Law on Negotiable

Instruments
To be submitted to: Ms. Bernadette De Ocampo

Jhanelle Marquez
 NEGOTIABLE INSTRUMENTS

Written contract for the payment of

money, by its form intended as
substitute for money and intended to
pass from hand to hand to give the
HDC the right to hold the same and
collect the sum due

NEGOTIABLE NON-NEGOTIABLE
Contains all the Does not contain all
requisites of Sec. 1 the requisites of Sec.1
of the NIL of the NIL
Transferred by
negotiation LIFE OF NEGOTIABLE Transferred by
HDC may have INSTRUMENT assignment
better rights than Transferee acquires
transferor  issue rights only of his
Prior parties transferor
 negotiation Prior parties merely
warrant payment
 presentment for warrant legality of
acceptance in certain title
Transferee has
Transferee has no
right of recourse bills
right of recourse
against  acceptance
intermediate  dishonor by or
parties
acceptance
 presentment for
payment
 dishonor by
nonpayment
 notice of dishonor
 protest in certain
cases
 1.1. Must be in Writing and Signed by the Maker
No person liable on the instrument whose signature
does not appear thereon.
One who signs in a trade or assumed name liable to
REQUISITES
same extent OF NEGOTIABILITY
as if he had signed in his own name. (Sec.
KINDS18, OF NEGOTIABLE
NIL) INSTRUMENTS
Signature of party may be made by duly authorized
agent; no particular form of appointment necessary.
(Sec. 19, NIL)
"In writing" - includes print; written or typed
Signature, binding so long it is intended or adopted as
the signature of the signer or made with his authority.
Promissory Note
Bill of Exchange
1.2. Must contain an Unconditional Order or Promise to
Pay
-a promise to pay money -an order made by one person to another to
“ORDER
-unconditional promise in writing made by one OR PROMISE TO PAY”pay money to a third person.
person to another signed by the maker PROMISSORY NOTE: -unconditional order in writing addressed by
engaging to pay on demand, or at a fixed or -PROMISE TO PAY: should onebe express
person on the signed by the person
to another
determinable future time a sum certain in face of the instrument giving it requiring the person to whom it is
money to order or to bearer Word "promise" is not absolutely
addressed to pay on demand or at a fixed or
-where a note is drawn to the maker’s own necessary. Any expression equivalent to
determinable a time a sum certain in
future
order, not complete until indorsed by him (Sec. promise is sufficient. money to order or to bearer (Sec. 126, NIL).
184, NIL). -Mere acknowledgment-Check: of a debt billinsufficient
of exchange drawn on a bank
BILLS OF EXCHANGE: payable on demand.
Order - command or imperative direction; the
instrument, by its nature, demanding a right.
Words which are equivalent to an order are
sufficient.
-A mere request or authority to pay does PARTIES:
not
PROVISIONS NOT AFFECTING
constitute an order. NEGOTIABILITY
 Drawer - person who
-Although the mere use of polite words gives
like the order to
PARTIES: "please" does not of itself deprive thepay. instrument
 MAKER of its characteristics as an order, its  language
Drawee - addressee
 Authorizes
must sale indicate
clearly of collateral a securities;
demand upon of
thethe order.
drawee
 PAYEE- person to
 Authorizes confession of judgment if  Payee - person to
whom the promise to to pay.
instrument not paid at maturity;
pay is made whom the payment is
 Waives the benefit of any law intended for the
“UNCONDITIONAL”
advantage or protection of the obligor; or
to be made.
The promise or order to pay, to be unconditional,
 Gives holder election to require something to
must be unqualified.
be done in lieu of payment of money. (if in
Sec. 3,
additionNIL: “An unqualified
to money – not NI) order or promise to pay
is unconditional…though
Negotiability
o payee coupled
affected, whenwith:
•Indorser - the of an instrument who
“An indication
instrumentof a particular
contains fund
promiseof
out orwhich
transfers it to another by signing it at a
the
reimbursement
order to is
do toany
beact made,
in or a particular
addition to
back thereof
account to
the be debited
payment
•Indorsee - person to whom the of with
money. the amount
 negotiates
indorser UNCONDITIONAL:
Non-dating of the
the instrumentMere
instrument, who, indication of
by such negotiation,
the particular
Non-specificationbecomes of fund
the out
value of which
given,
holder or that any
of thevalue hadreimbursement
instrument.been given is to be made, or an
 Non-specification
indication ofofa place whereaccount
particular it is drawnto be
or place where it is payable
debited with the amount
 Bearsmust
1.3. Sum Payable a sealbe Certain
 Designation of particular kind of currency in
Sec. 2, NIL: The sum payable is a sum certain,
which payment is to be made
even if:
With interest;
-By stated installments;
-By stated installments with acceleration
clause;
-With exchange, whether at a fixed rate or at
the current rate; or
With costs of collection or attorney's fee.
-A sum is certain if from the face of the instrument
it can be mathematically computed.
 TRANSFER
KINDS OF INDORSEMENT

