COURSE OUTLINE

A. NEGOTIABLE INSTRUMENTS IN GENERAL

a-1. Definition – is a written contract for the payment of money which by its form and on its face is
intended as a substitute for money and passes from hand to hand as money, so as to give the holder in
due course the right to hold the instrument and collect the sum for himself.
a-2. Essential Features
1. Negotiability
2. Accumulated of contracts
3. Provisional payment for obligation
a-3. Functions of negotiable instruments
1. Substitutes for money
2. Increases purchasing power in circulation
3. Increases credit circulation
4. Monetary equivalent
a-4. Requisites for negotiability [Section 1]
1. In writing signed by maker or drawer
2. Contains an unconditional promise or order to pay a sum certain in money
2-a. Unconditional Promise or Order [Section 3]
1. An indication of a particular fund out of which reimbursement is to be made
2. An indication of a particular account to be debited with the amount
3. A statement of the transaction giving rise to the instrument
2-b. Sum Certain in Money [Section 2]
1. With interest
2. By stated installment
3. By stated installment with escalation clause
4. With exchange, whether at a fixed rate or at the current rate
a. see Ponce vs. Court of Appeals, 90 SCRA 533
b. see Kalalo vs. Luz, 34 SCRA 337
5. With costs of collection or an attorney’s fees in case of non-payment at maturity
2-c. Test of Negotiability: Whether or not the promise or order would give rise to a separate cause of
action for breach of contract if the additional act is not performed or done
2-d. Provisions Not Affecting Negotiability [Section 5]
1. Authorizes sale of collateral securities in case instrument is not paid at maturity
2. Authorizes confession of judgment if instrument is not paid at maturity
3. Waives benefit of any law intended for the advantage or protection of the obligor; or
4. Gives the holder an election to require something to be done in lieu of money
3. Payable on demand, or at a fixed, or determinable future time [Section 1]
3-a. Payable on Demand [Section 7]
1. Expressed to be payable on demand, at sight or presentation
2. No time for payment is expressed
3. Instrument is issued, accepted or indorsed when overdue with regards to the person
issuing, accepting or indorsing
3-b. Payable at a Determinable Future Time [Section 4]
1. Fixed period after date or sight
2. On or before a fixed or determinable future time
 3. On or at a fixed period after occurrence of a specified event certain to happen
4. Payable to order or bearer
4-a. Payable to Order [Section 8]
1. To a Payee who is not the maker, drawer or drawee
2. The Maker or Drawer [To be complete, must be indorsed by maker or drawer, Section 184]
3. The drawee
4. Two or more payees jointly
5. One or some of several payees
6. Holder of an office for the time being
4-b. Payable to Bearer [Section 9]
1. Expressed to be payable to bearer
2. Payable to named person or bearer
3. Payable to fictitious person and such fact is known to the person making it so payable
4. Name of payee does not purport to be a name of any person
5. Last indorsement is an indorsement in blank
5. Where instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty
5-a. May be addressed to two or more drawees jointly
5-b. But not to two or more drawees in the alternative or in succession [Section 128]
a-5. Forms
1. Promissory note
1-a. Definition – an unconditional promise in writing made by one person to another, signed by maker,
engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order
or to bearer [Section 184]
1-b. Option of the Holder
1. Bills of exchange where the drawer and the drawee are the same person
2. Bills of exchange where the drawee is a fictitious person
3. Bills of exchange where the drawee is a person not having capacity to contract [Section 130]
2. Bill of exchange
2-a. Definition – an unconditional order in writing addressed by one person to another, signed by the
person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or
determinable future time a sum certain in money to order or to bearer [Section 126]
2-b. Kinds
1. Inland bill of exchange – one drawn and payable within the Philippines [Section 129]
2. Foreign bill of exchange – one drawn within the Philippines but payable outside, or one drawn
outside but payable within the Philippines [Ibid]
3. If instrument is ambiguous that there is doubt whether it is a bill of exchange or a promissory note,
the holder may treat it either at his election [Section 17(e); Bar, 1998]
