Chapter 3 – Different Kinds of Obligations
Identification Reviewer 13) Possible – the condition is capable of fulfillment, legally and physically.
Section 1 – Pure and Conditional Obligation
1) Article 1179. Every obligation which is not subject to a future or uncertain, and with a
past event which is unknown to the parties, is demandable at once. Also, an obligation
subject to a resolutory condition shall also be demandable, without prejudice to the effects
of the happening of the events.
2) Pure obligation – is an obligation which is not subject to a condition and there is no
date specified with its fulfillment and is therefore, demandable.
3) Conditional obligation – is an obligation which its consequences are subject in one way
or another to the fulfillment of a condition.
4) Condition – is a future AND uncertain event in which the effectivity or extinguishment
of an obligation is subject to its fulfillment. It may refer to a past event which is unknown to
the parties. It is important that the event is uncertain, otherwise it is considered as
obligation with a period. However, the condition must be possible.
5) Suspensive condition – a condition in which its fulfillment will give rise to an obligation.
The demandability of the obligation is subject to its fulfillment.
6) Resolutory condition – a condition in which the fulfillment of it will extinguish an
existing obligation.
7) Past event unknown to the parties – this term only refers to the knowledge of a future
event with regards to a past event which makes it uncertain.
8) Period – is a future and certain event in which the effectivity or extinguishment of an
obligation is subject to its fulfillment. It is as if the debtor will fulfill the obligation when his
means permit him to do so. Also, it is a certain event although it may not be known when.
9) Suspensive – the happening of which gives rise to an obligation.
10) Resolutory – the happening of which extinguishes an obligation.
11) Express – the condition is clearly stated.
12) Implied – the condition is merely inferred.
14) Impossible – the condition is not capable of fulfillment, legally and physically.
15) Potestative – the condition is dependent upon the will of one of the contracting
parties.
16) Casual – the condition is dependent upon chance or upon the will of a third person.
17) Mixed – the condition is dependent partly upon chance and partly upon the will of a
third person.
18) Positive – the condition consists in the performance of an act.
19) Negative – the condition consists in the omission of an act.
20) Conjunctive – there are several conditions and all must be fulfilled.
21) Disjunctive – there are several conditions and one or two of them must be fulfilled.
22) Divisible – the condition is susceptible to partial performance.
23) Indivisible – the condition must be performed as a whole.
24) Physically impossible conditions – when they, in nature of things, cannot be done or
cannot exist. (Ex. Not rain in the Philippines for one year)
25) Legally impossible conditions – when it is contrary to law, morals, good customs, public
order and public policy. (Ex. Killing, common-law-wife, slap, publicly advocate the overthrow
of the government and not appear as witness against the criminal)
26) Physical loss – when the thing perishes as when the house is burned and reduced to
ashes.
27) Legal loss – when the thing goes out of commerce or when it is legal before and it
becomes illegal.
28) Civil loss – when the thing disappears as if its existence is unknown or if known, it
cannot be recovered, as a matter of fact or of law.
29) Usufruct – the right to enjoy the fruits of the thing belonging to another.
30) Applicability of Article 1189 in obligation to return – in a resolutory condition, the
fulfillment of the condition converts the debtor into a creditor and creditor into a debtor.
Hence, the rules on loss, deterioration or improvement of the thing apply in the obligation
to return.
31) Unilateral obligation – obligation in which only one party is bound to comply with a
prestation.
32) Bilateral obligation – obligation in which both parties are bound to give one another a
prestation. This is a case in which both parties are creditors and debtors of one another.
33) Reciprocal obligation – obligation which arises from the same cause and the
performance of one party is dependent upon the performance of another.
34) Non-reciprocal obligations – are those which do not impose simultaneous and
correlative performance on both parties. The performance of one party is not dependent
upon the performance of another.
35) The courts may grant guilty party term for performance – if there is a just cause to give
the party in default time to perform his obligation, the court may still approve it. This is
applicable if the debtor is willing to perform.
36) Remedy is alternative – it is not cumulative, meaning once the injured party decided to
have the obligation performed, he can still ask for rescission if the obligation is impossible to
perform, otherwise he could not choose both performance and rescission. If the injured
party chose rescission, he could not ask for the performance of the obligation anymore.
37) When expressly stipulated in contract, it is possible for both parties to enter in a
contract whereby they agree that in case of breach or violation of the terms, the injured
party may choose rescission even without the intervention of the court.
38) Where contract still executory – in an obligation where both parties have not yet
performed their obligations, however one party is already willing and ready to perform and
the other is not, he may choose rescission even without the intervention of the court.
Section 2 – Obligations with a period
39) Obligation with a period – is one whose consequences are subjected in one way or
another to the expiration of a period or term.
40) Suspensive period – an obligation arises upon the happening of a certain event or
period.
41) Resolutory period – an obligation is extinguished upon the happening of a certain
event.
42) Legal period – a period which is set or provided by law.
43) Conventional or voluntary period – a period which is agreed by the parties.
44) Judicial period – a period fixed by the court.
45) Definite period – a period/time known to the parties.
46) Indefinite period – a period which is not known to the parties. In this case, the court
may be called upon to set the time of fulfillment of the obligation.
47) Recovery of the thing (payment before arrival of the period) – the debtor may still
recover the thing if it is delivered by mistake prior to the fulfillment of a period. He carries
the burden of proving that he is unaware that the period has not yet arrived. However, if
the period has already arrived, the debtor cannot recover the payment but he can still
recover the interest from the premature payment up to the date of the maturity of
obligation.
48) No recovery in case of personal obligation – you cannot recover the service you have
rendered, the same goes with a negative obligation, you cannot recover what you have not
done.
49) Period for the benefit of both parties – it is presumed that the period agreed by both
parties benefits both of them or one of them. Therefore, the debtor cannot be compelled to
pay and creditor cannot demand prior to the fulfillment of period unless otherwise
stipulated. However, it is rebuttable.
50) Computation of term or period – when the laws speak of years, months, days and
nights, it should be understood as 365 days in a year, 12 months and 30 days in a month, 24
hours in a day and night is from sunset to sunrise. Also, in computing for a period, the last
day should be included while the first day excluded. Also, holidays should be excluded. If
months are designated by their name, the number of days they respectively have should be
computed.
Section 3 – Alternative Obligations
51) Simple Obligation – an obligation in which there is only one prestation required.
52) Compound Obligation – an obligation in which there are two or more prestation
required.
53) Conjunctive Obligation – an obligation in which there are several prestation and all
must be fulfilled or given.
54) Distributive Obligation – there are several prestation but only one of them must be
fulfilled.
55) Alternative Obligation – One of the two or more prestation must be fulfilled. The right
of choosing the prestation to be given, as a general rule, belongs to the debtor.
56) Facultative obligation – is one where only one prestation has been agreed upon but the
obligor may render another in substitution.
57) The right of choice, as a rule, belongs to the debtor – unless expressly stated, the
creditor can also choose the prestation to be given or a third person can choose by common
agreement.
58) Rescission – creates an obligation to return what has been given as an object of the
obligation together with its fruits, and price with its interest.
59) Basis of indemnity – the value or price of the last prestation that has disappeared or
destroyed through the fault of debtor would be the basis of indemnity. In case of
disagreement, the creditor has to prove the value or which of the things last disappeared.
60) When the right of choice belongs to the creditor – In alternative obligation, the right of
choice naturally belongs to the debtor. However, the debtor may expressly give the right of
choice to the creditor. In such, the rules regarding in the right of choice of debtor are also
applicable if it is upon the creditor. Before the selection of the creditor, the debtor could not
incur in delay.
CHAPTER 3 – SECTION 4: JOINT AND SOLIDARY OBLIGATIONS
(Identification)
1) Individual obligation – an obligation where there is only one obligor and obligee.
2) Collective obligation – an obligation where there are two or more debtors and/or two
or more creditors.
3) Joint obligation – one where the obligation is to be paid or fulfilled proportionately by
the different debtors and/or is to be demanded proportionately by the different creditors.
4) Solidary obligation – one where each one of the debtors is bound to render, and/or
each one of the creditors has a right to demand to any of the debtors, the entire compliance
with the prestation.
5) Multiplicity of suits – the presumption in Article 1208 is subject to the rules of Court
governing this. Otherwise, situations may arise where there are as many suits as there are
debtors and creditors.
6) Passive Solidarity – solidarity on the part of the debtors, where anyone of them can be
compelled to pay the entire obligation.
7) Active Solidarity – solidarity on the part of the creditors, where anyone of them can
demand payment of the entire obligation from anyone of the debtors.
8) Mixed Solidarity – solidarity on the part of the debtors and creditors, where each one
of the debtors is liable to render, and each one of the creditors has a right to demand,
compliance of the entire obligation.
9) Conventional Solidarity – when solidarity is expressly stipulated in the contract or
agreed upon by the parties.
10) Legal Solidarity – when solidarity is imposed by law

11) Real Solidarity – when solidarity is imposed by the nature of obligation
12) Solidarity not presumed – if there are two or more persons in the same obligation, it is
presumed to be joint because solidarity is very burdensome for the part of the debtors and
the law tends to favor the debtors in presuming that they are bound jointly and not
solidarily.
13) Joint Indivisible obligation – an obligation where it is joint as to liabilities of debtors and
rights of the creditors but indivisible as to compliance.
14) Joint Indivisible Obligation – Debtors are liable jointly to deliver a car (particular thing
which is indivisible).
15) Joint Divisible Obligation – debtors are liable jointly to pay money (money is divisible).
16) Solidary Indivisible Obligation – debtors are liable solidarily to deliver a car (particular
thing which is indivisible).
17) Solidary Divisible Obligation – debtors are liable solidarily to pay sum of money (money
is divisible).
18) Uniform Solidary obligation – when the parties are bound by the same stipulations.
19) Non-uniform or varied Solidary obligation – when the parties are not bound by the
same stipulations.
20) Solidarity not affected by diverse stipulations – the rule is that the creditor may bring
his action in toto against any of the solidary debtors less the shares of the other debtors
with unexpired terms or unfulfilled conditions or less the shares already been paid by other
debtors.