as to kind of title as to
transferredDelivery and Issuance presence/absence
Indorsement
Negotiation :
of express
When an instrument is restrictiveDelivery
– means transfer of possession of limitations
The indorsement must putbeby
as to manner of instrument by the maker or asdrawer,
to kind withof
transferred from one such indorsement either: written indorser upon
on the instrument
future
person tomethod ofto
another as intent to transfer title liability
to the payee assumed
and itself primary
or on a paper attached
prohibits further obligor’s
negotiation
constitute the recognize him as holder thereof. by indorser: thereto (allonge). The
negotiation of privileges of
transferee
(Sec. 35, the holder
NIL): instrument,(de la Victoria v. Burgos) signature of the indorser,
thereof. in this kind of restrictive qualified
paying thewords,
without additional holder:is
If payable to BEARER, NI incomplete and revocable until delivery sufficient indorsement.
special – specifies the indorsement, the constitutes indorser as
prohibitionfor the purposeor of giving effect thereto (Sec.31, NIL)
negotiated
person to whom/to by delivery;
whose to transfer mere assignor of title
as between (Sec. 16, NIL): conditional – additional
orderif the
payable to ORDER,
instrument is to negotiate must be (eg. “without recourse”) Indorser generally enters
negotiatedindorsement
be payable; by written in express (Sec. 38, NIL). condition annexed(Implied
into two contracts to
words at theimmediate
back ofparties But this does not indorser’s liability.
of such
indorsementindorsee
of holderis contracts by Indorser):
a remote
the instrument, so party
that othermean than holder in due (Sec. 39,orNIL)
necessary
+ deliveryto further that the sale transfer of
courseparty
any subsequent
negotiation.
(Sec.30, NIL) transferee only has the instrument
delivery, to
may be forewarned be effectual, must be made by
that
A special indorser is liable rights of an Where to pay instrument inis
an indorsement
to all subsequent holders,
or under
ceases to be negotiable. the authority of the party
assignee.Transfer case of default
conditional, a party of maker
required
unless the instrument is an However, themaking / drawing / accepting/indorsing
restrictive remains a negotiation Indorsement
to must be may
pay the instrument of
originally bearer delivery the
indorsee acquires may be shown to have been
and transferee can still entire instrument
disregard (can’t be
the condition, and
instrument, in which case conditional,
right to receive payment or for a special purpose only,
be a holder capable of indorsement
make payment of to
onlythepart of
he is liable only to those and action
and bring any not for the purpose of transferring thefrom
acquiring a title free amount payable,
indorsee nor can it
or his transferee,
who take title through his property
thereon as any indorser, in the instrument
defenses of prior whether
be to twocondition has been
or more indorsees
indorsement (Sec 40, NIL) but he canPRESUMPTION
no longer OF parties.It
DELIVERY relieves the
fulfilled
severally. or But
not. okay to
transfer hisWhere
rights the
as instrumentqualified
is no longer in theof his
indorser indorse residue of partially
blank – specifies no possession
