San Beda College of Law

1
MEMORY AID IN COMMERCIAL LAW
NEGOTIABLE INSTRUMENTS LAW (NIL)
(Act No. 2031, effective June 2, 1911)

I. GENERAL substitute for money.

CONCEPTS (Firestone Tire vs. CA,
353
NEGOTIABLE INSTRUMENT SCRA 601)
(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
(HDC) 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,
2002 ed.)
1. To supplement the currency of
the government.
2. To substitute for money
and increase the purchasing
medium.
 Legal tender – That kind 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.
However, a check that has been cleared
and credited to the account of the
creditor shall be equivalent to delivery to
the creditor of cash. (Sec. 60, NCBA)
Features: (Reviewer on
Commercial
Law, Professors Sundiang and
Aquino)
1. Negotiability – That
attribute or property whereby a
bill or note or check 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.
 The essence of
negotiability which
characterizes a negotiable
paper as a credit instrument
lies in its freedom to
circulate freely as a
COMMERCIAL LAW COMMITTEE
 CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos  EDP: Beatrix I. Ramos 
SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)
 San Beda College of Law
2
2. Accumulation of  The NIL was enacted for the purpose
Secondary Contracts – Secondary of facilitating, not hindering or
contracts are picked up and hampering transactions in commercial
carried along with NI as they are paper. Thus, the statute should not be
negotiated from one person to tampered with haphazardly or lightly.
another; or in the course of Nor should it be brushed aside in order to
negotiation of negotiable meet the necessities in a single case.
instruments, a series of juridical (Michael Osmeña vs. Citibank, G.R. No.
ties between the parties thereto 141278, March 23, 2004 Callejo J.)
arise either by law or by privity.
Kinds of
Applicabilit NI
y: 1. PROMISSORY NOTE
 General Rule: The provisions of the (PN)
NIL are not applicable if the instrument  An unconditional promise in writing
involved is not negotiable. by one person to another signed by
 Exception: In the case of Borromeo the maker engaging to pay on demand or
vs. Amancio Sun, 317 SCRA 176, the SC at a fixed or determinable future time,
applied Section 14 of the NIL by analogy a sum certain in money to order or to
in a case involving a Deed of Assignment bearer. (Sec. 184)
of shares which was signed in blank to
facilitate future assignment of the same 2. BILL OF EXCHANGE
shares. The SC observed that the (BE)
situation is similar to Section 14 where  An unconditional order in
the blanks in an instrument may be filled writing addressed by one person to
up by the holder, the signing in blank another, signed by the person giving it,
being with the assumed authority to do requiring the person to whom it is
so. addressed to pay on demand or at a
fixed or determinable

COMMERCIAL LAW COMMITTEE

 CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos  EDP: Beatrix I. Ramos 
SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)
 San Beda College of Law
1
MEMORY AID IN COMMERCIAL LAW

future time a sum certain in money to DISTINCTIONS

order or to bearer. (Sec. 126) PROMISSORY BILL OF
NOTE EXCHANGE
Unconditional Unconditional order
CHECK - A bill of exchange drawn on a promise
bank payable on demand. (Sec. 185). It is Involves 2 parties Involves 3 parties
the most common form of bill of Maker is primarily Drawer is only
liable secondarily liable
exchange.
Only one Two presentments:
presentment: for for acceptance and
OTHER FORMS OF NI payment for payment
1. Certificate of deposit issued by
banks, payable to the depositor or his NEGOTIABLE NON-NEGOTIABLE
order, or to bearer INSTRUMENTS INSTRUMENTS
2. Trade acceptance Only NI are Application of the
3. Bonds, which are in the nature of governed by the NIL. NIL is only by
promissory notes analogy.
4. Drafts, which are bills of Transferable by Transferable only by
exchange drawn by one bank upon negotiation or by assignment
another assignment.
5. Debenture A transferee can be A transferee remains
 All of these must comply with Sec. a HDC if all the to be an assignee
requirements are and can never be a
1, NIL.
complied with HDC
Note: Letters of credit are not negotiable
A holder in due All defenses
because they are issued to a course takes the NI available to prior
specified person. free from personal parties may be
defenses raised against the
Instances when a BE may be treated last transferee
as a PN Requires clean title, Transferee acquires
a. The drawer and the drawee one that is free from a derivative title
are the same person; or any infirmities in only. (Notes and
b. Drawee is a fictitious person; or the instrument and Cases on Banks,
defects of title of Negotiable
c. Drawee does not have the prior transferors. Instruments and
capacity to contract. (Sec. 130) (Notes and Cases on other Commercial
d. Where the bill is drawn on a Banks, Negotiable Documents, Timoteo
person who is legally absent; Instruments and B. Aquino)
e. Where the bill is ambiguous (Sec. other Commercial
17[e]) Documents,
Timoteo B.
Parties to a NI Aquino)
Solvency of debtor is Solvency of debtor is
1. Promissory Note in the sense not guaranteed under
guaranteed by the Art. 1628 of the NCC
a. Maker – one who makes indorsers because unless expressly
promise and signs the instrument they engage that the stipulated. (Notes and
b. Payee – party to whom the instrument will be Cases on Banks,
promise is made or the accepted, paid or Negotiable
instrument is payable. both and that they Instruments and other
2. Bill of Exchange will pay if the Commercial
instrument is Documents, Timoteo
a. Drawer – one who gives the order dishonored. (Notes B. Aquino)
to pay money to a third party and Cases on Banks,
b. Drawee – person to whom the Negotiable
bill is addressed and who is Instruments and
ordered to pay. He becomes an other Commercial
Documents, Timoteo
acceptor when he indicates his
B. Aquino)
willingness to pay the bill
c. Payee – party in whose favor the
bill is drawn or is payable.
 If originally payable to bearer, it will always
remain so payable regardless of manner
of indorsement.

NEGOTIABLE NEGOTIABLE
INSTRUMENT DOCUMENT OF
TITLE A holder in due course may obtain title
Subject is money Subject is goods better than that of the one who
negotiated the instrument to him.
Is itself the The document is a
property with value mere evidence of
title – the things of
value being the goods
mentioned in the
document
ASSIGNMENT
Has all the Does not have these Pertains to contracts in general
requisites of Sec. 1 requisites
of NIL Holder takes the
A holder of NI may Intermediate parties instrument subject to the defenses obtaining among the original part
run after the are not secondarily
secondary parties liable if the
for payment if document is
dishonored by the dishonored.
Governed by the Civil
party primarily
liable. Code
A holder, if a A holder can never
holder in due acquire rights to the II. NEGOTIABILITY
course, may document better Form of NI: (Sec. 1) Key: WUPOA
acquire rights over than his 1. Must be in Writing and signed by
the instrument predecessors.
the maker or drawer;
better than his
predecessors. 2. Must contain an
Unconditional promise or order to
pay a sum certain
in money;
BILLOF EXCHANGE CHECK 3. Must be Payable on demand, or at
Not necessarily It is necessary that a fixed or determinable future time;
drawn on a deposit. a check be drawn 4. Must be payable to Order or to
The drawee need not on a bank deposit. bearer; and
be a bank Otherwise, there
would be fraud.
5. When the instrument is addressed
to a drawee, he must be named
Death of a drawer of Death of the or
a BOE, with the drawer of a check, otherwise indicated therein with
knowledge of the with the knowledge
reasonable certainty.
bank, does not of the bank,
revoke the authority revokes the
of the drawee to authority of the Determination of
pay. banker to pay. negotiability:
May be presented for Must be presented a. Whole instrument
payment within for payment within b. What appears on the face of the
reasonable time after a reasonable time instrument
its last negotiation. after its issue. c. Requisites enumerated in Sec.1 of
the
NIL
May be payable on Always payable on
demand or at a fixed demand
d. Should contain words or terms of
or determinable negotiability. (Gopenco, Commercial Law
future time Bar Reviewer, cited in Aquino, p. 23)

