I.

GENERAL CONCEPTS
NEGOTIABLE INSTRUMENT (NI)
A written contract for the payment of
money which complies with the
requirements of Sec. 1 of the NIL, which
by its form and on its face, is intended
as a substitute for money and passes
from hand to hand as money, so as to
give the holder in due course !"#$ the
right to hold the instrument free from
defenses available to prior parties.
(Reviewer on Commercial Law,
Professors Sundiang and Aquino)
Functions: (Bar Review Materials in
Commercial Law, Jorge Miravite, !!
ed")
1. %o supplement the currency of
the government.
&. %o substitute for money and
increase the purchasing medium.
Legal tender ' %hat (ind of
money which the law compels a creditor
to accept in payment of his debt when
tendered by the debtor in the right
amount.
Note) A NI although intended to be a
substitute for money, is not legal tender.
!owever, a chec( that has been cleared
and credited to the account of the
creditor shall be equivalent to delivery
to the creditor of cash. (Sec" #!, $CBA)
Features: (Reviewer on Commercial
Law, Professors Sundiang and Aquino)
1. Negotiability ' %hat attribute or
property whereby a bill or note
or chec( may pass from hand to
hand similar to money, so as to
give the holder in due course the
right to hold the instrument and
to collect the sum payable for
himself free from defenses.
%he essence of
negotiability which
characteri*es a negotiable
paper as a credit instrument
lies in its freedom to
circulate freely as a
substitute for money.
+irestone %ire vs. #A, ,-,
S#.A /01$
&. Accumulation of Secondary
#ontracts ' Secondary contracts
are pic(ed up and carried along
with NI as they are negotiated
from one person to another1 or
in the course of negotiation of
negotiable instruments, a series
of 2uridical ties between the
parties thereto arise either by
law or by privity.
A!ica"i!it#:
%eneral Rule& %he provisions of the
NIL are not applicable if the instrument
involved is not negotiable.
'(ce)tion& In the case of Borromeo
vs" Amancio Sun, *+, SCRA +,#, the S#
applied Section 13 of the NIL by analogy
in a case involving a "eed of Assignment
of shares which was signed in blan( to
facilitate future assignment of the same
shares. %he S# observed that the
situation is similar to Section 13 where
the blan(s in an instrument may be filled
up by the holder, the signing in blan(
being with the assumed authority to do
so.
%he NIL was enacted for the purpose
of facilitating, not hindering or
hampering transactions in commercial
paper. %hus, the statute should not be
tampered with hapha*ardly or lightly.
Nor should it be brushed aside in order
to meet the necessities in a single case.
4ichael 5sme6a vs. #itiban(, 7... No.
131&89, 4arch &,, &003 #alle2o :.$
$in%s o& NI
'. PROMISSOR( NOTE (PN)
An unconditional promise in writing by
one person to another signed by the
ma(er engaging to pay on demand or at
a fi;ed or determinable future time, a
sum certain in money to order or to
bearer. Sec. 193$
). BILL OF E*C+ANGE (BE)
An unconditional order in writing
addressed by one person to another,
signed by the person giving it, requiring
the person to whom it is addressed to
pay on demand or at a fi;ed or
determinable future time a sum certain
in money to order or to bearer. Sec.
1&/$
NEGOTIABLE INSTRUMENTS LA, (NIL)
(Act No. 2031, effective June 2, 1911)
C+EC$ < A bill of e;change drawn on
a ban( payable on demand. Sec. 19-$. It
is the most common form of bill of
e;change.
OT+ER FORMS OF NI
1. #ertificate of deposit issued by
ban(s, payable to the depositor or
his order, or to bearer
&. %rade acceptance
,. =onds, which are in the nature of
promissory notes
3. "rafts, which are bills of e;change
drawn by one ban( upon another
-. "ebenture
All of these must comply with Sec. 1,
NIL.
Note: Letters of credit are not
negotiable because they are issued to a
specified person.
Instances -.en a BE /a# "e treate% as
a PN
a. %he drawer and the drawee are
the same person1 or
b. "rawee is a fictitious person1 or
c. "rawee does not have the
capacity to contract. Sec. 1,0$
d. >here the bill is drawn on a
person who is legally absent1
e. >here the bill is ambiguous Sec.
18?e@$
Parties to a NI
'. Pro/issor# Note
a. 4a(er ' one who ma(es
promise and signs the instrument
b. Aayee ' party to whom the
promise is made or the
instrument is payable.
). Bi!! o& E0c.an1e
a. "rawer ' one who gives
the order to pay money to a
third party
b. "rawee ' person to
whom the bill is addressed and
who is ordered to pay. !e
becomes an acceptor when he
indicates his willingness to pay
the bill
c. Aayee ' party in whose
favor the bill is drawn or is
payable.
DISTINCTIONS
PROMISSOR(
NOTE
BILL OF
E*C+ANGE
Bnconditional
promise
Bnconditional
order
Involves & parties Involves , parties
4a(er is primarily
liable
"rawer is only
secondarily liable
5nly one
presentment) for
payment
%wo presentments)
for acceptance and
for payment
NEGOTIABLE
INSTRUMENTS
NON2NEGOTIABLE
INSTRUMENTS
5nly NI are
governed by the
NIL.
Application of the
NIL is only by
analogy.
%ransferable by
negotiation or by
assignment.
%ransferable only by
assignment

A transferee can be
a !"# if all the
requirements are
complied with
A transferee remains
to be an assignee
and can never be a
!"#
A holder in due
course ta(es the NI
free from personal
defenses
All defenses
available to prior
parties may be
raised against the
last transferee
.equires c!ean
tit!e3 one that is
free from any
infirmities in the
instrument and
defects of title of
prior transferors.
($otes and Cases on
Ban-s, $egotia.le
/nstruments and
ot0er Commercial
1ocuments,
2imoteo B" Aquino)
%ransferee acquires
a %eri4ati4e tit!e
only. ($otes and
Cases on Ban-s,
$egotia.le
/nstruments and
ot0er Commercial
1ocuments, 2imoteo
B" Aquino)
Solvency of debtor is
in the sense
guaranteed by the
indorsers because
they engage that the
instrument will be
accepted, paid or
both and that they
will pay if the
instrument is
dishonored. ($otes
and Cases on Ban-s,
$egotia.le
/nstruments and
ot0er Commercial
1ocuments, 2imoteo
B" Aquino)
Solvency of debtor is
not guaranteed under
Art. 1/&9 of the N##
unless e;pressly
stipulated. ($otes
and Cases on Ban-s,
$egotia.le
/nstruments and
ot0er Commercial
1ocuments, 2imoteo
B" Aquino)
BILLOF E*C+ANGE C+EC$
Not necessarily
drawn on a deposit.
%he drawee need not
be a ban(
It is necessary that
a chec( be drawn
on a ban( deposit.
5therwise, there
would be fraud.
"eath of a drawer of
a =5C, with the
(nowledge of the
ban(, does not
revo(e the authority
of the drawee to
pay.
"eath of the
drawer of a chec(,
with the
(nowledge of the
ban(, revo(es the
authority of the
ban(er to pay.
4ay be presented for
payment within
reasonable time
after its last
negotiation.
4ust be presented
for payment within
a reasonable time
after its issue.
4ay be payable on
demand or at a fi;ed
or determinable
future time
Always payable on
demand
NEGOTIABLE
INSTRUMENT
NEGOTIABLE
,ARE+OUSE
RECEIPT
If originally payable
to bearer, it will
always remain so
payable regardless of
If payable to
bearer, it will be
converted into a
receipt deliverable
manner of
indorsement.
to order, if
indorsed specially.
A holder in due
course may obtain
title better than that
of the one who
negotiated the
instrument to him.
%he indorsee, even
if holder in due
course, obtains
only such title as
the person who
caused the deposit
had over the goods.
ASSIGNMENT NEGOTIATION
Aertains to contracts
in general
Aertains to NI
!older ta(es the
instrument sub2ect
to the defenses
obtaining among the
original parties
!older in due
course ta(es it free
from personal
defenses available
among the parties
7overned by the
#ivil #ode
7overned by the
NIL
II. NEGOTIABILIT(
For/ o& NI: Sec. 1$ $e#: ,UPOA
1. 4ust be in >riting and signed by the
ma(er or drawer1
&. 4ust contain an Bnconditional
promise or order to pay a sum
certain in money1
,. 4ust be Aayable on demand, or at a
fi;ed or determinable future time1
3. 4ust be payable to 5rder or to
bearer1 and
-. >hen the instrument is addressed to
a drawee, he must be named or
otherwise indicated therein with
reasonable certainty.