a-6. Parties
1. Promissory note
1-a. Maker
1.b. Payee/indorser
1-c. Subsequent indorser
1-d. Holder
2. Bill of Exchange
2-a. Drawer
2-b. Drawee/Acceptor
1. Drawee is not liable on the bill unless and until he accepts the same [Section 127]
2. The moment he accepts the bill of exchange, he becomes an acceptor
2-c. Payee/indorser
2-d. Subsequent indorser
2-e. Referee in case of need [Section 131]
2-f. Holder
B. ISSUANCE OF NEGOTIABLE INSTRUMENT
b-1. Definition – the first delivery of the instrument complete in form to a person who takes it as a
holder [Section 191]
b-2. Requisites of Issuance
1. Delivery of the instrument
2. To a person who takes it as a holder
b-3. Delivery
1. Definition – transfer of possession with intent to transfer title thereto, thus making the transferee
a HOLDER of the instrument
2. Instances -
2-a. Complete delivered instrument
2-b. Incomplete delivered instrument [Section 14]
1. Possessor is deemed to have prima facie authority to fill-up blanks
2. Personal defense to a holder for value
3. Holder in due course can enforce full payment
2-c. Complete undelivered instrument [Section 16]
1. Holder in due course, delivery conclusively presumed
2. Holder for value, personal defense
2-d. Incomplete undelivered instrument [Section 15; Bar 2000]
1. Real defense by maker/drawer
2. Binding to persons who became parties after its unauthorized completion and delivery
b-4. Consideration
1. Definition – any consideration sufficient to support a simple contract
2. Presumptions
2-a. Every negotiable instrument is deemed issued for a valuable consideration [Section 24]
2-b. Every person whose signature appears thereon is deemed a party for value [Section 24]
3. Effect of Want of consideration
3-a. What constitutes
1. Absence
2. Failure
a. Total
b. Partial, a defense pro tanto [Section 28]
3-b. Effect : Personal defense
3-c. Exception: Accommodation party [Section 29]
1. Nature of Accommodation [Bar, 1952]
a. Lends name to others without any consideration
b. Liability is either primary or secondary. He is a surety of the party accommodated
2. Instances
a. Maker [Bar, 1964; Bar, 1971; Bar, 1993; Bar, 1996; Bar, 1998]
b. Drawer [Bar, 1975; Bar, 1991]
c. Indorser [Bar, 1964; Bar, 1976; Bar, 1985; Bar, 1990]
3. Cases –
a. see Town Savings & Loan Bank, Inc. vs. Court of Appeals, G.R. 106011, 17 June 1993]
b. see Ang Tiong vs. Ting, 22 SCRA 713
c. see Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351
b-5. Holders of negotiable instruments
1. Holder in due course [Bar, 1946; Bar, 1952; Bar, 1996]
1-a. Presumption: Every holder is presumed to be a holder in due course [Section 59]
1-b. Requisites [Section 52]
1. Complete and regular upon its face
2. He became the holder of it before it was overdue and without notice that it had been previously
dishonored if such was the fact
3. He took it in good faith and for value
4. At the time it was negotiated to him he had no notice of any infirmity in the instrument
or defect in the title of the person negotiating it.
1-c. Rights [Bar, 1946]
1. Hold instrument free from any defect of title of prior parties [Section 57]
2. Hold instrument free from personal defenses of prior parties among themselves [Ibid]
5. Right to enforce payment for the full amount against all parties [Ibid]
6. Right to enforce payment for the original tenor in case of material alteration [Section
58]
7. Right to sue on the instrument in his own name [Section 51]
8. Right to receive payment in due course [Ibid]
1-d. Cases –
1. see Atlantico vs. Auditor General, 81 SCRA 335
2. see De Ocampo vs. Gatchalian, 113 SCRA 574
2. Holder for Value
2-a. Definition – one who gives valuable consideration for the instrument
2-b. Rights
1. Right to sue on the instrument in his own name
2. Right to receive payment in due course [Section 51]
b-6. Defenses
1. Real Defenses –
1-a. Incomplete undelivered instrument [Section 15]
1-b. Forgery [Section 23]
1. Effects
a. Signature is wholly inoperative
b. No right to retain instrument
c. No right to enforce payment
2. Not Applicable
a. Forgery of a bearer instrument [Section 23; Bar, 1980; Bar, 1997]
b. Forgery of drawer’s signature insofar as the acceptor is concerned [Section 62]
3. Cases –
a. see PNB vs. National City Bank, 63 Phil. 711
b. see PNB vs. Quimpo, 158 SCRA 582
c. see Metropolitan Waterworks vs. Court of Appeals, 143 SCRA 20
 d. see Republic Bank vs. Court of Appeals, 196 SCRA 100
1-c. Minority [Section 22; Bar, 1989; Bar, 1998]
1-d. Incapacity [Section 22]
1-e. Fraud in factum
