Professional Documents
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Negotioble Review
Negotioble Review
PN BE
Parties (1) Creditor: Payee (1)
Debtor: Drawer
Party to whom the maker has unconditionally
The one giving the order
promised to pay the sum certain in money
The person ordering someone to pay
(2) Debtor: Maker Drawee(2)
The party who signs the instrument and makes the
The party to whom the bill is addressed and is being
unconditional promise to pay a sum certain in money ordered by the Drawer to pay the Payee
on demand or at a fixed or determinable future time.
(3) Payee the person in whose favor the bill is drawn and to
whom the drawee will pay the bill
Features There is always a promise There is always an order
Liability (1) Maker: Primarily Liable (1) Drawee: No Liability
(2) Payee and subsequent indorsers: Secondarily Liable RATIO: Not obliged to pay, unless the drawee becomes
the drawee-acceptor who binds himself to pay, thus, for
accepting the order to pay, drawee-acceptor becomes
primarily liable
(2) Drawee-acceptor: Primarily Liable
(3) Drawer, Payee, subsequent indorsers: Secondarily Liable
Presentment No presentment necessary. Necessary ONLY in three circumstances:
for Acceptance (1) When the BE is payable at a fixed period or after sight
RATIO: The maturity date is counted from the date of the
1st presentment for acceptance made by the holder to the
drawee
(2) When the place of payment of BE Is different from the
domicile of the drawee
(3) When presentment for acceptance is expressly required
on the BE (e.g. Pay to the order of B P5,000 on Dec 31.
1991. Presentment for Acceptance is required.
When Payable Presentment for Payment must be made within a reasonable Presentment for Payment must be made within a reasonable time
on Demand time AFTER ISSUE. AFTER THE LAST INDORSEMENT OR NEGOTIATION.
Q: Differentiate escalation clause with insecurity clause. not negotiable Q: How does an instrument with an imposition of attorneys fees, will it be
A: Insecurity clauses are provisions in the contract which allow the holder negotiable?
to accelerate payment if he deems himself insecure. In other words, he A: Yes, a stipulation in the instrument to pay all costs of collection and
can demand payment whenever he feels that there is a danger that make attorneys fee in case of the filing of a suit for collection will not render
will not be able to pay on the due date of the instrument. (Aquino, 2009) the instrument non-negotiable as the total costs of collection are merely
While escalation clauses or acceleration clauses are provisions which added to the principal obligation and does not alter the amount of the
state that the whole indebtedness automatically becomes due and sum certain payable. The costs and attorneys fees are merely incidentals
demandable upon default of one or two successive installments or of the in the collection of the principal obligation. (Pasimio, 1992)
interest. (Pasimio, 1992)
(2.3) In Money
Q: How does an escalation clause affect negotiability? How about an
insecurity clause?
A: An instrument with an escalation clause does not affect negotiability Q: I promise to pay AE or order P10,000 or deliver my IPAD. Is this
because the certainty of the amount to be paid is not affected. However, negotiable?
an instrument with an insecurity clause is non-negotiable. Because the A: Non-negotiable because the choice belongs to the maker, thus he is
holders whim and caprice prevail without the fault or control of the not absolutely required to deliver money because he can satisfy his
maker. (Aquino, 2009) obligation by delivering one sack of sugar.
(4) With exchange, whether at a fixed rate or at the current rate; Q: How about add a statement saying at the holders option. Will it make
or the instrument negotiable?
A: Yes because the option to choose belongs to the holder, there is still
Q: What if the sum payable is in another currency? Is it negotiable? an absolute obligation to pay in money.
Note: This situation is similar to an alternative obligation where the right A: (FOR A BILL OF EXCHANGE after sight is usually used) It will not be
of choice ALWAYS belongs to the debtor that is why it is important to add counted from the date of the bill, nor from the date of issue, but rather
at the holders option, otherwise, the Civil Code provisions on from the date of the first Presentment for Acceptance to be made by the
alternative obligations will apply and it is the debtor who will choose. holder to the Drawee.
I promise to pay to the order of B P500 on or before Xmas this year. (4.1) Bearer Instruments
The Holder can collect from the party primarily liable on or before
December 25, 1991, which is Xmas this year, the determinable Section 9 of the NIL provides that an instrument is payable to bearer in
future time specified in the instrument the following instances:
(1) When it is expressed to be so payable; or
(2) When it is payable to a person named therein or bearer; or
(3) When it is payable to the order of a fictitious or non-existing Q: Is there an XPN to the foregoing?
person, and such fact was known to the person making it so A: Yes, it is called the commercial bad faith XPN. Such XPN would cause
payable; or the drawee bank to bear the loss instead of the drawer of the checks.
Q: I promise to pay to the order of Superman, P1000. Q: Explain the commercial bad faith XPN further.
Sgd: A. Negotiable? What instrument? A: A showing of commercial bad faith on the part of the drawee bank, or
A: Yes, bearer. any transferee of the check for that matter, will work to strip it of this
defense. The exception will cause the drawee bank to bear the loss.
Q: What are the requisites to treat the above promissory note a bearer Commercial bad faith is present if the transferee of the check acts
instrument? dishonestly, and is a party to the fraudulent scheme.
A: (1) The payee is a fictitious or non-existing person; and (2) such fact is
known to the Maker who intentionally makes the promissory note Q: Why did the SC apply the commercial bad faith XPN in the case PNB v.
payable to such fictitious or non-existing person. Rodriguez? What was the bad faith of PNB?
A: The bad faith of PNB consists in the actuations of its teller in accepting
Q: What is the fictitious payee rule? the checks even without indorsement when they knew that the payees
A: An instrument is a bearer instrument if it is payable to the order of a named therein are living and existing.
fictitious or non-existing person and such fact is known to the person
making it so payable. (4) When the name of the payee does not purport to be the name of
any person; or
Q: May a fictitious payee be in reality a true and existing person?
A: Yes, but the instrument is still deemed payable to bearer if the maker e.g. Pay to cash or Pay to payroll
or drawer has no intention to make the instrument payable to such
existing person. The fictitious payee rule does not only contemplate (5) When the only or last indorsement is an indorsement in blank.
fictitious persons but also when the named payees do now know and Indorsement can be done in two ways:
without intending the named payees to receive the proceeds of the (1) special indorsers signature and name with indorsees name
check. (2) blank indorsers signature and name but without indorsees
name
Q: Why is it a bearer instrument?
A: Because a fictitious person cannot indorse, so the drawer/maker must Q: What is the effect if an order instrument is indorsed in blank?
have intended that the instrument is a bearer instrument which can be A: The order instrument is converted into a bearer instrument which can
negotiated by mere delivery. be negotiated by delivery alone.
