Negotiable Instruments – written contracts for the payment Bill of Exchange – unconditional order in writing addressed by d.

essed by d. drafts which are bills of exchange drawn by 1 bank to

of money; by its form, intended as a substitute for money and one person to another, signed by the person giving it, requiring another
intended to pass from hand to hand, to give the holder in due the person to whom it is addressed to pay on demand or at a e. letters of credit
course the right to hold the same and collect the sum due. fixed or determinable future time a sum certain in money to
Characteristics of Negotiable Instruments: order or to bearer. (Sec. 126 NIL) Notes on Section 1:
a. negotiability – right of transferee to hold the instrument and  In order to be negotiable, there must be a writing of some
collect the sum due Difference between Promissory Note and Bill of Exchange kind, else there would be nothing to be negotiated or
b. accumulation of secondary contracts – instrument is Promissory Note Bill of Exchange passed from hand to hand. The writing may be in ink, print
negotiated from person to person. Unconditional promise Unconditional order or pencil. It may be upon parchment, cloth, leather or any
Involves 2 parties Involves 3 parties other substitute of paper.
Difference between Negotiable Instruments from Non- Maker primarily liable Drawer only secondarily liable  It must be signed by the maker or drawer. It may consist of
Negotiable Instruments: Only 1 presentment – for Generally, 2 presentments – for mere initials or even numbers, but the holder must prove
Negotiable Instruments Non-negotiable Instruments payment acceptance and for payment that what is written is intended as a signature of the person
Contains all the requisites of Does not contain all the Distinctions between a Check and Bill of Exchange sought to be charged.
Sec. 1 of the NIL requisites of Sec. 1 of the NIL CHECK BOE  The Bill must contain an order, something more than the
Transferred by negotiation Transferred by assignment – always drawn upon a bank – may or may not be drawn mere asking of a favor.
Holder in due course may Transferee acquires rights only or banker against a bank  Sum payable must be in money only. It cannot be made
have better rights than of his transferor – may be payable on demand payable in goods, wares, or merchandise or in property.
transferor – always payable on  A drawee’s name may be filled in under Section 14 of the
or at a fixed or determinable
Prior parties warrant payment Prior parties merely warrant demand NIL
future time
legality of title – not necessary that it be – necessary that it be
Transferee has right of Transferee has no right of presented for acceptance presented for acceptance Determination of negotiability
recourse against intermediate recourse – drawn on a deposit – not drawn on a deposit 1. by the provisions of the Negotiable Instrument Law,
parties – the death of a drawer of a particularly Section 1 thereof
Difference between Negotiable Instruments and – the death of the drawer of the 2. by considering the whole instrument
check, with knowledge by
Negotiable Documents of Title ordinary bill of exchange does 3. by what appears on the face of the instrument and not
the banks, revokes the
Negotiable Documents of not elsewhere
Negotiable Instruments authority of the banker pay
Title – must be presented for *In determining is the instrument is negotiable, only the
Have requisites of Sec. 1 of does not contain requisites of – may be presented for instrument itself and no other, must be examined and
payment within a reasonable
the NIL Sec. 1 of NIL payment within a reasonable compared with the requirements stated in Sec. 1. If it appears
time after its issue (6
Have right of recourse no secondary liability of time after its last negotiation. on the instrument that it lacks one of the requirements, it is not
months)
against intermediate parties intermediate parties Distinctions between a Promissory Note and Check negotiable and the provisions of the NIL do not govern the
who are secondarily liable PN CHECK instrument. The requirement lacking cannot be supplied by
Holder in due course may transferee merely steps into – there are three (3) parties, using a separate instrument in which that requirement which is
have rights better than the shoes of the transferor – there are two (2) parties, lacking appears.
the drawer, the drawee bank
transferor the maker and the payee
and the payee
Subject is money subject is goods – may be drawn against any Sum is certain even if it is to be paid with:
instrument is merely evidence person, not necessarily a – always drawn against a bank a. interest
Instrument itself is property of of title; thing of value are the bank b. in installments
value goods mentioned in the – may be payable on demand c. in installments with acceleration clause
document or at a fixed or determinable -always payable on demand d. with exchange
Promissory Note – unconditional promise to pay in writing future time e. costs of collection or attorney’s fees (Sec. 2 NIL)
made by one person to another, signed by the maker, engaging General Rule: The promise or order should not depend on a
– a promise to pay – an order to pay
to pay on demand or a fixed determinable future time a sum contingent event. If it is conditional, it is non-negotiable.