2. Personal/Equitable Defenses
2-a. Want of consideration [Section 28]
2-b. Complete undelivered instrument [Section 16]
2-c. Incomplete delivered instrument [Section 14]
2-d. Fraud in inducement
2-e. Defective title –
1. Definition - He obtained the instrument or any signature thereto by fraud, duress, force and fear, or
other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or
under such circumstances amount to a fraud [Section 55]
2. Reasons for Defect
a. By acquisition
b. By negotiation
3. Notice of defect requires actual knowledge of the infirmity [Section 56]
2-f. Material Alteration
1. What consists: Alteration that changes
a. The date
b. Sum payable, either principal or interest
d. Time or place of payment
e. Number or the relation of the parties
f. Medium or currency in which payment is to be made [Section 125]
2. Effects
a. Instrument is avoided
b. Except as to persons who made, authorized or assented to the alteration and subsequent indorsers
c. Holder in due course may enforce payment according to the original tenor [Section 124]
C. NEGOTIATION
c-1. Modes of Transfer of Instrument
1. By assignment
1-a. Definition – a sale by the assignor of his rights under the contract in favor of the assignee
1-b. Instances
1. Transfer of an order instrument without proper indorsement [Section 49]
2. But where the holder has lien on the instrument, he is deemed a holder for value to the extent of his
lien [Section 27]
3. see Caltex (Phil.) vs. Court of Appeals, 212 SCRA 448
2. By operation of law
2-a. Death of the holder
2-b. Bankruptcy of the holder
3. By negotiation
3-a. Order instrument – effected through indorsement completed by delivery
3-b. Bearer instrument – effected through delivery
c-2. Negotiation
1. Definition – transfer of an instrument in such form that the transferee becomes a holder
2. Methods
2-a. Order instruments
1. Definition [see Section 8]
2. How Negotiated –
a. In general, through indorsement and completed by delivery
b. If indorsed in blank, it becomes a bearer instrument [Section 9]
c. Blank indorsement may be converted to a special indorsement by writing contract consistent with
the character of the indorsement [Section 35]
2-b. Bearer instruments
1. Definition [see Section 9]
2. How Negotiated –
a. In general, by delivery
b. If indorsed specially, person indorsing is liable only as indorser to such holders as to make title
through his indorsements [Section 40]
c. Holder may strike out indorsement not necessary to his title. Indorser whose signature is struck out
and all indorsers subsequent to him are relieved from liability [Section 48]
3. When to Negotiate
3-a. Promissory Note – reasonable time after issuance
3-b. Bill of Exchange – reasonable time after its last negotiation [see PNB vs. Seeto, 91 Phil. 756]
c-3. Indorsements
1. As to Person Indorsing
1-a. Regular indorsement – indorsement of a person who is a party to the instrument
1-b. Irregular indorsement – indorsement by a person not party to the instrument [Section 64]
2. As to Nature/Effect of Indorsement
2-a. Qualified Indorsement [Sections 38, 65]
a. Constitutes indorser as a mere assignor of the title to the instrument
b. Does not impair negotiability of the instrument
2-b. Unqualified/ General Indorsement [Section 66]
a. Special indorsement [Section 34]
b. Blank indorsement [Section 35]
2-c. Conditional Indorsement
a. Party required to pay may disregard condition. But person to whom payment is made will hold
proceeds thereof subject to the rights of the person indorsing conditionally
b. Party required to pay respect condition and hold payment until compliance or non-compliance
thereof [Section 39]
2-d. Restrictive Indorsement
a. Effects –
1. Prohibits further negotiation of the instrument
2. Constitutes indorsee as agent of the indorser
3. Vests title in indorsee in trust for or for the use of some other person [Section 36]
b. Rights of Indorsee/Transferee
1. Receive payment of the instrument
2. Bring any action thereon that indorser could bring
3. Transfer rights as indorsee to other persons [Section 37]
3. Striking Out Indorsements
3-a. When Applicable – Bearer instruments only
3-b. How Made – Striking out indorsements not necessary to the title of the holder
3-c. Effects
a. Indorser whose indorsement is striken out is discharged from liability on the instrument
b. All indorsers subsequent to him are discharged from liability [Section 48]
c-4. Warranties and Liabilities
 1. Maker [Section 60; Section 192]
1-a. Admits existence of payee and his capacity to indorse
