Negotiable Instruments Law Notes

8/10/2019 Negotiable Instruments Law Notes

http://slidepdf.com/reader/full/negotiable-instruments-law-notes 1/16

NOTES IN NEGOTIABLE INSTRUMENTS LAW

I. PRELIMINARY CONSIDERATIONS

Negotiable Instr!ent " a written contract for the paymentof money which complies with the requirements of Sec. 1 of

the NIL, which by its form and on its face, is intended as asubstitute for money and passes from hand to hand as money,so as to give the holder in due course (!"# the right to holdthe instrument free from defenses available to prior parties.(Reviewer on Commercial Law, Sundiang and Aquino#

#n$tions o% Negotiable Instr!ent$1. Substitute for money%. &edium of e'change. )ool used in commercial transaction.

T&o Distin$ti'e #eatres o% NI(1. Negotiability * it is that attribute or property whereby a

bill or note or chec+ may pass from hand to hand similarto money, so as to give the holder in due course the right

to hold the instrument and to collect the sum payablefor himself free from defenses.¾ equisites of Negotiability$

a. It must be in writing and signed by the ma+er ordrawer-

b. &ust contain an unconditional promise or order topay a sum certain in money-

c. &ust be payable on demand, or at a fi'ed ordeterminable future time-

d. &ust be payable to order or to bearer- ande. here the instrument is addressed to a drawee, he

must be named or otherwise indicated therein withreasonable certainty.

%. Accumulation of Secondary Contracts * secondarycontracts are pic+ed up and carried along withNegotiable Instruments as they are negotiated from one

person to another- or in the course of negotiation of negotiable instruments, a series of /uridical ties betweenthe parties thereto arise either by law or by privity. )heindorsers become secondarily liable to the holder.

Distin$tions( Negotiable an) Non"Negotiable Instr!ents

NEGOTIABLE NON"NEGOTIABLE&ust contain all requisites !oes not contain all

of sec.1 requisites of sec.1)ransferable by )ransferable bynegotiation and assignment only

assignment

!" can have rights 0 transferee acquires nobetter than his transferor better right than his

transferorrior parties warrant rior parties do notpayment (secondary warrant payment butliability# merely the legality of

title

2overned by NIL NIL only by analogy)ransferee is a holder in )ransferee is assignee

due course only!efenses generally not 0ll defenses available

available against last transferee

Classes o% Negotiable Instr!ents$

1. Promissory Note (PN) * unconditional promise in writingby one person to another signed by the ma+er engaging

to pay on demand or at a fi'ed or determinable futuretime, a sum certain in money to order or to bearer.

%. ill of !"c#ange (!) *an unconditional order in writingaddressed by one person to another, signed by the persongiving it, requiring the person to whom it is addressed topay on demand or at a fi'ed or determinable future timea sum certain in money to order or to bearer.

Bills in Set( one composed of several parts, each partnumbered and containing a reference to the other parts, thewhole of the parts constituting but one bill.

• Rig#ts of #olders w#ere $arts are negotiated se$arately%1. If both are !", the holder whose title first

accrues is considered the true owner of the

bill.%. 3ut the person who accepts or pays in duecourse shall not be pre/udiced.

• &bligations of #older w#o indorses ' or more $artsof t#e ill in Set%1. )he person shall be liable on every such part.%. 4very indorser subsequent to him is liable on

the part he has himself indorsed, as if suchparts were separate bills.

Distin$tions bet&een a Negotiable Instr!ent an) a

Negotiable Do$!ent o% Title

NEGOTIABLE INSTRUMENT NEGOTIABLE DOCUMENT

O# TITLE

)he sub/ect is money )he sub/ect is goods

as all the requisites of !oes not have these

Sec 1 of NIL requisites

0 holder of NI may run Intermediate parties areafter the secondary parties not secondarily liable if thefor payment if dishonored document is dishonoredby the party primarily

liable

0 holder, if !", may 0 holder can never acquireacquire rights over the rights to the documentinstrument better than his better than his predecessors

predecessors

PROMISSORY BILL O# E*C+ANGE

NOTE5nconditional promise 5nconditional order

Involves % parties Involves parties

&a+er is primarily liable !rawer is only secondarily

liable

6nly one presentment$ for )wo presentments$ forpayment acceptance and for

payment



Instan$es &,en BILL !a- be treate) as a NOTE(1. !rawer and drawee are the same person.1. !rawee is a fictitious person.%. !rawee has no capacity to contract.. hen instrument is so ambiguous, the holder may treat

it either as a 3ILL or a N6)4.

Ot,er #or!s o% Negotiable Instr!ents1. "ertificate of deposit issued by ban+s, payable to the

depositor or his order, or to bearer%. )rade acceptance. 3onds, which are in the nature of promissory notes7. !rafts, which are bills of e'change drawn by one ban+

upon another 8 0ll of these must comply with Sec. 1, NILNote$ Letters of credit are not negotiable.

Legal Ten)er)hat +ind of money that the law compels a creditor to acceptin payment of his debt when tendered by the debtor in theright amount.

Note$ 0 negotiable instrument although intended to be a

substitute for money, is generally not a legal tender.

In$i)ents in Li%e/ o% Negotiable Instr!ent1. Issue%. !elivery. Negotiation7. resentment for acceptance, in certain +inds of bills of

e'change9. 0cceptance:. !ishonor by non*acceptance;. resentment for payment<. !ishonor by non*payment=. Notice of dishonor

1>. !ischarge

ssue * the first delivery of the instrument, complete in form, to a person who ta+es it as a holder.

elivery * transfer of possession, actual or constructive, from one person to another*older + refers to the$

a. )he payee or indorsee of a bill or note who is inpossession of it, or

b. )he bearer thereof (sec.1=1#earer * the person in possession of a bill or note which is payable to bearer.Person * includes a body of persons, whether incorporated or not.

II. #ORM AND INTERPRETATION O# INSTRUMENTS

Re0isites o% Negotiabilit- 1Se$. 23 NILa. It must be in writing and signed by the ma+er or drawer-b. &ust contain an unconditional promise or order to pay a

sum certain in money-c. &ust be payable on demand, or at a fi'ed or

determinable future time-d. &ust be payable to order or to bearer- and

e. here the instrument is addressed to a drawee, he mustbe named or otherwise indicated therein with reasonablecertainty.

- .ust be in writing, signed by t#e ma/er or drawer0

* 6therwise it cannot be a substitute for money.

'- .ust contain an unconditional $romise or order to $ay a

sum certain in money0

Certainty of sum $ayable-)he sum payable is a sum certain although it is to be paid$

a. ith interest- orb. 3y stated installments- orc. 3y stated installments, with a provision that, upon

default in payment of any installment or of interest,the whole shall become due- or

d. ith e'change, whether at a fi'ed rate or at thecurrent rate- or

e. ith costs of collection or an attorney?s fee, in casepayment shall not be made at maturity. (sec. %#

Acceleration clause * renders whole debt due and demandable upon failure of obligor to comply with certainconditions.

1#en $romise is unconditional0n unqualified order or promise to pay is unconditionalthough coupled with$

a. 0n indication of a particular fund out of whichreimbursement is to be made or a particularaccount to be debited with the amount- or

b. 0 statement of the transaction which gives rise tothe instrument.

¾ 0n order or promise to pay out of a particular fund is notunconditional.

#UND #OR PARTICULAR #UND #OR

REIMBURSEMENT PAYMENT!rawee pays the payee )here is only one act$ thefrom his own funds- drawee pays directly fromafterwards, the drawee the particular fundpays himself from the indicated. ayment isparticular fund indicated. sub/ect to the condition

that the fund is sufficient.

articular fund indicated articular fund indicated isis N6) the direct source the direct source of of payment but only the payment.

source of reimbursement.

Indication in the Indication in theinstrument does not instrument ma+es theaffect the unconditional promise or ordernature of the promise or conditional.

order.

