check payable to order, then indorsed in
blank, makes it a bearer instrument

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 35: Blank Indorsement; How Changed Section 37: Effect of Restrictive Indorsement;
to Special Indorsement Rights of Indorsee

The holder may convert a blank indorsement into a special A restrictive indorsement confers upon the indorsee the
indorsement by writing over the signature of the indorser in right:
blank any contract consistent with the character of the
a. To receive payment of the instrument;
b. To bring any action thereon that the indorser could
▪ Bearer instrument always remains a bearer
instrument whether last indorsement is a blank / c. To transfer his rights as such indorsee, where the form
special one of the indorsement authorizes him to do so.
▪ Inconsistent w/ character of indorsement
o Protest waived But all subsequent indorsees acquire only the title of the
o Demand & notice waived first indorsee under the restrictive indorsement.
o w/o recourse
o “I guaranty payment” Section 38: Qualified Indorsement
Section 36: When Indorsement Restrictive
A qualified indorsement constitutes the indorser a mere
An indorsement is restrictive which either: assignor of the title to the instrument. It may be made by
adding to the indorser’s signature the words “without recourse”
a. Prohibits the further negotiation of the instrument; or or any words of similar import. Such an indorsement does not
b. Constitutes the indorsee the agent of the indorser; or impair the negotiable character of the instrument.

c. Vests the title in the indorsee in trust for or to the use of

some other person. ▪ Qualified indorsement: one w/c constitutes the
indorser a mere assignor of the title to the
But the mere absence of words implying power to instrument
negotiate does not make an indorsement restrictive. ▪ Recourse: a resort to a person who is
secondarily liable after the default of the person
▪ Restrictive Indorsement: either restricts / who is primarily liable
prohibits entirely the further negotiation of an
Effect of Qualified Indorsement
instrument, / modifies the rights of the holder / the
liabilities of the indorser • Indorser, a mere assignor
▪ Prohibits further negotiation o To transfer title w/o guaranteeing
o Pay to A only payment
o Pay to A & to no other person • Indorser’s liability limited
▪ Constitutes indorsee agent of indorser o Secondarily liable for breach of his
o Pay to A for collection warranties as indorser under Section 65
o Pay to A for collection & remittance o Qualified indorser is not liable to the
o Pay to A for deposit indorsee if the instrument is dishonored
o A does not acquire title over the instrument for some other reason like the
o Prohibit further negotiation insolvency of the person primarily liable
▪ Vests title in indorsee for the benefit of the • Negotiability of the instrument not affected
indorser / 3rd party
o Pay to A in trust for B
o Pay to A as agent of P
o Pay to A for my use
o Pay to A for the use of B
o Paper cannot be negotiated by A for his
own debt / for his own benefit
o Pay to A or order as trustee for B
▪ A may still negotiate the instrument

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 39: Conditional Indorsement Joint Indorsement Not Required
• Payees / indorsees are partners
• Payee / indorsee indorsing has authority to
Where an indorsement is conditional, a party required to
indorse for others
pay the instrument may disregard the condition and make
payment to the indorsee or his transferee, whether the Section 42: Effect of instrument drawn or
condition has been fulfilled or not. But any person to whom indorsed to a person as cashier
an instrument so indorsed is negotiated will hold the same, or
the proceeds thereof, subject to the rights of the person
indorsing conditionally. Where an instrument is drawn or indorsed to a person as
“cashier” or other fiscal officer of a bank or corporation, it is
deemed prima facie to be payable to the bank or corporation
▪ Absolute Indorsement: one by w/c the indorser of which he is such officer, and may be negotiated by either the
binds himself to pay, upon no other condition indorsement of the bank or corporation or the indorsement of
than the failure of prior parties to do so, & of due
the officer.
notice to him of such failure
▪ Conditional Indorsement: does not prohibit the
further negotiation of the instrument, regardless, of Section 43: Indorsement where name is
whether the condition has been fulfilled or not misspelled, etc.
o Condition in the indorsement does not
destroy negotiability
o A condition appearing on the face of the Where the name of a payee or indorsee is wrongly
instrument renders the instrument non- designated or misspelled, he may indorse the instrument as
negotiable therein described adding, if he thinks fit, his proper signature.

Section 40: Indorsement of Instrument

Payable to Bearer ▪ Alfredo Almedo – should be Almeda
o (Sgd) Alfredo Almedo; or
o (Sgd) Alfredo Almedo (Sgd) Alfredo Almeda
Where an instrument, payable to bearer, is indorsed
specially, it may nevertheless be further negotiated by delivery; Section 44: Indorsement in Representative
but the person indorsing specially is liable as indorser to only Capacity
such holders as make title through his indorsement.
Where any person is under obligation to indorse in a
▪ Person indorsing specially is liable only to those representative capacity, he may indorse in such terms as to
holders who can trace their title to the instrument negative personal liability.
by a series of unbroken indorsements from such
special indorser
Section 45: Time of Indorsement; Presumption
Section 41: Indorsement where payable to two
or more persons Except where an indorsement bears date after the maturity
of the instrument, every negotiation is deemed prima facie to
Where an instrument is payable to the order of two or have been effected before the instrument was overdue.
more payees or indorsees who are not partners, all must
indorse unless the one indorsing has authority to indorse for
Section 46: Place of Indorsement;
the others.
▪ 2 / more payees / indorsees jointly
▪ Does not apply if 2/ more payees severally Except where the contrary appears, every indorsement is
o Pay to the order of P or A presumed prima facie to have been made at the place where the
▪ Indorsement by all payees / indorsees instrument is dated.
o All must indorse
o If only 1 indorses, his indorsee would have
no right of action

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 47: Continuation of Negotiable Section 50: When prior party may negotiate
Character instrument

An instrument negotiable in its origin continues to be Where an instrument is negotiated back to a prior party
negotiable until it has been restrictively indorsed or discharged such party may, subject to the provisions of this Act, reissue
by payment or otherwise. and further negotiate the same. But he is not entitled to enforce
payment thereof against any intervening party to whom he was
personally liable.
▪ GR: negotiable in origin is always negotiable
▪ Exceptions:
o Instrument has been restrictively indorsed ▪ Reacquirer: holder who negotiates an instrument
▪ Not every restrictive indorsement & then subsequently reacquires it
prohibits further negotiation of the ▪ If a prior party reacquires an instrument before
instrument maturity, he may negotiate the same further
o Instrument has been discharged by payment
/ otherwise Limitations on Renegotiation
• Where it is payable to the order of a 3rd
Section 48: Striking Out Indorsements
person & it has been paid by the drawer
• Where it was made / accepted for
The holder may at any time strike out any indorsement accommodation & has been paid by the
which is not necessary to his title. The indorser whose party accommodated
indorsement is struck out, and all indorsers subsequent to him, • In other cases, where the instrument is
are thereby relieved from liability on the instrument. discharged when acquired by a prior party

Rights of the Holder

▪ Instrument payable to bearer on its face
o Holder may strike out all intervening Section 51: Right of Holder to Sue; Payment
indorsements / any of them for none of them
is necessary to his title
▪ Instrument originally payable to order The holder of a negotiable instrument may sue thereon in
o When the indorsement is special, the his own name; and payment to him in due course discharges
indorsement of the special indorsee is the instrument.
necessary to the further negotiation of the
instrument ▪ Holder: payee / indorsee who is in possession
o Indorser may not strike out payee’s o Includes not only persons possessing bearer
indorsement instruments, but also payees & indorsees
▪ Can hold prior parties liable as long as unbroken possessing order instruments
chain of indorsement o In ascending order of rights
▪ Holders simply
Section 49: Transfer Without Indorsement;
▪ Holders for value
Effect of ▪ Holders in due course