21) Act of solidary creditor prejudicial to others – a solidary creditor may do any act
beneficial or useful to the others but he cannot perform any act prejudicial to them. If he
performs such act and as a result the obligation is extinguished, he shall be responsible to
the others for damages.
22) Remission or condonation – gratuitous abandonment of debt.
23) Assignment by solidary creditor of his rights – in the absence of consent given by the
others, a solidary creditor cannot assign his rights to a third person. The assignee may not
give the shares of the others. However, if the assignment is made to a co-creditor, the
consent of the other creditors is not necessary.
24) Payment to any of the solidary creditors – in case of active or mixed solidarity, the
debtor(s) can pay either of the creditors but if a judicial or extra-judicial demand was made
by one of the creditors, the debtor who was asked to pay is bound to make the payment to
that creditor. If the debtor made the payment to other creditor who did not make the
demand and if that creditor did not give the other his share of the payment, the other
creditor can still collect from the debtor his share of the payment.
25) Effect of novation, etc. where obligation is joint – In a joint obligation, causes of
modification or extinction does not terminate the obligation except with respect to the
creditor or debtor affected.
26) Creditor may proceed against any solidary debtor – if a demand is made by the creditor
to one of the debtors and that debtor did not make the payment in full, the creditor can still
demand from other solidary debtors for the remaining obligation. However, if demand is
made to A, he cannot ask for the creditor to make a demand to other debtors as the creditor
has the right to proceed against any one of them.
27) Prescription – one acquires ownership and other rights through the lapse of time in the
manner and under the conditions laid down by law.
28) Effect of remission of share after payment – if payment is made before remission, the
remission will have no effect because there is no more obligation to remit. However, if
remission is made and payment is made subsequently, solutio indebiti arises. The solidary
debtor who made the payment is entitled to receive back his proportionate share.
29) No right to reimbursement in case of remission – the solidary debtor who received
remission is not entitled to ask for reimbursement from his co-debtors because remission is
gratuitous and he did not actually make payments to the creditor.
SECTION 5 – DIVISIBLE AND INDIVISIBLE OBLIGATIONS
1) Divisible Obligation – is one where the object of which, in its delivery or performance,
is capable of partial fulfillment.
2) Indivisible Obligation – is one where the object of which, in its delivery or performance,
is not capable of partial fulfillment.
3) Absolute Rule in Divisibility – divisibility of obligation is not subject to possibility or
impossibility of partial prestation, you can determine it according to the purpose or
intention of the parties. However, an indivisible prestation will remain indivisible even if the
intention of the parties is otherwise.
4) An obligation is presumed to be indivisible when there are only one debtor and
creditor.
5) Applicability of Article 1223 – although it may appears that the article refers to a real
obligation, divisibility of obligation refers to the object or prestation of an obligation in its
broad sense, whether it may be a service or a thing.
6) Qualitative Division – division of object of obligation based on quality rather than on
numbers or quantity.
7) Quantitative Division – division of object of obligation based on numbers or quantity
rather than on quality.
8) Ideal or Intellectual Division – is one which exists only in the mind of the parties.
9) Legal indivisibility – an indivisible obligation set by law even if the object is by nature
divisible.
10) Conventional Indivisibility – an indivisible obligation set or contracted by the parties,
even though the object is by nature divisible.
11) Natural Indivisibility – an object which is by nature indivisible, regardless of the
intention of the parties. (Example: car)
12) Where there is only one debtor and creditor – the debtor has to perform the obligation
in totality, whether the prestation is divisible or not. The creditor cannot be compelled to
receive partial performance and a partial performance would not extinguish the obligation
unless it is fully performed.
13) Effect of non-compliance by a debtor in a joint indivisible obligation – the obligation
will be turned into one for damages (i.e., to pay money). The creditor cannot demand
specific performance or rescission because there is no cause of action against the other
debtors who are willing to fulfill their promises.
14) General Rule – generally, obligations to do and not to do are indivisible. However,
obligations to do stated in article 1225 are divisible.
SECTION 6 – OBLIGATION WITH A PENAL CLAUSE
1) Principal obligation – is one which can stand by itself and its validity and existence do
not depend on another obligation.
2) Accessory obligation – is one which cannot stand by itself and depends upon a
principal obligation.
3) Obligation with a penal clause – is one which there is an accessory undertaking
attached to it in order to pay previously stipulated indemnity in case of breach.
4) Penal clause – is an accessory undertaking attached to an obligation to assume greater
liability in case of breach.
5) Legal Penal clause – when it is provided for by law.
6) Conventional penal clause – when it is provided by the contracting parties.
7) Compensatory penal clause – when the purpose of the penalty is for payment of
damages.
8) Punitive penal clause – when the purpose of the penalty is to punish the violator.
9) Subsidiary or alternative penal clause – when only the penalty can be enforced.
10) Joint or cumulative penal clause – when the principal obligation and penalty can be
enforced.
11) Penalty substitutes for damages and interests – as a general rule, the penal clause
substitutes for damages and payment of interests in case of non-compliance. The creditor
does not need to go to court to prove the actual damages if there is penal clause.
12) When penalty may be enforced – penalty can only be demandable if there is a breach · Primary Classification of obligations
committed by the obligor and if it is not contrary to law, morals, customs, public policy and · Secondary Classification of obligations
public order. The penalty may also be reduced if it is iniquitous or unconscionable and if
there is already partial fulfillment. 2) Primary Classification of obligations
· Pure and conditional obligations
13) Penalty not substitute for performance – the debtor cannot just pay the penalty in · Obligations with a period
substitution for non-compliance of the obligation. By the general purpose of penal clause, it · Alternative and facultative obligations
is to ensure the compliance of the obligation, thus penalty is not a substitute. However, the · Joint and solidary obligations
debtor can do so if it is clearly stipulated that the creditor allowed him, thus the obligation is · Divisible and indivisible obligations
not with a penal clause anymore but an alternative. · Obligations with a penal clause
Section 1 – Pure and Conditional Obligations
14) When penal clause joint – with respect to the creditor, he has the right to demand both 3) Secondary Classification of obligation
the principal obligation and penalty jointly if this right is clearly granted to him. However, it · Unilateral and bilateral obligations
is not required for it to be expressed clearly if it can be understood impliedly through the · Real and personal obligations
nature of obligation. Example, if the principal obligation is to pay a sum of money, in case of · Determinate and generic obligations
non-compliance it is implied that the creditor can demand both principal and the penalty. · Civil and natural obligations
· Legal, conventional and penal obligations
15) Penalty demandable even without proof of actual damages – the creditor need not to
present proof of actual damages in obligation with a penal clause, the only thing needs to be 4) Principal Kinds of Conditional Obligation
proven is the breach of contract or non-compliance. The creditor may enforce penalty · Suspensive condition (condition precedent or antecedent)
whether he suffered or not. However, the penalty cannot exceed the amount stipulated · Resolutory condition (condition subsequent)
even if actual damages are more than the penalty stipulated.
5) When obligation is demandable at once
16) Damages recoverable in addition to penalty must be proved – in case when the creditor · When it is pure
can still demand damages in addition to the penalty, the creditor must prove those damages · When it is subject to a resolutory condition
which he actually suffered. · When it is subject to a resolutory period

17) The nullity of penal clause does not carry with it that of the principal obligation – if the 6) When the debtor obliges himself to pay (other cases of period)
penal clause is void, the principal obligation can still be enforced. In case of non-compliance · Little by little
or breach, the creditor may demand payment for damages and not the void penalty. · As soon as possible
· From time to time
18) The nullity of principal obligation carries with it that of the penal clause – the penal · At any time I have the money
clause is dependent to the principal obligation; therefore if the principal is void, penal clause · In partial payments
will also be void. However, if the nullity is due to the fault of debtor who acted in bad faith, · When I am in a position to pay
the creditor who suffered damages can demand for the payment of penalty (which is not 7) Effects of Happening of a Condition
void). · In a suspensive condition, the creditor will only have real right over the
Chapter 3 – Different Kinds of Obligations (Section 1, 2, 3) thing/performance when the condition is fulfilled. If the condition did not happen, it will be
Enumeration Reviewer treated as if the obligation never existed.
1) Classifications of Obligation
· In a resolutory condition, the extinguishment of obligation is subject to its fulfillment. · Casual
When the condition is fulfilled, the creditor will lose the rights he already acquired. · Mixed
As to Mode
8) Void Conditional Obligation · Positive
· When the fulfillment of suspensive condition is dependent upon the sole will of the · Negative
debtor. As to Number
· When the condition is impossible. · Conjunctive
· Disjunctive
9) Void Condition As to Divisibility
· If an obligation is a pre-existing one and therefore not dependent upon the fulfillment · Divisible
of a subsequent condition, only the condition is void. · Indivisible
· If an obligation is a pre-existing one and an impossible condition subsequently arises,
only the condition is void. 12) Kinds of Impossible Conditions
· Physically Impossible Condition
10) Valid Conditional Obligation · Legally Impossible Condition
· When the fulfillment of condition is dependent upon chance or upon the will of a third
person. 13) Effects of Impossible Condition
· When the suspensive condition is dependent upon the will of creditor. · An impossible condition annuls the obligation which depends on it.
· When the resolutory condition is subject to the will of debtor. · If the impossible condition refers to a negative condition, which is not to do an
· When the suspensive condition is subject partly upon chance and partly upon will of a impossible thing, the obligation is considered valid and pure.
third person. · If the obligation is divisible, the part that is not subject to an impossible condition
· When the suspensive condition is dependent partly upon will of a third person and would still be valid.
partly upon will of debtor. · If there is already a pre-existing obligation before an impossible condition arises, only
· When the obligation is divisible, that part thereof which is not affected by unlawful or the condition is void.
impossible condition shall be valid.
14) The obligation is extinguished in a positive suspensive condition
· As soon as the time to fulfill the condition expires
11) Classifications of Conditions · If the condition becomes too obvious to be doubted that it will not be fulfilled, the
As to Effect obligation is extinguished even if the time is not yet expired.
· Suspensive
· Resolutory 15) The obligation shall become effective in a negative obligation when
As to Form · The time indicated has elapsed without the event taking place
· Express · The condition becomes impossible even if the time has not yet elapsed.