such indorsee where the of a party whose signature
liability to pay the Any person to whom
paid instrument)
indorsee, instrument so form of theappears
indorsementthereon, a valid and intentional
instrument should the
indorsed is payable to
an
(Sec. instrument
32, NIL) so
delivery by
does not authorize himhim is presumed
maker be untilunable
the to pay
bearer, and may be indorsed is negotiated
contrary is proved
to do so. (Gempesaw v at maturity. will hold the
negotiated by delivery
CA 1993) same/proceeds
a person who negotiates if it is in the hands of unqualified
a HDC, the
by mere delivery is liable subject to rights of
presumption is conclusive
only to his immediate person indorsing
transferee. the holder may conditionally
PRESUMPTION AS TO DATE
convert a blank Date is not an essential element of
indorsement into a special unconditional
negotiability
indorsement by writing
An undated instrument is considered to
over the signature of the
be dated as of the time it was issued.
indorser in blank any
contract consistent with
the character of the other classifications:
indorsement. An order
instrument may be Absolute – One by which the
converted into a bearer indorser binds himself to pay, upon no
instrument by means of a other condition than the failure of prior
blank indorsement. parties to do so, and of due notice to
But a bearer instrument him of such failure
remains as such whether it
has been indorsed Joint - Where instrument payable
specially or in blank. It is to the order of two or more payees or
the liability of the indorser indorsees not partners, all must
which is affected. indorse, unless the one indorsing has
authority to endorse for the others
(Sec. 41, NIL)
Irregular - Where a person, not
otherwise a party to the instrument,
places thereon his signature in blank
before delivery, he is liable as
indorser.
 That it is complete and regular upon
its face
COMPLETE
o An instrumentIN
HOLDER is complete
DUE if it
contains all the requisites for
COURSE
making it a negotiable one, even
if it may have blanks as to non-
essentials.
o It is incomplete when it is wanting
in any material particular or
particular proper to be inserted
in a or
Definition: Payee NI indorsee
without w/c
of a the same
bill or notewill
who
not be complete.
is in possession of it, or the bearer thereof.
RIGHTS OF HOLDER (Sec. 51, NIL)
Material
1. sue thereon Particulars
in his own name
2. payment to himoinWhat are material
due course discharges
instrument particulars? A change in the
ff. is considered a material
alteration (Sec. 125, NIL):
i. The date; The sum
payable, either for principal
or interest;
REQUISITES TO BECOME
The time or place of
HOLDER IN DUE COURSE
payment;
The number or the relations
of the parties;
The medium or currency in
which payment is to be
made;
Or which adds a place of
payment where no place of
payment is specified,
Rights of HDC of instrument that has
been materially altered
o enforce payment thereof according
to its original tenor IF not a
party to the alteration. (Sec.
124, NIL)
That he became the holder of it before
it was overdue and without notice
that it had been previously
dishonored, if such was the fact
“OVERDUE”
The ff. cannot be HDCs: (Sec.
53, NIL)