certain in money to order or bearer. When the note is drawn to Exceptions:
Other Forms of Negotiable Instruments:
maker’s own order, it is not complete until indorse by him. (Sec. a. indication of particular fund from which the acceptor
a. certificates of deposits
184 NIL) disburses himself after payment
b. trade acceptances
b. statement of the transaction which gives rise to the
c. bonds in the nature of promissory notes
instrument. (Sec. 3 NIL)
But an order or promise to pay out of a particular fund is not 3. does not specify the place where it is drawn or payable e. only and last indorsement is an indorsement in blank (Sec.
unconditional 4. bears a seal 9 NIL)
5. designates the kind of current money in which payment is
Notes on Section 3 to be made (Sec. 6 NIL) Notes on Section 9
– The particular fund indicated should not be the direct source – “fictitious person” is not limited to persons having no legal
of payment, else it becomes unconditional and therefore Instrument is payable upon demand if: existence. An existing person may be considered fictitious
non-negotiable. The fund should only be the source of a. it is expressed to be so payable on sight or upon depending on the intention of the maker or the drawer.
reimbursement. presentation – “fictitious person” means a person who has no right to the
– A statement of the transaction does not destroy the b. no period of payment is stipulated instrument because the maker or drawer of it so intended.
negotiability of the instrument. Exception: Where the c. issued, accepted, or endorsed after maturity (Sec. 7 NIL) He was not intended to be the payee.
promise to pay or order is made subject to the terms and – where the instrument is drawn, made or prepared by an
conditions of the transaction stated. Where an instrument is issued, accepted or indorsed when agent, the knowledge or intent of the signer of the
overdue, it is, as regards to the person so issuing, accepting, instrument is controlling.
18. Instrument is payable upon a determinable future or indorsing it, payable on demand. – Where the agent has no authority to execute the instrument,
time if: the intent of the principal is controlling
a. there is a fixed period after sight/date Notes on Section 7
b. on or before a specified date/fixed determinable future time – if the time for payment is left blank (as opposed to being The date may be inserted in an instrument when:
c. on or at a fixed date after the occurrence of an event omitted), it may properly be considered as an incomplete 1. an instrument expressed to be payable at a fixed period after
certain to happen though the exact date is not certain (Sec. instrument and fall under the provisions of Sec. 14, 15, or 16 date is issued undated
4 NIL) depending on how the instrument is delivered. 2. where acceptance of an instrument payable at a fixed period
after sight is undated (Sec. 13 NIL)
Notes on Section 4 Instrument is payable to order: Effects:
 If the instrument is payable upon a contingency, the – where it is drawn payable to the order of a specified person – any holder may insert the true date of issuance or
happening of the event does not cure the defect (still non- or acceptance
negotiable) – to a specified person or his order – the insertion of a wrong date does not avoid the instrument
General Rule: If some other act is required other than the in the hands of a subsequent holder in due course
payment of money, it is non-negotiable. It may be drawn payable to the order of: – as to the holder in due course, the date inserted (even if it
Exceptions: 1. a payee who is not a maker, drawer, or drawee be the wrong date) is regarded as the true date.
a. sale of collateral securities 2. the drawer or maker
b. confession of judgment 3. the drawee Subsequent Holder in Due Course not affected by the
c. waives benefit of law 4. two or more payees jointly following deficiencies:
d. gives option to the holder to require something to be done 5. one or some of several payees a. incomplete but delivered instrument (Sec. 14 NIL)
in lieu of money (Sec. 5 NIL) 6. the holder of an office for the time being (Sec. 8 NIL) b. complete but undelivered (Sec. 16 NIL)
c. complete and delivered issued without consideration or a
Notes of Section 5 Notes on Section 8 consideration consisting of a promise which was not
– Limitation on the provision, it cannot require something – The payee must be named or otherwise indicated therein fulfilled (Sec 28 NIL)
illegal. with reasonable certainty.
– There are two kinds of judgements by confession: a) – If there is no payee, there would be no one to indorse the Holder in Due Course Affected by
cognovit actionem b) relicta verificatione instrument payable to order. Therefore, useless to be Abnormality/Deficiency:
– Confessions of judgement in the Philippines are void as considered negotiable. a. incomplete and undelivered instrument (Sec. 15 NIL)
against public policy. – Joint payees in indicated by the conjunction “and”. To b. maker/drawer’s signature forged (Sec. 23 NIL)
– If the choice lies with the debtor, the instrument is rendered negotiate, all must indorse.
non-negotiable. – Being several payees is indicated by the conjunction “or”. Incomplete but Delivered Instrument:
Where an instrument is wanting in any material particular
The validity and negotiability of an instrument is not Instrument is payable to bearer: a. Holder has prima facie authority to fill up the blanks therein.
affected by the fact that: a. when it is expressed to be so payable b. It must be filled up strictly in accordance with the authority
1. it is not dated b. when payable to the person named or bearer given and within a reasonable time.