NEGOTIABLE NEGOTIABLE In determining the negotiability of an

INSTRUMENT WAREHOUSE instrument, the instrument in its entirety
RECEIPT and by what appears on its face must be
considered. It must comply with the
requirements of Sec. 1 of the NIL. (Caltex the drawee pays particular fund
Phils. v. CA, 212 SCRA 448) himself from the indicated. Payment is
particular fund subject to the
indicated. condition that the
 The acceptance of a bill of exchange fund is sufficient.
is not important in the determination of Particular fund Particular fund
its negotiability. The nature of indicated is NOT the indicated is the
acceptance is important only on the direct source of direct source of
determination of the kind of liabilities of payment but only the payment.
the parties involved (PBCOM vs. source of
reimbursement.
Aruego, 102 SCRA
530)
Postal money orders are not negotiable
REQUISITES OF instruments. Some of the restrictions
NEGOTIABILITY imposed by postal laws and
a. It must be writing and signed by the regulations are inconsistent with the
maker or drawer character of negotiable instruments.
Any kind of material that (Phil. Education Co. vs. Soriano, 39 SCRA
substitutes paper is sufficient. 587)
With respect to the signature, it
is enough that what the maker or  Treasury warrants are non-
drawer affixed shows his intent to negotiable because there is an indication
authenticate the writing. (Notes and of the fund as the source of payment of
Cases on Banks, Negotiable the disbursement. (Metrobank vs. CA,
Instruments and other Commercial 194
Documents, Timoteo B. Aquino) SCRA 169)
b. Unconditional Promise or Order
to pay a sum certain in money Payable in sum certain in
Unconditional promise or money
order  An instrument is still
 Where the promise or order is negotiable although the amount to
made to depend on a contingent be paid is expressed in currency that
event, it is conditional, and the is not legal tender so long as it is
instrument involved is non-negotiable. expressed in money. (PNB vs. Zulueta,
The happening of the event does not 101 Phil 1071, Sec.6 (e)).
cure the defect.  The certainty is however not
 The unconditional nature of affected although to be paid:
the promise or order is not affected by: a. With interest; or
a) An indication of a particular fund out b. By stated installments; or
of which reimbursement is to be c. By stated installments
made, or a particular account to be with an acceleration clause;
debited with the amount; or d. With exchange; or
b) A statement of the transaction which e. With cost of collection or
gives rise to the instrument attorney’s fees. (Sec. 2)
 Where the promise or order is
subject to the terms and conditions  The dates of each installment must
of the transaction stated, the be fixed or at least determinable and the
instrument is rendered non-negotiable. amount to be paid for each installment.
The NI must be burdened with the  A sum is certain if the amount to
terms and conditions of that be unconditionally paid by the maker or
agreement to destroy its drawee can be determined on the face of
negotiability. (Cesar the instrument and is not affected by the
Villanueva, Commercial Law Review, fact that the exact amount is arrived at
2004 ed.) only after a mathematical computation.
 But an order or promise to pay out of (Notes and Cases on Banks, Negotiable
a particular fund is NOT unconditional. Instruments and other Commercial
(Sec. 3) Documents, Timoteo B. Aquino)

FUND FOR PARTICULAR FUND ACCELERATION INSECURITY EXTENSION

REIMBURSEMENT FOR PAYMENT CLAUSE CLAUSE CLAUSE
Drawee pays the There is only one act-
payee from his own the drawee pays
funds; afterwards, directly from the
 San Beda College of Law
11
MEMORY AID IN COMMERCIAL LAW

A clause that Provisions in Clauses in c. Payable on Demand or at fixed or

renders whole the contract the face of determinable future time
debt due and which the PAYABLE ON PAYABLE AT A
demandable allows the instrument
DEMAND FIXED OR
upon failure of holder to that extend
obligor to accelerate the maturity
DETERMINABLE
comply with payment if dates; FUTURE TIME
certain he deems a. At the a. Where expressed a. At a fixed period
conditions. himself option of to be payable on after date or
insecure. the holder; demand, at sight sight;
b. Extension or on b. On or before a
to a further presentation; fixed or
definite b. Where no period determinable
time at the of payment is future time
option of stated; specified
the maker c. Where issued, therein; or
or acceptor accepted, or indorsed c. On or at a fixed
c. Automa – after maturity (only period after the
tically upon as between occurrence of a
or after a immediate parties). specified event,
specified act (Sec. 7) which is certain to
or event. happen, though the
Instrument is Instrument Instrument time of happening is
still negotiable is rendered is still uncertain. (Sec. 4)
non- negotiable
negotiable (Notes and  If the day and the month, but not
because the Cases on the year of payment is given, it is not
holder’s Banks, negotiable due to its uncertainty.
whim and Negotiable (Pandect of Commercial Law and
caprice Instruments
Jurisprudence, Justice Jose Vitug, 1997
prevail and other
without the Commercial ed.)
fault and Documents,
control of Timoteo B. d. Payable to Order or to Bearer
the maker Aquino) Payable to Order
 The instrument is payable to
order where it is drawn payable to the
EXTENSION EXTENSION UNDER order of a specified person, or to him or
CLAUSE SEC. 120(f) his order. (Sec. 8)
Stated on the face of Agreement binding the  The payee must be named
the instrument holder; or otherwise indicated therein
a. To extend the time with reasonable certainty.
of payment or
b. Postpone the  The instrument may be made
holder’s right to payable to the order of:
enforce the instrument a. A payee who is not the maker,
Parties are bound Binds the person drawer or drawee
because they took the secondarily liable (and b. The drawer or maker
instrument knowing therefore cannot be
c. The drawee
that there is an discharged from
extension clause liabilities if: d. 2 or more payees jointly
a. He consents or e. One or some of several payees
b. Right of recourse is f. The holder of an office for a time
expressly reserved. being
(Notes and Cases on Payable to Bearer
Banks, Negotiable
Instruments and other  The instrument is payable to
Commercial bearer:
Documents, Timoteo a. When it is expressed to be so
B. Aquino) payable; or
b. When it is payable to a person
named therein or to bearer; or
c. When it is payable to the order of a specify the required other than
fictitious or non-existing person, and value given or or in addition to
such fact was known to the person that any
making it so payable; or payment of money,
d. When the name of the payee does value has been the instrument is
not purport to be the name of given; not negotiable.
c. It does not (Sec. 5)
any person; or specify the EXCEPTIONS:
e. When the only or last indorsement place where it a. Authorizes the
is an indorsement in blank. (Sec. 9) is drawn or sale of
where it is collateral
Note: An instrument originally payable to payable; securities on
bearer can be negotiated by mere d. It bears a seal; default;
delivery even if it is indorsed e. It designates a b. Authorizes
especially. If it is originally a BEARER particular kind confession of
instrument, it will always be a BEARER of current judgment on
instrument. money in which default;
payment is to c. Waives
As opposed to an original order be made. (Sec. the benefit of
instrument becoming payable to 6) law
bearer, if the same is indorsed
intended to
specially, it can NO LONGER be protect the
negotiated further by mere delivery, it debtor; or
has to be indorsed. d. Allows
the creditor
 A check that is payable to the order the
of cash is payable to bearer. Reason: The option to
name of the payee does not purport to require
be the name of any person. (Ang Tek Lian something in
vs. CA, 87 Phil. 383) lieu of money.