1-b. Warrants to pay instrument according to its tenor
2. Drawer [Section 61]
2-a. Admits existence of payee and his capacity to indorse
2-b. Warrants that instrument be paid or accepted or both upon presentment
2-c. Warrants to pay instrument if dishonored
3. Drawee-Acceptor [Section 62; Section 192; Bar, 1998]
3-a. Admits existence of payee and his capacity to indorse
3-b. Admits existence of drawer, genuiness of his signature and capacity and authority to draw the
instrument
3-c. Warrants to pay instrument according to the tenor of his acceptance
4. Qualified Indorser/Person Negotiating by Deliver [Section 65]
4-a. Instrument is genuine and in all respects what it purports to be
4-b. He has good title to it
4-c. All prior parties had capacity to contract
4-d. He has no knowledge of any fact which would impair the validity of instrument or render it
valueless
4-e. Warranty of person negotiating by delivery extends only to his immediate transferee
5. General Indorser [Section 66; Bar, 1981; Bar, 1987; Bar, 1988; Bar, 1990; Bar,
1991]
5-a. Instrument is genuine and in all respects what it purpots to be
5-b. He has good title to it
5-c. All prior parties had capacity to contract
5-d. Instrument at the time of his indorsement is valid and subsisting
5-e. Warrants to pay instrument if dishonored
5-f. see Republic Bank vs. Ebrada, 65 SCRA 680
D. PRESENTMENT FOR ACCEPTANCE
d-1. When Required [Section 143]
1. Bill is payable after sight
2. Presentment is necessary to fix maturity
3. Express stipulation
4. Bill is drawn in a particular place but payable to a place other than the residence or
business of drawee
d-2. Purpose
1. Fix maturity of instrument
2. Comply with stipulation
3. Willingness of the drawee
d-3. Effect of Non-Presentation – Drawer and all indorsers are discharged [Section 144]
d-4. Manner of Presentment
1. By whom: Holder himself or authorized agent
2. To whom
2-a. Drawee himself or authorized agent
2-b. If two or more drawees, all of them
2-c. If drawee is dead, personal representative or excused
2-d. If drawee is insolvent, drawee himself or trustee or assignee
3. When Presented: Within a reasonable hour on a regular business day and before the bill is overdue
4. Where Presented
4-a. Place of business or residence of drawee if known
4-b. If residence is different from place of business, in either place
4-c. If place of payment is designated and drawee’s residence or place of business is unknown, at the
place of payment
4-d. Otherwise, excused
d-5. When presentment excused [Section 148]
1. Effect: Instrument is treated as dishonored
2. Grounds
2-a. Drawee is dead, absconded or a fictitious person or person not having capacity to contract
2-b. After exercise of reasonable diligence, presentment cannot be made
2-c. Presentment is irregular, but refused on some other ground
d-6. When Dishonored by Non-Acceptance [Section 149]
1. When duly presented but refused or cannot be obtained
2. When presentment for acceptance is excused
E. ACCEPTANCE
e-1. Definition – It is the signification by the drawee of his assent to the order of the drawer
e-2. How acceptance made
1. Form
1-a. Must be in writing signed by the drawee
1-b. Except: Constructive acceptance
2. Manner of Acceptance
2-a. Writing on face of bill “Accepted”
2-b. Separate paper [Section 134]
1. Does not bind acceptor
2. Except in favor of a person to whom paper is shown and on faith thereof receives bill for value
b. Separately even before bill is drawn [Section 135]
e-3. Kinds of acceptance
1. Actual acceptance [Section 132]
2. Constructive acceptance [Section 137]
2-a. Manner
1. Drawer destroys the bill
2. Refuses to return the bill within 24 hours or such other period allowed by the holder after its delivery
for acceptance
2-b. Effect: Even if no actual acceptance, bill is deemed to have been accepted
3. General acceptance – acceptance without qualifications [Section 139]
4. Qualified acceptance [Section 141]
4-a. Instances [Section 141]
1. Conditional
2. Partial
3. Local
4. Qualified as to time
5. Acceptance of some, one or more of the drawees but not all
4-b. Rights of Parties [Section 142]
1. May refuse qualified acceptance and treat bill as dishonored by non-acceptance
2. May accept qualified acceptance
a. Holder to notify parties secondarily liable, failure of which, such parties are discharged from liability
b. Parties secondarily liable if notified must express assent or dissent, failure of which, they are deemed
to have given their assent
