NEGOTIABLE INSTRUMENTS LAW

HOLDERS

Holder means the payee or indorsee of a bill or note who is in

possession of it, or the bearer thereof (Sec. 191)

Payee means the person to whom the instrument was originally issued
by the maker or drawer
Indorsee means the person to whom the instrument was negotiated by
indorsement and/or delivery
Bearer means the person in possession of a bill or note which is
payable to bearer

Classes of HOLDERS:

1) Holders simply (Sec. 51)

2) Holders for value (Sec. 26) – where value has at any time been given
for the instrument, the holder is deemed a holder for value in respect
to all parties who become such prior to that time
3) Holders in due course (Sec. 52) – also note Sec. 58

General Rights of HOLDERS: (Sec. 51)

1) To sue
2) To receive payment

Even a holder not in due course may sue thereon in his own
name and payment to him in due course effectively discharges the
instrument (Sec. 51)

NOTE: Right of transferee of unindorsed instrument to sue – such a

party is definitely not a holder, therefore cannot be a holder in due
course. Nevertheless, if the transfer vests in the transferee such title
as the transferor had (Sec. 49), and if the transferor had legal title, this
must pass by the transfer although subject to defenses

The only disadvantage of a holder not in due course is that the

instrument is subject to defenses as if it were non-negotiable, i.e.
personal defenses

“Payment in due course” is payment made:

(a) At or after maturity
(b)To the holder thereof
(c) In good faith without notice that his title is defective (Sec. 88)

Requisite of a HOLDER in DUE COURSE (HDC): (Sec. 52)

A HDC is a holder who has taken the instrument under the following
conditions:

1) It is complete and regular on its face

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 2) He became the holder of it before it was overdue, and without notice
that it had been previously dishonored
3) In good faith and for value
4) He had no notice of any infirmity in the instrument or defect in the title
of the person negotiating it

Note: Every holder is deemed prima facie a HDC (Sec. 59)

(1)Instrument COMPLETE and REGULAR on its face

 Incomplete instrument – when it is wanting in any material

particular or particular proper to be inserted without which the
same will not be complete

The taking of an incomplete instrument puts the purchaser

on inquiry as to why it is incomplete – if he fails to do so, he
takes the instrument subject to all defenses and equities.
HOWEVER, if the “incompleteness” or omission has no effect on
the clear meaning of the instrument, the same has no effect or
would not necessarily make the instrument complete

 Alteration is apparent on the face of the instrument – alteration,

tampering or erasure is apparent on the face of the instrument to
give sufficient warning to the holder that he cannot be
considered a HDC; if it is not apparent, the matter is governed
solely by Sec. 124, i.e. instrument is deemed void

Sec. 124 – Where a negotiable instrument is

materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has
himself made, authorized, or assented to the alteration
and subsequent indorsers

But when an instrument has been materially altered

and in the hands of HDC, who is not a party to the
alteration, he may enforce payment thereof according to
its original tenor

What constitutes Material Alteration? (Sec. 125)

Any alteration which changes:

(a) The date;

(b)The sum payable, either for principal or interest;
(c) The time or place of payment
(d)The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of
payment is specified, or any other change or addition
which alters the effect of the instrument in any respect, is
a material alteration

(2)Before it is OVERDUE and no notice of dishonor

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 When an instrument considered overdue:

(a) Date of maturity is the time fixed therein

(b)If the instrument is payable on demand, determined by date of
presentment – within “reasonable time” (Sec. 71)
(c) Maturity is the designated date – maturity/overdue the next day
after said date

Note that an instrument that is overdue is still negotiable

 When instrument in part is overdue and in part not, i.e. if one or

more but less than all installments are due on its face:

(i) Where installments are due before transfer – overdue as to

installments due before the transfer, hence, he cannot be a
HDC, whether or not he had notice of non-payment
(ii) Where transferee is without notice of non-payment – he is
a HDC as to installments to mature in the future; in the
absence of an acceleration clause, the fact that the
maturity date of one or more installments have passed
cannot make the instrument overdue as to installments
payable in the future