A holder who became such

after the date of maturity of
the
instrument (instrument is
overdue);
In case of demand
instruments, a holder who
negotiates it after an
unreasonable length of time
after its issue
Instruments with fixed maturity
but subject to acceleration:
ultimate date of maturity is the
date of maturity for the purpose
of determining whether a
purchaser is a HDC
Undated instruments: Prima
facie presumption that it was
negotiated before it was overdue
(Sec 45)
NOTE: An overdue instrument is
still negotiable, but it is subject
to the defense existing at the
time of the transfer.
 DEFENSES
REAL DEFENSE
attaches to instrument
on the principle that
there was no contract at
all; available against ALL
holders including holders
in due course. They are
those which attach to the
instrument itself and
generally, disclose an
absence of one of the
essential elements of a
contract.
Incapacity: REAL defense but available
only to the incapacitated party (ex. minor
or corporation); the indorsement or
assignment of the instrument by a corp. or
by an infant passes the property therein,
notwithstanding that from want of capacity,
the corp. or infant may incur no liability
thereon.
(Sec.22, NIL)
Incomplete, Undelivered Instrument
Instrument will not, if completed and
negotiated without authority, be a
valid contract in the hands of ANY
holder, as against any person whose
signature was placed thereon before
delivery. (Sec. 15, NIL)
Who may be estopped from raising
the real defense under Sec 15? A
drawee bank whose negligent custody
of the checks, after partial execution,
contributed to its escape
PERSONAL
DEFENSE
grows out of the
agreement or conduct of
a particular person in
regard to the instrument
which renders it
inequitable FOR HIM,
though holding the legal
title, to enforce it against
the party sought to be
made liable; not
available against a
HDC.can be raised only
against holders not on
due course. Here, the
true contract appears ,
but for some reason ,
the defendant is
excused from the
obligation to perform.
Complete, Undelivered Instrument
a. CONCLUSIVE presumption of a valid delivery
– where the instrument is in the hands of a
HDC
b. PRIMA FACIE presumption of a valid delivery
– where the instrument is no longer in the
possession of a party whose sig appears thereon
(Sec. 16, NIL)
Incomplete, Delivered (sec.14)
This is a personal defense only because
provision states that if any instrument so
completed is negotiated to a holder in due
course, it is valid and effectual for all
purposes
2 Kinds of Writings:
Where instrument is wanting in
any material particular: person in
possession has prima facie authority to
complete it by filing up blanks therein
Signature on blank paper delivered by
person making the signature IN ORDER
that the paper may be CONVERTED into a
NI  operates as prima facie authority to
fill up as such for any amount
 Sometimes REAL,
Sometimes PERSONAL Lack of Consideration(Sec. 28)
ABSENCE or failure of consideration is a matter
of defense as against any person not a HDC.
4.1. Forgery (Sec. 23): made without
PARTIAL FAILURE of consideration is a defense
pro tanto whether the failure is an ascertained
authority of person whose signature it purports and liquidated amount or otherwise .
to be

Illegality
1. In general, a PERSONAL defense even
1. In general, a REAL defense: …
if
Effect
CC1409 provides that a contract with an
a. signature is wholly inoperative
b. no right to retain instrument, or illegal cause is void.
give discharge, or enforce payment
against any party thereto, can be 2. REAL when the law expressly provides
acquired through or under such for illegality as a real defense (Statutory
signature (unless forged signature declaration of illegality
unnecessary to holder’s title)
Duress
c. No subsequent party can acquire
1. In general, PERSONAL defense.

the right against any party thereto 2. REAL if duress so serious as to give
rise to a real defense for lack of
(prior to the forgery) to: contractual intent
3. CAMPOS: There may be cases where
i. Retain the instrument the duress employed is so serious that
it will give rise to a real defense
because of the lack of contractual
ii. Give a discharge there for
intent . Although the signer may know
what he is signing, there may be
iii. Enforce payment thereof wanting the intent or willingness to be

2. PERSONAL if the party against whom it

is sought to enforce such right is
PRECLUDED from setting
forgery/want of authority;

Material Alteration (Sec.124)

As a DEFENSE:
PERSONAL defense when used to deny liability
according to the tenor of the instrument

REAL defense when relied on to deny liability

according to the altered terms.

What constitutes material alteration?

Statutory: Review Sec.125, NIL
change date
sum payable, either for principal or interest
time or place of payment
number/relations of parties
medium/currency of payment,
adds place of payment where none
specified,other change/addition altering effect of
instrument in any respect
Fraud

REAL DEFENSE
fraud in execution / fraud in factum: did not know
 LIABILITY OF PARTIES

IN GENERAL
Parties primarily liable:
person who by the terms of the
instrument is absolutely required to pay
the same.
Maker of promissory note
Acceptor of bill of exchange
unconditionally liable; duty bound to pay
the holder at date of maturity, WON
holder demands payment from him, and
he is not relieved from liability even if
the instrument should become overdue
due to failure of holder to make such
demand.