2- Payable on demand or at a fi"ed determinable futuretime0

Certainty of time of $ayment0n instrument is payable at a determinable future time whichis e'pressed to be payable$

a. 0t a fi'ed period after date or sight- orb. 6n or before a fi'ed or determinable future time

specified therein- or



c. 6n or at a fi'ed period after the occurrence of aspecified event which is certain to happen, thoughthe time of happening be uncertain.

¾ 0n instrument payable upon a contingency is not

negotiable, and the happening of the event does notcure the defect. (sec. 7#¾ 0 promise to pay @when able,A @as soon as I canA, etc.,

without specification of an absolute date is notnegotiable. owever, there is a difference of opinion asto whether it is a conditional promise or an absolutepromise to pay at un unreasonable time$

a. 5nder the first view, negotiability is destroyedboth by the condition and by want of a fi'edtime for payment-

b. 5nder the second view, by the general principlethat a promise to pay within a reasonable timeis not so certain as to renderan instrument negotiable.

Aftersig#t raft * payable only after the e'piration of the

stipulated period from acceptance (legal sight#.

1#en $ayable on demand%a. hen it is so e'pressed to be payable on demand, or

at sight, or on presentation- orb. In which no time for payment is e'pressed.

Note( here an instrument is issued, accepted, or indorsedwhen overdue, it is, as regards the person so issuing,accepting, or indorsing it, payable on demand.

3- Payable to order or to bearer

1#en $ayable to order )he instrument is drawn payable$

a. )o the order of a specified person orb. )o him or his order.

¾ )he payee must be named or otherwise indicated thereinwith reasonable certainty.¾ It may be drawn payable to the order of$

a. 0 payee who is not ma+er, drawer, or drawee- orb. )he drawer or ma+er- orc. )he drawee- ord. )wo or more payees /ointly- ore. 6ne or some of several payees- orf. )he holder of an office for the time being.

1#en $ayable to bearer-a. hen it is e'pressed to be so payable- orb. hen it is payable to a person named therein or

bearer- orc. hen it is payable to the order of a fictitious or

non*e'isting person, and such fact was +nown to the

person ma+ing it so payable- ord. hen the name of the payee does not purport to be

the name of any person- ore. hen the only or last indorsement is an indorsement

in blan+. (Sec. =#

4- dentification of t#e drawee¾ here the instrument is addressed to a drawee

(meaning in a bill of e'change#, he must be namedor otherwise indicated with reasonable certainty.)he holder must +now to whom he should present itfor acceptance andBor payment- otherwise, the

purpose of negotiable instrument as a tool incommercial dealings will be greatly hampered.(Reviewer on Commercial Law, Sundiang and Aquino)

¾ 0 bill may be addressed to more than one drawee

/ointly, whether they are partners or not- but not totwo or more drawers in the alternative or insuccession. (Sec- '5#

Test o% Negotiabilit-( presence of requirements in Section 1

of NIL.

#a$tors t,at Deter!ine Negotiabilit-(1. )he whole instrument itself%. 6nly what appears on the face of the instrument. rovisions of the NIL, Sec.1

AR 67!S8&N (6)% 1#ic# of t#e followingsti$ulations or features of a $romissory notes (PN)affect or do not affect its negotiability, assumingt#at t#e PN is ot#erwise negotiable9 ndicate your

answer by writing t#e $aragra$# number of t#esti$ulation or feature of t#e PN as s#own below and your corres$onding answer, eit#er :Affected; or <Not affected-; !"$lain-(a) 8#e date of t#e PN is <=ebruary 2>, '>>'-;(b) 8#e PN bears interest $ayable on t#e last day

of eac# calendar quarter at a rate equal to 4? above t#e t#en $revailing @day 8bill rate as $ublis#ed at t#e beginning of suc# calendar quarter-

(c) 8#e PN gives t#e ma/er t#e o$tion to ma/e $ayment eit#er in money or in quantity of $alay of equivalent value-

(d) 8#e PN gives t#e #older t#e o$tion eit#er torequire $ayment in money or to require t#e

ma/er to serve as t#e bodyguard or escort of t#e #older for > days-

S7BB!S8! ANS1!R (SA)%(a) N&8 A==!C8!- 8#e date is not one of t#e

requirements for negotiability-(b) N&8 A==!C8!- 8#e interest is to be com$uted

at a $articular time and is determinable- tdoes not ma/e t#e sum uncertain or t#e $romise conditional-

(c) A==!C8!- Biving t#e ma/er an o$tion renderst#e $romise conditional-

(d) N&8 A==!C8!- Biving t#e #older an o$tiondoes not ma/e t#e $romise conditional-

A))itional 4ro'isions not a%%e$ting negotiabilit-.

2eneral ule$ the instrument is non *negotiable if it containsa promise or order to do any act in addition to the paymentof money.4'ceptions$

a. authoriCes the sale of collateral securities in casethe instrument be not paid at maturity- or

b. authoriCes a confession of /udgment if theinstrument be not paid at maturity- or

c. waives the benefit of any law intended for theadvantage or protection of the obligor- or

d. gives the holder an election to require something tobe done in lieu of payment of money.



Con%ession o% 5)g!ent D a written statement signed bythe defendant, setting forth the basis of liability andauthoriCing the entry of /udgment thereon. inds of confession of Dudgment

a. cognivit actiomen D literally means @he hasconfessed actionA. It is a written confession of action by the defendant ac+nowledging isindebtedness to the plaintiff after the action hasbeen filed. It is given after the action is brought tosave e'penses.

b. relicta verificationem D literally means @hispleadings being abandoned.A It is confession of /udgment by withdrawal of the defense.

Note( owever, warrants of attorney to confess /udgment,are not authoriCed nor contemplated by our law. )hey arevoid as against public policy because they enlarge the fieldfor fraud, because under these instruments, the promissorybargains away his right to a day in court. )he NIL does notsanction nor validated any provision otherwise illegal.

O!issions an) Pro'isions t,at )o not a%%e$t Negotiabilit-(Sec- E#)he validity and negotiable character of an instrument arenot affected by the fact that$

a. it is not dated- orb. does not specify the value given, or that any value

had been given therefore- orc. does not specify the place where it is drawn or the

place where it is payable- ord. bears a seal- ore. designates a particular +ind of current money in

which payment is to be made.¾ if it is not dated, the instrument will be considered to be

dated as of the time it was issued.¾

consideration for the instrument is presumed. (art- 43NCC F sec- '4 NL# ¾ sec. ; specifies where presentment for payment should

be made when the place of payment is not specified

Rles o% $onstr$tion(a. here the sum payable is e'pressed in words and also in

figures and there is a discrepancy between the two, thesum denoted by the words is the sum payable- but if thewords are ambiguous or uncertain, reference may be hadto the figures to fi' the amount-

b. here the instrument provides for the payment of interest, without specifying the date from which interestis to run, the interest runs from the date of theinstrument, and if the instrument is undated, from theissue thereof-

c. here the instrument is not dated, it will be consideredto be dated as of the time it was issued-

d. here there is a conflict between the written andprinted provisions of the instrument, the writtenprovisions prevail-

e. here the instrument is so ambiguous that there isdoubt whether it is a bill or note, the holder may treat itas either at his election-

f. here a signature is so placed upon the instrument thatit is not clear in what capacity the person ma+ing thesame intended to sign, he is to be deemed an indorser-

g. here an instrument containing the word G $romise to $ayG is signed by two or more persons, they are deemedto be /ointly and severally liable thereon. (sec. 1;#

Consi)eration

¾ Presum$tion of consideration- * every negotiableinstrument is deemed $rima facie to have been issuedfor a valuable consideration- and every person whosesignature appears thereon to have become a partythereto for value.

¾ Halue * any consideration sufficient to support a simplecontract. 0n antecedent or pre*e'isting debt constitutesvalue- and is deemed such whether the instrument ispayable on demand or at a future time.

¾ *older for value D one who has given a valuableconsideration for the instrument issued or negotiated tohim.• hat constitutes holder for value$

where value has at any time been given for theinstrument, the holder is deemed a holder for valuein respect to all parties who become such prior to

that time.• where the holder has a lien on the instrument

arising either from contract or by implication of law,he is deemed a holder for value to the e'tent of hislien.