e-4. Effect of acceptance
1. Drawee assents to the order of the drawer
2. Drawee becomes an acceptor primarily liable to the instrument
F. DISHONOR BY NON-ACCEPTANCE
f-1. When Instrument Dishonored by Non-Acceptance [Section 149]
1. When duly presented but refused or cannot be obtained
2. When presentment for acceptance is excused
f-2. Notice of Dishonor
1. By whom Given [Section 90]
1-a. Holder
1-b. Agent of the holder [Section 94]
1-c. Any party secondarily liable notified by the holder
1-d. Agent of any party secondarily liable notified by the holder [Section 91]
2. To Whom Given
2-a. General –
1. Persons secondarily liable
2. Agents of persons secondarily liable [Section 97]
2-b. Special Cases –
1. Party who is dead [Section 98]
a. Personal representative
b. If none, last residence or last place of business of decedent
2. Partners [Section 99]
a. Any one of the partners even if there has been a dissolution
b. Any surviving partner if one is dead
3. Persons Jointly Liable [Section 100]
a. Each of them
b. Except when one is authorized by the other
4. Bankrupt [Section 101]
a. Insolvent party himself
b. His trustee or assignee
3. When Notice Must be Given [Section 102]
3-a. On the following day after instrument is dishonored [Section 103]
3-b. Unless notice is excused
4. Where Notice is Given
4-a. Parties reside in same place [Section 103]
1. If given in place of business, before close of business hours
2. If given in residence, before usual hours of rest
3. If given by mail, post office
4-b. Parties resident in different places [Section 104]
5. Form of Notice [Section 96]
5-a. Either oral or in writing
5-b. Either personally or by mail
f-3. When notice dispensed with [Section 112]
 1. It cannot be given to parties secondarily liable
2. It does not reach the parties sought to be charged
f-4. When notice excused [Section 114]
1. As to Drawer
1-a. Drawer and drawee are the same person
1-b. Drawee is a fictitious person or person not having the capacity to contract
1-c. Drawer is a person to whom the instrument is presented for payment
1-d. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument
1-e. Drawer has countermanded payment
2. As to Indorser [Section 115]
2-a. Drawee is a fictitious person or person not having capacity to contract, and the indorser was aware
of that fact at the time of his indorsement
2-b. Indorser is the same person to whom the instrument is presented for payment
2-c. Instrument was made or accepted for his accomodation
G. ACCEPTANCE FOR HONOR
g-1. Basic Considerations
1. Definition – acceptance by a stranger to a bill of exchange to pay, totally or partially, for the honor
of the drawer or any indorser after the bill has been protested for dishonor by non-acceptance or for
better security and before the instrument is overdue [Section 161]
2. Requisites
2-a. Instrument previously protested for non-acceptance or for better security
2-b. Instrument not yet overdue at the time of acceptance for honor
2-c. Acceptor is a stranger to the bill of exchange
2-d. Acceptance for honor must be in writing, signed by the acceptor for honor and indicates for whose
honor the acceptance is made
2-e. Holder must give consent to acceptance
2-f. Acceptance may be total or partial
3. Presumption – Unless expressly made, acceptance is deemed for the honor of the drawer [Section
163]
g-2. Effects
1. Warranties of acceptor for honor [Section 165]
1-a. Engages that will pay the bill according to the terms of his acceptance
1-b. Provided that necessary steps were taken
1. Instrument was duly presented for payment to the drawee
2. Drawee dishonored the instrument and notice of dishonor given to acceptor for honor
3. Instrument was duly protested for non-payment [Section 167]
4. Presented for payment to the acceptor for honor
a. In the place where protest for non-payment is made not later than the day following its maturity
b. In other place, see Section 104
2. Liability of acceptor for honor [Section 164]
2-a. Acceptor for honor becomes secondarily liable on the instrument
2-b. Acceptor for honor becomes liable to all parties subsequent to the party for whose honor he has
accepted
g-3. How made
1. Must be in writing
2. Indicating that it is an acceptance for honor
3. Signed by the acceptor for honor
 4. Appears before a Notary and declare that the instrument was accepted for honor
[Section 162]
H. PROTEST
h-1. Basic considerations
1. Definition – a formal statement of the presentment and dishonor of the bill, made under the hand
