NEGOTIABLE INSTRUMENTS LAW

+
MADE EASY
1

By: DEAN ANTONIO H. ABAD, JR.

Dean, College of Law, Adamson University

Former Dean, institute of Law, Far Eastern University
Bar Reviewer, Ateneo de Manila School of Law, :
Far Eastern University
Adamson University
. Bar Examiner in Labor Law, 1999
Lecturer, U.P. Law Center, Institute of
Judicial Administration .

FIRST EDITION
2006

Published by

CENTRAL BOOK SUPPLY, INC,

927 Quezon Avenue, Quezon City
Philippines
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Philippines Gopyright, 2006
PREFACE
By
| had my first encounter with Negotiable Instruments
Law as a teacher in 1976 when then Dean Nepiali A. Gon-
By: Dean Antonio H. Abad, Jr. zales of the FEU Institute of Law assigned me to teach the
subject. | had never taught the subject before and so | had
to study Negotiable Instruments Law all over again. At
times, | found myself just one or two chapters ahead of my
students.
ALL RIGHTS RESERVED The textbook we were using then was the one au-
thored by Judge Federico G. Alikpala. Aside from this text-
<ee ona book, however, | read other references to augment my
vey a “se oS
L knowledge about the subject. | was deathly afraid that |
uy ‘~ 2 peeeerne oe mae at
oo may not be able to answer my students’ questions or,
{
worse, lecture in such a way as io parade my ignorance.
My other references were Negotiable Instruments
Law by Agbayani; Cases and Materials in Negotiable In- -
Series Ng, struments Law by Campos Lopez-Campos; The Negoiia-
ble Instruments Law by Alvendia; and much later, Pandect
of Commercial Law and Jurisprudence by Vitug. My lecture.
’ then in class, and especially during the bar review, was a
mix of the writings of the books | have read. So, also, in the
writing of this hook, | was influenced by them. For instance,
ISBN 9'78-971-691-465-8 in Chapter |, | did not follow the chronological order of the
iaw but, instead, the inter-relation of the sections with each
other—ala Campos Lopez-Campos. Likewiso, at the end of
mosi chapters in the book, there is an enumeration of rele-
vant cases—ala Alvendia. The book is replete with exam-
ples to explain the law—ala Agbayani.
In the course of my teaching the subject through the
Printed by years at Far Eastern University, Ateneo de Manila School
of Law, Adamson University College of Law and other bar
CENTRAL PRINT ON DEMAND
927 Quezon Avenue, Quezon City
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review centers, | invariably noticed that the students found . particularly, its President, Atty. Jose Agaton R. “Tony”
the ‘subject boring and difficult to understand. Conse- Sibal, for publishing this book.
quently, | had to devise ways and means to make the sub- The author sincerely hope that this book will help
ject lively and interesting to keep my students awake and law-
yers and students of law alike to understand easily
to revert their attention to the subject at hand. To make what
heretofore was a difficult Negotiable Instrument Law.
them understand the subject more fully, i had to simplify
the law and go down to their level in a language that even
@ layman could comprehend. My examples were atrocious
and my mnemonics naughty so that my students will never
forget. My class was like a theater and my students were -
the actors in a play called the Negotiable Instruments Law.
It was not until 1993 when this play found its way in
some kind of a script as the Ateneo Central Bar Operations
taperecorded my bar review on Negotiable Instruments
Law. When | was given a transcription of my lecture in
1996, | was amazed to learn that my bar review lecture has
been doing the rounds of bar revieweess of many law
schccls. It was then | decided to write this book, using said
transcription as its foundation, But the writing of the book
was long in coming. Almost ten years passed before | fi-
nally buckled down to work to finish writing the subject |
have found to love.
1 wish to acknowledge the tremendous time and effort
expended by Ms. Theresa Castafieda-Cunanan in typing
the manuscript of this book. In the same manner, | wish to
express my gratitude to my lovely wife, Atty. Marina Da-
lena-Abad, for helping me proofread the manuscript of this
book; and Atty. Christan Rhee Delfin B, Orencia for helping
me in some research. Likewise, | wish tc thank the Ateneo
Central Bar Operations of 1993 for giving me a copy of the
transcription of my bar review lecture on Negotiable In-
struments Law,
Lasily, | wish to thank the Central Book Supply, Inc,
 DEDICATION

| dedicate this book to the memory of my parents ~

Prof. Antonio M. Abad of Cebu

and

Prof. Jesusa Aquino Henson of

San Fernando, Pampanga
 INTRODUCTION
Act No. 2031, otherwise known as the Negotiable
Instruments Law, has for its prototype the Uniform
Negotiable Instruments Law of the United States and
the English Bill of Exchange Act of 1882, It is a per-
fect universal law that applies to all transactions in-
volving negotiable instruments regardless of jurisdic-
tions. This is as it should be; otherwise, international
commercial intercourse will be unduly hampered if
different jurisdictions have different interpretations as
to the form ard application of negotiable instruments.
The Nagotiable Instrument Law (NIL) treais of only
two (2) kinds of instruments, namely, Promissory Notes
and Bills of Exchange. (A check is a special kind of a Bill of
Exchange.) These instruments facilitate commercial deals
among traders and merchants in domestic’ as well as in
foreign business transactions. This is so because of their
innate characteristics as to negotiability, utility and accu-
mulation of secondary contracts.
After the physical making of the instrument, it is the
.delivery thereof which gives it ‘life’. No rights can arise in
respect of any instrument under the Negotiable Instru-
ments Law until it is delivered.’ An undelivered bill or note
is inoperative. Until delivery, the contract is revocable. And
the issuance as well as the delivery of the (instrument)
must be to a person who take it as a holder.”

' George A. Kauffman vs. The Philippine National Bank, 42 Phil.

82, 186 (1921).
? People vs. Yabut, 76 SCRA 624 (),
L
 . Whether the issued bill or note is negoliable or not
would depend upon its compliance with the requisites of
negotiability under Section. 7 of the NiL. If the bill or note TABLE OF CONTENTS
conforms with said requisites, it is negotiable; otherwise, it
is not. Page
A negotiable instrument is transferred from person to
person by negotiation; whereas, a non-negotiable instru- TITLE |
ment [s transferred from person to person by assignment. CHAPTER I
In negotiation, the transferee of the instrument can FORM AND INTERPRETATION
betome a holder in due course and, as such, can acquire
tights superior to that of the transferor. Whereas, in as- SECTION 1. Form of negotiable instruments ........... 1
signment, the transferee merely steps into the shoes of the
transferor and, therefore, cannot acquire any better right 1, Requisites of Negotiability ...... ateseeesseeenersecsees 1
than his immediate predecessor. 2. It must be in writing ............ tersesuones seusverseaeens 2
Negotiable Instruments are used as substitutes for 3. It must be signed ...........cee etenenesasensenssecees 3
money. As the instrument is transferred from one person to 4, Unconditional promise or order .............c000 3
another, secondary contracts are accumulated thereby. SECTION 3. When promise is uncenditicaal 4
The instrument may be negotiated to another by delivery
(for instruments payable to bearer) or by indorsement com- 5. Sum certain in money .......00 seeeeneeceessanecers 6
pleted by delivery (for instruments payable to order). SECTION 2. What constitutes certaintyastosum.. 6
The liabilities of parties on the instrument are de-
5.2.1 With interest .............. peeeasenreeers 6
pendent upon their warranties either as maker, drawer,
acceptor or indorser. The maker and the acceptor are pri- 5.2.2 Stated installments 0.0.1.0... 7
marily liable on the instrument; whereas, the drawer and §.2.3 Stated instailments with accel-
the indorsers are only secondarily liable thereon. eration clause ..... tunsuvanneateseneons 7
The instrument's “life” is ended when it is discharged 5.2.4 With exchange .........cccceseseeees 7
by payment or by any of tha modes of extinguishing an ,
5.2.5 Costs and attorney's fees ......... 7
obligation. 5.3 Payable in money ..........
cc seenesaneneaes 8
That, in a nutshell, is what this book is ali about.
SECTION 5. Additional provisions not affecting
Negotiabllity oo. seseesecseesenenees taeseeseeneseenens 8
5.3.2 Authorizes the sale of collateral
securities .........000. satenesaseacseneeee 9

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 TABLE OF CONTENTS TABLE OF CONTENTS

Page Page
9 9.4 Payee does not purport to be the
5.3.3 Confession of judgment ......s06
SAINE Of ANY POLSON ......ssecsecssenssnerseeeee
5.3.4 ‘Waiver of bonefit ........ssseseeee 9
9.5 Only or last indorsement is a blank in-
5.3.5 Gives the holder an election to COPSOMENE ......segsscesescsteeessenensnsereesenses
require sorne other act in lieu
Of MONEY v1. eeesertscsneeseateeenteee 9 10. Drawee must be named with certainty ..........
6. Payable OM DOMANA ou. ccstesessteetsessereerseetees 10 SECTION 6. Omission; seal; particular money ........

SECTION 7. When payable on demand ......... 10 SECTION 10. Terms, when sufficient ......0.
ee

6.1 Expressed to be payable on demand .. 10 SECTION 11. Date, presumption as to ........ sees

6.2 No time for payment is expressed ....... 10 SECTION 12. Ante-dated and post-dated ...............
6.3, Instrument Is issued, accepted or in- - SECTION 13. When date may be inserted ..............
dorsed When OVErdue .....ececstseteeeeeee an
‘SECTION 14. Blanks; when may be filled ..........000
7. Payable at a fixed or determinable future SECTION 15. Incomplete instrument not delivered .
«THING eae eceseessestersnesstesnrsneeessereesensneesateeneesnurten 12
SECTION 16. Delivery; when effectual; when pre-
SECTION 4. Determinable future time; what consti- SUMO... sesesscccsscceseresscessnsessnerossscessessnsessenessnesenns
TULOS ceccrcccccccecceenssssstensrersesenerser eetecennenesrssersennieaer 12
13 SECTION 17. Construction where instrument is
7.1 Ata fixed period after date ....... cee AIMDIQUOUS viseesceceesseesereesssnsseesensseseasecseesesaeneseees 37
7.2 Ata fixed period after sight ..........0 13
SECTION 18. Liability of person signing in trade or
7.3 On or before a fixed or determinable ASSUME NAME ...... ee ccseeeteccesscesenessnesseneensenenes 39
FUTUFE TIME eee ees centseerteseteretnensetnenenes 14
7.4 On or before the occurrence of a J. General RUC oo... eeeeseeeesteessnserereessonsens 39
SPECified OVENE .....csesecereeceeseeseneensteers 14 2. EXCO@PHONS ........ccceccsssscecens esesssnnectsessereesees 40
8, Payable to Order sseseeeeeees. deseeesessesseesesoes 15 SECTION 19. Signature by agent; authority; how
16 SNOWM wees eeecsesseenensencenerssanseseeseensnenensenssonsneeeneneses 40
SECTION 8. When payable to order oo... sssereerene
18 SECTION 20. Liability of person signing as agent,
SECTION 9. When payable to bearer qo... cee ANC SOPOT ..ocecccscssesseecsseesseseneeseenseneseereesreeeres 40
9.1 Expressed to be so payable ...... 419
SECTION 21. Signature by procuration; effect of .... 41
9.2 Payable to a person or bearer ...... 19
SECTION 22. Effect of indorsement by infant or
9.3 Payable to a fictitious PEFSON ...sseee 20 COMPOTARION ..... ese csecssssensanssensesssesesensceenneseccaeeees 41

xiti
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 TABLE OF CONTENTS TABLE OF CONTENTS
. Page
SECTION 23. ‘ Forged signature; effect of ................ 42 SECTION 36. When indorsement restrictive ...........
CASES? oo ecesccarcensnseseeenesesseeeceeeeearesseerseeseeeaesaes 48 SECTION 37. Effect of restrictive indorsement;
Fights of INdorsee -.......tessssserssseesatsesscsesscaceeeers
CHAPTER Il
SECTION 38. Qualified indorsement ...........eccee.
CONSIDERATION SECTION 39. Conditional indorsement ..................
SECTION 24. Presumption of consideration ........... 50 1. Kinds of indorsements ...2ecccsssesessosssesessescesces
SECTION 25. Value, what constitutes ...... eee 50 Special indorsemMent .......sscsssssecessessereesserceee

aAPepw
Blank incorseMment ....csecccssssscseessessseesssceryes
SECTION 26, What constitutes holder for value ..... 51
SECTION 27. When lien on instrument constitutes
holder for Value ......cssseee asensereasedenesarones eneesanenanes 52
6. Conditional indorsement ..........:cccsccessserseeese
SECTION 28. Effect of want of consideration ......... 53
SECTION 40. indorsement of instrument payable
SECTION 29. Liability of accommodation party ...... 53 10 DOPED «0... seccssssesserssneseetsisterecessesesstsssarseeseans
CASES? ceeestscssessstesssonns saconseanseecensneccantecatennsess » 55 SECTION 41. Indorsement where payable to two
OF MOLE POFSOMS 0... eseccsccscscssncsereceesesssnnrenen
sees
CHAPTER Ii!
SECTION 42. Effect of instrument drawn or in-
NEGOTIATION
dorsed to a person as cashier Cenc neuennneonasecensoceseats

SECTION 30. What constitutes negotiation ........6 57 SECTION 43. Indorsement where name is mis-
spelled, and so forth oe etre rier roster ee reer)
SECTION 31, Indorsement; how Made ...... cesses 57
SECTION 44, Indorsement in representative ca-
SECTION 32. Indorsement must be of entire in-
PACILY ..sesssusssersecsssesessesenesssessnsensseususevercenscsncacsess
SUPUMMIONE ooo... ete eeeerteteeeeeseeeneeneneessceeseeseenes 57
SECTION
SECTION 33. Kinds of indorsement ....sscscccsssseeen 59 45. Time of indorsement; presumption ...
SECTION 46. Place of indorsement; presumption ..
SECTION 34. Special indorsement; indorsement in
blank vo. sasenasensaceansenssesseesonseceseesarsnseoeesonseraes . 5s SECTION 47. Continuation of negotiable character.
SECTION 35. Blank indorsernent; how changed to SECTION 48. Striking out indorsement ............00.5-.
SPECial INAOPSEMEN .rsscsseceesererveeeeeseeneeees 59 SECTION 49. Transfer without indorsement; effect
OF ecco Peer eer rier i rier et rire e rr ee yy

xiv XV
 TABLE OF CONTENTS TABLE OF Contes

Page :
Page
SECTION 50. When prior party may negotiate SECTION 64. Liability of irregular indorser.:....0...... 93
ISTTUMGNE eee eesnseseseseerescnerecsnessnersensaceenevernteenees SECTION 65. Warranty where negotiation by de-
CASE? weeeeecsesseesssssesnsatssscaseessesensessenssensensnsensntenes 73 livery ANd SO FOTN... ccesesesesssssesesasessttescsseseneess 95
CHAPTER IV SECTION 66. Liability of general indorser ............... 97
RIGHTS OF THR HOLDER SECTION 67. Liability of fndorser where paper
negotiable by AeliVEry ........essesceseesescesserssessecerss 99
SECTION 51. Right of holder to sue; payment ........ SECTION 68. Order in which indorsers ara liable ... 99
SECTION 52. What constitutes a holder in due SECTION 69. Liability of an agent or broker ........... 100
COULSO ...cecsescccsseseuceatenseececaeaeaseeserssensesesaneenseneaens
. CASE: oooeeccsecsessessssssesssssvseesssssavesesunssensesassncoeseess 100
SECTION 53. When person not deemed holder in
CUS COUTSE oo ce eeeseecee cess ceeeesseeeenesteerensensenestseeseen® CHAPTER VI
SECTION 54. Notice before full amount paid .......... PRESENTMENT FOR PAYMENT
SECTION 55. When title defective .........eeseseeesen SECTION. 70. Effect of want of demand on principal
SECTION 56. What constitutes notice of defect ...... CODtOF ooo eeecsssssssessecssessoreeetsnssevsucceteneneenans Seneneeees 101
SECTION 57. Rights of holder in due'course .......... SECTION 71. Presentment where instrument is not
payable on demand and where payable on de-
SECTION 58. When subject to original defenses .... ITIANN weeesesenceseccesseseesssonesseecsesssseeeseasessseovatenstensns 101
SECTION 59. ' Who is deemed holder in due course SECTION 72. What constitutes a sufficient pre-
CASES: ooo. seeceescseeeessserraneessensscsesrensesnnnsvenensenanes SOMTMON 0... eecesscsevsstsessscersresesesassnseoneesesassiceseser 101
SECTION 73, Place of prosantment ..........ccceeeeees 102
CHAPTER V
SECTION 74. instrument must be exhibited ........... 102
LIABILITIES OF PARTIES
SECTION 75, Presentment where instrument pay-
SECTION 60. Liability of maker ......... seesuesanseanueneeess AIS At DANK oo... ee sseeeresssresseerees deneneesssteceeeess 102
SECTION 61. Liability
of drawer .....cssseesseeeeesees SECTION 76. Presentment where principal debtor
1S COA, .....eeccsessscessesssssserceveessssscessasteesscesensens
sess 102
SECTION 62. Liability of acceptor... eee
SECTION 77. Presentment to persons liable as
SECTION 63. Whena person deemed indorsers ....
PAMLMELS oo. ceessescssesssersersssvetstssusscesseeeess seeteeeaeeues 103

xvi xvil
 TABLE OF CONTENTS TABLE OF CONTENTS
Page
SECTION. 78. Presentment to joint debtors ............. SECTION 92. Effect of notice on behalf of holder ... 170
SECTION 79. When presentment not required to SECTION 93. Effect where notice is given by party
Charge the Crawer .......secsscscsssssrsnsceserseeepeersneees ONtitled thereto ....sssssssesesscesssesssrevevssensssesereses 110
SECTION 80. When presentment not required to SECTION 94. When agent may give notice ............ 112
Charge the indorser .........csscscceessscceresseceeeterscers SECTION 95. When notice sufficient wc)... 113
SECTION 81. When delay in making presentment SECTION 96, Form of notice oo... ccsseseeeen
1S @XCUSEC wecessccscccrseceserescneereeeeecessarceensnesesesteree
113
SECTION 97. To whom notice may be given ........., 113
SECTION 82. When presentment for payment is
excused SECTION 98. Notice where party is dead ......... 114
SECTION 83. When instrument dishonored by SECTION 99, Notice to partners .....ccsssssessecsreserss 114
MOM-PAYMENE oo. csceeeeeeereesseensnensarsseceeerneeasseraneseee SECTION 100. Notice to persons jointly liable ........ 114
SECTION 84. Llabillty of person secondarily liable, SECTION 101. Notice to bankrupt ....cssssssccseeseee 414
when instrument dishonored ..........:.ssccssccessserennee
SECTION 102. Time within which notice must be
SECTION 85. Time of maturity... eeeeeceensteneees QIVON a. eescsscessceesssesesssssesesseeseseaternessacasasevserereeeesss 115
SECTION 86. Time: How COMPULEM wscseessenssseeeees SECTION 103. Where parties reside insame place 115
SECTION 87. Rule where instrument payable at SECTION 104. Where parties reside in different’ .
bank ....... Se eedranpennecepasr enn er AahePAGRSAGAA FER GE ROUT DAC ONDUNEOR ESP PIACOS ooo eee eecseeeeeseesereenesseessesnsssessaseeciensnesssass 116
SECTION 88. SECTION 105. When sender deemed- to have
course .... Wee ceeeneenneneel neces easPeseunennaaairruspaedenOPREAERUEDS GIVEN CUE NOTICE oo eee eeetecceessssensavsenerenseeses 117
SECTION 106. Deposit in post-office; what consti-
CHAPTER Vil HUTCS ieee ccesecceerseeesnatessttassenseceusevscanseaneserenes 117
SECTION 107. Notice to subsequent party; time of 118
NOTICE OF DISHONOR
SECTION 108. Where notice must be sent ............. 118
To whom notice of dishonor must be. SECTION 108. Waiver of notice setaeesenesneaesenseeseseaes 19
Dene e eee cena e ner rae h ORE OSEAN ONS TEE EONS SENG REF SS REEL OE LOSS
SECTION 110. Whom affected by waiver... 120
SECTION 90. By WHOM GIVEN voces ssessereeneeereners
SECTION 111. Waiverof protest ........ cesses 120
SECTION 91, Notice given be agent uo... cee

xvii xix
 TABLE OF CONTENTS TABLE OF CONTENTS
Page Page
SECTION 112. When notice is dispensed with ....... 121 CHAPTER IX
SECTION 113. Delay in giving notice; how ex- BILLS OF EXCHANGE
CUSGG .....cceccessreccseccetaroersseeeutnuscnecenererseressnanseersees 121 FORM AND INTERPRETATION
SECTION 114. When notice need not be given to
CHAWGY oo. eeesseeeersessnnnsensenteesseeseseesonssaseneeenssrrees 121 SECTION 126. Bill of exchange defined ........0.......
SECTION 115. When notice need not given to SECTION 127, Bill not an assignment of funds in
INCOVSEN ooo... ecseceneeseescerssecesseensnenesseneessecsuenseeevenas 123 Hands Of CraWee ou... eeesssssecesnessnsressnseenersnevsees
SECTION 116. Notice on non-payment where SECTION 128. ‘Bill addressed to more than one
ACCOpPtance refuSEd .......cecessnesersceeseecentseesees 124 CPAWEE vissescercecssecssnesetcrecsreusenerecececessncesesrsnennecenses

SECTION 117. Effect of omission to give notice of SECTION 129. Inland and foreign bills of exchange
FON-ACCEPLANCEY ..... secsassssecesesenerserseeeenenecerenenees 125 SECTION 130. When bill may be treated as prem-
SECTION 118. When protest need not be made; ISSOTY NOG oo... eee ceeeeeesscersessecsseesessseessseeneaseenseves
WheN MUST DE MAE ......csescrsvesveeesstneensesneneres 126 SECTION 131. Referee in case of need ..............
CASES: oo ccesssssesscestsenenerserssssacosscnenesssssensscensersees 126
CHAPTER VIII SECTION 132. Acceptance; how made, and so
FOI esses eesesesoeeacesssecsesssesccnssoseseseassnessersensesscuns
DISCHARGE OF NEGOTIABLE INSTRUMENTS
SECTION 133. Holder entitled to acceptance on
SECTION 1719. Instrument; how discharged ........... 128 face of Dill oo... ce ssssssscscsnscsseessensscsseesnnsrarseenss

SECTION 120. When persons secondarily liable SECTION 134. Acceptance by separate instrument
on the instrument are discharged ........ccssrsersere 129 SECTION 135. Promise to accept; when equiva-
SECTION 12%. Right of party who discharges in- lent tO ACCEPTANCE ........ceesecssrcssessesnsensssevsrrsvnease
SUTUMENE .....cccceeseceeeenteneceesereeneseeebeeseeed
renpereensens 131 SECTION 136. Time allowed drawee to accept ......
SECTION 122. Renunciation by holder .........ee 133 SECTION 137. Liability of crawee retaining or de-
SECTION 123. Cancellation; unintentional; burden, SUOYING DE ae eeeeeeceseseerseesensssestsaneansseenseseess
Of DIOOF cicssecsnsccresssesseerserseessnessseserenessensererenseeneegss 134 SECTION 138. Acceptance of incomplete bill .........
SECTION 124. Alteration of Instrument; effect of .... 134 SECTION 139. Kinds
of acceptance ........... seteseaneees
SECTION 125. What constitutes a material altera-
THOM cece eeeeeeccesscessccssssnscecencerersnernsnereesunsscupuanenersees 185
 TABLE OF CONTENTS TABLE OF CONTENTS
Page
SECTION 140. What constitutes a general accap- SECTION 153. Protest; now made ........... aeneeseeensers
TANGO oo. eecesescescnsrenteereseeeeeesearssseesttrrenes venvneoneeoenney 1350
SECTION 154. Protest, by whom made ..........ccc0.
SECTION 141. Qualified acceptance... 150 1. Example of a Notice of Protest ............00c
SECTION 142. Rights of parties as to qualified 2. Exampie of a Certificate of Protest ...............
ACCEPTANCE oo ccccssesseesssssssssceseenestnneespassaeerentes 151
SECTION 155. Protest; when to be MAME ....seresrees
CHAPTER XI SECTION 156. Protest; where made .........ccccsecses,
PRESENTMENT FOR ACCEPTANCE SECTION 157. Protest both for non-acceptance
AND NON-PAYMENT .......ceccssesesestcerssssserecsssreecsesesss
SECTION 143. When presentment for acceptance
MUSt DO MAE ...,..sesssssssesseetsessssessesssrersesersreeses 163 SECTION 158. Protest before maturity where ac-
COPtOr INSOIVENE .....essscecsscssecsssssccsseessseerseteseccene
SECTION 144. When failure to present releases
drawer and INGOISED oe. sseeeesessssesssessreeseevsusnaeeeneeees 154 SECTION 159. When protest dispensed with .........
SECTION 145. Presentment; how made ....ususeeas 155 SECTION 160. Protest where bill is lost and so
FOP ooeeeeeeeeseescssessespsssecsseassacacacnevasscesssenenesesseeesss
SECTION 7146. On what days presentment may be
IAC vicececssnssscssnsetesnsaesseesersseneernernesasseeseraeenareees 155 CHAPTER XIII
ACCEPTANCE FOR HONOR
GIOME oo .eaeecssssessessssorssesssseseeccessssssseseessesscseesesesveeess 157
SECTION 148. Where presentment is excused ...... 158 _ SECTION 161. When bill may be accepted for
TOTION vo.scccssceecseerscsssencsssssecscsevssscoessesenavareseneere
sens
SECTION 149. When dishonored by — non-
SECTION 162. Acceptance for honor; how made ...
ACCEPTANCE vasssssssssstssscssstcsceteseesssesrestsenssesseesseceres 159
SECTION 163. When deemed to. ba an accep-
SECTION 150. Duty of holder where bill not ac-
tance for honor of the drawer .......ccscessscssseseeses
COPE wires scessssssesrsseecessessensssseecresssensesetssessscecssees 159
SECTION .164. Liability of the acceptor for honor ....
SECTION 151. Rights of holder where bill not ac-
cepted ......... sencar ser seeseseeenseace cuessaesenesentenserses _ 159 SECTION 165. Agreement of acceptor for honor ....
. ° CHAPTER XIl SECTION 166. Maturity of bill payable after sight;
accepted for HOMOM oo... eccssssssesssacescsessecseraserees
PROTEST
SECTION 167. Protest of bill accepted for honor,
SECTION 152. In what cases protest necessary .... 161 ANG SO FOL vesessesseessesteseesecseeneeneeaens eet ceeneesees

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 TABLE OF CONTENTS TABLE OF CONTENTS
Page
Page
SECTION 168. Presentment for payment to accep- SECTION 182. Payment by acceptor of bills drawn
tor for HOMOr, NOW MACE vissesssssscsersessecessssetseeeers 173 in sets wu... tres eeneasesaussecsevsueonseeneunttonescenserstesasass 181
SECTION 169. When delay in making presentment SECTION 183. Effact of discharging one of aset
IS OXCUSE” os ssssscssssssssersrsessesssersssessnsersessacsnseneees ... 181
173
CHAPTER XVI
CHAPTER XIV
PROMISSORY NOTES AND CHECKS
PAYMENT FOR HONOR
SECTION 184. Promissory note, defined ................
SECTION 171. Who may make payment for honor . 175 183
SECTION 185. Check defined
..o..ccccscssssssecseccoseess 184
SECTION 172. Payment for honor; how made ........ 175
1. Distinctions between a check and a bill of
SECTION 173. Declaration before payment for EXCHANGES oc ceesecssescesssstatsessstscessesessecesss . 185
TOMOL woseeecsssssssesseeeeecseceeeessaerencatsceeensenseasseanseyerses 175 2. Some type of CHECKS 0.0... cssessessessecrcesesecces 185
SECTION 174. Preference of parties offering to SECTION 186. Within what time a check must
Pay FOr DOMOM oe. eseeceeesecsreseeeseesscssssntenseanssness 176 be
PFOSGMIGd oo. sscsssessecscesesssssessssravsesssesensversesseesess
187
SECTION 175. Effect on subsequent parties where SECTION 187. Cortification of check; effect of ........ 189
DHT is Paid For POMC... cecssstceeetesnsessesstssereanies
SECTION 188. Effect where the holder of check
SECTION 176. Where holder refuses to receive Procures it to be Certified oo... sessesesessecsessseses
PAyMeNt SUPA PLOLSt ....ccccssseccerscreerseeneseeseeees 189
SECTION 188. When check operates as an as-
SECTION 177. Rights of payer for honor wise SIQMIMENE .....secsesssssessessssssssesssssvesessusssstacsssssesecsses
189
CHAPTER XV CASES? o.sesessesssesstsstesessssssessarsacsssesecssssesseccesces 180
BILLS INSET
CHAPTER XVII
SECTION 178. Bills in set constitute one bill ........... GENERAL PROVISIONS
SECTION 179. Right of holders where different SECTION 190. Short title .....cuscsssecssecssessssessscoess, 192
Parts are Negotiated vu... esessessssestesstecsseeseess
SECTION 191.Definitions and meaning of terms aw
SECTION 180, Liability of holder who indorses two 192
or more parts of a set to different persons .......... SECTION 192. Parsons primarily liable on instru-
TOM oie cseeesssnerntscrsesesseace fteerateeeascasesserssenrnessens
en 193
SECTION 181. Acceptance of bills drawn in sets .... 131
SECTION 193. Reasonable time, what constitutes . 193

Xxiv
XXV
 TABLE OF CONTENTS
Page
SECTION 194. Time, how computed; when last
day falls On holiday ....-...:essssessesereeseeseseenseneeees 193
SECTION 195. Application of Act ..... cc cssescseesers 193
NEGOTIABLE INSTRUMENTS LAW
SECTION 196. Cases not provided for in Act ......0.. 193
MADE EASY

——o000—

TITLE |
CHAPTER 1!
FORM AND INTERPRETATION

SECTION 1. Form of negotiable instruments.—

An instrument to be negotiable must conf
orm to the.
following requirements:
(a) it must be in writing and signed by the make
r
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 indic
ated
therein with reasonable certainty.
1. Requisites of Negotiability

1.2 For a promissory note: The first four (4)

requi-
sites enumerated in Section 1 above are the
only ones

Xxvi
2 Necorviasle INSTAUMENTS Law Mane Easy Form AND INTERPRETATION 3

necessary to make the instrument negotiable, thus: 3. it must be signed.