Where the holder of an instrument payable to his order Ordinary Holder

transfers it for value without indorsing it, the transfer vests in • Qualifies as a holder but does not meet all
the transferee such title as the transferor had therein, and the the conditions to qualify as a holder in due
transferee acquires, in addition, the right to have the course
indorsement of the transferor. But for the purpose of • Subject to any & every defense / defect in
determining whether the transferee is a holder in due course, instrument – real / personal – as if it were non-
the negotiation takes effect as of the time when the negotiable
indorsement is actually made. Rights of Holder in General
o He may sue on the instrument in his name
▪ Applicable only to instrument payable to order ▪ Even though he be a holder only
▪ Operates as an equitable assignment for collection
▪ Cannot negotiate it ▪ Pledgee of a note may sue
o He may receive payment & if payment is in
due course, instrument is discharged

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 52: What Constitutes a Holder in Due Holder w/o Notice of Dishonor
Course • Dishonor by non-acceptance
o Refers only to a bill of exchange
o May occur even before date of
A holder in due course is a holder who has taken the maturity
instrument under the following conditions: • Dishonor by non-payment
(a) That it is complete and regular upon its face; o Can only take place at time of maturity

(b) That he became the holder of it before it was overdue, Holder for Value
and without notice that it has been previously dishonored, if • Love & affection do not constitute value
such was the fact; w/in meaning of law
(c) That he took it in good faith and for value;
No Notice of Infirmity
(d) That at the time it was negotiated to him, he had no • Knowledge of an agent acting w/in scope
notice of any infirmity in the instrument or defect in the title of his authority is a constructive knowledge
of the person negotiating it. of the principal
Section 53: When Person Not Deemed Holder
▪ Assignee – holder of a non-negotiable instrument
cannot attain status of a holder in due course in Due Course
o The fact that the instrument is non-
negotiable is a sign of warning to a Where an instrument payable on demand is negotiated on
prospective purchaser & places him on his an unreasonable length of time after its issue, the holder is not
guard & on inquiry deemed a holder in due course.
▪ Holder NOT in due course: instrument is subject
to every available defense
▪ Holder in due course: afforded most-favored Section 54: Notice Before Full Amount is Paid
status under the law
o Free of many defenses
Where the transferee receives notice of any infirmity in the
▪ Drawee does not become a holder in due
instrument or defect in the title of the person negotiating the
course by paying a bill
o Holder: not the drawee who, on same before he has paid the full amount agreed to be paid
acceptance & payment of the instrument, therefor, he will be deemed a holder in due course only to the
thereby strips it of all negotiability & reduces extent of the amount therefore paid by him.
it to a mere voucher / proof of payment
▪ No amount has yet been paid
Complete & Regular upon its Face o Receives notice of infirmity, relieved from
• Incomplete: wanting in any material obligation to make payment
particular o If he pays, he is not entitled to same
o Taking of an incomplete instrument puts protection as a holder in due course
the purchaser on inquiry as to why it is ▪ An amount has been paid
incomplete o Can be considered a holder in due course
o If he fails to do so, he takes the only to the extent of amount paid by him
instrument subject to all defenses
• Alteration must be visible / apparent on the Section 55: When Title Defective
face of the instrument
o If not apparent: governed by Sec 124 The title of a person who negotiates an instrument is
defective within the meaning of this Act when he obtained the
Holder Before Instrument is Overdue instrument, or any signature thereto, by fraud, duress, or force
• One taking an instrument on date of maturity and fear, or other unlawful means, or for an illegal
takes before maturity consideration, or when he negotiates it in breach of faith, or
o Principal debtor has whole day to pay under such circumstances as amount to a fraud.
o Cannot be considered as notice that
instrument has been dishonored

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 56: What Constitutes Notice of Defect Section 58: When Subject to Original Defense

To constitute notice of an infirmity in the instrument or In the hands of any holder other than a holder in due
defect in the title of the person negotiating the same, the person course, a negotiable instrument is subject to the same defenses
to whom it is negotiated must have had actual knowledge of as if it were non-negotiable. But a holder who derives his title
the infirmity or defect, or knowledge of such facts that his through a holder in due course, and who is not himself a party
action in taking the instrument amounted to bad faith. 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.
▪ Mere negligence to make inquiries is not sufficient
o Consulting an atty before taking a note
does not show bad faith
Rights of a Holder NOT in Due Course
o Indorsing “w/o recourse” does not constitute
a badge of guilty knowledge • May sue on the instrument in his own name
▪ Knowledge amounting to bad faith • May receive payment & if payment is in due
o If holder had actual knowledge of course, instrument is discharged
suspicious circumstances, coupled w/ means • Entitled to the instrument but holds it subject
of readily informing himself of facts & he to same defenses as if it were non-
willfully abstained from making inquiries, his negotiable
intentional ignorance may amt to bad faith • Has all the rights of the holder in due course
▪ Effect of notice of defect from whom he derives his title in respect of all
o Destroys status of holder as a holder in due parties prior to such holder, provided he is
course not himself a party to any fraud / illegality
o Opens all defenses otherwise cut off against affecting the instrument
him & not merely that relating to the defect Section 59: Who is Deemed Holder in Due
of w/c he had notice
Section 57: Rights of Holder in Due Course
Every holder is deemed prima facie to be a holder in due
A holder in due course holds the instrument free from any course; but when it is shown that the title of any person who
defect of title of prior parties, and free from defenses available has negotiated the instrument was defective, the burden is on
to prior parties among themselves, and may enforce payment the holder to prove that he or some person under whom he
of the instrument for the full amount thereof against all parties claims acquired the title as holder in due course. But the last-
liable thereon. mentioned rule does not apply in favor of a party who became
bound on the instrument prior to the acquisition of such
defective title.
▪ May sue on the instrument in his own name
▪ May receive payment & if the payment is in due
course, instrument is discharged ▪ Exception to burden of proof on holder where
▪ Holds the instrument free from any defect of title indorser’s title is defective:
of prior parties o Holder has no burden of proving that he is
▪ Holds the instrument free from defenses available a holder in due course in favor of a party
to prior parties among themselves who became bound on instrument prior to
▪ May enforce payment of instrument for full amt acquisition of such defective title
against all parties liable ▪ A person who acquires title from a prior holder in
due course is referred to as holder through a
▪ Real defenses, w/c attach to the instrument itself, holder in due course
would be available against all persons even as
against a holder in due course