and seal of a Notary making it and contains facts necessary to identify the bill and show that it was
duly presented but dishonored
2. Purpose – to hold persons secondarily liable to the instrument
h-2. When Required/applicable – Applies only to foreign bills which were
1. Dishonored by non-acceptance [Section 152]
2. Dishonored by non-payment [Ibid]. But if the foreign bill was previously protested for
non-acceptance, it no longer necessary to have the same protested for non-payment [Section
157]
3. Before a bill is accepted for honor, it must first be protested for dishonor by non-
acceptance or protested for better security [Section 161]
4. Acceptor has been adjudged bankruptcy or insolvent or has made an assignment for
the benefit of creditors, bill must be protested for better security [Section 158]
h-3. Manner of Making Protest
1. How Made
1-a. Protest annexed to the bill or must contain a copy thereof [Section 153]. But where the bill is lost,
destroyed or wrongfully detained, protest may be made on a copy or written particulars thereof
[Section 160]
1-b. Under hand and seal of a Notary Public
1-c. Must specify the following:
1. Time and place of presentment
2. Fact that presentment was made and the manner of presentation
3. Reason or cause for protesting the bill
4. Demand made and the answer given or the fact that drawee or acceptor cannot be found [Section
153]
2. By Whom Made
2-a. A Notary Public
2-b. Respectable resident of the place where the bill is dishonored in the presence of two or more
credible witnesses [Section 154]
3. Place of Protest
3-a. Place of dishonor
3-b. Place where bill is payable where
1. Bill is drawn payable at the place of business or residence of some person other than the drawee
2. Bill is dishonored by non-acceptance [Section 156]
5. Time to Protest
4-a. If bill is not noted, protest be made on the day of dishonor unless excused
4-b. If bill is noted, protest may be subsequently extended as the date of noting [Section 155]
h-4. When Protest is Dispensed with [Section 159]
1. It cannot be given to parties secondarily liable or does not reach the parties sought to be charged
[Section 112]
2. As to Drawer
2-a. Drawer and drawee are the same person
2-b. Drawee is a fictitious person or person not having the capacity to contract
2-c. Drawer is a person to whom the instrument is presented for payment
2-d. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument
2-e. Drawer has countermanded payment
3. As to Indorser [Section 115]
3-a. Drawee is a fictitious person or person not having capacity to contract, and the indorser was aware
of that fact at the time of his indorsement
3-b. Indorser is the same person to whom the instrument is presented for payment
3-c. Instrument was made or accepted for his accomodation
h-5. When Delay is Excused
1. Due to circumstances beyond the control of the holder
2. Delay is not imputable to holder’s default, misconduct or negligence [Section 159]
I. PRESENTMENT FOR PAYMENT
i-1. Basic considerations
1. Definition – is the formal demand for the payment of the instrument
2. Purposes
2-a. To charge the persons secondarily liable to the instrument, that is, the drawer and indorsers
[Section 70]
2-b. Not to charge the person primarily liable to the instrument
i-2. Manner of Presentment
1. By whom:
1-a. Holder himself
1-b. Holder’s authorized agent [Section 72]
2. To whom
2-a. In general, to the person primarily liable, that is, the maker in case of promissory notes and the
acceptor in case of bills of exchange [Ibid]
2-b. In case persons primarily liable are partners, to anyone of them [Section 77]
2-c. In case persons primarily liable are not partners, to all of them [Section 78]
3. When Presented [Section 71]
3-a. Generally, at the date of maturity
3-b. If instrument is payable on demand, presentment must be made
1. In case of promissory note, within a reasonable time after issue
2. In case of bill of exchange, within a reasonable time after the last indorsement or negotiation
3-c. At a reasonable hour on a business day [Section 72]
3-d. Where instrument is payable at a bank, it must be presented during banking hours [Section 75]
4. Where Presented [Section 73; Bar 2000]
4-a. Place of payment or address given in the instrument
4-b. In the absence, at the usual place of business or residence of the party primarily liable
4-c. If party primarily liable expressed his ability and willingness to pay instrument at a special place
specified in the instrument, such is deemed a tender of payment [Section 70]