2. does not specify the value given or that any had been c. payable to order of fictitious or non-existent person and this c. If negotiated to a holder in due course, it is valid and
given fact was known to drawer effectual for all purpose as though it was filled up strictly in
d. name of payee not name of any person
 accordance with the authority given and within reasonable Rules on delivery of negotiable instruments:
time. (Sec. 14 NIL) 1) delivery is essential to the validity of any negotiable
instrument General rule: Infants and corporations incur no liability by their
2. Where only a signature on a blank paper was delivered 2) as between immediate parties or those is like cases, delivery indorsement or assignment of an instrument. (Sec. 22 NIL)
a. It was delivered by the person making it in order that it may must be with intention of passing title
be converted into a negotiable instrument 3) an instrument signed but not completed by the drawer or Effects:
b. The holder has prima facie authority to fill it up as such for maker and retained by him is invalid as to him for want of – no liability attached to the infant or the corporation
any amount. (Sec. 14 NIL) delivery even in the hands of a holder in due course – the instrument is still valid and the indorsee acquires title
4) but there is prima facie presumption of delivery of an
Notes on Section 14 instrument signed but not completed by the drawer or maker Sec 23. a signature which is forged or made without authority
– if the instrument is wanting in material particular, mere and retained by him if it is in the hands of a holder in due is wholly inoperative.
possession of the instrument is enough to presume prima course. This may be rebutted by proof of non-delivery.
facie authority to fill it up. 5) an instrument entrusted to another who wrongfully Effects:
– material particular may be an omission which will render the completes it and negotiates it to a holder in due course, 1. no right to retain
instrument non-negotiable (e.g. name of payee), an delivery to the agent or custodian is sufficient delivery to 2. no right to give a discharge
omission which will not render the instrument non- bind the maker or drawer. 3. no right to enforce payment can be acquired.
negotiable (e.g. date) 6) If an instrument is completed and is found in the possession
Exception:
– in the case of the signature in blank, delivery with intent to of another, there is prima facie evidence of delivery and if it
– the party against whom it is sought to be enforced is
convert it into a negotiable instrument is required. Mere be a holder in due course, there is conclusive presumption
precluded from setting up the forgery or want of authority.
possession is not enough. of delivery.
7) delivery may be conditional or for a special purpose but such
Notes on Section 23
Incomplete and Undelivered Instrument: do not affect the rights of a holder in due course.
– Section 23 applies only to forged signatures or signatures
General Rule: Where an incomplete instrument has not been
made without authority
delivered, it will not, if completed and negotiated without General rule: a person whose signature does not appear on
– Alterations such as to amounts or like fall under section 124
authority, be a valid contract in the hands of any holder against the instrument in not liable.
– Forms of forgery are a) fraud in factum b) duress amounting
any person who signed before delivery. (Sec. 15 NIL) Exception:
to fraud c) fraudulent impersonation
1. one who signs in a trade or assumed name (Sec. 18)
– Only the signature forged or made without authority is
Notes on Section 15 2. a duly authorized agent (Sec. 19)
inoperative, the instrument or other signatures which are
– it is a real defense. It can be interposed against a holder in 3. a forger (Sec. 23)
genuine are affected
due course.
– The instrument can be enforced by holders to whose title
– delivery is not conclusively presumed where the instrument General rule: an agent is not liable on the instrument if he
the forged signature is not necessary
is incomplete were duly authorized to sign for or on behalf of a principal.
– Persons who are precluded from setting up the forgery are
– defense of the maker is to prove non-delivery of the
a) those who warrant or admit the genuineness of the
incomplete instrument. Requisites: signature b) those who are estopped.
1. he must be duly authorized – Persons who are precluded by warranting are a) indorsers
Complete but Undelivered: 2. he must add words to his signature indicating that he signs
b) persons negotiating by delivery c) acceptors.
General Rule: Every contract on a negotiable instrument is as an agent
– drawee bank is conclusively presumed to know the
incomplete and revocable until delivery for the purpose of 3. he must disclose his principal (Sec. 20 NIL)
signature of its drawer
giving effect thereto. – if endorser’s signature is forged, loss will be borne by the
a. If between immediate parties and remote parties not holder Notes on Section 20
– if an agent does not disclose his principal, the agent is forger and parties subsequent thereto
in due course, to be effectual there must be authorized – drawee bank is not conclusively presumed to know the
delivery by the party making, drawing, accepting or personally liable on the instrument.
signature of the indorser. The responsibility falls on the bank
indorsing. Delivery may be shown to be conditional or for a which last guaranteed the indorsement and not the drawee
special purpose only Per Procuration – operates as notice that the agent has a
limited authority to sign. bank.
b. If the holder is a holder in due course, all prior deliveries – Where the payee’s signature is forged, payments made by
conclusively presumed valid Effects:
– the principal in only bound if the agent acted within the the drawee bank to collecting bank is ineffective. No
c. If instrument not in hands of drawer/maker, valid and debtor/creditor relationship is created. An agency to collect
intentional delivery is presumed until the contrary is proven limits of the authority given
– the person who takes the instrument is bound to inquire into is created between the person depositing and the collecting
(Sec. 16 NIL)
the extent and nature of the authority given. (Sec. 21 NIL)
 bank. Drawee bank may recover from collecting bank who 2. Partial failure of consideration is a defense pro tanto (Sec – an allonge must be attached so that it becomes a part of
may in turn recover from the person depositing. 28 NIL) the instrument, it cannot be simply pinned or clipped to it.
