ZPG & ASSOCIATES (Zambales.Pablo.
Gonzales)
ACT NO. 2031
February 03, 1911
THE NEGOTIABLE INSTRUMENTS LAW
I. FORM AND INTERPRETATION
Section 1. Form of negotiable instruments. - An instrument
to be negotiable must conform to the following
requirements:
(a) It must be in writing and signed by the maker
or drawer;
(b) Must contain an unconditional promise or
order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise indicated
therein with reasonable certainty.
What are the requisites for a negotiable note?
A Promissory note, to be negotiable , must conform to the
following requirements:
1. it must be in writing and signed by the maker;
2. Must contain an unconditional promise to pay a sum
certain in money
3. must be payable on demand or at a fixed or
determinable future time
4. must be payable to order or bearer
What are the requisites of a negotiable bill?
A bill of exchange, to be negotiable, must conform to the
following requirements:
1. in writing and signed by the drawer
2. contain an unconditional; order to pay a sum certain
in money
3. payable on demand or at a fixed or determinable
future time
4. payable to order or bearer
5. the drawee must be named or otherwise indicated
therein with reasonable certainty
What is meant by “in writing” and signed by the maker or
drawer?”
The instrument must in writing for if it were not there
would be nothing to be negotiated or passed from hand to
hand. The medium in which it is written and where it is written
is not important. It may be in ink, print or pencil. It may be in
parchment, cloth, leather or any other substitute of paper.
What is important is it is in writing and such writing is capable
of being transferred or negotiated. (e.g. A note written on a
blackboard is not negotiable). In signing, the maker thereby
binds himself to be liable for the note (Sec. 18) It may be the
maker’s full name or his surname only or signature. It may be
in initials or numbers. But , where the name is not signed, the
holder must prove that what is written is intended as the
signature of the person sought to be charged. In fact, for as
long as it be shown that such was adopted and used by the
maker as his signature, it is sufficient. (Note: he who makes it
possible for the commission of fraud, bears the loss).
What is meant by “an unconditional promise/order to pay a
sum certain in money?”
The promise to pay must be on the note itself although it
is not necessary to use the word “promise.” It is enough that
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1. equivalent words be used such as “agree”, “will pay”,
“shall pay”; or that
2. words implying a promise are contained in the
instrument such as “Good to” or “payable on
demand” (e.g. Good to X or order P10.)
Mere acknowledgement of a debt is not enough but an
acknowledgment followed by the phrase “to be paid” implies a
promise to pay. (I acknowledge a debt of P10 to be paid on
demand) Further, an instrument which stated “Due X or order
on demand P10” is negotiable because “to be paid” though not
stated, is required by the sense of the statement. Similarly, it is
not necessary that the word “order” be used. Equivalent words
or those which show the drawer’ will that the money should be
paid are sufficient. All that must be remembered is that the
BOE is more than mere asking of a favor and that it is an
instrument demanding a right. Thus, a mere requests to pay or
mere authorization to ay is not enough to render it negotiable
for it gives a discretion whether or not to pay. To be
unconditional or absolute, the order or promise to pay must
not be subject to a condition (a contingent event). If the event
is certain to happen, it is not contingent nor is it a condition.
Under Art. 1179 of the NCC, a condition is a (1) future and
uncertain event; or (2) a past event unknown to the parties
(See also Sec. 3 for further meaning).
The amount of money to be paid must be
determinable (at the time of issue) by inspection and must be
stated plainly on the face of the instrument. The sum is certain
even is mathematical computation is still needed because the
amount to be paid is still ascertainable from the instrument
alone without reference to any outside source. (see also Sec.
2). The payment must be for a sum of money. To be
negotiable, the bill or note must not be payable in goods,
wares, property or service nor in bonds, stocks, checks or
foreign bills. The reason for the requirement is that money is
the one standard of value in actual business. Exception to this
rule is Sec. 5d. an instrument payable in money or goods,
services et. at the option of the holder. Further, while R.A. 529
requires that the discharge of obligations be in legal tender of
the Philippines the instrument’s negotiability and validity are
not affected by the fact that another currency is stipulated
(Sec. 6e) In such case, the indemnity to be allowed should be
expressed in Phil. Currency on the basis of the current rate of
exchange at the time of payment. But, to be negotiable, the
instrument must state the denomination in which it is to be
payable.
When is an instrument payable on demand?
In accordance with Sec. 7, a note is payable on demand:
1. When it is so expressed to be payable on demand or
at sight or on presentation;
2. when no time for payment is expressed;
3. when an instrument is issued, accepted or indorsed
when overdue- as to the party so issuing, accepting or
indorsing, it is payable on demand.
When is an instrument payable at a fixed or determinable
future time?
It is payable at a fixed time when a date is specified.
But where the date is given as “Dec. 2,” it is not fixed because
the time of payment is not determinable as the year is not
given.
In accordance with Sec. 4, an instrument is payable at a
determinable future time when it is expressed to be payable-
1. at a fixed period “after date or sight; or
2. on or before a fixed or determinable future time
specified therein; or
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
3. on or at a fixed period after the occurrence of a understood to be the legal rate which is 12% for loans or
specified event which is certain to happen though the forbearance of money.
time of happening be uncertain.
What is an escalation clause? A de-escalation clause?

When is an instrument payable to order? To bearer? An escalation clause is a stipulation in an agreement

pertaining to a loan or forbearance of money, goods or credits
In accordance with Sec. 9b, an instrument is payable to bearer providing that the rate of interest agreed upon may be
when increased in the event that the applicable maximum rate of
1. it is expressed to be so payable; interest, is increased by law or by the Monetary Board. De-
2. it is payable to a specified person or bearer; escalation clause is stipulation in the agreement that the rate of
3. it is payable to the order of a fictitious or non-existing interest agreed upon shall be reduced if the maximum rate of
person and this fact is known to the maker or drawer; interest is decreased by law or by the Monetary Board. The
4. when the name of the payee does not purport to be escalation clause is valid if there is also a de-escalation clause
the name of any person; in the agreement.
5. when the only or last indorsement is an indorsement
in blank
What are the requirements as regards payment of
It is not important that the words “order” or “ bearer” be
installments?
used. It is sufficient that words of similar import are put in
its place. (e.g. Pay to B or assigns or “assignees” or
1. The amount of installment must be stated –
“holder” or “possessor”). A note payable to the order or
(the sum payable for each installment must
bearer is payable to order and such instrument may be
not be uncertain. It can be ascertainable.)
negotiated only by bearer’s indorsement. (The bearer is
2. The maturity date of each installment must
the payee.)
be fixed or determinable.
When is the indication of the drawee’s name sufficient?
What is the rule on acceleration clause?
It is sufficient that the name of the person on whom a
An instrument, which is to be paid in, stated installment is not
bill is drawn should appear on the face of the instrument.
rendered non-negotiable despite a provision that upon default
Otherwise, the instrument would not be negotiable. But,
of any installment or of interest, the whole amount shall
under Sec. 14, the drawee’s name may be omitted and be
become due. Such is called an acceleration clause because it
filled in under implied authority like any other blank.
hastens the payment of the whole note. The failure to pay any
(REMEMBER: Sec. 14 refers to the incomplete but
installment renders the balance of the amount immediately due
delivered instruments and that the authority to fill up
and demandable. An acceleration clause does not make the
should be in strict accordance with the authority given).
instrument payable upon a contingency (thus, non-negotiable)
Also, an acceptance by the drawee may supply the
since payment is surely to be made and its time of payment is
omission of a designation and renders said instrument
surely come. In a sense, it is deemed to be payable on or
negotiable.
before a fixed or determinable future time specified therein
(sec.4b)
Sec. 2. What constitutes certainty as to sum. - The sum
payable is a sum certain within the meaning of this Act,
What is the rule on provisions for exchange?
although it is to be paid:
1. with interest; or
Exchange is defined to be the difference in value of the same
2. by stated installments; or
amount of money in different countries. The exchange may be
(c) by stated installments, with a provision that,
at the (1) current rate, or at a (2) fixed rate indicated therein.
upon default in payment of any installment or of
Such provision does not render the instrument non-negotiable
interest, the whole shall become due; or
because while the rate of exchange is not always the same and
(d) with exchange, whether at a fixed rate or at the
while it is technically true that resort must be had to extrinsic
current rate; or
evidence to ascertain what it is, yet the current rate of
(e) with costs of collection or an attorney's fee, in
exchange between 2 places at a particular date is a matter of
case payment shall not be made at maturity.
common commercial knowledge, or at least easily ascertained
by any one so that the parties can always, without difficulty,
What is the rule regarding the sum payable being definite
ascertain the exact amount necessary to discharge the paper. It
and certain?
must be remembered that this provision applies only to
instruments drawn in one country and payable in another.
Since a NI is a device intended to take the place of
Where an instrument is drawn in one country and payable in
money, it is therefore essential that it represents a fixed
the same country, there can be no exchange, so a provision for
amount of money. The amount of money must be determinable
payment of exchange may be disregarded.
by inspection and must be stated plainly on the face/ body of
the instrument.
Why doesn’t a stipulation for attorney’s fees render the
When can it be said that the sum is certain despite the sum uncertain?
stipulation of interest?
Although such a stipulation will make the sum payable after
A stipulation of interest does not render the sum to be maturity uncertain, it will not affect the certainty of the sum
paid as uncertain because given the interest rate, the amount payable at maturity and, therefore will not affect the
due can be easily computed. Provided the principal sum is negotiability of the instrument in which it is stipulated. The
certain, the amount due becomes a matter of mathematical purpose of the stipulation is not to give the lender a larger
computation ascertainable from the face of the instrument compensation for the loan than the law allows, but to
alone. Further, where interest is stipulated but not specified (as safeguard the lender against future loss or damage by being
to rate), the note is still negotiable and the rate is to be compelled to retain counsel to institute judicial proceedings to