{a} It must be in writing and signed by the 3.1 If the instrument is a promissory note, it must be
maker; signed by the maker.
{(b} It must contain an unconditional promise to 3.2 If the instrument is a bill of exchange, it must be
pay a sum certain in money; signed by the drawer.
(c) lt must be payable on demand or determin- 3.3 The signature does not necessarily have to be
able future time; and the full name of the maker or the drawer. Any mark or sign
(d) It must be payable to order or to bearer. whatsoever, any scribbling, or anything that is placed on
the instrument like a thumbmark, will suffice so tong as it is
1.3 For a bill of exchange: All five (5) requisites intended to be the signature of the party to the instrument.
enumerated in Section 1 must be present to make the
instrument negotiable, thus: 4. Unconditional promise or order.
{a} It must be in writing and signed by the
4.1 “Unconditional” meaning that the promise or or-
drawer;
der to pay, must not be dependent upén a contingent
(b) it must contain an unconditional order to event that is not certain to happen. It rust be absolute,
pay a sum certain in money; i.e., an absolute promise to pay or an absolute order to |
(c} [It must be payable on demand or determin- pay. If the payment of the instrument is dependent upon an
abie future time; event that is not certain to happen, the promise or order to
(d) It must be payable to order or to bearer; and pay is not unconditional and, therefore, the instrument is
not negotiable.
(e) The drawee must be named or otherwise
‘indicated therein with reasonable certainty. 4.2 Example:

2. It must be in writing. | promise to pay X or order the sum of

2.1 The requirement that it must be in writing is ob-
vious. Since an instrument:is a document, thera must be
something in written form that can be transferred from
person to person. If there is nothing in writing, there is
nothing that can be transferred.
2.2 Any form will suffice. It may be printed or in long
hand. It may be in ink or in pencil. It may be on paper or on
parchment. It does not matter so long as it is in writing. The
law did not distinguish.
P1,000,00 if M will marry W.
(Sgd.) Y
In the above example, the promise to pay is not un-
conditional because there is no certainty that M will marry
W. Hence, the instrument is net negotiable.
4.2.1 Suppose M married W, will the promis-
sory nete now become negotiable? No, the happening
of the event will not cure the defect."

" Please see Section 4, NIL.

4 NeGorTiasLe INSTRUMENTS Law Mape Easy FORM AND INTERPRETATION 5

4.3 However, if the promise or order to pay is de- 4.4.1. Exampls:

pendent upon an event that is certain to happen, the same
will not render the instrument non-negotiable. Pay to X or order the sum of P1,000.00.
4.3.1 Example: Raimburse yourself from the proceeds of my
farm.

{ promise to pay X or order the sum of (Sgd.) Y

P1,000.00 upon the death of Pedro. To: Z

(Sgd.) Y_ The above example presupposes a prior arrangement

between tne drawer and the drawee with respect to the
In the above example, the condition given for pay- - payment of the instrument. Even if there is rio money in his
ment (the death of Pedro) is certain to happen. Hence, the hands but the drawee accepts, then he must pay out of his
condition did not destroy the negotiability of the instrument. own pocket and reimburse himself later. in other words, Z
first pays X; then after paying X, Z reimburses himself from _
4.4 The unconditional promise or order to pay must the proceeds of Y’s farm. Thus, the order to pay in this
be correlated with Section 3 which provides as follows: case is still unconditional. Hence, the instrument remains
SECTION 3. When promise is unconditional.— to be negotiable.
An unqualified order or promise to pay is uncordi- However, if the particular fund indicated is not in-
tional within the meaning of this Act though coupled tended for reimbursement but one out of which payment is
with— to be made, the promise or order to pay becomes condi-
(a) An indication of a particular fund out of tional. This is so because the assumption is that the par-
which reimbursement Is to be made or a particuiar ticular fund in¢’cated where payment Is to be taken is suffi-
cient to pay the amount of the noite or the bill. In this case,
account to be debited with the amount; or
_the payment is conditioned upon the sufficiency of the
(b} A statement of the transaction which gives
fund. Hence, the instrument becomes non-negotiable.
rise to the instrument.
But an order or promise to pay out of a particular
44,2 Statement of the transaction
fund is not unconditional. An instrument is usually issued due te a transaction.
The mere statement of the transaction that gives rise to the
The instrument will remain negotiable even if there is instrument will not destroy the negotiability of the instru-
an indication of a particular furid out of which reimburse- ment, However, if the instrument is made subject to the
ment is to be made after payment is made. The same thing terms and conditions of the transaction, the instrument
is true even if a particular account is indicated to be deb- becomes non-negotiable. This is so because the negotia-
ited with the amount after the instrument is paid. bility of an instrument is to be determined only by just look-
ing at the face of the instrument itself and not anywhere
else, Hence, if the instrument is burdened with the terms
 6 NEGoriasLe INsTAUMENTS Law Mane Easy
FORM AND INTERPRETATION
7

and conditions of the transaction, ona has to look else- 5.2.2 Stated installments
where to determine its negotiability. This is not as it should
be. An instrument payable by stated instalimen
ts, to re-
main negotiable, must contain the following:
{a) each in-
5. Sum certain in money stallment must be stated on the instrument
, and (b) the
maturity of each installment must be fixed; otherwise,
The principal arnount to be pai’ must be certain; and instrument the
becomes non-negotiable for non-comp
it must be payable in terms of money only as a general with the requisite that the instrument must liance
rule. be payable on
demand or at a fixed or determinable future time.
5.1 A sum is certain if the amount to be paid as 5.2.3 Stated installment with acceleration
stated on the face of the instrument is a fixed sum of clause
7.
money. . An acceleration clause is a Statement in
5.2 an instrument
However, there are certain stipulations which whereby it is agreed that in the event
when included in the of failure to pay a
instrument itself will not destroy the stated installment, the entire sum payable
certainty of the amount to be paid. Thus, Section 2 pro- beco mes due
, and demandable immediately. In other
words, the accel-
vides as follows: eration clause hastens the maturity of
the entire instru-
ment, This stipulation will not render the
SECTION 2. What constitutes certainty as to instrument non-
negetiabie.
sum.—The sum payable Is a sum certain within the
meaning of this act, although it Is to be paid.—. 5.2.4 With exchange
(a) With interest; or This contemplates of a situation where
the instr
ument
(b) By stated installments, with a provision that, is drawn in ene country and made payable
in another, The
upon default in payment of any installment or of Inter- fact that the sum payable is in a foreign curre
esi, the whole shall become due; or affect the negotlability of the instrument beca ncy will not
of exchange among the different currencies
use the rate
(c) With exchange, whether at a fixed rate or at can be easily
determined. The certainty of the Principal sum
the current rate; or . payable can
be arrived at by a simple mathematical computat
(d) With costs of collection or an attorney's fee, ion
In case payment shall not be made at maturity. 5.2.5 Costs and attorney’s fees
The stipulation with respect to the paym
5.2.1 With Interest ent of attor-
ney’s fees or costs of litigation will come into play
Even if payment of interest is Stipulated, it will not the maturity of the instrument when the amou only after
nt due re-
make the sum uncertain because by a simple mathemaiti- mains unpaid. Therefore, at that time, the
instrument is
cal computation the sum payable can be easily ascer- already overdue. So that, from the date of
the issue of the
tained. instrument up to the date of its maiurity, the
sum is certain.
The sum becomes uncertain only when the
instrument is
already overdue; when the instrument is
no longer nego-
 8 NEGoTIABLE INSTRUMENTS Law Mape Easy
tiable in:its full commercial sense. That is why this stipula-
tion will not impair the negotiability of the instrument.
5.3 Payable in money
The sum payable in an instrument must be made
payable only in money. It cannot be made payable in
goods, services or property. This is so because in business
money is the standard of value.
5.3.1. In some instances, the doing of an act in
addition to the payment of money will not destroy the
negotiable character of the instrument. Thus, Section
5 provides as follows:
SECTION 5. Additional provisions not affecting
negotlability—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 negoiiable 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 some-
thing to be done in lieu of payment of money.
But nothing in this section shall validate any pro-
, vision or stipulation otherwise illegal.
- Note that the law itself provides that an instrument
which contains an order or promise to do any act in addi-
tion to the payment of money is not negotiable. That is the
general rule. The exceptions are the following:
ForRM AND INTERPRETATION 9
5.3.2. Authorizes the sale of collateral secu-
rities
The act to be done in addition to the payment of
money is to sell the collateral securities. But this act of
selling will happen only if the instrument is not paid at ma-
turity. Hence, at the time the collateral securities are to be
sold, the instrument is_already.overdue. Clearly, therefore,
from the issue_of the instrument up-to the time of its matur-
ity,there_is. no-additional_aet-to-be-done_other-than the
payment of-money. The additional act wiil arise only after
the instrument is overdue when the instrument is no longer
negotiable In its full commercial sense.
a”
a 5.3.3 Confession of judgment
This is void as against public policy as it denies a per-
son of his day in court.®
5.3.4 Waiver of benefit
The waiver of any benefit granted by law, ¢.g. waiver
of notice of dishonor,’ will not affect the negotiabitity of the
instrument.
5.3.5 Gives the holder an election to require
some other act In lieu of money
If the instrument is payable in money or something
else (e.g, giving of property), but the option is given to the
holder, the instrument remains negotiable. This is so be-
cause the holder can still insist that the payment be made
_in money. However, if the instrument is. payable in money
and giving of property or rendition of services, the instru-
ment becomes non-negoliable. In this case, the holder has
( ® PNB vs, Manila Oil Refining & By-Products Co., 43 Phil. 444
1922).
Piaase see Sec, 109, NIL.
10 Necotiae_e INSTRUMENTS Law Mace Easy FORM AND INTERPRETATION 11

no choice as the instrument is not payable in money only Exampie:

but inclusive already of property or services. Hence, the
instrument is non-negotiable. ! promise to pay A or order the sum o
P1,000,00
6. Payable on demand
(Sgd.) B
SECTION 7. When payable on demand.—An in-
strument Is payable on demand— This is payable on demand because the note does
(a) Wherv-so it is expressed to be payable on not express a tiine for payment.
demand, or at sight, or on presentation; or
(b) In which no time for payment is expressed. 6.2.1 Suppose the note read as follows:

Where an instrument is issued, accepted, or in-

dorsed when overdue, it is, as regards the person so ! promise to pay A or order the sum of
issuing, accepting, or indorsing it, payable on demand. P1,000.00 on
(Data)
An instrument payable on demand is due and de-
mandable immediately from its issue. (Sgd.) B

6.1 Expressed to be payable on demand. The date of payment is left blank. Some authorities
consider this as still payable on demand. It appears, how-
Example: ever, that this is a case of an incomplete instrument and
may be governed by the provisions of Sactions 14, 15 or
I promise to pay A or order the sum of 16 of the Negotiable Instruments Law, depending on
P1,000.00 on demand. whether or not the Instrument has been delivered.
(Sgd.) B 6.3 Instrurnent is issued, accepted or Indorsed
when overdue.
Instead of the words “on demand”, the words “at
. Example:
sight” or “on presentation” may be used. Thus, the instru-
ment is payable at sight or payable on presentation, as the A executed bill of exchange in favor of B or order for
case may be. P1,000.00 payable on January 15, 2006, addressed to C
6.2 Notime for payment is expressed. as drawee. However, A delivered the bill to B only on
January 30, 2006, when the instrument was already over-
due. In this case, as regards A who issued the bill, the
instrument is payable on demand.
12 Necorias.e INSTRUMENTS Law Mave Easy Form AND INTERPRETATION 13

. 6.3.1 Suppose in the example above, B negoti- 7.1 Ata tixed period after date.
‘ated the bill to C; as regards B who indorsed the bill,
Example:
the Instrument is payable on demand.
6.3.2 Suppose, also, in the example above, D
(holder) presented the bill for acceptance to C, and C November 15, 2006
‘accepted; as regards C who accepted the bill, the in- | promise to pay A or order the sum of
strument is payable on demand. P 4,000.00 thirty (80) days after date:
7. Payable at a fixed or determinable future time. (Sa¢) 8
SECTION 4. Determinable future time; what
The note is dated November 15, 2006. It will mature
constitutes.-—An instrument is payable at a determin-
thirty (30) days from November 15, 2006. Hence, the note
able future time, within the meaning of this Act, which
is payable at a determinable future time, by a simple
is expressed to be payable— mathematical computation, on December 15, 2006.
(a) Ata fixed period after date or sight; or
(b) On or before a fixed or determinable future 7.2 Ata fixed period after sight.
time specified therein; or
This usually applies to a bill of exchange. “After sight” -
(c} On or at a fixed period after the occurrence of simply means after the drawee, to whom the bill is ad-
a specified event which is certain to happen, though dressed, shall have seen the bill when it is presented to
the time of happening be uncertain. him by the holder for acceptance.
An instrument payable upon a contingency is not
negotiable, and the happening of the event does not Exampie:
cure the defect.
November 15, 2006
The instrument may be made payable on a fixed date
or at some other future time provided the maturity of the Pay to A or order the sum of P1,000.00
instrument can be absolutely determined with certainty. thirty (30) days after sight.
Suppose the instrument is payable on April 30, is it (8gd) B
negotiable? No, because there is no year indicated and,
To: CG
therefore, it is not payable on a fixed date. In fact, in this
case, one cannot determine as to when the instrument
becomes payable. A, the payee (holder), presents the instrument for ac-
ceptance to C, drawee, on December 1, 2006, This is the
time C shall have’ seen the instrument and the thirty (30)
days will begin to run only on December 1, 2006. Hence,
14 NeGoTiABLe INSTRUMENTS Law Mabe Easy FORM AND INTERPRETATION; 15

the bill is payable at a determinable future time by a simple © thirty (30) days after the death of Pedro or earlier. Simi-
mathemathical computation, on December 31, 2006. larly, this will not affect the negotiability of the instrument.

7:3 On or before a fixed or determinable future 7.4.1 In the example given above, suppose the
time instrument is payable thirty (30) days before the death
of Pedro, is the promissory note negotiable? No, the
Example: note is not negotiable because the time for payment is
not certaln. Upon the death of Pedro, the instrument
Is already overdue.
| promise to pay A or order the sum of
P1,000.00 on or before November 15, 2006. 8. Payable to order
(Sgd) B. SECTION 8 When payable to order,—The in-
strument ts payable to order where it Is drawn payable
The instrument will mature and will become payable te the order of a specified person or to him or his or-
on November 75, 2006; although B, the maker (the person der. It may be drawn payable to the order of ~-
primarily liable), has the option to pay the note earlier. This
(a) A payee who is not maker, drawer, or
will not impair the negotiability of the instrument.
drawee; or
7.4 On or before the occurrence of a specified {b) The drawer or maker: or
event (c} The drawee; or
Example: (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.
| promise to pay A or order the sum of
P1,000.00 on or before thirty (30) days after the Where the instrument Is payable to order, the
-| death of Pedro. payee must be named or otherwise Indicated therein
with reasonable certainty.
(Sgd) B
8.1 One of the requisites of negotiability is that the
The instrument will become payable thirty (30) days instrument must be "payable to order’ or “payable to
after the death of Pedro, a determinable future time be- bearer’. These are the words of negotiability. If the instru-
cause Pedro will surely die someday, As far as A (the ment is not payable to “order” or “bearer” the instrument is
payee/holder) is concerned, he can demand payment of not negotiable.
the instrument only after thirty (80) days from the death of
Pedro. As far as B (the maker who is primarily liable) is
concerned; he has the option to either pay the instrument
16 Necotiasie InstauMents Law Mape Easy FORM AND INTERPRETATION 17

Example: 8.4 Two or more payees jointly

Example:
| promise to pay A the sum of P7,000.00
(Sgd) B | promise to pay to the order A and B the
sum of P71,000,00.
In thia oxamplo, the instrument does not contain the (Sgd) C
words of negotiability. The instrument is non-negotiable
because it is not payable to order or to bearer; it is payable _In case of indorsement, both A and B must indorse
to a specified person. the instrument to pass title, unless one has authority from
the other. .
82 An instrument payable to order is nagotiated by
endorsement completed by delivery. Hence, there must 8.6 One or some of several payees
always be a payee; otherwise, there will be nobody who i

will indorse the instrument. This is tha reason why the Example:
payee must be named cr otherwise indicated with reason-
able certainty.
| promise to pay to the order of A, B or C
8.3 Ordinarily, in an instrument payable to order, the the sum of P1,000.00
payee Is some person other than the maker, drawer or
drawee in the instrument. (Sgd) D
8.3.1 In a promissory note, it is unusual for a
maker to make himself the payee of the instrument. The indorsement of any of them (A or B or C) will suf-
Where the maker is the payee, he Is in effect making fice to pass title.
himself liable to himself on tha instrument. Thus, as it 8.6 Holder of an office tor the time being
is, the instrument produces no legal effect. This note,
maker as payee, will produce legal effects only orice Example:
the payee-maker indorses the instrument to another
person because such indorsement will then give rise
to rights and obligations of the parties under the in- | promise to pay to the order of the Com-
strument. , ; missioner of the Bureau of Customs the sum of
P1,000.00
6.3.2 In a bill of exchango whoro tho drawer is
the payee of the instrument, in effect the drawer is (Sgd) A
asking the drawee to pay him (drawer).
8.3.3 Ina bill of exchange where the drawee is Thus, whoever is the incumbent Commissioner of the
the payee, in effect the drawer is asking the drawee to Bureau of Customs at any given time is the payee of the
pay himself (drawee). instrument,
18 NEGOTIABLE INSTAUMENTS Law Mape Easy ForM AND INTERPRETATION 19

9. Payable to bearer. 9.1 Expressed to be so payable

SECTION 9, When payable to bearer.—The in-

Pay.to bearer the sum of P1,000,00
strument is payable te bearer—
(a) When it is expressed to be so payable; or (Sgd) X
(b) Wher it is payable to a person named therein To: ¥
or bearer; or
This bill of exchange is payable to bearer beacause it
(c) When it is payable to the order of a fictitious
is expressly stated to be payable to bearer.
or non-existing person, and such fact was known to
the person making it so payable; or 9.2 Payable to a person or bearer
(d) When the name of the payee does net pur:
port to be the name of any person; or
Pay to Maria Sta. Maria or bearer the sum
(e) When the only or last indorsement is an en- of P1,000.00
dorsement in blank.
(Sgd} x
An instrument payable to bearer is negotiated by To: ¥
mere delivery. There is no need to indorse the instrument.
Whoever is in possession of the instrument is the bearer The instrument is payable to bearer because It is
thereof; hence, he is the holder of the instrument and the payable to a person named therein (Maria. Sta. Maria) or to
same is payable to him. The bearer (holder) can negotiate whoever is in possession or holder of the bill, the bearer
the instrument to another by merely delivering the posses- thereof.
sion of the instrument to the latter. The warranties of a 9.2.1 However, in the example given, if the
person who negotiates by delivery extends only to his im- word “bearer” precedes the name of the person speci-
mediate transferee. fied In the bill, the instrument becomes non-
negotiable.
Example:

In an instrument payable to bearer, A negotiated by Pay to bearer Maria Sta. Maria the sum of
mere delivery to B; B to C; C to D; D to E, holder, all by P1,000.00
delivery also.
In this illustration, E (holder) can only go against D. E
(Sgd) x
1 TOY
cannot go against C because the warranties of C extends
only to his immediate transferee D; the warranties of C do _The bill in this case is no longer negotiable because
not extend up to E. the instrument is not payable to bearer but aiready payable
to a specified person.
 FORM AND INTERPRETATION

adele:
20 NEGOTIABLE INSTRUMENTS LAW Mave Easy 21

ee erie
9.3 Payable toa fictitious person To say in this case that the negotiability of the in-
strument is dependent upon the intention of the maker is to
The determinative factor is that the maker or drawer be ludicrous.
making or drawing the instrument knew that the payee
placed thereon Is a fictitious person. 9.4 Payee does not purport to be the same of

mee eee
any person
Example:
Examplo:
{1
| promise to pay Juan dela Cruz the sum
of P1,000.00 Pay to CASH the sum of P1,000.00
(Sgd) Pedro San Pedro (Sgd) X
To: ¥
Is this note payable to order or to bearer? The answer
is: it dapends on the intention of the maker. If the maker This bil! of exchange is payable to bearer because
intended that the instrument be paid to Juan dela Cruz, the “CASH" does not appear to be the name of any person,
symbol of the Filipino race, a fictitious person, the note is
payable to bearer. Although the words of negotiability 9.5 Only or last indorsernent is a blank indorse-
(payable to “order” or “bearer”} are not written on the in- ment
strument, the note in this case is negotiable. But if the
Indorsements are usually made at the back of the in-
maker intended the note to ba made payable to the real
strument. lf the holder of the instrument, be he the payee,
person named Juan dela Cruz who is president of the Ro-
or tha indorsee, just signs his name without indicating to
tary Club of Diliman, the instrument is not payable to
bearer because it is not payable to a fictitious person. It is whom the Instrument is transferred, that is a blank in-
dorsement. If the instrument is originally payable to order,
not even payable to order because the instrument is pay-
able to a specified person, In this case, the note is non-
the blank indorsement converts the instrument to one pay-
able to bearer. In other words, the order instrument be-
negotiable.
comes a bearer instrument by virtue of the blank Indorse-
However, if it can easily be deduced that the payee ment.
named in the instrument Is clearly fictitious, the instrument
is payable to bearer. Example:

Example:
! promise to pay to the order of B the sum
of P1,000.00
| promise to pay Batman the sum of (Sgd) A
P1,000.00
(Sgc) Pedro San Pedro
22 NeaotiasLe INsrRUMENTS Law Mape Easy Foam ANO INTERPRETATION 23

‘This is a promissory note payable to order. The payable to order. But if the last indorsement is a blank
payee-holder of the note then indorses the same at the indorsement, the instrument is payable to bearer.
back of the instrument as follows:
10. Drawee must be named with certainty.

(Sgd) B This requisite has reference only to a bill of exchange.