Q: Who bears the loss in a fictitious payee situation? Q: What is the effect if it is specially indorsed?
A: As a rule, it is the drawer of the check who bears the loss. A: Remains as is.
Q: If an originally order instrument is converted, through blank Q: If an order instrument is just delivered, is there a valid negotiation?
indorsement, into a bearer instrument, and then it is indorsed specially, A: No valid negotiation but just assignment or transfer.
what is the effect?
A: It will revert to being an order instrument which can be negotiated Q: May the person who received the instrument in the preceding question,
again through indorsement and delivery. or the transferee, demand indorsement?
A: No. The rights of a holder are only acquired when the instrument is
Q: What is the effect if an originally bearer instrument is indorsed either indorsed, there is no retroactivity.
specially or blank?
A: It will remain a bearer instrument as to the nature of the instrument,
but a person who indorses specially a bearer instrument becomes a
ADDITIONAL PROVISIONS NOT AFFECTING
special indorser who becomes liable for all the warranties of a special NEGOTIABILITY
indorser.
It is a redundancy to indorse a bearer instrument because it can Section 5 Additional provisions not affecting negotiability. An
be negotiated by mere delivery, indorsement is not necessary. instrument which contains an order or promise to do any act in addition to
A bearer instrument is ALWAYS A BEARER INSTRUMENT. the payment of money is not negotiable. But the negotiable character of
an instrument otherwise is not affected by a provision which
RECAP: An order instrument specially indorsed remains an order
instrument but if indorsed in blank, it is converted into a bearer a) Authorizes the sale of collateral securities in case the instrument
instrument. If the bearer instrument is indorsed specially, it reverts back be not paid at maturity;
to being an order instrument. If the bearer instrument is indorsed in b) Authorizes a confession of judgement if the instrument be not paid
blank, it remains a bearer instrument. at maturity; or
c) Waives the benefit of any law intended for the advantage or
(4.1) Order Instruments section 8 protection of the obligor; or
Section 9 of the NIL provides that an instrument is payable to order in the d) Gives the holder an election to require something to be done in
following instances: lieu of payment of money.
(1) When it is drawn payable to the order of a specified person or to
him or to his order; or But nothing in this section shall validate any provision or stipulation
(2) When it may be drawn payable to the order of: otherwise illegal.
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or GR: The party primarily liable (PPL), the maker in a PN or drawee-acceptor
(c) The drawee; or in a BE, shall be required to pay the negotiable instrument in a sum certain
(d) Two or more payees jointly; or in money only. A promise or order to perform an act in addition to the
(e) One or some of several payees; or payment of money is non-negotiable as it runs counter to the general rule.
(f) The holder of an office for the time being. XPNS:
(1) Collateral securities the giving of a collateral is not an additional Q: Why is the date of the instrument important?
undertaking but merely as a pledge to secure the debt. If the A: To determine (1) the maturity date of the instrument if it is payable at
debtor fails to pay, the collateral will be sold and from the a fixed period after date; or (2) when the interest, if provided in the
proceeds of the sale, the principal debt will be paid. instrument, will start to run.
(2) Confession of judgment tantamount to a voluntary admission of
his indebtedness, a provision to this effect in the instrument will Q: What is the effect if the instrument is not dated?
not affect its negotiability. However, such warrant of attorney is A: It is still negotiable. In a PN (date is only material for PN not for BE
void for being contrary to public policy as the promissor bargains because for BE it is sight and not date which matters), the maturity date
away his right to a day in court. (Note: Only the stipulation is void, will simply be counted from the date of issue.
the whole instrument is not affected and is still negotiable)
(3) Waiver or benefit An indorser may waive the benefit of the Q: What is the effect if the instrument does not specify the value given or
provision of the NIL that is designed for his benefit such as that any value has been given thereof?
presentment for payment, notices of dishonor, protest and A: It is still negotiable because it is presumed that the contract between
demand. Notwithstanding, the instrument remains to be the maker or drawer and the payee is for a consideration.
negotiable.
(4) At the Holders option discussed in supra (2.3). Q: What is the effect if the instrument does not specify the place where
made or drawn, or where payable?
Section 6 Omission; seal; particular money The validity and negotiable A: Such omission will not affect negotiability because the law presumes
character of an instrument are not affected by the fact that that payment shall be made at the domicile of the maker.
But nothing in this section shall alter or repeal any statute requiring in (a) Where the sum payable is expressed in words and also in figures
certain cases the nature of the consideration to be stated in the and there is a discrepancy between the two, the sum denoted by
instrument. the words is the sum payable; but if the words are ambiguous or
uncertain, reference may be had to the figures to fix the amount;
Q: As a rule, a holder cannot collect from the party liable if defenses may be raised Q: May a payee be a holder in due course?
against him, what is the XPN? A: Yes, Section 191 defines holder as the payee or indorsee of a bill or note,
A: Holder in due course by subrogation because he can still collect despite who is in possession of it, or the bearer thereof. Hence, the word holder in
defenses. the first clause of Section 52 and in the second subsection thereof may be
replaced by the definition in Section 191 so as to read a holder in due course is
Q: What is the Shelter Principle? a payee or an indorsee in possession etc.
A: It is the exception to the general rule that a holder who is not a holder in due
course is subject to the same defenses as if it were non-negotiable. This rule Q: What are the effects of crossing a check?
provides that holder who is not a holder in due course but nonetheless derived A: (a) the check may not be encashed but only deposited in the bank; (b) the
title from a holder in due course is free from defenses, real or personal. check may be negotiated only once to one who has an account with a bank;
Section 58: xxx But a holder who derives his title through a holder (c) and the act of crossing the check serves as warning to the holder that the
in due course, and who is not himself a party to any fraud or check has been issued for a definite purpose so that he must inquire if he has
illegality affecting the instrument, has all the rights of such former received the check pursuant to that purpose, otherwise, he is not a holder in
holder in respect of all parties prior to the latter. due course. In other words, the holder is not a holder in due course if he receives
the check other than for the purpose it was issued.
Q: What are the requirements in order to invoke the Shelter Principle? Q: How to cross a check?
A: Two parallel lines on the uppermost left corner of the instrument
Q: What is the doctrine in De Ocampo v. Gatchalian? Q: Distinguish fraud in factum and fraud in inducement.