5eter/ination o& ne1otia"i!it#:
a. >hole instrument
b. >hat appears on the face of the
instrument
c. .equisites enumerated in Sec.1 of the
NIL
d. Should contain words or terms of
negotiability. (%o)enco, Commercial
Law Bar Reviewer, cited in Aquino, )"
*)
In determining the negotiability of an
instrument, the instrument in its
entirety and by what appears on its face
must be considered. It must comply
with the requirements of Sec. 1 of the
NIL. #alte; Ahils. v. #A, &1& S#.A 339$
%he acceptance of a bill of e;change
is not important in the determination of
NEGOTIABLE
INSTRUMENT
NEGOTIABLE
5OCUMENT OF
TITLE
Sub2ect is money Sub2ect is goods
Is itself the
property with
value
%he document is a
mere evidence of
title ' the things of
value being the
goods mentioned in
the document
!as all the
requisites of Sec. 1
of NIL
"oes not have these
requisites
A holder of NI may
run after the
secondary parties
for payment if
dishonored by the
party primarily
liable.
Intermediate parties
are not secondarily
liable if the
document is
dishonored.
A holder, if a
holder in due
course, may
acquire rights over
the instrument
better than his
predecessors.
A holder can never
acquire rights to the
document better
than his
predecessors.
its negotiability. %he nature of
acceptance is important only on the
determination of the (ind of liabilities of
the parties involved A=#54 vs. Aruego,
10& S#.A -,0$
RE6UISITES OF NEGOTIABILIT(
a. It /ust "e -ritin1 an% si1ne% "# t.e
/a7er or %ra-er
Any (ind of material that substitutes
paper is sufficient.
>ith respect to the signature, it is
enough that what the ma(er or drawer
affi;ed shows his intent to authenticate
the writing. ($otes and Cases on Ban-s,
$egotia.le /nstruments and ot0er
Commercial 1ocuments, 2imoteo B"
Aquino)
". Uncon%itiona! Pro/ise or Or%er to
a# a su/ certain in /one#
Bnconditional promise or order
>here the promise or order is made to
depend on a contingent event, it is
conditional, and the instrument involved
is non<negotiable. %he happening of the
event does not cure the defect.
%he unconditional nature of the
promise or order is not affected by)
a$ An indication of a particular fund out
of which reimbursement is to be
made, or a particular account to be
debited with the amount1 or
b$ A statement of the transaction which
gives rise to the instrument
>here the promise or order is sub2ect
to the terms and conditions of the
transaction stated, the instrument is
rendered non<negotiable. %he NI must be
burdened with the terms and conditions
of that agreement to destroy its
negotiability. (Cesar 3illanueva,
Commercial Law Review, !!4 ed")
=ut an order or promise to pay out of
a particular fund is N5% unconditional.
Sec. ,$
FUN5 FOR
REIMBURSEMENT
PARTICULAR FUN5
FOR PA(MENT
"rawee pays the
payee from his own
funds1 afterwards,
the drawee pays
himself from the
particular fund
indicated.
%here is only one
act< the drawee pays
directly from the
particular fund
indicated. Aayment
is sub2ect to the
condition that the
fund is sufficient.
Aarticular fund
indicated is N5% the
direct source of
payment but only the
source of
reimbursement.
Aarticular fund
indicated is the
direct source of
payment.
Aostal money orders are not negotiable
instruments. Some of the restrictions
imposed by postal laws and regulations
are inconsistent with the character of
negotiable instruments. Ahil. Cducation
#o. vs. Soriano, ,D S#.A -98$
%reasury warrants are non<negotiable
because there is an indication of the
fund as the source of payment of the
disbursement. 4etroban( vs. #A, 1D3
S#.A 1/D$
Aayable in sum certain in money
An instrument is still negotiable
although the amount to be paid is
e;pressed in currency that is not legal
tender so long as it is e;pressed in
money. AN= vs. Eulueta, 101 Ahil 1081,
Sec./ e$$.
%he certainty is however not affected
although to be paid)
a. >ith interest1 or
b. =y stated installments1 or
c. =y stated installments with an
acceleration clause1
d. >ith e;change1 or
e. >ith cost of collection or
attorneyFs fees. Sec. &$
%he dates of each installment must be
fi;ed or at least determinable and the
amount to be paid for each installment.
A sum is certain if the amount to be
unconditionally paid by the ma(er or
drawee can be determined on the face
of the instrument and is not affected by
the fact that the e;act amount is arrived
at only after a mathematical
computation. ($otes and Cases on
Ban-s, $egotia.le /nstruments and ot0er
Commercial 1ocuments, 2imoteo B"
Aquino)
ACCELERATION
CLAUSE
INSECURIT(
CLAUSE
E*TENSION
CLAUSE
A clause that
renders whole
debt due and
demandable
Arovisions in
the contract
which
allows the
#lauses in
the face of
the
instrument
upon failure of
obligor to
comply with
certain
conditions.
holder to
accelerate
payment if
he deems
himself
insecure.
that e;tend
the maturity
dates1
a. At the
option of
the holder1
b. C;tension
to a further
definite
time at the
option of
the ma(er
or acceptor
c. Automa '
tically upon
or after a
specified
act or
event.
Instrument is
still negotiable
Instrument
is rendered
non<
negotiable
because the
holderFs
whim and
caprice
prevail
without the
fault and
control of
the ma(er
Instrument
is still
negotiable
($otes and
Cases on
Ban-s,
$egotia.le
/nstruments
and ot0er
Commercial
1ocuments,
2imoteo B"
Aquino)
E*TENSION
CLAUSE
E*TENSION UN5ER
SEC. ')8(&)
Stated on the face of
the instrument
Agreement binding the
holder1
a. %o e;tend the time
of payment or
b. Aostpone the
holderFs right to
enforce the instrument
Aarties are bound
because they too( the
instrument (nowing
that there is an
e;tension clause
=inds the person
secondarily liable and
therefore cannot be
discharged from
liabilities if)
a. !e consents or
b. .ight of recourse is
e;pressly reserved.
($otes and Cases on
Ban-s, $egotia.le
/nstruments and ot0er
Commercial
1ocuments, 2imoteo
B" Aquino)
c. Pa#a"!e on 5e/an% or at &i0e% or
%eter/ina"!e &uture ti/e
PA(ABLE ON
5EMAN5
PA(ABLE AT A
FI*E5 OR
5ETERMINABLE
FUTURE TIME
a. >here e;pressed
to be payable on
demand, at sight or
on presentation1
b. >here no period
of payment is stated1
c. >here issued,
accepted, or
indorsed after
maturity only as
between immediate
parties$. Sec. 8$
a. At a fi;ed period
after date or sight1
b. 5n or before a
fi;ed or
determinable future
time specified
therein1 or
c. 5n or at a fi;ed
period after the
occurrence of a
specified event,
which is certain to
happen, though the
time of happening is
uncertain. Sec. 3$
If the day and the month, but not the
year of payment is given, it is not
negotiable due to its uncertainty.
(Pandect of Commercial Law and
Juris)rudence, Justice Jose 3itug, +55,
ed")
%. Pa#a"!e to Or%er or to Bearer
Aayable to 5rder
%he instrument is payable to order
where it is drawn payable to the order of
a specified person, or to him or his
order. Sec. 9$
%he payee must be named or
otherwise indicated therein with
reasonable certainty.
%he instrument may be made payable
to the order of)
a. A payee who is not the ma(er,
drawer or drawee
b. %he drawer or ma(er
c. %he drawee
d. & or more payees 2ointly
e. 5ne or some of several payees
f. %he holder of an office for a
time being
Aayable to =earer
%he instrument is payable to bearer)
a. >hen it is e;pressed to be so
payable1 or
b. >hen it is payable to a person
named therein or to bearer1 or
c. >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 payable1 or
d. >hen the name of the payee does
not purport to be the name of any
person1 or
e. >hen the only or last indorsement is
an indorsement in blan(. Sec. D$
Note: An instrument originally payable
to bearer can be negotiated by mere
delivery even if it is indorsed especially.
/f it is originall6 a B'AR'R instrument,
it will alwa6s .e a B'AR'R instrument"
As opposed to an original order
instrument becoming payable to bearer,
if the same is indorsed specially, it can
N5 L5N7C. be negotiated further by
mere delivery, it has to be indorsed.
A chec( that is payable to the order
of cash is payable to bearer. Reason& %he
name of the payee does not purport to
be the name of any person. Ang %e(
Lian vs. #A, 98 Ahil. ,9,$

FICTITIOUS PA(EE RULE
It is not necessary that the person
referred to in the instrument is really
non<e;istent or fictitious to ma(e the
instrument payable to bearer. %he
person to whose order the instrument is
made payable may in fact be e;isting
but he is till fictitious or non<e;istent
under Sec. Dc$ of the NIL if the person
ma(ing it so payable does not intend to
pay the specified persons. (Reviewer on
Commercial Law, Professors Sundiang
and Aquino)
e. I%enti&ication o& 5ra-ee
Applicable only to a bill of e;change
A bill may be addressed to & or more
drawees 2ointly whether they are
partners or not but not to & or more
drawees in the alternative or in
succession. Sec. 1&9$
OMISSIONS 9
PRO:ISIONS T+AT
5O NOT AFFECT
NEGOTIABILIT(
A55ITONAL
PRO:ISONS NOT
AFFECTING
NEGOTIABILIT(
a. It is not dated1
b. It does not
specify the value
given or that any
value has been
given1
c. It does not
specify the place
where it is drawn or
%'$'RAL R7L'& If
some other act is
required other than
or in addition to
payment of money,
the instrument is
not negotiable.