· Implied
As to Possibility 16) Constructive fulfillment of a suspensive and resolutory condition
· Possible · The obligor actually prevents the fulfillment of the condition
· Impossible · He acts voluntarily
As to Cause/Origin
· Potestative 17) Retroactive effect of fulfillment of a suspensive condition
· In obligations to give, the condition has retroactive effect, even if the effectivity only
arises when the condition is fulfilled. It is because even without the condition, the obligation
can still exist. If there has been no condition, they would have been entered into a pure
obligation. Hence, the creditor has a nominal right to the thing even before the condition is
fulfilled.
· In obligations to do or not to do, there is no fixed provision as to its retroactivity. The
court will decide, considering the intent of the parties and the nature of obligation, whether
to apply retroactivity or not.
18) Retroactive effect as to fruits and interests in obligations to give
· In reciprocal obligation, there is no retroactive effect because the fruits and interest
are deemed to have been mutually compensated.
· In unilateral obligation, there is no retroactive effect because it is gratuitous. The
debtor does not receive anything from the creditor. Thus, the fruits and interest belong to
the debtor unless otherwise stipulated.
19) Rights pending fulfillment of a suspensive condition
· The creditor has a right to take appropriate actions to preserve his rights, as the
debtor may render nugatory the obligation upon the happening of the condition.
· The debtor has a right to recover what he has paid before the condition is fulfilled. This
is a case of solutio indebiti. However, he cannot recover the payment made prior to the
condition if the condition is fulfilled.
20) Requisites in the application of article 1189
· The obligation is a real obligation
· The object is a specific or determinate thing
· The obligation is subject to a suspensive condition
· The condition is fulfilled
· There is loss, deterioration or improvement to the thing during pendency of the
condition
21) Kinds of Loss
· Physical Loss
· Legal Loss
· Civil Loss
22) Rules in case of loss, deterioration or improvement of the thing during pendency of a
condition
· If loss of the thing without debtor’s fault, the obligation will be extinguished and the
debtor is not liable for damages. A person, in nature, is not liable for damages in case of
fortuitous event.
· If loss of the thing through debtor’s fault, the debtor is liable for damages and
incidental damages if any.
· If deterioration without debtor’s fault, the creditor will bear the consequences of
deterioration.
· If deterioration through debtor’s fault, the creditor may choose whether to cancel the
obligation with damages or demand for the fulfillment of obligation with the right to
damages.
· If improvement due to nature or by time, the creditor will benefit from the
improvement of the thing.
· If improvement at debtor’s expense, the debtor has the right to the improvement
subject to the right granted in usufructuary.
23) Rights granted to Usufructuary
· In usufruct, the debtor can put improvements to the thing for mere pleasure, as long
as it will not change its form and substance.
· The debtor may remove the improvements provided that it will not cause damages to
the thing.
· The improvements made to the thing will offset the damages made to the thing.
24) Effects of fulfillment of a resolutory condition
· In obligations to give, when the condition is fulfilled, the obligation is extinguished and
therefore both parties should return to each other the things they received. In case one of
the things is already in the possession of a third who did not act in bad faith, the remedy of
the party is restitution against the other. The restitution is also applicable to the fruits and
interest. It means there is a retroactive effect in this case. The only exception is when the
parties’ intention is otherwise.
· In obligation to do or not to do, there is no specific provision to its retroactivity. The
court will decide whether retroactivity applies to the obligation or not, similar to the case of
a suspensive condition.
25) Kinds of obligation according to person obliged
· Unilateral obligation
· Bilateral obligation
26) Kinds of Bilateral obligation
· Reciprocal obligation
· Non-reciprocal obligation · Unless otherwise stated, there is no retroactive effect in a period while in a condition
there is retroactivity of effect.
27) Remedies in reciprocal obligation
· Demand fulfillment of the obligation with damages Section 2 – Obligations with a Period
· Demand rescission with damages
32) Kinds of Period or Term
28) Limitations on the right to rescind As to effect
· The court has a discretionary power to give time for the person in default in order to · Suspensive period
perform his obligation if there is a just cause for doing so. · Resolutory period
· If the object is in the hands of a third person, rescission is not available as a remedy. As to source
· The general rule is that the rescission shall not be granted for slight breaches of · Legal period
contract; the violation should be substantial enough to defy the object of the agreement. · Conventional or voluntary period
· The rescission should be a judicial rescission. The injured party should go to the court · Judicial period
in order to have his right for rescission. As to definiteness
· The right to rescind may be waived, expressly or impliedly. The creditor may only · Definite period
recover the balance for the damages in this case. · Indefinite period

29) Rescission without previous judicial decree 33) Exceptions to the general rule (regarding to the general rule that both parties should
· When expressly stipulated benefit from the agreed period)
· Where contract still executory · If the term is for the benefit of the debtor alone, he cannot be compelled to pay
prematurely unless if he desires to do so.
30) Where both parties are guilty of breach · If the term is for the benefit of the creditor, he may demand payment before the
· If one party committed a violation which is followed by a violation of the other party period but he cannot be compelled to accept premature payment.
as well, the liability of the first infractor shall be equitably reduced.
· If both parties committed breach but it cannot be determined who among them is the 34) Exceptions to the general rule (regarding to the rule that courts in general have no
first violator, the contract is extinguished and both shall bear damages. power to fix a period)
· When there is no date specified but it can be inferred from the nature of the
31) Period and Condition Distinguished obligation that there is a period intended.
As to fulfillment · When the period is dependent upon the sole will of the debtor.
· A period is a certain event which must come sooner or later while a condition is an
uncertain event. 35) When obligation can be demanded before lapse of period (exceptions to the general
As to time rule that obligations cannot be demanded before the lapse of period)
· A period only refers to a future event while a condition may refer to a past event · When the debtor becomes insolvent
unknown to the parties. · When the debtor does not furnish guaranties or securities promised
As to effect when left to debtor’s will · When securities or guaranties given has become impaired or has disappeared
· In a period, the court is required to fix the time of fulfillment while in a condition the · When debtor violates an undertaking
obligation is void. · When debtor attempts to abscond
As to retroactivity of effect Section 3 – Alternative Obligations
36) Kinds of Obligation according to object · If one of the prestation is lost through the fault of debtor, the obligation can still be
· Simple Obligation performed by choosing the other alternatives left.
· Compound Obligation · If all the prestation are lost through the fault of debtor, the creditor has a right to
receive payment for damages.
37) Kinds of Compound Obligation · If all the prestation are lost through fortuitous event, the obligation is extinguished.
· Conjunctive Obligation
· Distributive Obligation 43) Rules in case of loss before creditor has made a choice (also applicable to personal
obligations)
38) Kinds of Distributive Obligation · If a thing is lost through a fortuitous event – the creditor will be limited to choose from
· Alternative Obligation the remaining alternative prestation.
· Facultative Obligation · If a thing is lost through debtor’s fault – the creditor can choose one of the remaining
prestation with the right to damages or he could ask for the value of the lost prestation with
39) Right of choice of the debtor is not absolute also the right to damages.
· The debtor could not give a prestation which is impossible, unlawful and those could · If all things are lost through debtor’s fault – the creditor may ask for the payment of
not have been the object of obligation. the value of one of the prestation with a right to damages.
· If the choices of prestation offer only one practicable prestation to be complied with · If all things are lost through a fortuitous event – the obligation will be extinguished.
by the debtor, the obligation becomes simple. It does not however give right of choice to
creditor. 44) Effect of Loss in Facultative Obligation
· The debtor cannot choose half of prestation and the half of another prestation. · Before substitution – if the item due is lost through debtor’s fault, he is liable for
damages. He’s not liable for damages if it is lost through a fortuitous event. If item two is
40) Effect of notice that choice has been made lost with or without the debtor’s fault, he will not be liable for it because it is not the item
· When the choice has been made by the debtor, it is irrevocable, which means that the due.
debtor could not change his choice of prestation without the consent of the creditor. The · After substitution – after substituting the item due to item two, it ceases to be a
obligation ceases to be alternative and becomes simple. facultative obligation, it becomes simple obligation. The debtor is not liable for the loss of
· When the choice has been made, it creates legal effect. The giving of notice can be the first thing since it is not due anymore. He is liable for the loss of the second thing if it is
made orally or in writing, expressly or impliedly. through his fault. If it is through a fortuitous event, the obligation is extinguished.

41) When debtor may rescind contract
· If through the creditor’s fault, one of the prestation is destroyed, the debtor could
choose to rescind the contract. If he rescinds the contract, the debtor is obliged to return
the amount borrowed to the creditor while the creditor is liable to pay for the prestation
destroyed.
· Also, the debtor could choose the other alternative prestation with the right to
recover damages for the prestation destroyed.
· The debtor could choose the prestation destroyed through the fault of creditor, thus
obligation is extinguished.
42) Effects of loss of objects of obligation
45) Alternative and facultative obligations distinguished
· Alternative – several prestations are due but compliance with one is sufficient.
Facultative – only one prestation is due although the debtor is allowed to substitute it.
· Alternative – the right of choice may be given to the creditor or third person.
Facultative – the right to make the substitution is given only to the debtor.
· Alternative – the loss of one or more of the alternatives through a fortuitous event
does not extinguish the obligation. Facultative – the loss of the thing due extinguishes the
obligation.
· Alternative – the loss of one of the alternatives through the fault of the debtor does
not render him liable. Facultative – the loss of the thing due through his fault makes him
liable.
· Alternative – where the choice belongs to the creditor, the loss of one alternative
through the fault of the debtor gives rise to liability. Facultative – the loss of the substitute 6) Words used to indicate solidary liability
before the substitution through the fault of the debtor does not render him liable. · Individually and/or severally
CHAPTER 3 – SECTION 4: JOINT AND SOLIDARY OBLIGATIONS · Solidaria
(Enumeration) · In solidum
· Together and/or separately
1) Kinds of Obligations according to number of parties · Individually and/or collectively
· Individual Obligation · Juntos o separadamente
· Collective Obligation · I promise to pay signed by two or more persons

2) Kinds of Collective Obligation 7) Kinds of Solidarity

· Joint obligation · Passive Solidarity
· Solidary obligation · Active Solidarity
· Mixed Solidarity
3) Collective obligation presumed to be joint
· If there are only one debtor and creditor, there is no problem in the determination of: 8) Kinds of Solidarity according to Source
a) the person liable; b) the person who has the right to prestation; c) the extent of the · Conventional Solidarity
liability; and d) the extent of the right of creditor. · Legal Solidarity
· If there is plurality of parties and the liability or obligation is specified, the correlative · Real Solidarity
rights and obligations of the parties are known.