¾ !ffect of want of consideration% a matter of defense asagainst any person not a holder in due course- andpartial failure of consideration is a defense pro tanto,whether the failure is an ascertained and liquidatedamount or otherwise. Absence of consideration D total lac+ of any validconsideration for the contract is only a personal defense.

=ailure of consideration D failure or refusal or one partyto do, perform or comply with the consideration agreed

upon is also only a personal defense.

III. TRANS#ER AND NEGOTIATION

T-4es o% trans%ers(1. Assignment * transfer of title to the instrument, with the

assignee generally ta+ing only such title as his assignorhas, sub/ect to all defenses available against hisassignor-

%. Negotiation * transfer of a negotiable instrument fromone person to another made in such a manner as toconstitute the transferee the holder thereof

. y &$eration of Law D such as by succession, byinsolvency.

Distin$tions bet&een Negotiation an) Assign!ent

NEGOTIATION ASSIGNMENT1. efers only to 1. efers generally to an

negotiable ordinary contract-instruments-

%. )he transferee is a %. )he transferee is anholder- assignee-

. 0 holder in due course . 0n assignee is sub/ectis sub/ect only to real to both real anddefenses- personal defenses-

7. 0 holder in due course 7. 2enerally, an assignee



may acquire a better merely steps into theright than that of a shoes of the assignor-prior party

9. 0 general indorser 9. 0n assignor does notwarrants the solvency warrant the solvency of

of prior parties- prior parties unlesse'pressly stipulated orthe insolvency is +nownto him-

:. 0n indorser is not :. 0n assignor is liableliable unless there be even without notice of presentment and dishonor-notice of dishonor-

;. Negotiation is ;. 2overned by 0rts. 1:%7governed y the NIL. to 1:9 (on assignment

of credits# of the "ivil

"ode.

Met,o)s o% negotiation- &rder nstrument D Indorsement and !elivery. '- earer nstrument D !elivery only.

In)orse!ent * legal transaction effected by the writing of one?s own name at the$

a- bac+ of the instrument orb- upon a paper (allonge# attached thereto with or

without additional words specifying the person towhom or to whose order the instrument is to bepayable whereby one not only transfers legal title tothe paper transferred but li+ewise enters into animplied guaranty that the instrument will be dulypaid.

¾ Beneral Rule$ indorsement must be of the entireinstrument.!"ce$tion% where instrument has been paid in part, itmay be indorsed as to the residue.

¾ inds of indorsement%a- S$ecial * specifies the person to whom or to whoseorder, the instrument is to be payable (sec. 7#

b- lan/ * specifies no indorsee$

• Instrument is payable to bearer and may benegotiated by delivery (sec. 7#

• &ay be converted to special indorsement bywriting over the signature of indorser in blan+any contract consistent with character of indorsement.

c- Restrictive * when the indorsement either$ i. rohibits further negotiation of the

instrument- orii. "onstitutes the indorsee the agent of the

indorser- oriii. Eests the title in the indorsee in trust for

or to the use of some other persons. 3utmere absence of words implying power tonegotiate does not ma+e an indorsementrestrictive.

• 0 restrictive indorsement confers upon theindorsee the right$

a. )o receive payment of the instrument-

b. )o bring any action thereon that theindorser could bring-

c. )o transfer his rights as such indorsee,where the form of the indorsementauthoriCes him to do so.

3ut all subsequent indorsees acquire only thetitle of the first indorsee under the restrictive

indorsement. (sec. ;#

Such indorsement destroys the negotiability of the instrument and bars further negotiation toa holder in due course.

d. 6ualified * constitutes the indorser a mere assignorof the title to the instrument. (sec. <#• made by adding to the indorser?s signature words

li+e Fsans recourse,A @without recourseF,Findorser not holderF, Fat the indorser?s ownris+F, etc.

• )he purpose of this +ind of indorsement is totransfer title without guaranteeing payment bythe primary party.

• It does not mean, however, that the qualifiedindorser incurs no liability at all. )he effect is

merely to limit his liability. e is secondarilyliable for breach of is warranties as an indorserunder Sec. :9. )hus, he is liable if theinstrument is dishonored by N6N*0""4)0N"4or N6N*0G&4N) due to$a. forgery-b. lac+ of good title to the instrument

indorsed-c. lac+ of capacity to contract on the part of

prior parties- ord. the fact that the instrument was valueless

or not valid at the time of the indorsementwhich fact was +nown to him.

e. Conditional * right of the indorsee is made todepend on the happening of a contingent event•

arty required to pay may disregard theconditions.

• )his +ind of indorsement has no effect on thefurther negotiation of the instrument. )heparty required to pay, if he chooses, may ma+epayment, disregarding the condition withoutincurring any liability because he is e'presslyauthoriCed to do so under Sec. =. 3ut theperson who received payment will hold theproceeds sub/ect to the right of the conditionalindorser.

f. Absolute * one by which indorser binds himself topay$

i. upon no other condition than failure of prior parties to do so- and

ii. upon due notice to him of such failure.g. Ioint * indorsement of instrument payable to % or

more persons- all must indorse in order for thetransaction to operate as a negotiation.

• 4'ceptions to the rule requiring /ointindorsement$a. here the payees or indorsees are

partners- and

b. here the payee or indorsee indorsinghas authority to indorse for theothers.



h. rregular * a person who, not otherwise a party toan instrument, places thereon his signature in blan+before delivery.

¾ Rules on ndorsements%

• !ffect of transfer wit#out indorsement%

a. transfer vests in the transferee such title as thetransferor had therein (assignment), and

b. the right to have the indorsement of thetransferor.

à Hor the purpose of determining whether thetransferee is a holder in due course, thenegotiation ta+es effect as of the time whenthe indorsement is actually made.

à 0pplicable only to order instruments

• ndorsement of a bearer instrument% where aninstrument, payable to bearer, is indorsed specially,it may nevertheless be further negotiated bydelivery- but the person indorsing specially is liableas indorser to only such holders as ma+e titlethrough his indorsement.Note( )he rule only applies to originally bearerinstruments. If it is originally a 3404 instrument,it will always be a 3404 instrument. 0s opposedto an original order instrument becoming payable tobearer, if the same is indorsed specifically, it can N6L6N24 be negotiated further by mere delivery, ithas to be indorsed.

• Stri/ing out indorsements% the holder may at anytime stri+e out any indorsement, which is notnecessary to his title. )he indorser whoseindorsement is struc+ out and all indorserssubsequent to him, are thereby relieved from

liability on the instrument.à If the instrument is $ayable to bearer on its face,

then whether or not there are indorsements on thebac+ of the instrument would be immaterial to thetitle of the bearer, who is presumptively the ownerand holder by his mere possession of suchinstrument. None of the indorsement would benecessary to its title since mere delivery wouldhave been sufficient to transfer title from oneholder to another.

à here the instrument is $ayable to order on itsface, the situation is different. Hirst, theindorsement of a special indorsee is necessary forthe further negotiation of the instrument. Second,the last indorsement controls the method of further

negotiation.

• 1#en $rior $arty (reacquirer) may negotiate% where aninstrument is negotiated bac+ to a prior party, such partymay reissue and further negotiate the same. 3ut he isnot entitled to enforce payment thereof against anyintervening party to whom he was personally liable.à In the following cases, a prior party cannot further

negotiate the instrument$1. here it is payable to the order of a third

person, and has been paid by the drawer-

%. here it was made or accepted foraccommodation and has been paid by theparty accommodated-

. In other cases, where the instrument is

discharged when acquired by a prior party.

I6. +OLDERS

Classes o% ,ol)ers(1. simple holder (sec. 91#%. holder for value (sec. %:#. holder in due course (sec.9%, 9;#

+ol)er in De Corse

holder who has ta+en the instrument under the followingconditions$

a. )hat it is complete and regular upon its face-

b. )hat he became the holder of it before it wasoverdue, and without notice that it has beenpreviously dishonored, if such was the fact-

c. )hat he too+ it in good faith and for value-d. )hat at the time it was negotiated to him, he had

no notice of any infirmity in the instrument ordefect in the title of the person negotiating it.