The drawee is the person to whom the bill is addressed for
acceptance. If upon presentment for acceptance, the
This is a blank indorsement because B just signed his
drawee accepts, the latter is now known as the acceptor
name without naming the person to wiiom he is indorsing
who becomes primarily liable on the instrument. If the
the note. Under this rule, the note payable to order be- drawee refuses to accept the instrument, the said instru-
comes a note payable to bearer and can, henceforth, be ment is deemed dishonored;-and proceedings on dishonor
negotiated by rnere delivery. must be undertaken; otherwise, parties secondarily liable
9.5.1 Suppose after the blank indorsement on the instrument will be discharged from liability.
made by B, the latter gave the note to C. In this case,
C can now negotiate the same note to D by mere de- SECTION 6. Omission; seal; particular money.—
livery. However, let us suppose that C instead of ne- ' The validity and negotiable character of an instrument
gotiating the note by mere delivery, negotiated the are not affected by the fact that—
note to D by special indorsement completed by deliv- (a) tis not dated; or
ery, as follows: (b) Does not specify the value given, or that any
value had bee: given therefore; or
Pay to D
(¢) Does not specify the place where It is drawn
(Sgd) © or the place where it is payable; or
(d) Bears a seal; or
In this case, the note which was payable to bearer
because of the blank indorsement, once again becomes a (e) Designates a particular kind of current
money in which payment is to be made.
note payable to order because of the special indorsement.
But nothing In this section shal alter or repeal
9.5.2 After the note is indorsed to D in the - any statute requiring in certain cases the nature of the
manner shown in the above example, suppose D now consideration to be stated in the instrument.
negotiated the instrument thru a blank indorsement to
E, the note once more becomes an instrument pay-
able to bearer. This is so because the last indorse-
ment is an indorsement in blank.
9.5.3 In cases of this nature, what is important
to consider is the last indorsement. If the last in-
dorsement is a special indorsement, the instrument is
24 NeGorTiASLe INSTRUMENTS Law Mane Easy FORM AND INTERPRETATION 25

1. Anegotiabie promissory note reads as follows: any terms are sufficient which clearly Indicate an in-
tention to conform to the requirements hereof.
$100.00 ~~‘ Manila, Philippines 1. The exact words of the law need not be used so
April 23, 2006 long as the words used clearly indicate an intention to
adhere to the raquirements of the law. Henco, instead of “|
For value received, | promise to pay to the
promise to pay”, the words “I agree to pay’ may be used.

setish Sas
order of Juan San Juan the sum of $100.00 at
Instead of “Pay to bearer’, the words “Pay to the holder’
.RCBC Bank, Ayala Branch, Makati City.
may be used. So long as the requisites of negotiability are
(Sgd) Pablo San Pablo present, the instrument will remain negotiable.

a) Even if the date “April 23, 2006” is not written SECTION 11. Date, presumptionas to.—Where
the instrument or an acceptance or any indorsement
on the instrument, the note will remain nego-
' thereon Is dated, such date Is deemed prima facie to
tiable.
be the true date of the making, drawing, acceptance, or
b) Even if the words “For value received” is not indorsement, as the case may be.
found on the instrument, the note would still
be negotiable. This is so because considera- 1. This provision contemplates of three situations,
tion is presumed. thus: (a) The instrument is dated. Such date is deemed to
‘c) So, also, even if he phrase “at RCBC Bank, be the true date of the making {in the case of a promissory
Ayala Branch, Makati City", the place where note) or drawing (in the case of a bill of exchange) of the
the note is payable, is not written thereon, instrument; (b)The acceptance of the bill of exchange by
the instrument is not rendered non-| the drawee is dated. Such date is deemed to be the true
negotiable thereby. date of acceptance of the instrument; and (c) The in-
d) Even if the instrument bears a seal, the note ’ dorsement of the instrument is dated. Such date is deemed
-is. still negotiable as the seal is a mere for- to be the true date of the indorsement of the instrument.
maility. 2. Since they are merely prima facie evidence ofthe
e} Evon if payment is designated to be paid in true dates of the making, drawing, acceptance or indorse-
dollars (i.e., $100.00), that fact alone will not ment of the instrument, such dates may be overturned by
convincing-evidence to the contrary.
affect the negotiability of the instrument. The
instrument will be paid in legal tender. SECTION 12. Ante-dated and post-dated.—The
2. However, a law may require a certain value to be
instrument Is not Invalid for the reason only that it is
ante-dated or post-dated, provided this is not done for
given by way of consideration for the instrument. There
an illegal or fraudulent purpose. The person to whom
appears
to be no law.in our jurisdiction
in this regard.
an Instrument so dated Is delivered acquires the title
SECTION 10. Terms, when sufficient—The in- thereto as of the date of delivery.
strument need not follow the language of this Act, but
 26 Necotiasie INSTAUMENTS Law MADE Easy FORM AND INTERPRETATION 27

“1. Ante-dating occurs when a date earlier than the becomes Important for purposes of determining the
matur-
date’ of Issuance Is place on the instrument. On the other ity of the instrument. This is especially true in
instruments
hand, posi-dating occurs when a date later than the date of payable ata fixéd period after dato and issued undate
d, or
Issuance is placed on the instrument. in instruments payable at a fixed period after sight
and
2. Post dating or ante-dating an instrument will not accepted undated. In both instances, the maturity
of the
affect its validity provided it is not done for an illegal or instrument cannot be determined without knowing the
true
fraudulent purpose. Hence, ante-dating an instrument for date of issue or acceptance of the instrument concerned.
tho purpose of evading the provisions of a Usury Law will 3. Whon an instrument payable at a tixed peticd af-
invalidate the instrument because it is done for a fraudu- ter date is issued undated, the holder of such instrument is
ient purpose. . authorized by law to place the true date of issue of the said
instrument to fix its maturity.
3. When an ante-dated or post-dated instrument is
delivered to a person, the latter acqulres the title to the 3.1 Example:
instrument as of the date of its delivery, regardless of the
date appearing on the instrument.
SECTION 15. When date may be inserted.— (no date)
Where an instrument expressed to be payable at a I_prcmise to pay Maria or order the sum of
fixed period after date is issued undated, or where the P1,000.00 thirty (80) days atter date.
acceptance of an instrument payable at a fixed period
after sight is undated, any holder may insert therein {Sgd) Jose
the true date of issue or acceptance, and the Instru-
ment shall be payable accordingly. The Insertion of a This Is a promissory note payable thirty (80) days
af-
wrong date does not avoid the instrument in the hands ter date but the instrument is issued undated. If the
date of
of a ‘subsequent holder in due course: but as to him, the delivery of the instrument to Jose is September
1,
ihe date so inserted is to be regarded as the true date. 2006, Jose must insert the date “September 1,
2006" on
the instrument which is the true date of the issuance
of the
1. The date is not important for purposes of the ne- promissory note; and the instrument ‘will be paid accord
-
gotiability of the instrument. ingly on the date of its maturity on October 1, 2006.
2. But the date of issue of the instrument may be- 4, When an instrument payable at a fixed period af-
come material for purposes of determining whether or not ter sight is accepted without date, the holder of such
the holder acted with reasonable diligence. In a promissory in-
Strument is authorized by law to insert the true date of
note, the instrument must be prescrred for payment within acceptance of said instrument to fix its maturity.
a reasonable time after its issue. In a bill of exchange, the
instrument must _be presented for payment within a rea-
sonable time after its last negotiation. Otherwise, in both
instances, persons secondarily liable on the instrument will
be discharged from liability. However, at times the date
28 Necortias.e instauments Law Mane Easy
4.1 Example:
September 1, 2006
Pay to the order of Maria the sum of
P1,000.00 thirty (30) days after sight.
(Sgd) Joso
To: Jesus
This is a bill of exchange payable thirty (30) days after
sight. Let us suppose that Jose presented the instrument
for acceptance to Jesus only on September 9, 2006, and
Jesus accepted but did not place the date of his accep-
tance. In this case, Jose must insert the date "September
9, 2006” which is the true date of the acceptance by the
drawee of the bill of exchange; and the instrument will be
paid accordingly on the date of its maturity on October 9,
2006.
4.2 However, suppose Jose presented the in-
strument for acceptance to Jesus on Sepiamber 9,
2006, as illustraied above, but Jesus delayed the ac-
ceptance and manifested his acceptance of the bill
only on September 11, 2006, what is the true date of
’ acceptance in this case? The answer is September 9,
2006 because Jose can insist that the acceptance be
the date when it was first presented and seen by the
drawee Jesus.
5. What is the rule in the case of an undated instru-
ment (where the date is material to determine its maturity)
and the holder wrote the wrong date thereon?
5.1. Section 13 merely states that “(t)he inser-
tion of a wrong date does not avoid the instrument in
the hancls of a holder in due course.” Hence, the clear
inference therefore is that in the hands of a holder
who is not 4 holder in due course, the instrument is
FORM AND INTERPRETATION 29
avoided, That being the case, such holder cannot run
after the maker or drawer of the instrument. :
5.2 However, if the instrument where a wrong
date was inserted is already in the hands of a holder
in due course, then that instrument remains valid; and
insofar as such holder in due course /s concerned, the
wrong date shall be deemed to be the true date.
SECTION 14. Blanks; when may be filled.—
Where the Instrument is wanting in any materlat par-
ticular, 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 d.
the person making the signature in order that the pa-
per 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 In-
strument 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 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 au-
thority given and within a reasonable time.
1. In the execution of negotiable instruments, the
two (2) steps involved are as follows: Firstly, the mechani-
cal writing of the instrument completely In accordance with
the requisites of negotiability under Section 1, NIL: and
Secondly, the delivery of the instrument by the maker or
drawer to the payee in order to give legal effect thereto.
2. It is the duty of the maker or drawer to issue a
complete instrument. If the maker or drawer is remiss in
this duty, and the instrument is lacking in any material
particular, the hald
theerof
instrument tias the prima facie
30 _ Negoriaste Instruments Law Made Easy FORM AND INTERPRETATION 31

P#0,000.00. However, B placed the amount

y the instrument in accordance with the
to complete
authorit of
authority gi nd withi able tims. P4100,000.00 and negotiated the instrument to C.

2.1 A particular is material if it is essential to QUESTION: Can C go against A?

complete the instrument. Thus, the name of'the payee
or the amount, if left blank, may be filled in by. the
holder.
2.2 What Is a reasonable time is dependent
upon the circumstances of each case. In determining
what is 4 “reasonable time”, regard is to be had to the
ure of the instrument, the usage of trade or busi-
ness WT fespect to such instruments, and the facts
of the particuiar case.”
——_..
3.2.1 Yes, if C is a holder in due course,
because the instrument is valid and effectual for
all purposes in his hands, and he may enforce
the promissory note as if it had been filled up
strictly in accordance with the authority given and
withir’ a reasonable time. Therefore, C can go.
against A for P190,000.00. A and C are both in-
nocent parties; but as between two innocent par-
ties, the party who made possibie the commis-
sion of the wrong shall bear the loss.

3. Rules as to incomplete but delivered instru-

ments 3.2.2 No, if C is not a holder in due
course, because to hold A liable it must be
To hold a person whe became a party to the instru- shown thai the promissory note was filled up.
ment prior to its completion liable thereon to one who is not strictly in accordance with the authority given and
a holder in due course, the following requisites must con- within a reasonable time. in this case, the in-
cur: {a} the incomplete but delivered instrument must have strument was not iilied up in accordance with the
been filled up strictly in_ accordance with the authority authority given. Therefore, the promissory note is
given; and (b) the completion of the instrument must have not valid and effectual in the hands of C. Hence,
made
_within a reasonable time after its issue. C cannot go against A.
3.1 However, if the instrument after its comple- 4, Signature on a blank paper
tion is in the hands of a holder in due course, “it is
valid and effectual for all purposes in his hands, and A signature on a blank paper may be converted into a
he.may entorce (the instrument) as if it had been filled negotiable instrument only if the person who affixed such
up strictly in accordance with the authority given and
within a reasonable.” the prima facie authority to fill it up for any amount. How-
ever, if the ferson who signed a blank paper has no inten-
3.2 Example:
tion of converting the same into a negotiable instrument
FACTS: <A issued a promissory note in fa- (e.g. only for autograph purposes), the person in posses-
vor of B or order payable on December 10, 2006 sion theraof _has-no-auth whatsoever
arity
to. convert the
and left the amount blank but with the specific in- signature-onthe_bl
into a negotiable
ank-pa instrument
par
struction given to place an amount not exceeding for any amount. Even if.instru
such ment
is in the hands of

* Section 193, NIL.

32 NEGOTIABLE INSTRUMENTS Law Mave Easy FORM AND INTERPRETATION 33

™
a hdfder in due course, the latter cannot make’the signa- 1. No rights can arise in respect of any instrument
tory liable thereon. under the Negotiable instruments Law until it is delivered.®
What is of deci in-
5. An incomplete but delivered instrument can be strument. The delivery of the instrument is the final act
put up_as a défénse only against’a parson who isnot a essential to its consummation as an obligation. An unde-
holderin_duacourse, As such, therefore, it is onlya per- livered bill or, nete is inoperative. Until delivary, the contract
sonal defense, is revocable.®
5.1 However, the halder not in due course can 1.1. In simpie parlance, delivery gives |life to the
go against |parties subsequent to_the completion but instrument, Without deliv
aot a in- . $0 tospeak.
strument.
incomplete and undelivered instrument is a
6. An incomplete but delivered instrument cannot be agai . It can be put_u nse even as
- 7
put up as a defense against a person who is a holder in gainst a holder whois a holde in due course.
r This is so

Pn eet ne.
due course. A personal defense cannot prevent a holder in
due course from enforcing the instrument.
6.1 Consequently, therefore, the holder in due
course can go against ail parties to the instrument re-
gardiess of whether they are parties prior to or subse-
quent to the completion of the instrument. _
SECTION 15. Incomplete instrument not deliv-
ered.—Where an incomplete instrument has not been
delivered, It wilt completed and negotiated with-
out authority, be-a’valid contract in the hands of any
holder,.as against any person whose signature was
placed thereon before delivery.
This section involves an instrument which is incom-
plete and undelivered, This Is a case where the two steps
in the execution of a negotiable instrument were not com-
plied with: i.e., (1) the mechanical writing, of the instrument
completely; anc (2) the delivery of the instrument. Conse-
quently, an incomplete and undelivered instrument has no
legal effect.
Reports 182, 186 (1921).
bécalisé_an_incomplat trument, if com-
pleted and
ar negotiated without-authorty,is nota valid con-
traétin the hands of any holder as against a person who
signed the instrument prior to its delivery. Note that the law .
says “any holder’. The law did not distinguish between a
holder in due course and a holder who is not a holder in
due course. Therefore, it includes both. As against a per-
son whose signature was placed on the instrument prior to
its delivery, he cannot be held liable on the Instrument by
the holder even if the holder is a holder in cua course.
2.1 However, as against persons whose signa-
tures are placed on the instrument after its delivery,
they can be held liable thereon by the holder who isa
holder in due course.
2.2 Example:
A executed a promissory in favor of B or order but left
the amount blank and kept the instrument in his desk
5 George A. Kauffman vs. The Philippine National Bank, 42 Phil.
* People ve, Yabut, 76 SCRA 624 (1 977).
 34 NeGorTiasLe INSTRUMENTS Law Maor Easy FORM AND INTERPRETATION 35
{

drawer. B stole the note, entered the sum of P10,000.00, This section deals with an instrument that is complete
and negotiated the instrurnent to C; C to D; D to E, holder. but undelivered. As adverted to earlier, there ara two acts
In the example given above, E cannot go against A, involved in the making of a negotiable Instrument. In this
section, the first act of the mechanical writing of the in-
even if E is a holder in due course because the law says
strument completely was accomplished. However, the
that the instrument is not a valid contract in the hands of second act of delivery was not accomplished. Because
any holder as against A whose signature was placed
there was no delivery, the maker or drawer therefore did
thereon prior to its delivery. not intend to give legal effect to ue instrument. For as long
However, E can go against B (the wrong deer who as the instrument rémains un instrument is
must answer for the consequences of his act), and C & D, ineffectual, and it may be revoked at will by the maker or
whose signatures were placed on the instrument after its the drawer, as the case may be.
delivery, because as general indorsers they warrant that
1. Delivery by the maker ordrawer to the payee who
the instrument is valid and subsisting’ and, as such, there-
takes the instrumen as holder thereot is * the determinative
fore they are estopped to deny the validity of the instru-
ment,
SECTION 16. Delivery; when effectual; when
presumed, Sony contract on_a negotiable instrument transfering -aim=tiéreto, the payee soquires_no_ righ on
is incomplete and_revocable until delivery
of the In- the instrument.
Strument for the-purpose_of giving-sffect-thereto, As 2. Delivery to be effectual must be made by or under
between immediate paI rt s d sS_aremote
as regar
andie the authority of the person making, drawing, accepting or
party other than.a holder to duecourse. the delivery, in indorsing the instrument. .
to bet_b
order mus e-made-cither-b
effectual, or-uny
der 2.1 Delivery, although instructed by the princi-
the auth making, drawing, accepting, pal, is not sufficient through an agent until the agent
or _Indersing, as the case may be: and, in_such case, actually delivers the instrument to the payee for whom
the delivery may be shown to have heen canditional, it is intended.
or for a special purpose only, and not tor the purpose 2.2 Mailing a negotiable insirument to the
of _transferring the property_in_the Instrument. But payee is sufficient delivery to give legal effect thereto,
where the instru
coursae,
valid deliver: all le 3. Ordinarily, the delivery of the instrument implies
fim so as to make them liable vay the transfer of ownership of such instrument from one per-
where ed,
presum .An
the instrume nt is no d
longer in son to anothsr. However, it may be shown that immediate
the possession of apary-whose_signatur e
appears parties intended the delivery for a purpose other than the
thereon, a valid and intentional delivery by him is pre- transfer of ownership over the instrument. For example,
sumed until he contrary is proved. the delivery of the instrument is only for purposes of collec-
tion; hence, the transferee is merely instituted as agent of
the holder of the instrument. In this case, there is no trans-
fer of ownership over the instrument,
? Section 66, NIL.
36 . NeaotiasLe INSTAUMENTS Law Mace Easy FORM AND INTERPRETATION 37

“4. ‘Once an instrument is no longer in the posses- SECTION 17. Construction

where Instrument is
sion of a party whose signature appears thereon, the prima ambiguous.—Where the language of the-Inetrument is
facie presumption is to the effect that the delivery of the ambigaus_or thore-ate-omissione therein; the follow-
said instrument to the holder thereof is valid and inten- ing SD Whee ee aPPly
tional. However, if the said holder is a holder In due (a) Where the sum In
course, the valid and intentional delivery of the instrument words y
is conclusively presumed. between the two, the sum denoted by the words ig the
4.1 Example: A executed a complete promis- sum payal
sory note and kep? the same in his desk drawer. 8 : talii,
7 ret feference. may be-had-te-the figures to fix the
stole the note and negotiated the instrument to C,
‘
amount;
he
- holder. (b) Where the instrument provides for the pay-
ment of Inter: tho ut_specif the date
yin from
g
4.1.1. Since the note is no longer in the which inteIs rest
to run, the Interestruns fron: the date
possession of A who signed the instrument, a of the instrument, and If the Instrument [s undated,
prima facie presumption of delivery arises in fa- from the issue thereof;
vor of C, the holder. inasmuch as the presump-
tion is only prima facie in nature, proof to the (c) Whereinthe struis notme
dated,i
nt t-will-be
dated as of the time it was issued:.
contrary may be presented by A that there was
no delivery of the instrument to B and that the (d) Where there is a conti en
latter stole the same. If proven in this case, the and printed prstialana of the-Ineleurment,the-witen
presumption is destroyed and C cannot go provisions preva
against A, unless C can prove that he is a holder (e) Where the instrument is so ambiguous that
in due course. there is doub ; Ider
4.1.2 If © can show that he acquired the may treat It as elther at his election;
instrument under the following circumstances, he (f) Where a signature is so ptaced upon the in-
will be deemed to be a holder in course: com- strument thatit ish he-per-
plete and regular upon its face; before it was son mekin ic
overdue; for value and in good faith; and with no deemed _an-Inderser;
notice of any defect of title or equities between
the parties.® As such holder in due course, the (9) Where_an Instrument containing the word “t
promise to pay” is signed by two or more pareens,
valid and intentional delivery of the instrument by
A to B is conclusively presumed; hence, A can- they are deemed to be jointly and—severallyHable
thereon.
not be allowed to prove the contrary. In this case
C can go against A. 1, Rules of construction of ambiguous language in
the instrument:
a) As between the sum payable which is ex-
® Section 52, NIL. pressed in words and that expressed in fig-
38 NeGoriaBLe INSTRUMENTS Law Mace Easy FORM AND INTERPRETATION 39

ures, the one expressed in words shall pre- f) In case a party to the instrument signed the
vail. However, if the one expressed in words instrument in such a way that it cannot be
are uncertain, reference may be made to the determined whether he did so as a maker,
figures to fix the amount of the sum payable. drawer, acceptor or indorser, then he will be
considered to have signed the instrument as
b) In the event the instrument provides for the an indorser.
payment of interest but the instrument does
not etate the date when the interest shall - 9) If an instrument containing the phrase ‘I
commence to run, then the interest shall be- promise to pay” is signed by two or more
gin to run from the date of the instrument; but parties thereto, all of them are solidarily li-
if the instrument does not bear a date, the in- able thereon.®
terest shall begin to run from the date of the
~However, if the promissory note is in the plural form
issue of the instrument.
and contains the phrase “We promise to pay,” the parties
c) When the instrument is undated, it will be are only liable jointly.
dated as of the day the instrument is issued.
d) As between written and printed provisions, SECTION 18. Liability of person signing in trade
the written provisions shall prevail. or assumed name.—No person Is Ilable on the instru-
ment whose 3 si
e) Where the instrument itself is so ambiguous
cept a@
as
herein oth ut one
that it cannot be determined with certainty
whether it is a promissory note or a bill of ex-
who signs in » trade or assumed name will be ijlable to
the same extent as if he had signed in his own name.
change, the holder may treat it as either at
his option. 1. General Rule:
Example: No person can he held liable on the instrument if his
signature does not aposartherson.
| promise to pay Pablo Pablo or order the 1.1 Thus, the drawee is not liable—on the_in-
sum of P1,000.00. strument unless-he-accepts-the-same., However, once
(Sqd) Jose Jose the drawee accepts the instrument, he heromes the
To: Antonio Antonio acceptor and,—as—such, the—persen—primaritytable
the
1ereon,'

_The instrument appears to be a promissory nete be-

cause of the use of the phrase “! promise to pay”; but at
the same time, the instrument appears also to be a bill of
exchange because of the presence of a drawee. In this
case, the holder may treat the instrument either as a prom- * Parot vs. Gemora, 7 Phil. 94; Planters Bank vs. CA, 216 SCRA
issory note or a bill of exchange, at his option. 738 (1992).
* Ibid.
40 Necoriaste INsTRuMENTS Law Mane Easy FORM AND INTERPRETATION 41

2. Exceptions: SECTION 21. Signature by procuratlon; effect

of.—A signature by “procuration” operates as notice
a A _ person who signs. In an_assumed name or that the agent has but a limited authority to sign, and
trade name, the principal is bound only in case the agent In so
b. The signature of a party made by a duly au- signing acted within the actuai limits of his authority.
theorized agent. "
ce. The tforger, in ca ses_at forgery, who forges 1. If a person authorizes another to sign an instru-
{Ho Signa of another person. ment for and in his own behalf, that Is good as Hf he signed
the instrument personally.
d. Under Section 134, NIL, in acceptance by a
2. The authority of the agent may be given ‘oral
separate jastrument.
or in writing as no form of appointment is required by law
e. Under Section 135, NIL, invelving an uncon except only in cases covered by the statute of frauds,
ditional promise in writing to-accepte-bill be- 3. Requisites to negative personal liability of agent:
tors itis drawn, _.. ;
f. The holder_who© negotiates. .an—inetrunrent a) He must be duly authorized; ~ 4
payable to bearer by mere deliveryIsliable b) He must act within the scope of his authority; “c
thereon.”_ c) He must indicate in the instrument that he is
sinning merely as agent; and <
SECTION 19. Signature by agent; authority; how
shown.—The signature of any party may be made by a d) He must disclose his principal. ~
duly authorized agent. No particular form of appoint- All the above requisites must concur; otherwiss, the
ment is necessary for this purpese; and the authority agent can be held personally liable on the instrument.
of the agent may be established as in other cases of
agency. 4. Signature by procuration. This may also be
indicated by the abbreviation “Per proc", or the initials
SECTION 20. Liability of person signing as “P.P.”, or “Pp.”

agent, and so forth.—Where the instrument contains
or a person adds to his signature words indicating that
he signs for or on behalf of a principal or In a repre-
sentative capacity, he is 16t liable on the instrument if
he was duly, authorized; buut_the—mere—ackiition—of
words-describing hinras-as-agent, or as-filling 9 repre-
sentative character, without disclosing his
does not exempt him from persona! liability.
"t Section 19, NIL.
"2 Section 23, NIL.
*8 Section 65, NIL,
A signature per procuration is a notice that the agent
has limited authority, and the principal is bound on the
instrument only if the agent signed within the limits of his
authority. Hence, anybody dealing with an agent per proc
does so at his own peril.
principal, SECTION 22. Effect of indorsement by infant or
corporation.—vhe indorsement or assignment of the
instrument by a corporation or by infant passes the
property therein, notwithstanding that from want of
capacity, the corporation or infant may Incur no liabll-
ity thereon.
 Neaotiaste INsTAUMENTS Law Mave Easy
ForM ANC INTERPRETATION 43
42

1. AS a general rule, a minor does not have the ca- force payment thereof against any party thereto, can
pacity to contract; and any contract entered into by him is ‘ be acquired through or under such signature, unless
considered voidable. Hence, the miner cannot be held the party against whom It is sought to enforce such
liable. right is precluded from setting up the forgery-or want
of authority.
2. A corporation can only perform acts which are
within the scope of its powers; otherwise, ail acts done Section 23 applies only to forged signatures or signa-
outside of its powers are considered ultra vires and can be tures made without authorily, and] It does
avoided. Hence, the corporation cannot be held tiable. hot apply to altered amounts or other matters that alter the
3. Nonetheless, indorsement of an instrument by a effect of the instrument; in which case, Section 124 on
minor or a corporation acting ultra vires, passes title material alteration will govern.
thereon and the indorsee acquires ownership over such 1. Section 23 above states the general rule, the ef-
instrument as holder, such that he can enforce payment fect of forgery and the exception to the rule, thus:
thereon against all prior parties.
a) The general rule is that the forged signature
4, Example: or signatt lly
moperative; although the instrument itself
A, maker, executed a promissory note payable to the
remains to be i
order of B, payee, who is a minor. B indorses the note to
C; C to D, holder. : b) The orrect Samat no fight to setae the in-
strument, or to give a discharge therefore, or
Although B is a minor, his indorsement passes titie
therato, can be acquired” through or Under
to enforce payment thereof against any party
over the note to C; and © can negotiate the instrument to
D, as holder. D can not enforce payment against 8, minor.
who cannot be held liable on the note as the instrument is
voidable at his instance or at the instance of his guardian.
D can go against A (maker)'* and C (indorser)"® because c) The exception to the rule is when the party
they cannot put up the minority of B as a defense due to against whom itis. sought to enforce-such in-
their warranties, i.e., the existence of the payee and his strument
precluded
is from setting up the
then capacity to indorsee; that the instrument is valid and forgeryor want of authority.
subsisting, respectively. 2. The following are precluded from setting up the
defense of forgery:
SECTION 23. Forged signature; effect of.—
When a signature is forged or made without the au- a} The indorsers
instruments-payable_to_or-
of
thority of the person whose signature it purports to be,
it Is wholly inoperative, and no right to retain the in-
strument, or to give a discharge therefore, or to en- Example:
A maker executed a promissory note payable io the
“ Section 60, NIL. order of B, payee. B fost the note. X found It, signed the
% Section 66, NIL.
 44 NeGoTiABLe INSTRUMENTS Law Mave Easy FoRM AND INTERPRETATION 45

name of B and negotiated the instrument to C; C to D; B to

E, holder, © A (maker)
E against
can go DC and X (torger). They are pra- (above cut-off) |
cluded from putting up the defense: of forgery because as
general indorsers they warrant that the instrument is genu- B (payee; lost the note)
ing and in all respects what it purparis-to-be and that the
inetrument i valid and subsisting.'* X is deemed to have
signed in an assumed name and, therefore, has the same ————————— CUT-OFF
warranties as a general incorser. (forger) X Le,
However, E cannot go against B because B neither C (Iindorser)
signed the instrument, nor authorized X to sign for him.”
(belew cut-off) {
So, also, E cannot go against A, maker, because the
forged signature of B is wholly inoperative and did not
validly transfer title over the instrument to C. Thus, insofar D (indorser)
as A ls concerned, what © acquired are only the rights of a
forger which was transferred to D and thence to E, holder. |
Therefore, E has no right to retain the instrument or to E (holder)
enforce payment thereof as against A.
N.B. In cases of this nature, the cut-off formula may The cut-off is at the point where the forgery occurred.
be used to determine the: liabilities of parties to the holder All those above the cut-off cannot be held liable by the
of the instrument. Consider the example given above: holder. All those beiow the cut-off are liable to the holder.
b) The forgery of the indorsement of a party in
an instrument payable to bearer because
such forged indorsement is not necessary to
the titla of the holder since bearer instru-
ments can be negotiated by mere deliver.
c) The accepter in a bill of exchange.