· If there is plurality of parties and the extent of liability is not specified, it is presumed 9) Examples of Legal Solidarity
to be joint obligation. The consequences are: a) there are as many debts as there are · Even when the agent has exceeded his authority, the principal is solidarily liable with
debtors; b) there are as many credits as there are creditors; c) the debts and/or credits are the agent if the former allowed the latter to act as though he had full powers.
considered distinct and separate from one another; d) each debtor is liable only for a · The partners are solidarily liable with the partnership for any crime or quasi-delict
proportionate part of the debt; and e) each creditor is entitled only to a proportionate part committed by any partner acting in the ordinary course of business.
of the credit. · When there are two or more bailees to whom a thing is loaned in the same contract,
they are liable solidarily.
4) Other terms for Joint Obligation · The responsibility of two or more persons who are liable for a quasi-delict is solidary.
· Mancomunada · In a felony (crime), the principal, accomplices and accessories, each within their
· Mancomunadamente respective class, shall be liable severally among themselves for their quotas, and subsidiarily
· Pro rata for those of other persons liable.
· Proportionately
· We promise to pay signed by two or more persons 10) Examples of Real Solidarity
· The nature of the obligation for employers under the former Workmen’s
5) When obligation solidary Compensation Law
· The obligation expressly so states · Kabit System
· The law requires solidarity
· When the nature of obligation requires solidarity 11) Examples of Indivisible Joint Obligation
· When it is imposed in a final judgment against several defendants
· If there are two or more debtors and only one creditor and they are obliged to deliver
a car to the creditor, if one of the debtors is not willing to comply, the creditor may choose
to ask restitution from all the debtors and ask for reparation of damage caused from the
unwilling party. The insolvency of one of the debtors will not make the other debtors liable.
· If there are one debtor and two or more creditors, and if the creditors do not accept
the thing to be delivered jointly, the debtor may legally refuses to deliver the thing or he
may deposit the thing to the court by way of consignation.
12) Indivisibility and Solidarity distinguished
· Indivisibility refers to the prestation while solidarity refers to the juridical or legal tie
that binds the parties.
· In indivisible obligation, only the party who committed a breach of contract is liable to
pay for damages while in solidary obligation, all debtors are liable for damages due to
breach of one of them.
· Indivisible obligation can exist even when there are only one debtor and one creditor
while solidary obligation must have at least two debtors or two creditors.
· In indivisible obligation, the insolvency of one of the debtors will not make the other
debtors liable while in solidary obligation all the debtors will be held liable proportionately
by the insolvency of one of them.
13) Kinds of Solidary Obligation according to legal tie
· Uniform
· Non-uniform or varied
14) Causes of Extinguishment of Obligation
· Novation
· Compensation
· Confusion
· Remission
· Prescription
15) Effects of Payment by a Solidary Debtor
· Between solidary debtors and creditor(s) – the obligation is extinguished after the
payment of a solidary debtor. However, the creditor may choose which offer to accept if
both solidary debtors offer payment.
· Among the solidary debtors – the solidary debtor who made the payment can demand
reimbursement from his co-debtors for their proportionate shares with legal interest only
from the time of payment.
· Among the solidary creditors – the solidary creditor who accepted the payment is
bound to give others their proportionate shares.
16) Two cases when the paying debtor cannot get any reimbursement
· When the obligation has already prescribed.
· After the obligation has become illegal.
17) The following actions must be brought within 10 years from the time the right of action
accrues
· Upon a written contract
· Upon an obligation created by law
· Upon a judgment
18) The following actions must be brought within 6 years from the time the right of action
accrues
· Upon an oral contract
· Upon a quasi-contract
19) The following actions must be brought within 4 years from the time the right of action
accrues
· Upon an injury to the rights of the plaintiff
· Upon a quasi-delict
20) Rules in case thing has been lost or prestation has become impossible
· Lost through fortuitous events and before delay – the obligation will be extinguished.
· Lost through one of the solidary debtors’ fault – all other solidary debtors will be held
liable for the damages and interest caused by the debtor in fault. However, other debtors
may ask for reimbursement from the party in fault and if the creditor was able to collect
payment for damages from the party in fault, other solidary debtors cannot be compelled to
make reimbursements because he alone was at fault.
· Lost through fortuitous events but after delay – all solidary debtors will be held liable
but they can ask for reimbursement from the solidary debtor in default.
21) Defenses available to solidary debtors
· Defenses derived from the nature of obligation – it is a complete defense because it
nullifies the obligation or renders it ineffective. Other examples are: fraud, prescription,
remission, illegality or absence of consideration, res judicata, non-performance of a
suspensive condition.
· Defenses personal to, or which pertain to share of, debtor sued –examples are
insanity, incapacity, violence, mistake, and minority. If subject to a suspensive condition and
the condition has not yet been fulfilled, it is a partial defense and the solidary debtor can
still be compelled to make payment for the share of other debtors.
· Defenses personal to solidary debtors – having partial defense, other debtors would
still be liable to pay for their shares.
SECTION 4 – DIVISIBLE AND INDIVISIBILE OBLIGATION
1) Purposes of Penal Clause
· The general purpose is to ensure the fulfillment of obligation by creating an effective
deterrent against breach, making the consequences of such breach as onerous as it may be
possible.
· To substitute a penalty for the indemnity of damages and payment of interests in case
of non-compliance or to punish the debtor for non-fulfillment of obligation

1) Kinds of Division 2) Penal clause and condition distinguished

· Qualitative Division · The first refers to an obligation although it is an accessory while the second does not
· Quantitative Division · Therefore, the first one is demandable in case of default of unperformed obligation
· Ideal or Intellectual Division and sometimes jointly with it while the other is not

2) Kinds of Indivisibility 3) Kinds of Penal Clause

· Legal indivisibility As to its origin
· Conventional indivisibility · Legal Penal clause
· Natural indivisibility · Conventional penal clause
As to its purpose
3) Obligations deemed indivisible · Compensatory Penal Clause
· Obligation to give definite things · Punitive Penal Clause
· Obligation which is not susceptible to partial performance As to its effect or demandability
· Obligation which is required by law to be indivisible even the service or thing is · Subsidiary or alternative penal clause
physically divisible · Joint or cumulative penal clause
· Obligation intended by the parties to be indivisible even if thing or service is physically
divisible 4) When creditor can recover damages
· When it is clearly stipulated by the parties
4) Obligations deemed Divisible · When the obligor refuses to pay the penalty
· Obligations which have for their object the execution of a certain number of days of · When the obligor is guilty of fraud
work
· Obligations which have for their object the accomplishment of work by metrical units 5) Penal clause presumed to be subsidiary
· Obligations which by their nature are susceptible of partial performance. · Once the obligation is fulfilled, the creditor cannot demand payment for the penalty
anymore unless this right is clearly granted to him.
5) Divisibility and Indivisibility in obligations not to do · In case of non-compliance, the creditor can demand specific performance or payment
· Indivisible Obligation – if A obliged himself to B not to sell cigarettes in his store for the of penalty. The remedies are alternative, not cumulative nor successive subject to the
entire year. The obligation must be fulfilled continuously. exception that when after the creditor asked the specific performance, the same became
· Divisible Obligation – if A obliged himself to B not to sell cigarettes during weekends impossible without his fault. If there was fraud on the part of debtor, the creditor may ask
and holidays. The obligation is divisible because it is not to be fulfilled continuously. for the penalty plus damages for non-fulfillment.

SECTION 6 – OBLIGATION WITH A PENAL CLAUSE

 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.
Sec. 2.
What constitutes certainty as to sum.
- The sum payable is a sum certain within the meaning of this Act, although it is to be paid
:(a) with interest; or
(b) by stated installments; or
(c) by stated installments, with a provision that, upon default in payment of any installment
or of interest, the whole shall become due; or
(d) with exchange, whether at a fixed rate or at the current rate; or
(e) with costs of collection or an attorney's fee, in case payment shall not be made at
maturity.
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 ora
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.
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.
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:
(a) 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.
Sec. 6.
Omissions; seal; particular money. -
The validity and negotiable character of an instrument are not affected by the fact that:
(a) 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 bemade. 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.
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 onpresentation; 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.
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 drawnpayable 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 otherwiseindicated therein with reasonable certainty.
Sec. 9.
When payable to bearer.
- The instrument is payable tobearer:
(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 suchfact was
known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of anyperson; or
(e) When the only or last indorsement is an indorsement in blank.
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 therequirements hereof.
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.
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 there to as of the 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.
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.
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
.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.
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.
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.
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 forthis purpose; and the authority of the agent may be
established as in other cases ofagency.Sec. 20.
Liability of person signing as agent, and so forth.
- Where the instrumentcontains 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 wasd uly 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.
Sec. 21.
Signature by procuration; effect of.
- A signature by
"procuration"
operates asnotice that the agent has but a limited authority to sign, and the principal is
bound onlyin case the agent in so signing acted within the actual limits of his authority.Sec.
22.
Effect of indorsement by infant or corporation.-
The indorsement or assignmentof 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 noliability thereon.Sec. 23.
Forged signature; effect of.
- When a signature is forged or made without theauthority of the person whose signature it
purports to be, it is wholly inoperative, and noright 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 fromsetting up
the forgery or want of authority.II. CONSIDERATIONSec. 24.
Presumption of consideration.
- Every negotiable instrument is deemed
primafacie
to have been issued for a valuable consideration; and every person whosesignature appears
thereon to have become a party thereto for value.Sec. 25.
Value, what constitutes
. — Value is any consideration sufficient to support asimple contract. An antecedent or pre-
existing debt constitutes value; and is deemedsuch whether the instrument is payable on
demand or at a future time.Sec. 26.
What constitutes holder for value.