¾ W,en title )e%e$ti'e - )he title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto, by$a. fraud,b. duress, or force and fear,c. other unlawful means,d. illegal consideration,e. negotiation in breach of faith,

f. circumstances amounting to fraud.

¾ W,at $onstittes noti$e o% )e%e$t. * )he person towhom it is negotiated must have$a. actual +nowledge of the infirmity or defect, orb. +nowledge of such facts that his action in ta+ing the

instrument amounted to bad faith. (sec. 9:#

¾ Noti$e be%ore %ll a!ont is 4ai) * where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid, he will be deemed a holder in duecourse only to the e'tent of the amount paid by him.

¾

W,en 4erson not )ee!e) a ,ol)er in )e $orse where an instrument payable on demand is negotiated onan unreasonable length of time after its issue, the holderis not deemed a holder in due course.

• Reasonable time, w#at constitutes- * regard is to behad to thea. nature of the instrument,b. the usage of trade or business with respect to

such instruments, and thec. facts of the particular case.

• !ffect% in the hands of any holder other than a

holder in due course, a negotiable instrument is



sub/ect to the same defenses as if it were non*negotiable.

¾ Beneral Rule% every holder is deemed prima facie to be a holder in due course

!"ce$tion$ when it is shown that the title of any personwho has negotiated the instrument was defective, theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof#.Limitation% the last*mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title. (sec. 9=#

¾ Rig,ts o% a ,ol)er in )e $orse(a. he may sue on the instrument in his own name-b. he may receive payment and if payment is in due

course, the instrument is discharged.c. holds the instrument free from any defect of title of

prior parties,d. holds the instrument free from defenses available to

prior parties among themselves, ande. may enforce payment of the instrument for the full

amount thereof against all parties liable thereon.

¾ Payment in due course is payment made$ a. at or after the maturity of the instrumentb. to the holder thereofc. in good faith and without notice that his title is

defective.

¾ S,elter Rle(a. derives his title through a holder in due course, andb. who is not himself a party to any fraud or illegality

affecting the instrument, has all the rights of suchformer holder in respect of all parties prior to the

latter.

¾ Rig,ts o% a +ol)er NOT in De Corse1. e may sue on the instrument in his own name-%. e may receive payment and if the payment is in

due course, the instrument is discharged-. e is entitled to the instrument but holds it sub/ect

to the same defenses as if it were non*negotiable-and

7. e has all the rights of the holder in due coursefrom whom he derived his title in respect of allparties prior to such holder, provided he is nothimself a party to any fraud or illegality affectingthe instrument.

6. LIABILITIES O# PARTIES

Persons 4ri!aril- liable on instr!ent% the person who, bythe terms of the instrument, is absolutely required to pay thesame. 0ll other parties are GsecondarilyG liable.

Classi%i$ation o% 4arties a$$or)ing to liabilit-

IN A PROMISSORY 1. &a+er

NOTE %. Indorser

. ersons negotiating by delivery

IN A BILL O# 1. !rawer

E*C+ANGE %. 0cceptor. Indorsers

7. ersons negotiating by delivery

2. Parties Pri!aril- Liablea. &a+er (Sec- E>)

• engages to pay according to the tenor of theinstrument- and

• admits the e'istence of the payee and his thencapacity to indorse at the time of the ma+ing of the note.

• 0 person placing his name on the face of a noteis prima facie a ma+er and liable as such- andhe is presumed to have acted with care and tohave signed the instrument with full +nowledgeof its contents.

b. 0cceptor or !rawee (Sec- E')

• engages to pay according to the tenor of hisacceptance-

•admits$1. the e'istence of the drawer,%. the genuineness of his signature and. his capacity and authority to draw the

instrument- and7. the e'istence of the payee and his then

capacity to indorse.Note( the drawee is not liable until he accepts the instrument

• here a chec+ is certified by a ban+, it isequivalent to an acceptance. Since certification isequivalent to acceptance, a ban+ which hascertified a chec+ whether at the request of theholder or of a drawer, has the same liabilities andma+es the same warranties as an acceptor. Itcannot, after certification, question the

genuineness of the drawers signature. If itdiscovers that such signature is forged subsequentto certification but prior to payment, it cannotrefuse to pay on the chec+. If its discovery comesafter it has paid the chec+, it cannot recover bac+what it paid on the ground of mista+en paymentunless the holder is guilty of fraud or negligence.

• If a drawee*ban+ accepts or pays a chec+ despitea stop payment order from the drawer, throughoversight or otherwise, it cannot refuse to pay theholder or recover what has been paid- neithermay it debit the drawers account unless theacceptance nor payment was made prior to the

receipt of the order.

7. Parties Se$on)aril- Liablea. !rawer (Sec- E)

• admits the e'istence of the payee and hiscapacity to indorse-

• engages that the instrument will be acceptedor paid by the party primarily liable- and

• engages that if the instrument is dishonoredand proper proceedings are brought, he willpay to the party entitled to be paid.

b. 2eneral Indorser (Sec- EE)

• arrants$



1. genuineness of the instrument-%. his good title to it-. capacity to contract of prior parties- and7. instrument is valid and subsisting.

• engages that the instrument will be accepted

or paid by the party primarily liable- and• engages that if the instrument is dishonored

and proper proceedings are ta+en, he will payto the party entitled to be paid.

c. Irregular Indorser D a person, not otherwise a partyto an instrument, places his signature thereon inblan+ before delivery.Rules%

• If instrument payable to the order of a rd

person, he is liable to the payee andsubsequent parties.

• If instrument payable to order of ma+er ordrawer, he is liable to all parties subsequent tothe ma+er or drawer.

• If he signs for accommodation of the payee, he

is liable to all parties subsequent to the payee.

Distin$tions(

PRIMARY PARTY SECONDARY PARTY1. 5nconditionally bound- 1. "onditionally bound-%.0bsolutely required to %. 5nderta+es to pay onlypay upon the maturity of after certain conditionsthe instrument. have been fulfilled$

a. due presentment forpayment or acceptance toprimary party-

b. dishonor by suchparty- and

c. the ta+ing of proceedings required by

law after dishonor.

INDORSER DRAWER 1. 0 party to either a note 1. 0 party only to a bill-or a bill- %. )he drawer ma+es such%. !oes not ma+e any admission-admission regarding the . &a+es no warranties, bute'istence of the payee and he engages to pay afterhis capacity to indorse- and certain conditions are

(. as warranties. complied with.

GENERAL INDORSER IRREGULAR INDORSER 1. &a+es either a blan+ or 1. 0lways ma+es a blan+special indorsement- indorsement-%. Indorses the instrument %. Indorses before its

after its delivery to the delivery-payee- and . Liable to the payee and. Liable only to parties subsequent parties unlesssubsequent to him he signs for the

accommodation of thepayee in which case he isliable only to all parties

subsequent to the payee.

2- arties with Limited Liability (sec. :9- .etro$ol=inancing v- Sambo/, '> SCRA 5E3# a. 6ualified ndorser warrants that$

à instrument is genuine and in all respects whatit purports to be-

à he has good title to it-à all prior parties had capacity to contract-à he has no +nowledge of any fact which would

impair the validity of the instrument or renderit valueless.b- Persons Negotiating by elivery

à warranties same as those of qualified indorsers-and

à warranties e'tend to immediate transfereeonly.

LIABILITY WARRANTY1. )o pay a sum certain. 1.No obligation to pay.%. equires Notice of %.Notice of !ishonor is not a

!ishonor. requirement.. 0ction can be brought .0ction may be brought

only on maturity of anytime.

instrument.

BY MERE DELI6ERY OR BY GENERAL INDORSER

8UALI#IED INDORSEMENT

1. No secondary liability- 1. ith secondary liability-

%. arrants that he has no %. arrants that the+nowledge of any fact, instrument is, at the timewhich would impair the of his indorsement, validvalidity of the instrument and subsisting.

or render it valueless.