Parties secondarily liable:

SECONDARY PARTIES:
Indorsers, both note and bill
Drawer of bill
Conditionally liable; not bound to pay
unless the following has been fulfilled
Due presentment or demand from
primary party for payment or
acceptance;
Dishonor by such party; and
Taking of proceedings required by
law after dishonor.
 PRIMARY PARTIES
PAYMENT: Presentment and Tender
Presentment for payment not
necessary to charge primary party
if the instrument is, by its terms,
payable at a special place, and he is
able and willing to pay it there at
maturity, such ability and willingness
are equivalent to a tender of payment
upon his part. (Sec. 70, NIL)
Liability of MAKER
Promises to pay it according to its tenor
Admits existence of payee and
his then capacity to indorse.
Therefore, PRECLUDED from
setting up the following defenses:
the payee is a fictitious person
the payee was insane, a
minor, or a corporation acting
ultra vires
DRAWEE and ACCEPTOR
1. Drawee
a. A person on whom a bill of
exchange or check is drawn
and who is ordered to pay it
b. Liability of DRAWEE to:
Holder
Not liable on the
instrument until he
accepts it and even a
holder in due course
cannot sue him on the
instrument before his
acceptance
A bill/check of itself
does not operate as an
assignment of the funds
in the hands of the
drawee/bank (Sec 189,
NIL), and the
drawee/bank is NOT
LIABLE on the bill unless
and UNTIL he/it ACCEPTS
(or certifies) the same.
(Sec. 127, NIL)
SECONDARY PARTIES
Liability of DRAWER
Sec. 61, NIL
Admits existence of payee and his
then capacity to endorse
b. Engages that on due presentment
instrument will be accepted, or paid, or both,
according to its tenor
That if it be dishonored + necessary
proceedings on dishonor duly taken, will pay the
amount thereof to the holder or to a subsequent
indorser who may be compelled to pay it
Limiting Liability: drawer may insert in the
instrument an express stipulation negativing /
limiting his own liability to holder
Liability of INDORSERS:
Indorser
Sec. 63, NIL: A person placing his
signature upon an instrument other than as
maker, drawer, or acceptor unless he
indicates by appropriate words his
intention to be bound in some other
capacity
SAPIERA vs CA (1999). It is
undisputed that the four (4) checks
issued by de Guzman were signed
by petitioner at the back without
any indication as to how she should
be bound thereby and, therefore,
she is deemed to be an indorser
thereof.
Sec. 67, NIL: A person, who places
his signature on an instrument negotiable
by delivery, incurs all the liabilities of an
indorser.
Sec 64, NIL: Irregular Indorser
When a person not otherwise a
party to an instrument, places
thereon his signature in blank
before delivery, he is liable as an
indorser, in accordance w/ these
rules:
WARRANTIES:
Every person negotiating an instrument by
delivery or by a qualified indorsement warrants:
(Sec. 65, NIL)
Instrument genuine, in all respects what it
purports to be
He has good title to it
All prior parties had capacity to contract
He has no knowledge of any fact w/c would
impair validity of instrument or render it valueless
in case of negotiation by delivery only,
warranty only extends in favor of immediate
transferee
Acceptance
IN GENERAL:
Definition:
"Acceptance" means an acceptance