Example:

X (forget) executed a bill of exchange by signing the

name of Y as drawer, making himself (X) as payee of the
instrument and addressed the bill to Z as drawea. Then X
(forger-payee) negotiates the bill to A who presents the
instrument to Z for acceptance. Z accepts and signs the bill
17 ettion 66, NIL.
18 as acceptor.
” Sections 18& 19, NIL.
 46 NEGOTIABLE INSTRUMENTS Law Mave Easy
fél FORM AND INTERPRETATION
47

‘Questions:
=
Can Z later refuse to pay the bill by put- What are the sights and liabilities of
ting ‘up the defense of forgery of the signature of i the parties in this
the case?
drawer?
The answer is No, Z is precluded from putting up the a) RCBC Bank cannot charge the account of
defense of forgery. As acceptor, Z warrants the genuiness drawer A, ‘ '
of the signature of the crawer.'® RCBC as depository bank has the contr
actual obliga-
tion to A as depositor to pay only the pers
d} The forger. (Please sea example in 2(a) on designated by
the drawer as payee or his order and no
hereof.) other.
e) Those under estoppel by their declaration, b) Since A suffered’ no damage inasmuch
as
act or omission. RCBC Bank cannot charge the drawer's
ac-
count, A is still liable to B for the form
ers
Example: outstanding obligation.
c) PCIBank, as collecting bank, is liable
X (forger) executed a promissory note by signing the as in-
name of Y as maker, making himself (X) as payee of the dorser to RCBC Bank. PCIBank shall bear
the loss. lis only remedy is to go against
instrument. Then X (forger-payes) negotiates the note
to A; the
' forger. .
but before accepting the note, A asks Y if everything
is in
order with the note to which Y says: “Yes, That's ;OK! In “- As succinctly held by the Supreme
this case, Y is precluded from putting up the defens Court in Great
e of Eastern Life Insurance Co. vs. Hong
forgery because by his declaration, he is estopped kong & Shanghai
from Bank.
denying the validity of the instrument.
“Where a check is drawn payable to the
3. Forgery of a check or-
where payee’s signature is der of one person and is presented to
forged. a bank by
another and purports upon its face to
have duly
endorsed by the payee of the check, it is
Example: the duty
of the bank to know that the check was
duly en-
dorsed by the original payee, and wher
A (drawer) signed a check payable to B (payee), e the
drawn against RCBC Banik, bank pays the amount of the check ta a
ae drawsee bank. C fraudu- third
lently obtainéd said check and person, who has forged the signature of
forged the signature of B as payee
the
indorser to himself (C, forger). , the loss falls upon the bank who cash
Then C personally signs the ed
check and deposits the check the check, and its only remedy is again
to his account at PCIBank.. st the
Then PCIBank indorsed the check to -RCBC person to whom it paid the money."
Bank which
paid the amount and consequentiy charged the account
of d) A, drawer, cannot go against PCIBank
A, drawer. be-
cause there is no privity of contract betw
een
them.
"8 Section 62, NIL.
* Section 2, Rule 131, Rules of Court. *° 43 Phil, 67° (1922),
 FORM AND INTERPRETATION 4g
48 Necoriase INSTRUMENTS Law Mane Easy

4, Anote payable to a specific person is covered by

4, Forgery of a check where drawer’s signature is
forged.
Example:
X stole an Allied Bank Check of Y. X then placed his
name on the check as payee and thereafter signed the
name of Y. After personally signing fis name at the back of
the check, X encashed the check at Allied Bank which paid
and charged the amount to the account of Y.
In this example, Allied Bank cannot charge the ac-
count of Y. Said the Supreme Court in the.case of San
Carlos Milling Co., Ltd. Vs. Bank of the P.I. and China
Banking Corporation:”"
“A bank is bound to know tha signatures of
jts customers; if it pays a forged check, it must
be considered as making the payment out of its
funds, and cannot ordinarily charge the amount
so paid to the account of the depositor whose
name was forged,”
CASES
the general provisions of the New Civil Code, not the Ne-
gotiable Instruments Law. (Garcla vs. Llamas, 417 SCR
292 [2003)). “
5._ A iorged signature is “wholly inoperative’ and
payment made “through or under such signature” is inef-
fectual or does not discharge the instrument. (Samsung
Construction Company Philippines, Inc. vs. Far East Bank
and Trust Company, 436 SCRA 402 [2004)).
6. A forged signature is a real or absolute defense,
and & person whose signature on a negotiable instrument
is forged is deemed to have never become a party thereto
and to have never consented to the contract that allegedly
gave rise to it. (Bank of the Philippine Islands vs. Casa
Montessori Internationale, 430 SCRA 261 [2004)).

1. The instrument in order to be considered negotia-

ble must contain the so-called “words of negetiability—i.e.,
must be payable to “order” or to “bearer”, (Salas vs. Court
of Appeals, 181 SCRA 296 [1990)).
2. The negotlabllity or non-negotiability of an instru-
ment is determined from the writing that is from the face of
the instrument itself. (Caltex [Phil.], Inc. vs. Court of Ap-
peals, 212 SCRA 448 .
3. Persons writing their names cn the face of the
promissory notes are makers. (Astro Electronic Corp. vs.
Phil. Export and Foreign Loan Guarantee Corporation, 471
SCRA 462 [2003)).

21 59 Phil. 59 (1993), citing 7 C.J., 683.


“CHAPTER II
CONSIDERATION
SECTION 24. Presurnption of consideration.—
Every negotiable Instrument is deemed priraa facie to
have been issued for a valuable consideration; and
every person whose signature appears thereon
have become a party thereto for value.
SECTION 25. Value, what constitutes.—Value is
any consideration sufficient to support a simple con-
tract. An antecedent or pre-existing debt constitutes
valve; and is deemed such whether the instrument is
payable on demand or at a fuiure time.
1. Consideration is some right, interest, benefit, or
advantage conferred upoh ‘a promisor, to which he is oth-
arwise not lawfully entitied, or any detriment, prejudice,
loss or disadvantage suffered or undertaken by the pro-
misee other than to such as he is at the time of consent
bound to suffer.”
2. Valuable consideration means in general terms,
some right, interest, profit or benefit to the party who
makes the contract, or some forebearance, detriment, loss,
responsibility, etc. on the other side.”°
2.1. Simply put, valuable consideration may be
defined as the obligation of contracting parties to give,
to do or not to do as the cause or motive for the ccn-
tract or its reason for being.
22 Gabriel vs. Monte de Piedad, 71 Phil. 501.
23 Walker Rubbers Corporation vs. Nederlandsch Indische Har-
delsbank, 105 Phil. 939,
50
CONSIDERATION 51
3. Like any other contract, a negotiable instrument
must be supported by valuable consideration. Under the
law, valuable consideration is presumed, even if the words
“For Value Received" is not written on the instrument.
However, this is only a prima facie presumption; hence, it
admits of evidence to the contrary. But whoever alleges
absence of consideration has the burden of proof to show
the contrary.
to 4. Value j
simple contract. Consideration is important to determine
Whether or not a holder is a holder for value. A holder who
is not a bolder for value cannot be a holder in due course.
5. What the faw requires is valuable consideration,
not sufficiency or adequacy of consideration. Suffteiency is
distinguished from adequacy in that the formers refers to
_ the value given as to whether it is enough or not; whereas,
the latter refers to the commensurateness of the transac-
tion as to whether the value given by one to the other is
equivalent to each other.
Example: A prime property in Makati City with a
market value of P25,000.00/sq.m. was sold by Esmeralda
for only P10,060.00/sq.m. to Tiburcio, In connection with
which the latter issued a check to the former to conclude
the sale. After encashment, Esmeralda cannot complain
that the sum given is not adequate for the property sold.
(Please ses Art. 1355, CC.) The law presumes that a man
is capable of managing his own affairs, and whether his
bargains are wise or unwise is not a proper question for
either a legal or equitable tribunal.
6. A’ pre-existing debt constitutes value. Se does
services rendered or to De rendére j
‘is.not.
ee!
SECTION 26. What constitutes holder for
value.—Where value has at any time been given for the
instrument, the holder is deemed a holder for value in
Feet ane
Lene © pene
 52 Neaotiagie INSTRUMENTS Law Mace Easy CONSIDERATION 53

respect to all parties who become such prior to that thereof because he did not give valuable consideration
time. therefor.

1. A party who gives valuable consideration for the
instrument is a holder for value. |n the same manner, the
holder (who is the last indorsee of an instrument) is also
considered a holder for value with respect to all persons
who became parties to the instrument prior to the time it is
shown that valuable consideration had been given.
2, Example:
A. issued a promissory in favor of B or order out of
love and affection. B negotiates the note to C as a birthday .
gift. C negotiates to D for services rendered; D to
holder,
: E is a holder for value with respect to C, B & A (even
’ if no valuable consideration was given by one to the other}
because from the time of D valuable consideration was
shown to have been given; and they are parties to the
instrument prier to the time valuable consideration was
given.
SECTION 27. When lien on Instrument consti-
tutes holder for value.—Where the holder has a lien on
the instrument, arising either from contract or by im-
plication of law, he is deemed a holder for value to the
extent of his lien.
Example:
A:issued a promissory note in favor of B or order for
P1,000.00 in exchange for one sack of sugar. it so hap-
pens that B owes C P&00.00 and C wanted to collect the
sum from B. To settle his obligation, B negotiated the note
to C,
In this example, G has a lien on the instrument to the
extent of P800.00 only. Therefore, C is a holder for value
to the extent of P800,00 which is his lien on the instrument.
With respect to the P200.00, G is not a holder for value
SECTION 28. Effect of want of consideration.—
Absence or fallure of consideration Is a matter of de-
fense as against any person not.a holder In due
course; and partial failure of consideration Is a de-
tense pro tanto, whether the fallure is an ascertained
and liquidated amount or otherwise.
1. There is absence of consideration if no considera-
tion is given, or the consideration is illegal.
2, There is failure of consideration if the agreed
E, consideration did not materialize. Partial failure of consid-
eration is a defense pro tanto, meaning te the extent of the
failure,
3. Absence or failure of consideration is only a per-
sonal defense because it is a good defense only as
against a holder who is not a holder in due course. It can-
not be put up as a defense against a holder in due course.
4. Example:
- Aissued a promissory note to B or order as a birthday
gift. B negotiated for value to C; C to D; D to E, holder.
H E is not a holder in due course (e.g. E obtained the
note after it is overdue), A can put up the defense of want
cf consideration and E cannot enforce the instrument
against A. However, if E is a holder in due course, E can
go against A because want or absence of consideration is
only a personal defense which cannot be put up against a
holder in due course.
SECTION 29. Liability of accommodation party.
—An accommodation party is one who has signed the
instrument as maker, drawer, acceptor,.or indorser,
without receiving value therefor, and for the purpose
of lending his name to some other person. Such a
person Is llable on the instrument io a holder for value,
54 Necoriaee INSTRUMENTS Law Mapoe Easy
notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation
party.
1. equisites to be an accommodation party:**
a) The party to the instrument signs as maker,
drawer, acceptor or indorser;
b) without receiving value therefor; and
c) for the purpose of lending his name to some
other person.
if all the above requisites concur, the accommodation
party is liable to the holder for value of the instrument even
if such holder knew that he only lent his name to accom-
modate another person.
2. {tis not a valid defense that the accommodation
party did not receive any valuable consideration when he
executed the instrument. It is not correct to say that the
holder for value is not a holder in due course merely be-
cause at the time he acquired the instrument he knew that
the (party) was only an accommedation party. 8
3. The accommodation party is liable to the holder
for value of the instrument in the capacity that he signed.
But the accommodation party is not liable to the accom-
modated party. As a matter of fact, if the accommodation
party is held liable by the holder for value, the accommoda-
tion party is entitled to be reimbursed by the accommo-
dated party.
4. Example:
Pedro wanted to borrow money from Juan. However,
Juan was willing to give the loan only if Pedro can get
Pablo to sign a promissory note in his favor. Hence, with-
out receiving any valuable consideration, the following
promissory note was extended by Pablo:
241 im vs. Saban, 447 SCRA 232 [2004)).
5 Ang Tiong vs. Ting, 22 SCRA 713 (1968).
CONSIDERATION 55
P100,000.00 Manila, Philippines
April 30, 2006
| promise to pay to the order of Pedro the
sum of One Hundred Thousand Pesos
{P100,000.00), payable thirty (380) days after.
date.
(Sgd) Pablo
Then Pedro negotiated the instrument to Juan. There-
upon, Juan joaned Pedro the amount of P100,000.00.
In the above example, Pablo is the accommodation
party signing as maker; Pedro is the accommodated party;
Juan ‘is the holder for value of the instrument. Juan can
hold Pablo liable on the note as maker even If the former
knew that the latter is only an accommodation party. Pablo
cannot put up the defense of absence of consideration. In
the event Pablo pays the instrument, he is entitled under
the law to be reimbursed by Pedro. Although Pedro signed
only as an indorser (ordinarily only secondarily liable), as
an accommodated party, Pedro is really the person primar-
ily liable on the Instrument.
CASES
i. In actions based upon a negotiable instrument, it
is unnecessary to aver or prove consideration, for consid-
eration is Important and presumed from the fact that it is a
negotiable instrument. (Ong vs. People, 346 SCRA 117
{2000]).
2. Section 24 of the Negotiable Instruments Law
creates a presumption that every party to an instrument
acquired the same for a consideration or for value. (Yang
vs. Court of Appeals, 409 SCRA 159 (2003).
3. Under Section 29 of Act 2031, an accommodation
party Is liable for the instrument to a holder for value even
 we
DO kro I
Pryace TO
CHEER or
56 , NEGoTIABLE INSTRUMENTS Law Mabe Easy
TC arece

if, at the time of its taking, the latter knew the former to be CHAPTER Il
only'an accommedating party. (Garcia vs. Llamas, 417
SCRA 292 [2003)). NEGOTIATION
4, The relationship of an accommodation party and
the party accommodated is in effect one of principal and SECTION 30. What constitutes negotiation—An
surety, such that after making payment an accommodation Instrument is negotiated when It is transferred trom
party has the right to claim reimbursement from the party one person to another in such manner as to constitute
accommodated. {Caneda, Jr. vs. Court of Appeals, 181 the transferee the holder thereof. !f payable to bearer,
SCRA 762 [1990)). it Is negotiated by delivery; if payable to order, it Is
5. A holder of a check who is not a holder in due negotlated by the Indorsement of the holder completed
course cannot sue the drawer-accommodation party. by delivery.
(Stelco Marketing Corporation vs. Court of Appeals, 210
SCRA 51 [1992]). SECTION 31. Indorsement; how made.—The in-
6. Where the holder has a lien on the instrument dorsement' must be written on the Instrument Itself or
arising from contract, he Is deemed a holder for value to upon a paper attached thereto. The signature of the
the extent of his lien. (Caltex (Phil.] Inc. vs. Court of Ap- Indorser, without additional words, Is a sufficient In-
dorsement.
peais, 212 SCRA 448 [1992].)
SECTION 32. Indorsement must be of entire in-
strument.—The indorsement must be an Indorsemeni
of the entire instrument. An indorsement which pur-
ports to transfer to the Indorsee a part only of the
amount payable, or which purports to transfer the in-
strument to two or more indorsees severally, does not
operate as a negotiation of the Instrument. But where
the instrument has been paid In part, It may be in-
dorsed as to the residue.

1. Negotiation is the process of transferring an in-

strument from one person to another so as to constitute
the transferee the holder thereof.
2. If the instruments is payable to bearer, it is nego-
tiated by mere delivery. Indorsament of the instrument is
not necessary. The person who is the bearer in physical
possession of the instrument is the holder thereof.

57
58 NeGoTiaBLe INSTRUMENTS Law Mane Easy NEGOTIATION 59

3. If the instrument is payable to erder, it is negati- SECTION 33. Kinds of Indorsement.—An_ iIn-
ated by indorsement completed by delivery. The last in- dorsement may be either special or In blank: and it
dorsee in physical possession of the instrument is the may also be sither restrictive or qualified or condi-
holder thereof. tlonal.
3.1 If an instrument payable to order is merely SECTION 34. Special indorsement; Indorsement
delivered without indorsement, the person in physical in blank.—A specia! indoreement specifies the person
possession of the instrument cannot be considered to whom or to whose order, the Instrument Is to be
the holder thereof. The transfer of such an instrument payabie, and the Indorsement of such Indorsee is nec-
to constitute negotiation must be completed by in- essary to the further negotiation of the Instrument. An
dorsement; and only then will the transferee be taken indorsement In blank specities no Indorsee and an
to be the holder thereof. instrument:so indorsed is payable to bearer and may
4, Ordinarily, the indorsement is written at the back be negotiated by delivery.
of the Instrument. However, the indorser may write his SECTION 35. Blank indorsement; how changed
indorsement anywhere in the instrument, or even on a to special indorsement.—The holder may convert a
separate piece of paper called an allonge which is at- blank Indorsement into a special indorsement by writ-
tached to the instrument. . ing over the signature of the indorser In blank any
5. To constitute negotiation, the indorsement must contract consistent with the character of the indorse-
be of the entire amount of the instrument. To indorse a ment. ,
partial amount, or to two or more indorsees severally will
not constitute negotiation. SECTION 36. When indorsement restrictive.—
' An indorsement Is restrictive which elther—
5.1 - Example of partial indorsement, The in-
strument is for P1,000.00 and the indorsement is as {a) Prohibits the further negotiation of the in-
strument; or
follows:
{b) Constitutes the indorsee the agent of the In-
Pay to A P800.00 only dorset; or
_ {c) Veats the title tn the Indorsee In trust for or to
5.2 Example of indorsement to two or more the use of some other persons.
payees severally. The instrument is for P1,000.00 and But the mere absence of words implying power to
the indorsement is as follows: negotiate does not make an indorsement restrictive.

SECTION 37. Effect of restrictive Indorsement;

Pay to A P800 and to B P200
rights of indorsee.—A restrictive indorsement confers
upon the indorsee the right—
6. However, if an instrument has been paid in part,
the unpaid balance may be indorsed. This usually occurs {a) To receive payment of the instrument;
in instruments payable by stated installments.
60 NeGorias.e Instauments Law Mave Easy Negotiation / 61

“(b) ‘To bring any action thereon that the indorser 3. Blank indorsement is one where the indorser
could bring; merely signs bis name without identifying the person to
whom the instrument is transferred as holder thereof. in
(c) To transfer his rights as such indorsee,
this case, the indorsement of the transferee Is no longer
where the form of the indorsement authorizes him to
necessary to the further negotiation of the instrument as
do so. /
the same may now be negotiated by mere delivery.
But all subsequent indorsees acquire only the title
of the first indersee under the restrictive iIndorsemeni. 3.1 A blank indorsement will convert an instru-
ment payable to order to one payable to bearer. In
‘SECTION 38. Qualified indorsement.—A quali- this case, the holder may write his name over the sig-
fied indorsement constitutes the indorser a mere as- nature of the indorser making it appear that the latter
signor of the title to the instrument. li may be made by indorsed the instrument to him. However, the holder
adding to the indorser’s signature the words “without cannot write anything over the signature of the in-
recourse” or any words of similar import. Such an dorser which is not consistent with the character of
indorsement does not impair the negotiable character the indorsement. Hence, the holder cannot write over
of the instrument. the signature of the indorser the following, among
others: “Protest waived” or “Notice of dishonor
SECTION 39, Conditional indorsement.—Where waived”, as they are material alterations of the con-
an Indorsement is conditional, the party. required to tract created thereby.
pay the instrument may disregard the condition and
make payment to the indorsee or his transferee 4. “Restrictive indorsement” is one where the
whether the condition has been fulfilled or not. But any transferee of the instrument does not acquire the full rights
person to whom an instrument so indorsed Is negoti- of the owner of the instrument as holder thereof.
ated will hold the same, or the proceeds thereof, sub- 4.1 Tiere are three types of restrictive in-
ject to the rights of the person indorsing conditionally. dorsements: :
1. Kinds of Indorsements: a) Prohibits the further negotiation of the
instrument.
(a) Special indorsement
Example:
(b) Blank indorsement
(c) Restrictive indorsement
Pay to Marina only.
(d) Qualified indorsement
(ge) Conditional indorsement (Sgd) Antonio

2. Special indorsement, also known as specific in- The instrument becomes payable to a specified per-
dorsement, is one where the indorser identifies the person son. Hence, it is no longer negotiable,
to whom the instrument is transferred as holder thereof. In
this case, the indorsement of the transferee is necessary to b) Agency type of indorsement
the further negotiation of the instrument.
5
62 Neaotiaste INSTRUMENTS Law Maoe Easy Negotiation 63

Example: against the indoyser can also be brought against the

holder, even if the holder brings the suit in his own name.
Pay to Marina for collaction. c) To transfer his rights when authorized
(Sqd) Antonio by the form of the indorsement.
The holder in a restrictive indorsement can further
The indorsement makes Marina an agent of Antonio
negotiate the instrument if the indorsement contains the
but only for purposes of collecting the proceeds of the words of negotiability; otherwise, the holder cannot do so.
instrument.
Example:
c) Trust type of indorsement

Example: Pay to Marina or order for collection

(Sgd) Antonio
Pay to Marina in trust for Ada. |
(Sgd) Antonio | This restrictive indorsement contains the words of ne-
gotiability as the instrument is payable to order. It means
The indorsement passes title to Marina but she holds that the instrument is payable to Marina or to whomsoever
the same in trust for Ada. in this example, Marina cannot Marina shall order to be paid as payee. Hence, in this re-
use the proceeds of the instrument for her own use and strictive indorsement Marina can still negotiate the instru-
ment to another, but the latter shail acquire only the rights
benefit.
of Marina, i.e., te collect for and inhalf of the indorser who
4,2 Rights of restrictive indorsee. restrictively indorsed the instrument. The transferee of
Marina can acquire no better rights than Marina.
a) Toreceive payment
5. Qualified indorsement
The holder in a restrictive indorsement has the right to
receive payment of the instrument, unless the character of 5.1 An indorsement becomes qualified by
the indorsement is inconsistent with such right. Hence, if merely adding the following words to the indorser’s
the agency type of indorsement is oniy “for deposit’, the signature: “without recourse" or “sans recourse”, or
holder in this case may not receive payment of the instru- words of similar import like “at your own -tisk". This
ment but must merely deposit the instrument for ‘and in kind of an indorsement will not destroy the negotiabil-
behalf of the indorser. ity of the instrument. However, the indorsement
Inerely makes the indorser an assignor of his title to
b}) To bring any action the instrunient. As such assignor, he cannot ordinarily
be held liable thereon, unless he violates his warran-
The holder can bring any suit on the instrument that ties under Section 65 hereof, to wit:
the indorser can bring. However, any defense availablo
64 Necotiaae InstauMeNTs Law Mane Easy
a) That the instrument is genuine and in all
"respects what it purports to be;
b) That he has good title to it;
c) That all prior parties had the capacity to
contract; and
d) That he has no knowledge of any fact
which would impair the validity of tha in-
strument or render it valueless.
6.2 Consequently, if the instrument is not genuine in
that it is a forgery, the qualified indorser is liable, So, also,
if the qualified indorser does not have good title to the
instrument; or that prior parties did not have capacity to
contract, ¢.g. by reason of minority; or that he has knowl-
edge of facts which would Impair the validity of the Instru-
ment or render it vaiueless.
5.2.1. A qualified indorser, as a rule, can-
not be held liable if the instrument is dishonored
by reason of the bankruptcy or insolvency of the
party primarily liable itiereon. However, If he had
knowledge of the bankruptcy or insolvency at the
time he indorsed the instrument qualifiedly, he is
liable thereon for violating his warranty.
6, Conditional Indorgement
6.1. A conditional indorsemert is one which is
dependent upon a contingent event that may or may
not happen.
6.2 If the instrument at its face is originally ne-
gotiable, a conditional indorsement will not render it
non-negotiable. In. other words, a negotiable instru-
ment which has been indorsed conditionally wiil con-
tinue to remain negotiable notwithstanding the pres-
ence of the conditional indorsement. What is condi-
tional is only the indorsement, not the promise or or-
der to pay.
NEGOTIATION 65
6.3 In conditional indorsements, the party pri-
marily liable on the instrument may disregard the
condition and pay the Instrument even if the condition
has not been fulfilled. In such a case, the instrument
is discharged and the person primarily llable thereon
is freed from any further liability on the instrument; but
the recipient of the payment will have to hold the
same in trust for the party who made the conditional
indorsement.
SECTION 40. Indorsement of instrument pay-
able to bearer.—Where an instrument, payable to
bearer, Is Indorsed specially, it may nevertheless be
further negotiated by delivery; but the person indors-
ing specially Is liable as indorser to only such holders
as make title through his indorsemant.
1. This section applies only to instruments originally
payable to bearer. It does not apply to instruments origi-
.
nally payable to order which became converted to one
payabie to bearer due to the fact that the only or last in-
dorsement is an indorsement in blank.
2. An instrument which is .originally payable to
bearer, even if negotiated by special indorsement com-
pleted by delivery, remains payable to bearer. Hence, it
can still be negotiated by mere delivery. To put it rather
crudely: Once a bearer instrument, always a bearer in-
strument.
3. A special indorsement in an instrument payable to
bearer is a superfluity. However, all the persons indorsing
such an instrument can be held fiable by the hoider of said
instrument provided the holder can trace his title to the
party in the instrument thru an unbroken chain of indorse-
ments.
66 NEGOTIABLE INSTRUMENTS LAW Mave Easy NEGOTIATION ; 67