Sec. -$
'8C'P2/9$S&
where it is payable1
d. It bears a seal1
e. It designates a
particular (ind of
current money in
which payment is to
be made. Sec. /$
a. Authori*es the
sale of
collateral
securities on
default1
b. Authori*es
confession of
2udgment on
default1
c. >aives the
benefit of law
intended to
protect the
debtor1 or
d. Allows the
creditor the
option to
require
something in
lieu of money.
III. INTERPRETATION OF NEGOTIABLE
INSTRUMENTS (Sec. ';)
a. "iscrepancy between the
amount in figures and that in
words ' the words prevail, but if
the words are ambiguous,
reference will be made to the
figures to fi; the amount.
b. Aayment for interest is provided
for ' interest runs from the date
of the instrument, if undated,
from issue thereof.
c. Instrument undated ' consider
date of issue.
d. #onflict between written and
printed provisions ' written
provisions prevail.
e. >hen the instrument is so ambiguous
that there is doubt whether it is
a bill or note, the holder may
treat it as either at his election1
f. If one signs without indicating in
what capacity he has affi;ed his
signature, he is considered an
indorser.
g. If two or more persons sign :;e
)romise to )a6,< their liability is
2oint each liable for his part$
but if they sign :/ )romise to
)a6,< the liability is solidary
each can be compelled to
comply with the entire
obligation$. Sec. 18$
I:. TRANSFER AN5 NEGOTIATION
INCI5ENTS IN T+E LIFE OF A NI (+
Ag.a6ani, +55 ed")
a. Issue
b. Negotiation
c. Aresentment for acceptance, in
certain (inds of =ills of C;change
d. Acceptance
h. " ishonor by non<acceptance
i. A resentment for payment
2. " ishonor by non<payment
(. N otice of dishonor
l. " ischarge
MO5ES OF TRANSFER
a. Negotiation ' the transfer of the
instrument from one person to another
so as to constitute the transferee as
holder thereof. Sec.,0$
b. Assignment ' %he transferee does not
become a holder and he merely steps
into the shoes of the transferor. Any
defense available against the transferor
is available against the transferee.
($otes and Cases on Ban-s, $egotia.le
/nstruments and ot0er Commercial
1ocuments, 2imoteo B" Aquino)
Assignment may be effected whether
the instrument is negotiable or non<
negotiable. Sesbre6o vs. #A, &&& S#.A
3//$
+O, NEGOTIATION TA$ES PLACE
a. Issuance ' first delivery of the
instrument complete in form to a person
who ta(es it as a holder. Sec. 1D1$
Steps)
1. 4echanical act of writing
the instrument completely
and in accordance with the
requirements of Section 11
and
2. %he delivery of the
complete instrument by the
ma(er or drawer to the
payee or holder with the
intention of giving effect to
it. (20e Law on $egotia.le
/nstruments wit0 1ocuments
of 2itle, =ector de Leon,
!!! ed")
". Su"se<uent Ne1otiation
1. If payable to bearer, a
negotiable instrument may
be negotiated by mere
delivery.
&. If payable to order, a NI may
be negotiated by
indorsement completed by
delivery
Note: In both cases, delivery must be
intended to give effect to the transfer of
instrument. "evelopment =an( vs. Sima
>ei, &1D S#.A 8,/$
c. Inco/!ete ne1otiation o& or%er
instru/ent
>here the holder of an instrument
payable to his order transfers it for value
without indorsing it, the transfer vests in
the transferee such title as the
transferor had therein and he also
acquires the right to have the
indorsement of the transferor. =ut for
the purpose of determining whether the
transferee is a holder in due course, the
negotiation ta(es effect as of the time
when the indorsement is made. Sec. 3D$
%. In%orse/ent
Legal transaction effected by the
affi;ing oneGs signature at the)
a. =ac( of the instrument or
b. Bpon a paper allonge$ attached
thereto with or without
additional words specifying the
person to whom or to whose
order the instrument is to be
payable whereby one not only
transfers legal title to the
paper transferred but li(ewise
enters into an implied guaranty
that the instrument will be duly
paid Sec. ,1$
%'$'RAL R7L'& Indorsement must
be of the entire instrument.
'8C'P2/9$& >here instrument has
been paid in part, it may be indorsed
as to the residue. Sec. ,&$
Hinds of Indorsement)
A. SPECIAL ' Specifies the person to
whom or to whose order, the instrument
is to be payable Sec. ,3$
=. BLAN$ ' Specifies no indorsee)
1. Instrument becomes payable to
bearer and may be negotiated by
delivery Sec. ,3$
&. 4ay be converted to special
indorsement by writing over the
signature of indorser in blan(
any contract consistent with
character of indorsement Sec.
,-$
#. ABSOLUTE ' 5ne by which indorser
binds himself to pay)
1. Bpon no other condition than
failure of prior parties to do so1
&. Bpon due notice to him of such
failure.
". CON5ITIONAL ' .ight of the indorsee
is made to depend on the happening of a
contingent event. Aarty required to pay
may disregard the conditions. Sec. ,D$
C. RESTRICTI:E = An indorsement is
restrictive, when it either)
a. Arohibits further negotiation of
the instrument1 or
b. #onstitutes the indorsee the
agent of the indorser1 or
c. Iests the title in the indorsee in
trust for or to the use of some
other persons. =ut mere absence
of words implying power to
negotiate does not ma(e an
indorsement restrictive. Sec.
,/$
+. 6UALIFIE5 ' #onstitutes the indorser
a mere assignor of the title to the
instrument. Sec. ,9$
It is made by adding to the indoserGs
signature words li(e Jsans recourse,K
Lwithout recourseJ, Jindorser not
holderJ, Jat the indorserGs own ris(J, etc.
7. >OINT ' Indorsement payable to & or
more persons Sec. 31$
!. IRREGULAR = A person who, not
otherwise a party to an instrument,
places thereon his signature in blan(
before delivery Sec. /3$
5ther rules on indorsement1
1. Negotiation is deemed prima facie to
have been effected before the
instrument is overdue e;cept if the
indorsement bears a date after the
maturity of the instrument. Sec. 3-$
&. Aresumed to have been made at the
place where the instrument is dated
e;cept when the place is specified. Sec.
3/$
,. >here an instrument is payable to the
order of & or more payees who are not
partners, all must indorse unless
authority is given to one. Sec. 31$
3. >here a person is under obligation to
indorse in a representative capacity, he
may indorse in such terms as to negative
personal liability. Sec. 33$
RENEGOTIATION TO PRIOR PARTIES
(Sec. ?8)
>here an instrument is negotiated
bac( to a prior party, such party may
reissue and further negotiate the same.
=ut he is not entitled to enforce
payment thereof against any intervening
party to whom he was personally liable.
Reason& %o avoid circuitousness of suits.
STRI$ING OUT IN5ORSEMENT
%he holder may at any time stri(e out
any indorsement which is not necessary
to his title. %he indorser whose
indorsement is struc( out, and all
indorsers subsequent to him, are thereby
relieved from liability on the instrument.
Sec. 39$
CONSI5ERATION FOR T+E ISSUANCE
AN5 SUBSE6UENT TRANSFER
Cvery NI is deemed prima facie to have
been issued for a valuable consideration.
Cvery person whose signature appears
thereon is presumed to have become a
party thereto for value. Sec. &3$
>hat constitutes value)
a. An antecedent or pre<e;isting debt
b. Ialue previously given
c. Lien arising from contract or by
operation of law. Sec. &8$
:. +OL5ERS
+OL5ER
A payee or endorsee of a bill or note
who is in possession of it or the bearer
thereof. Sec. 1D1$
RIG+TS OF +OL5ERS IN GENERAL
Sec. -1$
a . 4ay sue thereon in his own name
b. Aayment to him in due course
discharges the instrument
%he only disadvantage of a holder who
is not a holder in due course is that the
negotiable instrument is sub2ect to
defenses as if it were non<negotiable.
(C0an ;an vs" 2an >im, +!5 P0il" ,!#)
+o!%er In 5ue Course (+5C)
A holder who has ta(en the instrument
under the following conditions) $E(: C O
: I
1. Instrument is complete and regular
upon its face1
&. =ecame a holder before it was
overdue and without notice that it
had been previously dishonored1
,. +or 4alue and in good faith1 and
3. At the time he too( it, he had no
notice of any infirmity in the
instrument or defect in the title of
the person negotiating it. Sec. -&$
Ri1.ts o& a +5C:
1. 4ay sue on the instrument in his own
name1
&. 4ay receive payment and if payment
is in due course, the instrument is
discharged1
,. !olds the instrument free from any
defect of title of prior parties and
free from defenses available to
parties among themselves1 and
3. 4ay enforce payment of the
instrument for the full amount
thereof against all parties liable
thereon. Secs. -1 and -8$
Cvery holder of a negotiable
instrument is deemed prima facie a
holder in due course. !owever, this
presumption arises only in favor of a
person who is a holder as defined in
Section 1D1 of the NIL. %he weight of
authority sustains the view that a payee
may be a holder in due course. !ence,
the presumption that he is a prima facie
holder in due course applies in his favor.