A: The holder of a crossed check can never become a holder in due course if he A: Fraud in factum exists in those cases in which a person, without negligence,
receives the check other than for the purpose it was issued. has signed an instrument which was, in fact, a negotiable instrument, but was
FORGERY (Indorsement)
deceived as to the character of the instrument and without knowledge of it, as
Available to
where a note was signed by one under the belief that he was signing as a witness
MAKER/DRAWER/Prior Indorsers
(Order Instrument)
NOT Available to BEARER
DEFENSES to a deed or where the signature was procured by fraudulent use of carbon
Instrument (HIDC): Maker, Indorser
XPN: (NOT HIDC) Prior Parties Not paper. While fraud in inducement is that which relates to the quality, quantity,
liable Real Defenses Personal Defenses value, or character of the consideration of the instrument. It implies that the
1. Minority (available only to the 1. Failure or Absence of signer knew what he was signing but that he was induced by fraud to sign. A
minor) Consideration consideration is PRESUMED
clear illustration of this fraud exists where a person is induced to sign a note for
2. Forgery 2. Illegal Consideration the price of a worthless stock which was fraudulently represented by the payee
3. Non-delivery of Incomplete 3. Non-delivery of Complete as to its value. (De Leon, 2009)
Instrument Section 15 want of delivery of incomplete
instrument
Instrument section 16 want of delivery of
complete instrument
4. Material Alteration section 125 5. Fraud in inducement Q: Is fraud in factum a real or personal defense? What about fraud in
5. Ultra Vires act of Corporation 6. Filling up blank not within inducement?
6. Fraud in Factum or Esse Contractus authority A: Fraud in factum is a real defense because there is no contract. It implies that
7. Illegality if declared void for any 7. Duress or Intimidation a person did not know what he was signing. Fraud in inducement is a personal
purpose 8. Filling up blank beyond reasonable defense because it does not prevent a contract. (De Leon, 2009)
8. Vicious Force or Violence time
9. Want of authority 9. Transfer in breach of faith (2) Incapacity
10. Prescription 10. Mistake
11. Discharge in Insolvency 11. Insertion of wrong date (2.1) Minority
12. Ante-dating or Post-dating for
illegal or fraudulent purpose Q: What kind of a defense is minority? Who can invoke it?
A: Minority is a real defense personal to the minor. Only the minor can raise the
defense of minority.
Q: Differentiate real from personal defense.
A: Real defenses are available against all holders of a negotiable instrument, Q: Will the defense of minority prevent a valid transfer of title?
including a holder in due course and are defenses which go into the validity of A: Despite minority, there will be a valid transfer of title from the minor to
the contract and the capacity of the parties to such contract. On the other hand, another only that liability will not attach to the minor.
personal defenses are available against holders not in due course, but not valid
against a holder in due course and are defenses available to parties among
themselves which do not go into the validity of the instrument as a contract or
into the capacity of the contracting parties, but only to the relation of the parties
to the contract. The latter is also referred to as Equitable defenses.
(6.1) Rules on Forgery of Indorsements Q: X issued a PN payable to bearer and negotiated it to Y. A obtained the
instrument and forged Ys signature. A then negotiated the note to B, B to C, C to
(1) When an indorsement is forged and the instrument is payable to order, D. Against whom can D collect?
the party whose indorsement is forged and all the parties prior to him, A: D can collect primarily from A because he is the forger. D can also collect from
including the maker, shall not be liable even to a holder in due course. A, B, and C because of their warranties. If D is a holder in due course, he can
An instrument, payable to order, can only be negotiated by proper collect from Y notwithstanding the forgery. D can likewise collect from the
indorsement plus delivery, and since an indorsement is forged, it is maker, X.
inoperative as to parties prior to the forged indorsement because valid
title is not transferred by the forged indorsement. However, all
indorsers subsequent to the forged indorsement whose signatures are Q: Why can D collect from Y when it was Ys signature which was forged? Can Y
genuine, will be liable to the holder of the instrument because as not set up the defense of forgery?
regular indorsers, they warrant that the instrument is genuine at the A: D can collect from Y because even if it was Ys signature which was forged, in
time of their indorsement. bearer instruments, signature of the payee or holder is unnecessary to pass title
(2) If the note if originally payable to bearer, the party whose indorsement to the instrument as the instrument may be negotiated by mere delivery.
is forged and prior to him, including the maker, may be held liable by a
holder in due course only, provided the instrument is mechanically Q: Does Y not have any recourse?
complete before the forgery. The reason is that the forged indorsement A: Y can set up the defense of non-delivery of complete instrument against a
is not necessary to the title of the holder since an instrument payable holder not in due course. But since such defense is only personal, said defense
to bearer can be negotiated by mere delivery. cannot be invoked against a holder in due course.
Q: X issued a PN payable to the order of Y. A obtained the instrument and forged Q: What is the rule in case it is the drawers signature which was forged?
Ys signature thereon. A then indorsed the note to B, B to C, and C to D. From A: Forgery of a drawers signature, drawer is not liable, drawee bank is liable
whom can D collect? because the bank is in a superior position to detect the forgery. (PNB v. Quimpo)
A: D can collect primarily from the forger A. D can also collect from B and C XPN: Negligence on the drawers part (Please see Ilusorio v. CA)
because of their warranties as a general indorser, as such, they are precluded
Q: What is the rule in case it is the payees signature which was forged?
A: As a rule, the drawer is not liable because the drawee bank owes the duty to
pay only to the order of the drawer. The drawer, in effect, said Pay to Y. Why
then, did the drawee pay to A? Drawee bank violated its contractual duty
therefore, the drawee bank must credit back the amount it debited from the
drawers account.
XPN: When drawer is negligent
Q: Is material alteration a real or personal defense? Q: Bank of America v. PRCI: Was the check payable to CASH?
A: Real defense. Some authors would say it is a partial real defense because a holder in A:
due course may still be able to collect according to the original tenor of the
instrument. In real defense there is usually no collection. Q: Same: For the blank allotted for the payee, was there any amount written? Was it
successfully enchased? Was the irregularity discovered?
Q: X issued a check with Y as payee and left the amount in blank. Ys authority was to A:
write P100,000. However, Y did not follow and wrote P500,000. Y negotiated it to A, A to
B, B to C. Is it material alteration? Q: Same: Was this technically speaking, a material alteration?
A: Not material alteration but a case of Section 14, delivery of incomplete instrument. A: No. But because of the glaringly obvious irregularities, what was applied was
The amount is left blank, there is a missing particular. material alteration. (Atty. Escalantes comment: WRONG! Irregularities are not
material alteration)
Q: X issued a check for P100,000 with Y as payee. Y changed the amount thereof to
P500,000. Y negotiated it to A, A to B, B to C. Is it material alteration? ACCOMODATION
A: Yes because there was no blanks, there was really an amount stated. Changing it
from P100,000 to P500,000 constitutes material alteration which changes the liability Q: Who is an accommodation party? Does he receive any consideration? What is his
of the parties. liability? Is his liability primary or secondary? Can he sign as a maker? Drawer?