Notes on Section 28
Rules on liabilities of parties on a forged instrument – absence of consideration is where no consideration was Kinds of Indorsements:
In a PN intended to pass. 1. Special (Sec. 34)
– a party whose indorsement is forged on a note payable to – failure of consideration implies that consideration was 2. Blank (Sec. 35)
order and all parties prior to him including the maker cannot intended by that it failed to pass 3. Restrictive (Sec. 36)
be held liable by any holder – the defense of want of consideration is ineffective against a 4. Qualified (Sec. 38)
– a party whose indorsement is forged on a note originally holder in due course 5. Conditional (Sec. 39 NIL)
payable to bearer and all parties prior to him including the – a drawee who accepts the bill cannot allege want of
maker may be held liable by a holder in due course provided consideration against the drawer Effects of indorsing an instrument originally payable to
that it was mechanically complete before the forgery bearer:
– a maker whose signature was forged cannot be held liable An accommodation party is one who signs the instrument as – it may further be negotiated by delivery
by any holder maker, drawer, acceptor, or indorser without receiving value – the person indorsing is liable as indorser to such persons as
therefor and for the purpose of lending his name to some other to make title through his indorsement
In a BOE person.
– the drawer’s account cannot be charged by the drawee Notes on Section 40
where the drawee paid Effects: – Section 40 applies only to instruments originally payable to
– the drawer has no right to recover from the collecting bank – an accommodation party is liable to the holder for value bearer
– the drawee bank can recover from the collecting bank notwithstanding that such holder knew that of the – It cannot apply where the instrument is payable to bearer
– the payee can recover from the drawer accommodation. (Sec. 28 NIL) because the only or last indorsement is in blank.
– the payee can recover from the recipient of the payment,
such as the collecting bank Notes on Section 28 A holder may strike out any indorsement which is not
– the payee cannot collect from the drawee bank – the accommodated party cannot recover from the necessary to his title.
– the collecting bank bears the loss but can recover from the accommodation party
person to whom it paid – want of consideration cannot be interposed by the Effects:
– if payable to bearer, the rules are the same as in PN. accommodation party – An indorser whose indorsement is struck out is discharged
– if the drawee has accepted the bill, the drawee bears the – an accommodation maker may seek reimbursement from a – All indorsers subsequent to such indorser who has been
loss and his remedy is to go after the forger co-maker even in the absence of any provision in the NIL; discharged are likewise relieved.
– if the drawee has not accepted the bill but has paid it, the the deficiency is supplied by the New Civil Code.
drawee cannot recover from the drawer or the recipient of – he may do this even without first proceeding against the Effects of a transfer without endorsement:
the proceeds, absence any act of negligence on their part. debtor provided: – the transferee acquires such title as the transferor had
a. he paid by virtue of judicial demand – the transferee acquires the right to have the indorsement of
Sec 24. Every negotiable instrument is deemed prima facie to b. principal debtor is insolvent the transferor
have been issued for a valuable consideration. – negotiation takes effect as of the time the indorsement is
An instrument is negotiated when: actually made
Effects: 1. it is transferred from one person to another
– every person whose signature appears thereon is a party 2. that the transfer must be in a manner as to constitute the Rights of a holder:
for value transferee a holder – a holder may sue in his own name
– presumption is disputable 3. – a holder may receive payment.
For a bearer instrument – by delivery
Sec 26. Where value has at any time been given for the For payable to order – by indorsement and delivery. Effects:
instrument, the holder is deemed a holder for value in respect – if in due course it discharges the instrument
to all parties who become such prior to that time. Indorsement to be must be:
1. written Requisites for a Holder in Due Course (HDC):
Effect of want of consideration: 2. on the instrument itself or upon a piece of paper attached a. receives the instrument complete and regular on its face
1. Absence or failure of consideration may be set up against a b. became a holder before it was overdue and had no notice
holder not a holder in due course (personal defense) Notes on Section 31 that it had been previously dishonored if such was the fact
– the paper attached with the indorsement is an allonge c. takes the instrument for value and in good faith
d. at time he took the instrument, no notice of infirmity in undated; or at a fixed period – if he derives his title through a HDC and is not a party to
instrument or defect in the title of the person negotiating it. after sight and acceptance is any fraud or illegality thereto, has all the rights of such HDC
undated
Notes on Section 52 4. filling up the blanks contrary General rule: every holder is deemed prima facie to be a
Fraud in factum or in esse
– every holder is presumed to be a HDC (Sec. 59) to authority given or not within holder in due course.