FICTITIOUS PAYEE RULE

 It is not necessary that the III. INTERPRETATION OF
person referred to in the instrument NEGOTIABLE INSTRUMENTS (Sec.
is really non-existent or fictitious to 17)
make the instrument payable to bearer.
The person to whose order the a. Discrepancy between the amount
instrument is made payable may in fact in figures and that in words – the
be existing but he is till fictitious or words prevail, but if the
non-existent under Sec. words are ambiguous, reference
9(c) of the NIL if the person making it so will be made to the figures to fix
payable does not intend to pay the the amount.
specified persons. (Reviewer on b. Payment for interest is provided
Commercial Law, Professors for – interest runs from the date
Sundiang and Aquino) of the instrument, if undated,
from issue thereof.
e. Identification of c. Instrument undated – consider
Drawee date of issue.
 Applicable only to a bill of d. Conflict between written and
exchange printed provisions – written
 A bill may be addressed to 2 or provisions prevail.
more drawees jointly whether they e. When the instrument is so ambiguous
are partners or not but not to 2 or that there is doubt whether it is
more drawees in the alternative a bill or note, the holder may
or in succession. (Sec. 128) treat it as either at his election;
f. If one signs without indicating in
OMISSIONS & ADDITONAL what capacity he has affixed his
PROVISIONS THAT PROVISONS NOT signature, he is considered an
DO NOT AFFECT AFFECTING indorser.
NEGOTIABILITY NEGOTIABILITY g. If two or more persons sign “We
promise to pay,” their liability
a. It is not dated; GENERAL RULE: If is
b. It does not some other act is
 joint (each liable for his part) but requirements of Section 1;
if they sign “I promise to pay,” and
the liability is solidary (each can 2. The delivery of the complete
be compelled to comply with the instrument by the maker or
entire obligation). (Sec. 17) drawer to the payee or
holder with the intention of
IV. TRANSFER AND NEGOTIATION giving effect to it. (The
Law
INCIDENTS IN THE LIFE OF A NI

(1
Agbayani, 1992 ed.)
a. Issue
b. Negotiation
c. Presentment for acceptance, in certain
kinds of Bills of Exchange
d. Acceptance
h. Dishonor by non-
acceptance
i. Presentment for
payment j. Dishonor by
non-payment k. Notice of
dishonor
l.
Discharge

MODES OF TRANSFER
a. Negotiation – the transfer of the
instrument from one person to
another so as to constitute the
transferee as holder thereof.
(Sec.30)
b. Assignment – The 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.
(Notes and Cases on Banks, Negotiable
Instruments and other Commercial
Documents, Timoteo B. Aquino)
 Assignment may be effected
whether the instrument is negotiable or
non- negotiable. (Sesbreño vs. CA, 222
SCRA
466)

HOW NEGOTIATION TAKES

PLACE
a. Issuance – first delivery of the
instrument complete in form to a person
who takes it as a holder. (Sec. 191)

Ste
ps:
1. Mechanical act of writing the
instrument completely and in
COMMERCIAL Laccordance
AW COMMITTEE
with the
 CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos  EDP: Beatrix I. Ramos 
SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)
 on Negotiable Instruments the affixing one's signature at the:
with Documents of Title, a. Back of the instrument
Hector de Leon, 2000 ed.) or
b. Subsequent Negotiation b. Upon a paper (allonge) attached
1. If payable to bearer, a thereto with or without
negotiable instrument may be additional words specifying the
negotiated by mere delivery. person to whom or to whose
2. If payable to order, a NI may order the instrument is to be
be negotiated by indorsement payable whereby one not only
completed by delivery transfers legal title to the
Note: In both cases, delivery must be paper transferred but likewise
intended to give effect to the transfer of enters into an implied guaranty
instrument. (Development Bank vs. Sima that the instrument will be duly
Wei, 219 SCRA 736) paid (Sec. 31)
c. Incomplete negotiation of order GENERAL RULE: Indorsement must
instrument be of the entire instrument.
Where the holder of an EXCEPTION: Where instrument has
instrument payable to his order transfers been paid in part, it may be indorsed
it for value without indorsing it, the as to the residue. (Sec. 32)
transfer vests in the transferee such title
as the transferor had therein and he also  Kinds of
acquires the right to have the Indorsement:
indorsement of the transferor. But A. SPECIAL – Specifies the person to
for the purpose of determining whom or to whose order, the
whether the transferee is a holder in instrument is to be payable (Sec. 34)
due course, the negotiation takes B. BLANK – Specifies no
effect as of the time when the indorsee:
indorsement is made. (Sec. 49) 1. Instrument becomes
d. Indorsement payable to bearer and may be
 Legal transaction effected by negotiated by delivery (Sec. 34)

COMMERCIAL LAW COMMITTEE

 CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos  EDP: Beatrix I. Ramos 
SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)
 2. May be converted to partners, all must indorse unless
special indorsement by writing authority is given to one. (Sec. 41)
over the signature of indorser in 4. Where a person is under obligation to
blank any contract consistent indorse in a representative capacity, he
with character of indorsement may indorse in such terms as to negative
(Sec. 35) personal liability. (Sec. 44)
C. ABSOLUTE – One by which indorser
binds himself to pay: RENEGOTIATION TO PRIOR PARTIES
1. Upon no other condition (Sec. 50)
than failure of prior parties to do  Where an instrument is
so; negotiated back to a prior party, such
2. Upon due notice to him party may reissue and further
of such failure. negotiate the same. But he is not
D. CONDITIONAL – Right of the entitled to enforce payment thereof
indorsee is made to depend on the against any intervening party to whom
happening of a contingent event. Party he was personally liable. Reason: To
required to pay may disregard the avoid circuitousness of suits.
conditions. (Sec. 39)
E. RESTRICTIVE – An indorsement is STRIKING OUT
restrictive, when it either: INDORSEMENT
a. Prohibits further negotiation  The holder may at any time strike
of the instrument; or out any indorsement which is not
b. Constitutes the indorsee the necessary to his title. The
agent of the indorser; or indorser whose indorsement is
c. Vests the title in the indorsee in struck out, and all indorsers
trust for or to the use of some subsequent to him, are thereby relieved
other persons. But mere absence from liability on the instrument. (Sec.
of words implying power to 48)
negotiate does not make an
indorsement restrictive. (Sec. 36) CONSIDERATION FOR THE ISSUANCE
F. QUALIFIED – Constitutes the AND SUBSEQUENT TRANSFER
indorser a mere assignor of the title to  Every NI is deemed prima facie to
the instrument. (Sec. 38) have been issued for a valuable
 It is made by adding to the consideration. Every person whose
indoser's signature words like "sans signature appears thereon is presumed
recourse,” “without recourse", "indorser to have become a party thereto for
not holder", "at the indorser's own risk", value. (Sec. 24)
etc.  What constitutes
G. JOINT – Indorsement payable to 2 or value:
more persons (Sec. 41) a. An antecedent or pre-existing
H. IRREGULAR – A person who, not debt b. Value previously given
otherwise a party to an instrument, c. Lien arising from contract or by
places thereon his signature in blank operation of law. (Sec. 27)
before delivery (Sec. 64)
V. HOLDERS
 Other rules on
indorsement; HOLDER
1. Negotiation is deemed prima facie to  A payee or endorsee of a bill or
have been effected before the note
instrument is overdue except if the who is in possession of it or the bearer
indorsement bears a date after the thereof. (Sec. 191)
maturity of the instrument. (Sec. 45)
2. Presumed to have been made at the RIGHTS OF HOLDERS IN
place where the instrument is dated GENERAL
except when the place is specified. (Sec. 51)
(Sec. a . May sue thereon in his own
46) name
3. Where an instrument is payable to the b. Payment to him in due course
order of 2 or more payees who are not discharges the instrument
 The only disadvantage of a holder
who is not a holder in due course is
that the negotiable instrument is
subject to
defenses as if it were non- holder in due course. (Sec.53)
negotiable.
(Chan Wan vs. Tan Kim, 109 Phil.
706)

Holder In Due Course

(HDC)
 A holder who has taken the
instrument under the following
conditions: KEY: C O V I
1. Instrument is complete and
regular upon its face;
2. Became a holder before it was
overdue and without notice that
it had been previously dishonored;
3. For value and in good faith;
and
4. At the time he took it, he had no
notice of any infirmity in the
instrument or defect in the title
of the person negotiating it. (Sec. 52)

 Rights of a
HDC:
1. May sue on the instrument in his own
name;
2. May receive payment and if
payment is in due course, the
instrument is discharged;
3. Holds the instrument free from any
defect of title of prior parties
and free from defenses available
to parties among themselves; and
4. May enforce payment of the
instrument for the full amount
thereof against all parties liable
thereon. (Secs. 51 and 57)