Acceptor? Indorser?
Q: In the foregoing, against whom can C collect and not collect? For how much? A: If an instrument is issued for value given for the benefit of a party to the instrument
A: C, presumed as a holder in due course, can collect primarily from Y because he is ("accommodated party") and another party to the instrument ("accommodation party")
the one authorized, made or assented to the material alteration. C can likewise collect signs the instrument for the purpose of incurring liability on the instrument without
from A and B because of their liabilities as an indorser. And lastly, C can collect from X consideration therefor, the instrument is signed by the accommodation party "for
but only for the original amount prior to the alteration. accommodation." His liability depends on the capacity in which he signs the instrument.
He may sign as a maker, drawer, indorser, or acceptor.
Q: Is it important that the holder is a holder in due course? Should you qualify first?
A: C should be a holder in due course before he can collect from the party who did not Q: Who is the accommodated party?
assent to the alteration but only according to its original tenor. A: The party in whose favour the credit is lent.
Q: What do we mean when we say that the accommodation party acts as a surety? (2) That he admits the existence of the payee and his then capacity to indorse.
A: The accommodation party has a right of recourse from the accommodated party.
Warranties of Acceptor: (EGC-EC)
Q: Will payment be discharged if payment is made by the accommodation party? (1) (a) the existence of the drawer
A: No, not yet because the accommodation party still has a right to be reimbursed. (b) the genuineness of the drawers signature
There is still a pending obligation, a right to be paid by the accommodated party. (c) drawers capacity and authority to draw the instrument
(2) (a) the existence of the payee
Q: May a corporation act as an accommodation party? (b) the payees capacity to indorse.
A: No, it is an ultra vires act of the corporation. It is the officer who is liable in his
personal capacity. Note: The acceptor who warrants the genuineness of the drawers signature is the
XPN: There should a board resolution authorizing such act. Otherwise, officers primary reason why he is precluded from setting up the defense of forgery.
will be liable.
Q: What is the difference between tenor as to the makers warranty and tenor of the
Q: May a holder be a holder in due course despite his knowledge that the party who acceptance?
signs is an accommodation party? A: For acceptance, it can be partial, not according to the tenor of the instrument but
A: Yes. tenor of the acceptance. For the maker, it is according to what is written in the
instrument.
Q: Who is an irregular indorser?
A: Where a person, not otherwise a party to an instrument, places thereon his signature Q: Who is the certifier of a check?
in blank before delivery, he is liable as indorser, in accordance with the A: Always a bank. Certification is equivalent to acceptance.
following rules:
(a) If the instrument is payable to the order of a third person, he is liable to the payee Q: Who are the parties secondarily liable?
and to all subsequent parties. A: In a promissory note, the parties secondarily liable are the indorsers. In a bill of
(b) If the instrument is payable to the order of the maker or drawer, or is payable to exchange, the parties secondarily liable are the drawer and the indorsers.
bearer, he is liable to all parties subsequent to the maker or drawer.
(c) If he signs for the accommodation of the payee, he is liable to all parties subsequent Note: The PSL must be furnished a notice of dishonor first, either by non-acceptance or
to the payee. non-payment, before they can be held liable.
Q: Distinguish general indorser from irregular indorser. Q: What are the warranties of the drawer?
A: A general indorser is liable even to holders in due course or not in due course while A: Warranties of Drawer:
an irregular indorsers liability extends only to those enumerated. (1) That he admits the existence of the payee and his then capacity to indorse.
(2) (a) That when the bill is presented for acceptance to the drawee, it will be
Note: In Sec. 66, do not be deceived by to all subsequent holders in due course accepted, or when it is presented for payment, it will be paid, or both,
because even if the holder is not a holder in due course, he is liable, not only holders in according to its tenor.
due course. (b) That if the drawee does not accept the bill, then the drawer undertakes to
pay the instrument to the holder himself or to any subsequent indorser who
Q: Who are the parties primarily liable in a negotiable instrument? What are the may be compelled to pay the holder thereof.
warranties of the maker and the acceptor? (c) Or if the drawee/acceptor has accepted the bill, he subsequently refuses to
A: Warranties of Maker: (O-EC) pay the bill on maturity date, the drawer will be liable on the instrument,
(1) That he will pay the note according to its original tenor to the payee, or to the together with the other indorsers
holder, or to any subsequent indorser who may be called upon to pay the (d) Failure on the part of the Holder to give Notice of Dishonor by non-
holder thereof. acceptance or non-payment to the drawer and other indorsers, who are all
considered parties secondarily liable, will discharge them from liability on the Sgd. B
instrument.
To C
Q: Can the drawer sign without recourse? A Pay to D and E.
A: Yes. The effect of such signature by the drawee means that he does not have any Pay to D and E can you do this?
liability, even secondarily, and even if he is presented with a notice of dishonor. A: Yes.
E.g. (Sgd.) B, without recourse or sans recourse
Q: Pay to the order of A P1,000
Q: Can a maker sign without recourse. Sgd. B
A: NO.
To C
Q: Who is an indorser? A Pay to D 500.00.
A: Pay to E 500.00.
Pay to D 500.00, Pay to E 500.00 can you do this?
Q: If there is doubt as to the capacity by which a person signs, what is the presumption? A: No.
Why? RATIO: Because the law abhors the splitting of causes of action or to avoid
A: The presumption is that he is an indorser. multiplicity of suits.
RATIO: An indorser is least liable.
Q: Pay to the order of A P1,000
Q: Is indorsement a contract? Why? Sgd. B
A:
To C
Q: Pay to the order of A P1,000 A Pay to D.
Sgd. B Pay to D can you do this?
A: Yes. It is a special indorsement.
To C
A Pay to D. Q: Is there an XPN to the rule that an instrument must be indorsed in its entirety?
A:
In the problem above, the special indorsement of A to D contain no words of negotiability.
Does it matter? Q: If they are both indorsees, should they both indorse?
A: No. There is no need to put words of negotiability in AN INDORSEMENT. A: Yes.
XPNs: (1) they are partners.
Q: Pay to the order of A P1,000 (2) One is authorized by the other to indorse.
Sgd. B
Q: Will negotiability cease when it is indorsed?
To C A: Negotiability will not cease when the instrument is indorsed.
A Pay to D 500.00.
Q: What is a restrictive indorsement and give examples of each.