- Where value has at any time been given forthe instrument, the holder is deemed a holder
for value in respect to all parties whobecome such prior to that time.Sec. 27. When lien on
instrument constitutes holder for value. — Where the holder hasa lien on the instrument
arising either from contract or by implication of law, he isdeemed a holder for value to the
extent of his lien.Sec. 28.
Effect of want of consideration. -
Absence or failure of consideration is a matterof defense as against any person not a holder
in due course; and partial failure ofconsideration is a defense pro tanto, whether the failure
is an ascertained and liquidatedamount or otherwise.Sec. 29.
Liability of accommodation party.
- An accommodation party is one who hassigned the instrument as maker, drawer,
acceptor, or indorser, without receiving valuetherefor, and for the purpose of lending his
name to some other person. Such a personis liable on the instrument to a holder for value,
notwithstanding such holder, at the timeof taking the instrument, knew him to be only an
accommodation party.III. NEGOTIATIONSec. 30.
What constitutes negotiation.
- An instrument is negotiated when it istransferred from one person to another in such
manner as to constitute the transfereethe holder thereof. If payable to bearer, it is
negotiated by delivery; if payable to order, itis negotiated by the indorsement of the holder
and completed by delivery.Sec. 31.
Indorsement; how made. -
The indorsement must be written on the instrumentitself or upon a paper attached thereto.
The signature of the indorser, without additionalwords, is a sufficient indorsement.Sec. 32.
Indorsement must be of entire instrument. -
The indorsement must be anindorsement of the entire instrument. An indorsement which
purports to transfer to theindorsee a part only of the amount payable, or which purports to
transfer the instrumentto two or more indorsees severally, does not operate as a
negotiation of the instrument.
Page 8 of 30
But where the instrument has been paid in part, it may be indorsed as to the residue.Sec.
33.
Kinds of indorsement.
- An indorsement may be either special or in blank; andit may also be either restrictive or
qualified or conditional.Sec. 34.
Special indorsement; indorsement in blank.
- A special indorsement specifiesthe person to whom, or to whose order, the instrument is
to be payable, and theindorsement of such indorsee is necessary to the further negotiation
of the instrument. An indorsement in blank specifies no indorsee, and an instrument so
indorsed ispayable to bearer, and may be negotiated by delivery.Sec. 35.
Blank indorsement; how changed to special indorsement.
- The holder mayconvert a blank indorsement into a special indorsement by writing over
the signature ofthe indorser in blank any contract consistent with the character of the
indorsement.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 anindorsement restrictive.Sec. 37.
Effect of restrictive indorsement; rights of indorsee.
- A restrictive indorsementconfers 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 indorsementauthorizes him to do so.But all
subsequent indorsees acquire only the title of the first indorsee under therestrictive
indorsement.Sec. 38.
Qualified indorsement.
- A qualified indorsement constitutes the indorser amere assignor of the title to the
instrument. It may be made by adding to the indorser'ssignature the words "without
recourse" or any words of similar import. Such anindorsement does not impair the
negotiable character of the instrument.Sec. 39.
Conditional indorsement. -
Where an indorsement is conditional, the partyrequired to pay the instrument may
disregard the condition and make payment to theindorsee or his transferee whether the
condition has been fulfilled or not. But anyperson to whom an instrument so indorsed is
negotiated will hold the same, or theproceeds thereof, subject to the rights of the person
indorsing conditionally.
Sec. 40.
Indorsement of instrument payable to bearer.
- Where an instrument, payableto bearer, is indorsed specially, it may nevertheless be
further negotiated by delivery;but the person indorsing specially is liable as indorser to only
such holders as make titlethrough his indorsement.Sec. 41.
Indorsement where payable to two or more persons.
- Where an instrument ispayable to the order of two or more payees or indorsees who are
not partners, all mustindorse unless the one indorsing has authority to indorse for the
others.Sec. 42.
Effect of instrument drawn or indorsed to a person as
cashier.
- Where an instrument is drawn or indorsed to a person as
"cashier"
or otherfiscal officer of a bank or corporation, it is deemed prima facie to be payable to the
bankor corporation of which he is such officer, and may be negotiated by either
theindorsement of the bank or corporation or the indorsement of the officer.Sec. 43.
Indorsement where name is misspelled, and so forth.
- Where the name of apayee or indorsee is wrongly designated or misspelled, he may
indorse the instrumentas therein described adding, if he thinks fit, his proper signature.Sec.
44.
Indorsement in representative capacity.
- Where any person is under obligationto indorse in a representative capacity, he may
indorse in such terms as to negativepersonal liability.Sec. 45.
Time of indorsement; presumption.
- Except where an indorsement bears dateafter the maturity of the instrument, every
negotiation is deemed prima facie to havebeen effected before the instrument was
overdue.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 theinstrument is dated.Sec. 47.
Continuation of negotiable character. -
An instrument negotiable in its origincontinues to be negotiable until it has been
restrictively indorsed or discharged bypayment or otherwise.Sec. 48.
Striking out indorsement.
- The holder may at any time strike out anyindorsement which is not necessary to his title.
The indorser whose indorsement isstruck out, and all indorsers subsequent to him, are
thereby relieved from liability on theinstrument.Sec. 49.
Transfer without indorsement; effect of.
- Where the holder of an instrumentpayable to his order transfers it for value without
indorsing it, the transfer vests in thetransferee such title as the transferor had therein, and
the transferee acquires inaddition, the right to have the indorsement of the transferor. But
for the purpose ofdetermining whether the transferee is a holder in due course, the
negotiation takeseffect as of the time when the indorsement is actually made.
Page 10 of 30
Sec. 50.
When prior party may negotiate instrument.
- Where an instrument isnegotiated 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 paymentthereof against any intervening party to whom he was personally liable.IV.
RIGHTS OF THE HOLDERSec. 51.
Right of holder to sue; payment.
- The holder of a negotiable instrument may tosue thereon in his own name; and payment
to him in due course discharges theinstrument.Sec. 52.
What constitutes a holder in due course.
- A holder in due course is a holderwho has taken the instrument under the following
conditions:(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 thatit 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 inthe instrument or defect in the title of
the person negotiating it.Sec. 53.
When person not deemed holder in due course. -
Where an instrumentpayable on demand is negotiated on an unreasonable length of time
after its issue, theholder is not deemed a holder in due course.Sec. 54.
Notice before full amount is paid.
- Where the transferee receives notice of anyinfirmity in the instrument or defect in the
title of the person negotiating the same beforehe has paid the full amount agreed to be paid
therefor, he will be deemed a holder indue course only to the extent of the amount
therefore paid by him.Sec. 55.
When title defective. -
The title of a person who negotiates an instrument isdefective within the meaning of this
Act when he obtained the instrument, or anysignature thereto, by fraud, duress, or force
and fear, or other unlawful means, or for anillegal consideration, or when he negotiates it in
breach of faith, or under suchcircumstances as amount to a fraud.Sec. 56.
What constitutes notice of defect.
- To constitutes notice of an infirmity in theinstrument or defect in the title of the person
negotiating the same, the person to whomit is negotiated must have had actual knowledge
of the infirmity or defect, or knowledgeof such facts that his action in taking the instrument
amounted to bad faith.Sec. 57.
Rights of holder in due course.
- A holder in due course holds the instrumentfree from any defect of title of prior parties,
and free from defenses available to priorparties among themselves, and may enforce
payment of the instrument for the full amount thereof against all parties liable thereon.Sec.
58.
When subject to original defense. -
In the hands of any holder other than aholder in due course, a negotiable instrument is
subject to the same defenses as if itwere 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 allthe 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 tobe a holder in due course; but when it is shown that
the title of any person who hasnegotiated the instrument was defective, the burden is on
the holder to prove that he orsome person under whom he claims acquired the title as
holder in due course. But thelast-mentioned rule does not apply in favor of a party who
became bound on theinstrument prior to the acquisition of such defective title.V.
LIABILITIES OF PARTIESSec. 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 payeeand his then capacity to indorse.Sec. 61.
Liability of drawer.
- The drawer by drawing the instrument admits theexistence of the payee and his then
capacity to indorse; and engages that, on duepresentment, the instrument will be accepted
or paid, or both, according to its tenor, andthat if it be dishonored and the necessary
proceedings on dishonor be duly taken, hewill pay the amount thereof to the holder or to
any subsequent indorser who may becompelled to pay it. But the drawer may insert in the
instrument an express stipulationnegativing or limiting his own liability to the holder.Sec.
62.
Liability of acceptor.
 - The acceptor, by accepting the instrument, engages thathe will pay it according to the
tenor of his acceptance and admits:(a) The existence of the drawer, the genuineness of his
signature, and hiscapacity 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 aninstrument otherwise than as maker, drawer, or
acceptor, is deemed to be indorserunless he clearly indicates by appropriate words his
intention to be bound in some othercapacity.Sec. 64.
Liability of irregular indorser
. - Where a person, not otherwise a party to aninstrument, places thereon his signature in
blank before delivery, he is liable asindorser, in accordance with the following rules:(a) If the
instrument is payable to the order of a third person, he is liable to thepayee and to all
subsequent parties.
(b) If the instrument is payable to the order of the maker or drawer, or is payableto 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 partiessubsequent to the payee.Sec. 65.
Warranty where negotiation by delivery and so forth.
— Every personnegotiating 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 theinstrument or render it
valueless.But when the negotiation is by delivery only, the warranty extends in favor of no
holderother than the immediate transferee.The provisions of subdivision (c) of this section
do not apply to a person negotiatingpublic or corporation securities other than bills and
notes.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
nextpreceding 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, orboth, as the case may be, according to its tenor, and that if it be dishonored and
thenecessary proceedings on dishonor be duly taken, he will pay the amount thereof to
theholder, or to any subsequent indorser who may be compelled to pay it.Sec. 67.
Liability of indorser where paper negotiable by delivery.
— Where a personplaces his indorsement on an instrument negotiable by delivery, he
incurs all the liabilityof an indorser.Sec. 68.
Order in which indorsers are liable.
- As respect one another, indorsers areliable
prima facie
in the order in which they indorse; but evidence is admissible to showthat, 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 aninstrument 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 isacting only as agent.