Note: Circulation of the negotiable instrument after the due

date of an installment except the last cannot serve as
notice that installment has not been paid – until maturity of
the last installment – a transferee may assume that the
ordinary course of business has been followed and the
installments due have been paid

Note: Non-payment of interest due (the principal not being

due) does not render the instrument as overdue or subject
to notice of dishonor

(3)GOOD FAITH and for VALUE

Good faith – good faith of the indorsee or transferee and not the
seller; means honesty in fact in the transaction concerned and the
absence of suspicious circumstances, or if such circumstances exist,
then such inquiry as will satisfy a prudent man of the validity of the
transaction

Effects of crossing a check:

a) The check may not be encashed but only deposited in the bank
b) The check may only be negotiated once
c) Warning to holder that the check has been issued for a specific
purpose, and that he must inquire if he has received the check
pursuant to that purpose otherwise he cannot be deemed a HDC

Holder for value – any consideration sufficient to support a simple

contract is VALUE (Sec. 25); valuable consideration (Sec. 191)

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 (4)Holder without NOTICE of INFIRMITY

In order to constitute notice, the holder must have had actual

knowledge of the infirmity or defect (Sec. 55)

Bad faith of agent, if acting within the scope of the authority

granted, the principal is not deemed a HDC

Demand instrument – negotiated in an unreasonable length of time

after its issue – holder is not HDC (Sec. 53)

Effect of notice before full payment (Sec. 54):

a) No amount has been paid – where an instrument has been taken but
the purchaser has not yet paid anything, and he receives notice of
the infirmity in the instrument or defect in the title of the holder, he
is relieved from the obligation to make payment; if he does so, he
cannot be considered a HDC (Note: “paid” – not limited to payment
of money, but includes performance in any other manner of an
obligation)
b) An amount has been paid – he is under no legal obligation to pay
the balance of the amount he has agreed to pay on discovering the
infirmity or defect; if he does, he can only be considered a HDC only
to the extent of the amount therefor paid to him

Note: Sec. 54 does not apply where the holder has given for the paper
his promise which he must perform, as, for instance, when he has
incurred liability to a third person. In such a case, he is in the same
position and entitled to the same protection as one who has paid for
the instrument in money or property at the time of transfer

When a title is defective – title is defective when he obtained the

instrument, or any signature thereto, by fraud, duress, or force and
fear, or other unlawful means, or for an illegal consideration, or when
he negotiates it in breach of faith, or under such circumstances
amounting to fraud (Sec. 55)

Infirmities – include things that are wrong with the instrument

itself as distinguished from those things that are lacking in the
contracts on the instruments such infirmities are to be found in
situations arising under Sections 13, 14, 15, 16, 21, 23, 124 and 125

Notice of defect – actual knowledge of the infirmity or defect, or

knowledge of such facts that his action in taking the instrument
amounted to bad faith (Sec. 56)

Rights of a HDC: (Sec. 51 and 57)

1) Sue based on the instrument in his own name

2) Receive payment, and if the payment is in due course, the instrument
is discharged
3) Hold instrument free from any defect of title of prior parties
4) Hold instrument free from defenses available to prior parties among
themselves
5) Enforce payment for full amount against all parties liable thereon

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 In view of the foregoing, the HDC acquires a better title than any of his
predecessors

Exceptions:

a) Sec. 27 – Holder for value has a lien

b) Sec. 54 – Partial payment before notice of infirmity
c) Sec. 124 – Material alteration

Note: Defenses referred to in Sec. 57 are “personal defenses” or equities;

Real defenses, which attach to the instrument itself would be available even
against a HDC (Sec. 58)