contractus
– the person who questions such has the burden of proof to reasonable time
prove otherwise 5. fraud in inducement Minority Exception:
– if one of the requisites are lacking, the holder is not HDC 6. acquisition of the instrument – where it is shown that the title of any person who has
– an instrument is considered complete and regular on its Marriage in case of a wife negotiated the instrument is defective, the burden is on the
by force, duress or fear
face if a) the omission is immaterial b) the alteration on the Insanity where the insane holder to prove that he is a HDC or that a person under
instrument was not apparent on its face 7. acquisition of the instrument whom he claims is a HDC (Sec. 59 NIL)
person has a guardian
– an instrument is overdue after the date of maturity. by unlawful means
appointed by the court
– on the date of maturity, the instrument is not overdue and Ultra vires acts of a A maker is primarily liable:
the holder is a HDC corporation where its charter Effects of making the instrument, the maker:
– acquisition of the transferee or indorsee must be in good 8. acquisition of the instrument a. engages to pay according to tenor of instrument
or by statue, it is prohibited
faith for an illegal consideration b. admits existence of payee and his capacity to indorse
from issuing commercial
– good faith means lack of knowledge or notice of defect or paper
infirmity 9. negotiation in breach of faith Want of authority of agent Notes on Section 60
10. negotiation under Execution of – a maker’s liability is primarily and unconditional
A holder is not a HDC where an instrument payable on circumstances amounting to instrument between public – one who has signed as such is presumed to have acted
demand is negotiated at an unreasonable length of time after fraud enemies with care and to have signed with full knowledge of its
its issue Illegality of contract made by contents, unless fraud is proved
1. Mistake – the payee’s interest is only to see to it that the note is paid
statue
Rights of a HDC: 12. intoxication Forgery according to its terms
– holds the instrument free from any defect of title of prior 13. ultra vires acts of – when two or more makers sign jointly, each is individually
parties corporations liable for the full amount even if one did not receive the
– free from defenses available to prior parties among 14. want of authority of the value given
themselves (personal/ equitable defenses) agent where he has apparent – the maker is precluded from setting up the defense of a)
– may enforce payment of the instrument for the full amount authority the payee is fictional, b) that the payee was insane, a minor
against all parties liable(Sec. 57 NIL) or a corporation acting ultra vires
15. illegality of contract where
form or consideration is illegal
Notes on Section 57 A drawer is secondarily liable
16. insanity where there is no
– Personal or equitable defenses are those which grow out Effects of drawing the instrument, the drawer:
notice of insanity
of the agreement or conduct of a particular person in 1. admits the existence of the payee,
A instrument not in the hands of a HDC is subject to the
regard to the instrument which renders it inequitable for 2. the capacity of such payee to indorse
same defenses as if it were non-negotiable.
him through legal title to enforce it. Can be set up against 3. engages that on due presentment, the instrument will be
holders not HDC accepted or paid or both according to its tenor.
Exception:
– Legal or real defenses are those which attach to the
– a holder who derives his title through a HDC and is not a If the instrument is dishonored, and the necessary proceedings
instrument itself and can be set up against the whole world,
party to any fraud or illegality affecting the instrument, has on dishonor duly taken
including a HDC.
all the rights of such HDC in respect to all parties prior. 1. the drawer will pay the amount thereof to the holder
(Sec. 58 NIL) 2. will pay to any subsequent indorser who may be compelled
Personal Defenses Real Defenses
1. absence or failure of to pay it.
Alteration Rights of a holder not a HDC
consideration – may sue in his own name Notes on Section 61
2. want of delivery of complete Want of delivery of – may receive payment and if it is in due course, the – a drawer may insert an express stipulation to negative or
instrument incomplete instrument instrument is discharged limit his liability
3. insertion of wrong date – holds the instrument subject to the same defenses as if it
where payable at a fixed Duress amounting to forgery were non-negotiable An acceptor is primarily liable
period after date and issued
By accepting the instrument, an acceptor:
– engages that he will pay according to the tenor of his – lack of knowledge of the indorser as to any fact that would – parties primarily liable – persons by the terms of the
acceptance impair the validity or the value of the instrument must be instrument are absolutely required to pay the same. E.g
– admits the existence of the drawer, the genuineness of his subsisting all throughout. maker and acceptors. They can be sued directly.
signature and his capacity and authority to draw the – a person Negotiating by Delivery warrants same as those – if payable at the special place, and the person liable is willing
instrument of qualified indorser and extends to immediate transferees to pay there at maturity, such willingness and ability is
– the existence of the payee and his then capacity indorse only equivalent to tender of payment.