Pay to D 500.00 can you do this? A: A restrictive indorsement
A: No. The instrument must be indorsed according to its entirety. (a) Prohibits the further negotiation of the instrument; or
e.g. Pay to A, for deposit. Q: How about if the defense of B is minority? Can E collect from C?
Pay to A, for collection. A: Yes, E can collect from C because at the time C signs the instrument, he warrants that
prior parties have the capacity to enter into contracts.
(c) Vests the title in the indorsee in trust for or to the use of some other persons.
Note: The foregoing warranty includes insanity and any person who loses the capacity
Q: Who is a special indorser? A blank indorser? to validly enter into contracts.
A: A special indorser is one who is so named by the indorsee in the latters indorsement,
coupled with the latters signature. A blank indorser is one who is not so named by the Q: What if B says there was fraud, that he was defrauded into issuing the instrument. Can
indorsee in the latters indorsement, there is only the latters signature. E collect from C?
A: Yes, E can collect from C because at the time C signs the instrument, he warrants that
Q: What is a qualified indorsement? he has no knowledge of any fact which would impair the validity of the instrument or
A: A qualified indorsement is one by which an indorser may negate or limit his liability render it valueless.
on the instrument by adding the words without recourse or sans recourse to his
indorsement. Q: To which do these warranties extend to?
A: These warranties extend to the subsequent holder in the case of a qualified indorser
Q: What are the warranties of a qualified indorser? and they extend to the immediate transferee in the case of a person negotiating by
A: Warranties of a party who negotiates by mere delivery and a qualified indorser: mere delivery.
(PTCK)
(1) That the instrument is genuine and in every respect what it purports to be; Q: Who is a general indorser?
(2) That he has a good title to it; A: A person who negotiates without any conditions or qualifications, the opposite of a
(3) That all prior parties had capacity to contract; qualified indorser.
(4) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless. Q: What are the warranties of a general indorser?
A: Warranties of a general indorser: (PTCVP)
(1) That the instrument is genuine and in all respects what it purports to be;
Q: I promise to pay to the order of A P1,000. (2) That he has a good title to it;
Sgd. B (3) That all prior parties had capacity to contract;
A negotiated the note to C, C to D, D to E. C signed without recourse. On maturity date, E (4) That the instrument is at the time of his indorsement valid and subsisting.
collected payment from B. B said I am insolvent, I aint paying. E, thus, furnished the (5) He engages that on due presentment, it shall be accepted or paid, or both, as
party secondarily liable with a notice of dishonor. When C received the notice of dishonor, the case may be according to its tenor, and that if it be dishonored, and the
he said, okay lang, I signed without recourse :P. Can C insist that he has no liability necessary proceedings on dishonor be duly taken, he will pay the amount
because he signed without recourse? Can E collect from C? thereof to the holder, or to any subsequent indorser who may be compelled to
A: Yes, C can insist that he has no liability. As a corollary, E cannot collect from C because pay it.
insolvency is not one of the warranties of a qualified indorser.
Note: The presumption is that every indorser is a general indorser.
Q: In the foregoing example, what if B says, my signature in that indorsement was
forged. E, again furnishes a notice of dishonor to PSL, then goes to C wanting to collect Q: I promise to pay to the order of A P1,000.
payment. Can E collect from C? Why? Sgd. B
A negotiated the note to C, C to D, D to E. E collects from B but B says that he was A: An order instrument is negotiated by indorsement plus delivery. If an order
defrauded in issuing the instrument. E furnishes a notice of dishonor to all the PSL. E instrument is not indorsed, there is no valid negotiation but just a mere equitable
comes to C, a general indorser, to collect payment. Can E collect from C? assignment.
A: Yes because C is a general indorser. There is transfer but lesser rights.
Transferee merely steps into the shoes of the transferor.
Q: What if the general indorser invoked that he did not have knowledge of the fraud? Can
E still collect from C? Q: Can the transferee demand that indorsement be made?
A: E can still collect from C because it is not the general indorsers warranty but the A: Yes, that is one of the rights of a transferee, to demand indorsement, if what is
qualified indorsers warranty. Also, it would be in conflict with his Section 66 (d) assigned to him is an order instrument which needs to be indorsed but is merely
warranty that the instrument is valid and subsisting at the time of his indorsement. delivered.
RATIO: The law deleted Section 65 (d) in Section 66 because the law wants to
make it a point that even if the general indorser has or has no knowledge, he Q: May he be a holder in due course? The transferee?
is still liable. If the general indorser would be allowed to argue that he had no A: Yes, he may be a holder in due course provided all the requisites under Sec. 52 are
knowledge, then the general indorser would no longer have any liability. It present. If there are circumstances which happened before indorsement was made
would be in conflict with his other warranties. which constitute a violation of Section 52, he will not become a holder in due course.
Note: Examples of Section 65 (Qualified Indorser): Q: What indorsements may be stricken out?
(a) Forgery A: Those which the holder thinks is not material to his title.
(b) Instrument was stolen
(c) Minority, Insanity Q: I promise to pay to the order of B P1,000.00.
(d) Fraud, knowledge of any defense, this can encompass any defense that the Sgd. A
indorser can disown knowledge of except those which are glaring such as
material alteration or incomplete but delivered (there are blanks, you can see From A to B it was specially indorsed and delivered. From B to C it was indorsed in blank
it) coupled with delivery. From C to D it was indorsed again in blank coupled with delivery.
From D to E it was merely delivered. From E to F it was also delivered. Was there proper
General indorser has so many liabilities. Section 66 (d) is our basis for attaching negotiation of the order instrument?
secondarily liability, he cannot disown knowledge, he cannot say there is forgery or prior A: Yes.
parties are minors, insane, etc.
Q: What indorsements may be stricken out and what is the effect of striking out an
Other indorsements: indorsement?
Joint two or more indorsees A: The indorsements in blank of B to C coupled with delivery converted the instrument
Facultative waiver of presentment, notice or protest (holder need not give you notice into a bearer instrument, thus, the indorsement of C in blank coupled with delivery to D
of dishonor for secondary liability) is no longer needed because the instrument may be negotiated by mere delivery, thus,
it may be stricken out. The indorser whose indorsement is stricken out will be relieved
Q: What happens if the name of the indorsee is misspelled? Can he correct? from liability and all subsequent indorsers, C, as the person whose indorsement was
A: Where the name of a payee or indorsee is wrongly designated or misspelled, he may stricken out, and D, as a subsequent indorser, will be relieved from liability. E is not
indorse the instrument as therein described adding, if he thinks fit, his proper signature. relieved from liability because he did not indorse, he merely delivered.