completed by delivery or notification
(Sec. 19, NIL)
The signification by the drawee of his
assent to the order of the drawer (Sec
132, NIL)
REQUISITES for a valid acceptance
(Sec 132, NIL)
It must be in writing and signed by
the drawee;
Thus there is no valid or implied
acceptance except as provided
by Sec. 137 relating to
constructive acceptance
It must not express that the drawee
will perform his promise by any other
means than the payment of money.
does not change the implied
promise of acceptor to pay only in
money
MANNER of acceptance
Campos: Usually made by writing
the word “accepted” and signing
immediately below
BUT, drawee’s signature alone
is sufficient (Campos citing
Lawless v. Temple)
Sec 133, NIL: The holder of a bill
presenting the same for acceptance
may require that the acceptance be
written on the bill and if such
request is denied, may treat the bill
as dishonored
Effect: holder may go against
the party’s secondarily liable—
the drawer and the indorsers
Acceptance of an INCOMPLETE bill
KINDS OF ACCEPTANCE: An acceptance is either
(1) general or (2) qualified.
GENERAL - assents without qualification to the
order of the drawer. (Sec.139, NIL); Includes acceptance
to pay at a particular place; unless expressly states that
bill is to be paid there only and not elsewhere. (Sec. 140,
NIL)
QUALIFIED - in express terms varies the effect of
the bill as drawn. (Sec. 139, NIL)
Conditional; payment by the acceptor
dependent on the fulfillment of a condition therein
stated;
Partial; to pay part only of the amount for which
the bill is drawn;
Local; to pay only at a particular place;
Qualified as to time;
The acceptance of some, one or more of the
drawees but not of all. (Sec. 141, NIL)
General or Unqualified Indorser:
Every person who indorses without
qualification, warrants to all
subsequent HDCs: (Sec. 66, NIL)
instrument genuine, good
title, capacity of prior parties
instrument is at time of
indorsement valid and subsisting
eon due presentment, it shall be
accepted or paid, or both, according
to tenor
if it is dishonored, and necessary
proceedings on dishonor be duly
taken, he will pay the amt. To holder,
or to any subsequent indorser who
may be compelled to pay it
Accommodation Party
Accommodation Party: one who signed
instrument as maker/drawer/acceptor/ indorser
w/o receiving value thereof, for the
purpose of lending his name to some
other person
Liability : Liable on the instrument
to HFV even if holder knew he was
only an AP
Liability of an AGENT
AGENCY:
Signature of any party may be made by
duly authorized agent, established as in ordinary
agency
Signature per procuration operates as
notice that the agent has limited authority to sign,
and the principal is bound only in case the agent
in so signing acted within the actual limits of his
authority
LIABILITY
GEN RULE: Where person adds to his
signature words indicating that he signs on behalf
of a principal, not liable if he was duly authorized
WHEN LIABLE:
mere addition of words describing him as
an agent without disclosing his principal
Where a broker or agent negotiates an
instrument without indorsement, he incurs all
liabilities in Sec. 65, unless he discloses name of
principal and fact that he’s only acting as agent.
(Sec. 69, NIL)
 PRESENTMENT
NOTICE OF DISHONOR