– presentment is necessary to charge persons secondarily
Irregular Indorser – a person not otherwise a party to an Warranties of a general indorser: liable otherwise they are discharged
instrument places his signature in blank before delivery is liable 1. the instrument is genuine and in all respect what it purports – Acts needed to charge persons secondarily liable: a)
as an indorser in the following manner: to be presentment for payment/acceptance b) dishonor by non-
1. if payable to order of a third person – liable to the payee and 2. the he has good title to it payment/non-acceptance c) notice of dishonor to secondary
to all subsequent parties 3. all prior parties had the capacity to contract parties
2. if payable to order of the maker or drawer – liable to all 4. that the instrument at the time of his indorsement was valid – Acts needed to charge persons secondarily liable in other
parties subsequent to the maker or drawer and subsisting cases: a) Protest for non-payment by the drawee b) protest
3. if payable to bearer – liable to all parties subsequent to the for non-payment by the acceptor for honor
maker or drawer In addition:
4. if signs for an accommodation party – liable to all parties – engages that the instrument will be accepted or paid or both Proper presentment:
subsequent to the payee. according to its tenor on due presentment 1. by the holder or an authorized person
– engages to pay the amount thereof if it be dishonored and 2. at a reasonable hour on a business day
Warranties where negotiating by delivery or qualified the necessary proceedings on dishonor are taken 3. at a proper place
endorsement: 4. to the person primarily liable or if absent to any person
1. the instrument is genuine and in all respect what it purports Notes on Section 66 found at the place where presentment is made (sec. 72
to be – the indorser under Section 66 warrants the solvency of a NIL)
2. the indorser has good title to it prior party Notes on Section 72
3. all prior parties had the capacity to contract – the indorser warrants that the instrument is valid and – only the holder or one authorized by him has the right to
4. indorser has no knowledge of any fact that would impair the subsisting regardless of whether he is ignorant of that fact make presentment for payment
validity or the value of the instrument. or not. – presentment cannot be made on a Sunday or holiday
– warranties extend in favor of a) a HDC b) persons who – presentment for payment is made to the maker, or
Limitations of warranties: derive their title from HDC c) immediate transferees even if acceptor. Not to the person secondarily liable.
– -if by delivery – extends only to immediate transferee not HDC – if the instrument is payable on demand – a) if it is a note –
– -warranty of capacity to contract does not apply to persons – the indorser does not warrant the genuineness of the presentment must be made within reasonable time after
negotiating public or corporate securities drawer’s signature issue b) if it is a bill – presentment must be made within
– general indorser is only secondarily liable reasonable time after last negotiation.
Notes on Section 65
– a qualified indorser is one who indorses without recourse Sec 70. General rule: Presentment for payment is not Presentment not required to charge the drawer:
or sans recourse necessary to charge persons primarily liable on the 1. he has no right to expect
– recourse – resort to a person secondarily liable after instrument. Presentment for payment is necessary to charge 2. he has no right to require
default of person primarily liable the drawer and indorsers. 3. that the drawee or acceptor will pay
– a qualified indorser cannot raise the defense of a) forgery
b) defect of his title or that it is void c) the incapacity of the Notes on Section 70 Presentment not required to charge the indorser where:
maker, drawer or previous indorsers. – presentation for payment – production of a BOE to the 1. the instrument was made or accepted for his
– a qualified Indorsement makes the indorser mere assignor drawee for his acceptance, or to a drawee or acceptor for accommodation
of title of instrument, relieves him of general obligation to payment. Also presentment of a PN to the party liable for 2. he has no reason to expect that the instrument will be paid
pay if instrument is dishonored, but he is still liable for the payment of the same. if presented
warranties arising from instrument only up to warranties of – consists of a) a personal demand for payment at a proper
general indorser place b) the bill or note must be ready to be exhibited if
– the warranty is to the capacity of prior parties at the time required and surrendered upon payment. General rule: Presentment for payment necessary to charge
the instrument was negotiated. Subsequent incapacity persons secondarily liable otherwise they are discharged
does not breach the warranty.