Q: How do you negotiate an order instrument? What if an order instrument is not Otherwise stated, the indorsement from C to D is no longer needed because at the time
indorsed, is there a valid negotiation? B negotiated the instrument to C, the instrument became a bearer instrument which
may be negotiated by mere delivery, the blank indorsement of C to D is not necessary.
Note: You need to indorse and deliver an order instrument. If you strike out the II. EFFECT OF NON-PRESENTMENT WHEN REQUIRED:
indorsement of A, only delivery will be left. There will be no proper negotiation because
the instrument is originally an order instrument and you cannot negotiate an order The holder of a bill which is required to be presented for acceptance to the drawee must
instrument without negotiation and delivery, As indorsement cannot be stricken out. within a reasonable time
However, if it was a bearer instrument, there is no problem in striking out those who 1) Present the bill for acceptance; or
indorsed specially or generally (e.g. A) because the instrument may be negotiated by 2) Negotiate it.
mere delivery.
Failure to do any of the above within a reasonable time will discharge the parties
The problem with striking out indorsements, you will be lessening the parties from secondarily liable from liability.
whom you can demand payment.
III. HOW MADE:
Q: From whom can he collect?
A: A, B and E. By : the holder himself, or by his authorized representative.
To :
A to B is special coupled with delivery. B to C is blank indorsement coupled with delivery. (a) The drawee himself or to any person authorized to accept or refuse acceptance
C to D is blank indorsement coupled with delivery. D to E is special indorsement coupled on his behalf; or
with delivery. E to F is blank indorsement coupled with delivery. From F to G merely (b) If there are two or more drawees who are not partners, presentment must be
delivered. Was there proper negotiation? What indorsements may be stricken out? made to all of them, unless
A: From B to C it was converted into a bearer instrument, the indorsement of C to D (i) One drawee has the authority to accept or refuse acceptance for all;
may be stricken out because the instrument can be negotiated by mere delivery. From or
D to E it was converted into an order instrument. From E to F it was converted into a (ii) The drawees are partners, in which case presentment may be made
bearer instrument. And from F to G it was negotiated by mere delivery, thus there was to any one of the partners.
proper negotiation. (c) If the drawee is dead, presentment may be made to:
(i) His personal representative, if there is one; or
Q: Who are relieved from liability? (ii) Presentment may be excused under Sec. 148.
A: C, the person whose indorsement was struck out, and D and E as subsequent
indorsers. (d) If the drawee is insolvent, presentment may be made to:
(i) The insolvent drawee himself; or the drawees trustee or assignee.
Q: From whom can G collect?
A: A, B, and F. When : within a reasonable hour on a regular business day and before the bill
is overdue.
PRESENTMENT FOR ACCEPTANCE Presentment for Acceptance of a bill may be made on a Saturday under the following
rules:
I. WHEN REQUIRED: (SEE) a) If the Saturday is a holiday presentment for acceptance may be made on the
following business day.
a. Where the bill is payable after sight; or in any case where presentment for b) If Saturday is not a holiday presentment for acceptance may be made before
acceptance is necessary in order to fix the maturity of the instrument 12 oclock on that day.
b. Where the bill expressly stipulates that it shall be presented for acceptance; or Where :
c. Where the bill is drawn payable elsewhere than at the residence of place of i) At the place of business or residence of the drawee, if known, or
business of the drawee. ii) If the residence is different from place of business, presentment may be
made at either place; or
iii) If place of payment is designated on the bill, and drawees residence or
place of business is unknown, presentment may be made at the place of a. When it is duly presented for acceptance, and such an acceptance as
payment. prescribed by this Act is refused or cannot be obtained; or
b. When presentment for acceptance is excused, and the bill is not accepted.
IV. WHEN TIME IS INSUFFICIENT
VII. RIGHTS AND DUTY OF HOLDER WHERE BILL NOT ACCEPTED
This section refers to an instance where the bill is drawn payable elsewhere that at the
residence or place of business of the drawee. Duty the holder must, within the reglamentary period (24 hours), give notice of
GR: Failure to make presentment for acceptance by the holder will discharge the drawer dishonor by non-acceptance to all perties secondarily liable
from liability. Right A right of recourse against the parties secondarily liable accrues to the holder,
XPN: If the holder has insufficient time to make the presentment for after giving Notice of Dishonor by non-acceptance to PSL, presentment for payment is
acceptance before the maturity date of the bill, the delay caused between no longer necessary to hold the PSL liable, the holder may proceed against any one of
presenting the bill for acceptance and presenting it for payment on maturity is the PSL to collect at random
excused.
Effect: Parties secondarily liable will not be discharged from liability VIII. EFFECT OF OMISSION TO GIVE NOTICE OF NON-ACCEPTANCE
V. WHEN EXCUSED The rule in this section is only true if the holder who fails to give notice of dishonor by
non-acceptance to PSL, later negotiates the bill to a holder in due course. In this case,
The holder may treat a bill of exchange as dishonored by non-acceptance: the holder in due course may give the required Notice of Dishonor by non-acceptance
a. When the drawee is to the PSL as to hold them liable on the instrument.
i) Dead, or
ii) Has absconded, or ACCEPTANCE
iii) Fictitious, or
iv) Not capacitated to enter into contracts I. DEFINED
b. When with reasonable diligence, presentment cannot be made, such as: It is the signification by the drawee of his assent to the order of the drawer.
i) When drawee cannot be found at his residence or place of business, or II. REQUISITES (WSLPC)
ii) When drawees residence or place of business cannot be ascertained or
has been vacated. 1. Acceptance must be in writing.
XPN: Constructive acceptance
c. When, although presentment has been irregular, acceptance has been refused 2. It must be duly signed by the drawee, in which case he becomes the acceptor.
on some other ground, such as: 3. The drawee/acceptor becomes liable on the instrument (i) retroactive from the
i) When presentment for acceptance is made after 12 oclock noon on a date of the first P/A; and (ii) according to the tenor of his acceptance.
Saturday, or on a Sunday or on a holiday which is considered irregular, but 4. It must not express that the drawee will perform his promise by any other
the drawee refused to accept for some other reason. means than payment of money.
5. The Acceptance is incomplete and not valid unless delivered or communicated
Note: It is still necessary that the proper Notice of Dishonor by non-acceptance be given to the holder.
to the parties secondarily liable Note: If the acceptance is not communicated, it will be deemed a
constructive acceptance.
VI. DISHONOR BY NON-ACCEPTANCE
If you have not communicated your acceptance, it can be withdrawn as Effect: they become liable to the holder if the drawee/acceptor
long as the holder has not yet attained knowledge of your acceptance. dishonors the bill by non-payment
III. HOW MADE ii) Disagree to the qualified acceptance and MUST notify the holder of their
dissent within a reasonable time after notice, otherwise they will be
i. On the face of the bill by writing the word accepted and signed by deemed to have given their assent.
the drawee
ii. On a separate paper other than the bill itself Failure of the holder to give notice by the holder of the acceptance of drawees qualified
iii. Separately even before the bill itself is drawn. acceptance to the PSL will discharge the PSL from their liability.