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
collect his debt. The provision refers only to reasonable
attorney’s fees.
What is the effect of negotiable after the note is overdue?
After the date of maturity, the instrument will no longer be
negotiable in the full commercial sense, that is, in the sense
that any transferee acquiring it would not be a holder in due
course, as he acquire the instrument after it is overdue. Since
the transferee would not be a holder in due course (HIDC), he
would hold the instrument subject to the defenses as if it were
non-negotiable.
Sec. 3. When promise is unconditional. - An unqualified
order or promise to pay is unconditional within the
meaning of this Act though coupled with:
(a) An indication of a particular fund out of which
reimbursement is to be made or a particular
account to be debited with the amount; or
(b) A statement of the transaction which gives rise
to the instrument.
But an order or promise to pay out of a particular fund is
not unconditional.
What are the difference between par A. and the last par. of
sec 3.?
In the first case, the particular fund indicated is not the direct
source of payment. It is only the source of reimbursement. The
payment of the instrument is not made subject to the condition
of availability or sufficiency of funds in the said account.
Here, the drawee first pays the payee from his own funds,
then, afterwards, the drawee pays himself from the funds
indicated. The order or promise to pay is upon the general
credit of the drawer or the maker. In the second case, the
particular fund indicated is the direct source of payment. Here,
there is only one act, which is that the drawee pays directly
from the fund indicated. The payment is, thus, subject to the
condition that the funds indicated are sufficient. But the funds
indicated may or may not be sufficient so that the instrument is
rendered non-negotiable because payment is conditional.
Eg. 1st case- pays to B or order P10 and reimburses yourself
out of the money in your hands.
2nd case- pays to B or order P10 out of my part of the
estate.
But, where the sum payable is to be paid out of a particular
fund yet payment is not restricted to such fund alone,
negotiability is not destroyed. Eg. Pay to B or order P10 out of
the monthly rental due from A and secured to be paid by my
BPI account. Similarly, where the instrument indicates a
particular account to be debited with the amount, the
instrument remains unconditional and negotiable. The
instrument, in this case, is to be first paid and afterwards, the
particular account will be debited. The payment is not subject
to the sufficiency of account to be debited. Eg. Pay to B or
order P10 and charge the same to my account.
What is a statement of transaction?
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Instruments are not issued without any transaction
upon which they are based. The statement of transaction is the
reason giving rise to the issuance of the instrument and the
mere fact that it. Is stated in the instrument will not make the
promise or order conditional. Eg. Pay to B or order P10 for
payment of a debt.
But where the promise or order is made subject to the
terms and conditions of the transaction stated, then the
instrument is rendered non-negotiable. Besides would be
contrary to the rule that the negotiability of an instrument
(whether there is an un-conditional order or promise) must be
determined only from the document itself and not elsewhere.
Eg. I promise to pay B or order P10 subject to the terms
contained in the contract between A & C. Normally, an
instrument’s negotiability is not affected by the fact that it is
secured by a mortgage. But, where such provision become in
the note will render the amount uncertain or where such
provisions become part of the note, even though they are not
in the note itself, the instrument is rendered non-negotiable.
Thus, where the note is not only secured by a mortgage but
also made subject to its provisions, the note is non-negotiable.
Sec. 4. Determinable future time; what constitutes. - An
instrument is payable at a determinable future time,
within the meaning of this Act, which is expressed to be
payable:
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future
time specified therein; or
(c) On or at a fixed period after the occurrence of
a specified event which is certain to happen,
though the time of happening be uncertain.
An instrument payable upon a contingency is not
negotiable, and the happening of the event does not cure
the defect.
What does “at a fixed period after… sight” mean?
“After sight” means after the drawee has seen the instrument
upon presentments doe acceptance. The instrument becomes
payable after a fixed period subsequent to date of presentment
to the drawee.
What is the rule on “the occurrence of a specified events”?
It is essential that the specified event must be certain to
happen although the time of happening is uncertain. If the
event specified is not certain to happen, then it is a condition
and the instrument would be rendered non-negotiable, it is
payable upon a contingency and, according to the law, the
happening of the contingency or condition does not cure the
defect.
When an instrument states, “ I promise to pay X or order
P1000, 10 days after Y’s death. Sgd.z. is this instrument
negotiable and why?
The instrument is negotiable because payment is still certain to
be made (unconditionally), i.e. Y’s death will surely happen.
But if in the previous example, Z promises to pay 10 days
before the death of ‘ Y, would such instrument be negotiable?
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
No, because the maturity is uncertain (as no one can tell
exactly when another person will die). Further, when Y is
already dead, the instrument will already be over due and will
not be negotiable in its full commercial sense.
Sec. 5. Additional provisions not affecting negotiability. - An
instrument which contains an order or promise to do any
act in addition to the payment of money is not negotiable.
But the negotiable character of an instrument otherwise
negotiable is not affected by a provision which:
1. authorizes the sale of collateral securities in
case the instrument be not paid at maturity;
or
(b) authorizes a confession of judgment if the
instrument be not paid at maturity; or
(c) waives the benefit of any law intended for the
advantage or protection of the obligor; or
(d) gives the holder an election to require
something to be done in lieu of payment of money.
But nothing in this section shall validate any
provision or stipulation otherwise illegal.
What is the general rule as regards the requirement of
additional acts contained in an instrument?
The general rule is that an instrument must not contain an
order or promise to do any act in addition to payment of
money. Otherwise the instrument would be rendered non-
negotiable. But the rest of negotiability is whether or not the
promise to do any additional act would give rise to a cause of
action for breach of contract if the said act is not done, if it
does, the instrument is rendered non-negotiable. Eg. I promise
to pay X or order P1000 and 1 horse. Such is non-negotiable
because it contains an additional act to be performed aside
from payment of money. Eg. . I promise to pay X or order
P1000 and a horse. Such is also non-negotiable because the
choice to pay money or deliver the horse is at the option of the
debtor. But, if the phrase “ at the option of X “ is added to the
instrument, such is negotiable because the option lies with the
holder rendering the sum payable still certain.
What are the exceptions to the general rule?
The negotiable character of an instrument otherwise
negotiable is not affected by a provision which-
1. Authorizes the sale of collateral securities in case of
failure to pay- the additional act to be performed is to
be executed after the date of maturity. Before the date
of maturity, no additional act is to be performed
except the payment of money. Eg. “ I promise to pay
X or order P100 on the December 31,1950 provided
that if I fail to do so, X may sell the rin I delivered to
secure payment of the note. Sgd. A.
2. Authorizes a confession of judgment if the instrument
be not paid- the additional act is to be performed after
the date of maturity when the instrument ceases to be
negotiable in its full commercial sense. A power of
attorney to confess judgment anytime before maturity
renders a note non-negotiable. Further, in the
Philippines, confessions of judgment have been
declared void as against public policy because
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a. They enlarge the field for fraud. 2.
Promissor bargains away his day in court
and the effect of the instrument is to strike
down the right of appeal accorded by the
statute. But while the provision as to
confession of judgment is not rendered valid
(because it is illegal) by virtue of the last
par. of sec.5, the instrument is never the less
negotiable.
(c). Waives the benefit of any law intended for the
advantage or protection of the
obligator- such as the rights to (1) presentment for
payment (sec.70); (2) notice of honor (sec.110); (3)
protest (sec.111). These being rights, they may be waived
unless the waiver be contrary to law, public policy, etc.
(art.6 of NCC.)
(d) Gives the holder an election to require something
other than money- even if there is an additional act, the
instrument still remains negotiable provided that the right
to choose is in the hands of the holder.
Sec. 6. Omissions; seal; particular money. - The validity and
negotiable character of an instrument are not affected by
the fact that:
 it is not dated; or
(b) does not specify the value given, or that any
value had been given therefor; or
(c) does not specify the place where it is drawn or
the place where it is payable; or
(d) bears a seal; or
(e) designates a particular kind of current money
in which payment is to be made.
But nothing in this section shall alter or repeal any
statute requiring in certain cases the nature of the
consideration to be stated in the instrument.
What is the rule on payment in other currencies (par. e)?
Even if the money in which the instrument is to be
payable is not legal tender, provided is current money or
foreign money which has a fixed value in relation to the
money of the country in which the instrument is payable, the
negotiability of the instrument is not affected, as it is still
considered payable in money.
Sec. 7. When payable on demand. - An instrument is
payable on demand:
(a) When it is so expressed to be payable on
demand, or at sight, or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when
overdue, it is, as regards the person so issuing, accepting,
or indorsing it, payable on demand.
Give example of the above.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Ex. 1) of when “it is expressed to be payable on demand”
“I promise to pay on demand P 1,000 to X or bearer.
Sgd. A.
-- Instead of “ on demand” the words “on sight” or “ on
presentation” may be used. The words “at sight” are not
ordinarily used in promissory notes.
2) Of when “ no time for payment is expressed”
“Pay to X or order P1, 000 to Y. sgd. Z.
-- Where the instrument contains a blank space for the date
but no date is indicated, it has been held to be payable on
demand. However, it may be properly considered as an
incomplete instrument and may fall under the provisions if
sec.14 or 15 depending upon how it was delivered (or not).
3. Of the last par.
a. as regards the person so issuing
A note dated July 30, 1984 and payable “30
days after date” is issued on August 4,1984.
b. as regards the person so accepting
A bill payable on August 20,1984 is
accepted by the drawee on August 21,1984.
c. as regards the indorser
A note payable “30 days after August 1,
1984” is indorsed on September 2,1984.
-- After the date of maturity, the instrument can no longer be
negotiated as to make the partios who acquire the instrument
after the date of maturity holders in sue course because they
become holders thereof with notice that it is already overdue,
as it can be determined from the face of the instrument itself.
It is payable in demand only as between the immediate parties.
Sec. 8. When payable to order. - The instrument is payable
to order where it is drawn payable to the order of a
specified person or to him or his order. It may be drawn
payable to the order of:
(a) A payee who is not maker, drawer, or
drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time
being.
Where the instrument is payable to order, the
payee must be named or otherwise indicated therein with
reasonable certainty.
What does payable to order mean?
In BOE, it means that the drawer orders the drawee to
pay the payee indicated or if not him, to anybody designated
by him. Such designation is made by indorsement of the
payee. In PN, the maker promises to pay the payee indicated
or if not him, to anybody designated by him through (also)
indorsement. It does not mean that a bill is necessarily payable
to order because it contains an unconditional order to pay. A
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BOE may either be payable to order or to bearer. Similarly, a
PN may also be payable to order or bearer.
What is the rule on naming the payee?
The law requires that the payee must be named or
otherwise indicated with reasonable certainty. The payee of an
instrument payable to order must be a person in being, natural
or legal, and ascertained at the time of issue. If there is no
payee indicated, no one could indorse the instrument.
Consequently, it is useless to consider it as negotiable.
NOTES: 1) Where the instrument is payable to the
order of the drawer and it is acceptable by the drawee, the
instrument is equivalent to a promissory note by the acceptor
in favor if the drawer.
2) Being joint payees is indicated by the
conjunction “and”.
Eg. “I promise to pay A and B or order
P100. sgd. X.”
3) Being solidary payees is indicated by the
conjunction “or”.
Eg. “I promise to pay to the order of A or B
P100. sgd. X.”
4) Example of par. f – “ Pay to the order of
Cashier of U.P. P10.”
Is the following instrument payable to order: “Pay to the
order of Ms. Laya P100. sgd. Coach.”?
Yes, because the instrument is payable to the order of a
specified person or to him or his order.
When can an instrument originally payable to order
become one payable to bearer?
Under Sec. 98, when the only or last indorsement is an
indorsement in blank.
What is the rule re: the conversion of order noted to bearer
notes?
The rule is once a bearer instrument, always a bearer
instrument. This rule refers to instruments originally payable
to bearer. But an order instrument may be converted to a
bearer instrument by blank endorsement of the payee or last
endorsee. It may again be converted to an order instrument, by
virtue of sec. 35, by writing over the signature in blank any
contract not inconsistent with the character of the
endorsement.
Sec. 9. When payable to bearer. - The instrument is payable
to bearer:
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein
or bearer; or
(c) When it is payable to the order of a fictitious or
non-existing person, and such fact was known to
the person making it so payable; or
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(d) When the name of the payee does not purport
to be the name of any person; or
(e) When the only or last indorsement is an
indorsement in blank.
What is the rule re: fictitious or non-existing persons?
This provision has 2 requisites: (1) the payee named
must be fictitious or non-existent; and (2) the one making the
instrument so payable must know him to be fictitious or non-
existing. The first requisite must be qualified. The words
“fictitious person” are not limited to persons having no real
existence. An existing person may be considered a fictitious
payee, depending upon the intention of the one making or
drawing the instrument. “Fictitious person” means never
intended who has no right to the instrument because the
drawer or maker never intended for it to be payable to the said
person. The want of interest in the payee is not the controlling
consideration in determining whether an instrument is payable
to bearer, as payable to a fictitious person. Rather, it is the
intention the maker or drawer not to make said person the
payee. Thus, it does not matter whether the name of the payee
used by the drawer or maker be that of one living or dead or
one who never existed. The name is fictitious when it is
feigned or pretended and a non-existent person is one who
does not exist in the sense that he was not intended to be payee
by the drawer. Thus, an instrument made payable to the order
of non-existing person or of a person having no interest in the
transaction where the makers believes that such person exist
and has an interest in the transaction and intends that he shall
receive the same, is not payable to a fictitious person or to
bearer. Only if such maker, knowing the person to be non-
existing, never intended it to be paid to the designated person,
can the instrument be payable to a fictitious person or to a
bearer.
NOTES: 1) Under the NIL, a check drawn payable to
the order of “cash” is a check payable to bearer., and the bank
may pay it to the person presenting it for payment without the
drawer’s endorsement.
2) In sec.9e, the instrument contemplated is
one originally payable to order. It becomes payable to
bearer where: (a) there is only one endorsement and
such is in blank: or (b) there are several endorsement
but the last one is in blank. But, a blank endorsement
cannot make a non-negotiable instrument (because
payable to a specified person) negotiable. The word
“indorsement refers only to negotiable instruments.
Sec. 10. Terms, when sufficient. - The instrument need not
follow the language of this Act, but any terms are sufficient
which clearly indicate an intention to conform to the
requirements hereof.
NOTES: It is advisable to use the words of the law in order to
avoid uncertainty. However, under Sec. 10, it is not necessary
to use the exact words of the law. The substance of the
transaction rather than the form is the criterion for the
negotiability.
Sec. 11. Date, presumption as to. - Where the instrument or
an acceptance or any indorsement thereon is dated, such
date is deemed prima facie to be the true date of the
making, drawing, acceptance, or indorsement, as the case
may be.
NOTES: Sec, 11 applies to 3 cases: (1) the instrument
contains the date of issue, in which case it is presumed to be
7
the true date of making or drawing; (2) in an accepted bill of
exchange, the acceptance is dated; in which case it is
presumed to bethe true date of acceptance; (3) an instrument is
indorsed and the indorsement is dated, in which case it is
presumed to be the true date of indsorsement. But all such
presumptions may be rebutted by competent proof to the
contrary. The burden of proving belongs to the persons who
disputes the veracity of the dates indicated.
Sec. 12. Ante-dated and post-dated. - The instrument is not
invalid for the reason only that it is ante-dated or post-
dated, provided this is not done for an illegal or fraudulent
purpose. The person to whom an instrument so dated is
delivered acquires the title thereto as of the date of
delivery.
What is the rule on ante-dating and post-dating?
Sec. 12 contemplates ante-dating or post –dating
where the parties have mutually agreed to such dating. An
instrument is post-dated when the date written thereon is later
than the true date of its issuance or delivery. An instrument is
ante- dated when the date written thereon is earlier than the
true date of its issuance or delivery. The general rule on such
instrument is that an ante-dated or post-dated instrument is not
rendered invalid or non-negotiable by that fact alone. It may
be negotiated before or after the date given as long as it is not
negotiated after its maturity. The only limitation is that the
ante-dating or post-dating is not done for illegal and fraudulent
purposes. Further, title to the instrument is not acquired as of
the date written on the instrument but rather as of the actual
date of delivery.
Sec. 13. When date may be inserted. - Where an instrument
expressed to be payable at a fixed period after date is
issued undated, or where the acceptance of an instrument
payable at a fixed period after sight is undated, any holder
may insert therein the true date of issue or acceptance, and
the instrument shall be payable accordingly. The insertion
of a wrong date does not avoid the instrument in the hands
of a subsequent holder in due course; but as to him, the
date so inserted is to be regarded as the true date.
Is the date necessary to an instrument?
Under Sec. 6, the date is not necessary for the
negotiability of the instrument. However, the date may be
necessary; (1) where an instrument is payable at a fixed period
after date but is issued updated; and (2) where an instrument is
payable at a fixed period after sight but the acceptance is
updated. In these 2 cases, any holder may insert the true date
of issue or acceptance.
Rhoda issues an undated instrument to Sioson, does the fact
that is undated affect is negotiability?
No. sioson can just fill in the true date of issues in order to
determine the date of maturity. But, the instrument’s
negotiability is not affected in accordance with sec. 6.
In the same example, suppose Sioson puts a false date on the
instrument and negotiates it to Lyn, an innocent party. What
are the effects?
The date Sioson inserted is void, but as to Lyn, she can enforce
it against Rhoda as the performer is a subsequent holder in due
course. Remember the rule is that between 2 innocents, the
one who made possible the commission of the wrong bears the
loss. Also, as to Sioson, the instrument becomes void. This
being in accordance with this section as well as with sec. 12,
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
that ante or post dating (which ever case) for fraudulent
purposes renders the instrument void.
Sec. 14. Blanks; when may be filled. - Where the instrument
is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete
it by filling up the blanks therein. And a signature on a
blank paper delivered by the person making the signature
in order that the paper may be converted into a negotiable
instrument operates as a prima facie authority to fill it up
as such for any amount. In order, however, that any such
instrument when completed may be enforced against any
person who became a party thereto prior to its completion,
it must be filled up strictly in accordance with the
authority given and within a reasonable time. But if any
such instrument, after completion, is negotiated to a holder
in due course, it is valid and effectual for all purposes in
his hands, and he may enforce it as if it had been filled up
strictly in accordance with the authority given and within
a reasonable time.
What are the 2 steps in execution of NI?
 The mechanical act of writing the instrument
completely and in accordance with sec. 1, of NI;
and
 The delivery of the instrument with the intention of
giving effect to it.
To what step does sec. 14 refer?
Sec. 14 refers to instrument that are not complete on its face
but delivered by the maker/drawer. It applies to cases where
the instrument is incomplete but delivered. The first step is,
thus, not fully satisfied.
What are the 2 cases referred to in sec. 14? What are the
rules on each case?
1. PRIMA FACIE AUTHORITY TO FILL UP
BLANKS-
Where the instrument is wanting in any material
particular, the person in possession thereof has a
prima facie authority to complete it by filling up to
the blanks therein.
a. Material particular- may either be a
particular the omission of which will render
the instrument non-negotiable
Eg. Of (a) – name of payee, of the drawer
Of (b) – date, rate of interest, place of payment
any particular proper to be inserted in a negotiable
instrument to make it complete (given the circumstances
of the instrument)
o GIVEN 2 FACTS: (1) there is want of material
particular in the instrument; and (2) there is
possession by a person other than the drawer or
maker THEN- the law presumes agency
or authority to fill up the blanks.
2 PRIMA FACIE AUTHORITIES TO FILL UP TO
ANY AMOUNT-
A signature in a blank paper delivered by a
person making the signature in order that the proper
may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as such
for any amount.
1) GIVEN 2 FACTS: (1) A signature in a blank paper,
and (2) the paper is delivered with the intention of
having converted into a NI (mere possession not
8
being enough) THEN- the law presumes
authority to fill up to any amount.
2) But, to hold PRIOR (before completion) parties liable
To a person filling up and to holder not a HIDC- (1)
the blank must be filled up strictly in accordance with
the authority given and (2) filled up within a
reasonable time. (Reasonable time depends on the
nature of the instrument, the usage of the trade or
business and the facts of a particular case sec. 193.)
so much so that lack of one of the two would
result in a failure to enforce the instrument
against said parties.
To a holder who is a HIDC- it is necessary that either
was followed for being a HIDG, he takes the note
(sec. 52)
o Complete and regular on its face;
o Before it was overdue and without notice or
dishonor
o In good faith and value
o Without notice of infirmity in the instrument
or defect in the title of the owner.
 The maker or drawer cannot blame
an innocent party for a mistake
which he himself made possible
(for not completing the notice).
THUS, failure to fill up strictly in accordance with authority
given and within a reasonable time is- a personal defense. This
is so because it is available as a defense only as against those
holders not HIDC (including the person filling up). The maker
or drawer is not liable to them. But, as to HIDC, it is not a
valid defense. The maker is still liable despite the error.
WITH REGARD TO PARTIES AFTER FILLING UP, they
are estopped or precluded from claiming that the notice was
not filled up strictly in accordance with the authority given. As
to them, they negotiate the instrument for the value filled up
strictly.
Suppose: Toby executed a note ”I promise to pay Erwin or
order-------. Sdg. Toby then gave Erwin the note
authorizing him to place any amount not exceeding P5,
000. But Erwin placed P10, 000 and negotiated it to Ian.
Can Ian go against Erwin? Can Ian go against Toby?
As to Erwin, being a party to the completion and having
negotiated the note for such value, Erwin, regardless of
whether Ian is a HIDC or not, can be held liable for the value.
As to Toby, if Ian is not HIDC, Toby cannot be held liable for
the erroneous completion (Toby), the holder must be a HIDC,
the note would be valid and effectual as if it had been
completed in strict accordance with the authority given and
within a reasonable time. While it is true that Toby did not
authorize such amount, by his negligence in making the
fraudulent act possible, he rather the Ian- an innocent party,
must suffer the consequences of its acts.
If Ian, pretending to be a fan of Erap, secures his
autograph on a blank piece of paper and, then, writes a
promissory note over it, may Ian enforce the note? If Ian
negotiate it Toby, may the latter enforce the note against
Erap?
Both may not enforce the note. Sec. 14, while it allows for the
filling up of a blank paper with a signature, does not give such
authority when the said paper with no intention of it being
converted to a NI. It does not matter whether Toby is HIDC or
not. Toby’s remedy would be to go after Ian, the endorser.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Sec. 15. Incomplete instrument not delivered. - Where an
incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid
contract in the hands of any holder, as against any person
whose signature was placed thereon before delivery.
What is the rule on incomplete and undelivered
instrument?
Here, both stances in the execution of a NI are wanting. The
non-delivery of an incomplete instrument renders the note
unenforceable as against the person whose signature was
placed thereon and is a valid defense, not only between the
original parties but also against a HIDC. The law does not
make a distinction when it says that it is not a “valid contract
in the hands of any holder” which includes a HIDC. It is, thus,
a real defense as it is available even as against a HIDC.
However, the invalidity of the instrument is only with
reference to parties whose signature appears on the instrument
prior to delivery. As to parties whose signatures appear on the
instrument after delivery, the instrument may be invalid.
Suppose Toby, before he could complete a note, placed the
said paper between the pages of his book. Erwin who
borrowed the book and finds the said note, completes it,
signs Toby’s name and negotiates it to Ian. Ian negotiates it
to Jon. Can Jon go against Ian?
As the note was incomplete and undelivered, Toby has a real
defense as against Jon. It does not matter whether Jon is a
HIDC or not. As to Toby, there was never any valid contract to
make him liable. But, Jon can still go against Erwin and Ian as
they are considered to be parties whose signature appear after
the delivery (Erwin’s signature would appear as an
instrument.)
All notes when presented for payment arew persumed to
be complete and delivered. The purpose of sec. 14, 15 & 16 is
to show what defenses are available to makers/drawers upon
the presentment of these instruments. For example, in the
hands of a HIDC when the note is originallly incomplete and
undelivered’ such presumption is only prima facie. Proof of
non-delivery may be presented to rebut the presumption. In
contrast, if the note was mechanically but undelivered, the
presumpiton is conclusive as to a HIDC. No proof may be
presentewd to rebut it.
It has been held that where the custody of the
incomplete instrument has been entrusted to another who
wrongfully completes and negotiates the note to a HIDC,
delivery to the agent is asufficient delivery to bind the drawer
or maker.
Thus, the defense is only a personal defense. The one who
being held liable may only show lack of delivery if and when
the holder is not a HIDC (may either an immediate party or a
holder not a HIDC). Once the holder proves that he is a HIDC,
the defense is no longer available.
What is meant by “immediate parties”
The term immediate parties is confined to those who are
immediate, in the sense of knowing or bieng held know the
conditions or limitations placed upon the delivery of the
instrument. It means privity not proximity. The cretirion is
whether or not the party in question knows of the conditions or
limitationas placed upon delivery or the facts that the
instrument was not delivered but stolen. Thus, if a party knows
of such conditions or limitation, he is an immediate party even
if he is physically remote (eg. Maker indorsee who
knows)n (NOTE: While proximity is not the critirion, it is
9
highly improbable that the next party physically will not know
such conditions or limitations).
What may the maker, drawer, indorser show as against the
immediate party or a holder not a HIDC?
As against such parties, he may prove that: (1) no delivery was
made; or (2) if there was a delivery, it was not authorized; or if
the delivery was made or authorized, the delivery was
conditional or for a special purpose and not for the purpose of
transferring the title to the instrument. In conditional
deliveries, what is conditional is the delivery, not the promise
or order to pay. If the promise or order to pay is conditional,
the instrument is rendered non-negotiable. Eg. A deliver the
note to B with the condition that the delivery be binding only
if C’s signature was secured. The delivery is not binding on A
until C’s signature appears thereon. (The promise or order to
pay remains unconditional on the face.) As to special
purposes, if a delivers a bearer instrument to B for (1)
safekeeping or (2) for collection, B cannot enforce the note
against A.
What is the rule on lost or stolen instrument?
As soon as the owner discover that he has lost a NI, he should
instantly give notice of the lose to all parties on such paper and
inform them not to pay the amount to any one except to the
loser or is order. This is especially important in bearer
instrument (but may also apply to order instrument). No title
to a lost bill or note vest in the finder and the owner when he
has identified it, may maintain ero an action where the
defendant found an article and refused to return it to the
owner) against the finder. If the finder has negotiated it and
has received value for it, an action for money be maintained
against him for such use. A party liable will net be discharged
if he pays the amount to the holder of the lost instrument
before maturity or if he had notice of the loss unless the holder
is a HID. (in such case, the party liable should recover from
the finder).
Sec. 16. Delivery; when effectual; when presumed. - Every
contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose
of giving effect thereto. As between immediate parties and
as regards a remote party other than a holder in due
course, the delivery, in order to be effectual, must be made
either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and,
in such case, the delivery may be shown to have been
conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument.
But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him
so as to make them liable to him is conclusively presumed.
And where the instrument is no longer in the possession of
a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary
is proved.
What is the general rule in Sec. 16?
Every contract on a NI even if it is completely written
is incomplete and revocable until its delivery. Before delivery,
the maker or drawer can revoke, cancel or tear up the
instrument. The payee named therein acquires no right until
the instrument is delivered to him. Delivery is essential to the
validity of any NI. An undelivered instrument is inoperative
because delivery is a prerequisite of liability. However, if a
complete instrument is found in the possession of an
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
immediate party or a remote party other than a HIDC, there is
a prima facie presumption of delivery but subject to rebuttal. If
the holder is a HIDC the presumption becomes conclusive and
not subject to rebuttal.
If the note is found with immediate party or a holder
not a HIDC, the one being held liable can show that delivery
was not made either him or under his authority. (Delivery may
be made by the maker/ drawer himself or through an
authorized agent. Delivery may also mean issuance.) But, if
the note is with a HIDC, the one being held liable cannot
prove such because he is conclusively presumed to have
delivered it. Thus, is a maker denies having delivered a
complete note, the holder must only show that he is a HIDC
and the former can no longer prove his accusation.
Sec. 17. Construction where instrument is ambiguous. -
Where the language of the instrument is ambiguous or
there are omissions therein, the following rules of
construction apply:
(a) Where the sum payable is expressed
in words and also in figures and there
is a discrepancy between the two, the
sum denoted by the words is the sum
payable; but if the words are
ambiguous or uncertain, reference
may be had to the figures to fix the
amount;
(b) Where the instrument provides
for the payment of interest, without
specifying the date from which
interest is to run, the interest runs
from the date of the instrument, and
if the instrument is undated, from the
issue thereof;
(c) Where the instrument is not dated, it will be
considered to be dated as of the time it was issued;
(d) Where there is a conflict between the written
and printed provisions of the instrument, the
written provisions prevail;
(e) Where the instrument is so ambiguous that
there is doubt whether it is a bill or note, the
holder may treat it as either at his election;
(f) Where a signature is so placed upon the
instrument that it is not clear in what capacity the
person making the same intended to sign, he is to
be deemed an indorser;
(g) Where an instrument containing the word "I
promise to pay" is signed by two or more persons,
they are deemed to be jointly and severally liable
thereon.
 The rules stated shall not be availed of if the terms of the
instrument in question are clear and admit of no doubt. It is
only when the instrument in question is ambiguous, doubtful
or obscure or when there are omissions therein will the rules
apply.
EXAMPLE OF THE RULES:
(a) Where a PN reads “twelve pesos” in its body and P
1,200 (in figures) at the margin, the note is good only
for P 12. The reasons are: (a) the figures in the
margin do not form part of the instrument and is only
for convenience: (b) it is easier to change the figures
or to commit a mistake than a sum in words. But
when the words are ambiguous or uncertain as when
10
the letter “Y” in eighty thousand is unclear (with
P8,000 on margin) or when the note is payable for
“one pesos” ( with P 100 on margin) or P365 is
written as “three sixty five pesos”, the marginal
figures control.
(b) Where the note stipulates that the amount to be paid
is “with interest at ______% from____”, it is deemed
payable from the date in the note or if issue at the
legal rate.
(c) Where the note states “I promise to pay to the rule of
J.M ONLY P 10. sgd. X.” with “J.M ONLY” in
handwriting, the note is non-negotiable as it is
payable to a specified person only. The handwritten
words prevail because the written words are deemed
to express the true intention of the maker because
they are written by him while the printed words are
printed with no contract in view.
(d) Where a note states “I promise to pay Erwin or order
P 10. sgd. Toby. Ian”, the payee or holder may treat it
as either a note or bill according to his preference.
(e) Usually, the signature of the maker/drawer is placed
in the lower right hand corner if the face, the acceptor
across the face and the indorser at the back. Where it
is not clear which if the three a person belongs as he
signs on the margins, he is presumed to be an
indorser.
(f) Where a note states “I promise to pay C or order P10.
sgd. A&B.”, the makers are deemed to be solidarily
bound.
Sec. 18. Liability of person signing in trade or assumed
name. - No person is liable on the instrument whose
signature does not appear thereon, except as herein
otherwise expressly provided. But one who signs in a trade
or assumed name will be liable to the same extent as if he
had signed in his own name.
What is the general rule? Exceptions?
GENERAL RULE: A person whose signature does not appear
on the instrument cannot be held liable thereon
EXCEPTIONS:
(1) The principal is liable if duly authorized agent signs
on his own behalf (Sec. 19);
(2) In case of forgery is liable even if his signature does
not appear on the instrument (Sec. 23);
(3) Where a person sought to be charged signs on paper
separate from the instrument itself, as in an allege
although the allege may be considered a part of the
instrument, or where an acceptance is written on
another paper other than the bill (Sec. 134 & 135);
(4) Where a person signs under an assumed or trade
name- not really an exception, rather an instance
where a person’s business name serves the same
purpose as his signature. There must be an intention
to be found by signing the trade name.
Sec. 19. Signature by agent; authority; how shown. - The
signature of any party may be made by a duly authorized
agent. No particular form of appointment is necessary for
this purpose; and the authority of the agent may be
established as in other cases of agency.
a. The party may sign personally or thru an
agent. Agency may be oral or written
authority. It may be proved by oral or
written evidence, unless specific provisions
of the general law require otherwise (eg.
Statute of Frauds).
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Sec. 20. Liability of person signing as agent, and so forth. -
Where the instrument contains or a person adds to his
signature words indicating that he signs for or on behalf of
a principal or in a representative capacity, he is not liable
on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal,
does not exempt him from personal liability.
What are the requisites for an agent to escape liability?
(1) The agent must be duly authorized.
(2) Must add words to his signature indicating that he
signs as an agent, that is, for or on behalf of a
principal.
(3) Must disclose his principal.
EXAMPLES
Of no.2 - “Jose Cruz by Pedro Vega” “Pedro Vega as
agent of “Jose Cruz”
Of no.3 – “sdg. Pedro Vega, agent” – Vega is liable as
he fails to disclose his principal (even if he acts within his
authority). “Agent” is deemed as merely a descriptive word,
also “trustee”, “administrator” – one is not relieved from
liability by adding descriptive words.
Of no. 3 – the disclosure of the principal in order to
relieve the agent need not be in signature (can be in the body).
Eg. “ I promise to pay X or order P100 for money loaned to Y
& Co. sgd. J, Treasurer.” The principal is obvious”.
Sec. 21. Signature by procuration; effect of. - A signature by
"procuration" operates as notice that the agent has but a
limited authority to sign, and the principal is bound only in
case the agent in so signing acted within the actual limits of
his authority.
What is the authority of an agent by procuration?
This agent has but a limited authority to sign and he must act
within the limits of his authority. The words “per proc.”
or “p.p.” serves as a notice to whole world that the agent
has but a limited authority. It is the duties of the 3rd
person dealing with such agent ascertain the limits of the
agent’s authority. He must remember that he is dealing at
his own risk.
FORM: “Jose Cruz (principal), per proc.: Pedro Vega (agent)”
Sec. 22. Effect of indorsement by infant or corporation.- The
indorsement or assignment of the instrument by a
corporation or by an infant passes the property therein,
notwithstanding that from want of capacity, the
corporation or infant may incur no liability thereon.
What is the rule: a minor or corporation indorsing?
Ordinarily, a minor cannot give consent to contracts and a
contrast entered into by him is avoidable. In the case of
corporations, they cannot perform acts beyond the escape
of their authority. Such acts would be ultra vires Never
the less, if a minor or a corporation endorsee an
instrument, the endorsee acquires titles to it and can
enforce it agains the maker or acceptor or other parties
prior to the minor.
Suppose: Lyn prepares a note for Paz, “ I promise to pay Paz
or order P1, 000. sdg. Lynn” But Paz is only a minor. Paz
negotiated the instrument to Lawrence. Can he hold Lynn
liable Paz?
11
Lawrence can hold Lynn liable because he acquires title to the
instrument by virtue of sec. 22. The instrument is validly his.
But Lawrence cannot hold Paz liable because Paz has a valid
defense – her minority. Minority is real defense in the sense
that the Paz may use it as against any holder (even a HIDC).
But, Lynn cannot make use of the same defense as it is
personal to the minor – Paz. Further, as maker, Lynn warrants
the existence of the thing as well as the capacity of the payee
to enter into the contract. The maker is therefore precluded
from putting up the defense that the payee had no capacity.
Sec. 22 is also applicable to endorsements by lunatics,
imbeciles, and other incapacitated parties.
Sec. 23. Forged signature; effect of. - When a signature is
forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of
authority.
What is forgery?
By forgery is meant the counterfeit making or fraudulent
alteration of any writing, and may consist in the signing of
another’s name or the alteration of an instrument in the name,
amount, description of the person and the likes, with intent to
defraud. The intent to defraud distinguishes forgery from
innocent alterations and spoliation.