5. How Made [Section 74]
5-a. Presentation or exhibition of the instrument to the person primarily liable for verification purposes
5-b. If paid, instrument must be delivered to party paying the same
i-3. When Presentment is Dispensed with
1. In General [Section 82]
1-a. Where after the exercise of reasonable diligence, presentment cannot be made
1-b. Where the drawee is a fictitious person
1-c. Waiver of presentment, express or implied
 2. As to Drawer [Section 79]
2-a. He has no right to expect or require that the drawee or acceptor will pay the instrument
2-b. Examples:
1. Drawer stops payment of the check
2. Drawer’s bank balance is less than amount of the check he issued
3. Drawer committed fraud by issuing check knowing that he has no funds to meet it
2-c. Effect: Drawer becomes liable to the instrument without need of presentment for payment
3. As to Indorser [Section 80]
3-a. Instance: Where the instrument was made or accepted for his accommodation and he has no reason
to expect that the instrument will be paid if presented
3-b. Effect: Indorser becomes liable to the instrument without need of presentment for payment
i-4. When Delay is Excused
1. Due to circumstances beyond the control of the holder
2. Delay is not imputable to holder’s default, misconduct or negligence [Section 81]
J. DISHONOR BY NON-PAYMENT
j-1. Basic Considerations
1. When Instrument Dishonored by Non-Payment [Section 83]
1-a. When duly presented for payment but refused or cannot be obtained
a. When a party primarily liable refuses to pay
b. When party primarily liable expresses willingness to pay but has no available money or funds
1-b. Presentment is excused and the instrument is overdue and unpaid
2. Effect – An immediate right of recourse to all parties secondarily liable on the instrument accrues to
the holder [Section 84]
j-2. Notice of Dishonor
1. By whom Given [Section 90]
1-a. Holder
1-b. Agent of the holder [Section 94]
1-c. Any party secondarily liable notified by the holder
1-d. Agent of any party secondarily liable notified by the holder [Section 91]
2. To Whom Given
2-a. General –
1. Persons secondarily liable
2. Agents of persons secondarily liable [Section 97]
2-b. Special Cases –
1. Party who is dead [Section 98]
a. Personal representative
b. If none, last residence or last place of business of decedent
2. Partners [Section 99]
a. Any one of the partners even if there has been a dissolution
b. Any surviving partner if one is dead
3. Persons Jointly Liable [Section 100]
a. Each of them
b. Except when one is authorized by the other
4. Bankrupt [Section 101]
a. Insolvent party himself
b. His trustee or assignee
3. When Notice Must be Given [Section 102]
3-a. On the following day after instrument is dishonored [Section 103]
3-b. Unless notice is excused
4. Where Notice is Given
4-a. Parties reside in same place [Section 103]
1. If given in place of business, before close of business hours
2. If given in residence, before usual hours of rest
3. If given by mail, post office
4-b. Parties resident in different places [Section 104]
5. Form of Notice [Section 96]
5-a. Either oral or in writing
5-b. Either personally or by mail
j-3. When notice dispensed with [Section 112]
1. It cannot be given to parties secondarily liable
2. It does not reach the parties sought to be charged
j-4. When notice excused
1. As to Drawer [Section 114]
1-a. Drawer and drawee are the same person
1-b. Drawee is a fictitious person or person not having the capacity to contract
1-c. Drawer is a person to whom the instrument is presented for payment
1-d. Drawer has no right to expect or require that the drawee or acceptor will honor the instrument
1-e. Drawer has countermanded payment
2. As to Indorser [Section 115]
2-a. Drawee is a fictitious person or person not having capacity to contract, and the indorser was aware
of that fact at the time of his indorsement
2-b. Indorser is the same person to whom the instrument is presented for payment
2-c. Instrument was made or accepted for his accomodation
K. PAYMENT FOR HONOR
k-1. Basic Considerations
1. Definition – It is the payment of a bill of exchange which has been previously dishonored for non-
payment and protested for non-payment by any person for the honor of the drawer or any indorser
[Section 171]
2. Requisites
2-a. Bills has been previously protested for non-payment
2-b. Notice of dishonor has been given to parties secondarily liable
2-c. Payment for honor must be attested by a Notarial Act appended to the protest or form an extension