Note: If the instrument is qualified as to time, or qualified conditionally, locally, partially, By : The holder or his authorized representative.
etc. the holder may treat the instrument as dishonored because acceptance, as a rule, To :
must be unconditional. However, the holder must communicate his dissent within a a) the party primarily liable on the instrument, or
reasonable time. b) if he is absent or inaccessible, to any person found at the place where the
presentment is made.
V. RIGHTS OF PARTIES TO QUALIFIED ACCEPTANCE At : the date of maturity. If the instrument is payable on demand,
presentment for payment must be made
a) The drawee he may or may not accept the bill drawn against him, but if he a) Within a reasonable time after issue in the case of Promissory Note, and
accepts it, he may impose any condition on his acceptance and he becomes b) Within a reasonable time after the last indorsement or negotiation, if it is a Bill
liable according to the tenor of his acceptance. of Exchange.
b) The holder has the right to demand a general or unqualified acceptance, and
if the drawee insists in making a qualified acceptance, the holder: Note: According to usual banking practice, If the instrument is a check, presentment for
i) May treat the bill as dishonored and then give a Notice of Dishonor by non- payment must be made six months from the date of the issuance of the check or 180
acceptance to PSL; or days, otherwise, it will be deemed a stale check.
ii) May accept the qualified acceptance, but MUST immediately notify the
PSL of such qualified acceptance. When : At a reasonable hour on a business day. If maturity date falls on a
c) The parties secondarily liable upon receipt of the holders notice (as Saturday, Sunday or holiday, presentment must be made within a reasonable hour on
mentioned in the foregoing) the next following business day. If the instrument is payable on demand, presentment
i) Expressly give their assent to the qualified acceptance may be made until 12:00 noon Saturday, at the option of the holder.
the personal representative cannot be found, presentment for payment is
Note: If place of payment is a bank, presentment for payment must be made within excused.
regular banking hours. If payor has no funds in the bank, presentment before the bank Or if there is no such personal representative, to the estate of the
closes is sufficient. deceased.
RATIO: to give the person making payment the opportunity to make his deposit
2. Presentment to persons liable as partners
And : Includes the presentation or exhibition of the negotiable instrument a) To ALL of the joint debtors;
to the PPL for verification purposes. b) If one joint debtor dies before maturity, presentment must be made to the
surviving joint debtors;
Note: If the PPL pays the sum payable, the instrument is discharged and must be c) If there is a place of payment specified, presentment must be made to ALL joint
surrendered to the PPL. debtors at such specified place of payment
XPN: One of the joint debtors is duly authorized to accept the
Effects of the foregoing: presentment for all of them
The holder need not make a presentment for payment to charge the party primarily
liable because he can sue the latter directly in case of non-payment. However, the effect IV. WHEN EXCUSED
of such non-presentment for payment will discharge all the parties secondarily liable
inasmuch as their liability is premised on the dishonor of the instrument by non- 1. For both PN and BE:
payment and the corresponding Notice of Dishonor given to them.
a) Where after the exercise of reasonable diligence presentment as required by
III. MANNER OF PRESENTMENT this Act cannot be made;
b) Where the drawee is a fictitious person;
1. Presentment where principal debtor is dead c) Waiver of presentment, express or implied.
If PPL is dead before maturity of the instrument and a place of payment is 2. For PN:
specified, holder must make presentment at the specified place.
If no place of payment specified, presentment must be made to the personal Presentment for payment is not required in order to charge an indorser or payee where
representative of the deceased PPL. If after reasonable diligence to locate him, the instrument was made or accepted for his accommodation and he has no reason to
expect that the instrument will be paid if presented. Presentment for payment need no When due to fortuitous events or force majeure or events which are not imputable to
longer be made to the accommodation maker. the fault, misconduct or negligence of the holder, he cannot make a presentment for
payment to the party primarily liable on maturity date, the holder is excused for his
failure to make presentment on due date, but he is obliged to make presentment
3. For BE: immediately as soon as the cause of the delay ceases. Otherwise, the PSL will be
discharged.
a) To charge drawer The drawer, through some acts of his, does not expect or
require the drawee or acceptor to pay the instrument, in which case, the VII. WHEN INSTRUMENT CONSIDERED DISHONORED AND ITS EFFECTS
drawer becomes primarily liable on the instrument. Presentment for payment
need not be made to the drawee in order to charge the drawer. The instrument is dishnored by non-payment when:
Examples: when the drawer stops payment of the check he issued, when the a) It is duly presented for payment and payment is refused or cannot be obtained;
drawers bank balance is less than the amount of the check he issued, when or
the drawer commits fraud by issuing a check knowing that he has no funds in b) Presentment is excused and the instrument is overdue and unpaid.
the bank to meet it
b) Waiver of protest A waiver of protest, whether in the case of a foreign bill of Note: In the foregoing cases, Notice of Dishonor by non-payment to PSL is proper. The
exchange or other negotiable instrument, is deemed to be a waiver not only of holder of a negotiable instrument acquires the right of recourse against PSL only after
a formal protest, but also of presentment and notice of dishonor. he has given Notice of Dishonor, either by non-acceptance or non-payment, to all of
c) Once the drawee dishonors the B/E by non-acceptance, presentment for them within 24 hours after the dishonor by the PPL.
payment is no longer necessary to hold the PSL liable. Effect of failure: PSL will be automatically discharged
VI. DELAY, WHEN EXCUSED Payment to a person other than the holder is at the risk of the party so paying if the
person was not authorized by the holder to receive payment. It is not a payment in due
course.
3) By any of the Parties secondarily liable who may be compelled to pay the holder
a PSL who received NoD from the holder may, in turn, give NoD to all the PSL
3. It must be made in good faith and without notice that the title of the holder is prior to him within 24 hours after he receives the Notice from the Holder.
defective. Note: The NoD given by the PSL inures to the benefit of the holder. The PSL cannot give
notice to subsequent parties, they are deemed discharged.