What are the forgeries not referred to in sec. 23?
- fraud in factum – or fraud in esse contractus.
Here, there is fraud in the sense that ther was
really no intention to issue an instrument. As it
amounts to forgery, it has the effects of forgery
such that it is a real defense.
eg. B obtains the signature of A by
telling A that it is only for autograph
purposes or that it is for some document
(other than a NI) then B converts the
paper into a NI. The fraud here amounts
to forgery.
This must be distinguished from fraud in document
because the letter is only a personal defense as there
really was an intention of issuing an instrument. Eg.
A sell to B a diamond rings showing the merchandise
to A. But it is only glass. A makes out a check in B’s
favor for it. While the consent is vitiated, thus
rendering the contract voidable, there was still intent
to issue a check. The defense is only available as
against the party who perpetrated.
- Duress amounting to fraud – ordinarily, duress is
a personal defense. The only
exception is if it amounts to forgery as when someone
forcibly takes one’s hands
and affixes that the person’s signature. Here, there is a real
defense as there was no intention of issuing a negotiable
instrument.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
- Fraudulent impersonation – in such cases, the
maker/drawer is said to have a/double intent.
First he intends to make the instrument payable
to the person before him or in front of him – the
person is he is dealing with regardless of
whoever he is. The 2nd intent is that he intends
that it be payable not to the person in front of
him but to the real person – the payee that this
person says he is. In general, the rule is if the 1st
intent was present the maker/drawer is liable. So,
what is important is the determination of who the
payee intended is.
Eg. A person approaches me and says, “ I am
Pablo. I have a check in my favor for P10, 000.” But the
person is really Pedro. Now I issue a check in the name of
Pablo. What is my intention?
1st : I intend to the check to the person in
front of me – to the person I am
dealing with. It does not matter whether his name is
Pablo or Pedro. I am making
the transaction because of what he offers regardless
of his identity.
2nd : I intend to make the check payable to
the real Pablo – the person who
Pedro says he is.
(a) The 1st intent governs because of the theory of
actual intent and of stopped or negligence. If the
check is encashed, the bank, in paying Pedro
would merely give due course to my real intent –
that it be paid to the person I directly dealt with
and to whom I intended it to be paid to.
Secondly, because the bank is innocent as I am
too, and as between two innocent parties, the one
who was negligent must be bear the loss. I was
negligent is not ascertaining his identity. I am
stopped to deny my real intent because it was
within my power to ascertain but that I failed to
do so.
(b) The 1st intent cannot rule when the maker/drawer
issues to a person an instrument where the
person before him purports only to be an agent of
the intend payee (given: maker was’nt
negligent).
What type of forgery does sec. 23 refer to?
Sec. 23says, “when a signature is forged…” it applies
therefore only to (1) forged signatures (forger does not purport
to be an agent of the person whose signature he has forged) or
(2) signatures made without the authority of the person whose
signature it purports to be (forger purports to be agent but has
no authority). If the problem is something else other than the
signature, then sec. 23 will not apply. If what was changed was
the amount or the name of the payee, sec. 124 on material
alternation rather than sec. 23 should apply.
What are the three fundamental rules as to the effect
of a forged signature?
that the signature forged or made without
authority is wholly inoperative;
that no right to retain the instrument, or to
give discharge therefore or enforce payment
thereof against any party thereto can be
12
acquired through or under such a signature
forged or made without authority.
That, nevertheless, as against a party
preclude from setting up to the forgery or
want of authority, the signature forged or
made without authority is operative, and,
rights to retain the instrument the
instrument, to give discharge therefore , or
to enforce payment thereof, can be acquired
through or under the signature forged or
made without the authority.
What is meant by “it is wholly inoperative?
The word it refers to forged signature, not to the
whole instrument. It means that the forged signature cannot be
used to transfer title ever that the instrument to another person.
The forged signature cannot operate to transfer title to another.
Because the signature is inoperative, the holder never acquires
valid title to the instrument so that it is a real defense as
against any holder.
EXCEPTIONS:
1) but, only the signature forged or made without
authority is stated by the law to be inoperative,
neither the instrument nor the genuine signatures are
rendered inoperative. Proof that the one of several
signatures in a note was forged does not necessarily
avoid the note as to those whose signatures as are
genuine – such as those who actively procured the
forgery or had knowledge.
2) further, the instrument can be enforced by holders to
whose title ever the instrument the forged signature is
not necessary., such as, an endorsement of an
instrument which on its faco is payable to bearer.
Whether an indorsement on a not necessary for the
holder’s title is genuine or forged is immaterial to his
right to recover such instruments can be negotiated
by mere delivery so that the forged signature is
irrelevant to his title.
PROBLEM: A made a Promissory note “I promise to pay
B or order P1, 000. sdg A. “A is the maker and B is the
payee. B however lost the instrument. C found it and
simulated the signature of B and negotiated the instrument
to D. D negotiated it to E. Can E go against A, B, C, D?
Explain.
ANSWER:
First, does this problem involved sec. 23, forgery of
a signature? Obviously, it does. Second, find out where
the forgery occurred. In this case, the forgery occurred at
the point of C. So this is the cut-off point. All those below
or subsequent to the cut-off point. Are liable to the holder.
All those above or prior to the cut-off point are not liable
to the holder.
Visually
A } not liable
B } not liable
---------------------- cut-off point
C } liable
D } liable
E } holder
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(1) as to D, under sec. 23, D is preclude from setting up
the defense of forgery. This is because, under sec. 65
& 66, an indorser warrants that an instrument is
genuine and in all respects what it purports it to be. In
other words, when D negotiated the note to E, in
effect, he said, the instrument is genuine and it is
valid. “ Having impliedly said this, he cannot
thereafter say that the instrument is invalid. He is
stopped by his own warranty.
As to C, being the forger, he is guilty of a
criminal offense and is liable for all the
consequence of his criminal act. But, more than
that, under sec. 18 as an exception to the general
rule, the forger is liable as he is deemed to have
signed under a trade name or assumed name.
Thus, the forger has the same warranty as the
general indorser. Otherwise, the forger would be
occupying a position better than of a general
indorser.
(1) As to B, because under sec. 10 “ A person where
signature does not appear thereon is not liable on the
instrument. “B did not sign. Somebody signed for
him without his authority. His signature does not
appear on the instrument and thus, he cannot be liable
thereon. Moreover, under sec. 23, the forged
signature (made by C) is totally or wholly
inoperative. Therefore, no title was validly
transferred from B to C to D to E. therefore E
acquired only the right that cannot be upheld as
against B and any party prior to the forgery, it being
wholly inoperative, there is no right even to retain the
instrument or to enforce payment thereof against any
party thereto.
(2) As to A, insofar as A is concerned, the signature
forged is wholly inoperative and therefore it did not
validly transfer title to the instrument to E. And E as
against A has no right to retain the instrument ant to
enforce payment thereof. (Further, A bound himself
to pay the order of B. E cannot be regarded as such.
SUPPOSE: In problem 1, the note was a bearer instrument but
C, in forging B’s signature, indicated that it was payable to
him in the back was put “ Pay to D. sgd.C.” D negotiated it to
E, “Pay to E. sgd.D” Can E now go against A,B,C,D?
(1) Sec. 23 applies only the instrument payable to order
not to those payable to bearer. The forged signature of
B is not necessary to the title of the holder. The
holder can even cross out all those indorsement not
necessary (sec. 48). Once an instrument is payable to
bearer, it will always remain a bearer instrument not
withstanding the special indorsement. If the crosses
them out, it will be as if the note was delivered
directly in him. Therefore. E can hold A, B, C, D.
While the cut-off point rule is used above in
the situation of an indorser, it is also
applicable to forgeries of a maker’s/drawer’s
signature such that all parties such that all
parties below the cut-off point (all parties
subsequent to the maker/drawer) can be held
liable but not the maker/drawer. Further,
under sec. 18, he whose signature does not
appear thereon is not liable on the
instrument.
13
Who are precluded from setting up the defense of forgery?
Those who warrant or admit the genuineness of the
signature in question:
 indorser – whether general or qualified, warrant that the
instrument is
genuine and in all respects what it
purports to be (sec. 65 & 66)
 person negotiating by mere delivery – also by sec. 65.
 Acceptors – by accepting the bills, he admits genuineness
Those who, by their acts, silence or negligence are
stopped from setting up the defense of forgery.
Whenever a party has, by his own declaration, act
or omission, intentionally and deliberately led
another in believe that his or another’s signature in an
instrument is genuine, an to act upon such belief, he
cannot, in any litigation, a rising out of such
declaration, act or omission, be permitted to set up
the forgery of such signature. Stopped arises from:
(1) a declaration;
(2) an act;
(3) omission or negligence – (such as unreasonable
delay)
What are the causes of forgery in general?
I. Forgery of promissory notes:
i. forgery of an endorsement in the
note;
2.)forgery of the maker’s signature
II. forgery of bills of exchange:
a) forgery of an indorsement in the bill;
b) forgery of the drawer’s signature.
a. with acceptance by the drawee, or
b. without such acceptance but the bill is paid
by the drawee.
The cut-off point rule discussed above is a
sufficient guide to see who can be held liable on
instruments payable to order whether the forgery is
of the indorsement or maker’s/drawer’s signature.
What remains to be discussed is the liability of the
drawee in bills where the indorsement is forged.
(below)
As mentioned, when the note/bill is payable to
bearer, sec. 23 is not applicable but a holder who is
a HIDC can recover not by virtue of sec. 16 (given
the instrument is complete).
As to the acceptor, his acceptance precludes him
from setting up the defense of forgery by virtue of
his warranties in accepting. Also, in paying without
previous acceptance, the drawee cannot collect
from the drawer nor the recipient HIDC. The
acceptor is deemed constructively negligent in
failing to meet its obligation to know its customer’s
(drawer) signature. The basis of such liability is not
that payment is tantamount to acceptance but that
of his negligence. (Here it is the drawer’s signature
which is forged).
What rules used govern checks?
The same rule used for the other NI – the cut-off point rule –
with the exception of the determination of the drawee bank’s
liability vis-à-vis each other.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
METRO BANK VS. FNCB (118 SCRA 537)
Cunanan & Co. drew a check for P 50, 000 with FNCB as the
drawee in favor of Manila Polo Club. By unknown
circumstances, Sales was able to obtain the check, altered the
same (making it payable to cash and for P 50, 000) and
deposited it with Metro Bank. MB then sent the check to the
CB clearing house with stamp on the back: “ Metro Bank
cleared…office all prior endorsement and/ or lack of
endorsement guaranteed. “ the check cleared the same day and
FNCB paid MB the P 50, 000. Within 6 days, Sales whose
account was credited with the amount, withdrew the money.
But before the last withdrawal, MB, alarmed at the activity of
the account, clarified the matter with FNCB which gave its
approval. Upon receipt of the check, Cunanan notified FNCB
of the alternation. FNCB asked MB to reimburse the amount
but the latter refused. Who is liable?
SC declared that under CBC no. 9, the drawee bank
(FNCB) must return the check within 24 hrs. from receiving it
from the CB clearing house to the collecting bank for any
defect such as an alteration. The stamped guarantee of MB
must be read with CBC no.? That the liability of the collecting
bank on such stamp is limited to the said 24 hrs. Here, FNCB
returned the check only after 9 days. Further, the approval
given by FNCB of the last withdrawal shows the drawee’s
negligence and stopps them from claiming otherwise. FNCB
IS LIABLE.
CBC No. 9 has been superseded by CBC No. 580
(1997). Under 580 the attention of the collecting bank
must be called within 24 hrs. from the date of
discovery of the fraud, forgery or material alteration.
If the case happened at present, MB would have to
reimburse FNCB for the amount.
This case, strictly speaking, involves material
alteration and is not applicable to Sec. 23 except as
tro the liabilities of the drawee bank and the
collecting bank in cases falling within the scope of
Sec. 23.
Therefore, if the drawee bank is vigilant as to inform
the collecting bank within 24 hrs. from discovery, the
liability for forged checks will lie with the latter. The
remedy of the collecting bank is to insure itself
against such losses. If the public cannot hold the
collecting bank liable, it will no longer use checks but
rather cash. Commercial transaction s will bog down.
Consequently, the economy will stand still and the
banks will suffer. The drawee bank is liable only for
the signature of the drawer. It is only to such party
that the bank has privity with. The collecting bank
has privity with the depositor who is the principal
culprit in the case. Thus, it has duty of diligence.
II. CONSIDERATION
Sec. 24. Presumption of consideration. - Every negotiable
instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature
appears thereon to have become a party thereto for value.
What does this section provide?
Under this Section, the mere introduction or
negotiation of a note raises a disputable presumption of a
sufficient consideration . It is unnecessary to aver or prove
consideration, for consideration is imported and presumed
from the fact that it is a NI. The person (maker/drawer or
14
indorser) claiming that a payee or indorsee did not give
valuable consideration for an instrument must prove that there
really was no valuable consideration given.
Sec. 25. Value, what constitutes. — Value is any
consideration sufficient to support a simple contract. An
antecedent or pre-existing debt constitutes value; and is
deemed such whether the instrument is payable on
demand or at a future time.
What is valuable consideration?
Consideration means inducement to a contract that is,
the cause, motive, price or impelling influence which induces
a contracting party to enter into a contract. Valuable
consideration consists either in some right, interests, profit or
benefit accruing to the party who makes the contract, or so,
forbearance, detriment, loss or some responsibility to act or
labor, or service given, suffered or undertaken by the other
side. Consideration founded on (1) love and affection, or (2)
upon gratitude, is good consideration, but does not constitute
such valuable consideration as is sufficient to support the
obligation of a bill or note, as between original parties.
Included on this are gifts, services without expectation of
compensation, moral obligations. These are not valuable
consideration contemplated by the NIL., although the same are
considered so by the Civil Code. A valuable consideration
need not be adequate. It is sufficient if it is a valuable one.
Sec. 26. What constitutes holder for value. - Where value
has at any time been given for the instrument, the holder is
deemed a holder for value in respect to all parties who
become such prior to that time.
What is a holder for value?
One who gives valuable consideration for an
instrument issued or negotiated to him is a holder for value.
ILLUSTRATION: A, maker, B, payee. B indorses to C, C to
D, D to E, holder. Between A & B no valuable consideration.
Between B & C valuable consideration is given. Between D &
E it is not known whether value was given.  E is a holder for
value as to A, B and C because at C’s time there was valuable
consideration given and A, B, and C were partiers prior to the
time when value had been given. As to D, it is not known.
Sec. 27. When lien on instrument constitutes holder for
value. — Where the holder has a lien on the instrument
arising either from contract or by implication of law, he is
deemed a holder for value to the extent of his lien.
Suppose: Erwin, out of love and affection, issued a
promissory note in favor of Anne Marie, “ I promise to pay
Anne Marie or order P1,000.00. sgd. Erwin.” As a birthday
gift. But Anne Marie owes Peter P6000.00. Because of the
persistence of Peter for AM to pay him, she surrenders the
instrument to him. Peter is now the holder. Can Peter go
against Erwin?
Given the lack of valuable consideration between
Anne Marie and Erwin applying Sec. 27, Peter is considered a
holder for value to the extent of his debt or lien- P600 and can
go against Erwin for such amount. As to the P400 remaining,
as Peter is not considered a holder for value to such extent, he
may not collect it. Absence of consideration, being a personal
defense (Sec. 28), can be used as against those not HIDC.
Since being a holder for value is one of the requisites of a
HIDC, Peter can not be considered as HIDC and thus, the
defense of lack of consideration is available to Erwin as
against Peter. HOWEVER, if sufficient consideration existed
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
between Anne Marie and Erwin, Peter may collect the entire
sum subject to the obligation to return the excess to AM. But,
also, if the defense of Erwin is a real defense, Peter may not
recover from the instrument despite his lien.
Sec. 28. Effect of want of consideration. - Absence or failure
of consideration is a matter of defense as against any
person not a holder in due course; and partial failure of
consideration is a defense pro tanto, whether the failure is
an ascertained and liquidated amount or otherwise.
What is absence of consideration? Failure of consideration?
Distinguish the two.
Absence of consideration is a total lack of any valid
consideration such as when the consideration for commercial
paper is clearly fraudulent. Failure of consideration is the
neglect or failure of one of the parties to give, to do or to
perform the consideration agreed upon. Want or absence of
consideration embraces transactions where no consideration
was intended to pass while failure of consideration was
contemplated but that it failed to pass.
Illustrate partial failure of consideration.
Suppose that in a note for P1,000.00 the extent of
want of consideration is only P600.00 That is, B., payee, gave
A, maker valuable consideration to the extent of P400.00. A
can interpose want of consideration pro tanto, or
proportionate- only to the extent of P600.00. C, holder, if he is
not a HIDC, can only collect from A P400.00. But, if he were
a HIDC, he can collect the entire amount.
What kind of defense is absence or failure of consideration?
Failure or absence of consideration , whether total or
partial, can be interposed as a defense only against persons not
HIDC but not against HIDC. These defenses are, therefore,
only personal or equitable defenses.
Sec. 29. Liability of accommodation party. - An
accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of
lending his name to some other person. Such a person is
liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party.
What is an accommodation party?
An accommodation party is one who has signed the
instrument as maker, drawer, acceptor or indorser without
receiving value therefore, and for the purpose of lending his
name to some other person. The requisites therefore are : (1)
he must be a party to the instrument, signing as maker, drawer,
acceptor or indorser; (2) he must not receive value therefore;
and (3) he must sign for the purpose of lending his name or
credit. Thus, it is not a valid defense that the accommodation
party did not receive any valuable consideration when he
executed the instrument as the law requires such absence. (In
contrast, under the Civil Law, the absence of consideration
renders the contract defective.) The placing on the note of the
words “ value received” does not negate the character of the
note as an accommodation paper. The phrase without receiving
value therefore “ means without receiving value by virtue of
the instrument and not as it apparently is supposed to mean,
without receiving payment for lending his name.
ILLUSTRATION:
15
1. ACCOMODATION MAKER- A wanted to borrow
money from B. But B would not lend the money to A
because of the former’s bad reputation. A would only
lend B the money if the latter were able to secure the
signature of C. B asks C to execute a PN in his(B)
favor. C makes a PN, “I promise to pay B or order
P1,000.00 sgd. C.” B then indorses the note to A and
B gets the P1,000.00 from A.
In this eg., B is the accommodated party. C
is the accommodated party (maker). He
become a party to the instrument as maker
but only for the purpose of lending his name
or credit to B so that B can raise the money
he needs. C who as a maker is ordinarily
primarily liable, is only secondarily liable, is
primarily liable. This is because ultimately,
the accommodated party is the one required
to pay. But if due date comes and B cannot
pay, C can be held liable to pay despite A’s
knowledge that C is only an accommodated
party. Then, C after payment can have
recourse as against the one primarily liable,
the accommodated party -. (In my opinion,
when due date comes is C that A should go
against. After payment, only then can B held
liable. So, the maker is still primarily liable
– at least, at first).
A corporation cannot be held liable as an
accommodation party. This is because a
corporation cannot issue instruments without
a consideration. And under sec. 22, while
title may pass as to the instrument, the
corporation may not be held liable due to its
want of capacity (to issue “consideration -
less” NI). In such cash, it is the officers who
issued the instrument who must be held
liable in their individual capacities. Such an
act is considered ultra vires. (See cases)
2) ACCOMODATION INDORSER – in the eg. Above
instead of asking C to execute a PN, B makes a note favor of
A. B asks C to indorse the note without receiving value
therefore. Here, C is considered an accommodation indorser.
Such endorsement is for the purpose of better securing the
payment of the note.
3) ACCOMMODATION DRAWER – in the eg. Above,
instead of executing a PN, C executes a BOE with B as the
payee even though no valuable consideration is received by
C.B then indorses the bill to A, who gives the proceeds to B.
4) ACCOMMODATION ACCEPTOR – in the eg. Above,
instead of ask C to accept the bill drawn by him (B) in this
own favor. Then, B indorses the bill (that was accepted by C)
to who gives the money.
What is the legal position of the accommodation party?
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
The accommodation party is generally regarded as a
surety for the party accommodated. It is not the
accommodation party that is ultimately liable for the
instrument issued. It is the accommodated party. When the
accommodation party makes payment to the holder, they have
the right to see the accommodated party for reimbursement
since the relation between them is in effect that of principal
and sureties. The accommodated party cannot recover from the
accommodation party because, as between them, absence of
consideration is a valid defense. The understanding between
them is either: (1) the accommodated party pays the
instrument directly to the holder; or (2) the accommodated
party reimburses the amount paid by the accommodation party
to the holder.
A holder despite his knowledge that the
party he holds liable is just an
accommodation party can still recover from
such party as if there was no contract of
accommodation. The knowledge of the
holder does not effect his being an otherwise
HIDC. Thus, to hold the accommodation
party liable, the holder, except for the
knowledge of want consideration, must
meet all the requisites under sec. 52, that is,
the holder for value must have acquired the
instrument complete and regular on its face,
before it is overdue and without notice of
previous dishonor. Where he does not meet
all these, thus not a HIDC, sec. 28 not a sec.
29 applies. The accommodation party may
interpose the defense of its being an
accommodation party to a holder not HIDC.
A solidary accommodation party (1) may
demand from the principal debtor
reimbursement of the amount he paid; and
(2) may demand contribution from his co–
accommodation makers without first
directing his action against the principal
debtor provided that (a) he made the
payment by virtue of a judicial demand; or
(b) the principal debtor is insolvent.
III. NEGOTIATION
Sec. 30. What constitutes negotiation. - An instrument is
negotiated when it is transferred from one person to
another in such manner as to constitute the transferee the
holder thereof. If payable to bearer, it is negotiated by
delivery; if payable to order, it is negotiated by the
indorsement of the holder and completed by delivery.
DEFINITION OF TERMS:
1. Transfer- to convey property from one
person to another;
2. Holder- the payee or indorsee of a bill or
note who is in possession of it or the bearer
thereof (Sec. 191).
What are the 3 types of transfer?
1. by assignment;
2. by operation of law
3. by negotiation which may either be by indorsement
completed by delivery or by mere delivery.
What is assignment?
Generally, it is a method of transferring a non-
negotiable instrument whereby the assignee is merely placed
in the position of the assignor and acquires the instrument
subject to all defenses that might have been set up against the
16
original payee. The effect of the assignment is that the p[arty
holding the right drops out of the contract and another takes
his place. Each assignee takes his chances as to the exact
position in which any party making an assignment of it stands.
Where the holder of a bill payable to order transfers it without
the indorsement, it operates as an equitable assignment but the
assignee has the right to compel the assignor to indorse the
instrument (Sec. 49).
When does transfer of operation of law occur?
The full title to a bill or note may pass without either
assignment, indorsement or delivery but by operation of law
by:
1. the death of the holder, where title vests in his
personal representative (Succession);
2. the bankruptcy of the holder, where title vests in the
assignee or trustee (insolvency), or
3. upon the death of a joint payee or indorsee in which
case the general rule is that the title vests at once in
the surviving payee or indorsee.
What is negotiation?
It is the transfer of an instrument form one person to
another so as to constitute the other the holder thereof. There
is no negotiation if the transfer does not make the transferee
the holder of the instrument. Where the instrument is payable
to order, it is negotiated by the indorsement of the holder
completed by delivery, and where it is payable to bearer, by
mere delivery. But where the instrument is payable to bearer
and it was indorsed and delivered, the transferor shall be liable
as an indorser. Further, for the holder to hold liable such
indorser, the former must be able to trace his title through an
unbroken chain of indorsement (Sec. 40)
Sec. 31. Indorsement; how made. - The indorsement must
be written on the instrument itself or upon a paper
attached thereto. The signature of the indorser, without
additional words, is a sufficient indorsement.
What is the nature of indorsements?
Indorsement is the writing of the name of the indorser
on the instrument with the intent either in transfer the title to
the same, or to strengthen the security to the holder by
assuming a contingent liability for its future payment, or both.
An indorserment is not only a mode of transfer. It involves
also a new contract and an obligation on the part of the
indorser – an impiled guaranty that the instrument will be duly
paid according to the terms thereof. That, further, if the
instrument is not paid by the one primarily liable, the indorser,
after due notice of dishonor, will pay. There is an added
obligation upon the instrument reside from what appears upon
the face of the instrument.
Where is the indorsement written?
The indorsement may be written (1) on the
instrument itself; or (2) upon a paper attached thereto. Where
it is written on the instrument itself, it is usually written on the
back. But, the law looks to the intention of the parties rather to
the form as to indorsement. The place is not essential. Where
the instrument is written on a paper attached to the instrument,
such paper is called an “alone.” The paper must be attached to
the instrument so as to become part of it. A temporary
attachment cannot be considered an allonge. Further, the use
of an allonge is not limited to when there is an impossibility of
indorsing on the instrument due to lack of space. The
indorserment is not invalidated by the fact that is written on
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
another paper even if there is still space for indorsement on the
instrument itself (Agbayani’s opinion).
NOTE: an indorsement has to be only in
writing. It may thus be printed such as
typewritten or stamped.
Sec. 32. Indorsement must be of entire instrument. - The
indorsement must be an indorsement of the entire
instrument. An indorsement which purports to transfer to
the indorsee a part only of the amount payable, or which
purports to transfer the instrument to two or more
indorsees severally, does not operate as a negotiation of the
instrument. But where the instrument has been paid in
part, it may be indorsed as to the residue.
What is the rule on indorsements of the amount?
The general rule is that the indorserment must be of the entire
amount. An indorsement must of the part of the instrument
does not one rate as a negotiation thereof but may constitute a
valid assignment binding between the parties ( thus, the holder
is susceptible to defenses available against the assigner). An
instrument is said to be indorsed partially when eg. The note is
for P1,000 but the indorsement states, “Pay to X P400”. But
where the instrument has been paid in part, it may be indorsed
as to the residue (eg. in the eg. above, suppose the maker paid
P6000 already. The indorsement for P400 would then be valid
as the negotiation). Further, an indorsement which purports to
transfer the instrument to 2 or more indorsees severally does
not operate as a negotiation. (eg. in the above eg., suppose the
indorsement read, “Pay to X P400 and Y P600 is not a valid
negotiation but “Pay to X and Y P1,000” is).
Sec. 33. Kinds of indorsement. - An indorsement may be
either special or in blank; and it may also be either
restrictive or qualified or conditional.
What are the kinds of indorsement?
It may either be: (1) special, or (2) in blank (both sec. 34), or
(3) restrictive, or (4)non – restrictive (sec. 36), or (5)
qualified, or (6) unqualified or general (sec. 38,66), or (7)
conditional, or (8) unconditional, or (9) joint (sec. 41),
(10)successive (sec. 50,68), or (11) irregular (sec. 64), or (12)
facultative (sec. 111).
Sec. 34. Special indorsement; indorsement in blank. - A
special indorsement specifies the person to whom, or to
whose order, the instrument is to be payable, and the
indorsement of such indorsee is necessary to the further
negotiation of the instrument. An indorsement in blank
specifies no indorsee, and an instrument so indorsed is
payable to bearer, and may be negotiated by delivery.
What are the 2 kinds of indorsement specified in sec.34?
SPECIAL INDORSEMENT- one that (1) specifies the person
to whom the inodrsement is payable (eg. “Pay to A”) or (2)
specifies to whose order it is payable, (eg. “Pay to A or
order”). In both cases, the indorsement is followed by the
signature of the indorser. The omission of the words of
negotiability such as “ or order” and “ to the order of “ do not
17
affect the negotiability of the instrument which is negotiable
on its face (sec. 36) since it is only an indorsement.
BLANK INDORSEMENT- ONE WHICH SPECIFIES NO
INDORSEE. Such an indorsement generally consists only of
the signature of the indorser.
How are instruments so indorsed, negotiated further?
Where the instrument is originally payable to order and it is
negotiated by the payee by special indorsement, it can be
negotiated by the indorsee by indorsement completed by
delivery. Where the instrument is originally payable to order
and it is negotiated by the payee by blank indorsee, it can be
further negotiated by the holder by mere delivery. Where the
instrument is originally payable to bearer, it can be further
negotiated by mere originally delivery, even if the original
bearer negotiated it by special indorsement. (once a bearer
instrument, always payable to bearer).
Sec. 35. Blank indorsement; how changed to special
indorsement. - The holder may convert a blank
indorsement into a special indorsement by writing over the
signature of the indorser in blank any contract consistent
with the character of the indorsement.
The difference between special and blank indorsement is
only significant. When the instrument is originally payable to
order because a bearer instrument, even if specially indorsed,
is no different from one indorsed in blank. They are still
negotiated by mere delivery.
ILLUSTRATION: A makes a note with B as payee. B
negotiates it to C, signing only his signature. C, holder, may
place above such signature “Pay to C” to convert the blank
indorsement into a special one.
LIMITATIONS: The holder must not write any contract not
consistent with the indorsement, that is, the contract so written
must not change the contrat of the blank indorsement.
Consistency shall be judge with the intention of the parties.
Eg. of inconsistent – (1) “Pay to X and Y” when it was
intended to be payable to only one person. (2) “ Demand and
noticed waived”. (3) “ I guaranty payment”. (4) “ without
recourse.”
Sec. 36. When indorsement restrictive. - An indorsement is
restrictive which either:
(a) Prohibits the further negotiation of the
instrument; or
(b) Constitutes the indorsee the agent of the
indorser; or
(c) Vests the title in the indorsee in trust for or to
the use of some other persons.
But the mere absence of words implying power to negotiate
does not make an indorsement restrictive.
What is a restrictive indorsement?
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
A restrictive endorsement is one so worded that it either
restrict or prohibits entirely the futher negotiation of an
instrument, an indorser notifies all prospective holders that the
indorsee has only the authority to deal with the instrument as
thereby directed and that the indorsee has only a restrictive
title thereto. By such indorsement, an indorser can safeguard
his interest whenever he should find it necessary to entrust
negotiable paper to another. A restrictive indorsement destroys
the negotiability of the instrument and bars further negotiation
to a HIDC. All subsequent indorsees acquire only the title of
the first indorsee under the restrictive indorsement.
Eg. of (a) prohibition –
“Pay to C only” or “ Pay to C and no other”.
Of (b) “ agency type” of restrictive indorsement
“Pay to C collection”. or “Pay to C for
deposit”.
- Here, C does not acquire title over the
instrument. He is merely an agent of the
indorser. Thus, he is subject to all the defenses
available as against the indorser.
Of (c) in trust for another –
“ Pay to X in trust for C.” or “ Pay to X for
the use of C”.
- Here, there is transfer of legal title to the
instrument to the indorsee as trustee. And give
notice that the paper cannot be negotiated by
him for his own debt or for his own benifit.
Further, it is he opinion of “learned writers”
that the indorsee is not subject to the defenses
available as against the indorser.
The restrictive indorsement which are hold to
negative the presumption of consideration are such as to
indicate that they are not intended to pass title but merely to
enable the indorsee to collect for the indorser.
Mere absence of the words implying power to
negotiate does not make an indorsement restrictive. Thus,
“Pay to X” is the same as “Pay to X order” where the
instrument is payable to order. The omission of the word
“order” does not render the indorsement restrictive. But while
the omission of the words of negotiability in the indorsement
does not affect the negotiability of the instrument, ssuch
omission in the body thereof will render the instrument non-
negotiable. Restrictive indorsements serve to limit only the
negotiability of an instrument originally negotiable.
Sec. 37. Effect of restrictive indorsement; rights of indorsee.
- A restrictive indorsement confers upon the indorsee the
right:
(a) to receive payment of the instrument;
(b) to bring any action thereon that the indorser
could bring;
(c) to transfer his rights as such indorsee, where
the form of the indorsement authorizes him to do
so.
But all subsequent indorsees acquire only the title of the
first indorsee under the restrictive indorsement.
ILLUSTRATION: In the indorsement, “Pay to A for
collection. sgd. P”. A is merely an agent of P and because of
this, A may (1)receive payment of the instrument; (2) bring
any action thereon that the indorsee could bring (subject to the
same defenses available against the indorser); and (3) if
authorized, may transfer his right to another by negotiating the
18
instrument. But such subsequent indorsee acquires only the
title of the agent, A, whose right is merely to colloect.
The right to receive payment and the right to bring
any action that the indorser could bring are available under
any form of restrictive indorsement. The 2 rights are the basic
rights of indorsees in instruments with restrictive indorsement.
Not all forms of restrictive indorsement destroy
negotiability of an instrument. Only those which fall within
sec. 36 (a) do so. While all three forms of restrictivce
indorsement impose some degree of limitation and it is the
indorsement itself that discloses the extent of the limitation.
This is the reason for (c). The indorsee may, if authorized,
negotiate further the instrument but all subsequent indorsees
acquire only the title of the original indorsee – an agent.
Sec. 38. Qualified indorsement. - A qualified indorsement
constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser's
signature the words "without recourse" or any words of
similar import. Such an indorsement does not impair the
negotiable character of the instrument.
What is qualified indorsement?
It is one made by adding to the indorser’s signature the words
“ without recourse”, “indorser not holden”, “ at indorsee’s one
risk”, ao any words of similar import. It constitutes the
indorser a mere assignor of the title to the instrument.
“Without recourse” means without resort to a person who is
secondarily liable after the default of the person who is
primarily liable. The purpose of such indorsement is to trasfer
title without guaranteeing payment. In effect the indorser
states that “all parties to the paper and genuine, that the
indoreser is the lawful holder of that paper and has title to it,
and that he knows of no reason why the indorsee cannot
recover, but that he does not guarantee the financial
responsibility of the parties on the paper.
When can the qualified indorser be held secondarily
liable?
In general, an indorser is secondarily liable. A qualified
indorser is still secondarily liable but his liability is limited.
He is not entirely free from secondarily liability. He is
secondarily liable on breaches of his warranties as an indorser
under sec. 65. He can be held liable if the instrument is
dishonored due to: 1 forgery 2 lack of good title on the party
of the indorser: 3 lack of capacity to indorse on the part of
prior or parties 4 the fact that, at the time of indorsement, he
knew that the instrument was valueless or not valid. The only
thing he does not warrant is the solvency of the person
primarilyliable if the failure to recover was due to the fact of
the insolvency at the time os indorsement, he is liable for
breach of is warranty that he did not know of any fact that the
instrument was valueless.
A qualified indorsement does not impair the negotiable
character of the instrument.
Sec. 39. Conditional indorsement. - Where an indorsement
is conditional, the party required to pay the instrument
may disregard the condition and make payment to the
indorsee or his transferee whether the condition has been
fulfilled or not. But any person to whom an instrument so
indorsed is negotiated will hold the same, or the proceeds
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
thereof, subject to the rights of the person indorsing E cannot go against B because. As a person who
conditionally. negotiates by mere delivery (to C), warranty under sec. 65
extends only to the immediate transferee. Thus, B is only
liable to C, not to D & E.
What is an absolute indorsement? A conditional
indorsement? E can go against C & D because E can trace his title to
C (& D) through an unbroken chain of indorsements.
An absolute indorsement is one by which the indorser binds
himself to pay, upon no other condition than the failure of NOTE: this section deals with special indorsements,
prior parties to do so, and upon due notice to him such failure. not blank indorsement. So, that if, in the eg. above, C blankly
On the other hand, a conditional indorsement is one by which indorsed it to D, E cannot go against C as it would be
the indorser annexes some other condition to his liability, that impossible for him to trace his title to C. (my opinion)
is, where there is some condition in the indorsement. The (contrary to Abad’s)
indorsement is subject to the happening of a contogent event
(an event that may or may not happen) or a past event
Sec. 41. Indorsement where payable to two or more persons.
unknown to the parties. Like restrictive indorsements, it must
- Where an instrument is payable to the order of two or
be remembered that the pressure of conditions in the
more payees or indorsees who are not partners, all must
indorsements does not render the instrument non-negotiable.
indorse unless the one indorsing has authority to indorse
Only if the condition is on the face or on the original contract
for the others.
of the instrument is the instrument rendered non-negotiable as
This section applies only to instrument payable to two
the promise or order to pay is conditional.
or more payees jointly (eg. “Pay to the order of A and B”). it
does not apply to instrument payable to two or more payees
severally. (eg. “Pay to the order of A and B”). the latter may be
ILLUSTRATION: A executes a note in favor of B for P100. B
negotiated by the indorsement of one payee.
indorses the note to C stating into the indorsement, “Pay to C,
if he passes the bar exams. Sgd. B. “it is a conditional