3.1 Example:
In an instrument payable to bearer, A negotiated to B;
B to C; C to D; D to E, holder, all by special indorsements
completed by delivery. In this illustration, E (holder) can go
against D,C, B and A because he can trace his title to all of
them thru an unbroken chain of indorsements.
Suppose in the illustration above, A negotiated to B
by special indorsement completed by delivery; B negoti-
ated to C only be delivery; C to D and D to E (holder) by
indorsement completed by delivery. Can E go against C?
Yes, because F can trace his title to C thru an unbroken
chain of indorsements. Can E go against A? No, because
E cannot trace his title to A thru an unbroken chain of in-
dorsements. Since B did not indorse to C, the chain of
indorsements has been broken. In the same illustration,
can E go against B? No, because B negotiated by mere
delivery and his warranties extends only to his immediate
transferee C, who is the only one who can make him liable,
on the instrument. A LR d. C i pa
2. An exception to the rule that alt joint payees must
indorse the instrument is when one of the joint payees has
the authority to Indorse for the others. So, also, if the joint
payees are partners because the act of one partner binds
the others.
SECTION 42. Effect of instrument drawn or in-
dorsed to @ person as cashier.—Where an Instrument
is drawn or indorsed to a person as “cashier” or other
fiscal officer of a bank or corporation, it is deemed
prima facle to be payable to the bank or corporation of
which he is such officer, and may be negotiated by
either the indorsement of the bank or corporation
or
the Indorsement of the ofticer,
1. Example:
Pay to the Order of the Cashier, Star Mo-
tors Corporation the sum of P5,000.00
(Sgd} Rica

fan
SECTION 41. Indorsement where payable to two To: Edgar
or more persons.—Where an instrument is payable to
the order of two or more payees or indorsees who are The prima facie presumption is that this bill of ex-
not partners, all must indorse unless the one Indorsing change {fs payable to Star Motors Corporation. Thus, the
has authority to Indorse for the others. vill may be negotiated by the cashier or by any officer of
Star Motors.
1. Section 8(d) provides that an instrument may be 2. Inasmuch as the presumption is only prima facie
drawn payable to two or more payees jointly. In case of in character, it admits of proof to the contrary. Thus , it may
indorsement, all the joint payees must indorse; otherwise, be shown by contrary evidence that the instrument is pay-
if only one of them indorsed and the others did not, the one able to the cashier in his personal capacity and not to the
who indorsed is deemed to have indorsed only his share in corporation.
the instrument. However, this indorsement will not consti-
tute a negotiation of the instrument but merely an assign- SECTION 43. Indorsement where name Is mis-
ment of a portion of the instrument because Section 32 spelled, and so forth.—Where the name of a payee
hereof requires for negotiation to take place that the in- indorsee is wrongly designated or misspelled, he may
dorsement must be for the entirety of the instrument. indorse the instrument as therein described adding, if
he thinks fit, his proper signature,
 68 Necotiaete instaumMeNTs Law Mave Easy NEGOTIATION 69

* Example: the maturity of the instrument, every negotiatio

I promise to pay Edmiond Li or order the
sum of P5,000.00 upon demand
(Sgd) Perry Uy
The correct name of ihe payee is Edmond Lee. Since
his name is misspelled, Edmond Lee must indorse the note
by signing as “Edmond Li” as erroneously written and add,
as he may wish, his correct name afterwards.
SECTION 44, Indorsement in representative ca-
pacity.--Where any person is under obligation to in-
dorse in a representative capacity, he may Indorse in
such term as to negative personal liability.
(Please see discussion under Sec. 20 hereof with re-
spect to the requisites to negative personal liability of
agent.)
Examples of different ways an agent may indorse in a
representative capacity:
n is
deemed prima facie to have been effected
before the
instrument was ovedue.
SECTION 46. Place of indorsement;
presump-
tion.—Except where the contrary appears,
every in-
dorsement is presumed prima tacie to hava
been made
at the place where the instrument Is dated,
.
The following are disputable presumptions:
1. Prima facie presumption > The indorsemen
t was
made before the instrument was overdue.
This is important because a holder in due must
have
" acquired the instrument before it is overdue,
Exception: The indorsement is dated after the ma-
turity of the instrument.
2. Prima facie presumption > The indorsemen
t was
made at the place where the instrument was dated.
This is important in order to determine what law
will
apply as different states may have different laws.

a Perry Uy Exception: If it is shown by contrary evidence that

(Frincipal) the instrument was dated in one place and the indors
e-
ment thereof occurred in another place.
by: Bert Zosa
(Agent) SECTION 47. Continuation of negotiable charac-
ter.—An instrument negotiable in its origin conti
nues
b) Bert Zosa to be negotiable until it has been restrictively indor
sed
(Agent) or discharged by payment or otherwise.
For Perry Uy
An instrument which is originally negotiable continues
(Principal) to be negotiable until the following occurs:
c) Bert Zosa 1. The instrument is restrictively indorsed ir: such a
For and in behalf of his principal Perry Uy manner as to prohibit its further negotiation:
SECTION 45. Time of indorsement; 2. The instrument is discharged by payment; and
presump-
tion.—Except where an indorsement bears date after
70 Necotiasie INSTRUMENTS Law Mave Easy
‘3. The instrument is discharged by the other causes
enumerated under Sec. 119 hereof.
SECTION 48. Striking out indorsement.—The
holder may at any time strike out any Indorsement
which is not necessary to his title. The indorser whose
indorsement is struck out, and all Indorsers subse-
quent to him, are thereby relieved from liability on the
instrument.
1. As adverted to elsewhere, an instrurnent payable
to bearer can be negotiated by mere delivery. Even if a
bearer instrument is indorsed specially, the same contin-
ues to be negotiated by mere delivery. Hence, the special
indorsement of a bearer instrument is not necessary to the
title of the holder. Such being the case, the holder may
strike out said indorsement at any time.
2. Aninstrument payable to order can be negotiated
by indorsemeni completed by delivery. However, if the only
or last indorsement is an indorsement in blank the order
Instrument is converted to one which is payable to bearer.
In other words, the order instrument becomes a bearer
instrument due to the blank indorsement. In this latter
case, all special indorsements subsequent to the blank
indorsements may be stricken out by the holder because
they are not necessary to this title. This is so because the
holder then will be deemed to have acquired title ta the
instrument thru the blank indorsement.
3, However, in the case of an instrument payable to
order with special indorsements all the way up to the
holder, the latter cannot strike out any of the special in-
dorsements because all of then are necessary to his title.
This is so because the holder must be able to trace his title
to the instrument through an unbroken chain of indorse-
ments.
NEGOTIATION 71
gud
4. Examples . , -g i, ¢ 2p ,
iz -i
A, maker, executed a promissory note in favor of B or
order, payee. B nagotiated by special indorsement com-
i pleted by delivery to C; C negotiated by blank indorsement
and delivered the note D; D negotlated by special in-
dorsement and delivered the note to E; E to F, holder.
In this example, although the instrument is originally
i
;4 payable to order, the same became a bearer instrument
i
_ due to the blank indorsement of C. At this point, the note
can now be negotiated by mere delivery. F, holder, can
strike out the indorsements E and D because they are not
necessary to his title. After the indorsements of E and D
are striken out, what will remain is the blank indorsement
of C. It will appear therefore that F acquired title to the
instrument thru the blank indorsemant of C.
5. The indorser whose indorsement is struck out will
de discharged from liability on the instrument. In the same
manner, all subsequent indorsers will likewise be dis-
charged from liability. This is so for reasons of equity be-
cause by discharging a prior party, the subsequent party
will be deprived of the right to ran after the prior party in the
event the holder holds him liable thereon.
5.1 In the example given above, let us suppose
that F struck out only the indorsemerit D and did not
strike out the indorsement of E. This notwithstanding,
by striking uut the indorsement of D, E is automati-
cally also relieved from liability on the instrument. This
is oniy fair because by the voluntary act of F, D is now
relieved from liability and E cannot now go against D.
For reasons of equity, and in fairness to E, the latter
should also be relieved from liability.
SECTION 49. Transfer without indorsement; ef-
fect of.—Where the holder of an instrument payable to
his order transfers it for value without Indorsing it, the
72 Necotiaste INSTRUMENTS Law Mace Easy NEGOTIATION 73

transfer vests in the transferee such title as the trans- 2. Example:

feror had therein, and the transferee acquires In addi-
tion, the right to have the Indorsement of the trans-
feror. But for the purpose of determining whether the
transferee is a holder in due course, the negotiation
takes effect as of the time when the indorsement is
actually made.
The holder of an instrument payable to order may ne-
gotiate the same by indorsement completed by delivery. If
the holder of such an instrument delivers it to another with-
out indorsing the instrument, such transfer does not oper-
ate as a negotiation of the instrument but a mere assign-
ment thereof. Such being the case, the transferee acquires
only the rights of the transferor, subject to-such defenses
that may be available against the transferor, However, the
fee pe eNOS ae ee transferor to
indorsé ment to him. In this latter case, in deter-
mining whétfier thé transferee is a holder in due course or
flot, the point of reference-to-censider
1s the tmethe actual
indorsement of the instrument took place.
A executed a promissory in favor of B or order. B ne-
gotiated to U; C to D; D to E; E back to C; C to F, holder.
In this example, if F enforces payment of the instru-
ment against C, the latter (C) cannot go against D and E
because D and E are intervening partios to whom C was
personally liable. C can only go against B and A.
CASE
1. An instrument is negotiated when it is transferred
from one person to another in such a manner as to consti-
tute the transferee the holder thereof and a holder may be
the payee or indorsee of a bill or note who is In possession
of it or the bearer thereof. (Caltex [Philippines], Inc. vs.
Court of Appeals, 212 SCRA 448 [1992]).

SECTION 50. When prior party may negotiate

instrument.—Where an instrument is negotiated back
to a prior party, such party may, subject to the provi-
sions of this Act, reissue and further negoilate the
same. But he is not entitled to enforce payment thereof
against any intervening party to whom he was person-
aily liabie.

1. This provisions contemplates of a situation where

an instrument is negotiated back to a person who had
previously been a party to the instrument. In sucn a case,
the party to whom the instrument has been negotiated
back may re-negotiate the same instrument but he cannot
go against any intervening party thereto to whom he was
previously held personally liable.
 RicHts oF THE HOLbER 75

(a) That at the time it was negotiated io him, he

‘CHAPTER IV
had no notice of any infirmity in the instrument or de-
RIGHTS OF THE HOLDER tect in the title of the person negotiating it.
1. Every holder of a negotiable instrument is
‘SECTION 51, Right of holder to sue; payment.— deemed prima facie a hoider in due course. 7 Anyone who
The holder of a negotiable instrument may to sue alleges otherwise has the burden of proof to show that the
thereon In his own name; and payment to him In due holder did not acquire the instrument under the conditions
cgurse discharges the instrument. enumerated above.
2. At the time of its acquisition by the holder, tha in-
1. The “helder’ means the payee or indorsee of a bill strument must have been complete with respect to the
or note, who is in possession of it, the bearer thereof. important particulars such as the name of the payes, the
2, As cwner of the instrument, the holder has the amount involved and the like. Hance, even if the instru-
right to enforce payment thereof; and if refused, to sue ment is undated but the date is not an important particular,
thereon in his own name. the holder would be deemed to have taken a complete
3. If payment is in due course, the instrument is dis- instrument. In the same manner, even if the instrument is
charged. lacking in a material particular but the holder completed the
instrument in accordance with the authority given him, that
3.1. Payment is in due course if. payment is circumstance standing alone, will not destroy the presump-
made by the principal debtor at or after the maturity of tion that he is a holder in due course.
the instrument in good faith and without notice of the . 3. To be a holder in due course, it is necessary that
defect in the title of the person to whom payment is the instrument must be regular upon its face when the
made. holder acquired it; i.e., there is no indication that the in-
SECTION 52. What constitutes a holder in due strument has been altered.
course.--A holder in due course is a holder who has 4. The holder must have acquired the instrument be-
taken the instrument under the following conditions: fore it is overdue. This is so because an overdue instru-
ment would indicate that the instrument had been dishon-
(a) That it is complete and regular upon its face;
ored. In the case of bills of exchange which requires pre-
(b) That he became the holder of it before it was sentment for acceptance by the drawee and the instrument
overdue, and without notice that it had been previ- is dishonored by non-acceptance, the holder may still be
ously dishonored; if such was the fact; sonsidered a holder in due course provided he was not
(c) That he tunk it in good faith and for value; aware of the dishonor at the time he acquired the bill of
exchange. This is possible because the drawee does not
write the fact of dishonor by non-acceptance on the in-
8 Section 191, NIL. strument itself; hence, there is nothing on the face of the

74 *” Yang ve. Court of Appeals, 409 SCRA 189 [2003}),

 ne
RicHTs of THE HoLpea TT
76 Necoriage INSTRUMENTS Law Mabe Easy

in due course only to the extent of the amount there-

instrument to indicate that it had been previously dishon-
fore pald by him.
ored.
5. -The holder must be a purchaser for value in good 1. This contemplates of a situation where the trans-
faith. There: must be total absence of knowledge on the ferae has not remitted to the indorser the full amount of the
part of the holder regarding any infirmity in the instrument instrument for one reason or another at the time the in-
or defect of title of the person negotiating it. If the instru- strument was negotiated to him. Payments made by the
ment was issued for an unlawful consideration, or the in- transforee to the indorser before he came to know of the
dorser was guilty of an illaga! act or ill-motive in negotiating infirmity in the instrument or defect of title of the indorser
the instrument, the holder must not be aware of any of will not affect his being a holder in due course with respect
them at the time he took the instrument. to such payments. However, payments made after knowl-
edge of such infirmity or defect of title will rander the trans-
SECTION 53. When person not deemed holcer ferae as one who is not a holder in due course with respect
in due course.—Where an instrument payable on de- to the payment of the balance.
mand is negotiated an unreasonable length of time
2, Example:
after its issue, the holder is not deemed a holder in
due course. A, maker, executed a promissory note in favor of B or
order for P1,000.00 as a birthday gift. B negotiated to C
|. An instrument payable on demand is due imme-
who paid partially the amount of P600.00 on Septamber
diately from its date of issue. Hence, the holder can pre-
11, 2006. The following day, September 12, C learned that
sent the instrument for payment at any time. However, the
that there was no consideration between A & B, On Sep-
above section inferentially requires that such an instrument
tember 21,2006, C paid the balance of P400.00
must be presented for payment within a reasonable time
from its issue; otherwise, the person to whoin the instru- Applying Section 54 above, C is a holder in due
ment is negotiated cannot be considered a holder in due course only with respect to the P600.00 but C is not a
course. This is so because after an unreasonable length of ; holder in due course with respect to the P400.00.
time from its issue, the instrument payable on demand is SECTION 55. When title defective.—The title of a
deemed overdue, person who negotiates an Instrument is defective
2. What is a reasonable cr unreasonable length of within the meaning of this Act when he obtained the
time within which to negotiate an instrument payable on instrument, or any signature thereto, by fraud, duress,
demand from date of issue is dependent upon the circum- or force and fear, or other unlawful means, or for an
stances of each case. illegal consideration, or when he negotiates It in
breach of faith, or under such circumstances as
. SECTION 54. Notice before full amount paid.— amount to «@ fraud.
Where the transferee receives notice of any infirmity in
the instrument or defect in the title of the person nego- SECTION 56. What constitutes notice of de-
tiating the same before he has paid the full amount fect.—To constitute notice of an Infirmity In the in-
agreed to be paid therefore, he wil! be deemed a holder strument or defect in the title of the person negotiating
 78 NecoriasLe INSTRUMENTS Law Mape Easy Rieurs oF THE HoLver 79

the same, the person to whom it is negotiated must A issued a check payable to cash in favor of B for
have had actual knowledge of the infirmity or cefect, P100,000.00. C surreptitiously stole the check from B.
or knowledge of such facts that his action In taking the 4.5 Negotlation In breach of faith
instrument amounted to bad faith.
A issued a check payable to cash in favor of B for
1. The title of a person to the instrument is defective . P100,000.00. B negotiated to C “for collection”. C depos-
in two (2) ways, namely: ited the check to his account.
a) In its.acquisition 4.6 Negotiation under circumstances as
b) fn ite-negatiation amount to fraud.

2. In its acquisition, the title of a person is defective A issued a check payable to cash in favor of B for
if he acquired the instrument by fraud, duress, or force and P100.000.00. B nagotiated to © in consideration for a dia-
fear, or other unlawful means, or for an illegal considera-
mond ring. The ring turned out to be made of ordinary
tion. glass.
3. In its negotiation, the title of a person is-defective 5. “Infirmity ir the instrumeni? means that something
if he negotiates the instrument in breach of faith, or under is wrong with the instrument itself; 6.g. forgery or material
such circumstances as to amount to fraud. alteration.
4. Exarnples:
5.1 “Defect in the title of the person” means
4.1 Acquisition by means of fraud. that something is wrong in the manner he obtained
the instrument; ¢.g. want of consideration or acquisi-
Boy obtained the autograph of Erap on a blank sheet tion by means of fraud or duress.
of paper. Boy forthwith wrote a promissory note in his favor
over the signature of Erap, 6. To constitute notice, the transferee must have ac-
_ 42 Acquisition by means of duress or force tual knowledge of the infirmity in the instrument or defect of
and fear. title of the person nagotiating the instrument. Mere suspi-
cion is not enough.
A issued a check payable to cash in favor of B for
P100,000.00. C obtained the check from B by pulling a gun: 6.1 However, if the transferee has knowledge
on the latter. , of some facts that ought to put him in inquiry, and he
tock the instrument without making such an inquiry,
4.3 Acquisition for an fllegal consideration. he is deemed to have taken the instrument in bad
A issued a check payable to cash in favor of B for faith.
P100,000.00. B negotiated the check to C so that the latter 6.2 Example:
will consent to be the former’s mistress,
The instrument which is lacking in a material particu-
4.4 Acquisition by other unlawful means. lar was negotiated by X to Y, transferee. Y must make an
inquiry in this regard; and if he fails or neglects to make
80 NeGotiaste INSTRUMENTS Law Mane Easy RIGHTS OF THE HOLDER 81

such an inquiry, Y is deemed to have taken the instrument 3.1 A personal or equitable defense is not a
in bad faith. © good defense against a holder in due course. This is
so because a holder in due course holds the instru-
SECTION 57. Rights of holder in due course.—-A ment free from any defect of title of prior parties or
holder in due course holds the instrument free from free from the defenses. available to prior parties
any defect of title of prior parties, and free from de- among themselves.
fenses avallabie to prior parties among themselves, 3.2 A personal or equitable defense is a good
and may enforce payment of the instrument for the full defense against a party who is not a holder in due
amount thereof against all parties liable thereon. course. This is so because a holder who is not a
holder in due course holds the instrument subject to
1. Rights of a holder in due course: the defenses available to prior parties among them-
a) He may sue in his own name,78 selves,
' b) He may receive payment, and payment to 4. Real or legal defenses are those that attach to the
him in due course discharges the instru- instrument itself and, as such, are available as defense
ment.” against the whole world including holders in due course.
c) He holds the instrument free from any defect 5. Examples of Personal Defenses:
of title of prior parties and free from defenses
a. Complete but undelivered instrument
available to prior parties among themselves.
b. Incomplete but delivered instrument
d) He may enforce payment of the instrument
for the full amount thereof against all parties c. Acquisition of the instrument by means of
liable thereon. fraud in inducement.
d. Acquisition of the instrument by means of
2. Defenses affecting negotiable instruments:
fear, forge or duress. .
a) Persona or equitable defenses e. Acquisition of the instrumert for an illegal
b) Real or lagal defenses consideration
3,: Personal defenses are those which arise in the f. Acquisition of the instrument by unolawiul
course of the life of the instrument emanating from the means.
conduct or circumstances sorrounding its acquisition by a g. Absence of consideration in the acquisition
party theretc, As such, personal defenses are available of the instrument.
among prior parties, or immediate parties, or parties with h. Insertion of a wrong date where date is a
notice of infirmity in the instrument or defect of title of a material particular,
party to the instrument. i. Negotiation in breach of faith
j. Negotiation under circumstances amounting
to fraud.
5 Section 51, NIL.
29 Ibid.
82 Necotiste InstaumMents Law Mane Easy Rights oF THE HOLDER . 83

6. &xamples of Real Defenses: 6.2 Fraud in factum or fraud in esse contractus

is fraud amounting to forgery in that a person without
®)
a) Incomplete and undelivered instrumenis. negligence Is tricked into signing a negotiable instru-
b) Forgery * ment which he believed is a document of a different
c) Minority * character. Simply put, the person had no Intention of
signing a negotiable instrument because he did not
d) Material Alteration * know he was signing one due to the deception. The
2) Cognovit actionem or confession of judgment Instrument In thls case is deemed invalid and treated
instrument as if the person never signed it.
f) fraud in factum or fraud in esse contractus 6.2.1 The essential element in fraud in fac-
6.1 Cognovit actionem is a written confession tum or fraud in esse contractus is that the person
of an action by the defendant, subscribed but not who signed the instrument must have exercised
sealed, authorizing the plaintiff to sign judgrnent and reasonable diligence, i.e., he must not have been
issue execution, usually for a sum named. It is given negligent. Whether or not he was negligent is a
question of fact and dependent upon the circum-
after the action is brought, to save expenses. It is dif-
stances of each case. However, a finding of neg-
ferent from a warrant of attorney, which is given be-
fore the commencement of any action, and is under ligence will render the person executing the in-
seal. strument liable to a holder in due course.

6.1.1 Relicta Verificatione is a confession SECTION 58. When subject to original de-
of judgment mace after plea, viz., a cognovit ac- fenses.—In the hands of any holder other than a
tionem, accompanied by a withdrawal of the hoider in due course, a negotiable instrument is sub-
plea,®* ject to the same defenses as if it were non-negotiable.
But a holder who derives his title through a holder in
6.1.2 In our jurisdiction, a confession of due course, and who is not himself a party to any
judgment is against public policy because it does fraud or illegatity affecting the instrument, has all. the
not. only place the obligor cornpleteiy at the rights of such former holder In respect of all parties
mercy of the obligee but it also tends to oust the prior to the latter.
jurisdiction of the courts.°®
1. A‘holder who is not a holder in due course, holds
the instrument subject to the defenses that may be raised
against the person who transferred ‘the Instrument to him,
® Sec. 15, NIL, Hence, it is as ‘f the instrument is non-negotiable because
31 Sec, 23, NIL.
% Sec, 22, NIL. the transferee cannot acquire rights better than those of
33 Sec, 124, NIL. the transferor, In this case, the transferee is a mere as-
4 1(3 Chanc, Prac. 664; 3 Bouv. Inst. 3229, cited on p. 181, The signee of the rights of the transferor.
Cyclopedic Law Dictionary, 2" Ed,)]
™ (p. 82, The Cyclapedic Law Dictionary, ibid.)
°° PNB vs. Manila Oil Refining and By-Product Co., 42 Phil. 444.
B4 NeGoriaBLe insSTAUMENTS Law Mabe Easy
“2, However, a holder who derives his title from a
holder in due course acquires the rignts of a holder in due
course in respect of ail parties prior to said holder in due
course from whom he acquired the instrument; provided
such holder is not a party to any fraud or illegality affecting
the instrument.
2,1 Example: A executed a promissory payable
to the order of B, payee. B negotiated to C; C, a
holder in due course, negotiated the note as a wed:
ding gift to D, holder.
In this example, D is not a holder in due course be-
cause of want of consideration. However, D acquired his
title from C who is a holder in due course. Therefore, D, as
assignee, acquired the rights of a holder in cue course
from C, his assignor. Hence, D can go against A & B, the
prior parties to C. However, D cannot go against C be-
cause C can put up the personal defense of absence
consideration.
3, . A person who is not a hoider in due course may
recover against the person primary liable thereon, even
though the consideration for the instrument has failed, if he
can show that the person through whom he derived his
indefeasibie title was a holder in due course,*
SECTION 59. Who is deemed holder in
course.—Every holder is deemed prima facie to be a
holder in due course; but when it is shown that the
title of any person who has negotiated the Instrument
was defective, the burden is on the hoider to prove
that he or some person under whom he claims ac-
quired the titie as holder in due course. But the last-
mentioned rule does not apply in favor of a party who
became bound on the instrument prior toe the acquisi-
tion of such defective title.
*? Charles A. Fossum vs. Fernandez Hermanos, 44 Fhil. 713.
RicHts oF THE HOLDER - 85
-1. The presumption expressed above that every
holder is deemed prima facie to be a holder in due course,
arises only in favor of a person who is a holder in the
sense defined in Section 191 hereof, that is, a payee or
Indorsee who js in possession of the Instrument, or the
bearer thereof. There is no presumption that a person
through whose hands an instrument has passed was a
holder in due course.®
2. A holder fs presumed to be a holder in due
course. Because of this presumption, the indorsee does
not have to prove that he is a holder in due course. Who-
ever alleges otherwise has the burden of proof to show the
contrary. But once there is proof that a party to the instru-
ment has a defective title, the burden of proof is shifted.
The indorsee will now have to show that he acquired the
instrument under the circumstances enumerated under
Section 52, or that he acquired the instrument from one
of who js a holder in due course pursuant to Section 58, This
rule, however, ‘vill not apply with respect to parties who are
already bound on the instrument prior to the acquisition of
the defeciive title.
3. Example: A executed a promissory note pay-
able to the order of B, payee. B negotiated to C; C negoti-
ated the note to D as a birthday present; D negotiated to E,
holder.
due In this example, E has in his favor the presumption
that he is a holder in due course. However, if it is shown by
proof that D's title is defective due to absence of consid-
eration, E will have to prove that he acquired the instru-
ment under the circumstances enumerated under Section
52, to wit: (a) that it is complete and regular upon its face;
(b) that he became the holder of it before it was overdue,
and without notice that it had been dishonored, if such was
the fact; (c) that he tock it in good faith and for value; and
(d) that at the time it was negotiated to him, he had no
* Ibid,
 RIGHTS OF THE HOLDER 87
86 NeGortias_e INSTRUMENTS Law Mave Easy

Law by Justice Camilo D. Quiason (Ret.), 3 SCRA 607,

notice of any infirmity in the instrument or defect of title of 609.)
the person negotiating to him. Then and only then will E be 3. Only clear and convincing evidence, not the mere
considered a holder in due course. self-servirig testimony of drawer, can rebut presumption of-
However, this rule where E will have to go through the holder in due course. (Travel-On, Inc. vs. Court of Appeals,
exercise of proving that he is a holder in due course will 210 SCRA 351 (1992].
not apply with respect to A and B because they aro parties
who are alroady bound on the instrument prior to the ac-
quisition of defective title. Hence, even if it is shown that
D's title is defective, E will still be considered a holder in
due course Insofar as A and B are concerned. Thus, E can
go against A and B in any event.
But not so with respect to C; E must prove first that he
is a holder in due course because C has a personal de-
fense of absence of consideration. But once E has proven
that he is a holder in due course, he can go against C be-
cause the personal defense of absence of consideration is
not a good defense against a holder in due course.
CASES

4. Who are considered holders in due course of

bilis, notes and checks. (Vicente R. de Ocampo & Co. vs.
Gatchalian, 3 SCRA 596 [1961]).
2. It does not follow that simply because a holder of
a bearer note is not a holder in due course, he can not
recover on the checks. If B purchases an overdue negotia-
ble note signed py A, he is not a holder in due course; but
he may recover from A if the latter has no valid excuse tor
refusing payment, The only disadvantage of a holder who
is ‘not a holder in due course is that the negotiabie instru-
ment is subject to defenses as if it was non-negotiable.
Therefore if the overdue checks were issued in payment
for shoes that were never delivered, A would have a good
defense as against a holder who is not so in dua course
(Chan Wan vs. Tan Kim, L-15380, September 30, 1960).
x

(Holder in Due Course under the Negotiable Instruments

 si ndeanteecnsll
LIASILIMIES OF Panties
89

that, on due presentment, the instrument will be ac-

CHAPTER V cepted or pald, or both, according to its tenor, and
that
LIABILITIES OF PARTIES if It be dishonored and the necessary proceedings on
dishonor be du!y taken, he will pay the amount thereof
to the holder or to any subsequent indorser who may
SECTION 60. Liability of maker.—The maker of a be compelled to pay it. But the drawer may insert in
negotiable instrument, by making it, engages that he the instrument an express stipulation hegativing or
will pay it according to its tenor, and admits the exis- limiting his own liability to the holder.
tence of the payee and his then capacity to Indorse.
1. The drawer is the one who executed the bill of
1, Warranties of a maker: exchange. He is only secondarily liable because he is
not
absolutely required to pay the instrument.
a) He will pay the promissory note according to
its tenor; 2. Warranties of the drawer:
b) He adinits the existence of the payee; and a) He admits the existence of the payee and his
c) He admits that the payee has the capacity to then capacity to indorse. (This warranty is
indorse. similar to that of the maker.)
2. The maker is the one who executed the promis- b) He engages that, on due presentment, the
sory note. He is the person primarily liable thereon. His bill will be accepted or paid, or both, accord-
liability:is absolute and unconditional in accordance with ing to its tenor;
the terms of the promissory note that he made. He cannot c) That if it is dishonored by non-acceptance or
vary its terms. non-payment, he will pay to the holder of the
3. The ‘maker cannot deny the existence of the bill or to any subsequent indorser who was
payee. He cannot allege that the payee is a fictitious per- compelled to pay It, provided the necessary
son. . ‘proceedings on dishonor were duly taken.
4, The maker is estopped from contesting the ca- 3. To fix the liability of the drawer, the following
‘pacity of the payee to indorse. For instance, he cannot steps must be taken:
allege that the payee is a minor, or insane. If the payee is a) Due presentment of the bill of exchange
a cérporation, he cannot allege that ils iridorsement is ultra to
the drawee, the person to whorn the bill is
vires the corporation. addressed. It may be presentment for accep-
SECTION 61. Liability of drawer—The drawer tance,” or presentment for payment;
whichever is necessary under the premises,
by drawing the instrument admits the existence of the
payee and his then capacity to indorse; and engages b} If dishonored, the necessary proceedings on
dishonor must be taken. In case of inland

®° Section 143, NIL.