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Liabilities of Parties o Due presentment for payment & due notice
of dishonor are not necessary
Section 60: Liability of Maker ▪ Necessary to fix liability of any
drawer / indorser
The maker of a negotiable instrument by making it Admissions of Maker
engages that he will pay it according to its tenor, and admits o Existence of payee & his then capacity to
the existence of the payee and his then capacity to indorse. indorse
▪ At the time of signing the note
▪ Liability: obligation of a party to a negotiable Presumption Arising from Signature
instrument to pay the same according to its terms o Person placing his name on the face of a
▪ A person becomes a party to an instrument by note is prima facie a maker & liable as such
signing his name thereon o Presumed to have acted w/ care & to have
o GR: No person is liable on an instrument signed the instrument in question w/ full
unless his signature appears thereon knowledge of its contents
▪ Primarily liable
o Maker of a promissory note Section 61: Liability of Drawer
o Acceptor of a bill of exchange
o Certifier of a check
▪ Secondarily (conditionally) liable The drawer by drawing the instrument admits the
o Drawer of a bill existence of the payee and his then capacity to indorse; and
o Indorser of a note / bill engages that on due presentment the instrument will be
▪ Not liable accepted or paid, or both, according to its tenor, and that if it
o The drawee until he accepts the instrument be dishonored, and the necessary proceedings on dishonor be
in w/c case he becomes an acceptor duly taken, he will pay the amount thereof to the holder, or to
any subsequent indorser who may be compelled to pay it. But
Primarily Liable Secondarily Liable the drawer may insert in the instrument an express stipulation
Person who, by the terms of the All other parties negativing or limiting his own liability to the holder.
instrument, is absolutely
required to pay the same
Unconditionally bound – Conditionally bound – ▪ Drawer by merely signing his name on the bill as
absolutely required to pay the undertakes to pay the drawer, admits the existence of the payee and
instrument upon its maturity instrument only after certain his then capacity to indorse the instrument at the
conditions have been fulfilled time it was executed
Face only potential
secondarily liability
GR: liability ends when primary • Does not promise to pay the bill absolutely
party pays the full amt of the • Makes no warranty but he engages to pay
instrument to the proper party after certain conditions are complied w/
Liable in the reverse order in o Bill is presented for acceptance / for
w/c they signed the doc payment to drawee
o Bill is dishonored by non-acceptance
Liability of Maker or non-payment, AND
o Necessary proceedings of dishonor
• Maker: applies only to the promissory note
are duly taken
o Includes an accommodation maker &
▪ Notice of dishonor is given to
surety who signs as maker
drawer, AND
Unconditional ▪ In case of foreign bills, protest is
o Engages to pay the note according to its made followed by a notice of
terms, subject to no condition protest
▪ 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
o Remains fully liable even if instrument is
presented late for payment unless
prescription has run
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Secondary • Same liability as maker & drawer w/ respect
• Secondarily liable to the holder, or to any to existence of payee & his then capacity
subsequent indorser, who may be to indorse
compelled to pay it • Neither presentment for payment nor notice
o To any subsequent indorser: any of the of dishonor is necessary to charge him w/
indorsers between the drawer & holder liability, except where he is an acceptor for
▪ Intervening indorsers honor
• Drawer may, by express stipulation inserted
in the instrument, negative / limit his own Liability Depends on Tenor of Acceptance
liability to the holder • Acceptor engages to pay according to
tenor of his acceptance w/c is not the same
Liability of a Drawer of a Check as the tenor of the bill itself bec
• May not unilaterally discharge himself from acceptance may be qualified
liability by mere expediency of withdrawing
his funds from the drawee bank Warranties by Acceptor
• By issuing a check, the drawer impliedly • Defenses precluded
represents that funds / credit are available o Drawer is fictitious / non-existent
for its payment in the drawee bank o Drawer’s signature is a forgery
o He has no funds in his hands belonging
Drawer Maker to the drawer
Issues a bill of exchange Issues a promissory note o Drawer has overdrawn acct
Secondarily liable Primarily liable o Drawer has no capacity to contract /
Can negative / limit liability May not do so no authority to draw the bill
• Matters not admitted
o Genuineness of indorser’s signature
Section 62: Liability of Acceptor o Warrants only signature of drawer

The acceptor by accepting the instrument engages that he

Section 63: When Person deemed Indorser
will pay it according to the tenor of his acceptance, and admits:
A person placing his signature upon an instrument
a. The existence of the drawer, the genuineness of his
otherwise than as maker, drawer or acceptor is deemed to be
signature, and his capacity and authority to draw the
an indorser, unless he clearly indicates by appropriate words
instrument; and
his intention to be bound in some other capacity.
b. The existence of the payee and his then capacity to
▪ Signature on back of instrument
o General indorser + liable as such
o Chargeable only after presentment & notice
Liability of drawee before acceptance
of dishonor
• Drawee is not liable before acceptance ▪ Evidence of intention to be bound in some
• Unless drawee accepts, he owes no duty to other capacity
either payee / other holder; only obli is to o Signs as indorser = cannot show by parol /
drawer to pay in accordance w/ latter’s extrinsic evidence his intention to be bound
orders in some other capacity
• Refusal by drawee to accept a bill o Law requires that he indicates his intention
constitutes a dishonor of instrument w/c to be bound in some other capacity on the
triggers liability of secondary parties – instrument itself
drawer & indorsers
Liability as Guarantor
Liability of drawee after acceptance
• Writes in addition to his signature, “I hereby
• Virtually in same position as maker of note guarantee payment of this instrument” or
“payment guaranteed”
Liability of acceptor primary • Not discharged from liability merely
• Engages to pay it according to terms of his because of the lack of due presentment /
acceptance, subject to no condition due notice of dishonor
whatsoever • Liable only subsidiarily after assets of
• Acceptor cannot retract his acceptance as principal debtor have been exhausted
against a holder for value • Liable only as guarantor & not as indorser if
his indorsement is for identification only
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Liability as Surety Section 65: Warranty; Where negotiation by
• Writes “as surety” delivery, etc.
• Primarily & absolutely liable w/ principal
debtor w/o benefit of exhaustion & w/o
necessity of presentment / notice of Every person negotiating an instrument by delivery or by
dishonor a qualified indorsement warrants:
a. That the instrument is genuine and in all respects what
Section 64: Liability of Irregular Indorser
it purports to be;
b. That he has a good title to it;
Where a person, not otherwise a party to an instrument,
places thereon his signature in blank before delivery, he is liable c. That all prior parties had capacity to contract;
as indorser in accordance with the following rules:
d. That he has no knowledge of any fact which would
a. If the instrument is payable to the order of a third person, impair the validity of the instrument or render it valueless.
he is liable to the payee and to all subsequent parties.
But when the negotiation is by delivery only, the warranty
b. If the instrument is payable to the order of the maker or extends in favor of no holder other than the immediate
drawer, or is payable to bearer, he is liable to all parties transferee.
subsequent to the maker or drawer.
The provisions of subdivision (c) of this section do not
c. If he signs for the accommodation of the payee, he is apply to persons negotiating public or corporation securities,
liable to all parties subsequent to the payee. other than bills and notes.

▪ Irregular / Anomalous Indorsement: ▪ (GGCNo)

indorsement for some purpose other than to ▪ Warranty liability is unconditional
transfer the instrument o Not conditional upon proper presentment &
o Usually to add the signer’s credit to the dishonor of instrument & giving of notice of
instrument dishonor
▪ Irregular / Anomalous Indorser ▪ Instrument is payable to bearer
1 Not otherwise a party to an instrument ▪ Blank indorser does not negotiate it “by delivery”
2 Places his signature in blank w/in this section
3 Before delivery
o Not a maker, drawer, acceptor, / regular Warranty Liability of one negotiating by
indorser delivery & of qualified indorser
• Liability merely as assignor of credit
Rules as to Liability of Irregular Indorser o Both do not assume to pay the
• Instrument payable to order of a 3rd person instrument in the event of its dishonor
o M → P but X indorses, so X’s name is at unless the dishonor is based on any of
the back as 1st indorser the 4 implied warranties enumerated
o X is liable to P & A, subsequent party, • Person in whose favor warranty extends
but not to M o Liability of one who negotiates by mere
• Instrument payable to the order of maker / delivery extends in favor only of his
drawer / to bearer immediate transferee
o M – Maker o Qualified indorser is liable to all
o M – Payee subsequent holders who make title
o M cannot circulate w/o X’s indorsement through his indorsement for a breach of
▪ X signs his name & M indorses & any of his warranties
delivers to A
o X is liable to A & subsequent parties
but not to M (liability of 2nd indorser)
o M is liable to X (liability of 1st endorser)
• Irregular indorser signing for
accommodation of payee
o X is liable to all parties after P
o P is in effect 1st indorser
o X is 2nd indorser