indorsement as the event is not certain to happen (and it is in
What is the rule in joint payees?
the indorsement). But, under sec. 39, the maker can disregard
the condition and pay C the proceeds despite the non-
occurrence of the event. The maker may also honor the
Where the instrument is payable to two or more payees
condition set and refuse to pay. If the note was paid, C holds
(jointly), all payees must each indorse in order to negotiate the
the proceeds thereof in trust while the condition is not
instrument. If only one indorses, he passes only his part of the
fulfilled. C does not acquire ownership over the sum. It is
instrument. But such an indorsement would not operate as a
upon fulfillment of the condition that such ownership over the
valid negotiation because it would not be an indorsement of
proceeds is absolutely acquired by the conditional indorsee.
the entire amount which is contrary to sec. 32. Exception is
made for such rule: (1) where the payee or indorser has
authority to indorse for he others; and (2) where the payees or
Sec. 40. Indorsement of instrument payable to bearer. - indorsees are partners.
Where an instrument, payable to bearer, is indorsed
specially, it may nevertheless be further negotiated by
delivery; but the person indorsing specially is liable as
Sec. 42. Effect of instrument drawn or indorsed to a person
indorser to only such holders as make title through his
as
indorsement.
cashier. - Where an instrument is drawn or indorsed to a
This section applies to instruments which are originally
person as "cashier" or other fiscal officer of a bank or
payable to bearer. It does not apply to order instruments
corporation, it is deemed prima facie to be payable to the
converted to bearer instruments because the only or last
bank or corporation of which he is such officer, and may
indorsement is in blank.
be negotiated by either the indorsement of the bank or
corporation or the indorsement of the officer.
What is the presumption raised in sec. 42?
What is the rule on indorsements of bearer instrument?
The presumption is that the instrument payable to the cashier
or other fiscal officer of a bank or corporation is presumed
By virtue of this sec., an instrument payable to bearer is not payable to the bank or corporation to which such person is a
converted into an instrument payable to order by being cashier or fiscal officer. It is presumed not payable to the said
indorsed specially and therefore, the indorsee mey further officer. The instrument may be indorsed by any duly
negotiate the instrument by mere delivery. This means that an authorized (by the laws of the said bank or corporation) officer
instrument which is originally payable to bearer is always of the entity other than the said cashier or fiscal officer. But
payable to bearer. But, such indorser, because of his the presumption established is disputable by sufficient proof to
indorsement, can be held liable secondarily by those holders the contrary (eg. that the instrument really belongs and is
who can trace their title to the instrument by the series of payable personally to the cashier as the real creditor of the
unbroken indorsements form such special indorser. His maker or drawer).
liability is that of a general indorser as provided in sec. 66.
This rule is equally “applicable” to instruments drawn
payable to the treasurer of municipal or public corporations
(eg. a town). But, since town does not fall within the scope of
ILLUSTRATION: A executes a note payable to bearer for
“corporation” in sec. 42, the treasurer may not indorse the said
P100 in favor of B. B delivered it to C. C specially indorsed it
instrument.
to D. D specially indorsed it to E, holder. Can E go against
A,B,C,D,?
E cannot go against B, because there is mere delivery
Sec. 43. Indorsement where name is misspelled, and so
and there is no unbroken chain of indorsements. The rule is
forth. - Where the name of a payee or indorsee is wrongly
that the holder must trace his title to the special indorser to
designated or misspelled, he may indorse the instrument as
make him liable through an unbroken chain of indorsement.
19
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
therein described adding, if he thinks fit, his proper
signature.
ILLUSTRATION: An instrument drawn payable to Alfie
Almedo when the name of the payee is really Alfie Almeda
may be indorsed…
(1) by using the misspelled name – “Pay to X. sgd.
Alfie Almedo”.
(2) Or by writing the misspelled name with the
proper name - “Pay to X. sgd. Alfie Almedo sdg.
Alfie Almeda”.
Sec. 44. Indorsement in representative capacity. - Where any
person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative
personal liability.
How must an agent indorse?
He must indorse in the same manner as an agent of the maker,
drawer or acceptor should in order to escape personal liability
as required in sec. 20. Thus, (1) he must add words describing
himself as an agent; and (2) at the same time disclose his
principal (he may also sign only the name of the principal);
and (3) he must be duly authorized. Otherwise, he is
personally liable.
Sec. 45. Time of indorsement; presumption. - Except where
an indorsement bears date after the maturity of the
instrument, every negotiation is deemed prima facie to
have been effected before the instrument was overdue.
What does this mean and why is it important?
When the payee indorsees the instrument without dating his
indorsement, the presumption is that he indorsed it on or
before the note’s maturity date. But, this presumption is
rebuttable or disputable by the sufficient proof to the contrary
and the burden of proof is on the person who claims it was
negotiated after its date maturity. If the indorsement id=s
dated, then the presumption in this sec. Will not arise but that
presumption in sec. 11 that the date written is presumed the
true date of indorsement. This section is important because in
order to constitute one a holder in due course, he must have
taken the instrument before it was overdue. With this
presumption, the person who claims that the holder is not a
HIDC, has the burden of proving so.
Sec. 46. Place of indorsement; presumption. - Except where
the contrary appears, every indorsement is presumed
prima facie to have been made at the place where the
instrument is dated.
What is the importance of this sec.?
The place of indorsement is sometimes material because an
indorsement is governed by the laws of the state where it is
indorsed, although the instrument is drawn or made in a
different state.
ILLUSTRATION: A bill is dated thus: “Manila, Phil., Jan. 7,
1990”.
It is subsequently indorsed without writing the place of
indorsement. The presumption is that it was indorsed in
Manila. But such presumption is rebuttable.
20
Sec. 47. Continuation of negotiable character. - An
instrument negotiable in its origin continues to be
negotiable until it has been restrictively indorsed or
discharged by payment or otherwise.
What is the general rule on the negotiable character of NI?
The rule is that once an instrument is negotiable at its origin, it
continues to be negotiable until 1 it is respectively indorsed (in
such a way that is prohibits further negotiation of the
instrument under sec. 36 [a]); or 2 is discharged by payment or
otherwise. “ Otherwise” refers to the different ways to
discharge an instrument enumerated in sec. 119.
Does the negotiable character cease after maturity?
No. the mercantile character (1) of the instrument as
negotiable instrument and (2) of the contracts of the several
parties to it, continues after it maturity and until it is paid
except (3) that an indorsee or transferee after maturity takes
the instrument subject to defenses between the prior parties,
because after maturity such subsequent parties take the
instrument after becomes overdue, and thus, under sec. 52(b),
they are not HIDC. Transfer to such transferees would be
equivalent to a mere assignment and subject to defenses. The
position of the holder is that he is a holder with notice because
he takes a bill, which, on its face, ought to have been paid. He
is bound to make two inquiries: (1) has the bill been
discharged? And (2) if not, why not? Was there a defect in the
title of the person who held it at maturity? But, even if he is
not a HIDC, he recover from the note subject only to defenses
as if it were non-negotiable.
Sec. 48. Striking out indorsement. - The holder may at any
time strike out any indorsement which is not necessary to
his title. The indorser whose indorsement is struck out, and
all indorsers subsequent to him, are thereby relieved from
liability on the instrument.
When may the holder strike out indorsement?
A holder may strike out any indorsement which is not
necessary to his title. But where an instrument is transferred
by a special indorsement, the holder has no right to strike out
he name of the indorsee and place his name in its place nor to
convert such special inodrsement to a blank one. An
instrument payable to bearer on its face may be negotiated by
mere delivery without indorsement. In case it is indorsed, the
holder, by virtue of sec. 48, may strike out all intervening
indorsemnent or any of them because none of them are
essential to his title. But an instrument originally payable to
order may be negotiated only by the indorsement of the payee
completed by delivery. When the indorsement is special the
indorsement of the special indorsee is necessary for further
negotiation of the instrument and may not be struck out. When
the indorsement is in blank the instrument becomes payable to
bearer and may be negotiated by mere delivery. Any special
indorsement subsequent to such blank indorsement may be
struck out as they are not they are not necessary to the
holders’s title (he may claim that the payee blankly indorsed to
him) but the payee’s indorsement itself may not be struck out
as the indorsement is necessary to his title.
What is the effect of striking out indorsement?
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(1) the indorser whose indorsement is struck out is
relieved form liability (secondary) on the instrument;
and
(2) all subsequent indorsers are also relieved from their
liability on the instrument.
NOTE: conditional indorsements may not be struck
out even if they are not necessary to the title.
Sec. 49. Transfer without indorsement; effect of. - Where the
holder of an instrument payable to his order transfers it for
value without indorsing it, the transfer vests in the transferee
such title as the transferor had therein, and the transferee
acquires in addition, the right to have the indorsement of the
transferor. But for the purpose of determining whether the
transferee is a holder in due course, the negotiation takes effect
as of the time when the indorsement is actually made.
This sec. applies only to instrument payable to order. This
contemplates a case where there is delivery and payment of
value but no indorsement. There is lacking one element for the
negotiation of the instrument – the indorsement by the payees
or indorser. Thus, it operates as an equitable assignment.
What are the rights of the transferee for value?
(1) the transferee acquires only the rights of the
transferor, such that if a defense is available against
the transferee.
(2) The transferee has also the right to require the
transferor to indorse the instrument.
ILLUSTRATION: A executes a note in favor of B but there is
no valuable consideration. B delivers the note to C for value
and under circumstances that would have made C a HIDC
(such that C does not know of the absence of consideration)
where it not for the lack of B’s indorsement. Can C recover
from A?
No, because C acquires only B’s rights and B cannot
collect from A who can set up the absence of consideration.
The transferee is not a holder because while he is in
possession of the instrument, he is not he indorsee. He is
merely an assignee.
What can it be determined whether such transferee is a
HIDC?
The time for determining whether the transferee is a HIDC is
as of the time of actual indorsement not a time of the delivery.
The reason is that negotiation is completed at the time of
indorsement, not at the time of delivery.
ILLUSTRATION: In the eg. above, suppose the note was
delivered on Dec. 1, 1990 but was indorse only by B on Dec.
15, 1990. but on Dec. 10, 1990, C found out of the absence of
consideration. Thus, on Dec. 15, the time of indorsement, C
cannot be considered a HIDC as he had knowledge of a defect
on the title at the time of negotiation.
Sec. 50. When prior party may negotiate instrument. - Where
an instrument is negotiated back to a prior party, such party
may, subject to the provisions of this Act, reissue and further
negotiable the same. But he is not entitled to enforce payment
thereof against any intervening party to whom he was
personally liable.
ILLUSTRATION: A executed a note payable to the order of B.
It is indorsed as follows: A B C D E in due course is a holder who has taken the instrument
B.
21
- Under this sec., B may continue to negotiate the
note or may recover from it as a holder (he keeps
it instead of negotiating it). Where he negotiates
it (prior to maturity), after paying the subsequent
holder ( supposing he is held secondarily liable),
he may not claim payment from any of the
intervening parties – C, D, E as it would result in
circuity of suits. Also, if B decides to keep the
note and try to recover from it, be may not
enforce payment against C, D, E for the same
reason.
IV. RIGHTS OF THE HOLDER
Sec. 51. Right of holder to sue; payment. - The holder of a
negotiable instrument may to sue thereon in his own name;
and payment to him in due course discharges the
instrument.
Who is a holder?
The holder is the person who is physically in possession of the
instrument. If you are not in possession of an instrument, you
cannot be a holder, much less, a holder in due course. Even if
you are owners of an instrument but you are not physically in
possession of it, the person primarily liable on the instrument
has all the right to refuse payment because upon payment of
the instrument of the instrument by the person primarily liable
thereon, he has all the right to retrieve the instrument. Once
retrieved, he can have that instrument as a more voucher of
payment. It is possible that you may have lost the instrument.
The ownership over it by the copy of the lost of instrument (?).
Only then will the person primarily liable on the instrument be
compelled to pay the instrument.
What are the classes of holders?
(1) Holders in general (sec. 51);
(2) Holders for value (sec. 26); and
(3) Holders in due course (sec. 52,57)
What are the rights of a holder in general?
(1) He may sue on the instrument in his own name; and
(2) He may receive payment and if the payment in due
course, the instrument is discharged.
Who has the right to sue on the instrument?
The holder of a negotiable instrument may sue in his own
name, even if he a holder only for collection or as a pledge of
an instrument. It is believed that even a transferee of an
indorsed instrument (sec. 49) may sue in his own name if the
transferee could have done so. This is because a transferee of
an instrument for value but without endorsement, under sec.
49 is vested with such title such title as the transferor had if
the transferor had legal title, this must pass by the transfer
although subject to defenses.
What is “payment in due course”?
Payment in due course is payment made (1) at or after the
maturity of the instrument, (2) to the holder thereof, (3) in
good faith and without notice that his title is defective.
Sec. 52. What constitutes a holder in due course. - A holder
under the following conditions:
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(a) That it is complete and regular upon its
face;
(b) That he became the holder of it before
it was overdue, and without notice that it
has been previously dishonored, if such
was the fact;
(c) That he took it in good faith and for
value;
(d) That 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.
What is a holder in due course?
A HIDC is a holder who took the instrument under the
conditions enumerated in sec. 52. All the four conditions must
concur a HIDC. If any one of them is absent., the holder
cannot be considered a HIDC. Under sec. 59, generally, every
holder is presumed prima facie to be a holder in due course.
Thus, a holder need out proved at a very outset that he is a
HIDC. Any one who claims otherwise must prove that the
holder in question acquired the instrument with one or more
conditions lacking.
When is an instrument “complete and regular upon its
face”?
Complete means that the holder acquired the instrument
without any material particular lacking thereon, that all
material particulars are present on the face of instrument at the
time the holder acquired it. An instrument is deemed not
complete only when there is an omission of any material
particular or particular proper to be inserted in a negotiable
instrument without the same will not be complete. (Not all
forms of omissions will make the instrument incomplete. It
must be necessary to the instrument).
Eg. The instrument is issued undated and stated, “ I
promiz to pay X or order
P100. sgd. Y”. Is it complete? Yes because the date is
not necessary.
But if the note stated, “ I promise to pay X or order
P100 30 days after date now
Becomes a material particular, as maturity cannot be
determined without it.
An incomplete instrument should put the holder in inquiry as
to why it is incomplete. If he fails to do so, be takes the
instrument subject to all defenses as he is not a HIDC.
Regular means that the holder acquired it without any
alteration or changes or erasures apparent on the face of the
instrument. (The most common type of irregularity is an
alteration. It must be apparent on the face; otherwise, the
matter is governed solely by sec. 124 which renders the
instrument void). If it appears that there was a change in the
amount or in the name of the payee, etc., then the instrument is
deemed not regular on its face and the holder now has the duty
of inquiring. Otherwise, if no inquiry is made , the holder
acquires the instrument not in good faith and deemed to have
notice of a defect or infirmity in the instrument.
ILLUSTRATION OF NOT “COMPLETE AND REGULAR”:
1) a note payable on a given date without
naming the year;
2) an accepted bill with no drawee named;
3) a note payable to 2 payees but indorsed only
by 1;
4) a printed note altered in printing;
5) a note payable “on or before after date”.
When is the instrument overdue?
22
An instrument is overdue after the date of maturity. The date
of maturity is the time fixed therein. It may be a fixed or
determinable future time. If the instrument is payable on
demand, the date of maturity is determined by the date of
presentment. If it is a promissory note, it is supposed to be
presented within a reasonable time after its issue. But if it is a
bill, it is should be presented within reasonable time after its
last negotiation. Eg. Suppose an instrument is issued today,
July 17. In Aug., it was negotiated. In Oct., again, until Dec.
When was it supposed to be presented?
If it was a PN, it must have been presented within a
reasonable time after its issue, July. But if it was a BOE, it
must be presented within a reasonable time after its last
negotiation, Dec. The point of reckoning will differ.
Reasonable time is a relative term defending on a
circumstance.
If the instrument is payable on the occurrence of a specified
opening of the event. When the instrument contains an
acceleration clause and one installment is not paid. Knowledge
of the holder of this fact at the time of acquisition is notice that
the instrument is overdue. Similarly, if, by the terms of an
instrument, the principal is due upon default of payment of
interest, the holder cannot be considered a HIDC where the
interest is overdue. If the holder acquired the instrument on the
date of maturity, it is not overdue as the debtor has the whole
day to pay. (If presented to a ba, anytime before close of
banking hrs. if presented to a business office, anytime before
close of business hrs. And if presented at the house of the
person primarily liable, anytime before the end of the VILMA
Show or before rest hours.) A NI in circulation past its
maturity date carries strong indication that it has been
dishonored.
An instrument may be dishonored either by non-acceptance
(sec. 149) or by non-payment (sec. 85). Dishonored by non-
acceptance, refers only to a bill of exchange. While dishonor
by non-payment can only take place at the time of maturity,
dishonor by non-acceptance of a bill may occur even before
the date of its maturity. The holder must, at the time of
negotiation, have no knowledge that it had been dishonored
prior to his acquisition. Thus, an overdue or dishonored
instrument may still be negotiated to the same extent as before
maturity (sec. 47) but, in case of the former, the holder cannot
be a HIDC, while in the case of the latter, the holder without
notice can be a HIDC.
SUPPOSE: A PN reads: “ I promise to pay X or order P100 on
July 17, 1991. Today is the due date. X presents the note at
10am. It was dishonored by non-payment. At 12nn X
negotiated it to P.P is now the holder of the note. Is P a HIDC?
 IT DEPENDS on whether at the time of negotiation P
knew of the fact that it was dishonored. Since it was
negotiated on the due date, it was still on July 18, P
can no longer be HIDC as it is overdue and he is
charge with knowledge of dishonor. The fact that the
note was already dishonored is not enough to deny P
of his capacity of being a HIDC if he had no
knowledge of such dishonor.
What does acquired in good faith mean?
Good faith refers to the indorsee or transferee and not to the
indorser or transferee of the paper. Even if the indorsee is in
bad faith, the indorsee may still be a HIDC. Under sec. 56, bad
faith means that he must have knowledge of facts which
render it, dishonest for him to take a particular piece of NI. To
show bad faith, it is not necessary to show knowledge of the
exact truth but actual knowledge of some truth that would
prevent action by th commercially honest men. Surmise,
suspicion or fear is not enough. The element of good faith
must be read together with the element of notice or knowledge
of an infirmity on the instrument or defect on the title of a
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
prior party. If the holder knew of such defect or infirmity, he negotiable, the assignee of the instrument cannot be
cannot be held to be in good faith. The term “ holder in good considered a HIDC.
faith” means a holder without knowledge or notice of equities
(defenses) of any sort which could be set up against a prior
holder of the instrument. Sec. 53. When person not deemed holder in due course. -
What does “for value” mean? Where an instrument payable on demand is negotiated on
an unreasonable length of time after its issue, the holder is
As discussed in sec. 25, the holder must take the instrument not deemed a holder in due course.
for valuable consideration. Any consideration sufficient to One of the requisites of a HIDC is that he aquires the
support a simple contract is value. But love and affection do instrument before it is overdue. But, obviously, where the
not constitute value. Where the holder takes the instrument instrument is payable on demand, the holder cannot determine
without giving valuable consideration, he cannot be whether the instrument is overdue or not as there is no
considered a holder for value, moreso a HIDC. It is not maturity date. The law here states that the holder must have
necessary that the consideration be adequate (art. 1355, NCC). acquired it a reasonable time after its issue. As to what
But if the amount asked for the instrument is insignificant as constitutes reasonable time, regard must be had to the nature
compared to the face value, it should be sufficient notice that of the instrument, the usage of trade of business with respect
there is something wrong and failure to inquiry is equivalent to to such instruments and the facts of a particular case (sec.
bad faith. 193).
With the regard the BOE, the law states that it should be
presented within a reasonable time from last negotiation. This
What is meant by “without notice of infirmity in should be read in the light of sec. 53 so that the last
instrument or defect in the title? negotiation should be itself within a reasonable time from its
issue. This is especially true for checks where after a certain
period the check becomes stale if not presented for payment
The NIL, in defining things that may be wrong with an wrong
within a reasonable period of time from issue.
with an instrument uses 3 terms. (1) Defects of title, (2)
defenses, and (3) infirmities. Defects of title cover all those
situations giving rise to equitable defenses. Defective title of a
Sec. 54. Notice before full amount is paid. - Where the
person over an instrument may result from circumstances
transferee receives notice of any infirmity in the
relating to the person’s acquisition of the instrument or as to
instrument or defect in the title of the person negotiating
how he negotiated it. Defect of title is further elucidated in
the same before he has paid the full amount agreed to be
sec. 35. In the cases cited in said section, the person acquiring
paid therefor, he will be deemed a holder in due course
the instrument is said to have a defective title over it. But, in
only to the extent of the amount therefore paid by him.
order for the holder to be not a HIDC, he must have
knowledge of the defect atr the time of negotiation. The term
ILLUSTRATION: A draws a bill in favor of B for P1, 000
“defenses” includes 1. mistake, 2. absence or failure of
with X as drawee. B indorsee it to C, who fails to give value
consideration (sec. 28); 3 minority and other forms of
therefore. C indorses it to D upon the terms of payment of
incapacity (sec. 22); 4. lack of authority of an agent (sec. 19).
P600 now and the balance of P400, D discovers the absence of
Infirmities on the other hand, include things that are wrong
consideration. Under the circumstances, D can be considered a
with the instrument itself, they are illnesses which attach to the
HIDC for the value paid by him before he had notice of the
instrument, such as:
defect - P600.
(1) wrong date as inserted (sec. 13);
(2) filling up of a blank instrument not strictly in
accordance with the authority given or not within a
Sec. 55. When title defective. - The title of a person who
reasonable time (sec. 14);
negotiates an instrument is defective within the meaning of
(3) filling up and negotiating without authority an
this Act when he obtained the instrument, or any signature
incomplete and undelivered instrument (sec. 15);
thereto, by fraud, duress, or force and fear, or other
(4) lack of valid and intentional delivery of a
unlawful means, or for an illegal consideration, or when he
mechanically complete instrument (sec. 16);
negotiates it in breach of faith, or under such
(5) agent signing per procuration beyond the scope of his
circumstances as amount to a fraud.
authority (sec. 21);
When is title of a person defective?
(6) for forgery (sec. 23);
(7) material alternation (sec. 124 & 125).
The title to a person in an instrument becomes defective either:
As in the case of defects in title, the mere fact that such
(1) in the acquisition of the instrument –
defenses and infirmities exist does not prevent the holder from
(a) by fraud;
being a HID. Rather, it is the fact that, at the time of
- refers to fraud in inducement - he
negotiation, he had actual knowledge of such defects, defenses
acquires the instrument by falsely
or infirmities. This fourth condition must be read together with
inducing its issuance or negotiation.
the condition that the holder take in good faith. In effect, the
(b) by duress, or force and fear;
fourth condition elucidates the meaning of good faith. Anyone
- refers to the use of violence and intimidation
who acquires the instrument with notice of such defects and
to cause the issuance or
infirmities would not qualify as a taker in good faith. To
negotiation.
constitute notice, under sec. 56, the holder must have had
(c) by other unlawful means;
actual knowledge of the infirmity or defect or must have acted
- such as theft.
in bad faith. The absence of knowledge and lack of bad faith is
(d) for an illegal consideration.
essential basis that renders a holder a HIDC.
- the instrument is issued or negotiated as a
As previously stated, notice of defect can also be
consideration for an illegal act
presumed when (1) one takes an overdue instrument, and (2)
or omission.
one acquires an instrument for grossly inadequate
(2) in the negotiation of the instrument –
consideration.
(a) with breach of faith;
Remember that the concept of HIDC is only applicable
- refers to negotiation of the instrument in
to negotiable instrument. Once the instrument is non-
contravention of the terms of
23
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
the agreement, or negotiation after it has
been paid (discharged), or
negotiation before the consideration for
the instrument is given.
(b) under circumstances as amount to a fraud.
- refers to negotiation after being told that
payment would be resisted,
or transferor had no legal right to
transfer.
Sec. 56. What constitutes notice of defect. - To constitutes
notice of an infirmity in the instrument or defect in the title
of the person negotiating the same, the person to whom it
is negotiated must have had actual knowledge of the
infirmity or defect, or knowledge of such facts that his
action in taking the instrument amounted to bad faith.
When does the holder have notice of defect or
infirmity?
To constitute notice or defect or infirmity, the
transferee must have actual knowledge, either: (1) of the
defect or infirmity, or (2) of such facts that his action in
taking the instrument amounts to bad faith. Knowledge of
some truth (at least) that the instrument is tainted in some
way is necessary, not mere suspicion or surmise. Bad faith
consist in guilty knowledge, or willful ignorance, showing
a vicious or evil mind. While mere suspicion is not
enough, where there is knowledge of suspicious
circumstances, coupled with means of verifying them,
taking of the instrument may amount of bad faith (if,
willfully, no inquiry is made). But negligence, even gross
negligence, is not bad faith.
Sec. 57. Rights of holder in due course. - A holder in due
course holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior
parties among themselves, and may enforce payment of the
instrument for the full amount thereof against all parties
liable thereon.
What are the rights of a HIDC?
(1) he may sue on the instrument in his own (sec.
51);
(2) he may receive payment and if payment is in due
course, the instrument is discharged (sec.51);
(3) he holds the instrument free from any defect of
title of prior parties;
(4) he holds the instrument free from defenses
available to prior parties among themselves; and
(5) he may enforce payment of the instrument for the
full amount thereof against all parties liable
thereon.
What are the 2 kinds of defenses that might be
available to parties held liable on the instrument?
Real or legal defenses are those that attach to the
instrument itself and can be set the whole world. It is
available against the holders including HIDC. They are
called real defenses because they attach to the res (the
instrument itself) regardless the merits or demerits of the
holder. In real defenses, the right sought to be enforced
has never existed or ceased to exist. It is a defense against
everybody but it is not a defense available for everybody.
The instrument cannot be enforced only against the
person to whom the real defense is available. Thus, the
24
mere existence of a real defense not imply that the
instrument is valueless and can never be enforced. It just
means that the instrument is only unenforceable against
the party entitled to set up the defense (eg. the one
primarily liable) but can be enforced against those whom
such defense is not available (eg. those secondarily
liable). In many instances, the real defense applies only to
the person who made the instrument (but there are
exceptions). As a general rule, a real defense is a defense
which the person against whom one is endeavoring to
recover may set up and that person to usually the person
primarily liable upon the instrument. Further, a defense
available to the makers will not be available to the
indorser (nor will a defense available to the indorser be
available to the maker). [ in case of joint maker defense
available to one joint maker is not, in general available to
the other except if the defense goes to the meat of the case
defeating holder’s right to recover. For, eg,, if _ defense is
minority, it is available to both].
Personal or equitable defenses are those which grow out
of the personal or equitable defenses.
Agreement or conduct of a particular person regard to the
instrument which renders it inequitable for him, though
holding legal title, to enforce it against the person being
held liable, but which are not available against HIDC.
They are called personal defenses because they are only
available against that person (payee or indorsee) or a
subsequent holder who stands in privity with him
To what kind of defenses does a HIDC hold the
instrument free from?
A HIDC holds the instrument free from any defect of title
of prior parties and free from defenses available to prior
parties among themselves. The defenses referred to in sec.
57 from which the HIDC is free from, are not equitable
defenses only, not legal defenses.
Does the HIDC hold the instrument free from
infirmities of the instrument?
No, the holder of the instrument, if a HIDC, holds the
instrument free from defect of title prior parties and from
defenses available to prior parties among themselves (sec.
57) but the law does not say that he acquires it free from
the infirmities of the instrument. An infirmity is an illness,
a defect which attaches to the instrument itself –
whenever it goes. They are attached to the instrument.
They are real defenses which can be put up even against
HIDC. Infirmities are things that are wrong with the
instrument. The latter are only personal defenses. (Abad’s
opinion) (DISREGARD THIS QUESTION)
[NOTE: But if infirmities are real defenses, what good is
it that the holder, under the sec. 52to be HIDC, must have
no notice of an infirmity in the instrument? Even if he had
no notice of it, the HIDC is prevented from collecting
from person liable because of a real defense – the
infirmity.]
What are examples of personal defenses?
(1) absence of failure of consideration, partial or
total;
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
- (read sec. 28) – want of consideration may be
raised only as between immediate parties.
(definition of immediate in sec. 16)
(2) want of delivery of complete instrument; (read
sec. 16)
(3) inserting of wrong date in an instrument where it
is payable at a fixed period after date and it is
issued undated, or where it is payable at a fixed
period after sight and the acceptance is undated;
(read sec. 13)
(4) filling up blank contrary to authority given or not
within reasonable time, where the instrument is
delivered; (read sec. 14)
(5) fraud in inducement; (read sec. 55)
- in fraud in inducement, one knew that he was
signing a negotiable paper, and thus, signed with
knowledge that the instrument would probably
pass into hands of an innocent purchaser but was
deceived into signing for a larger amount than he
intended, or on different terms. The signer is led
by deception to execute what knows is a
negotiable instrument. This is different from
fraud in factum where here is no intention to
issue a NI.
(6) acquisition of instrument by force, duress or fear
(sec. 55)
- Duress consist of depriving one of his will and
understanding and by threat or
Unlawful means.
(7) acquisition of the instrument by unlawful means;
(sec.55)
(8) acquisition of the instrument for an illegal
consideration; (sec. 55)
(9) negotiation in breach of faith (sec. 55)
(10)negotiation under circumstances that amount to fraud;
(sec. 55)
(11)mistake;
- in order that mistake may vitiate consent, it must
refer to the substance of the
things which is the object of the contract or those
conditions which have principally moved one or
both parties to enter into the contract.
(12) intoxication;
- intoxication so as to deprive the person sought to be
charged of the exercise of
is understanding and reason.
(13) ultra vires acts of corporation where the
corporation has the power to issue
negotiable paper but the issuance was not authorized
for the particular
purpose for which it was issued.
(14) want of authority of agent where he has apparent
authority; (read art. 1869,
NCC)
(15) insanity where there is no notice of insanity on the
part of the one
contracting with the insane person;
(16) illegality of contract where form or consideration
is illegal;
- eg. usury notes; Gambling notes.
(17) set-off between immediate parties;
- this is a defense only when the holder has a debt
against the person held liable.
(18) discharge between original parties;
25
- “original parties”
Sec. 58. When subject to original defense. - In the hands
of any holder other than a holder in due course, a
negotiable instrument is subject to the same defenses
as if it were non-negotiable. But a holder who derives
his title through a holder in due course, and who is not
himself a party to any fraud or illegality affecting the
instrument, has all the rights of such former holder in
respect of all parties prior to the latter.
Sec. 59. Who is deemed holder in due course. - Every
holder is deemed prima facie to be a holder in due
course; but when it is shown that the title of any
person who has negotiated the instrument was
defective, the burden is on the holder to prove that he
or some person under whom he claims acquired the
title as holder in due course. But the last-mentioned
rule does not apply in favor of a party who became
bound on the instrument prior to the acquisition of
such defective title.
V. LIABILITIES OF PARTIES
Sec. 60. Liability of maker. - The maker of a negotiable
instrument, by making it, engages that he will pay it
according to its tenor, and admits the existence of the
payee and his then capacity to indorse.
Sec. 61. Liability of drawer. - The drawer by drawing the
instrument admits the existence of the payee and his then
capacity to indorse; and engages that, on due presentment,
the instrument will be accepted or paid, or both, according
to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder or to any subsequent indorser
who may be compelled to pay it. But the drawer may insert
in the instrument an express stipulation negativing or
limiting his own liability to the holder.
Sec. 62. Liability of acceptor. - The acceptor, by accepting
the instrument, engages that he will pay it according to the
tenor of his acceptance and admits:
(a) The existence of the drawer, the genuineness of
his signature, and his capacity and authority to
draw the instrument; and
(b) The existence of the payee and his then
capacity to indorse.
Sec. 63. When a person deemed indorser. - A person placing
his signature upon an instrument otherwise than as maker,
drawer, or acceptor, is deemed to be indorser unless he
clearly indicates by appropriate words his intention to be
bound in some other capacity.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
When is a person deemed an indorser?
When there is no indication in what capacity a
person signs upon the instrument, he is deemed an indorser.
EXCEPTION: One making a note payable to his own order
does not assume liability as indorser despite his indorsement.
X placed his signature upon an instrument without indicating
in what capacity he was signing. Later, X souight to show, by
parole evidence, his intention to be bound merely as an agent.
Can X be allowed to do this?
X cannot be allowed to show by parole evidence that he did
not intend to be bound as an indorser. The law requires that he
indicate by appropriate words his intention to be bound in
some other capcity on the instrument itself. In the absence of
this indication, X is deemed an indorser.
The following are examples of words indicating that the
person who signs on the instrument does not intend to be
bound as an indorser.
“ I hereby guarantee payment of this instrument.”
“ as surety”, “ as guarantor”,
“ for identification only”
But when the note itself reads., “ We, the signers, indorser,
sureties, and all of us in solido, promise to pay, etc.”, the
signers on the back of the instrument before delivery were
held to be bound in solido, not as indorsers. This is a case
where the intent to be bound in some other capacity may be
found on the face of the instrument.
Sec. 64. Liability of irregular indorser. - Where a person,
not otherwise a party to an instrument, places thereon his
signature in blank before delivery, he is liable as indorser,
in accordance with the following rules:
(a) If the instrument is payable to the order of a
third person, he is liable to the payee and to all
subsequent parties.
(b) If the instrument is payable to the order of the
maker or drawer, or is payable to bearer, he is
liable to all parties subsequent to the maker or
drawer.
(c) If he signs for the accommodation of the payee,
he is liable to all parties subsequent to the payee.
Sec. 65. Warranty where negotiation by delivery and so
forth. — Every person negotiating an instrument by
delivery or by a qualified indorsement warrants:
(a) That the instrument is genuine and in all
respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which
would impair the validity of the instrument or
render it valueless.
But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate
transferee.
The provisions of subdivision (c) of this section do not
apply to a person negotiating public or corporation
securities other than bills and notes.
26
Sec. 66. Liability of general indorser. - Every indorser who
indorses without qualification, warrants to all subsequent
holders in due course:
a. The matters and things
mentioned in subdivisions (a),
(b), and (c) of the next preceding
section; and
(b) That the instrument is, at the time of his
indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it
shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent
indorser who may be compelled to pay it.
Sec. 67. Liability of indorser where paper negotiable by
delivery. — Where a person places his indorsement on an
instrument negotiable by delivery, he incurs all the liability
of an indorser.
Sec. 68. Order in which indorsers are liable. - As respect one
another, indorsers are liable prima facie in the order in
which they indorse; but evidence is admissible to show
that, as between or among themselves, they have agreed
otherwise. Joint payees or joint indorsees who indorse are
deemed to indorse jointly and severally.
Sec. 69. Liability of an agent or broker. - Where a broker or
other agent negotiates an instrument without indorsement,
he incurs all the liabilities prescribed by Section Sixty-five
of this Act, unless he discloses the name of his principal
and the fact that he is acting only as agent.
ILLUSTRATION: X is an agent of Y. X delivers to Z a note
payable to bearer in his capacity as Y’ agent. When X made a
delivery, however, he did not tell Z that he was merely acting
as an agent. X incurs all the liabilities prescribed in Sec. 65.
He can not be released of these liabilities upon proving that he
was merely acting as an agent.
VI. PRESENTATION FOR PAYMENT
Sec. 70. Effect of want of demand on principal debtor. -
Presentment for payment is not necessary in order to
charge the person primarily liable on the instrument; but
if the instrument is, by its terms, payable at a special place,
and he is able and willing to pay it there at maturity, such
ability and willingness are equivalent to a tender of
payment upon his part. But except as herein otherwise