#ely Mang vs. #ourt of Appeals, 7... No.
1,9083, August 1-, &00,$
+o!%er Not In 5ue Course
5ne who became a holder of an
instrument without any, some or all of
the requisites under Sec. -& of the NIL.
>ith respect to demand instruments,
if it is negotiated an unreasonable length
of time after its issue, the holder is
deemed not a holder in due course.
Sec.-,$
%'$'RAL R7L'& +ailure to ma(e
inquiry is not evidence of bad faith.
'8C'P2/9$S&
1. >here a holderFs title is defective or
suspicious that would compel a
reasonable man to investigate, it cannot
be stated that the payee acquired the
chec( without the (nowledge of said
defect in the holderFs title and for this
reason the presumption that it is a
holder in due course or that it acquired
the instrument in good faith does not
e;ist. "e 5campo vs. 7atchalian, ,
S#.A -D/$
&. !older to whom cashierFs chec( is not
indorsed in due course and negotiated
for value is not a holder in due course.
4esina v. IA#$
.ights of a holder not in due course)
1. It can enforce the instrument and sue
under it in his own name.
&. Arior parties can avail against him any
defense among these prior parties and
prevent the said holder from collecting
in whole or in part the amount stated in
the instrument
Note: If there are no defenses, the
distinction between a !"# and one who
is not a !"# is immaterial. ($otes and
Cases on Ban-s, $egotia.le /nstruments
and ot0er Commercial 1ocuments,
2imoteo B" Aquino)
S+ELTER RULE
A holder who derives his title through
a holder in due course, and who is not
himself a party to any fraud or illegality
affecting the instrument, has all the
rights of such former holder in respect of
all prior parties to the latter. Sec. -9$
ACCOMMO5ATION
A legal arrangement under which a
person called the accommodation party,
lends his name and credit to another
called the acco//o%ate% art#,
without any consideration.
Acco//o%ation Part# (AP)
.equisites)
1. %he accommodation party must sign
as ma(er, drawer, acceptor, or
indorser1
&. !e must not receive value therefor1
and
,. %he purpose is to lend his name or
credit. Sec. &D$
Note: :wit0out receiving value
t0erefor,< means without receiving
value by virtue of the instrument.
#lar( vs. Sellner, 3& Ahil. ,93$
Cffects) %he person to whom the
instrument thus e;ecuted is
subsequently negotiated has a right of
recourse against the accommodation
party in spite of the formerFs (nowledge
that no consideration passed between
the accommodation and accommodated
parties. Sec. &D$
.ights N Legal Aosition)
1. AA is generally regarded as a suret6
for the party accommodated1
&. >hen AA ma(es payment to holder
of the note, he has the right to sue
the accommodated party for
reimbursement. Agro
#onglomerates, Inc. vs. #A, ,39
S#.A 3-0$
Liability) Liable on the instrument to a
holder for value notwithstanding such
holder at the time of the ta(ing of the
instrument (new him to be only an
accommodation party. !ence, As
regards, an AA, the 3
th
condition, i"e",
lac( of notice of infirmity in the
instrument or defect in the title of the
persons negotiating it, has no
application. Stelco 4ar(eting #orp. vs.
#ourt of Appeals, &10 S#.A -1$
.ights of AAs as against each other)
4ay demand contribution from his co<
accommodation party without first
directing his action against the principal
debtor provided)
a. !e made the payment by virtue
of 2udicial demand1 or
b. %he principal debtor is insolvent.
%he relation between an
accommodation party is, in effect, one
of principal and surety ' the
accommodation party being the surety.
It is a settled rule that a surety is bound
equally and absolutely with the principal
and is deemed an original promissory and
debtor from the beginning. %he liability
is immediate and direct. .omeo 7arcia
vs. "ionisio Llamas, 7... No. 1-31&8,
"ecember 9, &00,$
>ell<entrenched is the rule that the
consideration necessary to support a
surety obligation need not pass directly
to the surety, a consideration need not
pass directly to the surety, a
consideration moving to the principal
alone being sufficient. Spouses Cduardo
Cvangelista vs. 4ercator +inance #orp,
7... No. 1399/3, August &1, &00,$
:I. PARTIES ,+O ARE LIABLE
PRIMAR( AN5
SECON5AR(
LIABILIT( OF
PARTIES
,ARRANTIES OF
PARTIES
4a(es the parties
liable to pay the
sum certain in
money stated in the
instrument.
Impose no direct
obligation to pay in
the absence of
breach thereof. In
case of breach, the
person who
breached the same
may either be
liable or barred
from asserting a
particular defense.
#onditioned on
presentment and
notice of dishonor
(Cam)os and Lo)e?@
Cam)os, $egotia.le
/nstruments Law,
+554 ed")
"oes not require
presentment and
notice of dishonor.
(Cam)os and
Lo)e?@Cam)os,
$egotia.le
/nstruments Law,
+554 ed")
'. Pri/ari!# Lia"!e (Sec. @8 an% @)3
NIL)
MA$ER ACCEPTOR OR
5RA,EE
A. Cngages to pay
according to the
tenor of the
instrument1 and
=. Admits the
e;istence of the
payee and his
capacity to indorse.
A. Cngages to pay
according to the
tenor of his
acceptance1
=. Admits the
e;istence of the
drawer, the
genuineness of his
signature and his
capacity and
authority to draw
the instrument1
and
#. Admits the
e;istence of the
payee and his
capacity to
indorse.
A bill of itself
does not operate as
an assignment of
funds in the hands
of the drawee
available for the
payment thereof
and the drawee is
not liable unless
and until he
accepts the same
Sec.1&8$
). Secon%ari!# Lia"!e (Sec. @'3 @A an%
@@3 NIL)
5RA,ER GENERAL
IN5ORSER
IRREGULAR
IN5ORSER
A. Admits
the
e;istence of
the payee
and his
capacity to
indorse1
=. Cngages
that the
instrument
will be
accepted or
paid by the
party
primarily
liable1 and
#. Cngages
that if the
instrument
is
dishonored
and proper
proceedings
are brought,
he will pay
to the party
entitled to
be paid.
A. >arrants
all
subsequent
!"# <
a. %hat the
instrument is
genuine and
in all respect
what it
purports to
be
b. !e has
good title to
it1
c. All prior
parties had
capacity to
contract
d. %he
instrument
is, at the
time of
endorse<
ment, valid
and
subsisting.
=. Cngages
that the
instrument
will be
accepted or
paid, or
both, as the
case may be,
according to
its tenor1 and
#. If the
instrument is
dishonored
and
necessary
proceedings
on dishonor
be duly
ta(en, he
will pay to
the party
entitled to
be paid.
A person,
not
otherwise a
party to an
instrument,
places his
signature
thereon in
blan(
before
delivery.
Sec. /3$
A. If
instrument
payable to
the order
of a ,
rd
person, he
is liable to
the payee
and
subsequent
parties.
=. If
instrument
payable to
order of
ma(er or
drawer or
to bearer,
he is liable
to all
parties
subsequent
to the
ma(er or
drawer.
#. If he
signs for
accommo<
dation of
the payee,
he is liable
to all
parties
subsequent
to the
payee.
B. Li/ite% Lia"i!it# (Sec. @?C Metroo!
Financin1 4. Sa/"o73 ')8 SCRA
D@A)
6UALIFIE5
IN5ORSER
PERSON
NEGOTIATING B(
5ELI:ER(
Cvery person
negotiating
instrument by
delivery or by a
qualified
endorsement
warrants that)
A. Instrument is
genuine and in all
respects what it
purports to be1
=. !e has good title
to it1
#. All prior parties
had capacity to
contract1
". !e has no
(nowledge of any
fact which would
impair the validity
of the instrument or
render it valueless.
A. >arranties same
as those of
qualified indorsers1
and
=. >arranties
e;tend to
immediate
transferee only.
PERSON
NEGOTIATING B(
MERE 5ELI:ER(
OR B( 6UALIFIE5
IN5ORSEMENT
GENERAL
IN5ORSER
No secondary
liability1 but is
liable for breach of
warranty
%here is secondary
liability, and
warranties
>arrants that he
has no (nowledge of
any fact which
would impair the
validity of the
instrument or
render it valueless
>arrants that the
instrument is, at
the time of his
indorsement, valid
and subsisting
OR5ER OF LIABILIT(
%here is no order of liability among the
indorsers as against the holder. !e is
free to choose to recover from any
indorser in case of dishonor of the
instrument. ($otes and Cases on Ban-s,
$egotia.le /nstruments and ot0er
Commercial 1ocuments, 2imoteo B"
Aquino)
As respect one another, indorsers are
liable prima facie in the order in which
they indorse unless the contrary is
proven Sec./9$
%'$'RAL R7L'& 5ne whose signature
does not appear on the instrument shall
not be liable thereon.