Warranties of Irregular Indorser

• Same as those of a general indorser
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 66: Liability of General Indorser Section 67: Liability of Indorser Where Paper
Negotiable by Delivery
Every indorser who indorses without qualification
warrants to all subsequent holders in due course: Where a person places his indorsement on an instrument
a. The matters and things mentioned in subdivisions (a), negotiable by delivery, he incurs all the liability of an indorser.
(b) and (c) of the next preceding section; and
b. That the instrument is, at the time of his indorsement, ▪ Liability of Indorser of a Bearer Instrument
o If he indorses specially, he is liable only to
valid and subsisting.
holders who make title through his
And, in addition, he engages that, on due presentment, it indorsement
shall be accepted or paid, or both, as the case may be, according o If he indorses w/o qualification, he incurs the
to its tenor, and that if it be dishonored and the necessary liability of a general indorser
proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder or to any subsequent indorser who may
Section 68: Order in Which Indorsers are
be compelled to pay it. Liable

▪ Guarantee payment of instrument provided As respect one another, indorsers are liable prima facie in
certain steps are taken to charge them w/ liability the order in which they indorse; but evidence is admissible to
▪ Warranties (GGCVHI) show that, as between or among themselves, they have agreed
o Qualified indorser & negotiating by delivery otherwise. Joint payees or joint indorsees who indorse are
▪ Genuine deemed to indorse jointly and severally.
▪ Good title
▪ Prior parties had capacity to contract
▪ Among Themselves
o That instrument is valid & subsisting
o Prima facie that every indorser is liable to all
o That instrument will be honored
indorsers subsequent to him
o That prior indorsements genuine
o May be shown by parol evidence that as
▪ If indorsement is forged or unauthorized,
between / among themselves they have
the bank, in paying the check,
agreed otherwise
becomes liable to payee for the value
o Irregular indorser will not be liable to the
accommodated party
Conditions Precedent to Make Indorser Liable
▪ To the Holder
• Due presentment for payment / acceptance o Indorsers are liable in any order & none of
• If dishonored, necessary proceedings on them can interpose as a defense against
dishonor be duly taken him an agreement among themselves that
they are not liable in the order of their
Indorser v Drawer indorsements
Indorser Drawer o Qualified in case of a qualified indorser &
Party to either note / bill Party only to a bill an indorser of a bearer instrument
Does not make any admission
regarding existence of payee Makes such admission Liability of Joint Payees / Joint Indorsees who
& his then capacity to indorse Indorse
Makes no warranties but • Solidary liability
Has warranties engages to pay after certain o None of them can escape liability just
conditions are complied w/ because proper notice of dishonor
was not given to the other
General Indorser v Irregular Indorser o One who pays may demand
General Indorser Irregular Indorser reimbursement from the others
Makes either a blank / • Joint Liability
Always makes a blank indorsement
special indorsement o Does not apply to an instrument
Indorses the instrument after Indorses before its delivery to the containing “we promise to pay”
its delivery to the payee payee
Liable to the payee & subsequent
parties unless he signs for the
Liable only to parties
accommodation of the payee in
subsequent to him
w/c case he is liable only to all
parties subsequent to the payee

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 69: Liability of an Agent or Broker Presentment to Persons Secondarily Liable
Where a broker or other agent negotiates an instrument • Presentment 1st to primary party required
without indorsement, he incurs all the liabilities prescribed by o Demand for payment must 1st be made
upon person primarily liable & demand
Section Sixty-five of this Act, unless he discloses the name of
is effected by presenting instrument to
his principal and the fact that he is acting only as agent.
him for payment
• If presentment is not made, drawer &
▪ Personal Liability: refers to instruments payable indorsers are discharged
to bearer & are therefore negotiable by delivery o Unless such presentment is excused /
o Agent / broker who negotiates by mere dispensed w/
delivery incurs liabilities prescribed in Sec 65
o If he negotiates the instrument by qualified Section 71: Presentment Where Instrument is
indorsement, his warranties are also those Not Payable on Demand and Where Payable on
stated in Sec 65 Demand
o If he negotiates it by general indorsement,
his warranties are those in Sec 66
▪ Exemption from Liability Where the instrument is not payable on demand,
o He must disclose his principal & the fact that presentment must be made on the day it falls due. Where it is
he is acting only as agent payable on demand, presentment must be made within a
o Parol evidence is not admissible to exempt reasonable time after its issue, except that in the case of a bill
from liability an agent whose indorsement of exchange, presentment for payment will be sufficient if made
brings him w/in Sec 69 within a reasonable time after the last negotiation thereof.

Presentment for Payment

▪ Payable at a fixed / determinable future time
Section 70: Effect of Want of Demand on o Presentment on date it falls due w/o period
of grace
Principal Debtor
o Otherwise, drawer & indorsers will be
discharged from liability
Presentment for payment is not necessary in order to o Presentment made before maturity is not
charge the person primarily liable on the instrument; but if the effective
instrument is, by its terms, payable at a special place, and he is ▪ Payable on demand
able and willing to pay it there at maturity, such ability and o Promissory Notes
willingness are equivalent to a tender of payment upon his part. ▪ w/in a reasonable time after its issue
But except as herein otherwise provided, presentment for ▪ Burden is on holder of a note, when
payment is necessary in order to charge the drawer and seeking to hold an indorser, to prove
indorsers. due & timely presentment
o Ordinary Bills of Exchange
▪ w/in a reasonable time after last
▪ Presentment for Payment: presentation of an negotiation
instrument to the person primarily liable ▪ Liability of drawer & indorser of a bill
o Purpose: demanding & receiving payment could continue for an indefinite time
▪ Presentment for payment to person primarily liable limited only by statute of limitations
not necessary
o Holder can sue maker / acceptor although
no demand has been made on him, as soon
as date for payment has passed w/o
instrument being paid
o Still not necessary even if instrument is
payable at a special place
▪ Ability & willingness on the part of the
primary party to pay there at maturity
are equivalent to tender
o Still not necessary even if required
according to terms of instrument
▪ Worse, failure to make presentment
would not put him in default
notwithstanding that instrument is
overdue & unpaid
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 72: What Constitutes a Sufficient o Requires a personal / face to face demand
Presentment at a proper place, exhibiting the instrument
to the maker / acceptor from whom payment
is demanded
Presentment for payment, to be sufficient, must be made: ▪ Purpose: to enable the debtor:
(a) By the holder, or by some person authorized to receive o To determine the genuineness of the
payment on his behalf; instrument & indorsements & right of holder to
receive payment
(b) At a reasonable hour on a business day; o To enable him, upon payment, to take
possession of it to guard against a lawsuit
(c) At a proper place as herein defined;
by a subsequent holder
(d) To the person primarily liable on the instrument, or if ▪ Acceptor who accepts the bill has the right to
he is absent or inaccessible, to any person found at the place have it delivered to him for use as a voucher in
where the presentment is made. settlement of accounts w/ drawer
▪ Presentment w/o exhibition – ineffectual
o Unless waived
▪ If presentment does not comply w/ any of the ▪ Waiver of maker’s right to exhibition
requisites, effect is same as if no presentment is o Instrument need not actually be exhibited
made – persons secondarily charged are unless such exhibition is demanded
discharged o Maker’s right to an exhibition of a note is
▪ Primary party: waived when he does not demand to see
o Maker – promissory note the note & refuses payment on some other
o Acceptor – accepted bill grounds
▪ BoE / check is payable on demand – ▪ Demand by telephone is not sufficient because
presentment must be to drawee although he is exhibition is not possible
not liable on the bill
▪ Person primarily liable is absent / inaccessible – Section 75: Presentment Where Instrument
made to any person of sufficient discretion at Payable at Bank
proper place of presentment
Section 73: Place of Presentment Where the instrument is payable at a bank, presentment
for payment must be made during banking hours, unless the
Presentment for payment is made at the proper place: person to make payment has no funds there to meet it at any
time during the day, in which case presentment at any hour
(a) Where a place of payment is specified in the instrument before the bank is closed on that day is sufficient.
and it is there presented;
(b) Where no place of payment is specified but the address ▪ If before the close of such hours he deposits funds
of the person to make payment is given in the instrument and to the bank enough to pay the instrument, a
it is there presented; demand earlier in the day is premature
o Instrument is not considered dishonored
(c) Where no place of payment is specified and no address
though payment has been refused earlier in
is given and the instrument is presented at the usual place of
the day
business or residence of the person to make payment;
(d) In any other case if presented to the person to make
Section 76: Presentment Where Principal
payment wherever he can be found, or if presented at his last Debtor is Dead
known place of business or residence.
Where the person primarily liable on the instrument is
▪ Place specified in order of enumeration dead and no place of payment is specified, presentment for
payment must be made to his personal representative, if such
Section 74: Instrument Must be Exhibited there be, and if, with the exercise of reasonable diligence, he
can be found.
The instrument must be exhibited to the person from
whom payment is demanded, and when it is paid, must be ▪ May be dispensed w/ if w/ exercise of
delivered up to the party paying it. reasonable diligence, no personal
representative can be found
▪ Holder is not excused from giving notice of
▪ Valid presentment consists of something more
dishonor to the indorser, if he wishes to hold him
than a mere demand
liable on the instrument
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 77: Presentment to Persons Liable as Section 81: When Delay in Making
Partners Presentment is Excused