7. 6ther parties who may be liable$

Beneral Rule% 6ne whose signature does not appear on the

instrument shall not be liable thereon.!"ce$tions%1. )he principal who signs through an agent is liable-%. )he forger is liable-. 6ne who indorses in a separate instrument (allonge# is

liable-7. 6ne who signs his assumed or trade name is liable- and9. 0 person negotiating by delivery (as in the case of a

bearer instrument# is liable to his immediate indorsee.

Re0isites %or an Agent to es$a4e liabilit-$

1. must be duly authoriCed-%. add words to his signature indicating that he signs as an

agent, that is, for or on behalf of a principal, or in arepresentative capacity- and

. disclose his principal.

¾ 0 signature by @procurationA operates as notice that theagent has but a limited authority to sign, and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority. (sec. %1#

¾ Indorsement or assignment of the NI by a corporation orby an infant passes the property therein,notwithstanding that from want of capacity, thecorporation or infant may incur no liability thereon. (sec.%%#

A$$o!o)ation Part-



6ne who has signed the instrument as ma+er, drawer,acceptor, or indorser, without receiving value therefor, andfor the purpose of lending his name to some other person¾ Liability% such a person is liable on the instrument to a

holder for value, notwithstanding such holder, at the

time of ta+ing the instrument, +new him to be only anaccommodation party.¾ !ffects%

- accommodation party is generally regarded as asurety for the party accommodated-

'- hen accommodation party ma+es payment toholder of the note, he has the right to sue theaccommodated party for reimbursement.

¾ Rig#ts of accommodation $arties as against eac# ot#er%the other may demand contribution from his co*accommodation party without first directing his actionagainst the principal debtor provided$- he made the payment by virtue of /udicial demand-

or'- the principal debtor is insolvent.

Note( 0 cor$oration cannot act as an accommodationparty. )he issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires.(Crisologo v- CA, J SCRA 4@3#.

Or)er o% liabilit- o% in)orsers(1. among themselves D indorsers are liable $rima facie in

the order in which they indorse- but evidence isadmissible to show that, as between or amongthemselves, they have agreed otherwise (sec. :<#

%. to the holder D indorsers are liable in any order

6I. DE#ENSES

Jinds$1. ealB0bsolute !efenses * those that attach to the

instrument itself and are available against all holders,whether in due course or not.!"am$les%a. 0lteration-b. Non*delivery of incomplete instrument-c. !uress amounting to forgery-d. Hraud in factum or fraud in esse contractus-e. &inority-f. &arriage in the case of a wife-g. Insanity where the insane person has a guardian

appointed by the court-h. 5ltra vires acts of a corporation, where the

corporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstances-

i. ant of authority of agent-/. 4'ecution of instrument between public enemies-+. Illegality of contract where it is the contract or

instrument itself which is e'pressly made illegal bystatute- and

l. Horgery.%. ersonalB4quitable !efenses D those which are available

only against a person not a holder in due course or asubsequent holder who stands in privity with him.!"am$les%

a. 0bsence or failure of consideration, partial or total-b. ant of delivery of complete instrument-c. Insertion of wrong date in an instrument, where it is

payable at a fi'ed period after date and it is issuedundated or where it is payable at a fi'ed period

after sight and the acceptance is undated-d. Hilling up of blan+ contrary to authority given or notwithin reasonable time, where the instrument isdelivered-

e. Hraud in inducement-f. 0cquisition of instrument by force, duress, or fear-g. 0cquisition of the instrument by unlawful means-h. 0cquisition of the instrument for an illegal

consideration-i. Negotiation in breach of faith-/. Negotiation under circumstances that amount to

fraud-+. &ista+e-l. Into'ication (according to better authority#-m. 5ltra vires acts of corporations where the

corporation has the power to issue negotiable paper

but the issuance was not authoriCed for theparticular purpose for which it was issued-

n. ant of authority of agent where he haso. apparent authority-p. Insanity where there is no notice of insanity on the

part of the one contracting with the insane person-and

q. Illegality of contract where the form orconsideration is illegal.

#RAUD IN #ACTUM #RAUD IN INDUCEMENT1. It e'ists in those cases in 1. It is that which relatedwhich a person, without to the quality, quantity,negligence, has signed an value or character of theinstrument which was in consideration of the

fact a negotiable instrument. In this case,instrument, but was the signer is led bydeceived as to the deception to e'ecute whatcharacter of the instrument he +nows is a negotiableand without +nowledge of instrument. It implies thatits, as where a not was the signer +new what hesigned by one under the was signing but that he wasbelief that he was signing induced by fraud to sign.

as a witness to a deed.%. )his +ind of fraud is a %. Such type of fraud is onlyreal defense because there a personal defense becauseis no contract. It implies it does not prevent athat the person did not contract.+now what he was signing.3ut where the signer by thee'ercise of reasonablediligence could havediscovered the nature of the instrument, the fraudcannot be considered a realdefense, as where a person,who can read, signed a note

but failed to read it.

¾ E%%e$ts o% De%enses(- Com$lete and undelivered instrument



• as between immediate parties and as regards aremote party other than a holder in due course, thedelivery must be authoriCed in order to be effectual

• where the instrument is in the hands of a holder indue course, a valid delivery thereof by all parties

prior to him so as to ma+e them liable to him isconclusively presumed

• where the instrument is no longer in the possessionof a party whose signature appears thereon, a validand intentional delivery by him is presumed untilthe contrary is proved

'- ncom$lete but delivered instrument

• where the instrument is wanting in any materialparticular, the person in possession thereof has aprima facie authority to complete it by filling up theblan+s therein.

• it must be filled up strictly in accordance with theauthority given and within a reasonable time

• if any such instrument, after completion, isnegotiated to a holder in due course, it is valid andeffectual for all purposes in his hands, and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time.

2- ncom$lete and undelivered instrument

• it will not, if completed and negotiated withoutauthority, be a valid contract in the hands of anyholder, as against any person whose signature wasplaced thereon before delivery.

• owever, subsequent indorsers are liable.3- =orgery

• counterfeit ma+ing or fraudulent alteration of anywriting, which may consist of$1. signing of anothers name with intent to

defraud- or

%. alteration of an instrument in the name,amount, name of payee, etc. with intent todefraud.

• 4ffect$ signature is wholly inoperative, and no rightto retain the instrument, or to give a dischargetherefore, or to enforce payment thereof againstany party thereto, can be acquired through or undersuch signature

• 4'ception$ unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authority.

• Ct"O%% Rle2eneral ule$ arties prior to the forged signatureare cut*off from the parties after the forgery in thesense that prior parties cannot be held liable and

can raise the defense of forgery. )he holder can onlyenforce the instrument against parties who becamesuch after the forgery.4'ception$ hen the prior parties are precludedfrom setting up the defense of forgery.Persons $recluded from setting u$ t#e defense of forgery are%1. )hose who by their acts, silence, or negligence,

are estopped from setting up the defense of forgery-

%. )hose who warrant or admit the genuineness of the signature in question. )hese include acts or

omissions that amount to ratification, e'pressor implied.

Note( ersons precluded from setting up thedefense of forgery may still recover damages underthe N"" provisions on quasi*delicts.

• Rles on #orger-( A- Promissory Notes

1. &a+ers signature forged&rder nstrument

a. &a+er is not liable because he neverbecame a party to the instrument.

b. Indorsers subsequent to forgery are liablebecause of their warranties.

c. arty who made the forgery is liable.earer nstrument

a. &a+er is not liable.b. Indorsers may be made liable to those

persons who obtain title through theirindorsements.

c. arty who made the forgery is liable.%. ayees signature forged

&rder nstrumenta. &a+er and payee not liableb. Indorsers subsequent to the forgery is

liable.c. arty who made the forgery is liable

earer nstrumenta. &a+er is liable. Indorsement is not

necessary to title and the ma+er engagesto pay holder.

b. arty who made the forgery is liable. Indorsers signature forged

&rder nstrumenta. &a+er, payee, and indorser who signature

was forged is not liable.b. Indorsers subsequent to forgery are liable

because of their warranties.c. arty who made the forgery is liable.3earer Instrumenta. &a+er is liable. Indorsement is not

necessary to title and the ma+er engagesto pay holder.

b. Indorser whose signature was forged is notliable

c. arty who made the forgery is liable.3. ill of !"c#ange

1. !rawers signature forgedn an &rder nstrumenta. !rawer is not liable.b. !rawee is liable if it paid (nor recourse to

drawer# because he admitted thegenuineness of the drawers signature.