 Every holder of a negotiable

instrument is deemed prima facie a
holder in due course. However, this
presumption arises only in favor of a
person who is a holder as defined in
Section 191 of the NIL. The weight of
authority sustains the view that a payee
may be a holder in due course.
Hence, the presumption that he is a
prima facie holder in due course applies
in his favor. (Cely Yang vs. Court of
Appeals, G.R. No.
138074, August 15,
2003)

Holder Not In Due

Course
 One who became a holder of
an instrument without any, some or all
of the requisites under Sec. 52 of the NIL.
 With respect to demand
instruments, if it is negotiated an
unreasonable length of time after its
issue, the holder is deemed not a
GENERAL RULE: Failure to make inquiry and other Commercial Documents,
is not evidence of bad faith. Timoteo B. Aquino)
EXCEPTIONS:
1. Where a holder’s title is defective or SHELTER RULE
suspicious that would compel a  A holder who derives his title
reasonable man to investigate, it cannot through a holder in due course, and
be stated that the payee acquired the who is not himself a party to any fraud
check without the knowledge of said or illegality affecting the instrument,
defect in the holder’s title and for this has all the rights of such former holder
reason the presumption that it is a holder in respect of all prior parties to the
in due course or that it acquired the latter. (Sec. 58)
instrument in good faith does not exist.
(De Ocampo vs. Gatchalian, 3 SCRA 596) ACCOMMODATION
2. Holder to whom cashier’s check is not  A legal arrangement under which
indorsed in due course and negotiated for a person called the accommodation
value is not a holder in due course. party, lends his name and credit to
(Mesina v. IAC) another called the accommodated
 Rights of a holder not in due party, without any consideration.
course: Accommodation Party
1. It can enforce the instrument and sue (AP)
under it in his own name. 
2. Prior parties can avail against him any Requisites:
defense among these prior parties and 1. The accommodation party must
prevent the said holder from collecting in sign as maker, drawer, acceptor, or
whole or in part the amount stated in the indorser;
instrument 2. He must not receive value
Note: If there are no defenses, the therefor;
distinction between a HDC and one who is and
not a HDC is immaterial. (Notes and 3. The purpose is to lend his name or
Cases on Banks, Negotiable Instruments credit. (Sec. 29)
 Note: “without receiving sufficient. (Spouses Eduardo Evangelista
value
therefor,” means without receiving vs. Mercator Finance Corp, G.R. No.
value by virtue of the instrument. 148864, August 21, 2003)
(Clark vs. Sellner, 42 Phil. 384)
 Effects: The person to whom VI. PARTIES WHO ARE LIABLE
the instrument thus executed is
subsequently negotiated has a right of PRIMARY AND WARRANTIES OF
recourse against the accommodation SECONDARY PARTIES
party in spite of the former’s knowledge LIABILITY OF
that no consideration passed between PARTIES
the accommodation and accommodated Makes the parties Impose no direct
parties.
 (Sec.&29)
Rights Legal Position: liable to pay the sum
obligation to pay in
1. AP is generally regarded as a surety certain in money the absence of
stated in the
breach thereof. In
instrument. case of breach, the
for the party accommodated;
person who
2. When AP makes payment to holder of breached the same
the note, he has the right to sue the may either be
accommodated party for liable or barred
reimbursement. (Agro from asserting a
Conglomerates, Inc. vs. CA, 348 SCRA particular defense.
450) Conditioned on Does not require
 Liability: Liable on the instrument presentment and presentment and
to a holder for value notwithstanding notice of dishonor notice of dishonor.
(Campos and Lopez- (Campos and
such holder at the time of the taking
Campos, Negotiable Lopez-Campos,
of the instrument knew him to be Instruments Law, Negotiable
only an accommodation party. Hence, 1994 ed.) Instruments Law,
As regards, an AP, the 4th condition, 1994 ed.)
i.e., lack of notice of infirmity in the
instrument or defect in the title of 1. Primarily Liable (Sec. 60 and
the persons negotiating it, has no 62, NIL)
application. (Stelco Marketing Corp. vs. MAKER ACCEPTOR OR
Court of Appeals, 210 DRAWEE
SCRA 51) A. Engages to pay A. Engages to pay
 Rights of APs as against each according to the according to the
other: May demand contribution from tenor of the tenor of his
his co- accommodation party instrument; and acceptance;
without first directing his action B. Admits the B. Admits the
against the principal debtor provided: existence of the existence of the
payee and his drawer, the
a. He made the payment by capacity to indorse. genuineness of his
virtue of judicial demand; or signature and his
b. The principal debtor is insolvent. capacity and
 The relation between an authority to draw
accommodation party is, in effect, one of the instrument; and
principal and surety – the accommodation C. Admits the
party being the surety. It is a settled rule existence of the
that a surety is bound equally and payee and his
capacity to indorse.
absolutely with the principal and is
deemed an original promissory and  A bill of itself
debtor from the beginning. The liability does not operate as
is immediate and direct. (Romeo Garcia an assignment of
vs. Dionisio Llamas, G.R. No. 154127, funds in the hands
December 8, 2003) of the drawee
 Well-entrenched is the rule that the available for the
consideration necessary to support a payment thereof
and the drawee is
surety obligation need not pass directly
not liable unless
to the surety, a consideration need not and until he
pass directly to the surety, a
consideration moving to the principal
alone being
 accepts the same QUALIFIED PERSON
(Sec.127) INDORSER NEGOTIATING BY
DELIVERY
Every person A. Warranties same
2. Secondarily Liable (Sec. 61, 64 and negotiating as those of
66, NIL) instrument by qualified indorsers;
DRAWER GENERAL IRREGULAR delivery or by a and
INDORSER INDORSER qualified B. Warranties
A. Admits A. Warrants A person, endorsement extend to
the all not warrants that: immediate
existence of subsequent otherwise a A. Instrument is transferee only.
the payee HDC - party to an genuine and in all
and his a. That the instrument, respects what it
capacity to instrument is places his purports to be;
indorse; genuine and signature B. He has good title
B. Engages in all respect thereon in to it;
that the what it C. All prior parties
blank
purports to had capacity to
instrument before
be contract;
will be delivery.
b. He has D. He has no
accepted or good title to (Sec. 64)
paid by the A. If knowledge of any
it;
party instrument fact which would
c. All prior
primarily payable to impair the validity
parties had
liable; and the order of of the instrument or
capacity to
C. Engages contract render it valueless.
a 3rd
that if the d. The person, he
instrument is instrument is, is liable to
dishonored at the time the payee
and proper of endorse-
and
proceedings ment, valid PERSON NEGOTIATING BY MERE DELIVERY OR BY QUALI
subsequent
are brought, and
subsisting.
parties. INDORSEMENT
he will pay B. If
to the party B. Engages
that the instrument
entitled to
instrument payable to
be paid.
will be order of
No secondary liability; but is liable for breach of warranty
accepted or maker or
paid, or both, drawer or
as the case to bearer,
may be, he is liable
Warrants that he has
according to to all
its tenor; and
no knowledge of any fact which would impair the validity
parties
C. If the of the instrument or render it valueless
subsequent
instrument is to the
dishonored maker or
and drawer.
necessary C. If he
proceedings
signs for
on dishonor
accommo-
be duly
taken, he will
dation of ORDER OF
pay to the the payee, LIABILITY
party entitled he is liable  There is no order of liability among
to be paid. to all the indorsers as against the holder. He is
parties
free to choose to recover from any
subsequent
to the indorser in case of dishonor of the
payee. instrument. (Notes and Cases on
Banks, Negotiable Instruments and
other Commercial Documents,
3. Limited Liability (Sec. 65; Metropol Timoteo B. Aquino)
Financing v. Sambok, 120 SCRA 864)  As respect one another, indorsers
are liable prima facie in the order in
which they indorse unless the contrary is
proven (Sec.68)
GENERAL RULE: One whose signature agent; authority);
does not appear on the instrument shall 10. Execution of 13. Ultra vires acts of
not be liable thereon. instrument corporations where the
EXCEPTIONS between public corporation has the
enemies; power to issue
:
11. Illegality – if negotiable paper but
1. The principal who signs through an declared void the issuance was not
agent is liable; for any purpose authorized for the
2. The forger is liable; 12. Forgery. particular purpose for
3. One who indorses in a separate which it was issued;
instrument (allonge) or where an 14. Want of authority
acceptance is written on a separate of agent where he has
paper is liable; apparent authority;
4. One who signs his assumed or trade 15. Insanity where
there is no notice of
name is liable; and
insanity on the part of
5. A person negotiating by delivery (as in the one contracting
the case of a bearer instrument) is with the insane person;
liable to his immediate indorsee. and
16. Illegality of
VII.
REAL DEFENSES
DEFENSES PERSONAL contract where the
DEFENSES form or consideration
Those that attach Those which are is illegal.
to the instrument available only against a
itself and are person not a holder in EFFECTS OF CERTAIN
available against all due course or a DEFENSES A. MINORITY
holders, whether in subsequent holder who  Negotiation by a minor passes title
due course or not, stands in privity with
to the instrument. (Sec.22). But the
but only by the him. (a.k.a. equitable
parties entitled to defenses) minor is not liable and the defense is
raise them. (a.k.a personal to him
absolute defenses)
1. Material 1. Absence or failure of B. ULTRA VIRES ACTS
Alteration; consideration, partial  A real defense but the
2. Want of or total; negotiation passes title to the
delivery of 2. Want of delivery of instrument. (Sec. 22) Note: A
incomplete complete instrument; corporation cannot act as an
instrument; 3. Insertion of wrong accommodation party. The issuance
3. Duress date in an instrument;
amounting to 4. Filling up of blank
or indorsement of negotiable instrument
forgery; contrary to authority by a corporation without consideration
4. Fraud in given or not within and for the accommodation of
factum or reasonable time; another is ultra vires. (Crisologo-Jose
fraud in esse 5. Fraud in v. CA, 117
contractus; inducement; SCRA 594)
5. Minority 6. Acquisition of
(available to instrument by force, C. INCOMPLETE AND UNDELIVERED
the minor duress, or fear; NI (Sec. 15)
only); 7. Acquisition of the
6. Marriage in the instrument by unlawful  If completed and negotiated
case of a wife; means; without authority, not a valid contract
7. Insanity where 8. Acquisition of the against a person who has signed before
the insane instrument for an delivery of the contract even in the
person has a illegal consideration; hands of HDC but subsequent indorsers
guardian 9. Negotiation in are liable. This is a real defense.
appointed by breach of faith; D. INCOMPLETE BUT DELIVERED NI
the court; 10. Negotiation under
8. Ultra vires acts
(Sec.
circumstances that
of a amount to fraud; 14)
corporation 11. Mistake; 1. Holder has prima facie authority
9. Want of 12. Intoxication to fill up the instrument.
authority of (according to better 2. The instrument must be filled up
COMMERCIAL LAW COMMITTEE strictly in accordance with the
 CHAIRPERSON: Garny Luisa Alegre  authority
ASST. CHAIRPERSON:Jayson O’S Ramos given
 EDP: andI.within
Beatrix Ramos reasonable
SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario
(Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula
 time

 CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos  EDP: Beatrix I. Ramos 
SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del
Rosario
(Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula
3. HDC may enforce the instrument as if COMMERCIAL LAW COMMITTEE
filled up according to no. 2.

E. COMPLETE BUT UNDELIVERED NI

(Sec.
16)
1. Between immediate parties and
those who are similarly situated,
delivery must be coupled with the
intention of transferring title to the
instrument.
2. As to HDC, it is conclusively
presumed that there was valid
delivery; and
3. As against an immediate party
and remote party who is not a HDC,
presumption of a valid and
intentional delivery is rebuttable.

F. FRAUD
FRAUD IN FACTUM FRAUD IN
OR FRAUD IN ESSES
INDUCEMENT CONTRACTUS
OR FRAUD IN
EXECUTION
The person who signs The person is
the instrument induced to sign an
intends to sign the instrument not
same as a NI but was knowing its
induced by fraud character as a bill
or note

G. ABSENCE OR FAILURE OF
CONSIDERATION (Sec. 28)
 Personal defense to the
prejudiced party and available against
any person not HDC.

H. PRESCRIPTION
 Refers to extinctive prescription
and may be raised even against a HDC.
Under the Civil Code, 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 liability
of the parties in any way.

Effects:
1. Alteration by a party – Avoids the
instrument except as against
the party who made, authorized, or
assented to the alteration and
subsequent indorsers.
 However, if an altered
instrument is negotiated to a HDC, 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
making the alteration. The intent of
the law is to preserve the integrity of
the negotiable instruments.
2. Alteration by a stranger (spoliation)-
the effect is the same as where the
alteration is made by a party which a
HDC can recover on the original tenor
of the instrument. (Sec. 124)
 Changes in the following
constitute material alterations:
a. Date;
b. Sum payable, either for principal
or interest;
c. Time or place of
payment;
d. Number or relations of the
parties;
e. Medium or currency in which
payment is to be made;
f. That which adds a place of
payment where no place of
payment is specified; and
g. Any other change or addition
which alters the effect of the
instrument in any respect. (Sec.
125)
 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. (PNB vs. CA, 256 SCRA
491)
 Comparison of sections 14, 15 and 16 of the negotiable instruments law

Section 14 Section 15 Section 16

Undelivered
Delivery Delivered Undelivered Note: Delivery may be made for a
conditional or for a special purpose
only and not for the purpose of
transferring the property in the
instrument

Completeness 1. Wanting in any material 1. Blank paper with Mechanically incomplete Mechanically complete
particular signature

Authority of person 1. Prima facie authority to 1.Signature operates as a No authority to complete and/or May negotiate if delivered to him by
in possession complete it by filling up prima facie authority to negotiate instrument or under the authority of the party
the blanks therein fill it up as such for any making, indorsing, drawing or
amount accepting, as the case may be.

When enforceable If filled up strictly in accordance with authority given Not enforceable When delivery is made by or under
and within a reasonable time authority of the party making,
indorsing, drawing or accepting, as the
case may be.