Where the persons primarily liable on the instrument are Delay in making presentment for payment is excused when
liable as partners and no place of payment is specified, the delay is caused by circumstances beyond the control of the
presentment for payment may be made to any one of them, holder and not imputable to his default, misconduct, or
even though there has been a dissolution of the firm. negligence. When the cause of delay ceases to operate,
presentment must be made with reasonable diligence.
▪ Each partner is an agent of the partnership of his
co-partners Section 82: When Presentment for Payment is
▪ A dishonor by one is a dishonor by all Excused
Section 78: Presentment to Joint Debtors
Presentment for payment is excused:
Where there are several persons, not partners, primarily (a) Where, after the exercise of reasonable diligence,
liable on the instrument and no place of payment is specified, presentment, as required by this Act, cannot be made;
presentment must be made to them all.
(b) Where the drawee is a fictitious person;

Section 79: When Presentment Not Required (c) By waiver of presentment, express or implied.
to Charge the Drawer
▪ Where reasonable diligence has been exercised
Presentment for payment is not required in order to o Implies active search
charge the drawer where he has no right to expect or require o If practicable, holder should make inquiries
that the drawee or acceptor will pay the instrument. of payee when neither maker nor his
residence could be found
▪ Where drawer / acceptor not expected to ▪ Waiver
pay o May be before / after maturity
o He has no funds w/ drawee unless o Express: “Presentment waived” / “waiving
arrangement has been made for payment of demand & protest”
the bill o Implied: Act / conduct of party calculated
o Where drawer of a check has stopped to lead holder to believe that presentment
payment is waived, / to mislead / prevent him from
o Drawer of a check has withdrawn funds from treating the instrument as he otherwise would
drawee bank leaving nothing w/ w/c to pay like
the check ▪ Drawer promised from time to time to
▪ Where drawer & drawee same person pay a bill, making no objection on the
o Liable w/o presentment ground that the bill had not been
presented to drawee
Section 80: When Presentment Not Required
to Charge the Indorser Section 83: When Instrument Dishonored by
Presentment is not required in order to charge an indorser
where the instrument was made or accepted for his The instrument is dishonored by non-payment when:
accommodation and he has no reason to expect that the (a) It is duly presented for payment and payment is refused
instrument will be paid if presented. or cannot be obtained; or
(b) Presentment is excused and the instrument is overdue
▪ Accommodated payee-indorser is the real and unpaid.
debtor & not the maker / acceptor
o He is not discharged even if no presentment
for payment is made to maker / acceptor ▪ There is already dishonor where, on presentment,
the maker promises to pay 5 days later

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 84: Liability of Person Secondarily Section 87: Where Instrument Payable at Bank
Liable, When Instrument Dishonored
Where the instrument is made payable at a bank, it is
Subject to the provisions of this Act, when the instrument equivalent to an order to the bank to pay the same for the
is dishonored by non-payment, an immediate right of recourse account of the principal debtor thereon.
to all parties secondarily liable thereon accrues to the holder.
▪ Applies only if instrument is payable at a
▪ Persons secondarily liable become the principal particular named bank
debtors & he need not proceed against the o Note payable at “any bank in Manila” does
person primarily liable before suing them not authorize bank to pay note from maker’s
▪ Accrual of right of recourse against deposit
secondary parties
Section 88: What Constitutes Payment in Due
o Immediate right of recourse will accrue after
giving of due notice of dishonor to them Course
▪ Right immediately available
o Cannot interpose defense that suit should Payment is made in due course when it is made at or after
be brought 1st against maker / acceptor the maturity of the payment to the holder thereof in good faith
Section 85: Time of Maturity and without notice that his title is defective.