88 “° Section 70, NIL,
 TE
90 Necoriaate INSTRUMENTS Law Mape Easy LIABILITIES OF PaRTIES
ot

bilis, a notice of dishonor; and in case of f) He admits the existence of the payee and his
foreign bills, protest.*? then capacity to indorse.
Both steps must concur: otherwise, the drawer will be 3. The acceptor need not accept according
discharged from liability. 4 to the
tenor of the instrument. He can vary the terms
of the in-
4, The drawer may negative or limit his liability to the strument such that he can become liable only
according to

aaes
holder by inserting a provision to that effect in the instru- his own terms. However, he fs absolutely required
to pay
ment; @.g., “in case of dishonor, according to the tenor of his acceptance.

pee
| am not liable for the
amount of this instrument.” 4. Example:
SECTION 62. Liability of acceptor.—The accep-
tor, by accepting the instrument, engages that he will P%0,000.00 February 24, 2006
Pay.It according to the tenor of his Manila, Philippines
acceptance and
admits: Pay to the order of Mara the surn of TEN THOU-
a) The existence of the drawer, SAND (P10,000.00) PESOS thirty (30) days
the genuineness after
of his signature, and his capacity and authority to
sight.
draw the instrument; and
(Sgd.) Rica
b) The existence of the payee and his then ca- To: Ada .
pacity to Indorse.
4.1 The drawee, Ada, is nota Party to the bill of
1. The drawee, not being a party to the instrument, is exchange and, as such, is not liable thereon.
not liable until he accepts; but once the drawee accepts, he
becomes known as the acceptor. As such, the acceptor is 4.2 Once Mara, the payee, Presents the in-
Primarily liable on the bill of exchange according to the tenor strument to Ada for acceptance, Ada can refuse to
accept and the bill is thus dishonored by non-
of his acceptance.
acceptance, At this point, proceedings on dishonor
2. Warranties of the acceptor: 7s: must be undertaken to fix the liability of Rica, the
Ta a) He will pay the bill according to the tenor of drawer.
his acceptance; 4.3 On the other hand, Ada can accept the bill
ED b) He admits the existence of the drawer; without varying its terms. That is a general accep-
Sp ¢) He admits that the signature of the drawer is tance. in this case, Ada is liable on the bill according
genuine; to the tenor of the instrument because that is the
tenor of his acceptance.
Cd) He admits the capacity of the drawer:
f, @) 4.4 However, Ada can vary its terms by writin
He admits that the drawer has the authority g
on tne face of the instrument and accept as follows:
to draw the instrument; and
a) “Accepted for P5,000.00 only. February 28,
*' Section 89, NIL. 2006, (Sgd) Ada; or .
* Saction 152, NiL.
92 NecotiasLe INSTRUMENTS Law Mave Easy
b) “Accepted, 60 days after sight.” February 28,
2006, (Sgd) Ada; or
c) “Accepted for P5,000.00 only, 60 days after
sight.” February 28, 2006, (Sgd) Ada;
d) Or any other condition that may be imposed
by Ada.
4.4.1 Mara can either accede to the condi-
tion and the bill will be paid accordingly; or Mara
can refuse the condition and treat the bill as dis-
honored,
5. The acceptor is under estoppel to deny the exis-
tence of the drawer, e.g., that the drawer is fictitious; or
that his signature is not genuine, e.g. that it is a forgery; or
that he has no capacity to contract, e.g. that the drawer is
a minor; or that the drawer has no authority to draw the
instrument, e.g. that the corporation as drawer is acting
ultra vires; or question the existence of the payee and his
then capacity to indorse.
SECTION 63. When a person deemed indors-
ers.—A person placing his signature upon an instru-
ment otherwise than as maker, drawer, or acceptor, is
deemed to be indorser unless he clearly indicates by
appropriate words his intention to be bound in some
other capacity.
1. A person who signs an instrument not as maker,
drawer or acceptor is deemed to have signed as an in-
dorser. If it is not clear in what capacity a person signed
the-instrument, he is deemed to be an incorser.* If a per-
son wants to be bound in some other capacity, he must
clearly indicate by appropriate words the limits of his liabil-
ity on the instrument.
“ Section 17(A, NIL.
Liagiuities OF Parties 93
2. An indorser may vary the terms of his liability.
Thus, he may indorse “san recourse” and limit his fiability
on the instrument. The indorser may “guarantee payment’,
in which case he may not be released from: lability even if
there is no presentment for payment and notice of dis-
honor, although he remains to be secondarily liable after
exhaustion of the principal debtor’s assets. The indorser
“ tnay also sign as “surety”, in which case he becomes
jointly and severally liable with the principal debtor without
regard to appropriate presentment for payment, notice of
dishonor and exhaustion of the assets of the principal
debtor.
3, If & parson signs an instrument “For purposes of
identification only’, he incurs no liability thereon.
SECTION 64. Liability of irregular indorser.—
Where a person, not otherwise a party to an instru-
ment, places thereon his signature in blank before
delivery, he is llable as indorser, in accordance with
the fatlowing rules:
(a) If the instrument is payable to the order of a
third person, he is liable to the payee and to all subse-
quent parties. -
{b) If the instrument is payable to the order of
the maker or Urawer, or is payable to bearer, he is li-
able to all parties subsequent to the maker or drawer.
(c) It he signs for the accommodation of the
payee, he Is liable to all parties subsequent to the
payee.
1. Only persons whose signatures appear on the in-
strument are liable thereon, Even if the name of a parson
appears on the instrument but absent his signature, he
cannot be held liable thereon. For instance, the name of
the drawee is written on the instrument but because his
signature is nowhere in the instrument, the drawee is not
liable for the amount of the instrument.
94 NeéaGortiase INSTRUMENTS Law Mave Easy
“2. Ordinarily, on the face of the instrument can be
found the signatures of the maker, drawer and acceptor.
3. At the back of the instrument, we usually find the
signature of the payee as first indorser; and so on by other
parties in the sequential order of their participation as in-
dorsers of the Instrument. Every indorser is liable to all
subsequent indorsere as a general rule. However, this rule
is net observed in the case of an irregular indorser.
' {
4. Anirregular indorser is so called because his sig-
nature is out of place. Instead of the expected signature of
a party to the instrument, the signature of the irregular
indorser is found in its place. For instance, where we ex-
pect the signature of the payee as first indorser, we tind
instead the signature of the irreguiar indorser as first in-
dorser and the signature of the payee as second indorser.
5. Requisites to be an irregular indorser:
a) He is not otherwise a party to the instrument;
b) He signs the instrument in blank; and
c) He signs before delivery of the instrurnent:
otherwise, if after delivery, Section 64 will
- not apply.
6. If the instrument is payable to the order of a third
person, (the irregular indovser) is liable to the payee and to
all subsequent parties.
This contemplates of. a situation where the payee
does not want to accept the Instrument unless the signa-
ture of another person of better financial means signs the
instrument as indorser. Perhaps the payee does not trust
the financial capability of the maker or drawer to pay the
instrument. Hence, the rich person procured to sign the
instrument at the back thereof as first indorser is called the
irregular indorser. This irregular indorser is liable to the
payee and to all parties subsequent to the payee.
7. If the instrument is payable to the order of the
maker or drawer, or is payable to bearer, (the irregular
LiasiLities OF PARTIES 95
indorser) is liable to all parties subsequent to the maker or
drawer.
In this case, the maker makes a promissory note pay-
able to himself; or the drawer draws a bill of exchange
payable to himself; or the instrument is payable to bearer.
Ordinarily, one would expect the maker or the drawer
as the first indorser of the instrument. Perhaps for reasons
of perceived financial inadequacy, the maker or drawar
cannot make the would-be transferee to accept the instru-
ment unless the signature of a trusted person is placed
i
thereon as firs’ indorser; after which, the maker or drawer
signs as second indorser. In other words, the trusted per-
son signs as irregular indorser to accommodate the maker
or drawer. As accommodated party, the maker or drawer
can not hold the irregular indorser liable on the instrument,
but the irregular indorser is liable to all parties subsequent
to the maker or drawer.
8. If he signs for the accommodation of the payee,
(the irregular indorser) is tiable te all parties subsequent to
the payee.
As adverted to earlier, one would expect the payee to
be the first indorser. Perhaps the payee needed the signa-
ture of another person jo; the transferee to accept the
instrument. Hence, this other person signs as first indorser
and the payee as second indorser. In this instance, the
other person becomes an irregular indorser who signs as
. an accommodation party; the payee being the accommo-
dated party. Thus, the payee cannot hold the irregular
indorser liable on the instrument but the irregular indorser
is liable to all parties subsequent to the payee.
SECTION 55. Warranty where negoiiation by de-
livery and so forth—Every person negotiating an in-
strument by delivery or by a quallfied indorsement
warrants:

96 Necoriaate Instruments Law Mape Easy
(a) “That the instrument is genuine and in all re-
spects what it purports to be; -» 0 fey
(b) That he has a good title to it; © Ce mng ten)
{c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which
would impair the validity of the instrument or render it
valueless. .,
But when the negotiation is by delivery only, the
warranty extends in favor of no holder other than the
immediate transferee.
The provisions of subdivision (c) of this section
do not apply to a person negetiating public or corpora-
tion securities other than bills and notes.
1. This section applies in the following instances:
. a) The instrument is payable to bearer and it is
negotiated by mere delivery;
b} The instrument is payable to order and it is
negotiated sans recourse (qualified indorse-
ment); and
c) The instrument is payable to order and the
only or last indorsement is an indorsement in
blank, and it is negotiated further by
delivery.
2. Warranties of the person negotiating by mere de-
livery or by qualifled iIndorsement:
a) That the instrument is genuine and in all re-
spects what it purports to be. Therefore, he
cannot allege forgery or material aiteration of
the instrument to escape liability thereon.
b) That he has good title to it. Therefore, he
* cannot allege fraud or absence of considera-
tion to escape liability on the instrument.
» Wik si antie, halal
WIABILITIES OF Parties 9%
c) That al! prior parties had capacity to contract,
Thierefore, he cannot escape liability by al-
leging the minority or insanity of prior parties
to the instrument.
However, persons negotiating public or corporate se-
curities other than bills and notes do not warrant that prior
parties had capacity to contract.
That he has no knowledge of any fact which
a)
would impair the validity of the instrument or
render it valueless.
Example: If the person primarily liable on the in-
strument is bankrupt and he knew about it but concealed
such fact from the holder at the time he negotiated the
instrument, he is liable; otherwise, he is not.
3. The person negotiating by mere delivery or by
qualified indorsement are only secondarily liable on the
instrument. Hence, they are liable only if the person pri-
marily liable will not pay and the four (4) warranties above
enumerated have been violated by them.
3.1. The only difference batween the liability of
a person negotiating by mere delivery and a person
negotiating by qualified indorsement is that the liability
mere
of the former extends only to his immediate trans-
feree; whereas, the liability of the latter extends to all
parties who derive title through his indorsement.
SECTION @6. Liability of general indoreer.—
Every indorser who indorses without qualification,
warrants to’all subsequent holders in due course:
(a) The matters and things mentioned In subdi-
visions (a), (b), and (c) of the next preceding section;
and
(b) That the Instrument is, at the time of his in-
dorsement, valid and subsisting;

98 Necoriasie INSTRUMENTS Law Mabe Easy
‘And,In addition, he engages that, on due pre-
sentment, it shall be accepted or paid, or both, as the
case may be, according to its tenor, and that if it be
dishonored and the necessary proceedings on dis-
honor be duly taken, he will pay the amount thereof to
the holder, or to any subsequent indorser who may be
compelled to pay it.
1. Warranties of a general indorser: © liability of an indorser, either as a general
a) . That the instrument is genuine and in all re-
spects what it purports to be;
b) That he has goad title to it;
c) That all prior parties had capacity te contract;
and
d) That itis valid and subsisting.
2, The warranties of a qualified indorser and a gen-
eral indorser are the same insofar as the first three warran-
ties are concerned. They differ only with respect to the
fourth warranty. ‘ 4.
2.1 A qualified indorser warrants that he is not
aware of ‘any fact which will impair the validity of the
instrument or render it valueless; whereas, a general
indorser warrants that the instrument is valid and sub-
sisting, i.e., that there is no fact which will impair the
validity of the instrument or render it valueless, re-
gardless of whether he is aware of it or not.
3. if the instrument is dishonored, the qualified in-
dorser is not fiableif he did not violate his warrarities. In
the case of a general indorser, if the instrument is dishon-
ored, he engages to pay the amount of the instrument to
the holder or to whomsoever may be compelled to pay it,
provided there is due presentment and the necessary pro-
ceedings on dishonor are duly taken; otherwise, the gen-
eral indorser will be discharged from liability.
LIABILITIES OF PARTIES 99
SECTION 67. Liability of indorser where paper
negotiable by delivery.—Where a person places his
indorsement on an Instrument negotiable by delivery,
he incurs all the liability of an indorser,
This section applies to instruments payable to bearer.
Note that such an instrument can be negotiated by mere
delivory. However, if a person negotiates such instrument
by indorsement completed by delivery, he will incur the
indorser or a
qualified indorser, depending upon the manner he indorses
the instrument.
SECTION 68. Order in which indorsers are Si-
able.—As respects one another, indorsers are liable
prima facie In the order in which they Indorse; but
evidence Is admissible to show that, as between or
among themselves, they have agreed otherwise. Joint
payees or Joint Indorsees who Indorse are deemed to
indorse jointly and severally.
The presumption is to the effect that indorsers are
liable in the order in which they indorse; unless it is shown
otherwise by parol evidence. ~
2, As between or among themselves , every indorser
is liable to all subsequent indorsers, As a general rule, an
indorser cannot be held liable to a prior indorser. An ex-
ception:to this rule would be the case of an irregular in-
dorser. (Please see discussion under Section 64.)
3. However, as far as the holder is concerned, he
can go against any indorser in any order.
4, Joint indorsers are liable jointly and severally.
Their liability boing solidary, a notice of dishonor given to
one of them will suffice to hold all the joint indorsers liable
on the instrument.
100 Necoriasle INstTauMeNTs Law Mabe Easy
4
;
SECTION 69. Liability of an agent or broker.— CHAPTER VI
Where a broker or other agent negotiates an Instru- PRESENTMENT FOR PAYMENT |
ment without Indorsemenit, -he incurs all the lIlabilities
prescribed by Section sixty-five of this Act, unless he
discloses the name of his principal and the fact that he SECTION 70. Effect of want of demand on prin-
is acting only as agent, cipal debtor.—Presentment for payment is not neces-
sary in order to charge the person primarily tiable on
This section refers to an instrument payable to bearer
the instrument; but if the instrument is, by its terms,
which is negotiated by mere delivery by an agent or broker.
payable at a special place, and he is able’ and willing to
In such a case, if the name of his principal and the fact that
pay it there at maturity, such ability and willingness
he is only an agent are not disclosed, he will be personally
are equivalent to a tender of payment upon his part.
liable on the instrument in the same manner as an indorser
But except as herein otherwise provided, presentment
who negotiated by mere delivery under Section 65 hereof.
for payment Is necessary i in order to charge the drawer
CASE and indorsers.

1. Warranties of a person negotiating an instrument SECTION 71. Presentment where instrument is

by delivery or by qualified indorsement. (Banik of the Phil- not payable on demand and where payable on de-
ippine Islands vs. Court of Appeals, 326 SCRA 641 mand,—Where the Instrument is not payable on de-
[2000)). mand, presentment must be made on the day It falis
due. Where it is payable on demand, ‘presentment
must be made within a reasonable time after Its issue,
that In the cage of a bill of exchange, presentment for
payment will be sufficient If made within a reasonable
"time after the last negotiation thereof.

SECTION 72.—What constitutes a sufficient pre-

sentment.—Presentment for payment, to be sufficient,
must be made—
(a) By the holder, or by some persons ‘author-
ized to receive payment on his behalf;
(b) Atareasonabie hour on a business day;
(c) Ata proper place as herein defined;

101
102 Neaoriagve INstayMeNTS Law Mave Easy PRESENTMENT FOR PAYMENT 103

(d) To the person primarily liable on the Instru- his personal representative, if such there be, and if,
ment, or if he is absent or inaccessible, to any person with the exercise of reasonable diligence, he can be
found. ‘ .
found at the place where the presentment Is made.
SECTION 77.~—-Presentment to persons liable as
SECTION 73. Place of presentment.—Present-
partners.—Where the persons primarily liable on the
ment for payment is made at the proper place—
instrument are liable as partners and no place of pay-
(a} Where a place of payment is specified in the ment is specified, presentment for payment may be
instrument and it is there presented; made to any one of them, even though there has been
(b) Where no place of payment is specified but a dissoiution of the firm.
the address of the person to make payment Is given in
the Instrument and it Is there presented; SECTION 78 Presentment to Joint debtors.—
Where there are several persons, not partners, primar-
(c) | Where no place of payment is specified and
ily liable on the Instrument and no place of payment is
no address is given and the instrument is presented at
’ specified, presentment must be made to them all.
the usual place of business or residence of the person
to make paymeni; SECTION 79. When presentment not required to
{d) In any other case if presented to the person charge the di awer.—Presentment for payment Is not
to make payment wherever he can be found, or if pre- required In order to charge the drawer where he has
senied at his last known place of business or resi- no right to expect or require that the drawee or accep-
dence. tor will pay the Instrument.
SECTION 74. Instrument must be exhibited.— SECTION 8&0. When presentment not required to
The Instrument must be exhibited to the person from , charge the indorser.—Presentment is not required [n
whom payment is demanded, and wher it is paid, must order to charge an indorser where the instrument was
be delivered up to the pariy paying it. made or accepted for his accommodation and he has
no reason to expect that the instrument will be pgid if
SECTION 75. Presentment where instrument presented. =
payable at bank.—Where the instrument is payable at a
bank, presentinent for payment must be made during SECTION 81. When delay in making present-
banking hours, unless the person to make payment ment is excused.—Delay in making presentment for
has no funds there to meet it at any time during the payment is'excused when the delay Js caused by cir-
day, in which case presentment at any hour before the cumstances beyond the control of the holder and not
bank Is closed on that day is sufficient. imputable to his default, misconduct, or negligence.
When the cause of delay cases to operate, present-
SECTION 76. Presentment where principal ment must be made with reasonable diligence.
debtor is dead.—Where the person primarily liable on
the instrument is dead and no place of payment is SECTION 82. When presentment for payment Is
specified, presentment, for payment must be made to excused.—Presentment for payment is excused:
104° NeGoTIABLE [INSTRUMENTS Law Mane Easy
“(a)” Where, after the exercise of reasonable dili-
gence, presentment, as required by this Act, cannot be
made;
(b) Where the drawee is a fictitious person;
(c) By waiver of preseniment, express oi im-
plied.
SECTION 83. When instrument dishonored by
non-payment.-—The instrument is dishonored by non-
payment when:
(a) It is duly presented for payment and payment
is refused or cannot be obtained; or
(b} Presentment is excused and the instrument
is overdue and unpaid.
SECTION 84. Liability of person secondarily li-
able, when instrument dishonored.—Subject to the
provisions of this Act, when the instrument is dishon-
ored by non-payment, an immediate right of recourse
to all parties secondarily liable thereon accrues to the
holder.
SECTION 85. Time of maturity.—Every negotia-
ble instrument is payable at the time fixed thergin
without grace. When the day of maturity falls upon
Sunday or a holiday, the instrumerits falling due or
becoming payable on Saturday are to be presented for
payment on the next succeeding business day except
that instruments payable on demand may, at the op-
tion of the holder, be presented for payment before
twelve o’clock noon on Saturday when that entire day
is not a holiday.
SECTION 86. Time: how computed.—When
instrument is payable at a fixed period after date, after
sight or after the happening of a specified event, the
time of payment is determined by excluding the day
PRESENTMENT FOR PAYMENT 105
from which the time is to begin to run, and by includ-
ing the date of payment.
SECTION 87. Rule where instrument payable at
bank.—Where the instrument is made payable at a
bank, It is equivalent to an order to the bank to pay the
same for the account of the principal debtor thereon.
SECTION 88. What constitutes payment in due
- ' course.—Payment is made in due course when it Is
made at or after the maturity of the payment to the
holder thereof in good faith and without notice that his
title is defectivs.
1. A valid presentment requires that the demand for
payment be made by exhibiting the instrument to the
proper person, at the proper place, and at the proper day
and time.
1.1. Presentment for payment must be made by
the holder, or any person authorized by the holder.
2. Presentment for payment is necessary to charge
persons secondarily liable on the instrument. Failure to
present the instrument for payment to the person primarily
liable thereon will discharge the drawer and indorsers from
any liability, unless presentment is excused or dispensed
with pursuant to the provisions of Sections 79, 80, 81 or 82
hereof,
2.1 In a promissory note, presentment for pay-
ment must be made to the maker. In a bill of ex-
change, presentment is made to the acceptor, if the
bill had previously been accepted; otherwise, to the
drawee. If the bill is payable on demand, presentment
is made to the drawee.
the
— 3, Presantment must be made on the day the in-
strument falls dus, i.e, on the date of its maturity without —
grace. If the date fixed is a Sunday or a holiday, the in-
 PRESENTMENT FOR PAYMENT 107

RRS
106 Neaotiasle INSTRUMENTS Law Mave Easy

einen tia tinkae

strument is payable on the next business day. If it falls due ceive payment on his behalf. (Associated Bank vs. Court of
Appeals, 208 SCRA 465 [1992)).

wie ame tak ca

on a Saturday, it may be presented for payment on the
succeeding business day unless the instrument is payable
on demand, in which case the holder has the option of
presenting it for payment before twelve o'clock noon of that
Saturday.
4, If the promissory note is payable on demand, it
must be presented for payment within a reasonable time
after its issue. If the bill of exchange is payable on de-
mand, it must be presented for payment within a reason-
able time after its last negotiation.
5. Presentment to joint debtors must be made to alll
of them at the place specified in the instrument. Present-
ment to solidary debtors or partners may be made to any
of them at the place specified in the instrument.
6. Where the principal debtor is dead, preseniment
for payment must be. made at the place specified in the
instrument. If no place is specified, presentment must be
made to his personal representative, if any and if he can
be found with the exercise of reasonable diligence; other-
wise, presentment is dispensed with.
7. When the cause is not attributable to the fault of the
holder, delay in making presentment is excused when caused
by circumstances beyond his control, e.g. force majeure or
acts of God.
8. When the instrument is dishonored by non-
payment, an immediate right of recourse against all parties
secondarily liable on the instrument accrues in favor of the
holder,
9. Payment in due course discharges the instru-
ment.
CASE
1. Presentment for payment to be sufficient must be
made by the holder or by some person authorized to re-
 Notice oF DisHonor 109