When subject to original defenses: In the hands of any holder, other

than a HDC, a negotiable instrument is subject to the same defenses as if it
were non-negotiable – HOWEVER, a holder who derives title through a HDC,
and who is not himself a party to any fraud has all the rights of such former
holder in respect of all parties (Sec. 58) --- also known as the “Shelter Rule”

Real Defenses – those available against all parties, both immediate and
remote, including HDCs or holders through the latter; attaches to the res,
therefore challenges the validity of the instrument

Note: This does not imply that the instrument is valueless and can never be
enforced – it is only unenforceable against the party entitled to set up the
defense

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LIABILITIES OF PARTIES

1) MAKER (Primary and Unconditional liability)

a) Engages to pay according to the tenor of the instrument

b) Admits existence of payee and his capacity to indorse
(Sec. 60)

Presumption from signature – a person placing his name on the

face of the note is prima facie a maker and liable as such since he is
presumed to have acted with care and signed the instrument in
question with full knowledge of its contents

Return of the note – maker has the right to demand the return of
the note at the time of the payment – if lost, maker may require
bond

2) ACCEPTOR (Primary and Unconditional liability)

a) Engages to pay according to the tenor of his acceptance

b) Admits the existence of the drawer, the genuineness of his
signature and his capacity and authority to draw the instrument
c) Admits the existence of the payee and his capacity to indorse
(Sec. 62)

Note: The drawee of the bill is not liable thereon before

acceptance (Sec. 132)

Liability BEFORE acceptance: He is not obligated to the payee or

any holder to accept a bill although he may be liable to the drawer
for breach of contract if he refuses without valid reason to accept
the bill – refusal by the drawee to accept a bill constitutes a
dishonor of the instrument which triggers the liability of secondary
parties

Liability AFTER acceptance: Once the drawee accepts the bill, he

becomes an acceptor – virtually in the same position as a maker –
same result if a bank certifies a check drawn on the bank (Sec. 187)

Payment of check despite “Stop Payment Order” – if a drawee

bank accepts or pays a check despite stop payment order from the
drawer, through oversight or otherwise, it cannot refuse to pay the
holder or recover what has been paid; neither may it debit the
drawer’s account unless the acceptance or payment was made prior
to the receipt of the order

Note: The bank on which a check is drawn is, under strict liability
based on the contract between the bank and its customer (drawer),
to pay the check only to the payee’s order – drawer’s instructions
are reflected on the face and by the terms of the check, otherwise,
the bank violates its duty to charge the drawer’s account only for
properly payable items and shall be liable for the amount charged
to the drawer’s account

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 Effect of acceptance of an ALTERED instrument: Original tenor
of the instrument – more logical

3) DRAWER (Secondary and Conditional liability)

a) Admits the existence of the payee and his capacity to indorse

b) Engages that the instrument will be accepted or paid by the party
primarily liable
c) Engages that if the instrument is dishonored and proper
proceedings are brought, he will pay to the party entitled to be paid
(Sec. 61)

Necessary Proceedings: Notice of Dishonor – given to drawer and

indorsers (Sec. 89)
Protest + Notice of Dishonor for foreign bills (Sec. 152)

Exceptions (Sec. 114):

(i) When the drawer and the drawee are the same person
(ii) Drawee is fictitious or has no capacity to contract
(iii) Drawer is the person to whom the instrument was presented
for payment
(iv) Drawer has no right to expect or require that the drawee or
acceptor will honor the instrument
(v) Drawer has countermanded payment

Note: Liability of a drawer of a check – stricter liability, i.e. he

may not unilaterally discharge himself from liability on checks
issued by him merely as security and not for value

 By issuing the check, the drawer represents the existence of

fund or credit at the time it is drawn
 Drawer can still be made liable under a separate contract

Note: A payee may sue the drawee based on Art. 19 of the Civil
Code, if there was dishonor despite the instruction of the drawer to
pay (HSBC vs. Catalan)