Every negotiable instrument is payable at the time fixed ▪ Good faith of maker / acceptor not of holder
therein without grace. When the day of maturity falls upon Notice of Dishonor
Sunday or a holiday, the instrument is payable on the next
succeeding business day. Instruments falling due or becoming Section 89: To Whom Notice of Dishonor Must
payable on Saturday are to be presented for payment on the be Given
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 Except as herein otherwise provided, when a negotiable
entire day is not a holiday. 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
▪ On a Sunday / holiday – next succeeding notice is not given is discharged.
business day
▪ On a Saturday
o If it is a time instrument – should be presented ▪ When instrument is considered dishonored
for payment on next succeeding business o Not accepted when presented for
day acceptance
o On demand – before 12nn on Saturday / o Not paid when presented for payment at
on Monday at the option of the holder maturity
o Presentment is excused / waived & instrument
Section 86: Time; How Computed is past due & unpaid
▪ Notice of Dishonor: verbally / in writing
When the instrument is payable at a fixed period after date, o If given by a notary public = protest
after sight, or after that happening of a specified event, the time ▪ Object of notice of dishonor
of payment is determined by excluding the day from which the o To inform parties secondarily liable that the
time is to begin to run, and by including the date of payment. maker / acceptor has failed to meet his
o To advise such parties that they will be
▪ Dated 31 Jan, payable 1 month after date = 28 required to make payment
Feb or 29 Feb if leap year ▪ Effect of failure to give notice of dishonor
o Any person w/ no notice is discharged
o Although indorser to whom notice is not
given is discharged, he is still liable for
breach of warranties pertaining to the
▪ Exceptions to notice of dishonor
o 109, 111, 112, 114, 115, 116, 117
o Maker & acceptor
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 90: By Whom Given o Otherwise, discharged for lack of notice,
unless, principal notifies them w/in the same
The notice may be given by or on behalf of the holder, or
▪ Notice to principal
by or on behalf of any party to the instrument who might be o w/in same time as if he were a holder
compelled to pay it to the holder, and who, upon taking it up, o Principal also has the same time for giving
would have a right to reimbursement from the party to whom notice to parties secondarily liable as if
the notice is given. instrument was dishonored on the day he
received notice
▪ Notice by a mere stranger is ineffectual unless he
Section 95: When Notice Sufficient
is acting as agent of a party who is entitled to
give notice of dishonor
A written notice need not be signed and an insufficient
Section 91: Notice Given by Agent written notice may be supplemented and validated by verbal
communication. A misdescription of the instrument does not
Notice of dishonor may be given by any agent either in his vitiate the notice unless the party to whom the notice is given
own name or in the name of any party entitled to give notice, is in fact misled thereby.
whether that party be his principal or not.
Section 96: Form of Notice
▪ Agent need not be authorized by the principal
to give the notice
The notice may be in writing or merely oral and may be
o Any person can be an agent of any party
entitled to give notice given in any terms which sufficiently identify the instrument,
and indicate that it has been dishonored by non-acceptance or
Section 92: Effect of Notice on Behalf of Holder non-payment. It may in all cases be given by delivering it
personally or through the mails.
Where notice is given by or on behalf of the holder, it
inures to the benefit of all subsequent holders and all prior ▪ May be given by telephone provided it be
parties who have a right of recourse against the party to whom clearly shown that the party notified was really
it is given. communicated with, that is, fully identified as the
party at the receiving end of the line
▪ A mere statement that the instrument is due &
▪ A party can charge a prior party who has payable is insufficient notice
received notice of dishonor although he himself
has not given said prior party any notice Section 97: To Whom Notice May be Given
Section 93: Effect Where Notice Is Given by
Party Entitled Thereto Notice of dishonor may be given either to the party
himself or to his agent in that behalf.

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 ▪ Agent must be authorized to be competent to
parties subsequent to the party to whom notice is given. receive notice of dishonor
Section 98: Notice Where Party Is Dead
Section 94: When Agent May Give Notice
When any party is dead and his death is known to the
Where the instrument has been dishonored in the hands of party giving notice, the notice must be given to a personal
an agent, he may either himself give notice to the parties liable representative, if there be one, and if with reasonable diligence,
thereon, or he may give notice to his principal. If he gives he can be found. If there be no personal representative, notice
notice to his principal, he must do so within the same time as may be sent to the last residence or last place of business of the
if he were the holder, and the principal, upon the receipt of deceased.
such notice, has himself the same time for giving notice as if the
agent had been an independent holder. ▪ Must use reasonable diligence to find out
whether there is a personal representative of such
▪ Notice to parties secondarily liable decedent or not
o w/in time fixed by 102, 103, 104, 107

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 99: Notice to Partner Section 104: Where Parties Reside in Different
Where the parties to be notified are partners, notice to any
one partner is notice to the firm, even though there has been a Where the person giving and the person to receive notice
dissolution. reside in different places, the notice must be given within the
following times:
▪ Still true although notice was fraudulently (a) If sent by mail, it must be deposited in the post office
suppressed by the partners receiving it in time to go by mail the day following the day of dishonor, or
o Fraudulent partner is liable to his co-partners if there be no mail at a convenient hour on last day, by the next
Section 100: Notice to Persons Jointly Liable mail thereafter.
(b) If given otherwise than through the post office, then
Notice to joint persons who are not partners must be given within the time that notice would have been received in due
to each of them unless one of them has authority to receive such course of mail, if it had been deposited in the post office within
notice for the others. the time specified in the last subdivision.

▪ Does not refer to “joint payees / joint indorsees” ▪ Dishonored on Oct 10

in Sec 68 o Need not reach the person on Oct 11, but
must be deposited in the mails not later than
Section 101: Notice to Bankrupt Oct 11 so as to go by mail on Oct 11 – the
day following the day of dishonor
o If no mail on Oct 11, or if it leaves at an
Where a party has been adjudged a bankrupt or an inconvenient hour (4am) and the next mail is
insolvent, or has made an assignment for the benefit of at 5pm Oct 12, notice must be deposited
creditors, notice may be given either to the party himself or to in time for it to go by 5pm mail on Oct 12
his trustee or assignee.
Section 105: When Sender Deemed to Have
Given Due Notice
Section 102: Time Within Which Notice Must
Be Given
Where notice of dishonor is duly addressed and deposited
in the post office, the sender is deemed to have given due notice,
Notice may be given as soon as the instrument is notwithstanding any miscarriage in the mails.
dishonored and, unless delay is excused as hereinafter provided,
must be given within the time fixed by this Act.
▪ Notice must be properly addressed, stamped, &
Section 103: Where Parties Reside In Same
Place Section 106: Deposit in Post Office; What
Where the person giving and the person to receive notice
reside in the same place, notice must be given within the Notice is deemed to have been deposited in the post-office
following times: when deposited in any branch post office or in any letter box
under the control of the post-office department.
(a) If given at the place of business of the person to receive
notice, it must be given before the close of business hours on
the day following. Section 107: Notice to Subsequent Party; Time
(b) If given at his residence, it must be given before the
usual hours of rest on the day following.
Where a party receives notice of dishonor, he has, after the
(c) If sent by mail, it must be deposited in the post office
receipt of such notice, the same time for giving notice to
in time to reach him in usual course on the day following.
antecedent parties that the holder has after the dishonor.

▪ Instrument is considered dishonored in the hands

of a party on the date he receives a notice of
dishonor from the holder & not on the date the
instrument is dishonored in the hands of the holder
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 108: Where Notice Must Be Sent Section 112: When Notice Is Dispensed With

Where a party has added an address to his signature, notice Notice of dishonor is dispensed with when, after the
of dishonor must be sent to that address; but if he has not given exercise of reasonable diligence, it cannot be given to or does
such address, then the notice must be sent as follows: not reach the parties sought to be charged.
(a) Either to the post-office nearest to his place of residence
or to the post-office where he is accustomed to receive his ▪ Merely examining the telephone directory for the
letters; or address is not sufficient
(b) If he lives in one place and has his place of business in Section 113: Delay in Giving Notice; How
another, notice may be sent to either place; or Excused
(c) If he is sojourning in another place, notice may be sent
to the place where he is so sojourning. Delay in giving notice of dishonor is excused when the
But where the notice is actually received by the party delay is caused by circumstances beyond the control of the
within the time specified in this Act, it will be sufficient, holder and not imputable to his default, misconduct, or
though not sent in accordance with the requirement of this negligence. When the cause of delay ceases to operate, notice
section. must be given with reasonable diligence.

Section 109: Waiver of Notice Section 114: When Notice Need Not Be Given
to Drawer
Notice of dishonor may be waived either before the time
of giving notice has arrived or after the omission to give due Notice of dishonor is not required to be given to the
notice, and the waiver may be expressed or implied. drawer in either of the following cases:
(a) Where the drawer and drawee are the same person;
▪ Waiver: intentional abandonment of a known
(b) When the drawee is fictitious person or a person not
having capacity to contract;
o Willingness on the part of the drawer /
indorser concerned to be bound as such (c) When the drawer is the person to whom the instrument
even w/o due notice of dishonor is presented for payment;
▪ Burden of proof is on the holder to show waiver
of notice by clear & convincing evidence (d) Where the drawer has no right to expect or require that
the drawee or acceptor will honor the instrument;
Section 110: Whom Affected by Waiver
(e) Where the drawer has countermanded payment.