Kind of defense Personal Real Personal

Rights of holder 1. If HDC, he can enforce the instrument as completed
against parties prior or subsequent to the
completion
2. If not a HDC, 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.
However, the invalidity of the
instrument is only with reference to
parties whose signatures appear on
the instrument after delivery, the
instrument is valid.
Can enforce the instrument.
Note: Where the instrument is in the
hands of a HDC, a valid delivery
thereof by all parties prior to him so
as to make them liable to him is
conclusively presumed. Where 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.
J. FORGERY liable.
 Counterfeit making or Payee’s a. Maker and a. Maker is
fraudulent alteration of any writing, signature payee not liable.
which may consist of: forged liable. (Indorsement
1. Signing of another’s name with intent b. Indorsers is not
subsequent to necessary to
to defraud; or
forgery are title and the
2. Alteration of an instrument in the liable. maker engages
name, amount, name of payee, c. Party who to pay holder)
etc. made the b. Party who
with intent to defraud. (1 Agbayani, forgery is made the
1992 ed.) liable. forgery is
liable
 GENERAL RULE: When a signature is
Indorser’s a. Maker, a. Maker is
forged or made without the authority of signature payee and liable.
the person, the signature (not instrument forged indorser whose (indorsement
itself and the genuine signatures) is signature was is not
wholly inoperative forged is not necessary to
 Legal liable. title and the
Effects: b. Indorsers maker engages
1. No right to retain the instrument subsequent to to pay the
forgery are holder)
2. To give a discharge therefore
liable. b. Indorser
3. To enforce payment thereof (Because of whose
against any party thereto, can be their signature was
acquired through or under such warranties) forged not
signature c. Party who liable to one
EXCEPTION: Unless the party against made the who is not a
whom it is sought to enforce such right is forgery is HDC provided
precluded from setting up the forgery or liable. the instrument
want of authority. (Sec. 23) is
mechanically
complete
Persons precluded from setting up before the
defense of forgery forgery.
1. Those who warrant or admit the c. Party who
genuineness of the signature in made the
question. This includes indorsers, forgery is
persons negotiating by delivery liable.
and acceptors.
2. Those who, by their acts, silence, or
negligence, are estopped from
setting up the defense of forgery. Order Bearer
B. Bills of Exchange
Instrument Instrument
RULES ON FORGERY Drawer’s a. Drawer is a. Drawer is not
A. Promissory Notes signature not liable liable.
forged because he b. Drawee is
Order Bearer was never a liable if it paid.
Instrument Instrument party to the Drawee cannot
Maker’s a. Maker is not a. Maker is not instrument. recover from
signature liable because liable. b. Drawee is the collecting
forged he never b. Party who liable if it paid bank.
became a party made the (no recourse to c. Party who
to the forgery is drawer) made the
instrument. liable. because he forgery is
b. Indorsers c. Indorsers admitted the liable.
subsequent to may be made genuiness of
forgery are liable to those the drawer’s
liable because persons who signature.
of their obtain title Drawee cannot
warranties. through their recover from
c. Party who indorsements.
the made the
forgery is
 the collecting A. STEPS TO CHARGE THE PARTIES
bank because LIABLE
there is no a. Primary
privity Liability
between the
collecting bank The unconditional promise attaches
and the the moment the maker makes the
drawer. The instrument while the acceptor’s
latter does not assent to the unconditional order
give any attaches the moment he accepts the
warranty instrument. No further act is necessary
regarding the in order for the liability to accrue.
signature of Presentment for payment is all that is
the drawer.
necessary. (Notes and Cases on Banks,
(Associated
Bank vs. CA) Negotiable Instruments and other
c. Indorsers Commercial Documents, Timoteo B.
subsequent to Aquino)
forgery liable b. Secondary
(such as Liability
collecting bank 1. Steps in promissory note
or last (indorsers)
endorser) a. Presentment for payment
d. Party who
to the maker.
made the
forgery is b. Notice of dishonor should
liable be given, if dishonored by
Payee’s a. Drawer, a. Drawer is non-payment.
signature drawee and liable 2. Steps in bill of exchange
forged payee not b. Drawee is a. Presentment for acceptance in
liable. liable the following instances:
b. Indorsers c. Payee is not a. Where the bill is payable
subsequent to liable after sight, or when it is
forgery are d. Collecting necessary in order to fix
liable. (such as bank is liable
the maturity of the
collecting because of
bank) warranty instrument;
c. Party who e. Party who b. Where the bill expressly
made the made the stipulates that it shall be
forgery is forgery is liable presented for
liable acceptance;
Indorser’s a. Drawer, a. Drawer is c. Where the bill is drawn
signature payee and liable. payable elsewhere than
forged indorser whose (indorsement
signature was not necessary to
at the residence or place
forged not title) of business of the
liable. b. Drawee is drawee. (Sec. 143)
b. Drawee is liable. Note: In all the above cases, the holder
liable if it paid. c. Indorser must either present the bill for
c. Indorsers whose signature acceptance or negotiate it within a
subsequent to was forged is
forgery are liable because
reasonable time; otherwise, the drawer
liable. (such as indorsement is and all indorsers are discharged.
collecting bank) not necessary to (Sec.
d. Party who title. 144)
made the d. Party who 2. If dishonored by non-
forgery is made the acceptance;
liable. forgery is liable.
a. Notice of dishonor given
to drawer and indorsers.
b. Protest in case of a
VIII. ENFORCEMENT OF LIABILITY
foreign bill.
3. If bill is accepted:
a. Presentment for payment to
the acceptor.
4. If dishonored upon presentment for
payment
 a. Notice of dishonor to persons business or residence. (Sec. 73)
secondarily liable.  When not
b. Protest for dishonor by required:
non- payment in case of foreign
bill.

B. PRESENTMENT
 The production of a BE to the
drawee for his acceptance, or to the
drawee or acceptor for payment or the
production of a PN to the party
liable for the payment of the same.
(Sec. 70)

PRESENTMENT FOR
PAYMENT
 Consists
of:
1. Personal demand for payment at the
proper place; and
2. Readiness to exhibit the instrument
if required, and to receive payment
and
to surrender the instrument if the
debtor is willing to pay.

Requisites:
1. Made by the holder or any person
authorized to receive payment on his
behalf;
2. At a reasonable hour on a business
day;
3. At a proper place;
4. To the person primarily liable or if he
is absent or inaccessible, to any
person found at the place where the
presentment is made. (Sec. 72)
 When should be
made:
1. PN payable on demand: within
reasonable time after its issue;
2. BE payable on demand:
within
reasonable time after its
last negotiation;
3. Instrument payable on a specified
date: on the date it falls due.
(Sec.
71)
 Proper
place:
1. Place specified;
2. Address of the person to make
payment is given, in case no place is
specified;
3. Usual place of business or
residence of the person to make
payment, in case no place is
specified and no address is given;
4. In any other case, wherever the
person to make payment can be
found, or at his last known place of
1. In order to charge the drawer where and the right of the holder to receive
he has no right to expect or require payment; and
that the drawee or acceptor will pay 2. To enable him to reclaim possession
the instrument;(Sec. 79) upon payment.
2. In order to charge an indorser when  When
the instrument was made or accepted excused:
for his accommodation and he has no 1. When debtor does not demand to see
reason to expect that the instrument the instrument but refuses
will be paid if presented. (Sec. 80) payment on some other grounds, and
 When delay in making presentment 2. When the instrument is lost or
or of giving notice is excused: destroyed.
1. When caused by circumstances
beyond the control of the holder; and Special cases
2. Not imputable to his default, 1. Instrument payable at a bank – Must
misconduct, or negligence. (Sec. 81) be made during banking hours unless
 When presentment for payment there are no funds to meet it at any time
is excused: during the day, presentment at any hour
1. After exercise of reasonable before the bank is closed on that day is
diligence, it cannot be made; sufficient. (Sec. 75)
2. Drawee is a fictitious 2. Person liable is dead – May be made
person; to his personal representative, if there
be one, and if he can be found. (Sec. 76)
3. Express or implied waiver. (Sec.
82)
C. PRESENTMENT FOR
ACCEPTANCE
Exhibition
When

required:
Purposes:
a. Where the bill is payable after sight,
1. To enable the debtor to determine
or when it is necessary in order to fix
the genuineness of the instrument
the maturity of the instrument;
 b. Where the bill expressly stipulates
that it shall be presented for
acceptance;
c. Where the bill is drawn payable
elsewhere than at the residence or
place of business of the drawee.
(Sec.
143)
 How
made:
a. Where a bill is addressed to 2 or more
drawees who are not partners,
presentment must be made to all
b. Where drawee is dead, presentment
may be made to his personal
representative
c. Where the drawee is adjudged a
bankrupt, insolvent or made an
assignment to his creditors, presentment
may be made to him or his trustee or
assignee
 When
excused:
1. Where the drawee is dead, or has
absconded, or is a fictitious person or
a person not having capacity to
contract by bill;
2. After exercise of reasonable
diligence, presentment cannot be
made;
3. Although presentment has been
irregular, acceptance has been
refused on some other ground.
(Sec.
148)
 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. 150)
D. ACCEPTANCE
 The 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
exchange directed to him.
 Form: Must be in writing and
signed by the drawee and must not
express that the drawee will perform his
promise by any other means than the
payment of money. (Sec. 132)
 The 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. 133)

Kinds:
1. GENERAL - assents without
qualification to the order of the
drawer.
2. QUALIFIED - which in express
terms varies the effect of the bill as
drawn. a. Conditional - makes
payment by
the acceptor dependent on the
fulfillment of a condition therein
stated.
b. Partial - an acceptance to pay
part only of the amount for which
the bill is drawn.
a. Local - an acceptance to pay
only at a particular place.
b. Qualified as to time
c. The acceptance of some one or
more of the drawees but not of
all. (Sec. 141)