!rawee cannot recover from the collectingban+ because there is no privity betweenthe collecting ban+ and the drawer. )hereis no warranty as to the signature of thedrawer. ( Associated an/ v- CA#

c. Indorsers subsequent to forgery are liable.d. arty who made the forgery is liablen a earer nstrumenta. !rawer is not liableb. !rawee is liable if it paid. !rawee cannot

recover from the collecting ban+ because



it is bound to +nown the drawers signaturesince the latter is its depositor.

c. arty who made the forgery is liable.%. ayees signature forged

&rder nstrument

a. !rawer, drawee and payee not liable. "ut*off rule applies.b. Indorsers subsequent to forgery are liable.c. arty who made the forgery is liableearer nstrumenta- !rawer is liable. is indorsement is not

necessary to pass title.b- !rawee is liable. No privity between

drawer and payee because indorsement of payee is not necessary ( Ang 8e/ Lian case,5J SCRA 252#

c- ayee is not liabled- "ollecting ban+ is liable because of

warranty.e- arty who made the forgery is liable.

. Indorsers signature forged

&rder nstrumenta. !rawer, payee and indorser whose

signature was forged are not liable.b. !rawee is liable if it paid.c. Indorsers subsequent to forgery are liable.d. arty who made the forgery is liable.earer nstrumenta. !rawer is liable. Indorsement is not

necessary to pass title.b. !rawee is liable.c. Indorser whose signature was forged is

liable because indorsement is notnecessary to pass title.

d. arty who made the forgery is liable.

4- Alteration• 4ffect$ the instrument is avoided

• 4'ceptions$1. against a party who has himself made,

authoriCed, or assented to the alteration%. subsequent indorsers. holder in due course not a party to the

alteration * he may enforce payment accordingto its original tenor

• "hanges constituting material alteration$1. date-%. sum payable, either for principal or interest-. time or place of payment-7. number or relations of the parties-9. medium or currency in which payment is to be

made-:. that which adds a place of payment where no

place of payment is specified- and;. any other change or addition which alters the

effect of the instrument in any respect.Note( a material alteration is one that alters theeffect of the instrument- one which changes theitems required to be stated under Sec. 1, NIL.

• Spoliation D alteration made by a stranger.

• )he general rule denies the drawee ban+s right tocharge against the drawers account the amount of an altered chec+. owever, the latters negligence,before or after the alteration, may estop him from

setting such alteration as against an innocentdrawee ban+ who has paid the chec+.

• In cases of altered chec+s and chec+s with forgedindorsements, the drawee ban+ must notify andreturn them to the collecting ban+ before 7$>> p.m.

of the ne't day of clearing, but the drawee ban+may still return them even after such time providedhe does so within %7 hours from its discovery of thealteration or forged instruments so that recovery of the amount may be had. 35), in no event beyondthe period fi'ed or provided by law for filing of alegal action by the returning ban+ against the ban+sending the same.Note( 0lteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenor.

6II. EN#ORCEMENT O# LIABILITY

Present!ent %or 4a-!ent D the presentation of an

instrument to the person primarily liable for the purpose of demanding and receiving payment.

2eneral ules$

• presentment for payment to charge personsprimarily liable is not necessary

• presentment for payment to charge personssecondarily liable is necessary

4'ceptions$a. drawer * where he has no right to e'pect or require

that the drawee or acceptor will pay the instrument(sec. ;=#

b. indorser * where the instrument was made oraccepted for his accommodation and he has noreason to e'pect that the instrument will be paid if

presented.c. when dispensed$

i. where, after the e'ercise of reasonablediligence, presentment as required cannotbe made-

ii. where the drawee is a fictitious person-iii. by waiver of presentment, e'press or

implied. (sec. <%#d. when the instrument has been dishonored by non*

acceptance (sec. 191#

S%%i$ien$- o% 4resent!ent.It must be$1. made by the holder or any person authoriCed to

receive payment on his behalf-%. at a reasonable hour on a business day-. at a proper place-7. to the person primarily liable or if he is absent or

inaccessible, to any person found at the placewhere the presentment is made.

+o& !a)e(1. personal demand for payment at the proper place- and%. readiness to e'hibit the instrument if required, and to

receive payment and to surrender the instrument if thedebtor is willing to pay.

• Pur$ose of e"#ibition%)o enable the debtor to$



a. determine the genuineness of the instrument andthe right of the holder to receive payment- and

b. to enable him to reclaim possession upon payment.

• 1#en e"#ibition e"cused%a. when debtor does not demand to see the instrument

but refuses payment on some other grounds, andb. when the instrument is lost or destroyed.

When made:

• where the instrument is payable at a fi'ed ordeterminable future time, presentment must be made onthe day it falls due

• where it is payable on demand$a. $romissory note% presentment must be made within

a reasonable time after its issueb. bill of e"c#ange% presentment for payment will be

sufficient if made within a reasonable time after thelast negotiation thereof

• the chec+ must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the e'tent of theloss caused by the delay.

Ti!e o% !atrit-(

• every negotiable instrument is payable at the time fi'edtherein without grace

• when the day of maturity falls upon a Sunday or aholiday, the instruments are to be presented for paymenton the ne't succeeding business day

• when the day of maturity falls upon a Saturday$ Instrument is payable at a fi'ed or determinable

future time (time instrument# * presented forpayment is on the ne't succeeding business day

instruments is payable on demand * at the option of the holder, be presented for payment$

a. before 1%$>> noon on Saturday when

that entire day is not a holiday orb. the ne't succeeding business day.

*ow com$uted% e'cluding the day from which the time is to begin to

run, and by including the date of payment applies to instruments which are payable at a fi'ed

period after date, after sight, or after thathappening of a specified event.

Pro4er 4la$e %or 4resent!ent(a. here a place of payment is specified in the instrument

and it is there presented-b. here no place of payment is specified but the address

of the person to ma+e payment is given in the instrumentand it is there presented-

c. here no place of payment is specified and no address is

given and the instrument is presented at the usual placeof business or residence of the person to ma+e payment-

d. In any other case if presented to the person to ma+epayment wherever he can be found, or if presented athis last +nown place of business or residence.

W,en )ela- in 4resent!ent e9$se) D delay is caused bycircumstances beyond the control of the holder and notimputable to his default, misconduct, or negligence. henthe cause of delay ceases to operate, presentment must bemade with reasonable diligence.

Present!ent %or a$$e4tan$e D the production or e'hibitionof a bill of e'change to the drawee for his acceptance orpayment

2eneral ule$ presentment for acceptance is not necessary to

render any party to the bill liable.

4'ception$ presentment for acceptance must be made$a. here the bill is payable after sight, or where

presentment for acceptance is necessary in order tofi' the maturity of the instrument- or

b. here the bill e'pressly stipulates that it shall bepresented for acceptance- or

c. here the bill is drawn payable elsewhere, then atthe residence or place of business of the drawee.(sec. 17#

Note( in all the above cases, the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime- otherwise, the drawer and all indorsers are discharged.

+o& !a)e$

1. made by or on behalf of the holder-%. at a reasonable hour-. on a business day-7. before the bill is overdue and within reasonable

time-9. to the drawee or some person authoriCed to accept

or refuse acceptance on his behalf.

Da-s 4resent!ent !a- be !a)e. If date of presentment is$

a. Sunday or a holiday D must be made on the ne'tsucceeding business day

b. Saturday D before 1%$>> noon on Saturday providedthat it is not a holiday.