4) INDORSERS

Who is deemed an indorser: A person placing his signature

upon an instrument otherwise than as a maker, drawer or acceptor is
deemed to be an indorser, unless he clearly indicates by appropriate
words his intention to be bound in some other capacity (Sec. 63) – take
note also of Sec. 17 (f)

a) General Indorsers: Warranties (Sec. 66) – GeGoCaVaE

(i) Instrument is GENUINE and in all respects what it purports to

be
(ii) He has GOOD title to it
(iii) All prior parties had CAPACITY to contract
(iv) Instrument is VALID and subsisting at the time of indorsement

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 (v) ENGAGES that on due presentment, instrument shall be
accepted or paid or both – and if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will pay
the amount thereof to the holder, or to any subsequent
indorser who may be compelled to pay it

b) Qualified Indorsers and Persons Negotiating by Mere

Delivery (Sec. 65) – GeGoCaVa

(i) Instrument is GENUINE and in all respects what it purports to

be
(ii) He has GOOD title to it
(iii) All prior parties had CAPACITY to contract
(iv) He has no knowledge of any fact which would impair the
VALIDITY of the instrument or render it VALUELESS

Note: Warranties of persons negotiating by mere delivery

extends to the immediate transferee only

5) OTHER CASES

a) Irregular Indorser (Sec. 64)

Who is an irregular indorser?

(i) A person who is not otherwise a party to the instrument
(ii) Places thereon his signature in blank
(iii) Before delivery

Rules:

(i) If the instrument is payable to the order of a third person, he is

liable to the payee and all subsequent indorsees/parties
(ii) If the instrument is payable to the order of maker or drawer, or
payable to bearer – liable to all subsequent parties to maker or
drawer
(iii) If he signs as accommodation to the payee – liable to all
parties subsequent to the payee

b) Indorser of BEARER instruments (Sec. 67)

A BEARER instrument is negotiable by delivery and the transferor

is liable to the immediate transferee under Sec. 65. In case of
negotiation by indorsement of BEARER instruments, his liability will
be governed by Section 65 or Sec. 66 depending upon whether his
indorsement was qualified or not

(i) If he indorses specially, he is liable only to holders who make title

through his indorsement (Sec. 40)
(ii) If he indorses without qualification, he incurs liability of a general
indorser

c) Accommodation Party (Sec. 29)

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 One who has signed the instrument as maker, drawer, acceptor
or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person

Liability: Liable on the instrument to a holder for value,

notwithstanding such holder at the time knew him to be only an
accommodation party

 Accommodation party is permitted to show by parol evidence

which party he accommodated; in the absence of concrete
evidence showing when one issued the subject check and in
what capacity, it cannot be assumed that he intended to lend
his name as an accommodation party (Bautista vs. Auto Plus
Traders)
 Absence of consideration not a defense – absence of
consideration between the accommodation party and the
accommodated party does not OF ITSELF constitute a valid
defense against a holder for value (Ang vs. Associated Bank).
He has no right to the instrument UNLESS the accommodated
party fails to pay, i.e. by paying he becomes a holder
 Corporations cannot become accommodation parties because
the issue or indorsement of negotiable paper by a corporation
without consideration is ultra vires (beyond one’s power) ---
HOWEVER, it does not absolve, but should render personally
liable the signatories of said instrument where the facts show
that the accommodation involved was for their personal
account, undertaking or purpose and the creditor was aware
thereof (Crisologo Jose vs. CA)
 Accommodation party is, in effect, a surety (Philippine Bank of
Commerce vs. Aruego) – his liability is not only primary, but
also unconditional
 While not exonerating his solidary liability, an accommodation
party has a right to be properly appraised of the default or
delinquency of the accommodated party (Gonzales vs. Phil.
Commercial and Industrial Bank)

Right of accommodation party:

(i) Right to revoke accommodation – since it is gratuitous, it

may be revoked or rescinded by cancellation or notice to
those interested at any time before the instrument has
been negotiated for value
(ii) Right to reimbursement from accommodated party – as
surety and principal (PNB vs. Maza and Macenas). As
between the accommodation party and the accommodated
party, the latter is expected to pay the instrument directly
to the holder since the accommodated party is the real
debtor
(iii) Right to contribution from other solidary accommodation
parties

d) Agent or broker (Sec. 69)

Liability will be based on Sec. 65 or Sec. 66 as the case may be

To escape personal liability, he must:
(i) Disclose his principal

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(ii) Disclose the fact that he is acting only as an agent

Note: Parol evidence is not admissible to relieve a broker or

agent whose indorsement brings him within Sec. 69

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HOW TO ENFORCE LIABILITY

1) Primarily Liable

a) The maker is liable the moment he makes the instrument.

Section 60 of the NIL provides that the maker by making the
promissory note “engages to pay the instrument according to its
tenor”
b) A drawee becomes liable the moment he accepts the
instrument. Section 62 provides that the “acceptor, by accepting
the instrument, engages that he will pay it according to the tenor of
his acceptance”

2) Secondarily Liable

a) Steps to Charge Secondary Parties in Promissory Note

(1) Presentment for payment must be made within the

required period to the maker (Sec. 70, NIL)

(2) Notice of dishonor should be given, if promissory note is

dishonored by non-payment by the maker (Sec. 89, NIL)

b) Steps to Charge Secondary Parties in a Bill of Exchange

(1) Presentment for acceptance or negotiation within a

reasonable time after it was acquired – should be made only in
the instances required in Section 143

(2) If dishonored by non-acceptance:

(i) Notice of dishonor should be given to the indorsers

and drawer (Sec. 89)
(ii) If the bill is a foreign bill, there must be protest for
dishonor by non-acceptance (Sec. 159)

(3) If the bill is accepted:

(i) Presentment for payment to the acceptor should be

made:

(a) If the bill is dishonored upon presentment for

payment
(b) Notice of dishonor must be given to person
secondarily liable

(ii) If the bill is a foreign bill, protest for dishonor by non-

payment must be made

c) Steps to Charge Acceptor for Honor and Referee in case of Need

(1) Protest for non-payment by the drawee (Sec. 165)

PRESENTMENT FOR PAYMENT

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 Presentment for payment of an instrument (i.e. promissory note or
accepted bill) to the person primarily liable for the purpose of demanding
and receiving payment

 Presentment and demand for payment are not necessary in order to

charge the person primarily liable, i.e. the holder can sue the maker
or acceptor, although no demand has been made on him, as soon as
the date for payment has passed without the instrument being paid
 The ability and willingness on the part of the primary party to pay
there at maturity are equivalent to a tender or offer of payment on his
part so that if the instrument is not paid and is overdue, he cannot be
considered in delay and, therefore, not being at fault, he is not liable
for costs and interests subsequently accruing although he is not
relieved from making payment

What constitutes sufficient presentment (Sec. 72, NIL)

Presentment for payment, to be sufficient, must be made:

(a) By the holder, or by some person authorized to receive payment

on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place;
(d) To the person primarily liable on the instrument, or if he is absent
or inaccessible, to any person found at the place where the
presentment is made

Note: In the absence of proper presentment, no right of recourse

is available against the drawer

 Date of Presentment (Sec. 71, NIL)

(1)If payable at a fixed or determinable future time – presentment

must be made on the date it falls due without grace period (Sec. 85)

Note: Presentment before maturity is not effective

(2)If payable on demand: (a) promissory note – within reasonable time

after its issue or delivery; (b) bill of exchange – within reasonable
time after the last negotiation thereof, hence, the time from
issuance to the last negotiation is not considered

o Rule in determining maturity date (Sec. 85)

o Rule in computing time (Sec. 86)
o Rule if payable at a bank (Sec. 75)