'8C'P2/9$S&
1. %he principal who signs through an
agent is liable1
&. %he forger is liable1
,. 5ne who indorses in a separate
instrument allonge$ or where an
acceptance is written on a separate
paper is liable1
3. 5ne who signs his assumed or trade
name is liable1 and
-. A person negotiating by delivery as in
the case of a bearer instrument$ is
liable to his immediate indorsee.
:II. 5EFENSES
REAL 5EFENSES PERSONAL
5EFENSES
%hose that attach
to the instrument
itself and are
available against
all holders,
whether in due
course or not, but
only by the parties
entitled to raise
them. a.(.a
absolute defenses$
%hose which are
available only against
a person not a holder
in due course or a
subsequent holder who
stands in privity with
him. a.(.a. equitable
defenses$
1. 4aterial
Alteration1
&. >ant of
delivery of
incomplete
instrument1
,. "uress
amounting to
forgery1
3. +raud in
factum or fraud in
esse contractus1
-. 4inority
available to the
minor only$1
/. 4arriage in the
case of a wife1
8. Insanity where
the insane person
has a guardian
appointed by the
court1
1. Absence or failure
of consideration,
partial or total1
&. >ant of delivery of
complete instrument1
,. Insertion of wrong
date in an instrument1
3. +illing up of blan(
contrary to authority
given or not within
reasonable time1
-. +raud in
inducement1
/. Acquisition of
instrument by force,
duress, or fear1
8. Acquisition of the
instrument by
unlawful means1
9. Acquisition of the
instrument for an
illegal consideration1
9. Bltra vires acts
of a corporation
D. >ant of
authority of agent1
10. C;ecution of
instrument
between public
enemies1
11. Illegality ' if
declared void for
any purpose
1&. +orgery.
D. Negotiation in
breach of faith1
10. Negotiation under
circumstances that
amount to fraud1
11. 4ista(e1
1&. Into;ication
according to better
authority$1
1,. Bltra vires acts of
corporations where
the corporation has
the power to issue
negotiable paper but
the issuance was not
authori*ed for the
particular purpose for
which it was issued1
13. >ant of authority
of agent where he has
apparent authority1
1-. Insanity where
there is no notice of
insanity on the part of
the one contracting
with the insane
person1 and
1/. Illegality of
contract where the
form or consideration
is illegal.
EFFECTS OF CERTAIN 5EFENSES
A. MINORIT(
Negotiation by a minor passes title to
the instrument. Sec.&&$. =ut the minor
is not liable and the defense is personal
to him
B. ULTRA :IRES ACTS
A real defense but the negotiation
passes title to the instrument. Sec. &&$
Note: A cor)oration cannot act as an
accommodation party. %he issuance or
indorsement of negotiable instrument by
a corporation without consideration and
for the accommodation of another is
ultra vires. #risologo<:ose v. #A, 118
S#.A -D3$
C. INCOMPLETE AN5 UN5ELI:ERE5 NI
(Sec. '?)
If completed and negotiated without
authority, not a valid contract against a
person who has signed before delivery of
the contract even in the hands of !"#
but subsequent indorsers are liable. %his
is a real defense.
5. INCOMPLETE BUT 5ELI:ERE5 NI
(Sec. 'A)
1. !older has prima facie authority to
fill up the instrument.
&. %he instrument must be filled up
strictly in accordance with the
authority given and within
reasonable time
,. !"# may enforce the instrument as
if filled up according to no. &.
E. COMPLETE BUT UN5ELI:ERE5 NI
(Sec. '@)
1. =etween immediate parties and
those who are similarly situated,
delivery must be coupled with the
intention of transferring title to the
instrument.
&. As to !"#, it is conclusively
presumed that there was valid
delivery1 and
,. As against an immediate party and
remote party who is not a !"#,
presumption of a valid and
intentional delivery is rebuttable.
F. FRAU5
FRAU5 IN FACTUM
OR FRAU5 IN
IN5UCEMENT
FRAU5 IN
ESSES
CONTRACTUS
OR FRAU5 IN
E*ECUTION
%he person who signs
the instrument
intends to sign the
same as a NI but was
induced by fraud
%he person is
induced to sign an
instrument not
(nowing its
character as a bill
or note
G. ABSENCE OR FAILURE OF
CONSI5ERATION (Sec. )D)
Aersonal defense to the pre2udiced
party and available against any person
not !"#.
+. PRESCRIPTION
.efers to e;tinctive prescription and
may be raised even against a !"#. Bnder
the #ivil #ode, the prescriptive period of
an action based on a written contract is
10 years from accrual of cause of action.
I. MATERIAL ALTERATION
Any change in the instrument which
affects or changes the lia.ilit6 of t0e
)arties in any way.
Cffects)
1. Alteration by a party ' Avoids the
instrument e(ce)t as against the
party who made, authori*ed, or
assented to the alteration and
subsequent indorsers.
!owever, if an altered instrument
is negotiated to a !"#, he may
enforce payment thereof according
to its original tenor regardless of
whether the alteration was innocent
or fraudulent.
Note: Since no distinction is made, it
does not matter whether it is
favorable or unfavorable to the party
ma(ing the alteration. %he intent of
the law is to preserve the integrity
of the negotiable instruments.
&. Alteration by a stranger s)oliation$<
the effect is the same as where the
alteration is made by a party which a
!"# can recover on the original
tenor of the instrument. Sec. 1&3$
#hanges in the following constitute
material alterations)
a. "ate1
b. Sum payable, either for principal
or interest1
c. %ime or place of payment1
d. Number or relations of the
parties1
e. 4edium or currency in which
payment is to be made1
f. %hat which adds a place of
payment where no place of
payment is specified1 and
g. Any other change or addition
which alters the effect of the
instrument in any respect. Sec.
1&-$
A serial number is an item which
is not an essential requisite for
negotiability under Sec. 1, NIL, and
which does not affect the rights of
the parties, hence its alteration is
not material. AN= vs. #A, &-/ S#.A
3D1$
Co/arison o& sections 'A3 '? an% '@ o& t.e ne1otia"!e instru/ents !a-
Section 14 Section 15 Section 16
"elivery "elivered Bndelivered
Bndelivered
Note) "elivery may be made for a
conditional or for a special purpose
only and not for the purpose of
transferring the property in the
instrument
#ompleteness 1. >anting in any material
particular
1. =lan( paper with
signature
4echanically incomplete 4echanically complete
Authority of person
in possession
1. Arima facie authority to
complete it by filling up
the blan(s therein
1.Signature operates as a
prima facie authority to
fill it up as such for any
amount
No authority to complete andOor
negotiate instrument
4ay negotiate if delivered to him by
or under the authority of the party
ma(ing, indorsing, drawing or
accepting, as the case may be.
>hen enforceable If filled up strictly in accordance with authority given
and within a reasonable time
Not enforceable >hen delivery is made by or under
authority of the party ma(ing,
indorsing, drawing or accepting, as
the case may be.
Hind of defense Aersonal .eal Aersonal
.ights of holder 1. If !"#, he can enforce the instrument as
completed against parties prior or subsequent to
the completion
&. If not a !"#, he can enforce the instrument as
completed only against parties subsequent to the
completion but not against those prior thereto.
None in the hands of any holder.
!owever, the invalidity of the
instrument is only with reference to
parties whose signatures appear on
the instrument after delivery, the
instrument is valid.
#an enforce the instrument.
Note) >here the instrument is in the
hands of a !"#, a valid delivery
thereof by all parties prior to him so
as to ma(e them liable to him is
conclusively presumed. >here the
instrument is no longer in the
possession of a party whose signature
appears thereon, a valid and
intentional delivery to him is
presumed until the contrary is
proved.
>. FORGER(
#ounterfeit ma(ing or fraudulent alteration of
any writing, which may consist of)
1. Signing of anotherFs name with intent to
defraud1 or
&. Alteration of an instrument in the name,
amount, name of payee, etc. with intent to
defraud. (+ Ag.a6ani3 +55 ed")
%'$'RAL R7L'& >hen a signature is forged or
made without the authority of the person, the
signature not instrument itself and the genuine
signatures$ is wholly inoperative
Legal Cffects)
1. No right to retain the instrument
&. %o give a discharge therefore
,. %o enforce payment thereof against any
party thereto, can be acquired through or
under such signature
'8C'P2/9$& Bnless the party against whom it is
sought to enforce such right is precluded from
setting up the forgery or want of authority. Sec.