provided, presentment for payment is necessary in order to
charge the drawer and indorsers.
Sec. 71. Presentment where instrument is not payable on
demand and where payable on demand. - Where the
instrument is not payable on demand, presentment must
be made on the day it falls due. Where it is payable on
demand, presentment must be made within a reasonable
time after its issue, except that in the case of a bill of
exchange, presentment for payment will be sufficient if
made within a reasonable time after the last negotiation
thereof.
Sec. 72. What constitutes a sufficient presentment. -
Presentment for payment, to be sufficient, must be made:
(b) By the holder, or by some person
authorized to receive payment on his
behalf;
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the
instrument, or if he is absent or inaccessible,
to any person found at the place where the
presentment is made.
What is the importance of Sec. 72?
Sec. 72 establishes the four requisites for a sufficient
presentment for payment. If the presentment does not comply
with ay of the four, it is not sufficient. Consequently, it would
be as if, the presentment was made and, thus, the persons
secondarily liable are discharged.
Who makes presentment?
Presentment for payment must be made (1) by the holder of
the instrument , or (2) by some person authorized to receive
payment on his behalf.
When and where must presentment be made?
It must be made “ at a reasonable hour on a business day.”
What is reasonable hour on a business day depends upon the
general custom at the place of the particular transaction. In the
Philippines, for example, commercial banks are open 9am to 4
pm. Presentment for payment can not be made on a Sunday or
holiday (Sec. 85, 194). The presentment must be made at the
proper place as defined in Sec. 73.
To whom must presentment be made?
It must be made to the person primarily liable. If a note, it
must be made to the maker. If a bill, it must be made to the
acceptor. It is not made to the person secondarily liable. But, if
the person primarily liable is absent or inaccessible,
presentment can be made to any person found at such place
even without special authority given him.
Sec. 73. Place of presentment. - Presentment for payment is
made at the proper place:
(a) Where a place of
payment is specified in the instrument and it is there
presented;
(b) Where no place of
payment is specified but the address of the person to
make payment is given in the instrument and it is
there presented;
(c) Where no place of
payment is specified and no address is given and the
instrument is presented at the usual place of business
or residence of the person to make payment;
(d) In any other case if
presented to the person to make payment wherever he
can be found, or if presented at his last known place of
business or residence.
What is the rule on proper place of presentment?
The proper place of presentment is the place specified in the
order of enumeration from subsection (a) to subsection (d).
This means that if subsection (a) can be applied (eg. A place of
payment is actually specified), presentment in any other place
under subsection (b) to (d) will be improper and will not meet
the requirement of Sec. 72 (c). Similarly, subsec (c) is only
applicable if subsec. (a) and (b) cannot be applied. Lastly,
subsec. (d) is applicable only if presentment cannot be made at
any other place.
ILLUSTRATION:
Of (a) : “ I promise to pay to X or order P100 at PNB,
Manila. Sgd. Y.”
27
Of (b): “ In the same note, “PNB, Manila is omitted
but it was signed as “sgd. Y, 404 Regina Bldg.,
Manila;”
Of (c ): The note neither specifies a place of payment
nor does it indicate the address of the person to pay.
But the maker’s residence or business office is known
by the holder. Either place will do.
Of (d): If no place is specified, no address is given,
and both the address and business office is not
known, presentment is made when seen (anywhere).
Sec. 74. Instrument must be exhibited. - The instrument
must be exhibited to the person from whom payment is
demanded, and when it is paid, must be delivered up to the
party paying it.
Why is exhibition of the instrument necessary?
Presentment includes not only demand for payment
but also the exhibition of the instrument. Valid presentment
requires personal, or face to face demand at the proper place,
exhibiting the instrument to the person from whom payment
is demanded. If the instrument is not exhibited, the
presentment would be ineffectual, as the debtor is entitled to
see the instrument and demand its surrender upon payment.
Thus, the purpose of exhibition is to enable the debtor: (1) to
determine the genuineness of the instrument and the right of
the holder to receive the payment; and t (2) to enable him to
reclaim/ possession upon payment.
Can presentment be made through telephone?
No, because the instrument must be physically produced and
this is not possible through phone. This is because the person
primarily liable has the right to inspect and retrieve or take
possession of the instrument upon payment. Once, it is
retrieved, the instrument becomes merely a voucher of
payment and prevents the instrument from being negotiated to
innocent 3rd parties who are unaware of the fact of discharge
and may hold the person primarily liable for payment again.
When is exhibition excused?
(1) When the debtor does not demand to see the instrument
but refuses payment on some other grounds; and
(2) When the instrument is lost or destroyed.
Sec. 75. Presentment where instrument payable at bank. -
Where the instrument is payable at a bank, presentment
for payment must be made during banking hours, unless
the person to make payment has no funds there to meet it
at any time during the day, in which case presentment at
any hour before the bank is closed on that day is sufficient.
What is the rule where the instrument is payable at a bank?
Where an instrument is payable at a bank, it is
equivalent to an order to the bank to make payment for the
account of the principal debtor (Sec. 87). If the instrument is
payable at a bank and the person to make payment has fund in
the bank to meet it on the date of maturity, presentment must
be made during banking hours. Presentment made outside
banking hours is not sufficient inasmuch as banks do not make
payments outside of banking hours. In the Philippines. The
banking hours are from 9 am to 4 am (but Agbayani claims it
is only up to 2:30pm) from Monday to Friday. There are no
banking hours on Saturdays and Holidays. Consequently
presentment must be made between 9 am to 4 pm on ordinary
days. Otherwise, presentment would not be sufficient and
persons secondarily liable on the bill are discharged. But it
must be remembered that the person to make payment has
until the close of banking hours in which to pay it, and if
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
before the close of such hours, he deposits funds there enough
to pay it, a demand earlier in the day is premature. However, if
the person to make payment has no funds in the bank to meet
the payment at any time during the day, presentment at any
hour before the bank is closed is sufficient to hold persons
secondarily liable- the reason being that at any rate, the bill
cannot be paid even is presented during banking hours. (The
last rule is important as the persons secondarily liable may
claim that presentment is premature.
Sec. 76. Presentment where principal debtor is dead. -
Where the person primarily liable on the instrument is
dead and no place of payment is specified, presentment for
payment must be made to his personal representative, if
such there be, and if, with the exercise of reasonable
diligence, he can be found.
Sec. 77. Presentment to persons liable as partners. - Where
the persons primarily liable on the instrument are liable as
partners and no place of payment is specified, presentment
for payment may be made to any one of them, even though
there has been a dissolution of the firm.
Sec. 78. Presentment to joint debtors. - Where there are
several persons, not partners, primarily liable on the
instrument and no place of payment is specified,
presentment must be made to them all.
NOTE: The rules stated in all 3 sections apply only, to cases
where no place for presentment is specified. If there us a place
specified, these rules are inapplicable and presentment must be
made at the place specified.
What is the rule on the death of primary party?
In case of the death of the person primarily liable,
and no place of payment is specified, presentment for payment
may be made to his executor or administrator, (1) if there be
one, and (2) if he can be found. The holder must use
reasonable diligence to find the personal representative, if
there be one.
What is the rule if the persons primarily liable are partners?
Presentment may be made to any one of the partners,
even if their partnership has been dissolved. The reason is that
each partner is an agent of the partnership or his co-partners.
Accordingly, in case of death of one of the makers who are
partners, presentment shall not be made to his personal
representative but to the surviving partners.
What if the parties primarily liable are not partners?
If the persons primarily liable are not partners, their
liability is only joint. In joint obligation, there are as many
debts as there are debtors, each debt being considered distinct
and separate from 1208, C.C. ) Thus, presentment must be
made to all of them. However, if one of them is duly
authorized by the others for the purpose, presentment to him
would be sufficient.
Sec. 79. When presentment not required to charge the
drawer. - Presentment for payment is not required in order
to charge the drawer where he has no right to expect or
require that the drawee or acceptor will pay the
instrument.
Sec. 80. When presentment not required to charge the
indorser. - Presentment is not required in order to charge
an indorser where the instrument was made or accepted
for his accommodation and he has no reason to expect that
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the instrument will be paid if presented.
NOTE: Sec. 79 refers only to the drawer specifically. All other
parties secondarily liable will be discharged ( since no
presentment). Similarly, Sec. 80 refers only to the indorser for
whose accommodation an instrument is made or accepted. All
others parties secondarily liable are discharged. These 2
sections give 2 exceptions to the general rule that if no
resentment for payment is made, the persons secondarily liable
are discharged.
When is presentment not required to charge the drawer
liable?
1. In case of a check upon which payment
has been stopped.
2. Where the drawer’s balance is less than
the amount of the check (at the time of
presentment) unless arrangements have
been made for payment of the bill.
3. Where the drawer of a bill containing
the words “Pay from balance” had no
money on deposit with the drawee but
expected to arrange with the broker to
cover the drafts.
4. Where the drawer and the drawee are
the same person or where the drawee is
a fictitious person, or a person without
capacity to contract (Sec. 130) because
the holder mat treat it as a note and the
drawer is considered a maker. Under
section 70, a maker is liable even
without presentment.
Why is the accommodated party-indorse not discharged?
The accommodated party-indorser is the real debtor and not
the maker or acceptor. As the accommodated party did not
give value to the accommodation party, the former has no
reason to expect that the instrument will be paid upon
presentment.In effect, the accomodated party is the person
primarily liable. Hence, the accomodated party –indorser,
being in effect the person primarily liable is not discharged
even if no presentment for payment is made. This is in
consonance with the rule that failure to make presentment for
payment will not discharge the person primarily liable.
Sec. 81. When delay in making presentment is excused. -
Delay in making presentment for payment is excused when
the delay is caused by circumstances beyond the control of
the holder and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate,
presentment must be made with reasonable diligence.
Sec. 82. When presentment for payment is excused. -
Presentment for payment is excused:
(a) Where, after the exercise of reasonable
diligence, presentment, as required by this Act,
cannot be made;
(b) Where the drawee is a fictitious person;
(c) By waiver of presentment, express or implied.
Sec. 83. When instrument dishonored by non-payment. - The
instrument is dishonored by non-payment when:
(a) It is duly presented for payment and payment
is refused or cannot be obtained; or
(b) Presentment is excused and the instrument is
overdue and unpaid.
Sec. 84. Liability of person secondarily liable, when
instrument dishonored. - Subject to the provisions of this
Act, when the instrument is dishonored by non-payment,
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
an immediate right of recourse to all parties secondarily
liable thereon accrues to the holder.
Sec. 85. Time of maturity. - Every negotiable instrument is
payable at the time fixed therein without grace. When the
day of maturity falls upon Sunday or a holiday, the
instruments falling due or becoming payable on Saturday
are to be presented for payment on the next succeeding
business day except that instruments payable on demand
may, at the option of the holder, be presented for payment
before twelve o'clock noon on Saturday when that entire
day is not a holiday.
Sec. 86. Time; how computed. - When the instrument is
payable at a fixed period after date, after sight, or after
that happening of a specified event, the time of payment is
determined by excluding the day from which the time is to
begin to run, and by including the date of payment.
NOTE: In determining the proper date for presentment, count
from the day following the date from which the time is to run
(e.g. the date of the instrument, or date of sight, or date of the
happening of the specified event) and include the last day of
the period as the maturity date.
But if dated 5 April 1991 and payable one month
after, the due date is 5 May 1991.
If dated 31 January and payable one month after, the
due date is Feb 28 or 29 depending on whether it is a leap
year.
Sec. 87. Rule where instrument payable at bank. - Where the
instrument is made payable at a bank, it is equivalent to an
order to the bank to pay the same for the account of the
principal debtor thereon.
Sec. 88. What constitutes payment in due course. - Payment
is made in due course when it is made at or after the
maturity of the payment to the holder thereof in good faith
and without notice that his title is defective.
What are the requisites for payment in due course?
(1) payment must be made at or after the date of
maturity;
- payment made before maturity would constitute
a negotiation back the person primarily liable
and he can re-negotiate it (sec. 50).
(2) payment must be the holder; and
- payment to indorsee who is not in possession of
the instrument is not payment in due course and
is at the risk of the party so paying. Party making
payment must insist on the presentment of the
paper by the person demanding payment in order
to make sure that it is at the time in his
possession and not outstanding in other.
(3) payment must be made by the debtor in good
faith and without notice that the holder’s title is
defective.
- payment to a person by the debtor who knows
that such person stole it, is not payment in due
course , as such payment is not in good faith. The
maker or acceptor must satisfy himself, when it
is presented for payment, that the holder traces
his title through genuine indorsements.
Medium of payment the payment of debts in money
shall be made in the currency stipulated and if not
possible, in the currency which legal tender in the
Philippines. When payment of an instrument is made
by giving (other than legal tender), as a general such
payment will not be considered absolute until the
29
paper given has been itself paid except when parties
agree otherwise.
A check presented by the holder to the bank where it
is drawn and receive as a deposit and credited to his
amount, this amounts to a payment of the checks.
VII. NOTICE OF DISHONOR
Sec. 89. To whom notice of dishonor must be given. - Except
as herein otherwise provided, when a negotiable
instrument has been dishonored by non-acceptance or non-
payment, notice of dishonor must be given to the drawer
and to each indorser, and any drawer or indorser to whom
such notice is not given is discharged.
What a notice of dishonor?
Notice of dishonor is bringing, either verbally or by
writing to the knowledge of the drawer or indorser of
an instrument, the fact that a specified negotiable
instrument, upon proper proceedings taken, has not
been paid and that the party notified is expected to
pay it. (If such notice is given by a notary public, it is
called a protest (sec. 153).
What are the purposes of a notice of dishonor?
(1)to inform the parties secondarily liable that the
maker or acceptor, as the case may be has failed to
meet his engagement;
(2) to advice such parties that they will be required to
make payment.
What is the rule on notice of dishonor?
When an instrument is dishonored by (1) non-acceptance (bill)
or (2) non- payment (both bill and note), notice of such
dishonor must be given to persons secondarily liable, namely,
the drawer (in a bill) and indoresers (in both bill and note).
Otherwise, such parties are discharged. However, the holder is
not required to notify the drawer and all indorsers. He may
select to hold only one or some of the indorsers and any party
not so notified is discharge. Therefore, the holder, in order to
fix the liabilities of the parties secondarily liable, must give a
notice of dishonor at least, to such parties he may have
selected. Further, it is incumbent upon the holder to prove the
fact of giving notice, in accordance with the law, as part of his
case. His cause of action (enforcement of payment) will not
given substance or will not be upheld by court if he fails to
prove such fact. Lastly, the law does not require that the notice
be given to the persons primarily liable (maker or acceptor)
because they are the very ones who dishonored the instrument.
NOTE: The exceptions to this general rule of notice are found
in secs. 109, 112, 114, 115, 116, 117.
In instruments payable in installments, does failure give such
notice of dishonor of a previous installment to persons
secondarily liable discharge them on succeeding installment?
It depends. If the instrument contains no acceleration clause,
they are not discharged because each installment is equivalent
to a separate note. If there is an acceleration clause and it is
automatic (in operation), they are discharged. If the
acceleration clause is optional and it is not exercised, it is the
same as if no such clause existed and as a result, they are not
discharged therefore. If the optional acceleration clause has
been exercised, the persons secondarily liable are excused.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Sec. 90. By whom given. - The notice may be given by or on
behalf of the holder, or by or on behalf of any party to the
instrument who might be compelled to pay it to the holder,
and who, upon taking it up, would have a right to
reimbursement from the party to whom the notice is given.
Who gives the notice of dishonor?
(1) the holder; or
(2) another behalf of the holder; or
(3) by a party to the instrument who may be compelled to pay
it to the holders;
- However, such a party cannot give notice of
dishonor to everybody but only to another party against whom
he has a right of reimbursement should such party giving
notice pay the instrument.
(4) another person in behalf of such party;
Notice by a mere stranger is ineffectual unless he is acting as
agent of a party who is entitled to give notice of dishonor.
ILLUSTRATION: M makes a note payable to the order of P. P
negotiates the note to A. A to B, B to C, C to D, holder. M
dishonors the note in the hands of D.
(a) D or his agent may give notice of dishonor to P, A, B, C, or
to any one of them.
(b) if the D notifies C only, the latter, who thereby can be
compelled by D to pay, may, in turn, notify P, A and/or B – to
whom C, if he pays,. Has the right of reimbursement.
(c) if D give notice only B, the effect is to discharge C due to
lack of notice since B would have no right of reimbursement
from C and thus, no right to give notice to him.
(d) C, upon his discharge, becomes a total stranger and as such
is not entitled to give notice unless he is acting as an agent of a
party who can give proper notice of dishonor.
May a maker or acceptor, at any time, give notice or
dishonor?
Yes, only when the maker or acceptor acts as an agent of the
person entitled to give notice.
Sec. 91. Notice given by agent. - Notice of dishonor may be
given by any agent either in his own name or in the name
of any party entitled to given notice, whether that party be
his principal or not.
NOTE: Notice of dishonor may be give by an agent (sec. 90).
The agent need not be authorized by the principal to give the
notice. Notice may be given by the agent: (1) in the name of
any party entitled to give the notice (sec. 90); or (2) in his
(agent’s) own name. Thus, any person can be agent of any
party entitled to give notice (so as long as he gives notice for
such party and not for his own sake).
Sec. 92. Effect of notice on behalf of holder. - Where notice
is given by or on behalf of the holder, it inures to the
benefit of all subsequent holders and all prior parties who
have a right of recourse against the party to whom it is
given.
What does “benefit” mean?
The word “benefit” refers to the right to charge the person
secondarily liable who receive notice. In other words, the
party to whom this benefit inures can charge the party
receiving notice of dishonor, even if he himself did not give
the notice.
30
To whom does this benefit inure to?
Notice given by or on behalf of the holder inures to the
benefit:
(1) of all parties prior to the holder, who have the right of
recourse against the party to whom the notice is given; and
(2) of all holders subsequent to the holder giving notice.
ILLUSTRATION: M makes a note payable to the order of P. P
negotiates it to A. A to B, B to C, C to D, holder. M dishonors.
D notifies P, A B, and C.
(a)the notice given by D to P operates to the benefit of A,
B and C although they were not the one who gave the notice
as they have the right of recourse against P if any of them be
held liable to pay the instrument.
(b) but, the notice given by D to B does not operate to the
benefit of P and A since the latter do not have the right of
recourse against B. The notice to B, though, would benefit C
who has such right of recourse against B.
(c) if D subsequently negotiates the note E, the notice inures to
E’s benefit although he himself did not give any E need not
give another notice of dishonor.
(d) Suppose D, when the instrument was dishonored, gave
notice only P, A and C. D later negotiated it to E. Can E go
after B to whom notice was given? No. the effect of D’s failure
to notify B was to discharge him from liability. The benefit of
sec. 92 cannot be extended to those already discharged.
(following this trend of thought, if E goes after C and the later
pays, C can no longer go after B even if he had a right of
recourse against him).
Sec. 93. Effect where notice is given by party entitled thereto.
- Where notice is given by or on behalf of a party entitled
to give notice, it inures to the benefit of the holder and all
parties subsequent to the party to whom notice is given.
How is sec. 93 different from sec. 92?
The principal involved is the same. However, the notice sec.
93 is given, not by the holder but by a party entitled to give
notice under sec. 90 namely, by party to the instrument who
might be compelled to pay it to the holder, and who, upon
taking it p, would have a right of reimbursement from the
party to whom notice is given. Such notice inures to the
benefit of: (1) the holder, and (2) all parties subsequent to the
party to whom notice is given.
ILLUSTRATION: M made a note payable to the order P. P
negotiated it to A. A to B, B to C, C to D, holder. M dishonors
the note and D notifies only C.
(a) Ordinarily, A, B and P are considered discharged from their
liability for lack of notice (sec. 89).
(b) But, if C, within the time fixed by law (sec. 94, 107), gives
due notice to B, and B gives notice to A and A to P, all three
will not be considered discharged. (Subsequent notices must
each be within the time fixed by law).
(c) Can D go after P despite the absence of notice given by the
former to the latter? Yes, the notice given by A to P inured to
the benefit of D, holder (sec. 93) although the latter failed to
give notice P.
(d) Suppose D instead went after B and succeeded in
collecting. May B go after P? yes, Although B never gave
notice personally to P, the notice by A also inures to the benefit
of parties subsequent to the party to whom notice is given.
Sec. 94. When agent may give notice. - Where the
instrument has been dishonored in the hands of an agent,
he may either himself give notice to the parties liable
thereon, or he may give notice to his principal. If he gives
notice to his principal, he must do so within the same time
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
as if he were the holder, and the principal, upon the receipt
of such notice, has himself the same time for giving notice
as if the agent had been an independent holder.
What may the agent do if the instrument in his hands is
dishonored?
(1) he may directly give notice to the persons secondarily
liable thereon; or
- the agent must do so within the time fixed by secs. 102,
103, 104 and 107. Otherwise, the parties secondarily liable
are discharged for lack of notice unless the principal himself
notified them.
(2) he may gave notice, within the time fixed by law, to his
principal.
- the time in which the principal was a party secondarily
liable.the principal, upon receiving such notice, has also the
same time for giving notice to the parties secondarily liable as
if the instrument was dishonored on the day he received the
notice. Thus, notice to the agent of dishonor does not
constitute notice to the principal. The agent is treated like an
independent holder.
Sec. 95. When notice sufficient. - A written notice need not
be signed and an insufficient written notice may be
supplemented and validated by verbal communication. A
misdescription of the instrument does not vitiate the notice
unless the party to whom the notice is given is in fact
misled thereby.
Sec. 96. Form of notice. - The notice may be in writing or
merely oral and may be given in any terms which
sufficiently identify the instrument, and indicate that it has
been dishonored by non-acceptance or non-payment. It
may in all cases be given by delivering it personally or
through the mails.
Is there any form required for the notice of dishonor?
No. Notice of dishonor may be in writing or merely oral. Thus,
notice may be given by telephone provided that it may be
clearly shown that the party notified was really communicated
with, that is fully indentified as the party at the receiving end
of the line.
What must the notice contain?
(1) sufficient description of the instrument to identify it;
(2) a statement that it has been presented for payment or for
acceptance, and that it has been dishonored. (If protest is
necessary, the notice must also cointain a statement that it has
been protested); and
(3) a statement that the party giving notice to look for the party
addressed for payment.
What if one of the three is omitted?
The fact that the insufficient does not invalidated it. The notice
may be supplemented by oral or verbal communications
stating the things lacking. In fact, even if the notice was not be
invalidated.
Supposing there is a misdescription of the instrument, will
that fact affect the validity of the notice?
Generally, misdescription of the instrument, such as to the
amount or the date of the name of the parties or the date of
maturity, does not vitiate the notice provided that the person to
whom such notice is addressed is not misled thereby as to the
identity of the instrument, if the said party is misled, the notice
is vitiated. The purpose of the notice is to appraise the party
entitled thereto of the dishonor of the instrument so that if the
31
said party, despite the misdescription, is not misled, the notice
is sufficient.
How may the notice be given?
The party giving said notice to serve notice: (1) by personal
delivery; or (2) by mail. But, in a personal service, it must be
shown that either actual personal service, or an ordinary
intelligent, diligent effort to make personal service upon the
indorser at his place of business during business hours or at his
residence if he has place of business, was made.
Sec. 97. To whom notice may be given. - Notice of dishonor
may be given either to the party himself or to his agent in
that behalf.
NOTE: Under sec. 91, the agent giving notice need not be
authorized by the principal. But, under sec. 97, an agent to be
competent to receive notice of dishonor must be authorized.
The reason for the difference is that, while in sec. 91, the
giving of notice benefits the principal, in sec. 97, the receipt of
notice creates liability. If the agent, in sec. 97, is not
authorized, the notice in valid.
Suppose notice was attempted to be given to the party himself
but he was not present. Does the notice have to be given only
to an authorized agent?
No. Notice to agent must be distinguished from notice
attempted to be given to the party himself where he is absent.
In the latter case, the notice may be left with anyone found in
charge in the party’s place of residence or business. Such
notice is sufficient and it is irrelevant that the person was not
so authorized by the principal.
Sec. 98. Notice where party is dead. - When any party is
dead and his death is known to the party giving notice, the
notice must be given to a personal representative, if there
be one, and if with reasonable diligence, he can be found. If
there be no personal representative, notice may be sent to
the last residence or last place of business of the deceased.
What are the requisites of this sec.?
When the person to be given notice of dishonor (the party
sought to be charged) is dead, notice must be given to his
personal representative, provided that: (1) his death know to
the party giving notice,; (2) there is a personal representative;
and (3) if with reasonable diligence he could be found.
Accordingly, where the holder knew the indorser to be dead,
he must use reasonable diligence to find out whether there is a
personal representative of such decedent or not, and, if there is
one, his identity. But, although the party is dead, (1) if his
death is not known to the party giving notice but there is no
personal representative, or (3) if there is one but he cannot be
found with reasonable diligence, then, notice may be sent to
the last residence or last place of the deceased. The first
preference will be the person, the representative. Only in his
absence should the notice be sent to such place.
Sec. 99. Notice to partners. - Where the parties to be
notified are partners, notice to any one partner is notice to
the firm, even though there has been a dissolution.
NOTE: the reason for the rule is that each partner is an agent
of the partnership of which he is a member. Notice to one is
notice to the others. This is true even though the notice was
fraudulently suppressed by the partners receiving it.
Sec. 100. Notice to persons jointly liable. - Notice to joint
persons who are not partners must be given to each of
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
them unless one of them has authority to receive such
notice for the others.
NOTE: Sec. 100 does not apply to joint payees or joint
indorsees. This is because, under sec. 68, such persons deemed
solidarily liable. Accordingly, sec. 100 applies to joint parties
other than joint payees and joint indorse, such as, to drawers
who sign a bill jointly, or to joint accommodation indorsers
who are not solidarily liable under sec. 68. if one of such joint
parties are not given notice, he will be discharged.
Sec. 101. Notice to bankrupt. - Where a party has been
adjudged a bankrupt or an insolvent, or has made an
assignment for the benefit of creditors, notice may be given
either to the party himself or to his trustee or assignee.
NOTE: This sec. contemplates 2 situations: (1) the party
secondarily liable has been declared a bankrupt or an insolvent
and (2) the party secondarily liable has made an assignment of
his properties for the benefit of creditors (even if not bankrupt
or insolvent). In either case, notice may be given to the party
himself or to his trustee or assignee. From the moment that
notice is duly served, the liability of the secondary party is
fixed.
In the case of bankruptcy or insolvency, it does not
mean that just because notice has been given, one can
immediately proceed against such party. It is still necessary to
file a complaint with the insolvency court and participate in
the insolvency proceedings together with all creditors so that
the properties of the insolvent may be distributed to all those
with claims – pro rata. But, the act of giving notice of dishonor
must be proven in court. Otherwise, absence of proof
discharge the insolvent from liability insofar as that instrument
is concerned.
Sec. 102. Time within which notice must be given. - Notice
may be given as soon as the instrument is dishonored and,
unless delay is excused as hereinafter provided, must be
given within the time fixed by this Act.
NOTE: The time for giving notice is fixed in secs. 103, 104 &
107.
May notice of dishonor be given before the date of
maturity?
No, because an instrument cannot be said to be dishonored for
non-payment unless presented and presentment must be made
on the date of maturity unless presentment is excused. But
even when presentment is excused, the instrument cannot be
said to be dishonored by non-payment unless it is overdue and
unpaid. Notice must be given only when it is actually
dishonored. Notice given before the instrument is due is
premature and insufficient.
ILLUSTRATION: A is in possession of a note which will
mature on Sept. 15, 1991 (30 days from today). The party
primarily liable told A that he will not pay the instrument on
due date. Can A, before Sept. 15, give notice of dishonor
already? No, the note has not yet matured and notice given
earlier than such date is premature.
May it be given on the date of maturity?
Yes, provided that the notice of dishonor be given after the
close of banking hours. The party primarily liable is given the
whole day in which to make payment. If the instrument is
presented on the date of maturity and is dishonored, but later
in the day, the party is primarily liable manifests his
willingness to pay, any prior notice would be premature.
Remember, the party liable has the whole day in which to
make payment. Further, to give notice, the instrument must
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have been: (1) presented for acceptance or for payment, and
(2) it was dishonored.
Why must notice be prompt?
The purpose of giving prompt notice is to give the persons
secondarily liable every opportunity to secure themselves.
Sec. 103. Where parties reside in same place. - Where the
person giving and the person to receive notice reside in the
same place, notice must be given within the following
times:
(a) If given at the place of
business of the person to
receive notice, it must be
given before the close of
business hours on the
day following.
(b) If given at his
residence, it must be
given before the usual
hours of rest on the day
following.
(c) If sent by mail, it must be deposited in the post office in
time to reach him in usual course on the day following.
Sec. 104. Where parties reside in different places. - Where
the person giving and the person to receive notice reside in
different places, the notice must be given within the
following times:
NOTE: Secs. 103 & 104 refer to the maximum time limit
allowed by the law to give notice. It may be given earlier.
However, if the notice was given beyond the time limit, it
would be considered not to have been given ant the parties
secondarily liable will be discharged from liability. The time
limit for giving notice depends upon whether the person
receiving notice resides in the same place as the person as the
person giving it, or not
What means are provided for in secs. 103 and 104 to give
notice?
In sec. 103, notice of dishonor may be given either (1)
personally; or (2) by mail. In sec. 104, it may be given either
(1) by mail or (2) otherwise than by mail (eg. Messenger,
telegram).
What is meant by
(a) If sent by mail, it must be deposited in the post office in
time to go by mail the day following the day of dishonor, or
if there be no mail at a convenient hour on last day, by the
next mail thereafter.
(b) If given otherwise than through the post office, then
within the time that notice would have been received in
due course of mail, if it had been deposited in the post
office within the time specified in the last subdivision.
Sec. 105. When sender deemed to have given due notice. -
Where notice of dishonor is duly addressed and deposited
in the post office, the sender is deemed to have given due
notice, notwithstanding any miscarriage in the mails.
Sec. 106. Deposit in post office; what constitutes. - Notice is
deemed to have been deposited in the post-office when
deposited in any branch post office or in any letter box
under the control of the post-office department.
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Sec. 107. Notice to subsequent party; time of. - Where a
party receives notice of dishonor, he has, after the receipt
of such notice, the same time for giving notice to
antecedent parties that the holder has after the dishonor.
Sec. 108. Where notice must be sent. - Where a party has
added an address to his signature, notice of dishonor must
be sent to that address; but if he has not given such
address, then the notice must be sent as follows:
(a) Either to the post-office nearest to his place of
residence or to the post-office where he is
accustomed to receive his letters; or
(b) If he lives in one place and has his place of
business in another, notice may be sent to either
place; or
(c) If he is sojourning in another place, notice may
be sent to the place where he is so sojourning.
But where the notice is actually received by the party
within the time specified in this Act, it will be sufficient,
though not sent in accordance with the requirement of this
section.
Sec. 109. Waiver of notice. - Notice of dishonor may be
waived either before the time of giving notice has arrived
or after the omission to give due notice, and the waiver
may be expressed or implied.
Sec. 110. Whom affected by waiver. - Where the waiver is
embodied in the instrument itself, it is binding upon all
parties; but, where it is written above the signature of an
indorser, it binds him only.
Sec. 111. Waiver of protest. - A waiver of protest, whether in
the case of a foreign bill of exchange or other negotiable
instrument, is deemed to be a waiver not only of a formal
protest but also of presentment and notice of dishonor.
Sec. 112. When notice is dispensed with. - Notice of dishonor
is dispensed with when, after the exercise of reasonable
diligence, it cannot be given to or does not reach the
parties sought to be charged.
Sec. 113. Delay in giving notice; how excused. - Delay in
giving notice of dishonor is excused when the delay is
caused by circumstances beyond the control of the holder
and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate,
notice must be given with reasonable diligence.
Sec. 114. When notice need not be given to drawer. - Notice
of dishonor is not required to be given to the drawer in
either of the following cases:
(a) Where the drawer and drawee are the same
person;
(b) When the drawee is fictitious person or a
person not having capacity to contract;
(c) When the drawer is the person to whom the
instrument is presented for payment;
(d) Where the drawer has no right to expect or
require that the drawee or acceptor will honor the
instrument;
(e) Where the drawer has countermanded
payment.
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Sec. 115. When notice need not be given to indorser. —
Notice of dishonor is not required to be given to an
indorser in either of the following cases:
(a) When the drawee is a fictitious person or
person not having capacity to contract, and the
indorser was aware of that fact at the time he
indorsed the instrument;
(b) Where the indorser is the person to whom the
instrument is presented for payment;
(c) Where the instrument was made or accepted
for his accommodation.
NOTES: Remember FICPA
This section applies only to the indorser concerned. It
does not excuse notice to other indorsers. Failure to give to the
others will result in their discharge. Under subsec (c) , the
indorser (the accommodated party) is in fact the principal
debtor and is not entitled to notice.
EXAMPLE OF CASES WHER SEC. 115 DOES NOT
APPLY:
In these cases, notice of dishonor to the indorser is not
excused:
1. Where the maker of the instrument is a partnership
and the indorser sought to be charged is a member
thereof;
2. Where no presentment was actually made;
3. where the indorser was treasurer of the maker
corporation, not active in its management and signed
the note in behalf of the corp.
The bottom line, for Sec. 114 and 115 is that notice is not
needed to the drawer or indorser concerned when (1) he has
knowledge of the dishonor by means other than through a
formal notice; and (2) he has no reason to expect that the
instrument will be honored.
Sec. 116. Notice of non-payment where acceptance refused. -
Where due notice of dishonor by non-acceptance has been
given, notice of a subsequent dishonor by non-payment is
not necessary unless in the meantime the instrument has
been accepted.
Sec. 117. Effect of omission to give notice of non-
acceptance. - An omission to give notice of dishonor by
non-acceptance does not prejudice the rights of a holder in
due course subsequent to the omission.
Sec. 118. When protest need not be made; when must be
made. - Where any negotiable instrument has been
dishonored, it may be protested for non-acceptance or non-
payment, as the case may be; but protest is not required
except in the case of foreign bills of exchange.
VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS
Sec. 119. Instrument; how discharged. - A negotiable
instrument is discharged:
(a) By payment in due course by or on behalf of
the principal debtor;
(b) By payment in due course by the party
accommodated, where the instrument is made or
accepted for his accommodation;
(c) By the intentional cancellation thereof by the
holder;
(d) By any other act which will discharge a simple
contract for the payment of money;
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(e) When the principal debtor becomes the holder PROBLEM: In the same example, if F, instead of canceling
of the instrument at or after maturity in his own the indorsement of C, presented the note to A who refused to
right. pay. F notifies
Sec. 120. When persons secondarily liable on the instrument
are discharged. - A person secondarily liable on the Sec. 121. Right of party who discharges instrument. - Where
instrument is discharged: the instrument is paid by a party secondarily liable
(a) By any act which discharges thereon, it is not discharged; but the party so paying it is
the instrument; remitted to his former rights as regard all prior parties,
and he may strike out his own and all subsequent
(b) By the intentional indorsements and against negotiate the instrument, except:
cancellation of his signature by (a) Where it is payable to the order of a third
the holder; person and has been paid by the drawer; and