NOTE: Delay in presentment excused (Sec. 81) – when delay is caused

by circumstances beyond the control of the holder, and not imputable
to his default, misconduct, or negligence. When the cause of delay
ceases to operate, presentment must be made with reasonable
diligence

 Place of Presentment (Sec. 73, NIL)

Presentment for payment is made at the proper place:

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 (1) Where a place for presentment is specified in the instrument and
it is presented there
(2) Where no place of payment is specified, but the address of the
person to make payment is given in the instrument and it is
presented there
(3) Where no place of payment is specified and no address is given
and the instrument is presented at the usual place of business or
residence of the person to make payment
(4) In any other case, if presented to the person to make payment
wherever he can be found, or if presented at his last known place of
business or residence

 Presentment to the party primarily liable

How presentment made (Sec. 74) – must be exhibited to the person

from whom payment is demanded, and when it is paid must be
delivered up to the party paying it; therefore, requires face to face
demand at the proper place

Purpose:
(i) To determine the genuineness of the instrument and the
indorsements and the right of the holder to receive
payment
(ii) To enable him, upon payment, to take possession of it to
guard against a lawsuit by a subsequent holder

If the instrument is not exhibited, the presentment would be ineffectual

as the debtor is entitled to see the instrument and demand its
surrender upon payment – right to exhibition of instrument is waivable

Presentment where principal debtor is dead (Sec. 76) – executor or

administrator, if there be one and can be found. But presentment may
be dispensed with if with exercise of reasonable diligence, no personal
representative can be found (Sec. 82 [a]) – holder is not excused from
giving notice of dishonor to the indorser, if he wishes to hold the latter
liable on the instrument

Presentment to persons liable as partners (Sec. 77) – payment may

be made to any one of them, even though there has been a dissolution
of the firm; therefore, presentment to one is presentment to all –
dishonor by one is dishonor by all

Presentment to joint debtors (Sec. 78) – presentment must be made

to all of them before the holder can charge parties secondarily liable –
joint liability there are as many debts as there are debtors

Note: Sections 76, 77 and 78 are applicable only if no place of

payment is specified – if there is a place, presentment must be made
at such place

When Presentment for Payment is NOT NECESSARY

Presentment for payment is not necessary to charge persons primarily

liable. However, it is necessary to charge persons secondarily liable except:

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 1) As to the drawer (Sec. 79) – where he has no right to expect or
require that the drawer or acceptor will pay the instrument;

2) As to indorser (Sec. 80) – where instrument was made or

accepted for his accommodation and he has no reason to expect that
the instrument will be paid if presented

3) When dispensed with (Sec. 82) – (i) where, after the exercise of
reasonable diligence, presentment cannot be made; (ii) where the
drawee is a fictitious person; and (iii) by waiver of presentment,
express or implied

4) When the instrument has been dishonored by non-acceptance

PRESENTMENT FOR ACCEPTANCE

Presentment for acceptance is the production or exhibition of a bill of

exchange to the drawee for his acceptance or payment

When mandatory (Sec. 143, NIL)

Presentment for acceptance is required in the following cases:

1) Where the bill is payable within a fixed period after sight, or in

any other case, where presentment for acceptance is necessary in
order to fix the maturity of the instrument;

2) Where the bill expressly stipulates that it shall be presented for

acceptance;

3) Where the bill is drawn payable elsewhere than at the residence

or place of business of the drawee

Note: It is not necessary to present a check for acceptance because it

is not one of those required to be presented for acceptance under
Section 143

Acceptance – the signification by the drawee of his assent to the

order of the drawer. The acceptance must be in writing and signed by the
drawee. It must not express that the drawee will perform his promise by any
other means than the payment of money (Sec. 132)

Requisites:

1) The acceptance must be in writing (Note constructive acceptance

– Sec. 137)
2) The written acceptance must be signed by the drawee
3) The drawee must assent to the promise to pay a sum certain in
money and not by any other means