Where the waiver is embodied in the instrument itself, it

is binding upon all parties; but, where it is written above the
▪ When holder has option to treat bill as promissory
signature of an indorser, it binds him only. note (a & b)
▪ Drawer has knowledge of dishonor
Section 111: Waiver of Protest ▪ Drawer knew bill would be dishonored
o No acct w/ drawee bank
o No funds w/ drawee bank to meet it
A waiver of protest, whether in the case of a foreign bill of ▪ Does not always operate to excuse
exchange or other negotiable instrument, is deemed to be a holder to give notice to drawer
waiver not only of a formal protest but also of presentment and ▪ Drawer may have agreed to advance
notice of dishonor. the amt for the drawer who has a
reason to “expect” the drawee to
accept / pay
▪ Protest: formal instrument executed usually by a
▪ Drawer countermanded payment
notary public certifying that the legal steps
necessary to fix the liability of the drawee & the
indorsers have been taken

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 115: When Notice Need Not be Given to Discharge of Negotiable Instrument
Section 119. Instrument; How Discharged
Notice of dishonor is not required to be given to an
indorser in either of the following cases: A negotiable instrument is discharged:

(a) When the drawee is a fictitious person or person not (a) By payment in due course by or on behalf of the
having capacity to contract, and the indorser was aware of that principal debtor;
fact at the time he indorsed the instrument; (b) By payment in due course by the party accommodated,
(b) Where the indorser is the person to whom the where the instrument is made or accepted for his
instrument is presented for payment; accommodation;

(c) Where the instrument was made or accepted for his (c) By the intentional cancellation thereof by the holder;
accommodation. (d) By any other act which will discharge a simple contract
for the payment of money;
Section 116: Notice of Non-Payment Where (e) When the principal debtor becomes the holder of the
Acceptance Refused instrument at or after maturity in his own right.

Where due notice of dishonor by non-acceptance has been ▪ Discharge of an instrument: release of all
given, notice of a subsequent dishonor by non-payment is not parties, whether primary / secondary, from
necessary unless in the meantime the instrument has been obligations arising under the instrument rendering
accepted. it w/o force & effect, & consequently, no longer
▪ In due course: after maturity, to the person
Section 117: Effect of Omission To Give Notice entitled, capacitated
Of Non-Acceptance ▪ In cases of accommodation
o Accommodation maker – payee
(accommodated party) – 3rd party
An omission to give notice of dishonor by non-acceptance o Payee pays the 3rd party
does not prejudice the rights of a holder in due course ▪ When cancelled, it is prima facie intentional
subsequent to the omission. o Burden of proof that cancellation was made
w/o authority is on person assailing such
Section 118: When Protest Need Not Be Made;
When Must Be Made

Where any negotiable instrument has been dishonored, it

may be protested for non-acceptance or non-payment, as the
case may be; but protest is not required except in the case of
foreign bills of exchange.

▪ Foreign bills of exchange

o Necessary when dishonored by non-
acceptance / non-payment
o If not, protested drawer & indorsers are
▪ Other negotiable instrument
o Optional except in 158, 161, 171
o Advantageous to protest when dishonored
since the holder obtains a most convenient
record evidencing the fact of dishonor

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Section 120. When Persons Secondarily Liable Section 122. Renunciation by Holder
on The Instrument Are Discharged
The holder may expressly renounce his rights against any
A person secondarily liable on the instrument is party to the instrument before, at, or after its maturity. An
discharged: absolute and unconditional renunciation of his rights against
the principal debtor made at or after the maturity of the
(a) By any act which discharges the instrument; instrument discharges the instrument. But a renunciation does
(b) By the intentional cancellation of his signature by the not affect the rights of a holder in due course without notice.
holder; A renunciation must be in writing unless the instrument is
delivered up to the person primarily liable thereon.
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party; ▪ In favor of secondary party
(e) By a release of the principal debtor unless the holder's o May be made by the holder before, at, or
right of recourse against the party secondarily liable is after maturity
expressly reserved; o Effect is to discharge only such secondary
party & all parties subsequent to him, but the
(f) By any agreement binding upon the holder to extend instrument remains in force
the time of payment or to postpone the holder's right to enforce ▪ In favor of the principal
the instrument unless made with the assent of the party o May be effected at, or after maturity
secondarily liable or unless the right of recourse against such o Effect is to discharge the instrument & all
party is expressly reserved. parties thereto, provided the renunciation is
made absolutely & unconditionally
▪ Renunciation does not affect the rights of a
▪ M–P–A–B–C
holder in due course w/o notice
▪ GR: If an indorser’s indorsement is cancelled,
subsequent indorsers are also discharged Section 123. Cancellation; Unintentional;
because they are deprived of recourse from the Burden of Proof
previous party
▪ Exception: if reservation is made
o Cancel A, but make reservation as against A cancellation made unintentionally or under a mistake or
B without the authority of the holder, is inoperative but where
o B is not barred from running after A, or the an instrument or any signature thereon appears to have been
person principally liable – for equity reasons cancelled, the burden of proof lies on the party who alleges that
the cancellation was made unintentionally or under a mistake
Section 121. Right of Party Who Discharges or without authority.

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
again 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.

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Trust Receipts Law Letter of credit
• An engagement by a bank or other person
Trust Receipt made at the request of a customer that the
o A document in which is expressed a security issuer will honor drafts or other demands for
transaction, where the lender having no prior title in payment upon compliance with the
the goods on which the lien is to be given, and not conditions specified in the credit
having possession which remains in the borrower, lends
his money to the borrower on security of the goods, Trust Receipt
which the borrower is privileged to sell clear of the lien • Entruster (who hold absolute title or security
on agreement to pay all or part of the proceeds of interests over the goods) releases the same
the sale to the lender to the entrustee, who executes a TR binding
o Originally used in import transactions, where goods himself to hold the goods in trust for the
were consigned directly to a bank which paid a draft entruster and to sell / dispose of the goods
for the price on the credit of the intended buyer who with the obligation to turn over proceeds or
engaged to repay the bank’s advances return if unsold
o Banker takes the full title to the goods at the very
beginning; he takes it as soon as the goods are Nature of entruster’s security interest
brought and settled for by his payments or ▪ Such interest becomes a “lien” on the goods
acceptances in the foreign country, and he continues because the advances will have to be settled
to hold that title as his indispensable security until the first before the entrustee can consolidate
goods are sold and the vendee is called upon to pay ownership over the goods
them ▪ In the event of default or failure of entrustee to
▪ The banker is always under the obligation to comply with terms and conditions, entruster MAY
reconvey, but only after his advances have been cancel TR
fully repaid and after the importer has fulfilled the o Optional because entruster may choose
other terms of the contract other remedies (separate civ action)
▪ Valid against all creditors of entrustee
With both loan & security features o Only exception is when goods are in the
▪ Loan feature – covered by the letter of credit hands of an IPV
▪ Security feature – through the use of the goods
or merchandise as collateral for advancements
Trust receipt violation = estafa
made by the bank ▪ For misappropriation of proceeds of goods
▪ “A trust receipt is a security agreement, pursuant ▪ Non-payment of amount involved
to which a bank acquires a ‘security interest’ in the ▪ Failure to deliver proceeds of sale or the goods
goods. It secures an indebtedness and there can if not sold
be no such thing as security interest that secures ▪ Presumption of intent to defraud:
no obligation” o When the entrustee fails to turn over the
proceeds to entruster; or
Entruster remains a lender AND creditor o When the entrustee fails to return goods
▪ The bank does not become the real owner of the under trust, if not sold
goods ▪ The law does not seek to enforce payment of the
▪ It is merely the holder of a security title for the loan, rather it punishes the dishonesty and abuse
advances it had made to the importer of confidence in the handling of money or goods
▪ The goods remain the importer’s property and he ▪ Punished as malum prohibitum
holds it as his own risk
▪ As creditor – because bank previously extended Civil liability arising from criminal offense
a loan which the letter of credit represents to the ▪ After criminal action, entruster may enforce civil
importer, and by that loan, the importer should be liability in a separate civil action
the real owner ▪ If the entrustee is a corporation, the law makes
▪ To consider the bank as true owner from the officers or employees or other persons
inception would be to disregard the loan feature responsible for the offense liable to suffer penalty
involved of imprisonment