&,$
Persons rec!u%e% &ro/ settin1 u %e&ense o&
&or1er#
1. %hose who warrant or admit the genuineness of
the signature in question. %his includes
indorsers, persons negotiating by delivery and
acceptors.
2. %hose who, by their acts, silence, or
negligence, are estopped from setting up the
defense of forgery.
RULES ON FORGER(
A. Promissory Notes
Or%er
Instru/ent
Bearer
Instru/ent
Ma7erEs
si1nature
&or1e%
a. 4a(er is not
liable because
he never
became a
party to the
instrument.
b. Indorsers
subsequent to
forgery are
liable because
of their
warranties.
c. Aarty who
the made the
forgery is
liable.
a. 4a(er is not
liable.
b. Aarty who
made the
forgery is
liable.
c. Indorsers
may be made
liable to those
persons who
obtain title
through their
indorsements.
Pa#eeEs
si1nature
&or1e%
a. 4a(er and
payee not
liable.
b. Indorsers
subsequent to
forgery are
liable.
c. Aarty who
made the
a. 4a(er is
liable.
Indorsement
is not
necessary to
title and the
ma(er engages
to pay holder$
b. Aarty who
forgery is
liable.
made the
forgery is
liable
In%orserEs
si1nature
&or1e%
a. 4a(er,
payee and
indorser whose
signature was
forged is not
liable.
b. Indorsers
subsequent to
forgery are
liable.
=ecause of
their
warranties$
c. Aarty who
made the
forgery is
liable.
a. 4a(er is
liable.
indorsement
is not
necessary to
title and the
ma(er engages
to pay the
holder$
b. Indorser
whose
signature was
forged not
liable to one
who is not a
!"# provided
the instrument
is
mechanically
complete
before the
forgery.
c. Aarty who
made the
forgery is
liable.
B. Bi!!s o& E0c.an1e
Or%er
Instru/ent
Bearer
Instru/ent
5ra-erEs
si1nature
&or1e%
a. "rawer is
not liable
because he
was never a
party to the
instrument.
b. "rawee is
liable if it paid
no recourse
to drawer$
because he
admitted the
genuiness of
the drawerFs
signature.
"rawee cannot
recover from
the collecting
ban( because
there is no
privity
between the
collecting
ban( and the
drawer. %he
latter does not
give any
warranty
regarding the
signature of
the drawer.
Associated
a. "rawer is
not liable.
b. "rawee is
liable if it paid.
"rawee cannot
recover from
the collecting
ban(.
c. Aarty who
made the
forgery is
liable.
=an( vs. #A$
c. Indorsers
subsequent to
forgery liable
such as
collecting
ban( or last
endorser$
d. Aarty who
made the
forgery is
liable
Pa#eeEs
si1nature
&or1e%
a. "rawer,
drawee and
payee not
liable.
b. Indorsers
subsequent to
forgery are
liable. such as
collecting
ban($
c. Aarty who
made the
forgery is
liable
a. "rawer is
liable
b. "rawee is
liable
c. Aayee is not
liable
d. #ollecting
ban( is liable
because of
warranty
e. Aarty who
made the
forgery is liable
In%orserEs
si1nature
&or1e%
a. "rawer,
payee and
indorser whose
signature was
forged not
liable.
b. "rawee is
liable if it paid.
c. Indorsers
subsequent to
forgery are
liable. such as
collecting ban($
d. Aarty who
made the
forgery is
liable.
a. "rawer is
liable.
indorsement
not necessary to
title$
b. "rawee is
liable.
c. Indorser
whose signature
was forged is
liable because
indorsement is
not necessary to
title.
d. Aarty who
made the
forgery is liable.
:III. ENFORCEMENT OF LIABILIT(
A. STEPS TO C+ARGE T+E PARTIES LIABLE
a. Pri/ar# Lia"i!it#
%he unconditional promise attaches the moment
the ma(er ma(es the instrument while the
acceptorFs assent to the unconditional order
attaches the moment he accepts the instrument.
No further act is necessary in order for the liability
to accrue. Aresentment for payment is all that is
necessary. ($otes and Cases on Ban-s, $egotia.le
/nstruments and ot0er Commercial 1ocuments,
2imoteo B" Aquino)
". Secon%ar# Lia"i!it#
1. Steps in promissory note indorsers$
a. Aresentment for payment to the
ma(er.
b. Notice of dishonor should be given,
if dishonored by non<payment.
&. Steps in bill of e;change
a. Aresentment for acceptance in the following
instances)
a. >here the bill is payable after
sight, or when it is necessary in
order to fi; the maturity of the
instrument1
b. >here the bill e;pressly stipulates
that it shall be presented for
acceptance1
c. >here the bill is drawn payable
elsewhere than at the residence or
place of business of the drawee.
Sec. 13,$
Note: In all the above cases, the holder must either
present the bill for acceptance or negotiate it
within a reasonable time1 otherwise, the drawer
and all indorsers are discharged. Sec. 133$
&. If dishonored by non<acceptance1
a. Notice of dishonor given to drawer and
indorsers.
b. Arotest in case of a foreign bill.
,. If bill is accepted)
a. Aresentment for payment to the acceptor.
3. If dishonored upon presentment for payment
a. Notice of dishonor to persons secondarily
liable.
b. Arotest for dishonor by non<payment in
case of foreign bill.
B. PRESENTMENT
%he production of a =C to the drawee for his
acceptance, or to the drawee or acceptor for
payment or the production of a AN to the party
liable for the payment of the same. Sec. 80$
PRESENTMENT FOR PA(MENT
#onsists of)
1. Personal demand for )a6ment at the proper
place1 and
&. Readiness to e(0i.it the instrument if required,
and to receive payment and to surrender the
instrument if the debtor is willing to pay.
.equisites)
1. 4ade by the holder or any person authori*ed to
receive payment on his behalf1
&. At a reasonable hour on a business day1
,. At a proper place1
3. %o the person primarily liable or if he is absent
or inaccessible, to any person found at the
place where the presentment is made. Sec.
8&$
>hen should be made)
1. AN payable on demand) within reasonable time
after its issue1
&. =C payable on demand) within reasonable time
after its last negotiation1
,. Instrument payable on a specified date) on the
date it falls due. Sec. 81$
Aroper place)
1. Alace specified1
&. Address of the person to ma(e payment is
given, in case no place is specified1
,. Bsual place of business or residence of the
person to ma(e payment, in case no place is
specified and no address is given1
3. In any other case, wherever the person to ma(e
payment can be found, or at his last (nown
place of business or residence. Sec. 8,$
>hen not required)
1. In order to charge the drawer where he has no
right to e;pect or require that the drawee or
acceptor will pay the instrument1Sec. 8D$
&. In order to charge an indorser when the
instrument was made or accepted for his
accommodation and he has no reason to e;pect
that the instrument will be paid if presented.
Sec. 90$
>hen delay in ma(ing presentment or of giving
notice is e;cused)
1. >hen caused by circumstances beyond the
control of the holder1 and
&. Not imputable to his default, misconduct,
or negligence. Sec. 91$
>hen presentment for payment is e;cused)
1. After e;ercise of reasonable diligence, it
cannot be made1
&. "rawee is a fictitious person1
,. C;press or implied waiver. Sec. 9&$
E0.i"ition
Aurposes)
1. %o enable the debtor to determine the
genuineness of the instrument and the right of
the holder to receive payment1 and
&. %o enable him to reclaim possession upon
payment.
>hen e;cused)
1. >hen debtor does not demand to see the
instrument but refuses payment on some other
grounds, and
&. >hen the instrument is lost or destroyed.
Secia! cases
1. /nstrument )a6a.le at a .an- ' 4ust be made
during ban(ing hours unless there are no funds to
meet it at any time during the day, presentment at
any hour before the ban( is closed on that day is
sufficient. Sec. 8-$
&. Person lia.le is dead ' 4ay be made to his
personal representative, if there be one, and if he
can be found. Sec. 8/$
C. PRESENTMENT FOR ACCEPTANCE
>hen required)
a. >here the bill is payable after sight, or when
it is necessary in order to fi; the maturity of the
instrument1
b. >here the bill e;pressly stipulates that it shall
be presented for acceptance1
c. >here the bill is drawn payable elsewhere
than at the residence or place of business of the
drawee. Sec. 13,$
!ow made)
a. >here a bill is addressed to & or more drawees
who are not partners, presentment must be made
to all
b. >here drawee is dead, presentment may be
made to his personal representative
c. >here the drawee is ad2udged a ban(rupt,
insolvent or made an assignment to his creditors,
presentment may be made to him or his trustee or
assignee
>hen e;cused)
1. >here the drawee is dead, or has absconded,
or is a fictitious person or a person not having
capacity to contract by bill1
&. After e;ercise of reasonable diligence,
presentment cannot be made1
,. Although presentment has been irregular,
acceptance has been refused on some other
ground. Sec. 139$
If bill is duly presented for acceptance and it is
not accepted within the prescribed time, the
person presenting it must treat the bill as
dishonored by non<acceptance or he loses the right
of recourse against the drawer and indorsers. Sec.