 Notes on Section 79 and 80 – possession of the note by the maker is presumptive c. drawer is the person to whom presentment for payment is
– only the drawer or indorser are not discharged. All other evidence that it has been paid made
parties secondarily liable are discharged. d. drawer has no right to expect that the drawee will accept/pay
Notice of Dishonor may be given: the instrument (Sec. 114 NIL)
Presentment for payment excused if: 1. by or on behalf or the holder
a. after due diligence, presentment cannot be made 2. by or on behalf of any party who: Instances when Notice Not Required to Indorser
b. presentment is waived – is a party to the instrument and might be compelled to pay a. drawee was a fictitious/incapacitated person and the
c. the drawee is a fictitious person (Sec 82 NIL) the instrument indorser was aware of such at the time of indorsement
– to a holder who having taken it up would have a right of b. indorser is the person to whom instrument was presented
Notes on Section 82 reimbursement from the party to whom notice is given. for payment
– what is excused is the failure to make presentment. There c. instrument made/accepted for his accommodation
is no need to make any presentment versus under section Notice:
81 (delay in presentment) presentment for payment is still 1. may be written or oral (Sec. 96) Omission to give notice of dishonor by non-acceptance doe
required after the cause of delay has ceased. 2. written notice need not be signed or may be supplemented not prejudice a HDC
by verbal communication (Sec. 95)
Summary of rules as to presentment for payment: 3. may be by personal delivery or by mail (Sec. 96) Protest only necessary for a foreign bill of exchange. Protest
1. presentment not necessary to charge persons primarily for other negotiable instruments is optional. (Sec. 118 NIL)
liable Notice may be waived either expressly or implied:
2. necessary to charge persons secondarily liable except: 1. before the time of giving notice has arrived Causes of Discharge of the Instrument
– the drawer under Sec. 79 2. after the omission to give due notice (Sec. 109 NIL) a. payment by the debtor
– the indorser under Sec. 80 b. payment by accommodated party
– when excused under Sec. 82 70. Protest may be waived: c. intentional cancellation by holder of instrument
– when the instrument has been dishonored by non- Effects: d. any other act discharging a simple monetary obligation
acceptance under Sec. 83 – deemed a waiver of presentment and notice of dishonor as e. debtor becomes holder of the instrument at/after maturity in
well (Sec. 111 NIL) his own right
How dishonored by non-acceptance:
– the instrument was duly presented but payment is refused Notes on Section 111 Notes on Section 119
or cannot be obtained – Where notice is waived, presentment is not waived – discharge of the instrument discharges all the parties thereto
– presentment is excused and the instrument is overdue and – Where presentment is waived, notice is also waived – payment must be in due course, and by the principal debtor
unpaid – Where protest is waived, notice and presentment is waived or on his behalf
– if payment is not made by the principal debtor, payment only
Effects of dishonor by non-payment: Notice of Dishonor – given by the holder to the parties cancels the liability of the payor and those obligated after
– an immediate right of recourse to all parties secondarily secondarily liable, drawer and each indorser, that the him but does not discharge the instrument.
liable accrues to the holder. (Sec. 84 NIL) instrument was dishonored by non-acceptance or non- – payment by an accommodation party does not discharge the
payment by the drawee/maker instrument.
Notes on Section 84 General rule: Any drawer or indorser to whom such notice is
1. parties cease to be secondarily liable and become principal not given is discharged. Discharge of Secondary Parties:
debtors. a. any act discharging the instrument
2. Liability becomes the same as that of the original obligors. Exceptions: b. cancellation of indorser’s signature by indorsers
1. Waiver (Sec. 109) c. discharge of prior party
Requisites for payment in due course: 2. Notice is dispensed (Sec. 112) d. tender of payment by prior party
1. made at or after the maturity of the instrument 3. Not necessary to Drawer (Sec. 114) e. release of principal debtor
2. to the holder 4. Not necessary to Indorser (Sec. 115) f. extension of payment by the holder/postponement of right to
3. in good faith – if notice is delayed, delay may be excused (Sec. 113) enforce without assent of secondary parties and without
4. without notice of any defect in the holder’s title reservation of right of recourse against secondary parties
Instances when Notice of Dishonor Not Necessary to
Notes on Section 88 Drawer 78. Rights of a party secondarily liable who pays:
– payment must be made to the possessor of the instrument a. drawer and drawee same person – the instrument is not discharge
b. drawee is a fictitious/incapacitated person – the party is remitted to his former rights as to all prior parties
– the party may strike out his own and all subsequent Instances where a BOE may be treated as a PN: – in on order case is presentment necessary to make parties
indorsements 1. where the drawer and the drawee are one and the same liable.
– the party may negotiate the instrument again 2. where the drawee is a fictitious person
3. where the drawee has no capacity to contract Summary on presentment for acceptance of Bills of
Exception: The holder has the option to treat it as a BOE or a PN Exchange:
– an instrument cannot be renegotiated where it is payable to a. to make the drawee primarily liable and for the accrual of
order of a 3rd person and has been paid by the drawer Acceptance is the signification by the drawee of his assent to secondary liability (Sec. 144)
– and instrument cannot be renegotiated where is was made the order of the drawer. It is an act by which a person on whom b. necessary to fix maturity date, where bill expressly
or accepted for accommodation and it has been paid by the the BOE is drawn assents to the request of the drawer to pay stipulates presentment, bill payable other than place of
party accommodated. it. drawee (Sec. 143)
c. when presentment is excused: drawee is dead, hides, is
Renunciation by a holder discharges an instrument when: Acceptance may be: fictitious, incapacitated person, after due diligence
1. it is absolute and unconditional 1. actual presentment cannot be made, presentment is refused on
2. made in favor of a person primarily liable 2. constructive another ground although presentment is irregular (Sec.