Form:
1. Must be made by or on behalf of the
holder;
2. At a reasonable hour on a business
day;
3. Before the bill is overdue;
and
4. To the drawee or some person
authorized to accept or refuse to
accept on his behalf.
Implied Acceptance
 If after 24 hours, the drawee fails
to return the instrument. He is also
deemed to have accepted the instrument
when he destroys the same.
E. NOTICE OF
DISHONOR
 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 maker of
a note. (Sec. 89)

Requisites:
1. Given by holder or his agent, or by
any party who may be compelled by
the holder to pay (Sec. 90);
2. Given to secondary party or his
agent
(Sec. 97);
3. Given within the periods provided by
law (Sec. 102); and
4. Given at the proper place (Secs. 103
and 104)
 When dispensed Instances:
with: 1. When it is duly presented for
1. When party to be notified knows acceptance and such an acceptance
about the dishonor, actually or is refused or cannot be obtained; or
constructively (Secs. 114-117);
2. If waived (Sec. 109);
and
3. When after due diligence, it
cannot be given (Sec. 112).
 How
given:
1. By bringing verbally
or
2. By writing to the knowledge of the
person liable the fact that a specified
instrument, upon proper proceedings
taken, has not been accepted or has
not been paid, and that the party
notified is expected to pay it.
 To whom
given:
1. Non-acceptance (bill) – to persons
secondarily liable, namely, the
drawer and indorsers as the case may
be.
2. Non-payment (both bill and note)
–
indorsers.
Note: Notice must be given to
persons secondarily liable.
Otherwise, such parties are
discharged. Notice may be given to
the party himself or to his agent.
 By whom
given:
1. The holder
2. Another on behalf of the
holder
3. 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. 90)

DISHONOR BY NON-
PAYMENT
1. Payment is refused or cannot be
obtained after due presentment for
payment;
2. Presentment is excused and the
instrument is overdue and unpaid.
(Sec. 83)

 Effect: There is an immediate

right of recourse by the holder against
persons secondarily liable. However,
notice of dishonor is generally required.
(Sec. 84)

DISHONOR BY NON-
ACCEPTANCE

2. When presentment for acceptance is
excused, and the bill is not accepted.
(Sec. 149)
 Effect: Immediate right of
recourse against the drawer and
indorsers accrues to the holder and no
presentment for payment is necessary.
(Sec. 151)
Effect of lack of notice of dishonor on
NI
which are payable in installments
1. No acceleration clause – failure to
give notice of dishonor on a previous
installment does not discharge
drawers and indorsers as to
succeeding installments.
2. With acceleration clause – failure to
give notice of dishonor as to previous
installment will discharge the persons
secondarily liable as to the
succeeding installments.
To whose benefit does a notice of
dishonor inure
1. When given by or on behalf of a
holder:
a. All parties prior to the holder,
who have a right of recourse
against the party to whom the
notice is given; and
b. All holders subsequent to the
holder giving notice. (Sec. 92)
2. When given by or on behalf of a party
entitled to give notice:
a. The holder; and
b. All parties subsequent to the
party to whom notice is given.
(Sec. 93)
Dishonor in the hands of an
Agent
 Agent can do either of the
following:
1. Directly give notice to persons
secondarily liable thereon; or
2. Give notice to his principal. In such
case, he must give notice within the
time allowed by law as if he were a
holder. (Sec. 94)
A party giving notice is deemed to have
given due notice where:
1. The notice of dishonor is duly
addressed, and
2. Deposited in the post-office, even
when there is miscarriage of
mail. (Sec. 105)
 Where a party receives notice of
dishonor, he has, after the receipt of  An omission to give notice of
such notice, the same time for giving dishonor by non-acceptance does not
notice to antecedent parties that the prejudice the rights of a holder in
holder has after the dishonor. (Sec. 107) due course subsequent to the omission.
(Sec. 117)
Waiver of Notice of
Dishonor F. FOREIGN BILL OF
 Either before the time of giving EXCHANGE
notice, or after the omission to give due 1. Drawn in the Philippines but payable
notice. Waiver may be expressed or outside the Philippines.
implied. (Sec. 109) 2. Payable in the Philippines but drawn
 As to who are affected by an outside the Philippines.
express waiver depends on where the
waiver is written: INLAND BE FOREIGN BE
1. If it appears in the body or on A bill which or on its One which is or on
the face of the instrument, it binds face purports to be its face purports to
all parties; but both drawn and be drawn or payable
2. If it is written above the payable within the outside the
Philippines. Philippines.
signature of an indorser, it binds
him only. (Sec. 110)
NOTICE OF PROTEST
Notice of dishonor is not required to DISHONOR
be given to the drawer in any of the Required in inland Required in foreign
ff. cases: bill bill
1. Drawer and drawee are the
same; May be oral or Always written
2. Drawee is a fictitious person or not written
having the capacity to contract; May be made by a Made by a notary
party or agent public or a
3. Drawer is the person to whom respectable resident
the instrument is presented for in the presence of
payment; witness
4. The drawer has no right to expect or Made in residence of Made in the place of
require that the drawee or acceptor parties dishonor
will honor the instrument;
5. Where the drawer has PROTEST
countermanded payment. (Sec. 114)  The formal instrument
executed usually by a notary public
Notice of dishonor is not required to certifying that the legal steps
be given to an indorser in the ff. cases: necessary to fix the liability of the
1. Drawee is a fictitious person or drawee and the indorsers have been
does not have the capacity to taken.
contract, and indorser was aware  Who
of that fact at the time he makes:
indorsed the instrument; 1. A notary public; or
2. Indorser is the person to whom 2. Any respectable resident of the place
the instrument is presented for where the bill is dishonored, in the
payment; presence of 2 or more credible
3. Instrument was made or accepted witnesses. (Sec. 154)
for his accommodation. (Sec. 115)
 Protest for better security – One
 If an instrument is not accepted by made by the holder of a bill after it has
the drawee, there is no sense presenting been accepted but before it matures,
it again for payment, and notice of against the drawer and indorsers, where
dishonor must at once be given. If there the acceptor has been adjudged a
was acceptance, presentment for bankrupt or an insolvent, or has made an
payment is still required and if payment assignment for the benefit of the
is refused, there is a need for notice of creditors. (Sec. 158)
dishonor. (Sec. 116)
 Protest is necessary only in case of benefit of any party liable thereon or for
foreign bills of exchange, which have the benefit of the person for whose
been dishonored by non-acceptance or account it was drawn. (Secs. 171-177)
non-payment, as the case may be. If it is 
not so protested, the drawer and Requisites:
indorsers are discharged. (Sec. 118) 1. The bill has been dishonored by non-
payment;
ACCEPTANCE FOR 2. It has been protested for non-
HONOR payment;
 An undertaking by a stranger to a 3. Payment supra protest (another
bill after protest for the benefit of any term for payment for honor because
party liable thereon or for the honor prior protest for non-payment is
of the person for whose account the required) is made by any person,
bill is drawn which acceptance inures even by a party thereto;
also to the benefit of all parties 4. The payment is attested by a notarial
subsequent to the person for whose act of honor which must be appended
honor it is accepted, and conditioned to the protest or form an extension
to pay the bill when it becomes due of it;
if the original drawee does not pay it. 5. The notarial act must be based on
(Secs. 161-170) the declaration made by the payor
 for honor or his agent of his intention
Requisites: to pay the bill for honor and for
1. The bill must have been protested for whose honor he pays.
dishonor by non-acceptance or for
better security; Note: If the above formalities are not
2. The acceptor for honor must be a complied with, payment will operate as a
stranger and not a party already mere voluntary payment and the payor
liable on the instrument; will acquire no right to full
3. Bill must not be reimbursement against the party for
overdue; whose honor he pays.
4. Acceptance for honor must be
with the consent of the holder of the  In payment for honor, the payee
instrument. cannot refuse payment. If he refuses, he
 Formal cannot recover from the parties who
requisites: would have been discharged had he
1. Must be in writing; accepted the same. In acceptance for
2. Must indicate that it is an acceptance honor, the holder’s consent is necessary.
for honor;  The payor for honor is given the
3. Signed by the acceptor for right to receive both the bill and the
honor; protest obviously to enable him to
4. Must contain an express or enforce his rights against the parties
implied promise to pay money; who are liable to him.
5. The accepted bill for honor must be
delivered to the holder. BILLS IN SET
 One composed of several parts,
ORDINARY ACCEPTANCE each part being numbered and
ACCEPTANCE FOR HONOR containing a reference to the other
No previous protest is Previous protest is parts, the whole of the parts constituting
required required but one bill.
Consent of holder is Consent of holder is
implied required
 Purpose: It is usually availed of
Drawee is acceptor Acceptor must be in cases where a bill had to be sent
stranger to the bill to a distant place through some
Acceptor is primarily Acceptor is conveyance. If each part is sent by
liable secondarily liable different means of conveyances, the
chance that at least one part of the
set would reach its destination would
be greater.
PAYMENT FOR HONOR
 Payment made by a person,
whether a party to the bill or not, after
it has been protested for non-
payment, for the
Rights of holders where parts are c. By an agent on behalf of the
negotiated separately principal
1.If both are HDC, the holder
whose title first accrues is RENUNCIATION (Sec.
considered the true owner of the 122)
bill.  The act of surrendering a right
2.But the person who accepts or pays or claim without recompense, but it can
in due course shall not be be applied with equal propriety to
prejudiced. (Sec. 179) the relinquishing of a demand upon
an agreement supported by a
Obligations of holder who indorses 2 consideration. (1 Agbayani 1992 ed.)
or more parts of the bill in set 
1.The person shall be liable on every Effects:
such part; 1. A renunciation in favor of a
2.Every indorser subsequent to him is secondary party may be made by the
liable on the part he has himself holder before, at or after maturity of
indorsed, as if such parts were the instrument. The effect is
separate bills. (Sec. 180) to discharge only such secondary
party and all parties subsequent to
IX. DISCHARGE him but the instrument itself
remains in force.
2. A renunciation in favor of the
DISCHARGE OF NI principal debtor may be effected
 A lease of all parties, whether at after maturity. The effect is to
or
re or secondary, from the discharge the instrument and all
obligations arising thereunder. It renders
primary a. By maker or acceptor; or
the instrument without force and effect b. Surety if a primary party; or
and, consequently, it can no longer be
negotiated. (The Law on Negotiable
Instruments with Documents of Title,
Hector de Leon, 2000 ed.)