CHAPTER Vil c) When notice of dishonor need not be

given to the drawer under Section 114;
NOTICE OF DISHONOR d) When notice of dishonor need not be
given to the indorsers under Section
115;
CTION 89. To whom notice of dishonor must
be given.—Except as herein otherwise provided, when e) When due notice of dishonor by non-
a negotiable Instrument has been dishonored by non- aoooptance has previously been given,
acceptance or non-payment, notice of dishonor must a subsequent notice of dishonor by non-
be given to the drawer and to each indorser, and any payment need not be given under Sec-
drawer or indorser te whom such notice is not given is tion 116; and
discharged. f) When omission to give a notice of dis-
honor by non-acceptance does not
1. A natice of dishonor is necessary in order to fix prejudice the rights of a holder in due
the liabilities of parties secondarily liable on the instrument. course subsequent to the omission un-
The drawer and the Indorser must be given a notice of der Section 117.
dishonor once the instrument is dishonored pursuant to the
3. Tho holder need not give a notice of dishonor to
warranties they made when they affixed their signatures on
the drawer and to all the indorsers of the instrument. It is
the instrument.
the prerogative of the holder to chose whom to give a no-
1.4. The partes primarily liable on the instru- tice of dishonor; and those who were not notified will be
ment need not be given a notice of dishonor because discharged from liability. ”
they were the ones who dishonored the instrument.
CTION:$0. By whom given.—-The notice may
1.2 The drawee need not be given a notice of be given by or on behalf of the holder, or by or on be-
dishonor because he is not a party to the instrument half of any party to the instrument who might be com-
until he accepts.
pelled to pay it to the holder, and who, upon taking It
2. . AS a general rule, failure to give a notice of dis- up, would have a right to reimbursement from the
honor to the drawer or indorsers will discharge them from party to whom,the notice is given.
any liability on the instrument.
CTION 91. Notice given by agent.—Notice of
2.1 Exceptions: dishonor may be given by any agent either In his own
a) When there is a waiver of notice of dis- name or in the name of any party entitled to give no-
honor under Section 109; tice, whether that party be his principal or not.
b) When notice of dishonor is dispensed 1. The notice of dishonor may be givan by anyone of
with under Section 112;
the foltowing:
a) by the holder;
108 -
110 NEGOTIABLE INSTRUMENTS Law Mave Easy
' b) By a paity to the instrument who might be
compelled to pay it and who has a right of re-
imbursement frem the party to whom notice
is given; and
¢) By an agent in behalf of a) or b) above,
2. Example: A, maker, issued a promissory in fa-
vor of B or ordar, payee. B negotiated the note to C: C to
D;’D to E, holder. On due date, E presents the note to A for
payment, A dishonors the note.
In this example, E may give a notice of dishonor to all
indorsers B, C and D. Upon being notified, D oan give a
notice of dishonor to B and C, persons from whom D has a
right of reimbursement. In the same manner, C can give
notice to B frora whom C has a right of reimbursement
also. However, C cannot give notice to D because C has
no right of reimbursement from D. Ordinarily, therefore, an
indorser of an instrument can give notice of dishonor to a
prior indorser and not to a subsequent indorser; unless
precluded to do so because of accommodation.
3. An agent, whether specifically authorized or not,
may give a notice of dishonor either in his own name or in
the name of any party entitled to give notice. The agent
need not give the notice of dishonor in the name of his
principal.
USECTION $2. Effect of notice on behalf
holder.—Where notice is given by or on behalf of the
holder, it Inures to the benefit of all subsequent hold-
ers and all prior parties who have a right of recourse
against the party to whom it is given. . against B even if they themselves did not give a notice of
SECTION 93. Effect where notice is given by
party entitled thereto.—Where notice is given by or on
behalf of a party entitled to give notice, it Inures to the
benefit of the hoider and all parties subsequent to the
party to whom notice is given.
Notice oF DisHoNoA 111
1. The notice of dishonor in Section 92 is given by the
holder. In Section 93, the notice of dishonor is given, not
by the holder, but by a party entitled to give a notioe of
dishonor under Section $0.
2. The notice of dishonor given by the holder inures
to the benefit of the following:
a) Ail subsequent holders. It is possible that af-
ter the dishonor, the holder will negotiate
the instrument to another person. In this
case, the holder need not give a notice of
dishonor to prior parties anymore, Since the
Instrument is already overdue (due to the
dishonor), the subsequent holder merely
steps into the shoes of the original holder
who gave the notice of dishonor,
b) All prior parties who have a right of recourse
against the person to whom the notice is
given.
2.1 A, maker, issued a promissory note pay-
able to the order of B, payee. B negotiated the note to
C; C to D, D to E, holder. Upon presentment for pay-
ment by E, the note is dishonored by A. Thereupon, E
gives a notice of dishonor to B, G and D. And then E
negotiates the instrument to F, subsequent holder,
of In this example, the notice of dishonor given by E to B
inures to the benefit of C and D because they are parties
prior to E who have a right or recourse against B. In the
event C or D is compelied to pay the nots, they can go
dishonor to B.
in the same manner, the notice of dishonor given by E
inures to tha benefit of F, the subsequent holder. Even if F
will not give a notice of dishonor to prior parties, F can go
against them.
016715
ee ewan PROPESSTIONAT, SCHONTS
112 NeGoTiaste InstAUMENTS Law Mape Easy
3. The notice of dishonor given by a party entitled to
give notice inures to the benefit of the following:
a) The holder; and
b) All parties subsequent to the party to whom
the notice of dishonor is given.
3.1 Example: Consider the facts in the example
given in paragraph 2.1 hereof in relation to A (maker),
B (payee), C, D, E, holder.
If D gives a notice of dishonor to C, E need not give
© a notice of dishonor, since D's notice of dishonor given
to C inures to the benefit of E. Thus, E can hald C liable on
the instrument.
If C gives a notice of dishonor to B, D and E need not
give a notice of dishonor to B, since C’s notice of dishonor
given to B inures to the benefit of D and E. Thus, D and E
can hold B liable on the instrument.
SECTION 94. When agent may give notice—-
Where the instrument has been dishonored in the
hands of an agent, he may either himself give notice to
the parties liable thereon, or he may give notice to his
principal. If he gives notice to his principal, he must do
so within the same time as if he were the holder, and
the principal, upon the receipt of such notice, has
himself the same time for giving notice as If the agent
had been an Independent holder.
1. In the event an instrument is dishonored in his
hands, the agent may do either of the following:
a} Give the notice of dishonor himself to all
parties liab!e on the instrument.
In this instance, the agent must give the notice of dis-
honor within the time fixed by Sections 102, 103 and 104,
unless delay is excused under the provisions of Section
113 hereof.
Notice of Dishonor . 113
b} Give the notice of dishonor to his principal
1 within the time frame given above.
In this instance, once he is in receipt of the notice, the
principal also has to give the notice of dishonor to all par-
ties liable on the instrument within the same time frame set
by law, unless delay is excused.
SECTION 95, When notice sufficient.—A written
notice need rot be signed and an insufficient written
notice may be supplemented and validated by verbal
communication. A misdescription of the instrument
does not vitiate the notice unless the party to whom
the notice is given is in fact misled thereby.
SECTION 96. Form of notice—The notice may
be in writing or merely oral and may be given in any
terms which sufficiently Identify the instrument, and
indicate that it has been dishonored by non-
acceptance or non-payment. lt may In all cases be
given by delivering it personally or through the mails.
1. A notice of dishonor may be given either orally or
in writing. No particular form is required. It may be given by
telephone or by text message, provided the person notified
is adequately apprised of the dishonored instrument.
1.1° A written notice of dishonor need not be
signed. Any deficiency in the written notice may be
elaborated or set right subsequently. Only a misde-
scription of the instrument which misled the recipient
will invalidate the notice of dishonor.
2. Anotice of dishonor may either be delivered per-
sonally or thru the mails.
SECTION 97. To whom notice may be given.—
Notice of dishonor may be given either to the party
himself or to his agent in that behalf.
 114 NeGotiase INSTAUMENTS Law Mang Easy Notice of DisHonor 115

SECTION 98. Notice where party is dead.—
When any’ party is dead and his death is known to the
party giving notice, the notice must be given to a per-
sonal representative, if there be one, and If with rea-
sonable diligence, he can be found. If there be no per-
sonal representative, notice may be-sent
residence or last place of business of the deceased.
SECTION 99. Notice to partners.—Where
parties to be notified are partners, notice to any one
partner is notice to the firm, even though there has
been a dissolution.
SECTION 100. Notice to persons jointly liable.—
Notice -to joint persons who are not partners must be
given to each of them unless one of them has author-
ity to receive such notice for the others.
SECTION 101. Notice to bankrupt.—Where a his claim in the insolvency proceedings,
party has been adjudged a bankrupt or an insolvent, or
has made an assignment for the benefit of creditors,
notice may be given either to the party himself or to
his trustee or assignee.
1, The notice may be given to the party himself or to
his agent who is specifically authorized to receive the no-
tice of dishonor.
1.1 The agent, or anybody for that matter, may
give a notice of dishonor for and in behalf of a party to
the instrument whether he is authorized to do so or
not. However, the agent of a party cannot receive a
notice of dishonor unless authorized to do so by his
priricipal.
1.2
If notice of dishorior is given to an agent
with no authority to receive notice, the agent should
communicate such notice to his principal to bind the
latter; otherwise, the notica given is ineffectual.
2. {f the party giving notice is aware of the fact that a
party liable on the instrument is dead, the notice must be
given to his personal representative, if any, and if with the
exercise of reasonable diligence he can be found; other-
wise, notice may be sent to the last known residence or
to the last place of business of the decedent. .
3. If the parties to be given notice of dishonor are
partners, notice to any of them is notice to the firm even
the though the partnership has been dissolved. This is so be-
. cause the partners are considered agents of the firm.
4, Persons who are liable jointly must each be given
a notice of dishonor, unless one has authority to receive
forthe others. -
5. Notice to a bankrupt or an insolvent adjudged as
such, or to one who has made an assignment for the bene-
fit of creditors, miay either be given to the party himself, or
to his trustee or assignee. However, the holder must file
SECTION 102. Time within which notice must be
given.Notice may be given as soon as the instru-
ment is dishonored and, unless delay is excused as
hereinafter provided, must be given within the time
fixed by this Act. +
SECTION 103. Where parties reside In same
place.—Where the person giving and the person to
receive notice reside in the same place, notice must be
given within the following times:
(a) If glven at the place of business of the person
to receive notice, it must be given before the close of
business hours on the day following.
(b}) If given at his residence, it must be given be-
fore the usual hours of rest on the day following.
 116 Necoriaste INSTRUMENTS Law Mave Easy
(c) If sent by mail, it must be deposited in the
post-office in time to reach him in the usual course on
the day following. ; 4.
SECTION 104. Where parties reside In different
places.—Where the persons giving and the person to
recelve notice reside in different places, the notice
must be given within the following times:
{a) If sent by mail, it must be deposited In the
post-office in time to go by mail the day following the
day of dishonor, or if there be no mail at a convenient
hour on last day, by the next mail thereafter.
(b) If given otherwise than through the post-
office, then within the time that notice would have
been received in due course of mail, If it had been de-
posited in the post-office within the time specified In
the last subdivision.
1. Notice of dishonor must be given only after the
instrument is dishonored. A notice of dishonor given before
the instrument is actually dishonored is ineffectual,
2, After an instrument is dishonored, the notice must
be given promptly within the time limits set by law; other-
wise, parties entitled to receive notice will be discharged
from liability, unless the delay is excused. The reason for
this is to enable the parties notified to preserve their rights
against prior parties.
3. Where parties reside in the same place, the no-
tice may either be given personally or by mail.
3.1 If given personally, the notice must be
given on the day following the dishonor of the instru-
ment either at the recipient’s place of ousiness before
the close of business hours or at his residence before
the usual hours of rest.
3.2 {If sent by mail, the notice must be depos-
ited in the post office such that it will be received by
Notice of Dishonor 117
the recipient on the day following the dishonor of the
instrument.
Where parties reside in different place, the notice
may either be given by mail or by other means.
4.1. If sent by mail, the notics must be depos-
ited in the post office such that it wili go by mail on the
day following the dishonor of the instrument; but if
there is no mail that day, then the notice should go by
next mail thereafter.
4.2 lt given by other means, the recipient
should receive the notice within the same time that he
would have received it had it been sent by mail.
SECTION 105. When sender deemed to have
given due notice.—Where notice of dishonor is duly
addressed and deposited in the post-office, the sender
is deemed to have given due notice, notwithstanding
any miscarriage in the mails.
SECTION 106. Deposit in post-office; what con-
stitutes.—Notice is deemed to have been deposited in
the post-office when deposited In any branch post-
offica or In any letter box under the control of the post-
office department.
1, Where the notice is properly addressed to a party,
with proper postage stamps anc deposited in the post
office, the sender is deemed to have given due notice of
dishonor, It does not matter if the addressee actually re-
ceived the notice. As long as the proper steps are taken
within the time limits provided by faw, the sender is pro-
tected and his rights against parties liable to him are pre-
served. This is so because any miscarriage in the mails
beyond his control will not prejudice him.
2. Notice is deemed deposited in the post office
“when it is dropped in a mail box under the control of the
post office,
118 NecoriaaLe INSTRUMENTS Law Mace Easy
‘SECTION 107. Notice to subsequent party; time
of.—Where a party receives notice of dishonor, he
has,
after the receipt of such notice, the same time for giv-
ing notice to antecedent parties that the holder has
after the dishonor.
1. A party who receives a notice of dishanor is enti-
tled to give a notice of dishonor to all prior parties who are
liable to him within the same time from his receipt of the
notice as if the instrument was dishonored in his hands.
The recipient of the notice is treated in the same manner
as the holder in whose hands the instrument was dishon-
ored. It is as if the instrument was dishonored only at the
time the recipient received the notice.
2. Example:
A, maker, issued a promissory note payable to the or-
der of B, payee. B negotiated the note to C, C to D, Dto E,
holder. The note was dishonored by A on August 21, 2006.
Ail the parties reside in Quezon City,
In this example, E must give a notice of dishonor to B,
C and D (to any of them or all of them as E may choose)
on August 22, 2006,
D, upon receipt of the notice, is entitied to give notice
of dishonor to prior parties B and C (to only one of them or
both of them as D may choose) on August 23, 2006.
C, upon receipt of notice, has the same time to give a
notice of dishonor to B on August 24, 2006.
SECTION 108. Where notice must be sent.—
Where a arty has added an address to his signature,
notice of dishonor must be sent to that address; but if
he has not given such address, then the notice must
be sent as follows:
{a) Either to the post-office nearest to his place
of residence or to the post-office where he is accus-
tomed to receive his letters; or
Notice oF DisHoNor 119
(b) If he lives In one place and has his-piace of
3 business In another, notice may be sent to the place
where he Is so sojourning.
a
{c) If he is sojourning In another place, notice
3 may be sent to the place where he is so sojourning.
}
z But where the notice Is actually received by the
3
3w party within the time specified in this -Act, it will be
sufficient, though not sent in accordance with the re-
quirement of this section.
:
1. The notice of dishonor must be sent to the ad-
dress given by the party in the insirument.
2. If the party did not indicate any address in the in-
strument, the notice of dishonor may be sent as follows:
a) If he resides in U.P. Village but he is accus-
tomed to receive his mails in Teacher's Vil-
lage, the notice may be sent to the post office
of either Village;
b) If he lives in U.P. Village but his place of
business is in. U.P. campus, the notice may be
sant to either place;
c) If he is temporarily residing in Boracay, the
notice may be sent to Boracay.
d) The party placed his address in the instru-
ment as U.P. Village and the notice was sent
to Sikatuna Village but the party actually re-
ce ved the notice nonetheless within the time
specified herein, such notice of dishonor will
suffice for purposes this requirement. What is
‘important is that the party was actually noti-
fied,
SECTION 109. Waiver of notice.—Notice of dis-
honor may be waived cither before the time of giving
notice has arrived or after the omission to give due
notice, and the waiver may be expressed or implied.
120 NEGOTIABLE INSTRUMENTS Law Mabe Easy Notice’ or DisHonon 124

SECTION 110. Whom affected by waiver.— 1. Protest is required only in cases of dishonor of
Where the waiver is embodied in the instrument itself, _ foreign biils.
It Is binding upon all partles; but, where It Is written 2, Waiver of protest includes the following: (a)
above the signature of an indorser, it binds him only. waiver of presentment; and (b} waiver of notice of dis-
honor.
1. The waiver of notice may be made by parties
secondarily liable on the instrument, i.e., the drawer and SECTION 112. When notice is dispensed with.—
the indorsers. Notice of dishonor is dispensed with when, after the
2. The waiver of notice may be made before or after exercise of reasonable diligence, it cannot be given to
the dishonor of the instrument. it may be express or im- or does not reach the parties sought to be charged.
plied.
SECTION 113. Delay in giving notice; how ex-
2.1 It is express if it is written on the instrument cused.—Delay in giving notice of dishonor is excused
itself. when the delay Is caused by circumstances beyond
2.2 {tis implied if it can be deduced clearly from the control ot the holder and not Imputable to his de-
the acis of the indorsers or drawers that they ac- fault, misconduct, or negligence. When the cause of
knowledged liability notwithstanding absence of no- delay ceases to operate, notice must be given with
tice. reasonable diligence.
3. If the waiver of notice is written on tha face of the 1. Where, after the exercise of reasonable diligence,
instrument itself, it binds all parties who are secondarily notice of dishonor cannot be made as required hereof,
liable on the instrument. then notice is dispensed with.
4. If the waiver of notice is written above the signa- 1.1. If notice is to be made at his residence or
ture of an indorser, he alone is bound by it. If tha subse- place of business but the party to be notified is ab-
quent indorsers are not given notice after the dishonor of sent, the notice may be left with a person of sufficient
the instrument, they will be discharged from _ liability discretion who is in charge of the place; otherwise, if
thereon. there is no such person, notice is dispensed with.
5. lf the waiver of notice is written at the back of the
instrument and it is followed by the signatures of indorsers, 2, When the cause fs not attributable to the fault of
it is the opinion of this writer that the waiver will bind only the holder; delay in giving notice of dishonor is excused
the immediately succeeding incorser and no other. when caused by circumstances beyond his control. But
once the cause for the delay ceases, notice must be given;
SECTION 111. Waiver of protest.—A waiver of otherwise, parties secondarily liable on the instrument will
protest, whether in the case of a foreign bill of ex- ba discharged from liability thereon.
change or other negotiable instrument, is deemed to
be a waiver not only of a formal protest but also of SECTION 114. When notice heed not be given to
presentment and notice of dishonor. drawer.-—Notice of dishonor is not required to be given
to the drawer in either of the following cases:

122 Necorias_e InsTRUMENTS Law Mane Easy
(a) Where the drawer and drawee are the same
person;
(b)- When the drawee is a fictitious person
person not having capacity to contract;
(c} When the drawer is the person to whom the
instrument is presented for payment;
(d) Where the drawer has no right to expect or
require that the drawee cr acceptor will honor the in-
strument;
c) Where the drawer has countermanded
ment.
1. As a general rule, notice of dishonor need not be
given to the drawer in instances where he knows or ought
to know that the bill of exchange has been dishonored or
will be dishonored, To put it simply, the drawer is net enti-
tled to be notified about something he already knows.
2. Where the drawer and the drawee are the same
person, the drawer was the one who dishonored the in-
strument. Moreover, under Section 130 hereof, the holder
may treat the instrument as a promissory note; hence. the
drawer is actually a maker- a person primarily liable who is
not entitled te notice.
3. In the same mainer, under Section 130 hereof,
when the drawee is a fictitious person or one not having
capacity to contract, the holder may also treat the instru-
ment as a promissory note. Thus, the drawer is treated as
a maker, a person primarily liable who is not entitled to
notice. Moreover, under this circumstance, the drawer has
no right to expect that the bill will be honored.
4. Where the bill is presented to the drawer for pay-
ment and the bill is dishonored by him, the drawer is not
entitled to notice because he already knows about the
dishonor of the bill since he was the one who dishonored
it.
:—
Notice oF DisHonor 123
5. Where the drawer has no funds with the drawee
or acceptor, or did not make any arrangement with them
or a about the payment of the bill, then the drawer has no right
to expect that the bill will be honored. Hence, the drawer is
not entitled to notice.
6. Where the drawer has countermanded payment,
- the drawer knows that the bill will be dishonored.
SECTION 115. When netice need not given to
indorser—Notice of dishonor is not required to be
pay- given to an Indorser in either of the following cases:
(a) When the drawee Is a fictitious person or not
having capacity to ccntract, and the Indorser was
aware of that fact at the time he indorsed the instru-
ment;
(b) Where the indorser is the person to whom
the instrument Is presented for payment;
{c) Where the instrument was made or accepted
for his accommodation.
1. Asin the preceding section, the indorser need not
be notified where he knows or ought to know that the in-
strument will be dishonored.
2. Where the indorser knows for a fact that the
drawee is fictitious or that the drawee cannot make a valid
acceptance because he does not have the capacity to
contract (e.g. minor, insane), then the indorser has no right
lo expect that the bill will be honored. Thus, even if no
notice of dishonor is given him, the indorser in this case
can still be held liable on the instrument,
3. Where the instrument is presented to the indorser
for payment and he dishonored it, the indorser is not enti-
iled to be notified about something he already knows.
4. Where the indorser is the accommodated party,
he is not entitled to notice because he is actually the prin-
cipal debtor and, therefore, the person primarily liable on
124 NeGoTiABLe INSTRUMENTS LAW Mabe Easy
the instrument. As such principal debtor, he need not be
notified about the dishonor of the instrument.
SECTION 116. Notice on non-payment where ac-
ceptance refused.—Where due notice of dishonor by
hon-acceptance has been given, notice of a subsequent
dishonor by non-payment is not necessary unless in
the meantime the instrument has been accepted.
1. Where the bill is dishonored by non-acceptance
by the. drawee and due notice of dishonor by
acceptance has been given to the drawer and the indors-
ers, there is no need to give a notice of dishonor by non-
payment upon the maturity of the bill. This is so bacause
there is no reason to expect that the same bill will be paid
upon its maturity; hence, there is no need to notify the
drawer and indorsers again about the dishonor of said bill
by non-payment.
1.1 However, if before its maturity, the bill is
accepted but later dishonored by non-payment upon
its maturity, the drawer and the indorsers must
given due notice of dishonor by non-payment; other-
wise, they will be discharged from liability. This is so
because the earlier notice of dishonor by non-
acceptance given the drawer and indorsers was ren-
dered ineffectual by the subsequent acceptance of
the bill. Hence, the necessity of the notice of dishonor
by non-payment that must be given to fix the liability
of the drawer and the indorsers,
2. Exampie:
April 1. 2006
- Pay to X or order the sum of TEN THOU-
SAND (P10,000.00) PESOS on May 10, 2006.
(Sgd) Y
To: Z
Notice oF Dishonor 125
X negotiated the bill to A; A to B; B to C; C to D, holder.
On April 25, 2006, D presented the bill for acceptance to Z
but Z refused to accept the bill. Due notice of dishonor by
non-acceptance was given by D to Y, A, B and C.
In this case, D need not give a notice of dishonor by
non-payment to Y, A, B and C when the bill matures on
May 106, 2006.
However, it Z accepted the bill on May 1, 2006 but
subsequenily refused to pay when the bill was presented
non- to him for payment upon its maturity on May 10, 2006, due
notice of dishonor by non-payment must be given by D to
Y, A, B and C; otherwise, the drawer and the indorsers will
be discharged from liability. ,
SECTION 117. Effect of omission to give notice
of non-acceptance.—An omission to give notice of
dishonor by non-acceptance does not prejudice the
rights of a holder in due course subsequent to the
omission.
be 1. Abill is dishonored by non-acceptance when it is
presented to the drawee for acceptance and he refusas to
accept it. In so doing, the refusal of the drawee is not writ-
ten on the bill itself as it is given verbally. Hence, there is
nothing on the face of the bill to show that it has been pre-
viously dishonored by non-acceptance. Consequenily, the
same bill may still be negotiated to an unsuspecting indi-
vidual.
2. Example
September 9, 2006
Pay to X or order the sum of TEN THOU-
SAND (P10,600.00) PESOS, thirty (30) days
after sight. -.
(Sgd) Y
To: Z
126 NeGoTaece INnstaUMEeNTSs Law Mane Easy Notice of Dishonor 127

X negotiated to A; A to B; B to C; C to D, holder. On 2. Delay in notice of dishonor, where such notice is

September 11, 2006, D presented the bill for acceptance
to Z in order to fix the maturity of the instrument. Z refused
to accept the bill and without giving due notice of dishonor
by non-acceptance, D forthwith negotiated the bill to E, a
holder in due course. ‘ ].aw regarding the iiability of a general indorser and the
Subsequently, on September 21, 2006, E presented
the bill for acceptance to Z but Z refused again.
As to D, the drawer Y and indorsers A, B and C are
discharged from liability for failure of D to give them due
notice of dishonor by non-acceptance.
This omission of D, however, will not prejudice E who
is a holder in due course. But to fix the liabilities of parties
secondarily liable on the instrument, E must give due no-
tice of dishonor by non-acceptance to Y, A, B and C. Even
if D is not given due notice, he would still be liable because
he already knew about the dishonor of the bill by non-
acceptance.
SECTION 118. When protest need not be made;
when must be made.—Where any negotiable instru-
ment has been dishonored, it may be protested for
non-acceptance or non-payment, as the case may be;
but protest Is not required except in the case of for-
eign bills of exchange.
required, discharged the drawer only to the extent of the
loss caused by the delay. (Great Asian Sales Center Cor-
poration vs. Court of Appeals, ibid).
3. Under the provisions of the Negotiable Instrument
procedure fer a notice of dishonor, it was incumbent on the
bank to give proper notice to respondent. (Associated
Bank vs. Tan, 446 SCRA 282 (2004).
4, The notice of dishonor of a check may be sent to
the drawer or maker by the drawee bank, the holder of the
check, or the offended party either by personal delivery or
by registered mail — the notice of dishonor to the maker of
a check must be in writing. (Rigor vs. People, 442 SCRA
450 [2004)). .
5. The notice of dishonor of an assigned check sim-
ply stresses its liability and the failure to give notice of
dishonor will not discharge it from such liability. (Nyco
Sales Corporation vs. BA Finance Corporation, 200 SCRA
_ 637 [1991]).

1. Protest is required only for foreign bills.

2. Protest is nol required for promissory noles and
inland or domestic bills. :
CASES

1. Anotice of dishonor is not requiredif the drawer

has no right to expect or require the bank to honor the
check, or if the drawer has countermanded payment.
(Great Asian Sales Center Corporation vs. Gourt of Ap-
peals, 381 SCRA 557 [2002)).
 DISCHARGE OF NEGOTIABLE INSTRUMENTS 129

~~ CHAPTER Vill 2. The accommodated party, whatever his participa-

tion may appear to be in the instrument, is actually the .
DISCHARGE OF NEGOTIABLE INSTRUMENTS principal debtor. Hence, payment by the accommodated
party will discharge the instrument.