3. made at or after maturity of the instrument 3. general (Sec. 140) 148)
4. in writing or the instrument is delivered up to the person 4. qualified (Sec. 141)
primarily liable General rule: Protest is required only for foreign bills
Requisites of actual acceptance:
Notes on Section 122 – in writing Exception:
– if renounced in favor of a party secondarily liable, only he – signed by the drawee – inland bills and notes may also be protested if desired
is exonerated from liability and all parties subsequent to – must not express the drawee will perform his promise by
him any other means than payment of money Protest is required:
– discharge by novation is allowed – communicated or delivered to the holder 1. where the foreign bill is dishonored by non acceptance
2. where the foreign bill is dishonored by non-payment
General rule: When materially altered, without the consent of A holder has the right: 3. where the bill has been accepted for honor, it must be
all parties liable, the instrument is avoided except as against: 1. require that acceptance be written on the bill and if refused, protested for non-payment before it is presented for
1. the party who has made the alteration treat it as if dishonored (Sec. 133) payment to the acceptor for honor
2. the party who authorized or assented to the alteration. 2. refuse to accept a qualified acceptance and may treat it as 4. where the bill contains a referee in case of need, it must be
3. subsequent indorsers dishonored (Sec. 142) protested for non payment before presentment for payment
Constructive Acceptance: to the referee in case of need
Exception:
– if in the hands of a HDC, may be enforced according to its 1. where the drawee to whom the bill has been delivered
destroys it Notes on Section 152
original tenor – Protest – formal statement in writing made by a notary
2. the drawee refuses within 24 hrs after such delivery or
within such time as is given, to return the bill accepted or under his seal of office at the request of the holder, in
Notes on Section 124 which it is declare that the some was presented for
– there is no distinction between fraudulent and innocent not.
Notes on Section 137 payment or acceptance (as the case may be) and such
alteration was refused.
– drawee becomes primarily liable as an acceptor.
– mere retention is equivalent to acceptance – it means all steps or acts accompanying the dishonor of a
Material Alteration – an alternation is said to be material if bill or note necessary to charge an indorser
it alters the effect of the instrument. – required when the instrument is a foreign bill of exchange.
Under Section 125 the following changes are considered When presentment for acceptance is necessary:
1. if necessary to fix the maturity of the bill – it must be made on the same date of dishonor, by a
material alterations: notary/respectable citizen of the place in the presence of 2
1. dates 2. if it is expressly stipulated that it shall be presented for
acceptance credible witnesses so recourse to secondary parties
2. the sum payable
3. time and place of payment 3. if the bill is drawn payable elsewhere than the residence or
place of business of the drawee Acceptance for Honor (Sec. 161 NIL)– an acceptance of a
4. number or relations of the parties bill made by a stranger to it before maturity, where the drawee
5. medium or currency for payment Notes on Section 143 of the bill has:
6. adding a place of payment where no place is specified – Presentment is the production of a BOE to the drawee for 1. refused to accept it
7. any other which alters the effect of the instrument his acceptance 2. and the bill has been protested for non-acceptance
3. or where the bill has been protested for better security
Requisites for acceptance for honor:
– the bill must have been previously protested a) for non-
acceptance b) or for better security
– the bill is not overdue at the time of the acceptance for
honor
– the acceptor for honor must be a stranger to the bill
– the holder must give his consent

Notes on Acceptance for Honor

– Purpose: to save the credit of the parties to the instrument
or some party to it as the drawer, drawee, or indorser or
somebody else.
– Acceptor for honor is liable to the holder and to all the
parties to the bill subsequent to the party for whose honor
he has accepted (Sec. 164)

How acceptance for honor is made:

1. in writing and indicated that it is an acceptance for honor
2. signed by the person making the acceptance (Sec. 162 NIL)

Payment for Honor – payment made through a notarial act of

honor of a party liable/stranger to the bill after bill has been
dishonored by non-payment by the acceptor and protested for
non-payment by the holder

Requisites:
a. protest for non-payment
b. any person may pay supra protest

Form for payment of honor:

1. payment must be attested by notarial act appended to the
protest, or form an extension to it.
2. notarial act of honor must be based on a declaration by the
payer for honor
Bills in Set – bill of exchange drawn in several parts, each part
of the set being numbered and containing a reference to the
other parts, the whole of the parts just constituting one bill (Sec
178 NIL)