Definition
Definition:
To bring either verbally or by writing, to the knowledge of the drawer or indorser of an
instrument, the fact that a the
specified NI, upon
production of aproper proceedings
BE to the drawee taken, has not been
accepted or has not been paid, and that the party
for his ACCEPTANCE, or to notified is expected
the to pay it
General rule: MUST be given drawer toordrawer andfortoPAYMENT;
acceptor each indorser,
or and any drawer or
indorser to whom such notice theisproduction
not given is
ofdischarged
a PN to the party
liable for payment
When necessary
Sec 89, NIL Except as herein provided, when a negotiable instrument has been
dishonored by non-acceptance or non-payment, notice of dishonor must be given to
PRESENTMENT
the drawer and FOR to each indorser…
PRESENTMENT FOR
PAYMENT
Parties entitled to notice: ACCEPTANCE
Drawer
IN GENERAL Indorser Presentment for Acceptance
Accomodation Indorsers
NECESSARY in order Joint tomaker excluded if not an indorser When necessary (Sec. 143, NIL)
charge the drawer and Clause
Acceleration bill payable after sight, or in other
indorsers(Sec. 70, NIL) is optional on holder:
If clause
cases where presentment for
NOT necessary The bringing of an action against the maker and indorsers constitutes a valid
acceptance necessary to fix maturity
exercise of option and a valid notice of dishonor
where bill expressly stipulates that it
to charge the person
Clause primarily
is automatic: shall be presented for acceptance
liable on the instrument
Notice of(Sec.
dishonor must be givem where bill is drawn payable elsewhere
70, NIL) at once than at residence / place of business of
Not sufficient to give it upon commencement of action drawee
to charge the drawer where
he has no right to expect or In no other case is presentment for
Form and Contents (Sec 96)
require that the drawee or acceptance necessary in order to
acceptor will Formpay the ofinstrument.
Notice: render any party to the bill liable.
(Sec. 79, NIL)
may either be in writing, or oral
to charge an indorser where Effect of non-presentment [w/in reasonable
Campos: must be in a language that will inform the addressed
time] (Sec. 144,partyNIL)
that -the
discharges the
the instrument was made or
instrument
accepted for his accommodation has been duly presented drawer and all indorsers.
and he has no reason to– expect
Contents must contain any terms which sufficiently Reasonable Time: considerations
that the instrument will be paid
a.identify the instrument, and nature of instrument
if presented. (Sec. 80, NIL)
b. indicate that it has been dishonored by non-acceptance or usage of trade or business with
non-payment;
Excused:
respect to instrument
3.Mode of delivery
Where, after the exercise of facts of each case
a. Personal
reasonable service
diligence, How made (Sec. 145, NIL)
presentment cannot be BY or ON BEHALF of the holder
i. There must be actual personal AT a reasonable hour,
made;
Where theservice,
draweeor is a -ON a business day and before the bill is overdue,
fictitious person; -TO the
An ordinary intelligent and diligent effort to make drawee
personal or some person authorized to
service
By waiver of presentment, accept or refuse acceptance on his behalf; and bill
Through the mails addressed to drawees not partners, MUST be made
express or implied.
when a bill is dishonored by
Campos: Through the telephone to them all unless one has authority to accept or
nonacceptance – immediate Party to be notified must be fully identifiedrefuse
as theacceptance
party at thefor all;
right to recourse accrues to
receiving end of the line -drawee is dead, MAY be made to his personal
holder (Sec. 151,ff.NIL)
4. The notice still sufficient: (Sec. 95, NIL) representative;
-drawee has been adjudged a bankrupt or an
in case of waiver of protest,
a. a written notice, not signed insolvent or has made an assignment for the
whether in the case of a foreign bill
b. insufficient written notice, supplemented and benefit ofby
validated creditors, MAY be made:
verbal communication
of exchange or other NI – deemed
to him or
to be a waiverc.not only of asuffering
instrument formal from misdescription UNLESS the party to whom the notice is given
to his trustee or assignee.
protest but also offact
is in presentment
misled thereby.
and notice
Timeofand dishonor.
Place (Sec. 111,
NIL)
Notice may be given as soon as the instrument is dishonored and within the time
fixed by NIL, unless delay excused (Sec. 102, NIL)
NOTICE to SUBSEQUENT PARTY: Each party who receives a notice is given the same
period of time within which to notify prior indorsers that the last holder had. (Sec. 107)
 If given at the place of business of the person to receive notice - before the close of business hours on the
day following
If given at his residence - before the usual hours of rest on the day following
If sent by mail - deposited in the post office in time to reach him in usual course on the day following.
b. Where parties reside in different places (Sec. 104, NIL).:
i. If sent by mail - deposited in the post office in time to go by mail the day following the day of dishonor, or if
there be no mail at a convenient hour on last day, by the next mail thereafter
Convenient hour: depends on the usual hours of opening of business houses and the post-office
If given otherwise - within the time that notice would have been received in due course of mail, if it had
been deposited in the post office within the time specified above