LOC-TR agreement
▪ Bank extends to a borrower a loan covered by
the LOC, with the trust receipt as security for
the loan

Negotiable Instruments | Justice Caldona Javier | Tiambeng
Letter of Credit Nature of a LOC
• A letter from a merchant or bank in one place, addressed o A safe mode of dealing with sales of goods to satisfy
to another, in another place / country, requesting the irreconcilable interest of a seller who refuses to part
addressee to pay money or delivery goods to a 3rd with his goods before he is paid, and a buyer who
party named therein wants to have control of the goods before buying
o The writer of the letter undertakes to provide the them
addressee the money for the goods or to repay o A commitment by the issuer that the party in whose
him favor it is issued and who can collect upon it, will have
• A letter requesting one person to make advances to a 3rd his credit against the applicant of the letter duly paid
person on the credit of the writer who assumes responsibility in the amount specified
for payment of the debt therefor to the addressee o Non-negotiable because issued in favor of
specified person; not to order/bearer
Contracts involved
o Contract of SALE between buyer and seller
o Contract of buyer with the issuing bank o To insure to a seller payment of a definite amount
o LOC proper in which the bank promises to pay the upon presentation of documents
seller pursuant to the terms and conditions stated o The bank deals only with documents
therein ▪ Bank pays seller by virtue of the LOC alone,
without regard to whereabouts / quality of goods
Parties to a LOC or buyer’s satisfaction
o Buyer / importer ▪ Disputes as to the goods may arise and be
▪ Applies for the LOC and obliges himself to litigated later on, but they may not impede
reimburse the issuing bank upon receipt of the acceptance of drafts and payment by the
documents issuing bank when the proper documents are
o Seller / beneficiary presented
▪ Ships the goods to the buyer and delivers the
documents of title and drafts to the issuing bank
Failure to open LOC within specified period
to recover payment o Suffices to prevent a binding juridical tie from being
o Opening bank / issuing bank created
▪ Usually the buyer’s bank which actually issues the o To bind the offeror, the offeree must comply with the
LOC conditions of the offer
▪ Undertakes to pay the seller upon receipt of the
draft and proper documents of titles and to
Nature of legal relations arising from LOC
surrender the documents to the buyer upon o The seller should strictly observe the terms and
reimbursement conditions under which the credit is to become
o Advising / Notifying bank available
▪ Correspondent bank of the opening bank ▪ Unless he does this, he will have no cause of
through which it advises the beneficiary of the action against the bank for refusing to honor
LOC his draft
o Negotiating bank o LOC is independent of the contract of sale between
▪ Instead of going to the place of the issuing bank buyer and seller
to claim payment, buyer may approach this to ▪ Unaffected by breach of contract of sale or any
have the draft discounted controversy arising from such
o Paying bank
▪ Buys or discounts the drafts contemplated by the
When is it consummated?
LOC, if such draft is to be drawn on the opening o (Irrevocable LOC – authorizes a creditor in a foreign
bank or on another designated bank not in the country to draw upon a debtor of another and to
city of the seller negotiate the draft through the agent or
▪ As a rule, whenever the facilities of the opening correspondent bank or any bank in the country of the
bank are used, the beneficiary is supposed to creditor)
present his drafts to the notifying bank for o For an irrevocable LOC, it is consummated when the
negotiation agent / correspondent bank or any bank in the
o Confirming bank country of the seller pays or delivers to the latter the
▪ Upon the request of the beneficiary, confirms the amount in foreign currency, as authorized by the bank
LOC issued by the opening bank in the country by the buyer in compliance with the
o Date of payment of amount in foreign currency to the
creditor by the correspondent bank of the debtor is
the date of consummation
Negotiable Instruments | Justice Caldona Javier | Tiambeng
Independence Principle Irrevocable LOC vs. Confirmed LOC
o In a letter of credit, the issuing bank engages to pay o An irrevocable credit refers to the duration of the
the seller once the draft and the required shipping letter of credit. What it simply means is that the issuing
documents are presented to it. In turn, this bank may not without the consent of the beneficiary
arrangement assures the seller of prompt payment, (seller) and the applicant (buyer) revoke his
independent of any breach of the main sales contract. undertaking under the letter.
By this so-called "independence principle," the bank ▪ The issuing bank does not reserve the right to
determines compliance with the letter of credit only by revoke the credit.
examining the shipping documents presented; it is o On the other hand, a confirmed letter of credit
precluded from determining whether the main contract pertains to the kind of obligation assumed by the
is actually accomplished or not. correspondent bank.
▪ In this case, the correspondent bank gives an
Fraud Risk Exception absolute assurance to the beneficiary that it will
▪ Fraud is an exception to the independence undertake the issuing bank's obligation as its own
principle. according to the terms and conditions of the
▪ This exception exists when the beneficiary, for the credit
purpose of drawing on the credit, fraudulently o The mere fact that a letter of credit is irrevocable does
presents to the confirming bank, documents that not necessarily imply that the correspondent bank in
contain, expressly or by implication, material accepting the instructions of the issuing bank has also
representations of fact that to his knowledge are confirmed the letter of credit
▪ The remedy for fraudulent abuse is an injunction. Commercial vs. Standby LOCs
However, injunction should not be granted unless: o Commercial credits involve the payment of money
o There is clear proof of fraud; under a contract of sale.
o The fraud constitutes fraudulent abuse of ▪ Such credits become payable upon the
the independent purpose of the letter of presentation by the seller-beneficiary of
credit and not only fraud under the main documents that show he has taken affirmative
agreement; and steps to comply with the sales agreement.
o Irreparable injury might follow if injunction is o In the standby type, the credit is payable upon
not granted or the recovery of damages certification of a party's non-performance of the
would be seriously damaged. agreement.
▪ The documents that accompany the beneficiary's
Strict Compliance Rule draft tend to show that the applicant has not
o It is a settled rule in commercial transactions involving performed.
letters of credit that the documents tendered must o The beneficiary of a commercial credit must
strictly conform to the terms of the letter of credit. demonstrate by documents that he has performed his
o The tender of documents by the beneficiary (seller) contract. The beneficiary of the standby credit must
must include all documents required by the letter. certify that his obligor has not performed the contract.
o A correspondent bank which departs from what has (Transfield Phils. v. Luzon Hydro)
been stipulated under the letter of credit, as when it
accepts a faulty tender, acts on its own risks and it may
not thereafter be able to recover from the buyer or
the issuing bank, as the case may be, the money thus
paid to the beneficiary.