 The law does not require any particular form of word or words to
constitute acceptance. Any equivalent word or expression
(“honored”, “seen”, “presented”, “good”, “I would pay” or the
signature of the drawee without more is valid as acceptance –

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 what is important is that an intention to accept may be inferred
from the words used

How Acceptance is Made

 Proof of Acceptance – the written acceptance may be in the

instrument itself or in a separate instrument. However, the holder of a
bill presenting the same for acceptance may require that the
acceptance be written on the bill, and, if such request is refused,
may treat the bill as dishonored (Sec. 133).

Effects: When an acceptance is written on a paper other than the bill

itself, it does not bind the acceptor except in favor of a person to whom
it is shown and who, on the faith thereof, receives the bill for value
(Sec. 134)

 Promise to accept – an unconditional promise in writing to accept a

bill before it is drawn is deemed an actual acceptance in favor of every
person who, upon the faith thereof, received the bill for value (Sec.
135)

 Constructive acceptance (Sec. 137):

(i) Where the drawee to whom the bill is delivered for acceptance
destroys it; or
(ii) Where the drawee refuses, within 24 hours after delivery or
within such period as is given to him, to return the bill, accepted
or non-accepted

Note: The doctrine of constructive acceptance is based on the general

principle of estoppel

Time to Accept – twenty-four (24) hours after presentment for acceptance

within which to act upon the bill; if he accepts the bill, the acceptance shall
be dated as of the day of presentation (Sec. 136)

Rule when incomplete bill is accepted – acceptance may be made

before the bill has been signed by the drawer or while otherwise incomplete,
or when it is overdue, and even after it has been dishonored by non-
acceptance or non-payment (Sec. 138) – Note: If it is transferred while
incomplete – holder is not a holder in due course

Kinds of Acceptance (Sec. 139):

1) General
 assents without qualification to the order of the drawer (Sec.
139)
 acceptance to pay at a particular place (Sec. 140)

2) Qualified
 varies the effect of the bill as drawn (Sec. 139)
 bill is to be paid at a particular place only and not elsewhere
(Sec. 140)

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 a) Conditional – makes payment by the acceptor dependent on
the fulfillment of a condition therein stated
b) Partial – an acceptance to pay part only of the amount for
which the bill is drawn
c) Local – an acceptance to pay only at a particular place
d) Qualified as to time
e) Acceptance of one or more of the drawees, but not all (Sec.
141)

 Right to UNQUALIFIED Acceptance – The holder may refuse to take

a qualified acceptance and if he does not obtain an unqualified
acceptance, he may treat the bill as dishonored by non-acceptance
 However, where a qualified acceptance is taken, the drawer and
indorsers are discharged from liability unless they have expressly or
impliedly authorized the holder to take a qualified acceptance, or
subsequently assent thereto
 When the drawer or an indorser receives notice of a qualified
acceptance, he must, within reasonable time, express his dissent to
the holder or he will be deemed to have assented thereto

NOTICE OF DISHONOR

Notice of Dishonor – bringing, either verbally or in writing, to the

knowledge of the drawer or indorser of an instrument, the fact that a
specified negotiable instrument, upon proper proceedings taken, has not
been accepted or has not been paid and that the party notified is expected
to pay it. If such notice is given by a notary public, it is called a protest
(Sec. 153).