(c) By the discharge of a prior (b) Where it was made or accepted for
party; accommodation and has been paid by the party
accommodated.
(d) By a valid tender or
payment made by a prior What are the effects of payment by a secondary party?
party;
1. The instrument is not discharged. But the party
(e) By a release of the principal paying is.
debtor unless the holder's right 2. The payer is remitted to his former rights against
of recourse against the party parties prior to him. If the payer was a HIDC, even
secondarily liable is expressly if at the time of payment he already had notice of
reserved; defects of title, he can enforce his rights as if he was
a HIDC.
(f) By any agreement binding 3. The payer can strike out his indorsement and those
upon the holder to extend the of subsequent parties to him.
time of payment or to postpone 4. The payer can renegotiate the instrument.
the holder's right to enforce the
instrument unless made with NOTE: The right to renegotiate is qualified by the exception
the assent of the party provided in pars. (a) and (b).
secondarily liable or unless the Sec. 122. Renunciation by holder. - The holder may
right of recourse against such expressly renounce his rights against any party to the
party is expressly reserved. instrument before, at, or after its maturity. An absolute
and unconditional renunciation of his rights against the
Why will the discharge of the instrument operate to principal debtor made at or after the maturity of the
discharge the secondary parties? instrument discharges the instrument. But a renunciation
does not affect the rights of a holder in due course without
If the instrument is discharged under sec. 119, it ceases to have notice. A renunciation must be in writing unless the
force and effect. Hence, all parties, primary or secondary, will instrument is delivered up to the person primarily liable
also be discharged since there is no instrument to be liable on. thereon.
But the discharge of the secondary parties does not necessarily
bring about the discharge of the instrument. Sec. 123. Cancellation; unintentional; burden of proof. - A
cancellation made unintentionally or under a mistake or
When will cancellation of the signature work as a without the authority of the holder, is inoperative but
discharge? where an instrument or any signature thereon appears to
have been cancelled, the burden of proof lies on the party
It is only when the signature of the indorser is intentionally who alleges that the cancellation was made unintentionally
cancelled by the holder that the former is discharge as if he has or under a mistake or without authority.
never been a party to the instrument. If there was a mistake in
the appreciation of facts, there is no intentional cancellation. Sec. 124. Alteration of instrument; effect of. - Where a
But, once an indorsement is canncelled, there is prima facie negotiable instrument is materially altered without the
presumption of intention cancel. Also, the right of the holder assent of all parties liable thereon, it is avoided, except as
to cancel the signature of an indorser is subject to the against a party who has himself made, authorized, or
limitation that the indorserment is not necessary to the holder’s assented to the alteration and subsequent indorsers.
title. But when an instrument has been materially altered and is
in the hands of a holder in due course not a party to the
Aside from the indorser’s discharge, what further effect alteration, he may enforce payment thereof according to its
will the cancellation have? original tenor.