W,en )ela- %or 4resent!ent e9$se)$

a. bill is drawn payable elsewhere than at the place of business or the residence of the drawee.

b. holder has no time, with the e'ercise of reasonablediligence, to present the bill for acceptance beforepresenting it for payment on the day that it fallsdue.

E%%e$t$ does not discharge the drawers and indorsers.

W,ere 4resent!ent is e9$se)(a. here the drawee is dead, or has absconded, or is a

fictitious person or a person not having capacity tocontract by bill.

b. here presentment can not be made after thee'ercise of reasonable diligence

c. here, although presentment has been irregular,acceptance has been refused on some other ground.

Note: bill may be treated as dishonored by non*acceptance.

Dt- o% ,ol)er &,ere bill not a$$e4te). where a bill isduly presented for acceptance and is not accepted within theprescribed time (%7 hours D sec. 1:#, the person presenting itmust treat the bill as dishonored by non*acceptance or heloses the right of recourse against the drawer and indorsers.



A$$e4tan$e( the signification by the drawee of his assent tothe order of the drawer. It is the act by which the draweemanifests his consent to comply with the request contained inthe bill of e'change directed to him.

+o& !a)e (1# must be in writing%# signed by the drawee# must not e'press that the drawee will perform his

promise by any other means than the payment of money.

• the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the bill,and if such request is refused, may treat the bill asdishonored.

• where an acceptance is written on a paper other thanthe bill itself, it does not bind the acceptor e'cept infavor of a person to whom it is shown and who, on thefaith thereof, receives the bill for value.

Perio) %or )ra&ee to a$$e4t * allowed %7 hours after

presentment in which to decide whether or not he will acceptthe bill- if acceptance is given, it dates as of the day of presentation.

Constr$ti'e:I!4lie) a$$e4tan$e( where a drawee refuseswithin %7 hours after delivery or within such other period asthe holder may allow, to return the bill accepted or non*accepted to the holder, he will be deemed to have acceptedthe same.Note( same effect if the drawee destroys the instrument.

;in)s(1. Beneral * assents without qualification to the order of

the drawer.%. 6ualified * which in e'press terms varies the effect of

the bill as drawn.a. "onditional * ma+es payment by the acceptor

dependent on the fulfillment of a conditiontherein stated.

b. artial * an acceptance to pay part only of theamount for which the bill is drawn.

i. Local * an acceptance to pay only at aparticular place.

ii. Kualified as to timeiii. )he acceptance of some one or more of

the drawees but not of all.2- Constructive

Rig,ts o% 4arties as to 0ali%ie) a$$e4tan$e.

• +ol)er$ he may refuse to ta+e a qualified acceptanceand if he does not obtain an unqualified acceptance, he

may treat the bill as dishonored by non*acceptance.• Dra&er or in)orser$ when he receives notice of a

qualified acceptance, he must, within a reasonable time,e'press his dissent to the holder or he will be deemed tohave assented thereto (implied assent#.

E%%e$t o% ta<ing a 0ali%ie) a$$e4tan$e% the drawer and

indorsers are discharged from liability on the bill unless theyhave e'pressly or impliedly authoriCed the holder to ta+e a

qualified acceptance, or subsequently assent thereto.

Ot,er rles o% a$$e4tan$e(

• a bill may be accepted before it has been signed by thedrawer, or while otherwise incomplete, or when it isoverdue, or after it has been dishonored by a previousrefusal to accept, or by non payment

• when a bill payable after sight is dishonored by non*

acceptance and the drawee subsequently accepts it, theholder, in the absence of any different agreement, isentitled to have the bill accepted as of the date of thefirst presentment.

• an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who, upon the faiththereof, receives the bill for value.

• where a chec+ is certified by the ban+ on which it isdrawn, the certification is equivalent to anacceptance.4ffect$ the drawer and all indorsers are discharged

from liability thereon.

A$$e4tan$e %or +onor * an underta+ing by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted, andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it.

Requisites%1. the bill must have been protested for dishonor

by non*acceptance or for better security-%. the acceptor for honor must be a stranger and

not a party already liable on the instrument-. bill must not be overdue-7. acceptance for honor must be with the consent

of the holder of the instrument. =ormalities%

1. must be in writing-

%. must indicate that it is an acceptance forhonor-

. signed by the acceptor for honor-7. must contain an e'press or implied promise to

pay money-9. the accepted bill for honor must be delivered

to the holder.

Noti$e o% Dis,onor " notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non*acceptance by the drawee of a bill, orby non*payment by the acceptor of a bill or by non*paymentby a ma+er of a note.* If such notice is given by a notary public, it is called6)4S).

¾ 4ffect of failure to give notice% parties secondarily liableare discharged

¾ Requisites%1. 2iven by holder or his agent, or by any party who

may be compelled by the holder to pay-%. 2iven to secondary party or his agent-. 2iven within the periods provided by law-7. 2iven at the proper place.

¾ 1#en notice of dis#onor dis$ensed wit#%



1. when party to be notified +nows about the dishonor,actually or constructively-

%. if waived- and. when after due diligence, it cannot be given.

¾ *ow given%1. by bringing verbally or%. by writing to the +nowledge of the person liable the

fact that a specified instrument, upon properproceedings ta+en, has not been accepted or hasnot been paid, and that the party notified ise'pected to pay it.

¾ 8o w#om given%1. Non*acceptance (bill# D to persons secondarily

liable, namely, the drawer and indorsers as the casemay be.

%. Non*payment (both bill and note# D indorsers.Note( Notice must be given to persons secondarilyliable. 6therwise, such parties are discharged.Notice may be given to the party himself or to his

agent.

¾ y w#om given%1. the holder%. another on behalf of the holder. any party to the instrument who may be compelled

to pay it to the holder, and who would have a rightof reimbursement from the party to whom notice isgiven.

¾ Notice of dishonor given by or on be#alf of a #older inures to the benefit of$

a. all parties prior to the holder, who have a rightof recourse against the party to whom thenotice is given- and

b. all holders subsequent to the holder givingnotice.

¾ Notice of dishonor given by or on be#alf of a $arty entitled to give notice inures to the benefit of$

a. the holder- andb. all parties subsequent to the party to whom

notice is given.

¾ here an instrument is dis#onored in t#e #ands of anagent, he can do either of the ff.$

a. directly give notice to persons secondarilyliable thereon- or

b. give notice to his principal. In such case, hemust give notice within the time allowed bylaw as if he were a holder.

¾ 0 party giving notice is deemed to #ave given due noticewhere$

a. the notice of dishonor is duly addressed, andb. deposited in the post*office, even when there

is miscarriage of mail.

¾ here a party receives notice of dishonor, he has, afterthe receipt of such notice, the same time for givingnotice to antecedent parties that the holder has afterthe dishonor.

¾ Notice may be waived either before the time of givingnotice, or after the omission to give due notice. aivermay be e'pressed or implied.

¾ 0s to who are affected by an e'press waiver depends on

where the waiver is written$1. if it appears in the body or on the face of theinstrument, it binds all parties- but

%. if it is written above the signature of anindorser, it binds him only.

¾ Notice of dishonor is not required to be given to thedrawer in any of the ff. cases$

1. drawer and drawee are the same-%. drawee is a fictitious person or not having the

capacity to contract-. drawer is the person to whom the instrument is

presented for payment-7. the drawer has no right to e'pect or require

that the drawee or acceptor will honor theinstrument-

9. where the drawer has countermandedpayment.

¾ Notice of dishonor is not required to be given to anindorser in the ff. cases$

1. drawee is a fictitious person or does not havethe capacity to contract, and indorser wasaware of that fact at the time he indorsed theinstrument-

%. indorser is the person to whom the instrumentis presented for payment-

. instrument was made or accepted for hisaccommodation.

¾ If an instrument is not accepted by the drawee, there is

no sense presenting it again for payment, and notice of dishonor must at once be given. If there was acceptance,presentment for payment is still required and if paymentis refused, there is a need for notice of dishonor.