Dishonor by non-payment (Sec. 83)

(a) It is duly presented for payment and payment is refused or cannot be

obtained
(b)Presentment is excused (Secs. 79, 80 and 82) and the instrument is
overdue and unpaid

Dishonor by non-acceptance (Sec. 149)

(a) When it is duly presented for acceptance and such an acceptance as is

prescribed by this Act is refused or cannot be obtained
(b)When presentment for acceptance is excused (Sec. 148), and the bill is
not accepted

(i) Where the drawee is dead, or has absconded, or is a fictitious

person not having capacity to contract a bill
(ii) Where after the exercise of reasonable diligence, presentment
cannot be made
(iii) Where, although presentment has been irregular (i.e.
presentment on a Sunday or a holiday), acceptance has been
refused on some other ground

Who should give notice: (1) holder; (2) agent or representative of the
holder; (3) any party who may be compelled to pay like indorsers; and (4)
agent of any party who may be compelled (Sec. 90)

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Form of notice (Sec. 95 and 96)

 May be in writing or oral (Sec. 96)

Contents:
(a) Identity of the instrument
(b)Fact that it has been dishonored by non-acceptance or non-payment
(c) Statement that the party giving notice intends to look for the party
addressed for payment

How given: (1) personal delivery, or (2) by mail

 Insufficiency of notice may be supplemented and validated by oral

communication (Sec. 95)

To whom notice is given:

1) Party secondarily liable (drawer and indorser) or agent (Sec. 97)

2) Notice where party is dead (Sec. 98)

 Death is known to the party giving notice

 There is a personal representative
 If with reasonable diligence, the said personal representative can be
found

If none – notice may be sent to the last residence or last place of

business of the deceased

3) Notice to partners (Sec. 99)

4) Notice to persons jointly liable (Sec. 100)

5) Notice to bankrupt (Sec. 101) – either to party himself or his trustee or

assignee

Time (Sec. 103 and 104)

1) Where parties reside in the same place

(a) If given at the place of business of the person to receive notice, it

must be given before the close of business on the day following
(b) If given at his residence, it must be before the usual hours of rest
on the day following
(c) If sent by mail, it must be deposited in the post office in time to
reach him in usual course on the day following

2) Where parties reside in different places

(a) If sent by mail, it must be deposited in the post office in time to

go by mail the day following the day of dishonor, or if there be no
mail at a convenient hour on the last day, by the next mail
thereafter
(b) If given otherwise than through the post office, then within the
time that notice would have been received in due course of mail,

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 if it had been deposited in the post office within the time
specified in the last subdivision

When not required, excused or dispensed with:

1) After the exercise of reasonable diligence, it cannot be given to or does

not reach the parties sought to be discharged (Sec. 112)

2) Drawer:

(a) Where the drawer and the drawee are the same person;
(b)When the drawee is a fictitious person or a person not having
capacity to contract
(c) When the drawer is the person to whom the instrument is presented
for payment
(d)Where the drawer has no right to expect or require that the drawee
or acceptor will honor the instrument
(e) Where the drawer has countermanded payment

3) Indorser:

(a) When the drawee is a fictitious person or person not having

capacity, and the indorser was aware of that fact at the time he
indorsed the instrument
(b)Where the indorser is the person to whom the instrument is
presented for payment
(c) Where the instrument was made or accepted for his
accommodation

DISCHARGE of INSTRUMENTS

How (Sec. 119):

1) By payment in due course by or in behalf of the principal debtor

2) By payment in due course by the party accommodated, where the
instrument is made or accepted for his accommodation
3) By the intentional cancellation thereof by the holder
4) By any other act which will discharge a simple contract for payment of
money
5) When the principal debtor becomes the holder of the instrument at or
after maturity in his own right

Payment in due course – payment made at or after the maturity of the

instrument, to the holder thereof in good faith and without notice that his
title is defective (Sec. 88)

When is a person secondarily liable discharged (Sec. 120)

a) By any act which discharges the instrument

b) By the intentional cancellation of his signature by the holder
c) By discharge of a prior party
d) By a valid tender or payment made by a prior party
e) By a release of the principal debtor unless the holder’s right of
recourse against the party secondarily liable is expressly reserved

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f) By any agreement binding upon the holder to extend the time of
payment to or postpone the holder’s right to enforce the instrument
unless made with the assent of the party secondarily liable or unless
the right of recourse against such party is expressly reserved

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