Delay (Sec. 113, NIL)

Excused: when the delay is caused by circumstances beyond the control of the holder and not imputable to
his default, misconduct, or negligence
But, when the cause of delay ceases to operate, notice must be given with reasonable diligence.

Sender deemed to have given due notice (Sec. 105, NIL)

Where notice of dishonor is duly addressed and deposited in the post office,
“deposit in post office” — when deposited in any branch post office or in any letter box under the control of
the post-office department. (Sec. 106, NIL)
notwithstanding any miscarriage in the mails

Place where notice must be sent (Sec. 108, NIL)

to the address, if any, added by the party to his signature; if address not given:
to the post-office nearest to his place of residence or where he is accustomed to receive his letters; or
If he lives in one place and has his place of business in another, to either place; or
If he is sojourning in another place, to the place where he is so sojourning.
Notice sent to place not in accord with NIL, still SUFFICIENT

By Whom Given
Sec. 90, NIL
By or on behalf of the holder or
any party to the instrument who may be compelled to pay it to the holder, and who, upon taking it up,
would have a right to reimbursement from the party to whom the notice is given
Agent
Notice of dishonor may be given by an agent either in his own name or in the name of any party entitled
to give notice, whether that party be his principal or not (Sec. 91, NIL)
Where instrument has been dishonored in hands of agent, he may either himself give notice to the parties
liable thereon, or he may give notice to his principal (within the same time as if agent were holder) (Sec.
94, NIL)
To whom notice MAY be given
If given by an agent
to his principal, in case of an instrument dishonored in the hands of an agent (Sec. 94, NIL), or
to the parties liable thereon
ex: collecting bank
IN GENERAL (Sec. 97)
Party himself
Or his agent in that behalf
If party is dead and death known to the party giving notice (Sec. 98, NIL)
MUST be given to a personal representative, if there be one, and if with reasonable diligence, he can be
found;
If no personal representative – MAY be sent to the last residence or last place of business of the deceased.
To partners : to any one partner, even though there has been a dissolution. (Sec. 99, NIL)
To joint parties(Sec. 100, NIL)
to each of the party
unless one of them has authority to receive such notice for the others.
 PROTEST

Definition: testimony of some proper person that the regular legal steps to fix the liability of drawer and indorsers
have been taken
When necessary:
In case of a FOREIGN BILL appearing on its face to be such;
protest for non-acceptance if dishonored by nonacceptance &
protest for nonpayment if not previously dishonored by nonpayment.
Effect of failure to protest: the drawer and indorsers are discharged. (Sec. 152, NIL)
Form
annexed to the bill or must contain a copy thereof, and
must be under the hand and seal of the notary making it;
Contents
The time and place of presentment;
The fact that presentment was made and the manner thereof;
The cause or reason for protesting the bill;
The demand made and the answer given, if any, or the fact that the drawee or acceptor could not be found.
(Sec. 153, NIL).
By whom
A notary public; or
any respectable resident of the place where the bill is dishonored, in the presence of two or more credible
witnesses. (Sec. 154, NIL)
Time
on the day of its dishonor unless delay is excused;
when duly noted, the protest may be subsequently extended as of the date of the noting. (Sec. 155, NIL);
Place
at the place where it is dishonored,
EXCEPT bill drawn payable at the place of business or residence of person other than the drawee has been
dishonored by nonacceptance,
it must be protested for non-payment at the place where it is expressed to be payable, and
no further presentment for payment to, or demand on, the drawee is necessary. (Sec. 156, NIL)

DISCHARGE

Definition: The release of all parties, whether primary or secondary, from the obligation on the instrument; renders
the instrument non-negotiable.

10
How discharged: (Sec 119)
By Payment in due course
Sec. 88: Payment is made in due course when it is made:
at or after the maturity of the payment
o if payment is made before maturity and the note is
negotiated to a HDC, the latter may recover on the instrument.
to the holder thereof
o payment to one of several payees or indorsees in the alternative discharges the instrument,
o but payment to one of several joint payees or joint indorsers is not a discharge. The party
receiving payment must have
been authorized by others to receive payment.
in good faith and without notice that his title is defective
b. By whom made:
payment in due course by or on
behalf of principal debtor
payment in due course by party accommodated where party is made/ accepted for accommodation
When check deemed paid by drawee bank
Once the holder receives the cash
If the bank credits the amt of the check to the depositor’s account
Where the drawee bank charges the check to the account, indicating intention to honor the check
intentional cancellation by holder
if unintentional or under mistake or
without authority of holder, inoperative;
where instrument or signature appears to have been cancelled, burden of proof on party which alleges it
was unintentional, etc. (Sec. 123, NIL)
any other act which discharges a simple contract for payment of money