Instances:
1. By payment in due course by or on
behalf of the principal debtor;
2. Payment by accommodated
party;
3. Intentional cancellation by the
holder;
4. By any act which will discharge a
simple contract for the payment
of
money; (Sec. 119)
5. When the principal debtor becomes
the holder of the instrument at or
after maturity in his own right.

PAYMENT IN DUE
COURSE

Requisites:
1. Payment must be made at or after
maturity.
2. Payment must be made to the
holder.
3. Payment must be made in good faith
and without notice that the holder’s
title is defective. (Sec. 88)

 By whom
made:
 parties thereto provided the 1. By any act which discharges the
renunciation is made unconditionally instrument;
and absolutely. 2. By the intentional cancellation of
Note: In either case, renunciation does his signature by the holder;
not affect the rights of a holder in due 3. By the discharge of a prior
course without notice.
party;
CANCELLATION 4. By a valid tender of payment made
 It includes the act of tearing, by a prior party;
erasing, obliterating, or burning. It is 5. By the release of the
not limited to writing of the word principal debtor, unless the
‘cancelled”, or “paid”, or drawing of holder’s right of
criss-cross lines across the instrument. recourse against the party
(Sec. 123) It may be made by any other secondarily
means by which the intention to cancel liable is expressly
the instrument may be evident. reserved;
6. By any agreement binding upon
DISCHARGE OF PERSONS SECONDARILY the holder to extend the time of
LIABLE payment
 or to postpone the holder’s right c. The facts of the
to enforce the instrument. (Sec. 120) particular case
 In the following cases, the 4. Where the holder of a check
agreement to extend the time of procures it to be accepted or certified,
payment does not discharge a the drawer and all indorsers are
party secondarily liable: discharged from liability thereon. (Sec.
a) where the extension of time is 186)
consented to by such party; 5. Refusal of drawee bank to
b) where the holder expressly certify
reserves his right of recourse against  The holder has no action against
such party. the bank but he has a right of action
 Payment at or after maturity by a against the drawer. The drawer in turn
party secondarily liable does not has right of action against the bank
discharge the instrument. It only cancels based on the original contact of deposit
his own liability and that of the parties between them.
subsequent to him. (Sec. 121)
Crossed Check
X. CHECKS  A check which in addition to the
 A bill of exchange drawn on a usual contents of an ordinary check
bank payable on demand (Sec. 185) contains also the name of a certain
banker or business entity through whom
CONCEPTS: it must be presented for payment.
1. Certification of 
Checks Effects:
 An agreement whereby the a) That the check may not be encashed;
bank against whom a check is it may only be deposited with the
drawn, undertakes to pay it at any bank;
future time when presented for b) That the check may be negotiated
payment. only once to a person who has an
 account with the bank; and
Effects: c) That it serves as a warning to the
a. Equivalent to acceptance (Sec. holder that the check has been issued
187) and is the operative act that for a definite purpose. (Bataan Cigar
makes banks liable vs. CA, 230 SCRA 643)
b. Assignment of the funds of
the drawer in the hands of  The NIL is silent with respect to
the drawee (Sec. 189) crossed checks, although the Code of
c. If obtained by the holder, Commerce makes reference to such
discharges the persons instrument. Nonetheless, this Court has
secondarily liable thereon taken judicial cognizance of the practice
(Sec. that a check with 2 parallel lines in the
188) upper left hand corner means that it
2. A check of itself does not operate as could only be deposited and not
an assignment of any part of the funds to converted into cash. The effects of
the credit of the drawer with the bank. crossing a check thus, relates to the
The bank is not liable to the holder, mode of payment, meaning that the
unless and until it accepts or certifies the drawer had intended the check for
check. (Sec. 189) deposit only by the rightful person, i.e.,
3. A check must be presented for the payee named therein. (Cely Yang vs.
payment within reasonable time after its Court of Appeals, G.R. No. 138074,
issue or the drawer will be August 15, 2003)
discharged from liability thereon to the
extent of the loss caused by the delay. IRON CLAD RULE
(Sec. 186)  Prohibits the countermanding
 Reasonable time: (Sec. 193, of payment of certified checks.
NIL) (Republic of the Philippines vs. PNB)
a. Nature of the Note: The holder must be a holder in
instrument due course before the stop payment
b. Usage of business or order may not be successfully invoked
trade against him. (Mesina vs. IAC, 146 SCRA
497, 505)

TYPES OF CHECKS (Cesar Villanueva,
Commercial Law Review, 2004 ed.)
a. Cashier’s Check
 One drawn by the cashier of a
bank, in the name of the bank against
the bank itself payable to a third
person. It is a primary obligation of the
issuing bank and accepted in advance
upon issuance. (Tan vs. CA, 239 SCRA
310)
b. Manager’s Check
 A check drawn by the manager
of a bank in the name of the bank
itself payable to a third person. It is
similar to the cashier’s check as to the
effect and use.
c. Memorandum
Check
 A check 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 bank, but
will be redeemed by the maker himself
when the loan falls due and which
understanding is evidenced by
writing the word “memorandum”,
“memo” or “mem” on the check.
d. Certified Check
 An agreement whereby the
bank against whom a check is
drawn undertakes to pay it at any
future time when presented for
payment. (Sec. 187)