to it [Section 172]
3. Preference – If two or more persons offer to pay a bill for the honor of different parties, the person
whose payment will discharge most parties to the bill shall be given preference [Section 174]
k-2. Procedures
1. After bill has been protested for non-pament, any person who desires to pay the instrument must go
to a Notary Public and declare that he is paying for honor
2. Declaration must state that payor is paying for honor and indicates name of the party for whose
honor is he paying [Section 173]
4. Declaration is recorded by the Notary Public under seal in the protest itself or in a
separate instrument appended to the protest
5. After such declaration, the payor for honor will notify the party for whose honor he is
paying within a reasonable time
6. Upon payment, payor for honor is entitled both the bill itself and the protest [Section
177]
k-3. Effects
1. If formalities are followed
1-a. All parties subsequent to the party for whose honor it is paid are discharged
1-b. Payor for honor is subrogated for and succeeds both the rights and duties of the holder as regards
the party for whose honor he pays and all parties liable to the latter [Section 175]
1-c. If holder refuses to receive payment, he loses his right of recourse against any party who would
have been discharged by the payment for honor [Section 176]
2. If fornalities are not strictly followed, payment will not operate as payment for honor,
but a mere voluntary payment. Payor acquires only the rights under Articles 1236 and 1237 of
the New Civil Code
L. DISCHARGE
l-1. Grounds for Discharge of Instrument [Section 119]
1. Payment in due course
1-a. By Whom
1. By or on behalf of the principal debtor
2. By the party accommodated, where instrument is made or accepted for accommodation
1-b. When: At or after the maturity of the instrument
1-c. To Whom
1. Holder thereof
2. His authorized representative [Section 88]
1-d. Conditions
1. In good faith
2. Person making the payment has nonotice of defect in his title [Ibid]
2. Intentional cancellation thereof by the holder
3. Any other act which will discharge a simple contract for the payment of money
3-a. Condonation or remission such as the voluntary surrender of instrument by the holder to person
primarily liable without
3-b. Rescission of the contract for which the negotiable instrument has been issued
3-c. Renunciation [Section 122]
1. By the Holder
2. In favor of any party to the instrument
a. Person primarily liable
1. Must be absolute and unconditional
2. Made at or after maturity of the instrument
3. Instrument is discharged
b. Person secondarily liable -
1. Before, at or after maturity of the instrument
2. Party renounced and all parties subsequent to him are discharged from liability
3. Must be in writing unless instrument is delivered to person primarily liable
3-d. Compensation
3-e. Novation
3-f. Prescription
4. Merger or confusion such as when the principal debtor becomes the holder of the
instrument at or after maturity in his own right
l-2. Discharge of Persons Secondarily Liable [Section 120]
1. Any act which discharges the instrument
 2. Intentional cancellation of drawer or indorser’s signature by the holder [see Section
48]
2-a. Not applicable if cancellation is unintentional, through mistake or fraud or without the authority
of the holder
2-b. Burden of proof lies on the party who alleges cancellation [Section 123]
3. Discharge of a prior party
4. Valid tender of payment made by a prior party
5. Release of the principal debtor unless holder’s right of recourse against party
secondarily liable is expressly reserved
6. Any agreement binding upon the holder to extend the time of payment [Section 85] or
postpone holder’s right to enforce the instrument, unless made with the assent of the party
secondarily liable or right of recourse is expressly reserved
l-3. Rights of Party Making the Payment
1. If Person Primarily Liable
1-a. Right to receive the instrument
1-b. Instrument itself is discharged
2. If Person Secondarily Liable [Section 121]
2-a. Right to collect from prior parties
2-b. Right to negotiate instrument to new parties (but not subsequent indorsers)
2-c. Right to strike out his own and subsequent indorsements
3. Instrument is Discharged and cannot be Re-negotiated:
3-a. Where instrument is payable to the order of a third person and was paid by the drawer
3-b. Where instrument was made or accepted for accommodation and has been paid by the party
accommodated