VI. PRESENTATION FOR PAYMENTSec. 70.
Effect of want of demand on principal debtor.
- Presentment for payment is notnecessary in order to charge the person primarily liable on
the instrument; but if theinstrument is, by its terms, payable at a special place, and he is
able and willing to pay itthere at maturity, such ability and willingness are equivalent to a
tender of paymentupon his part. But except as herein otherwise provided, presentment for
payment isnecessary in order to charge the drawer and indorsers.Sec. 71.
Presentment where instrument is not payable on demand and where payableon demand. -
Where the instrument is not payable on demand, presentment must bemade on the day it
falls due. Where it is payable on demand, presentment must bemade within a reasonable
time after its issue, except that in the case of a bill ofexchange, presentment for payment
will be sufficient if made within a reasonable timeafter the last negotiation thereof.Sec. 72.
What constitutes a sufficient presentment.
- Presentment for payment, to besufficient, must be made:(a) By the holder, or by some
person authorized to receive payment on hisbehalf;(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 orinaccessible, to any person found at the place where the
presentment is made.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 therepresented;(b) Where no place of payment is
specified but the address of the person tomake 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
theinstrument is presented at the usual place of business or residence of the personto make
payment;(d) In any other case if presented to the person to make payment wherever hecan
be found, or if presented at his last known place of business or residence.Sec. 74.
Instrument must be exhibited.
- The instrument must be exhibited to the personfrom whom payment is demanded, and
when it is paid, must be delivered up to theparty paying it.Sec. 75.
Presentment where instrument payable at bank.
- Where the instrument ispayable 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 theday,
in which case presentment at any hour before the bank is closed on that day issufficient.Sec.
76.
Presentment where principal debtor is dead.
- Where the person primarilyliable on the instrument is dead and no place of payment is
specified, presentment forpayment must be made to his personal representative, if such
there be, and if, with theexercise of reasonable diligence, he can be found.Sec. 77.
Presentment to persons liable as partners.
- Where the persons primarily liableon 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 hasbeen 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, presentmentmust be made to them all.Sec. 79.
When presentment not required to charge the drawer. -
Presentment forpayment is not required in order to charge the drawer where he has no
right to expect orrequire that the drawee or acceptor will pay the instrument.Sec. 80.
When presentment not required to charge the indorser. -
Presentment is notrequired in order to charge an indorser where the instrument was made
or accepted forhis accommodation and he has no reason to expect that the instrument will
be paid ifpresented.Sec. 81.
When delay in making presentment is excused.
- Delay in making presentmentfor payment is excused when the delay is caused by
circumstances beyond the controlof the holder and not imputable to his default,
misconduct, or negligence. When thecause of delay ceases to operate, presentment must
be made with reasonablediligence.Sec. 82.
When presentment for payment is excused.
- Presentment for payment isexcused:(a) Where, after the exercise of reasonable diligence,
presentment, as requiredby 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 dishonoredby non-payment when:(a) It is duly presented for payment
and payment is refused or cannot beobtained; or
(b) Presentment is excused and the instrument is overdue and unpaid.Sec. 84.
Liability of person secondarily liable, when instrument dishonored.
- Subject tothe provisions of this Act, when the instrument is dishonored by non-payment,
animmediate right of recourse to all parties secondarily liable thereon accrues to
theholder.Sec. 85.
Time of maturity.
- Every negotiable instrument is payable at the time fixedtherein without grace. When the
day of maturity falls upon Sunday or a holiday, theinstruments falling due or becoming
payable on Saturday are to be presented forpayment on the next succeeding business day
except that instruments payable ondemand may, at the option of the holder, be presented
for payment before twelveo'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 afterdate, after sight, or after that
happening of a specified event, the time of payment isdetermined by excluding the day
from which the time is to begin to run, and by includingthe date of payment.Sec. 87.
Rule where instrument payable at bank.
- Where the instrument is madepayable at a bank, it is equivalent to an order to the bank to
pay the same for theaccount of the principal debtor thereon.Sec. 88.
What constitutes payment in due course.
- Payment is made in due coursewhen it is made at or after the maturity of the payment to
the holder thereof in good faithand without notice that his title is defective.VII. NOTICE OF
DISHONORSec. 89.
To whom notice of dishonor must be given. -
Except as herein otherwiseprovided, when a negotiable instrument has been dishonored by
non-acceptance ornon-payment, notice of dishonor must be given to the drawer and to
each indorser, andany drawer or indorser to whom such notice is not given is
discharged.Sec. 90.
By whom given.
- The notice may be given by or on behalf of the holder, or byor on behalf of any party to
the instrument who might be compelled to pay it to theholder, and who, upon taking it up,
would have a right to reimbursement from the partyto whom the notice is given.Sec. 91.
Notice given by agent.
- Notice of dishonor may be given by any agent either inhis own name or in the name of any
party entitled to given notice, whether that party behis principal or not.Sec. 92.
Effect of notice on behalf of holder
. - Where notice is given by or on behalf ofthe holder, it inures to the benefit of all
subsequent holders and all prior parties whohave a right of recourse against the party to
whom it is given.
Sec. 93.
Effect where notice is given by party entitled thereto.
- Where notice is given byor on behalf of a party entitled to give notice, it inures to the
benefit of the holder and allparties subsequent to the party to whom notice is given.Sec. 94.
When agent may give notice.
 - Where the instrument has been dishonored inthe hands of an agent, he may either
himself give notice to the parties liable thereon, orhe may give notice to his principal. If he
gives notice to his principal, he must do sowithin the same time as if he were the holder,
and the principal, upon the receipt of suchnotice, has himself the same time for giving
notice as if the agent had been anindependent holder.Sec. 95.
When notice sufficient.
- A written notice need not be signed and an insufficientwritten notice may be
supplemented and validated by verbal communication. Amisdescription of the instrument
does not vitiate the notice unless the party to whom thenotice is given is in fact misled
thereby.Sec. 96.
Form of notice.
- The notice may be in writing or merely oral and may be givenin any terms which
sufficiently identify the instrument, and indicate that it has beendishonored by non-
acceptance or non-payment. It may in all cases be given bydelivering it personally or
through the mails.Sec. 97.
To whom notice may be given.
- Notice of dishonor may be given either to theparty himself or to his agent in that
behalf.Sec. 98.
Notice where party is dead. -
When any party is dead and his death is knownto the party giving notice, the notice must
be given to a personal representative, if therebe one, and if with reasonable diligence, he
can be found. If there be no personalrepresentative, notice may be sent to the last
residence or last place of business of thedeceased.Sec. 99.
Notice to partners.
- Where the parties to be notified are partners, notice to anyone partner is notice to the
firm, even though there has been a dissolution.Sec. 100.
Notice to persons jointly liable.
- Notice to joint persons who are not partnersmust be given to each of them unless one of
them has authority to receive such noticefor the others.Sec. 101.
Notice to bankrupt.
- Where a party has been adjudged a bankrupt or aninsolvent, or has made an assignment
for the benefit of creditors, notice may be giveneither to the party himself or to his trustee
or assignee.Sec. 102.
Time within which notice must be given.
- Notice may be given as soon as theinstrument is dishonored and, unless delay is excused
as hereinafter provided, must begiven within the time fixed by this Act
Sec. 103.
Where parties reside in same place. -
Where the person giving and theperson to receive notice reside in the same place, notice
must be given within thefollowing times:(a) If given at the place of business of the person to
receive notice, it must begiven 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 theday following.(c)
If sent by mail, it must be deposited in the post office in time to reach him inusual course on
the day following.Sec. 104.
Where parties reside in different places.
- Where the person giving and theperson to receive notice reside in different places, the
notice must be given within thefollowing times:(a) If sent by mail, it must be deposited in
the post office in time to go by mail theday following the day of dishonor, or if there be no
mail at a convenient hour onlast day, by the next mail thereafter.(b) If given otherwise than
through the post office, then within the time that noticewould have been received in due
course of mail, if it had been deposited in thepost office within the time specified in the last
subdivision.Sec. 105.
When sender deemed to have given due notice.
- Where notice of dishonor isduly addressed and deposited in the post office, the sender is
deemed to have givendue notice, notwithstanding any miscarriage in the mails.Sec. 106.
Deposit in post office; what constitutes.
- Notice is deemed to have beendeposited in the post-office when deposited in any branch
post office or in any letter boxunder the control of the post-office department.Sec. 107.
Notice to subsequent party; time of.
- Where a party receives notice ofdishonor, he has, after the receipt of such notice, the
same time for giving notice toantecedent parties that the holder has after the dishonor.Sec.
108.
Where notice must be sent.
- Where a party has added an address to hissignature, notice of dishonor must be sent to
that address; but if he has not given suchaddress, then the notice must be sent as
follows:(a) Either to the post-office nearest to his place of residence or to the post-
officewhere he is accustomed to receive his letters; or(b) If he lives in one place and has his
place of business in another, notice maybe sent to either place; or(c) If he is sojourning in
another place, notice may be sent to the place where heis 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 ofgiving notice has arrived or
after the omission to give due notice, and the waiver may beexpressed or implied.Sec. 110.
Whom affected by waiver
. - Where the waiver is embodied in the instrumentitself, it is binding upon all parties; but,
where it is written above the signature of anindorser, it binds him only.Sec. 111.
Waiver of protest. -
A waiver of protest, whether in the case of a foreign bill ofexchange or other negotiable
instrument, is deemed to be a waiver not only of a formalprotest 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 theparties sought to be charged.Sec. 113.
Delay in giving notice; how excused.
- Delay in giving notice of dishonor isexcused when the delay is caused by circumstances
beyond the control of the holderand not imputable to his default, misconduct, or
negligence. When the cause of delayceases to operate, notice must be given with
reasonable diligence.Sec. 114.
When notice need not be given to drawer.
- Notice of dishonor is not requiredto 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 tocontract;(c) When the drawer is the
person to whom the instrument is presented forpayment;(d) Where the drawer has no right
to expect or require that the drawee oracceptor will honor the instrument;(e) Where the
drawer has countermanded payment.Sec. 115.
When notice need not be given to indorser.