1-0$
5. ACCEPTANCE
%he signification by the drawee of his assent to
the order of the drawer.
It is the act by which the drawee manifests his
consent to comply with the request contained in
the bill of e;change directed to him.
For/: 4ust be in writing and signed by the
drawee and must not e;press that the drawee will
perform his promise by any other means than the
payment of money. Sec. 1,&$
%he holder of the bill presenting the same for
acceptance may require that the acceptance be
written on the bill, and if such request is refused,
may treat the bill as dishonored. Sec. 1,,$
$in%s:
1. %'$'RAL < assents without qualification to the
order of the drawer.
&. A7AL/B/'1 < 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
condition therein stated.
b. Aartial < an acceptance to pay part only of
the amount for which the bill is drawn.
a. Local < an acceptance to pay only at a
particular place.
b. Pualified as to time
c. %he acceptance of some one or more of
the drawees but not of all. Sec. 131$
+orm)
1. 4ust be made by or on behalf of the holder1
&. At a reasonable hour on a business day1
,. =efore the bill is overdue1 and
3. %o the drawee or some person authori*ed to
accept or refuse to accept on his behalf.
I/!ie% Accetance
If after &3 hours, the drawee fails to return the
instrument. !e is also deemed to have accepted
the instrument when he destroys the same.
E. NOTICE OF 5IS+ONOR
Notice given by holder or his agent to party or
parties secondarily liable that the instrument was
dishonored by non<acceptance by the drawee of a
bill or by non<payment by the acceptor of a bill or
by non<payment by the ma(er of a note. Sec. 9D$
.equisites)
1. 7iven by holder or his agent, or by any party
who may be compelled by the holder to pay
Sec. D0$1
&. 7iven to secondary party or his agent Sec. D8$1
,. 7iven within the periods provided by law Sec.
10&$1 and
3. 7iven at the proper place Secs. 10, and 103$
>hen dispensed with)
1. >hen party to be notified (nows about the
dishonor, actually or constructively Secs. 113<
118$1
&. If waived Sec. 10D$1 and
,. >hen after due diligence, it cannot be given
Sec. 11&$.
!ow given)
1. =y bringing verbally or
&. =y writing to the (nowledge of the person
liable the fact that a specified instrument,
upon proper proceedings ta(en, has not been
accepted or has not been paid, and that the
party notified is e;pected to pay it.
%o whom given)
1. Non<acceptance bill$ ' to persons secondarily
liable, namely, the drawer and indorsers as the
case may be.
&. Non<payment both bill and note$ ' indorsers.
Note: Notice must be given to persons
secondarily liable. 5therwise, such parties are
discharged. Notice may be given to the party
himself or to his agent.
=y whom given)
1. %he 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 right of reimbursement from the
party to whom notice is given. Sec. D0$
5IS+ONOR B( NON2PA(MENT
1. Aayment is refused or cannot be obtained after
due presentment for payment1
&. Aresentment is e;cused and the instrument is
overdue and unpaid. Sec. 9,$
Cffect) %here is an immediate right of recourse
by the holder against persons secondarily liable.
!owever, notice of dishonor is generally required.
Sec. 93$
5IS+ONOR B( NON2ACCEPTANCE
Instances:
1. >hen it is duly presented for acceptance and
such an acceptance is refused or cannot be
obtained1 or
&. >hen presentment for acceptance is e;cused,
and the bill is not accepted. Sec. 13D$
Cffect) Immediate right of recourse against the
drawer and indorsers accrues to the holder and no
presentment for payment is necessary. Sec. 1-1$
E&&ect o& !ac7 o& notice o& %is.onor on NI -.ic.
are a#a"!e in insta!!/ents
1. $o acceleration clause ' failure to give notice
of dishonor on a previous installment does not
discharge drawers and indorsers as to
succeeding installments.
&. ;it0 acceleration clause ' failure to give notice
of dishonor as to previous installment will
discharge the persons secondarily liable as to
the succeeding installments.
To -.ose "ene&it %oes a notice o& %is.onor inure
1. >hen given "# or on "e.a!& o& a .o!%er)
a. All parties prior to the holder, who have a
right of recourse against the party to whom
the notice is given1 and
b. All holders subsequent to the holder giving
notice. Sec. D&$
&. >hen given "# or on "e.a!& o& a art# entit!e%
to 1i4e notice)
a. %he holder1 and
b. All parties subsequent to the party to
whom notice is given. Sec. D,$
5is.onor in t.e .an%s o& an A1ent
Agent can do either of the following)
1. "irectly give notice to persons secondarily
liable thereon1 or
&. 7ive notice to his principal. In such case,
he must give notice within the time
allowed by law as if he were a holder. Sec.
D3$
A art# 1i4in1 notice is %ee/e% to .a4e 1i4en %ue
notice -.ere:
1. %he notice of dishonor is duly addressed,
and
&. "eposited in the post<office, even when
there is miscarriage of mail. Sec. 10-$
>here a party receives notice of dishonor, he
has, after the receipt of such notice, the same
time for giving notice to antecedent parties that
the holder has after the dishonor. Sec. 108$
,ai4er o& Notice o& 5is.onor
Cither before the time of giving notice, or after
the omission to give due notice. >aiver may be
e;pressed or implied. Sec. 10D$
As to who are affected by an e0ress -ai4er
depends on where the waiver is written)
1. If it appears in the body or on the face of
the instrument, it binds all parties1 but
&. If it is written above the signature of an
indorser, it binds him only. Sec. 110$
Notice of dishonor is not required to be given to
the %ra-er in any of the ff. cases)
1. "rawer and drawee are the same1
&. "rawee is a fictitious person or not having
the capacity to contract1
,. "rawer is the person to whom the
instrument is presented for payment1
3. %he drawer has no right to e;pect or
require that the drawee or acceptor will
honor the instrument1
-. >here the drawer has countermanded
payment. Sec. 113$
Notice of dishonor is not required to be given to an
in%orser in the ff. cases)
1. "rawee is a fictitious person or does not
have the capacity to contract, and indorser
was aware of that fact at the time he
indorsed the instrument1
&. Indorser is the person to whom the
instrument is presented for payment1
,. Instrument was made or accepted for his
accommodation. Sec. 11-$
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 payment is refused, there is a
need for notice of dishonor. Sec. 11/$
An omission to give notice of dishonor by non<
acceptance does not pre2udice the rights of a
holder in due course subsequent to the omission.
Sec. 118$
F. FOREIGN BILL OF E*C+ANGE
1. "rawn in the Ahilippines but payable outside
the Ahilippines.
&. Aayable in the Ahilippines but drawn outside
the Ahilippines.
INLAN5 BE FOREIGN BE
A bill which or on its
face purports to be
both drawn and
payable within the
Ahilippines.
5ne which is or on
its face purports to
be drawn or payable
outside the
Ahilippines.
NOTICE OF
5IS+ONOR
PROTEST
.equired in inland
bill
.equired in foreign
bill
4ay be oral or
written
Always written
4ay be made by a
party or agent
4ade by a notary
public or a
respectable resident
in the presence of
witness
4ade in residence of
parties
4ade in the place of
dishonor
PROTEST
%he formal instrument e;ecuted usually by a
notary public certifying that the legal steps
necessary to fi; the liability of the drawee and the
indorsers have been ta(en.
>ho ma(es)
1. A notary public1 or
&. Any respectable resident of the place where
the bill is dishonored, in the presence of & or
more credible witnesses. Sec. 1-3$
Protest &or "etter securit# ' 5ne made by the
holder of a bill after it has been accepted but
before it matures, against the drawer and
indorsers, where the acceptor has been adCudged a
ban(rupt or an insolvent, or has made an
assignment for the benefit of the creditors. Sec.
1-9$
Arotest is necessary only in case of foreign bills
of e;change, which have been dishonored by non<
acceptance or non<payment, as the case may be. If
it is not so protested, the drawer and indorsers are
discharged. Sec. 119$
ACCEPTANCE FOR +ONOR
An underta(ing by a stranger to a bill after
protest for the benefit of any party liable thereon
or for the honor of the person for whose account
the bill is drawn which acceptance inures also to
the benefit of all parties subsequent to the person
for whose honor it is accepted, and conditioned to
pay the bill when it becomes due if the original
drawee does not pay it. Secs. 1/1<180$
Re<uisites:
1. %he bill must have been protested for dishonor
by non<acceptance or for better security1
&. %he acceptor for honor must be a stranger and
not a party already liable on the instrument1
,. =ill must not be overdue1
3. Acceptance for honor must be with the consent
of the holder of the instrument.
For/a! re<uisites:
1. 4ust be in writing1
&. 4ust indicate that it is an acceptance for
honor1
,. Signed by the acceptor for honor1
3. 4ust contain an e;press or implied promise to
pay money1
-. %he accepted bill for honor must be delivered
to the holder.