The discharge of a party by intentional cancellation of his Sec. 125. What constitutes a material alteration. - Any
signature also operates as a discharge of parties subsequent to alteration which changes:
the party discharge. The reason for the rule is that the (b) The date;
discharge deprives a subsequent party of a right of recourse (b) The sum payable, either for
against the party discharged by the holder. Thus, suppose A, principal or interest;
maker, issues a note in favor of B. B negotiates it to C, C to D, (c) The time or place of payment:
D to E, E to F, holder. F cancels C’s signature. D and E will (d) The number or the relations of
also be discharged because both would be denied their right of the parties;
recourse against C in case one of them is made to pay the (e) The medium or currency in
instrument. which payment is to be made;
(f) Or which adds a place of
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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
payment where no place of
payment is specified, or any other
change or addition which alters the
effect of the instrument in any
respect, is a material alteration.
BILLS OF EXCHANGE
IX. FORM AND INTERPRETATION
Sec. 126. Bill of exchange, defined. - A bill of exchange is 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.
it is drawn is deemed an actual acceptance in favor of
every person who, upon the faith thereof, receives the bill
for value.
Sec. 136. Time allowed drawee to accept. - The drawee is
allowed twenty-four hours after presentment in which to
decide whether or not he will accept the bill; the
acceptance, if given, dates as of the day of presentation.
Sec. 137. Liability of drawee returning or destroying bill. -
Where a drawee to whom a bill is delivered for acceptance
destroys the same, or refuses within twenty-four hours
after such delivery or within such other period as the
holder may allow, to return the bill accepted or non-
accepted to the holder, he will be deemed to have accepted
the same.