— Notice of dishonor is notrequired 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 tocontract,
and the indorser was aware of that fact at the time he indorsed theinstrument;(b) Where
the indorser is the person to whom the instrument is presented forpayment;
(c) Where the instrument was made or accepted for his accommodation.Sec. 116.
Notice of non-payment where acceptance refused.
- Where due notice ofdishonor 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 givenotice of dishonor by non-acceptance does not prejudice the rights of
a holder in duecourse subsequent to the omission.Sec. 118.
When protest need not be made; when must be made.
- Where anynegotiable instrument has been dishonored, it may be protested for non-
acceptance ornon-payment, as the case may be; but protest is not required except in the
case offoreign bills of exchange.VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTSSec. 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
instrumentis 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 ofmoney;(e) When the principal debtor becomes the holder of the instrument at
or aftermaturity in his own right.Sec. 120.
When persons secondarily liable on the instrument are discharged. -
A personsecondarily liable on the instrument is discharged:(a) By any act which discharges
the instrument;(b) By the intentional cancellation of his signature by the holder;(c) By the
discharge of a prior party;(d) By a valid tender or payment made by a prior party;(e) By a
release of the principal debtor unless the holder's right of recourseagainst the party
secondarily liable is expressly reserved;(f) By any agreement binding upon the holder to
extend the time of payment or topostpone the holder's right to enforce the instrument
unless made with the assent of the party secondarily liable or unless the right of recourse
against such party isexpressly reserved.Sec. 121.
Right of party who discharges instrument.
- Where the instrument is paid by aparty secondarily liable thereon, it is not discharged; but
the party so paying it isremitted to his former rights as regard all prior parties, and he may
strike out his ownand all subsequent indorsements and against negotiate the instrument,
except:(a) Where it is payable to the order of a third person and has been paid by
thedrawer; and(b) Where it was made or accepted for accommodation and has been paid
by theparty accommodated.Sec. 122.
Renunciation by holder.
- The holder may expressly renounce his rightsagainst any party to the instrument before,
at, or after its maturity. An absolute andunconditional renunciation of his rights against the
principal debtor made at or after thematurity of the instrument discharges the instrument.
But a renunciation does not affectthe rights of a holder in due course without notice. A
renunciation must be in writingunless the instrument is delivered up to the person primarily
liable thereon.Sec. 123.
Cancellation; unintentional; burden of proof.
- A cancellation madeunintentionally or under a mistake or without the authority of the
holder, is inoperativebut where an instrument or any signature thereon appears to have
been cancelled, theburden of proof lies on the party who alleges that the cancellation was
madeunintentionally or under a mistake or without authority.Sec. 124.
Alteration of instrument; effect of.
- Where a negotiable instrument ismaterially altered without the assent of all parties liable
thereon, it is avoided, except asagainst a party who has himself made, authorized, or
assented to the alteration andsubsequent indorsers.But when an instrument has been
materially altered and is in the hands of a holder indue course not a party to the alteration,
he may enforce payment thereof according toits original tenor.Sec. 125.
What constitutes a material alteration. -
 Any alteration which changes:(a) The date;(b) The sum payable, either for principal or
interest;(c) The time or place of payment:(d) The number or the relations of the parties;(e)
The medium or currency in which payment is to be made;(f) Or which adds a place of
payment where no place of payment is specified, orany other change or addition which
alters the effect of the instrument in anyrespect, is a material alteration.
BILLS OF EXCHANGEIX. FORM AND INTERPRETATIONSec. 126.
Bill of exchange, defined.
- A bill of exchange is an unconditional order inwriting addressed by one person to another,
signed by the person giving it, requiring theperson to whom it is addressed to pay on
demand or at a fixed or determinable futuretime a sum certain in money to order or to
bearer.Sec. 127.
Bill not an assignment of funds in hands of drawee.
- A bill of itself does notoperate as an assignment of the funds in the hands of the drawee
available for thepayment thereof, and the drawee is not liable on the bill unless and until he
accepts thesame.Sec. 128.
Bill addressed to more than one drawee. -
A bill may be addressed to two ormore drawees jointly, whether they are partners or not;
but not to two or more draweesin the alternative or in succession.Sec. 129.
Inland and foreign bills of exchange. -
An inland bill of exchange is a bill whichis, or on its face purports to be, both drawn and
payable within the Philippines. Anyother bill is a foreign bill. Unless the contrary appears on
the face of the bill, the holdermay treat it as an inland bill.Sec. 130.
When bill may be treated as promissory note.
- Where in a bill the drawer anddrawee are the same person or where the drawee is a
fictitious person or a person nothaving capacity to contract, the holder may treat the
instrument at his option either as abill of exchange or as a promissory note.Sec. 131.
Referee in case of need. -
The drawer of a bill and any indorser may insertthereon the name of a person to whom the
holder may resort in case of need; that is tosay, in case the bill is dishonored by non-
acceptance or non-payment. Such person iscalled a referee in case of need. It is in the
option of the holder to resort to the referee incase of need or not as he may see fit.X.
ACCEPTANCESec. 132.
Acceptance; how made, by and so forth.
- The acceptance of a bill is thesignification by the drawee of his assent to the order of the
drawer. The acceptancemust be in writing and signed by the drawee. It must not express
that the drawee willperform his promise by any other means than the payment of
money.Sec. 133.
Holder entitled to acceptance on face of bill.
- The holder of a bill presentingthe same for acceptance may require that the acceptance
be written on the bill, and, ifsuch request is refused, may treat the bill as dishonored.Sec.
134.
Acceptance by separate instrument. -
Where an acceptance is written on a paper other than the bill itself, it does not bind the
acceptor except in favor of a personto whom it is shown and who, on the faith thereof,
receives the bill for value.Sec. 135.
Promise to accept; when equivalent to acceptance.
- An unconditionalpromise in writing to accept a bill before it is drawn is deemed an actual
acceptance infavor 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 hoursafter presentment in which to decide whether or
not he will accept the bill; theacceptance, if given, dates as of the day of presentation.Sec.
137.
Liability of drawee returning or destroying bill.
- Where a drawee to whom abill is delivered for acceptance destroys the same, or refuses
within twenty-four hoursafter such delivery or within such other period as the holder may
allow, to return the billaccepted or non-accepted to the holder, he will be deemed to have
accepted the same.Sec. 138.
Acceptance of incomplete bill
. - A bill may be accepted before it has beensigned by the drawer, or while otherwise
incomplete, or when it is overdue, or after ithas been dishonored by a previous refusal to
accept, or by non payment. But when abill payable after sight is dishonored by non-
acceptance and the drawee subsequentlyaccepts it, the holder, in the absence of any
different agreement, is entitled to have thebill accepted as of the date of the first
presentment.Sec. 139.
Kinds of acceptance. -
An acceptance is either general or qualified. A generalacceptance assents without
qualification to the order of the drawer. A qualifiedacceptance in express terms varies the
effect of the bill as drawn.Sec. 140.
What constitutes a general acceptance.
- An acceptance to pay at a particularplace is a general acceptance unless it expressly states
that the bill is to be paid thereonly and not elsewhere.Sec. 141.
Qualified acceptance.
- An acceptance is qualified which is:(a) Conditional; that is to say, which makes payment by
the acceptor dependenton the fulfillment of a condition therein stated;(b) Partial; that is to
say, an acceptance to pay part only of the amount for whichthe bill is drawn;(c) Local; that is
to say, an acceptance to pay only at a particular place;(d) Qualified as to time;(e) The
acceptance of some, one or more of the drawees but not of all.Sec. 142.
Rights of parties as to qualified acceptance.
- The holder may refuse to take aqualified acceptance and if he does not obtain an
unqualified acceptance, he may treatthe bill as dishonored by non-acceptance. Where a
qualified acceptance is taken, the drawer and indorsers are discharged from liability on the
bill unless they have expresslyor impliedly authorized the holder to take a qualified
acceptance, or subsequentlyassent thereto. When the drawer or an indorser receives notice
of a qualifiedacceptance, he must, within a reasonable time, express his dissent to the
holder or hewill be deemed to have assented thereto.XI. PRESENTMENT FOR
ACCEPTANCESec. 143.
When presentment for acceptance must be made.
- Presentment foracceptance must be made:(a) Where the bill is payable after sight, or in
any other case, where presentmentfor 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
ofbusiness of the drawee.In no other case is presentment for acceptance necessary in order
to render any partyto the bill liable.Sec. 144.
When failure to present releases drawer and indorser.
- Except as hereinotherwise provided, the holder of a bill which is required by the next
preceding sectionto be presented for acceptance must either present it for acceptance or
negotiate itwithin a reasonable time. If he fails to do so, the drawer and all indorsers
aredischarged.Sec. 145.
Presentment; how made.
- Presentment for acceptance must be made by oron behalf of the holder at a reasonable
hour, on a business day and before the bill isoverdue, to the drawee or some person
authorized to accept or refuse acceptance onhis 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 orrefuse 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
personalrepresentative;(c) Where the drawee has been adjudged a bankrupt or an insolvent
or hasmade an assignment for the benefit of creditors, presentment may be made tohim or
to his trustee or assignee.Sec. 146.
On what days presentment may be made.
- A bill may be presented foracceptance on any day on which negotiable instruments may be
presented for paymentunder the provisions of Sections seventy-two and eighty-five of this
Act. When Saturdayis not otherwise a holiday, presentment for acceptance may be made
before twelveo'clock noon on that day. Sec. 147.
Presentment where time is insufficient.
- Where the holder of a bill drawnpayable elsewhere than at the place of business or the
residence of the drawee has notime, with the exercise of reasonable diligence, to present
the bill for acceptance beforepresenting it for payment on the day that it falls due, the delay
caused by presenting thebill for acceptance before presenting it for payment is excused and
does not dischargethe drawers and indorsers.Sec. 148.
Where presentment is excused. -
Presentment for acceptance is excused anda 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 aperson not having capacity to contract by bill.(b) Where, after
the exercise of reasonable diligence, presentment can not bemade.(c) Where, although
presentment has been irregular, acceptance has beenrefused on some other ground.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 isprescribed by this Act is refused or can not be obtained; or(b) When
presentment for acceptance is excused and the bill is not accepted.Sec. 150.