¾ 0n omission to give notice of dishonor by non*acceptancedoes not pre/udice the rights of a holder in due coursesubsequent to the omission.

Dis,onor b- Non"Pa-!ent

hen instrument dishonored by non*payment$a. it is duly presented for payment and payment is

refused or cannot be obtained- orb. presentment is e'cused and the instrument is

overdue and unpaid.

4ffect of dishonor$ an immediate right of recourse to allparties secondarily liable thereon accrues to the holder.

Dis,onor b- Non"A$$e4tan$e

Instances$a. hen it is duly presented for acceptance and such

an acceptance is refused or can not be obtained- orb. hen presentment for acceptance is e'cused and

the bill is not accepted (sec. 17=#



4ffect$ an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessary.Note( where a bill is duly presented for acceptance andis not accepted within the prescribed time (%7 hours#,

the person presenting it must treat the bill as dishonoredby non*acceptance.

hen Instrument "onsidered to be !ishonoreda. If it is not accepted when presented for acceptance-

orb. If it is not paid when presented for payment at

maturity- orc. If presentment is e'cused or waived and the

instrument is past due and unpaid.

Protest " the formal instrument e'ecuted usually by a notarypublic certifying that the legal steps necessary to fi' theliability of the drawee and the indorsers have been ta+en.

¾ !ffect of waiver% where protest is waived, presentment

and notice of dishonor are also deemed waived. 3utwhere the notice of dishonor is waived, presentment isnot waived.

¾ A$$licability% protest is necessary only in case of foreignbills of e'change which have been dishonored by non*acceptance or non*payment, as the case may be. If it isnot so protested, the drawer and indorsers aredischarged.

¾ Horeign 3ill of 4'change$1. !rawn in the hilippines but payable outside the

hilippines.%. ayable in the hilippines but drawn outside the

hilippines.

¾ Protest may be made by%%1. a notary public- or%. any respectable resident of the place where the bill

is dishonored, in the presence of % or more crediblewitnesses.

Protest for better security is one made by the holder of a billafter it has been accepted but before it matures, against thedrawer and indorsers, where the acceptor has been adDudged a ban/ru$t or an insolvent, or #as made an assignment forthe benefit of the creditors.

6III. DISC+ARGE

Dis$,arge o% instr!ent * a release of all parties, whetherprimary or secondary, from the obligations arising thereunder.It renders the instrument without force and effect and,consequently, it can no longer be negotiated.

Instan$es(

1. 3y payment in due course by or on behalf of theprincipal debtor-

%. ayment by accommodated party-. Intentional cancellation by the holder-

7. 3y any act which will discharge a simple contract forthe payment of money-

9. hen the principal debtor becomes the holder of the instrument at or after maturity in his own right.

B- an- a$t &,i$, &ol) )is$,arge a si!4le $ontra$t(1. ayment or performance-%. Loss of the thing due-. "ondonation or remission-7. "onfusion or &erger-9. "ompensation-:. Novation-;. 0nnulment or escission-<. Hulfillment of a resolutory condition-=. rescription.

W,en 4ersons se$on)aril- liable on t,e instr!ent are)is$,arge)(

1. 3y any act which discharges the instrument-%. 3y the intentional cancellation of his signature by

the holder-

. 3y the discharge of a prior party-7. 3y a valid tender of payment made by a prior party-9. 3y the release of the principal debtor, unless the

holders right of recourse against the partysecondarily liable is e'pressly reserved-

:. 3y any agreement binding upon the holder to e'tendthe time of payment or to postpone the holdersright to enforce the instrument.

¾ In the following cases, the agreement to e'tend the timeof payment does not discharge a party secondarily liable$1. where the e'tension of time is consented to by such

party-%. where the holder e'pressly reserves his right of

recourse against such party.

¾ ayment at or after maturity by a party secondarilyliable does not discharge the instrument. It only cancelshis own liability and that of the parties subsequent tohim.

E%%e$ts o% Renn$iation(1. 0 renunciation in favor of a secondary party may be

made by the holder before, at or after maturity of the instrument. !ffect% only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force.

%. 0 renunciation in favor of the principal debtor maybe effected at or after maturity. 4ffect$ theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionally

and absolutely.

Note( In either case, renunciation does not affect the

rights of a holder in due course without notice.

¾ "ancellation of an instrument includes tearing, erasure,obliteration, or burning. It is not limited to writing of theword cancelledA, or @paidA, or drawing of criss*crosslines across the instrument.

Pa-!ent %or +onor * payment made by a person, whether a

party to the bill or not, after it has been protested for non*



payment, for the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn.

¾ Requisites%1. the bill has been dishonored by non*payment-

%. it has been protested for non*payment-. payment supra protest (another term for paymentfor honor because prior protest for non*payment isrequired# is made by any person, even by a partythereto-

7. the payment is attested by a notarial act of honorwhich must be appended to the protest or form ane'tension of it-

9. the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he pays.

Note( If the above formalities are not complied with,payment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursement

against the party for whose honor he pays.

¾ In payment for honor, the payee cannot refuse payment.If he refuses, he cannot recover from the parties whowould have been discharged had he accepted the same.In acceptance for honor, the holders consent isnecessary.

¾ )he payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to him.

I*. C+EC;S

C,e$<* a bill of e'change drawn on a ban+ payable on demand.

C,e$< )istingis,e) %ro! an) or)inar- bill o% e9$,ange

BILLO# E*C+ANGE C+EC;

Not necessarily drawn It is necessary that a chec+on a deposit. )he drawee is drawn on a ban+ deposit.need not be a ban+. )he drawee is always a

ban+.

!eath of a drawer of a !eath of the drawer of a364, with the +nowledge chec+, with the +nowledgeof the ban+, does not of the ban+, revo+es therevo+e the authority of the authority of the ban+er to

drawee to pay. pay.

&ay be presented for &ust be presented forpayment within a payment within areasonable time after its reasonable time after itslast negotiation because it issue.

may be further negotiated.

&ay be payable on demand 0lways payable on demandor at a fi'ed or

determinable future time

inds of c#ec/s%1. &anagers B "ashiers "hec+ D drawn by a ban+ on itself

and therefore, it is a primary obligation of the ban+.o It is accepted in advance by the act of its

issuance and is not sub/ect to

countermand by the payor afterindorsement.

o )he ban+s manager signs managers chec+while cashiers chec+ is signed by the ban+cashier.

%. "ertified "hec+ D one drawn by a depositor upon funds tohis credit in a ban+ which a proper officer of the ban+certifies will be paid when duly presented for payment

. Stale chec+ D one which has not been presented forpayment within a reasonable time after its issue

7. "rossed chec+ + when % parallel lines are drawn across itsface or across a corner thereof. If the name of a ban+appears between the parallel lines, the chec+ is said tobe s$ecially crossed , and payment should be made onlyif presented by the named ban+. If no name appearsbetween the parallel lines, the chec+ is said to be generally crossed, and payment should be made onlyupon presentment by some ban+.

Effects of crossing a check:

a. )hat the chec+ may not be encashed but only bedeposited in the ban+-

b. )hat the chec+ may be negotiated only once to onewho has an account with a ban+- and

c. )hat the act of crossing the chec+ serves as awarning to the holder that the chec+ has beenissued for a definite purpose so that he must inquireif he has received the chec+ pursuant to thatpurpose.

9. &emorandum "hec+ D it is li+e an ordinary chec+ e'ceptthat the word @memorandum,A @memA or @memoA iswritten upon the face of the chec+, signifying that the

drawer engages to pay the bona fide holder absolutely,and not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and non*payment should be given.

:. )ravelers chec+ D one upon which the holders signaturemust appear twice, one to be affi'ed by him at the timeit is issued and the second o counter*signature, to beaffi'ed by him in the presence of the payee before it ispaid, otherwise it is incomplete

Iron Cla) Rle( rohibits the countermanding of paymentof certified chec+s. (Re$ublic of t#e P#ili$$ines v- PN- BR No- E>E- ecember , @E#

Documents

Negotiable Instruments Law Notes