Notes: 4) By any party in behalf of the PSL mentioned in #3 above.
a) It is the party making the payment who must be in good faith Q: A, maker, issued a PN in favor of B, who negotiated it to C, C to D, then D to E. E
b) Payment by a maker of the note before maturity date does not constitute presented the instrument for payment to A, however, A refused to pay on the ground of
payment in due course as to discharge the instrument, but rather it gives the insolvency. To whom shall E give the notice of dishonor?
maker the right to re-negotiate it to new parties but not to subsequent parties. A: E must furnish every party secondarily liable a notice of dishonor.
c) Payment by PPL may be made to the authorized representative of the holder
as to discharge the instrument. While possession of the instrument by the Q: To whom may a NoD be given?
maker is prima facie evidence of payment made by him, such is controvertible A:
when the facts show that surrender of the instrument to the maker is without a. In general Notice of dishonor may be given either to the party secondarily
authority liable himself or to his authorized agent or representative. There is sufficient
service of NoD:
DISHONOR 1) If made at the PSLs place of business to the secretary, or in-charge or
clerk.
Q: When is an instrument deemed dishonored? 2) If made at the PSLs residence or domicile to the wife, any of the children
A: The instrument is dishonored by non-payment when: or to any other member of his household.
a) It is duly presented for payment and payment is refused or cannot be obtained;
or b. If given by agent If the negotiable instrument is dishonored in the hands of
b) Presentment is excused and the instrument is overdue and unpaid. an Agent, the latter may give NoD to:
The instrument is dishonored by non-acceptance when: 1) All the PSL in his own name, or on behalf of his principal, or
a. When it is duly presented for acceptance, and such an acceptance as 2) His principcal, as if the Agent had been an independent holder.
prescribed by this Act is refused or cannot be obtained; or The principal may, in turn, give NoD to the PSL within 24 hours after receipt of
b. When presentment for acceptance is excused, and the bill is not accepted. his Agents notice.
c. If part is dead
Q: If the instrument is for P1,000 and the drawee accepts it only for P800, is the
instrument deemed dishonored? a) When the holder or the party giving notice knows that a party secondarily liable
A: If there is a qualified acceptance, be it local, qualified as to time, and the like, the is dead, he must give notice of dishonor to:
holder may treat the instrument as dishonored. 1) The legal representative of the deceased PSL, if there is one and can be
found; or
Q: Who may give a notice of dishonor? 2) The last known residence or place of business of the deceased PSL, if there
A: Parties who may give NoD: is no legal representative.
1) The holder himself must give notice to all PSL within 24 hours after the b) When the holder or the party giving notice has no knowledge of the death of
dishonor. the PSL, NoD sent to the deceased PSLs last know residence or place of
2) By another party in behalf of the holder may be the holders agent or business is sufficient.
authorized representative, or a third party.
d. To partners
If the instrument is a partnership liability, the holder or the party giving notice of Q: May a NoD be dispensed with?
dishonor may, under the principle that partners are mutual agents of each other, give A:
Notice to: 1) Waiver of Notice NoD may be waived, either before the time of giving notice
a) Any one of the partners even though there has been a dissolution; or has arrived or after the omission to give due notice, and the waiver, may be
b) To any of the surviving partners if one partner is dead. expressed or implied.
Notice to one partner is sufficient notice to the Partnership even if the notified partners Waiver, defined: It is the voluntary giving-up of a known or established right.
fails to inform the Partnership. Waiver may be either express or implied. An express waiver may be made on
the instrument at the time it was made or indorsed. An implied waiver may be
e. To joint parties inferred from the acts, declarations or silence of the persons bound to receive
notice.
If the parties secondarily liable are joint parties, then NoD must be given to all of them Where the waiver is embodied in the instrument itself, it is binding upon all
unless one is authorized by the others to receive the Notice for all of them. parties; but where it is written above the signature of an indorser, it binds him
only.
f. To bankrupt Example: Notice of Dishonor is hereby waived. Sgd. A
NoD to a PSL who is judicially adjudged insolvent or who may have made an assignment This is a general waiver which will be binding on all parties.
for the benefit of his Creditors, may be given to: Example: B indorsed the PN to C as follows: Pay to C, Notice of Dishonor is hereby
1) The insolvent PSL himself, or waved. Sgd. A
2) The trustee or assignee. The waiver made by B is binding on him alone, and not applicable to all
subsequent indorsers.
Q: What is the purpose of the NoD? Waiver of Notice may be made either: (1) before the time of giving notice, or
A: To preserve a holders right of recourse against the parties secondarily liable. (2) after the omission to give due notice.
Q: What should it contain? 2) Where notice is dispensed with when, after the exercise of reasonable
A: A Notice of Dishonor, either by non-acceptance or non-payment, must conform with diligence:
the following requirements:
1) It may be made orally or in writing. i) It cannot be given to the parties secondarily liable as when it
Note: Notice may be given in writing although unsigned by the party giving the Notice, becomes impossible to contact the parties due perhaps to force
such as a telegram, provided it contains all the necessary information. The written majeure such as pestilence, contagious disease or any other
notice may be supplemented and validated by verbal communication. quarantine restrictions prevailing in the area where the parties reside,
2) The Notice must sufficiently describe and identify the instrument. or
3) The Notice must state that the instrument had been presented for acceptance ii) It does not reach the parties sought to be charged as when, through
or payment, and was subsequently dishonored. miscarriage in the mails, the Notice did not reach the PSL. They are
Note: A mere statement that the instrument was payable and due without indicating deemed bound however, if it can be proved that the Notice was
that it was presented for payment and dishonored, is not sufficient notice. properly addressed and deposited in the post office within the
4) The Notice must state that the holder is looking forward to the PSL addressed prescribed period.
to pay the instrument.
5) Notice of Dishonor may be delivered to all the parties secondarily liable 3) Notice of non-payment where acceptance refused where due notice of
personally or by mail. dishonor by non-acceptance has been given, notice of a subsequent dishonor
by non-payment is necessary, unless in the meantime the instrument has been
Any misdescription of the instrument, as to name of parties, maturity date, etc., will not accepted.
vitiate the Notice unless it misleads the PSL addressed.
Q: Will payment by a party secondarily liable discharge the instrument? Q: Is the instrument discharged if payment is made by the accommodation party?
A: No because payment must be made by the principal debtor. A: Only payment by the accommodated party discharges the instrument.
Payment to a person other than the holder is at the risk of the party so paying if the Q: Renunciation, will it discharge the instrument?
person was not authorized by the holder to receive payment. It is not a payment in due A: The holder may expressly renounce his rights against any party to the instrument
course. before, at, or after its maturity. An absolute and unconditional renunciation of his rights
against the principal debtor made at or after the maturity of the instrument discharges
the instrument. But a renunciation does not affect the rights of a holder in due course
3. It must be made in good faith and without notice that the title of the holder is without notice. A renunciation must be in writing unless the instrument is delivered up
defective. to the person primarily liable thereon.