Sec. 127. Bill not an assignment of funds in hands of Sec. 138. Acceptance of incomplete bill. - A bill may be
drawee. - A bill of itself does not operate as an assignment accepted before it has been signed by the drawer, or while
of the funds in the hands of the drawee available for the otherwise incomplete, or when it is overdue, or after it has
payment thereof, and the drawee is not liable on the bill been dishonored by a previous refusal to accept, or by non
unless and until he accepts the same. payment. But when a bill payable after sight is dishonored
by non-acceptance and the drawee subsequently accepts it,
Sec. 128. Bill addressed to more than one drawee. - A bill the holder, in the absence of any different agreement, is
may be addressed to two or more drawees jointly, whether entitled to have the bill accepted as of the date of the first
they are partners or not; but not to two or more drawees in presentment.
the alternative or in succession.
Sec. 139. Kinds of acceptance. - An acceptance is either
Sec. 129. Inland and foreign bills of exchange. - An inland general or qualified. A general acceptance assents without
bill of exchange is a bill which is, or on its face purports to qualification to the order of the drawer. A qualified
be, both drawn and payable within the Philippines. Any acceptance in express terms varies the effect of the bill as
other bill is a foreign bill. Unless the contrary appears on drawn.
the face of the bill, the holder may treat it as an inland bill.
Sec. 140. What constitutes a general acceptance. - An
acceptance to pay at a particular place is a general
Sec. 130. When bill may be treated as promissory note. - acceptance unless it expressly states that the bill is to be
Where in a bill the drawer and drawee are the same paid there only and not elsewhere.
person or where the drawee is a fictitious person or a
person not having capacity to contract, the holder may Sec. 141. Qualified acceptance. - An acceptance is qualified
treat the instrument at his option either as a bill of which is:
exchange or as a promissory note. (c) Conditional; that is to say,
which makes payment by the
Sec. 131. Referee in case of need. - The drawer of a bill and acceptor dependent on the
any indorser may insert thereon the name of a person to fulfillment of a condition
whom the holder may resort in case of need; that is to say, therein stated;
in case the bill is dishonored by non-acceptance or non-
payment. Such person is called a referee in case of need. It (b) Partial; that is to say, an
is in the option of the holder to resort to the referee in case acceptance to pay part only of
of need or not as he may see fit. the amount for which the bill is
drawn;
X. ACCEPTANCE
(c) Local; that is to say, an
Sec. 132. Acceptance; how made, by and so forth. - The acceptance to pay only at a
acceptance of a bill is the signification by the drawee of his particular place;
assent to the order of the drawer. The acceptance must be
in writing and signed by the drawee. It must not express (d) Qualified as to time;
that the drawee will perform his promise by any other
means than the payment of money. (e) The acceptance of some, one
or more of the drawees but not
Sec. 133. Holder entitled to acceptance on face of bill. - The of all.
holder of a bill presenting the same for acceptance may
require that the acceptance be written on the bill, and, if Sec. 142. Rights of parties as to qualified acceptance. - The
such request is refused, may treat the bill as dishonored. holder may refuse to take a qualified acceptance and if he
does not obtain an unqualified acceptance, he may treat
Sec. 134. Acceptance by separate instrument. - Where an the bill as dishonored by non-acceptance. Where a
acceptance is written on a paper other than the bill itself, it qualified acceptance is taken, the drawer and indorsers are
does not bind the acceptor except in favor of a person to discharged from liability on the bill unless they have
whom it is shown and who, on the faith thereof, receives expressly or impliedly authorized the holder to take a
the bill for value. qualified acceptance, or subsequently assent thereto. When
the drawer or an indorser receives notice of a qualified
Sec. 135. Promise to accept; when equivalent to acceptance. - acceptance, he must, within a reasonable time, express his
An unconditional promise in writing to accept a bill before dissent to the holder or he will be deemed to have assented
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thereto.
XI. PRESENTMENT FOR ACCEPTANCE
Sec. 143. When presentment for acceptance must be made. -
Presentment for acceptance must be made:
(a) Where the bill is payable after sight, or in any
other case, where presentment for acceptance is
necessary in order to fix the maturity of the
instrument; or
(b) Where the bill expressly stipulates that it shall
be presented for acceptance; or
(c) Where the bill is drawn payable elsewhere than
at the residence or place of business of the drawee.
In no other case is presentment for acceptance necessary in
order to render any party to the bill liable.
Sec. 144. When failure to present releases drawer and
indorser. - Except as herein otherwise provided, the holder
of a bill which is required by the next preceding section to
be presented for acceptance must either present it for
acceptance or negotiate it within a reasonable time. If he
fails to do so, the drawer and all indorsers are discharged.
What is presentment for acceptance?
Presentment for acceptance is the production or exhibition of a
bill of exchange to the drawee for his acceptance.
What is the general rule on presentment for acceptance?
GEN.RULE: Presentment for acceptance is not necessary to
render any party to the bill liable.
EXCEPTIONS:
1. Where it is payable after sight or in any case where
presentment for acceptance is necessary to fix the
maturity of the instrument;
2. Where it is expressly stipulated;
3. Where it is drawn payable elsewhere than at the
residence or place of business of the drawee.
In these three cases, it is necessary (1) to present the
bill for acceptance, or (2) to negotiate it within reasonable
time to charge the drawer and all indorsers. The reason is that
the drawer and indorser have a right in having the bill
accepted immediately in order to shorten the time of payment
and thus put a limit to the period of their liability and likewise
to enable them to protect themselves by other means before it
is too late, if the bill is not accepted and paid within the time
originally contemplated by them. In the 3 cases, where the bill
is not presented for acceptance nor negotiated within
reasonable time, the parties secondarily liable will be
discharged from liability. Other than the 3 cases, presentment
for acceptance is not required and failure to do so would not
affect the instrument in any manner.
However, there is nothing wrong in making
presentment for acceptance in other cases (even if not
required). And, if the bill is dishonored, by non-acceptance,
the holder may treat the bill as if it had required acceptance.
What are the reasons for the exceptions?
In exception (1) it is essential to present for
acceptance to fix the maturity date of the instrument. (e.g. A
bill payable 30 days after sight will not mature unless seen by
the drawee. Only when it is seen will the 30 day period start).
In exception (2) it is to comply with the expressed stipulation
of the parties in the bill itself. In exception (3) it is to inform
the drawee of the existence of the bill so that he can make
36
arrangements for its payment on the date of maturity at the
place designated.
Sec. 145. Presentment; how made. - Presentment for
acceptance must be made by or on behalf of the holder at a
reasonable hour, on a business day and before the bill is
overdue, to the drawee or some person authorized to
accept or refuse acceptance on his behalf; and
(a) Where a bill is addressed to two or more
drawees who are not partners, presentment must
be made to them all unless one has authority to
accept or refuse acceptance for all, in which case
presentment may be made to him only;
(b) Where the drawee is dead, presentment may
be made to his personal representative;
(c) Where the drawee has been adjudged a
bankrupt or an insolvent or has made an
assignment for the benefit of creditors,
presentment may be made to him or to his trustee
or assignee.
How should presentment for acceptance be made?
In order that presentment for acceptance may be proper, it is
necessary that it be:
(a) made by or on behalf of the holder;
(b) at a reasonable hour;
(c) on a business day;
(d) before the bill is overdue;
(e) within a reasonable time after acquisition
thereof; and
(f) to the drawee or some person authorized to
accept or refuse acceptance on his behalf.
To whom should presentment for acceptance be made?
Generally, it must be made to the drawee or some
person authorized to accept or refuse acceptance on his behalf.
However, where there are 2 or more drawees, presentment
must be made to all of them unless (1) one is duly authorized
to accept or refuse acceptance, or (2) they are partners. Where
the drawee is dead, it may be made to his personal
representative. “May” is used because by Sec. 148(a),
presentment is really excused. Where the drawee is adjudged a
bankrupt or has made an assignment, it may be made to him or
his trustee or his assignee. But, here, the use of “may” does
not excuse non-presentment. It is used to mean that the choice
of to whom presentment will be made is in the alternative.
Sec. 146. On what days presentment may be made. - A bill
may be presented for acceptance on any day on which
negotiable instruments may be presented for payment
under the provisions of Sections seventy-two and eighty-
five of this Act. When Saturday is not otherwise a holiday,
presentment for acceptance may be made before twelve
o'clock noon on that day.
NOTE: The rule in Sec. 72 and 85 regarding day of
presentment for payment is the same as for presentment for
acceptance. Only in Sec. 146, no distinction is made between
instruments payable on demand and those payable at a fixed or
determinable future time unlike in Sec. 85. Thus, whether it is
payable on demand or at a fixed date, where it is presentment
for acceptance, it may be made before 12 noon on Saturday
provided it is not a holiday.
Sec. 147. Presentment where time is insufficient. - Where
the holder of a bill drawn payable elsewhere than at the
place of business or the residence of the drawee has no
time, with the exercise of reasonable diligence, to present
the bill for acceptance before presenting it for payment on
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
the day that it falls due, the delay caused by presenting the
bill for acceptance before presenting it for payment is
excused and does not discharge the drawers and indorsers.
NOTE: Sec. 147 excuses delay in making presentment for
payment when such is caused by presenting the bill for
acceptance at a place other than the place where the bill ids
drawn payable.
Sec. 148. Where presentment is excused. - Presentment for
acceptance is excused and a bill may be treated as
dishonored by non-acceptance in either of the following
cases:
(a) Where the drawee is dead, or has absconded,
or is a fictitious person or a person not having
capacity to contract by bill.
(b) Where, after the exercise of reasonable
diligence, presentment can not be made.
(c) Where, although presentment has been
irregular, acceptance has been refused on some
other ground.
NOTE: Sec. 147 excuses delay in making presentment for
payment caused by presenting the bill for acceptance. Sec. 148
excuses non-presentment for acceptance.
Where the drawee is (1) dead; (2) has absconded; (3)
fictitious; or (4) a person not having capacity to contract,
presentment for acceptance is excused because it would be
futile to expect that a valid acceptance would be given.
An irregular presentment in which acceptance is
refused on the other ground is where presentment is made on a
Sunday and thus, irregular but the acceptance is refused on
the ground that the drawee has no funds ion the hands of the
drawee.
Sec. 149. When dishonored by nonacceptance. - A bill is
dishonored by non-acceptance:
(a) When it is duly presented for acceptance and
such an acceptance as is prescribed by this Act is
refused or can not be obtained; or
(b) When presentment for acceptance is excused
and the bill is not accepted.
NOTE: As to par (a) cases provided for in Sec. 132, 133 and
142. As to par. (b), it refers to Sec,. 148. But, it is not sufficient
that presentment for acceptance be excused but also that the
bill remains not accepted.
Sec. 150. Duty of holder where bill not accepted. - Where a
bill is duly presented for acceptance and is not accepted
within the prescribed time, the person presenting it must
treat the bill as dishonored by nonacceptance or he loses
the right of recourse against the drawer and indorsers.
What is the duty of the holder in Sec. 150?
If, within 24 hrs. after presentment (sec. 136) the bill
is not accepted, the person presenting it must treat the bill as
dishonored. This means that the holder must take the
necessary proceedings against the drawer and each indorser ,
that is, have the bill protested when required and give notice of
dishonor. Otherwise, the drawer and the indorsers will be
discharged.
Sec. 151. Rights of holder where bill not accepted. - When a
bill is dishonored by nonacceptance, an immediate right of
37
recourse against the drawer and indorsers accrues to the
holder and no presentment for payment is necessary.
What are the rights of the holder where bill is not accepted?
When a bill is dishonored by non-acceptance, the
holder, after giving notice of dishonor and protesting when
required, may immediately proceed against the drawer and
indorsers for the value of the bill without waiting for the date
of maturity. Presentment for payment need not be made since
payment can not be expected after acceptance has been
refused. There is no point in waiting for the date of maturity to
present the bill for payment. But if the bill is subsequently
accepted, presentment for payment is necessary.
XII. PROTEST
Sec. 152. In what cases protest necessary. - Where a foreign
bill appearing on its face to be such is dishonored by
nonacceptance, it must be duly protested for
nonacceptance, by nonacceptance is dishonored and where
such a bill which has not previously been dishonored by
nonpayment, it must be duly protested for nonpayment. If
it is not so protested, the drawer and indorsers are
discharged. Where a bill does not appear on its face to be a
foreign bill, protest thereof in case of dishonor is
unnecessary.
Sec. 153. Protest; how made. - The protest must be annexed
to the bill or must contain a copy thereof, and must be
under the hand and seal of the notary making it and must
specify:
(a) The time and place of presentment;
(b) The fact that presentment was made and the
manner thereof;
(c) The cause or reason for protesting the bill;
(d) The demand made and the answer given, if
any, or the fact that the drawee or acceptor could
not be found.
Sec. 154. Protest, by whom made. - Protest may be made by:
(a) A notary public; or
(b) By any respectable resident of the place where
the bill is dishonored, in the presence of two or
more credible witnesses.
Sec. 155. Protest; when to be made. - When a bill is
protested, such protest must be made on the day of its
dishonor unless delay is excused as herein provided. When
a bill has been duly noted, the protest may be subsequently
extended as of the date of the noting.
Sec. 156. Protest; where made. - A bill must be protested at
the place where it is dishonored, except that when a bill
drawn payable at the place of business or residence of
some person other than the drawee has been dishonored by
nonacceptance, it must be protested for non-payment at
the place where it is expressed to be payable, and no
further presentment for payment to, or demand on, the
drawee is necessary.
Sec. 157. Protest both for non-acceptance and non-payment.
- A bill which has been protested for non-acceptance may
be subsequently protested for non-payment.
Sec. 158. Protest before maturity where acceptor insolvent. -
Where the acceptor has been adjudged a bankrupt or an
insolvent or has made an assignment for the benefit of
creditors before the bill matures, the holder may cause the
bill to be protested for better security against the drawer
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
and indorsers.
Sec. 159. When protest dispensed with. - Protest is dispensed
with by any circumstances which would dispense with
notice of dishonor. Delay in noting or protesting is excused
when delay is caused by circumstances beyond the control
of the holder and not imputable to his default, misconduct,
or negligence. When the cause of delay ceases to operate,
the bill must be noted or protested with reasonable
diligence.
Sec. 160. Protest where bill is lost and so forth. - When a bill
is lost or destroyed or is wrongly detained from the person
entitled to hold it, protest may be made on a copy or
written particulars thereof.
XIII. ACCEPTANCE FOR HONOR
Sec. 161. When bill may be accepted for honor. - When a bill
of exchange has been protested for dishonor by non-
acceptance or protested for better security and is not
overdue, any person not being a party already liable
thereon may, with the consent of the holder, intervene and
accept the bill supra protest for the honor of any party
liable thereon or for the honor of the person for whose
account the bill is drawn. The acceptance for honor may be
for part only of the sum for which the bill is drawn; and
where there has been an acceptance for honor for one
party, there may be a further acceptance by a different
person for the honor of another party.
Sec. 162. Acceptance for honor; how made. - An acceptance
for honor supra protest must be in writing and indicate
that it is an acceptance for honor and must be signed by
the acceptor for honor. chanrobles law
Sec. 163. When deemed to be an acceptance for honor of the
drawer. - Where an acceptance for honor does not
expressly state for whose honor it is made, it is deemed to
be an acceptance for the honor of the drawer.
Sec. 164. Liability of the acceptor for honor. - The acceptor
for honor is liable to the holder and to all parties to the bill
subsequent to the party for whose honor he has accepted.
Sec. 165. Agreement of acceptor for honor. - The acceptor
for honor, by such acceptance, engages that he will, on due
presentment, pay the bill according to the terms of his
acceptance provided it shall not have been paid by the
drawee and provided also that is shall have been duly
presented for payment and protested for non-payment and
notice of dishonor given to him.
Sec. 166. Maturity of bill payable after sight; accepted for
honor. - Where a bill payable after sight is accepted for
honor, its maturity is calculated from the date of the noting
for non-acceptance and not from the date of the acceptance
for honor.
Sec. 167. Protest of bill accepted for honor, and so forth. -
Where a dishonored bill has been accepted for honor supra
protest or contains a referee in case of need, it must be
protested for non-payment before it is presented for
payment to the acceptor for honor or referee in case of
need.
Sec. 168. Presentment for payment to acceptor for honor,
how made. - Presentment for payment to the acceptor for
honor must be made as follows:
(a) If it is to be presented in the place where the
protest for non-payment was made, it must be
presented not later than the day following its
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maturity.
(b) If it is to be presented in some other place than
the place where it was protested, then it must be
forwarded within the time specified in Section one
hundred and four.
Sec. 169. When delay in making presentment is excused. -
The provisions of Section eighty-one apply where there is
delay in making presentment to the acceptor for honor or
referee in case of need.
Sec. 170. Dishonor of bill by acceptor for honor. - When the
bill is dishonored by the acceptor for honor, it must be
protested for non-payment by him.
XIV. PAYMENT FOR HONOR
Sec. 171. Who may make payment for honor. - Where a bill
has been protested for non-payment, any person may
intervene and pay it supra protest for the honor of any
person liable thereon or for the honor of the person for
whose account it was drawn.
Sec. 172. Payment for honor; how made. - The payment for
honor supra protest, in order to operate as such and not as
a mere voluntary payment, must be attested by a notarial
act of honor which may be appended to the protest or form
an extension to it.
Sec. 173. Declaration before payment for honor. - The
notarial act of honor must be founded on a declaration
made by the payer for honor or by his agent in that behalf
declaring his intention to pay the bill for honor and for
whose honor he pays.
What is payment for honor?
Payment for honor is payment made by a person, whether a
party to the bill or not, after it has been protested for non-
payment, for the benefit of any party liable thereon, or for the
benefit of the person whose account it was drawn. It is also
called payment supra protest because prior protest for non-
payment is required. It is not applicable to promissory notes.
Payment for honor may be availed of when the holder,
knowing that the bill has already been dishonored for non-
payment, does not want to indorse the bill and thereby incur
the liabilities of an indorser.
What is the difference between acceptance for honor and
payment for honor?
In acceptance for honor, there is an acceptor for honor. In
payment for honor, there is a payor for honor. The difference
between the two is that while in the former, the acceptor must
ber a stranger to the bill, in the latter, the payer for honor may
be a party liable on the bill. Further, in the former, the bill
must not be overdue. In the latter, it is overdue. Also, in the
former, there may be several acceptors while, in the latter,
there can only be one payer. Finally, in the former, the protest
must be for non-acceptance or for better security, while, in the
latter, it is for non-payment.
What are the requisites to perform a valid payment for
honor?
1. The bill has been dishonored for non-payment
2. The bill has been protested for non-payment
3. Payment supra protest is made by any person, even a
party thereto and as to form
4. the payment must be attested by notarial act appended to
the protest, or form an extension to it
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
5. The notarial act must be based on the declaration by the
payer for honor or his agent of his intention to pay the
bill for honor and for whose honor he pays.
What is the procedure for payment for honor?
1. The payer or his agent goes to a notary public and
declares his intention to pay the bill and for whose honor
he pays.
2. The notary then records the declaration in the protest or
in a separate paper attached to it.
3. the payer then notifies the person for whose honor he pays
within reasonable time.
What if the payment for honor is not attested by a notarial
act?
It will operate as a mere voluntary payment and the
payer acquires no right to full reimbursement against the party
for whose honor he pays. (Art. 1236-1237, NCC). He acquires
the right of reimbursement only up to the extent that the party
for whose honor he paid is benefited thereby. Similarly, failure
to notify the person for whose honor he pays within
reasonable time will result in the payment being considered in
the same manner.
Sec. 174. Preference of parties offering to pay for honor. -
Where 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 is to be given the
preference.
Note: The rule is different in acceptance for honor (Sec. 161,
last clause)
ILLUSTRATION:
A draws a bill payable to B, with X as drawee. B
negotiates it to C, C to D, D to E, E to F, holder. X refuses to
honor it and F duly protests non-payment. If Y offers to pay
for the honor of C, while Z offers to pay for the honor of B,
the latter’s (Z) will be preferred as Z’s payment will discharge
more (C, D, E). Y’s offer will only work to discharge D & E.
Sec. 175. Effect on subsequent parties where bill is paid for
honor. - Where a bill has been paid for honor, all parties
subsequent to the party for whose honor it is paid are
discharged but the payer for honor is subrogated for, and
succeeds to, both the rights and duties of the holder as
regards the party for whose honor he pays and all parties
liable to the latter.
What are the effects of payment for honor?
1. All parties subsequent to the party whose honor it is
paid are discharged; and
2. The payer for honor is subrogated for, and succeeds
to, both the rights and duties of the holder as regards
the party whose honor he pays and all parties liable to
the latter.
ILLUSTRATION: In the example above, suppose Z did not
offer and, as a result, Y made payment. What are the effects?
a. D and E are discharged because they are
parties subsequent to the party for whose
honor it is paid ( C ).
b. Y acquires the rights of F, holder, as against
C, B,A and X because C is the party for
whose honor he pays and the rest are
considered as parties liable to C.
39
Sec. 176. Where holder refuses to receive payment supra
protest. - Where the holder of a bill refuses to receive
payment supra protest, he loses his right of recourse
against any party who would have been discharged by
such payment.
NOTE: In payment for honor, the holder cannot refuse
payment. If he does, he cannot recover from the parties who
would have been discharged had he accepted it. The rule is
different from acceptance for honor because in such a case, the
holder’s consent is necessary.
ILLUSTRATION: In the above example, if Y offers to pay
for the honor of C and F refuses, F loses the right of recourse
against D and E as they are parties who would have been
discharged had the holder accepted payment. But as to C, the
party in whose honor Y offers to pay, is not discharged
because, as to him, even if F accepted, C would not be
discharged. The party for whom the instrument is paid for is
never discharged from liability by the payment for honor of
the payer.
Sec. 177. Rights of payer for honor. - The payer for honor,
on paying to the holder the amount of the bill and the
notarial expenses incidental to its dishonor, is entitled to
receive both the bill itself and the protest.
What are the rights of the rights of the payer for honor?
1. He acquires the rights of the holder (Sec. 175); and
2. He has also the right to receive the bill and the
protest.
The purpose of (2) is to enable him to enforce his rights
against those who are liable to him by virtue of Sec. 175.
XV. BILLS IN SET
Sec. 178. Bills in set constitute one bill. - Where a bill is
drawn in a set, each part of the set being numbered and
containing a reference to the other parts, the whole of the
parts constitutes one bill.
Sec. 179. Right of holders where different parts are
negotiated. - Where two or more parts of a set are
negotiated to different holders in due course, the holder
whose title first accrues is, as between such holders, the
true owner of the bill. But nothing in this section affects
the right of a person who, in due course, accepts or pays
the parts first presented to him.
Sec. 180. Liability of holder who indorses two or more parts
of a set to different persons. - Where the holder of a set
indorses two or more parts to different persons he is liable
on every such part, and every indorser subsequent to him
is liable on the part he has himself indorsed, as if such
parts were separate bills.
Sec. 181. Acceptance of bill drawn in sets. - The acceptance
may be written on any part and it must be written on one
part only. If the drawee accepts more than one part and
such accepted parts negotiated to different holders in due
course, he is liable on every such part as if it were a
separate bill.
Sec. 182. Payment by acceptor of bills drawn in sets. - When
the acceptor of a bill drawn in a set pays it without
requiring the part bearing his acceptance to be delivered
up to him, and the part at maturity is outstanding in the
hands of a holder in due course, he is liable to the holder
thereon.
Sec. 183. Effect of discharging one of a set. - Except as
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
herein otherwise provided, where any one part of a bill
drawn in a set is discharged by payment or otherwise, the
whole bill is discharged.
XVI. PROMISSORY NOTES AND CHECKS
Sec. 184. Promissory note, defined. - A negotiable
promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand,
or at a fixed or determinable future time, a sum certain in
money to order or to bearer. Where a note is drawn to the
maker's own order, it is not complete until indorsed by
him.
Sec. 185. Check, defined. - A check is a bill of exchange
drawn on a bank payable on demand. Except as herein
otherwise provided, the provisions of this Act applicable to
a bill of exchange payable on demand apply to a check.
Sec. 186. Within what time a check must be presented. - A
check must be presented for payment within a reasonable
time after its issue or the drawer will be discharged from
liability thereon to the extent of the loss caused by the
delay.
When are checks supposed to be presented for payment?
Checks are to be presented within a reasonable time
after its issue or the drawer will be discharged from liability to
the extent of the loss caused by the delay of presentment.
Although a check is a BOE, it must be presented within a
reasonable time from issues and not from last negotiation so
that the transfer of a check to successive holders does not
extend the time for presentment. A check is intended for
immediate use and not to circulate as promissory note. But the
discharge of the drawer is predicated on the fact of loss so that,
if there were no lose, then the drawer is not discharged
(though the check is stale) and the original obligation subsists.
What are the requisites in order to discharge the drawer?
1. The check is not presented within a reasonable time
after its issue;
2. The drawer suffers loss; and
3. The loss suffered by the drawer is attributable to the
delay.
What is reasonable time?
What constitutes reasonable time is dependent upon the
circumstances of each case. But the test is whether or not the
payee employed such diligence as a prudent man would
exercise in his own affairs. As stated earlier, our banking
practice sets the period within which presentment of a check
must be made- 6 months. Otherwise, it is considered as stale.
What is meant by “to the extent of the loss caused by the
delay?”
The discharge of the drawer is conditioned upon the suffering
of a loss attributable to the delay. If no loss or injury is shown,
the drawer is not discharged. The only loss which would be
sustained by the drawer in case resentment was not made
within a reasonable time would be that caused by the
insolvency of the bank subsequent to the delivery and prior to
the presentment of the check. It does not include the
withdrawal by the drawer of the funds or deposits as the
benefits from the money he withdrew.
HOW COMPUTED: PDIC- the insurance benefits
given for deposits is set at Php40,000.00:
40
Formula:
1. Get ratio between – PDIC: amount of deposit
2. MULTIPLY RATIO WITH AMOUNT OF CHECK
3. Thus, Loss= PDIC__________ x amount of check
Amount of Deposit
4. Loss= extent of drawer’s discharge
Suppose F, holder of a check for Php10,000.00 drawn by A. A
has a deposit with the bank of Php80,000.00. F fails to present
the check within reasonable time from issue. During such
time, the bank collapsed. Can A go against the bank?
No. the fact that A issued a check does not mean that the
issuance immediately resulted in an assignment of funds in
favor of the payee. There is as yet no privity of contract
between F and the bank so that F cannot go against the bank.
Can F go against A, drawer? Yes, but only to the
extent not considered as lost. PDIC insures the depositor of
Php40,000.00. The amount of loss is thus computed:
LOSS= PDIC x amt. of check = 40,000.00 x 10,000.00
Deposit 80,000.00
= ½ x P10,000.00= P5,000.00
The loss being to the extent of P5,000.00. F can only collect
P5,000.00 from A.
Finally, an unreasonable delay in the presentment of a
check will discharge the indorsers whether or not he is
prejudiced by the delay as the law presumes that he is
prejudiced.
Sec. 187. Certification of check; effect of. - Where a check is
certified by the bank on which it is drawn, the certification
is equivalent to an acceptance.
What is certification of a check?
Certification is an agreement whereby the bank against whom
a check is drawn, undertakes to pay it at any future time when
presented for payment. It is equivalent to acceptance in that
the drawee bank is bound on the instrument upon certification.
It implies that the bank recognizes that the check is good; that
the check is drawn upon sufficient funds in the hands of the
drawee; that they have been set apart for its satisfaction; and
that they shall be so applied whenever the check is presented
for payment. The purpose of procuring certification is to
impart strength and credit to the paper by obtaining an
acknowledgment from the certifying bank that the drawer has
funds therein sufficient to cover the check and securing the
engagement of the bank that the check will be paid upon
presentation. When a check is certified, it ceases to possess the
character of a check, and represents so much money on
deposit, payable to the holder on demand.
Suppose the bank wrote across the check “certified” and it
was signed by an authorized official, is that sufficient
certification? Is there a form required?
Yes, it is sufficient as no particular form, is required, only that
it be in writing. This is the usual method of certification.
Another is the use of the word “good” followed by the bank
officer’s signature. But, “ok” followed by the signature is not
acceptable. If it’s “good” it’s ok. If it’s “ok” it’s not good.
What are the effects of “certification”
1.) It is equivalent to acceptance and is the operative act
that makes the drawee bank liable;
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
2.) It operates as an assignment of the funds of the
drawer in the hands of the drawee bank;
3.) If obtained by the holder, it discharges persons
secondarily liable thereon; and
4.) The payee or holder for all intents and purposes,
becomes the depositor of the drawee bank with rights
and duties of one.
Supposing the holder of the check presented the check for
certification but the bank refused. Can the instrument be
considered by the holder as dishonored?
No. The certification of the check is not part of the warranties
of the drawer. In so far as the drawer is concerned, he only
warrants that the check will be paid if it is presented for
payment. It is not part of the warranties of the drawer that the
check, if presented , will be certified or accepted by the bank.
The refusal to certify will not mean a dishonor of the check.
What will constitute a dishonor will be the non-payment of the
check because the checks being payable on demand need not
be presented for acceptance.
Sec. 188. Effect where the holder of check procures it to be
certified. - Where the holder of a check procures it to be
accepted or certified, the drawer and all indorsers are
discharged from liability thereon.
NOTE: Where the holder procures the certification, the drawer
and endorsers are discharged. The reason for the rule is that
certification has the same effect as if the holder had drawn the
money redeposited it and taken a certificate of deposit for it.
Thus, the drawer (and indorser) is discharged on the check and
on the original debt. Further, only indorsers at the time of
certification are discharged, not those subsequent.
However, if the certification is not obtained by the
holder but by other, i.e. the drawer (even at the instance of the
holder), or any other person, the drawer and the indorsers are
not discharged from liability.
Sec. 189. When check operates as an assignment. - A check
of itself does not operate as an assignment of any part of
the funds to the credit of the drawer with the bank, and the
bank is not liable to the holder unless and until it accepts
or certifies the check.
What is the rule on checks as regards the funds?
Check drawn in the ordinary form is not an
assignment of the funds of the drawer in the bank. It does not
constitute a transfer of any money to the credit of the holder. It
is simply an order by the drawer to pay the amount of the
check on presentment, and which may be countermanded and
payment forbidden by the drawer at any time before it is
actually cashed. The banker’s liability to accept and pay is
conditioned upon the sufficiency of the drawer’s money in the
hands of the bank. When the holder procures the check to be
certified, the check operates as an assignment of a part of the
funds to the credit of the drawer with the bank. The funds to
be under the control of the drawer and transfer to the credit of
the holder or payee.
Can the holder sue the bank of the check is not accepted or
certified?
No. Before acceptance or certification, the bank is not
liable and the holder has no right to sue the drawee bank on
the check. As a general rule, an action may not be maintained
by the payee of the check against the bank on which it is
drawn, unless the check has been accepted or certified.
Without acceptance or certification there is no privity of
41
contract between the drawee bank and the payee or holder of
the check.
When may a stop payment order be made?
As a check of itself does not operate as a n
assignment of funds of the drawer, the latter may countermand
(withdraw the order to pay) payment before its acceptance or
certification. The order to stop payment must be
communicated to the bank before the check to which it refers
has been paid.
SUMMARY OF RIGHTS AND LIABILITIES OF THE
PARTIES
2. Where the drawee bank refuses to certify, or accept, or
pay a check:
The holder has no action against it as a check is of
itself is not an assignment if the funds of the drawer
and the drawee bank is not liable on the check until it
has accepted or certified it.
Neither has the holder a right of action against the
drawer where the drawee bank refuses to accept or
certify the check but he has a right of action against
the drawer where the drawee bank refuses to pay.
While the holder has no right of action against the
drawee bank which refuses to pay, accept, or certify
the check, the drawer has a right of action against the
drawee bank so refusing.
XVII. GENERAL PROVISIONS
Sec. 190. Short title. - This Act shall be known as the
Negotiable Instruments Law.
Sec. 191. Definition and meaning of terms. - In this Act,
unless the contract otherwise requires:
"Acceptance" means an acceptance completed by
delivery or notification;
"Action" includes counterclaim and set-off;
"Bank" includes any person or association of
persons carrying on the business of banking,
whether incorporated or not;
"Bearer" means the person in possession of a bill
or note which is payable to bearer;
"Bill" means bill of exchange, and "note" means
negotiable promissory note;
"Delivery" means transfer of possession, actual or
constructive, from one person to another;
"Holder" means the payee or indorsee of a bill or
note who is in possession of it, or the bearer
thereof;
"Indorsement" means an indorsement completed
by delivery;
"Instrument" means negotiable instrument;
"Issue" means the first delivery of the instrument,
complete in form, to a person who takes it as a
holder;
"Person" includes a body of persons, whether
incorporated or not;
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
"Value" means valuable consideration;

"Written" includes printed, and "writing" includes

print.

Sec. 192. Persons primarily liable on instrument. - The

person "primarily" liable on an instrument is the person
who, by the terms of the instrument, is absolutely required
to pay the same. All other parties are "secondarily" liable.

Sec. 193. Reasonable time, what constitutes. - In

determining what is a "reasonable time" regard is to be
had to the nature of the instrument, the usage of trade or
business with respect to such instruments, and the facts of
the particular case.

Sec. 194. Time, how computed; when last day falls on

holiday. - Where the day, or the last day for doing any act
herein required or permitted to be done falls on a Sunday
or on a holiday, the act may be done on the next succeeding
secular or business day.

Sec. 195. Application of Act. - The provisions of this Act do

not apply to negotiable instruments made and delivered
prior to the taking effect hereof.

Sec. 196. Cases not provided for in Act. - Any case not
provided for in this Act shall be governed by the provisions
of existing legislation or in default thereof, by the rules of
the law merchant.

Sec. 197. Repeals. - All acts and laws and parts thereof
inconsistent with this Act are hereby repealed.

Sec. 198. Time when Act takes effect. - This Act shall take
effect ninety days after its publication in the Official
Gazette of the Philippine Islands shall have been
completed.

Enacted: February 3, 1911

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