OR5INAR(
ACCEPTANCE
ACCEPTANCE
FOR +ONOR
No previous protest
is required
Arevious protest is
required
#onsent of holder is
implied
#onsent of holder
is required
"rawee is acceptor Acceptor must be
stranger to the bill
Acceptor is
primarily liable
Acceptor is
secondarily liable
PA(MENT FOR +ONOR
Aayment 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 for the benefit of the person for whose
account it was drawn. Secs. 181<188$
Re<uisites:
1. %he bill has been dishonored by non<payment1
&. It has been protested for non<payment1
,. Aayment supra protest another term for
payment for honor because prior protest for
non<payment is required$ is made by any
person, even by a party thereto1
3. %he payment is attested by a notarial act of
honor which must be appended to the protest
or form an e;tension of it1
-. %he notarial act must be based on the
declaration made by the payor for honor or his
agent of his intention to pay the bill for honor
and for whose honor he pays.
Note) If the above formalities are not complied
with, payment will operate as a mere voluntary
payment and the payor will acquire no right to full
reimbursement against the party for whose honor
he pays.
In payment for honor, the payee cannot refuse
payment. If he refuses, he cannot recover from
the parties who would have been discharged had he
accepted the same. In acceptance for honor, the
holderFs consent is necessary.
%he payor for honor is given the right to receive
both the bill and the protest obviously to enable
him to enforce his rights against the parties who
are liable to him.
BILLS IN SET
5ne composed of several parts, each part being
numbered and containing a reference to the other
parts, the whole of the parts constituting but one
bill.
Aurpose) It is usually availed of in cases where a
bill had to be sent to a distant place through some
conveyance. If each part is sent by different
means of conveyances, the chance that at least one
part of the set would reach its destination would
be greater.
Ri1.ts o& .o!%ers -.ere arts are ne1otiate%
searate!#
1.If both are !"#, the holder whose title first
accrues is considered the true owner of the
bill.
&.=ut the person who accepts or pays in due
course shall not be pre2udiced. Sec. 18D$
O"!i1ations o& .o!%er -.o in%orses ) or /ore
arts o& t.e "i!! in set
1.%he person shall be liable on every such part1
&.Cvery indorser subsequent to him is liable on
the part he has himself indorsed, as if such
parts were separate bills. Sec. 190$
I*. 5ISC+ARGE
5ISC+ARGE OF NI
A release of all parties, whether primary or
secondary, from the obligations arising thereunder.
It renders the instrument without force and effect
and, consequently, it can no longer be negotiated.
(20e Law on $egotia.le /nstruments wit0
1ocuments of 2itle, =ector de Leon, !!! ed")
Instances)
1. =y payment in due course by or on behalf of
the principal debtor1
&. Aayment by accommodated party1
,. Intentional cancellation by the holder1
3. =y any act which will discharge a simple
contract for the payment of money1 Sec. 11D$
-. >hen the principal debtor becomes the holder
of the instrument at or after maturity in his
own right.
PA(MENT IN 5UE COURSE
.equisites)
1. Aayment must be made at or after maturity.
&. Aayment must be made to the holder.
,. Aayment must be made in good faith and
without notice that the holderFs title is
defective. Sec. 99$
=y whom made)
a. =y ma(er or acceptor1 or
b. Surety if a primary party1 or
c. =y an agent on behalf of the principal
RENUNCIATION (Sec. ')))
%he act of surrendering a right or claim without
recompense, but it can be applied with equal
propriety to the relinquishing of a demand upon an
agreement supported by a consideration. (+
Ag.a6ani +55 ed")
Cffects)
1. A renunciation in favor of a secondary party
may be made by the holder before, at or after
maturity of the instrument. %he effect is to
discharge only such secondary party and all
parties subsequent to him but the instrument
itself remains in force.
&. A renunciation in favor of the principal debtor
may be effected at or after maturity. %he
effect is to discharge the instrument and all
parties thereto provided 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.
CANCELLATION
It includes the act of tearing, erasing,
obliterating, or burning. It is not limited to writing
of the word QcancelledK, or LpaidK, or drawing of
criss<cross lines across the instrument. Sec. 1&,$ It
may be made by any other means by which the
intention to cancel the instrument may be evident.
5ISC+ARGE OF PERSONS SECON5ARIL( LIABLE
1. =y any act which discharges the instrument1
&. =y the intentional cancellation of his signature
by the holder1
,. =y the %ischarge of a prior party1
3. =y a 4alid tender of payment made by a prior
party1
-. =y the release of the principal debtor, unless
the holderFs right of recourse against the party
secondarily liable is e;pressly reserved1
/. =y any agreement binding upon the holder to
e;tend the time of payment or to postpone the
holderFs right to enforce the instrument. Sec.
1&0$
/n t0e following cases, t0e agreement to
e(tend t0e time of )a6ment does not
disc0arge a )art6 secondaril6 lia.le&
a$ where the e;tension of time is consented
to by such party1
b$ where the holder e;pressly reserves his
right of recourse against such party.
Aayment at or after maturity by a party
secondarily liable does not discharge the
instrument. It only cancels his own liability and
that of the parties subsequent to him. Sec. 1&1$
*. C+EC$S
A bill of e;change drawn on a ban( payable on
demand Sec. 19-$
CONCEPTS:
1. #ertification of #hec(s
An agreement whereby the ban( against whom a
chec( is drawn, underta(es to pay it at any future
time when presented for payment.
Cffects)
a. Cquivalent to acceptance Sec. 198$ and is
the operative act that ma(es ban(s liable
b. Assignment of the funds of the drawer in
the hands of the drawee Sec. 19D$
c. If obtained by the holder, discharges the
persons secondarily liable thereon Sec.
199$
&. A chec( of itself does not operate as an
assignment of any part of the funds to the credit of
the drawer with the ban(. %he ban( is not liable to
the holder, unless and until it accepts or certifies
the chec(. Sec. 19D$
,. A chec( must be presented for payment within
reasonable time after its issue or the drawer will
be discharged from liability thereon to the e;tent
of the loss caused by the delay. Sec. 19/$
.easonable time) Sec. 1D,, NIL$
a. Nature of the instrument
b. Bsage of business or trade
c. %he facts of the particular case
3. >here the holder of a chec( procures it to be
accepted or certified, the drawer and all indorsers
are discharged from liability thereon. Sec. 19/$
-. .efusal of drawee ban( to certify
%he holder has no action against the ban( but he
has a right of action against the drawer. %he
drawer in turn has right of action against the ban(
based on the original contact of deposit between
them.
Crosse% C.ec7
A chec( which in addition to the usual contents
of an ordinary chec( contains also the name of a
certain ban(er or business entity through whom it
must be presented for payment.
Cffects)
a$ %hat the chec( may not be encashed1 it may
only be deposited with the ban(1
b$ %hat the chec( may be negotiated only once to
a person who has an account with the ban(1
and
c$ %hat it serves as a warning to the holder that
the chec( has been issued for a definite
purpose. =ataan #igar vs. #A, &,0 S#.A /3,$
%he NIL is silent with respect to crossed chec(s,
although the #ode of #ommerce ma(es reference
to such instrument. Nonetheless, this #ourt has
ta(en 2udicial cogni*ance of the practice that a
chec( with & parallel lines in the upper left hand
corner means that it could only be deposited and
not converted into cash. 20e effects of crossing a
c0ec- t0us, relates to t0e mode of )a6ment,
meaning that the drawer had intended the chec(
for deposit only by the rightful person, i"e", the
payee named therein. #ely Mang vs. #ourt of
Appeals, 7... No. 1,9083, August 1-, &00,$
IRON CLA5 RULE
Arohibits the countermanding of payment of
certified chec(s. .epublic of the Ahilippines vs.
AN=$
Note: %he holder must be a holder in due course
before the stop payment order may not be
successfully invo(ed against him. 4esina vs. IA#,
13/ S#.A 3D8, -0-$
T(PES OF C+EC$S (Cesar 3illanueva, Commercial
Law Review, !!4 ed")
a. Cas.ierEs C.ec7
5ne drawn by the cashier of a ban(, in the name
of the ban( against the ban( itself payable to a
third person. It is a primary obligation of the
issuing ban( and accepted in advance upon
issuance. %an vs. #A, &,D S#.A ,10$
b. Mana1erEs C.ec7
A chec( drawn by the manager of a ban( in the
name of the ban( itself payable to a third person.
It is similar to the cashierFs chec( as to the effect
and use.
c. Me/oran%u/ C.ec7
A chec( given by a borrower to a lender for the
amount of a short loan, with the understanding
that it is not to be presented at the ban(, but will
be redeemed by the ma(er himself when the loan
falls due and which understanding is evidenced by
writing the word LmemorandumK, LmemoK or
LmemK on the chec(.
d. Certi&ie% C.ec7
An agreement whereby the ban( against whom a
chec( is drawn underta(es to pay it at any future
time when presented for payment. Sec. 198$