Duty of holder where bill not accepted. -
Where a bill is duly presented foracceptance and is not accepted within the prescribed
time, the person presenting itmust treat the bill as dishonored by nonacceptance or he loses
the right of recourseagainst the drawer and indorsers.Sec. 151.
Rights of holder where bill not accepted.
- When a bill is dishonored bynonacceptance, an immediate right of recourse against the
drawer and indorsersaccrues to the holder and no presentment for payment is
necessary.XII. PROTESTSec. 152.
In what cases protest necessary.
- Where a foreign bill appearing on its faceto be such is dishonored by nonacceptance, it
must be duly protested fornonacceptance, by nonacceptance is dishonored and where such
a bill which has notpreviously 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 notappear on its face to be a foreign bill, protest thereof in case of dishonor
isunnecessary.Sec. 153.
Protest; how made. -
The protest must be annexed to the bill or must containa copy thereof, and must be under
the hand and seal of the notary making it and mustspecify:
(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 oracceptor 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 thepresence of two or more credible witnesses.Sec. 155.
Protest; when to be made.
- When a bill is protested, such protest must bemade on the day of its dishonor unless delay
is excused as herein provided. When a billhas been duly noted, the protest may be
subsequently extended as of the date of thenoting.Sec. 156.
Protest; where made. -
A bill must be protested at the place where it isdishonored, except that when a bill drawn
payable at the place of business or residenceof some person other than the drawee has
been dishonored by nonacceptance, it mustbe protested for non-payment at the place
where it is expressed to be payable, and nofurther 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 beenprotested for non-acceptance may be subsequently protested for non-
payment.Sec. 158.
Protest before maturity where acceptor insolvent.
- Where the acceptor hasbeen adjudged a bankrupt or an insolvent or has made an
assignment for the benefit ofcreditors before the bill matures, the holder may cause the bill
to be protested for bettersecurity against the drawer and indorsers.Sec. 159.
When protest dispensed with.
- Protest is dispensed with by anycircumstances which would dispense with notice of
dishonor. Delay in noting orprotesting is excused when delay is caused by circumstances
beyond the control of theholder and not imputable to his default, misconduct, or
negligence. When the cause ofdelay 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 iswrongly detained from the person entitled to hold it,
protest may be made on a copy orwritten particulars thereof.XIII. ACCEPTANCE FOR
HONORSec. 161.
When bill may be accepted for honor.
- When a bill of exchange has beenprotested 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 ofthe holder, intervene and accept the bill
supra
protest for the honor of any party liablethereon or for the honor of the person for whose
account the bill is drawn. Theacceptance for honor may be for part only of the sum for
which the bill is drawn; andwhere there has been an acceptance for honor for one party,
there may be a furtheracceptance by a different person for the honor of another party.Sec.
162.
Acceptance for honor; how made.
- An acceptance for honor supra protestmust be in writing and indicate that it is an
acceptance for honor and must be signed bythe acceptor for honor.Sec. 163.
When deemed to be an acceptance for honor of the drawer.
- Where anacceptance for honor does not expressly state for whose honor it is made, it is
deemedto be an acceptance for the honor of the drawer.Sec. 164.
Liability of the acceptor for honor. -
The acceptor for honor is liable to theholder and to all parties to the bill subsequent to the
party for whose honor he hasaccepted.Sec. 165.
Agreement of acceptor for honor.
- The acceptor for honor, by suchacceptance, engages that he will, on due presentment, pay
the bill according to theterms of his acceptance provided it shall not have been paid by the
drawee andprovided 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 payableafter sight is accepted for honor, its maturity is calculated from the
date of the noting fornon-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 hasbeen accepted for honor supra protest or contains a referee in
case of need, it must beprotested for non-payment before it is presented for payment to
the acceptor for honoror referee in case of need.Sec. 168.
Presentment for payment to acceptor for honor, how
made.
- Presentment forpayment 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 wasmade, it must be
presented not later than the day following its maturity.(b) If it is to be presented in some
other place than the place where it wasprotested, then it must be forwarded within the
time specified in Section onehundred and four.Sec. 169.
When delay in making presentment is excused.
- The provisions of Sectioneighty-one apply where there is delay in making presentment to
the acceptor for honoror referee in case of need.
Page 27 of 30
Sec. 170.
Dishonor of bill by acceptor for honor.
- When the bill is dishonored by theacceptor for honor, it must be protested for non-
payment by him.XIV. PAYMENT FOR HONORSec. 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 personliable 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, inorder to operate as such and not as a mere voluntary payment, must be attested
by anotarial 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 befounded on a declaration made by the payer for honor or
by his agent in that behalfdeclaring his intention to pay the bill for honor and for whose
honor he pays.Sec. 174.
Preference of parties offering to pay for honor.
- Where two or more personsoffer to pay a bill for the honor of different parties, the person
whose payment willdischarge most parties to the bill is to be given the preference.Sec. 175.
Effect on subsequent parties where bill is paid for
honor.
- Where a bill hasbeen paid for honor, all parties subsequent to the party for whose honor it
is paid aredischarged but the payer for honor is subrogated for, and succeeds to, both the
rightsand duties of the holder as regards the party for whose honor he pays and all
partiesliable to the latter.Sec. 176.
Where holder refuses to receive payment supra protest. -
Where the holder ofa bill refuses to receive payment
supra
protest, he loses his right of recourse againstany party who would have been discharged by
such payment.Sec. 177.
Rights of payer for honor.
- The payer for honor, on paying to the holder theamount of the bill and the notarial
expenses incidental to its dishonor, is entitled toreceive both the bill itself and the
protest.XV. BILLS IN SETSec. 178.
Bills in set constitute one bill.
- Where a bill is drawn in a set, each part of theset being numbered and containing a
reference to the other parts, the whole of the partsconstitutes one bill.Sec. 179.
Right of holders where different parts are negotiated.
- Where two or moreparts of a set are negotiated to different holders in due course, the
holder whose titlefirst accrues is, as between such holders, the true owner of the bill. But
nothing in thissection affects the right of a person who, in due course, accepts or pays the
parts firstpresented 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 liableon
every such part, and every indorser subsequent to him is liable on the part he hashimself
indorsed, as if such parts were separate bills.Sec. 181.
Acceptance of bill drawn in sets.
- The acceptance may be written on any partand it must be written on one part only. If the
drawee accepts more than one part andsuch accepted parts negotiated to different holders
in due course, he is liable on everysuch part as if it were a separate bill.Sec. 182.
Payment by acceptor of bills drawn in sets.
- When the acceptor of a billdrawn in a set pays it without requiring the part bearing his
acceptance to be deliveredup 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 herein otherwise provided,where any one part of a bill drawn in a set is
discharged by payment or otherwise, thewhole bill is discharged.XVI. PROMISSORY NOTES
AND CHECKSSec. 184.
Promissory note, defined.
- A negotiable promissory note within the meaningof this Act is an unconditional promise in
writing made by one person to another, signedby the maker, engaging to pay on demand, or
at a fixed or determinable future time, asum certain in money to order or to bearer. Where
a note is drawn to the maker's ownorder, it is not complete until indorsed by him.Sec. 185.
Check, defined.
- A check is a bill of exchange drawn on a bank payable ondemand. Except as herein
otherwise provided, the provisions of this Act applicable to abill of exchange payable on
demand apply to a check.Sec. 186.
Within what time a check must be presented. -
A check must be presented forpayment within a reasonable time after its issue or the
drawer will be discharged fromliability thereon to the extent of the loss caused by the
delay.Sec. 187.
Certification of check; effect of.
- Where a check is certified by the bank onwhich it is drawn, the certification is equivalent
to an acceptance.Sec. 188.
Effect where the holder of check procures it to be certified. -
 Where the holderof a check procures it to be accepted or certified, the drawer and all means valuable consideration;
indorsers aredischarged from liability thereon.Sec. 189. "Written"
When check operates as an assignment. includes printed, and
- A check of itself does not operateas an assignment of any part of the funds to the credit of "writing"
the drawer with the bank, and includes print.Sec. 192.
Persons primarily liable on instrument.
Page 29 of 30 - The person
the bank is not liable to the holder unless and until it accepts or certifies the check.XVII. "primarily"
GENERAL PROVISIONSSec. 190. liable on aninstrument is the person who, by the terms of the instrument, is absolutely
Short title. required topay the same. All other parties are
- This Act shall be known as the Negotiable Instruments Law.Sec. 191. "secondarily"
Definition and meaning of terms. liable.Sec. 193.
- In this Act, unless the contract otherwiserequires: Reasonable time, what constitutes.
"Acceptance" - In determining what is a
means an acceptance completed by delivery or notification; "reasonabletime"
"Action" regard is to be had to the nature of the instrument, the usage of trade or businesswith
includes counterclaim and set-off; respect to such instruments, and the facts of the particular case.
"Bank" Sec. 194.
includes any person or association of persons carrying on the business ofbanking, whether Time, how computed; when last day falls on holiday.
incorporated or not; - Where the day, or thelast day for doing any act herein required or permitted to be done
"Bearer" falls on a Sunday oron a holiday, the act may be done on the next succeeding secular or
means the person in possession of a bill or note which is payable tobearer; business day.Sec. 195.
"Bill" Application of Act.
means bill of exchange, and "note" means negotiable promissory note; - The provisions of this Act do not apply to negotiableinstruments made and delivered prior
"Delivery" to the taking effect hereof.Sec. 196.
means transfer of possession, actual or constructive, from one personto another; Cases not provided for in Act. -
"Holder" Any case not provided for in this Act shall begoverned by the provisions of existing
means the payee or indorsee of a bill or note who is in possession of it,or the bearer legislation or in default thereof, by the rules of thelaw merchant.Sec. 197.
thereof; Repeals.
"Indorsement" - All acts and laws and parts thereof inconsistent with this Act arehereby repealed.Sec. 198.
means an indorsement completed by delivery; Time when Act takes effect.
"Instrument" - This Act shall take effect ninety days after itspublication in the Official Gazette of the
means negotiable instrument; Philippine Islands shall have been completed
"Issue"
means the first delivery of the instrument, complete in form, to a personwho takes it as a
holder;
"Person"
includes a body of persons, whether incorporated or not;
"Value"