SECTION 119, 3. A cancellation, to discharge an instrument, must

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 ac-
commodated, where the instrument is made
cepted for his accommodation;
(c) By the Intentional cancellation thereof by the
holder;
(d) By any other act which will discharge a sim-
ple contract for the payment of money;
(e) When the principal debtor becomes the
holder of the instrument at or after maturity in his own
right.
1. To discharge a negotiable instrument, the pay-
ment must be. made by the principal debtor at or after tha
maturity of the instrument.
1.1 Payment by a party secondarily fiable will
not discharge the instrument because he will just step
into the shoes of the holder and acquire the right to
demand payment from the principal debtor. The in-
strument will continue to exist and circulate as a con-
tract for the payrnent of money.
1.2 Payment before its maturity will
charge the instrument because in such a case the in-
strument can be re-negotiated.
128
be made by the holder. !t must be intentional and not made
by mistake. The holder in so doing clearly renounces his
rights as craditor in the instrument.
4. A simple contract for the payment of money may
be discharged by novation in accordance with the provi-
or ac- sions of Article 1292 of our Civil Code; hence, if the nego-
tiabla instrument is substituted by another obligation in its
place, the said instrument is discharged. So, also, a nego-
tiable instrument may be discharged by operation of law
wheres a final judgment takes the place of the instrument in
a suit brought against the principal debtor. In the same
manner, renunciation by the holder pursuant to the provi-
sions of Section 122 hereof may discharge an instrument.
5. Under Article 1231 of our Civil Code, obligations
are extinguishud by the confusion or merger of the rights of
creditor and dabtor. Thus, when the principal debtor be-
comes the holder of the instrument in his own right at or
after its maturity, there is such confusion or merger of the
rights of debtor and creditor. Consequently, the instrument
is discharged.
SECTION 120. When persons secondarily liable
on the Instrument are discharged.--A person secon-
darily liable on the instrument is discharged.
(a) By any act which discharges the instrument;
not dis- (b) By the intentional cancellation of his signa-
ture by the holder;
(c) By the discharge of a prior party;
(d} By a valid tender of payment made by a prior
party;
130 NeGoTiaBLe INSTRUMENTS Law Mave Easy
(e}) By a release of the principal debtor unless
the holder's right of recourse against the party secon-
darily liable is expressly reserved;
_ (f} By any agreement binding upon the holder to
extend the time of payment or to postpone 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 is expressly re-
served. : ily liable thereon will be discharged from liability on the
2 instrument.
i. The discharge of the instrument releases all par-
ties thereto from any liability thereon, inclusive of both
those who are primarily and secondarily liable on the in-
strument.
2. Intentional cancellation; discharge of a prior party;
valid tender of payment. Example:
A, maker, issued a promissory note payable to the or-
der of B, payee. B negoliated to C; C to D; D to E, holder.
2.1 E cancelled the signature of C. In this case,
C is discharged by the intentional cancellation of his
_ signature by the holder,
2.2 D is also discharged because of the dis-
charge of a prior party C. This is so because by the
voluntary act of the holder, E deprived D of the right to
go.against C if he should be held liable thereon. It is
therefore only just that the discharge of © should also
discharge D.
2.2.1. The discharge of a prior party to dis-
charge a person secondarily liable on the instru-
ment must be by the voluntary act of the holder,
and nat by operation of law, e.g., bankruptcy or
failure to give notice of dishonor.
2.3 If B should make a valid tender of payment,
and E refused the same, ali parties subsequent to B
DiscHarGe oF NEGOTIABLE INSTRUMENTS 131
are discharged from liability. Hence, the valid tender
of payment made by B wilt discharge C and D. This is
so because had E accepted the valid tender of pay-
ment by B, then C and D would have been discharged
from liability on the instrument. That the instrument
remains unpaid is clearly the fault of E.
3. Ordinarily, the release of the principal dsbtor will
discharge the instrument. Consequently, partias secondar-
,
3.1 To discharge parties secondarily liable, the
release of the principal debtor should be for value and
made by the voluntary act of the holder and not by
mers operation of law.
3.2 However, parties secondarily liable on the
instrument, are not discharged should the holder ex-
pressly reserve his right to go against them. In this
event, although the holder cannot go against the prin-
cipal debtor, the parties against whom the holder will
hold liable can still go against the principal debtor.
4. To release parties secondarily liable, the exten-
' sion of time for payment must be a binding contract made
by the holder with the principal debtor, supported by valu-
abie consideration and for a detinite period.
SECTION 121. Right of party who discharges
instrument.—Whoere the instrument is paid by a party
secondarily Ilable thereon, it is not discharged; but the
. party so paying It is remitted to his former rights as
regard ail prior parties, and he may strike out his own
and all subsequent indorsements and again negotiate
the instrument, except:
“ Cape Charles Bank vs. Farmers Mutual.Exchange, 120 Va.
771, 92 S.E. 918.
 132 Necotiasle INSTRUMENTS Law Mave Easy
(a) Where it is payable to the order of a third
person and has been paid by the drawer; and
(b) Where it was made or accepted for accom-
modatlon and has been paid by
the party accommo-
dated.
1, Payment made by a party secondarily fiable will
not discharge the instrument. The party so paying will have
the following status and rights:
1.1. He will be remitted to his former rights as
regard all prior parties.
Example:
A, maker, issued a promissory payable to the order of
B, payee, as a biithday gift. For value received, B negoti-
ated to C; C to D; D to E. holder. Then, upon the maturity
of the instrument, payrnent was made by B to E.
In this example, B is remitted to his former standing
as a party who is not a holder in due course, as regard the
prior party A. B cannot acquire the rights of his immediate
predecessor E under Section 58 hereof. Hence, B cannot
go against A who has the personal defense of absence of
consideration to insulate him from liability.
1.2 He may strike out his own and all subse-
quent indorsements.
In the illustration given, B may strike out his own in-
dorsement to C as well as all subsequent Indorsement
from ¢C to D and D to E. This is so because all these in-
dorsements are not necessary to his title. . debtor at or after its maturity discharges the instru-
1.3 He may again negotiate the instrument.
This is so because the instrument is not discharged.
In the illustration abcve, B may negotiate again the note to
another person. Hence, the note will circulate once more.
DISCHARGE OF NEGOTIABLE INSTRUMENTS 133
2. €xceptions to the right to re-negotiate:
(a) Where a bill of exchange payable to the or-
der of a third person is paid by the drawer
upon the maturity of the instrument.
(b) Where the instrument is paid on due date by
the accommodated party. Having been paid
by the principal debtor, the instrument is
discharged,
SECTION 122. Renunciation by holder.—The
hoider may expressly renounce his rights against any
party to the Instrument before, at, or after iis maturity,
An absojute und unconditional renunciation of his
rights against the principal debtor made at or after the
maturity of the instrument discharges the instrument.
But a renunciation does not affect the rights of a
holder in due course without notice. A renunciation
must be In writing unless the Instrument Is delivered
up to the person primarily liable thereon.
1. The exprass renunciation by the holder of his
rights must be absolute and unconditional. :
2. The renunciation may be in faver of a party to the
instrument, or in favor of the principal debtor.
2.1 The party in whose favor the renunciation is
made at any time will be released from liability as well
as those subsequent to him and who have a right of
recourse againet him.
2.2 The renunciation in favor of the principal
ment. Necessarily, persons secondarily liable thereon
are likewise discharged from liability.
3 However, renunciation cannot affect the rights of a
holder in due course without notice.
 134 NEGOTIABLE INSTRUMENTS Law Mace Easy DiscHAAGe oF NeGotiasLe INSTRUMENTS 135

4, “Under this section, an instrument may be dis- SECTION 125. What constitutes a material al-
charged by renunciation without consideration, if it is in teration.—Any alteration which changes:
writing; if orally made, by surrendering the instrument.” (a) The date;
SECTION 123. Cancellation; unintentional; bur- (b) The sum payabie, either for principal or inter-
den of proof.—-A cancellation made unintentionally or est;
under a mistake or without the authority of the holder, (c) The time or place of payment;
Is inoperative but where an Instrument or any signa- (d) The number of the relations of the parties;
ture thereon appears to have been cancelled, the bur- {e) The medium or currency in which payment Is
den of proof lies on the party who alleges that the can- to be made; :
cellation was made unintentionally or under a mistake
or without authority. . {f) Or which adds a place of payment where no
place of payment is specified, or any other change or
1. The cancellation may be of the instrument itself or additlon which ste the effect “af the Instrument in
a mere signature thereof. any respect, Is a material alteration.
2. The cancellation may be made by crossing, tear- 1. Any change. addition, substitution or erasure
ing, erasing, burning or by any other means which obliter- which alters the effect of the instrument is a material altera-
ates the signature or destroys the instrument. tion.
3. Any cancellation is presumed to have been made 2. Liabilities of parties in material alteration;
with the intention of discharging the instrument or a party
thereto. Anybody who alleges otherwise has the burden of Example:
proof to show mistake or absence of intention or absence
of authority. A issued a promissory note in the amount of
P 10,000.00 payable to the order of B, payee. B negotiated
pexor ol. SECTION 124. Alteration of instrument; effect to G who convinced B that he be allowed to change the
va of.—Where egotiable instrument is materially al- amount to P40,000.00 so he can pay his debts to D.
dist
tered Vithout the assent of all part
parties liable thereon, it Thereafter, ° negotiated to D; D to E, holder.
is avoided, except as against a party who has himseif (a) Can E go against D? Yes, because D is a sub-
saquent indorser. As such, D warrants that the instrument
pee
made, authorized, or assented to the alteration and
Te, subsequent indorsers. ig What Tf purparts-to be and that it Is valid and subsisting.
OMe an! But when an instrument has been materially al- ence, D is estopped from denying the validity of the in-
tered and is in the _bands.of a holderin dueccurse.€ot> strument.
a_party to the alteration, he may enforce payment (b} Can E go against C? Yes, because C was the
thereof according to.its original tenor. one whe altere the instrument;
d and also because of his
warranties as a general indorser, ‘
(c) Can E go against B? Yes, because B assented
to the
alteration; and also because of his warranties, =>
“* Gannon vs. Bronston,.55 S.W. 358, 86 A.L.R. 324 (1933). -
 136 Neeotiagte INSTRUMENTS Law Mave Easy

~
(d} Can E go against A? IGepends-dn whether E is CHAPTER IX
a holder in due course or not. If E is nota holder in due
course, the instrument savor das to him; hence, E can- * BILLS OF EXCHANGE
not. go against A. Howev is a holder in due course, E FORM AND INTERPRETATION
may enforce the instrument according to its original tafor;
hence, Fore oe Baainet A put only for P10,000.00, the
original t é instrument SECTION 126. Bill of exchange defined.—A bill
N.B. Suppose the instrument in the example above is of exchange Js an unconditional order in writing ad-
a bill of exchange and the bill is addressed to X as drawee. dressed by one person to another, signed by the per-
ls X, drawee, liable? No, because X as drawee is son giving it, requiring the person to whom It is ad-
not a to the instrument until he accepts. dressed to pay on demand or at a fixed or determin-
able future time a sum certain in money to order or to
(f} Suppose X accepts, is X as acceptor liable? If so,
for how much? If not, why not? bearer.
There are two (2) schools of thought in this regard. 1. If the bill of exchange conforms with the requisites
First view maintains that the acceptor X is liable only ac- of negotiability as discussed in Chapter { hereof, it is nego-
cording to the oliginal tenor of the instrument which, in this tiable; otherwise, it is not.
case, is P10,000.00. 2. Types cf Bills of Exchange:
‘Second view asserts that the acceptor is A able_ac-
rere) f his agceptance, Thus, if X accepted
(a) Draft. The term “draft” is often used and is
prior to the alteration of the instrument, he would be liable ihe common term for all bills of exchange.
only for P410,000.00 because that is the tenor of his accep- And the words “draft” and ° “bill of exchange”
tance. However, if X accepted after the alteration of the , .are used indiscriminately.”
instrument, he would be liable for P40,000.00 because that (b) Trade Acceptance. A bill of exchange
is the tenor of his acceptance. In the opinion of this writer, drawn by a person, payable to his order and
the second view is the better view. accepted -by another, usually for merchan-
dise received by the latter.”
(c) Banker’s Acceptance. A bill of exchange
draft payable at maturity that is drawn by a

*® Republic vs. Philippine National Bank, 113 Phil. 831, cited in

Moreno, Phil. Law Dictionary, (2d) 678,
*” Admiral Investment & Financing Co. vs. Lianga Industries Inc.
35050-R, August 19, 1968; 13 C.A.R.+. (2s) 685, cited in Moreno, Phil.
Law Dictionary (2d) 678.

137
138 | Necoriasie INSTRUMENTS Law Mane Easy
creditor against his or her debtor. Banker's
acceptance are short-term credit instru-
mants most commonly used by persons or
firms engaged in international trade. They
are comparable to short-term government
securities (for example, Treasury Bills) and
may be sold on the open market at a dis-
count.”
(d) Bank draft. A check, draft or other order for
payment of money, drawn by an authorized
officer of a bank upon either his own bank
or some other bank in which funds ‘of his
bank are deposited.
(e) Postal Money Order. An instrument, repre-
senting remittance in cash, issued by the
government postal authorities through
money order offices, for public convenience
and to insure greater security inthe transfer
of money through the mails. It is considered
and treated as cash.™ It is not negotiable.
. (f) Treasury Warrant. {t is an order in check
form on the Treasury on which government
disbursements are paid.*"
(g) Time Bill. A bill of exchange which contains
a definite or determinable date for payment
in contrast to a demand or sight bill.
(h) Bills in set. A series of bills, each bearing a
number, and providing that a certain bill is
48 Black's Law Dictionary, 5" Edition, p. 133.
“° Perry vs. West, 110 N.H. 35%, 266 A. 2d 849, 852; cited in
Black's Law Dictionary, 5” Edition, p. 132,
*° Samonta vs. Flores, 43500-R, September 3, 1971: 16 C.A.R.
(2s) 761, cited in Moreno, supra..
' Guiled from Black's Law Diciionary, 5" Edition, p. 1846.
5? Black's Law Dictionary, 5" Edition, 1329.
Bits of ExcHance 139
Form AND INTERPRETATION
valid only if payment has not been made
against another bill.”
(i) Blank Bill. Bill 3 exchange with payee’s
name left blank.
() Clean Bill Bill of exchange without docu-
ments attached,®
(k)) Documentary draft. It is one the honor of
which is conditioned upon the presentation
of a document or documents. “Document”
means any daper including document of ti-
tle, security, irivoice, certificate, notice of de-
‘ault and the like. The papers are to be de-
livered against honor of the draft.
3. Letter of Credit
A written instrument from a bank in one place, di-
rected to another in another place or country, .requiring
_ him, if a person therein named or the bearer of the letter
shall have occasion to buy commodities or to want money,
gither to procure the same or to pass his promise, bill, or
other engagement for it, the writer of the letter undertaking
to provide him the money for the goods or to repay him by
exchange or to give him such satisfaction as he shall re-
quire either for himself or the bearer of the fetter.”
In the case of goods delivered to a buyer or barterer
by the seller or owner of said goods on the faith of the
undertaking of the writer of the letter of credit, the theory is
that the ownership of the goods and/or proceeds thereof
when sold or otherwise disposed of, belong to the writer;
consequently, a trust receipt is required signed by the
buyer or barterer, undertaking to keep the goods or the
59 Culied from Black's Law Dictionary, 5" Euition, p. 153.
®* Black's Law Dictionary, eV Edition, p. 185.°
55 Black's Law Dictionary,5 * Edition, p. 227,
58 Ibid, p. 432.
57 China Banking Corporation vs. Tecson, SP-09034-R, March 14,
1980: cited in Morano supra.
140 ~° Necoviaste INSTRUMENTS Law Mane Easy Bitts or EXCHANGE 144
FOAM AND INTERPRETATION

proceeds thereof as the property of the writer of the letter thereof.” This is as it should be; otherwise, if the bill will
of credit,” operate as an assignment of funds, the bill will become
4, Trust Receipt. An arrangement by virtue of which non-negotiable because its tenor will appear to be an indi-
a banker advances money to a person for the importation cation of a particular fund out of which payment is to be
of goods; the former taking full title to the goods at the very made. Hence, the order to pay is no longer unconditional. :
beginning and continuing to do so until he is paid, or 'f the SECTION 128. Bill addressed to more than one
goods have bean sold, until the proceeds of the sale are drawee.—A bill may be addressed to two or more
turned over to him by the importer or successer in inter- drawees Jointly, whether they are partners or not; but
est. net to two or more drawees in the alternative or In
SECTION 127. Bill not an assignment of funds succession.
in hands of drawee.—A bill of itself does not operate 1. A bill may be addressed to two or more drawees
as an assignment of the funds in the hands of the
drawee available for the payment thereof, and. the
" jointly.
drawee is not liable on the bill unless and until he ac- Example: To A and B
cepts the same, : 2. A bill cannot be addressed to two or more
drawees in the alternative.
1. As adverted to elsewhere in this book, the drawee
is not a party to the bill and cannot be held liable thereon Example: To AorB
until he accepts. 3. A bill cannot be addressed to two or more
2. The bill is nothing more than an order by the drawees in succession.
drawer directing the drawee to pay the tenor of the bill. The
drawee may or may not obey the order of the drawer. If the Example: To A, or in his absence, to B.
drawee obeys, tie becomes liable to the payee (holder) SECTION 129. Inland and foreign bilis of ex-
according to the tenor of his acceptance. If he does not change.—An inland bill of exchange is a bill which is,
obay, he is not liable to the payee (holder) in any manner.
or on its face purports to be, both drawn and payable
3. The fact that the crawer issues a bili in favor of within the Phi‘ippines. Any other bill is a foreign bill.
the payee for a certain amount does not mean that the Unless the contrary appears on the face of the bill, the
said amount is thereby segregated from the moniss in the holder may treat It as an inland bill.
hands of drawee and already assigned specifically for the
payment of the bill. This is what is meant by the statement 1. A bill drawn in the Philippines and payable in the
that a bill “does not operate as an assignment of the funds Philippines is an inland bill; otherwise, it is a foreign bill.
in the hands of the drawee available for the payment
1.1. The following are foreign bills:
58 Rice &-Com Administration vs. Delgado, 34012-R, January 8, a) A bill drawn in the Philippines and payable in
1973; cited in Moreno, supra. another country; or
* Philippine National Bank vs. Jose, 63 Phil, 821; cited in Moreno,
supra.
142 Necoriaace INSTRUMENTS Law Mace Easy Bits of ExcHANGE 143
FORM AND INTERPRETATION

b) A bill drawn in another country and payable
in the Philippines; or
c) A bill drawn in one country and payable in
another country; or
d) A bill both drawn and payable in a country
other than the Philippines.
2. it is important to distinguish foreign bills from inland
bills because foreign bills have to be protested in case of
dishonor; otherwise, parties secondarily liable thereon wil!
be discharged from liability. Inland bills need not be pro-
tested. . need or not.as he may see fit.
promissory note, the drawer is really a maker and, as such,
' is a party primarily liable on the instrument; thus, not enti-
tled to be given a notice of dishonor,
SECTION 131. Referee In case of need.—The
drawer of a biil and any indorser may Insert thereon
the name of a person to whom the holder, may resort
in case of need; that is to say, in case the bill is dis-
honored by non-acceptance or non-payment. Such
person Is called a referee in case of need. It Is in the
option of the holder to resort to the referee in case of

- SECTION 130. When bill may be treated as 1. Referee in case of need is a person indicated by
promissory note.—Where in a bill the drawer and the drawer in the instrument to whom the holder may re-
drawee are the same person or where the drawee Is a sort, at his option, in case of dishonor,
fictitious person or a person not having capacity to 2. Example:
contract, the holder may treat the instrument at his
option either as a bill of exchange or as a promissory P10,000.00 ” Manila, Philippines
note. July 11, 2006
1. The holder, at his option, may treat the instrument Pay to Purificacion Bautista or order the
as a noie or 2 bill in the following instances: sum of TEN THOUSAND (P10,000.00) PESOS,
in case of need, go to Florante Santos.
‘a) Where the drawer and the drawee are the
same person because the bill is to be pre- (Sgd) Milagros Cifra
sented for acceptance to tle same person; To: Alma Pascasio
or
‘ b) Where the drawee is a fictitious person be- In the event the bill is dishonored by Aima Pascacio,
cause there is no one to whom the bill can Purificacion Bautista may go to Florante Santos for pay-
be presented for acceptance; or ment after having protested the bill. Where the bill contains
c) Where the drawee does not have the capac- a referee in case of need, it must be protested before it is
ity to contract because the drawee cannot presented for payment to the referee in case of need.” If
make a valid acceptance. Florante Santos pays the amount.of the bill, Milagros Cifra
will be liable to him for the amount thus paid.
2. In all of the foregoing instances, the drawer need
not be given a notice of dishonor under Section 114,
hereof. This is so because in treating the instrument as a
® Section 167, NIL.
144 NeGoriasLe INSTRUMENTS Law Mave Easy
Since resort to the referee in case of nead is optional
on the part of the holder, after dishonor of the bill, Purifica-
cion Bautista can forego with Florante Santos and immedi-
ately go against Milagros Cifra after taking the necessary
proceedings on dishonor.
CASE
. 1. Letters of Credit and trust receipts are not nego-
tiable instruments, (Lee vs. court of Appeals, 375 SCRA
579 [2002].
CHAPTER X
ACCEPTANCE
SECTION 132. Acceptance; how made, and so
forth.—The acceptance of a bill is the signification of
the drawee of his assenl to the order of the drawer.
The acceptance must be in writing and signed by the
drawee. It must not express that the drawee will per-
form his promise by any other means. than the pay-
ment of money.
1. The drawee is not liable on the bill if he does not
accept the order of the drawer. The refusal of the drawee
to accept is not written on the bill, There is nothing in writ-
ing on the face of the bill to show that it has been dishon-
ored by non-acceptance by the drawee.
2. However, once the drawee accepts, he becomes
known as the acceptor and he will be liable on the bill ac-
cording to the tenor of his acceptance. This acceptance
must be in writing and signed by the acceptor. It may be
written on the face of ths biil or contained in a separate
document.
2.1 The acceptance may be made by writing
the word “Accepted”, or the phrase “I will pay”, or
words of similar import followed by the signature of
the accentor.
3, Ah oral acceptance will not suffice. Commercial
transactions cannot be made to depend upon the vagaries
of human memory. The law requires that the acceptance
be in writing so that there will be a tangible evidence re-
garding the assent of the drawee to the order of the
drawer. | +
145
146 Necoriase INSTRUMENTS Law MADE Easy ACCEPTANCE 147

“4. The acceptance by the drawee must mean that a) A person who has not been shown the
he will pay in terms of money, and nothing else. In other document of acceptance; and
words, the cdrawee cannot discharge the obligation by pay- b) A person who did not receive the bill for
ing in Kind or services. Hence, the drawee cannot accept value.
the bill in the following manner: “Accepted, payable in one
set of SCRA.” . SECTION 135. Promise to accept; when equiva-
lent to acceptance.—An unconditional promise in writ-
SECTION 133. Holder entitled to acceptance on Ing to accept a bill before it is drawn Is deemed an
face of bill.—The hoider of a bill presenting the same actual acceptance in favor of every person who, upon
for acceptance may require that the acceptance be the falth thereof, receives the bill for value.
written on the bill, and, if such request Is refused, may
treat the bill as dishonored. 1. This section contemplates of a situation where a
drawes, before a bill is drawn, signifies his unconditional
1. The holder cannot compel the drawee to accept assent to the order of the drawer in writing. This is consid-
the bill even if he knows that the drawer made arrange- _ ered an actual acceptance in favor of any person who
ments with him for its payment. relies thereof in good faith and acquires the-bilt for valuable
2, However, once the drawee signifies his assent to consideration.
the order of the drawer, the holder has the right to insist
1.1 The promise to accept must bs in writing.
that the acceptance be written on he face of the bill. If the
Hence, an oral promise will not bind the drawee.
drawee refuses to do so, the holder can treat the instru-
ment as dishonored. 1.2 Note that the law did not require that the
written promise to accept be shown to the holder. It is
SECTION 134. Acceptance by separate instru- enough that he took the bill for value “upon the faith
ment.—Where an acceptance is written on a paper thereof".
other than the bill itself, it does not bind the acceptor 2, Example:
except in favor of a person to whom it Is shown and
who, on the faith thereof, receives the bill for value. X went to Rustan’s to buy some expensive Chinaware
but he did not have enough cash. So X talked to the
1. Itis possible that the holder and the drawee, con- Owner and proposed that he be allowed to draw a bill of
sidering the distance between them, may communicate exchange which Y will accept. Consequently, the Owner Z
with each other and the acceptance of the bill is conveyed asked Y if he will accept the bill. Y then answered in writing
in a letter, or telegram, or even text messages, or e-mail. In “Yes", Thus, X drew a bill payable to the ordar of Z, ad-
such a case, the acceptor is liable only to a person who dressed to Y for P10,000.00. .
has been shown the acceptance as contained in a piece of
paper and who, in reliance thereof in good faith, acquired In this example, Y is iiable to Z.
the bill for valuable consideration. lf Z nagotiates the bill to A and the latter, upon the
2. In cases of acceptance by separate instrument,
faith of said promise to accept,-receives the bill for value, Y
the acceptor cannot be held liable by the following: is liable to A,
148 NecoriasLe INSTAUMENTS Law Mane Easy ACCEPTANCE 149

However,if A is ignorant-about the promise to accept, In all of the above instances, the drawee is deemed to
even if he receives the bill for value, ¥ is not liable to A. ‘ have accepted the bill and, as such, he becomes primarily
liable thereon as an acceptor.
SECTION 136. Time allowed drawce to accept—
The drawee is allowed twenty-four hours after pre- SECTION 138. Acceptance of Incomplete biil.—
sentment in which to decide whether or not he will A bill may be accepted before it has been signed by
accept the bill; the acceptance, if given, dates as of the the drawe7, or while otherwise incomplete, or when It
day of presentation. is overdue, or after it has been dishonored by a previ-
ous refusal to accept, or by non-payment. But when a
1. The drawee is given only 24 hours to decide bill payable after sight is dishonored by non-
whether or not to assume the liabilities of an acceptor. If he acceptance and the drawee subsequently accepts it,
refuses to accept, the drawee is not liable on the bill. If the the holder, in the absence of any different agreement,
drawee accepts, he becomes primarily liable on the in- is entitled to have the bill accepted as of the date of
strument and the drawer only secondarily liable thereon. the first presentment.
2. When the drawee’ accepts, the acceptance: is
dated as of the date of the preseniation of the bill and not 1. Acceptance may be made at any time as follows:
on the date of its acceptance. This is important with re- a) Before the bill is signed by the drawer;
spect to bills payable after sight. .
b) While the bill is still incomplete;
SECTION 137. Liability of drawee retaining or c) When the bill is already overdue; or
destroying bill—Where a drawee to whom a bill is d} After the bill has been dishonored by non-
delivered for acceptance destroys the same, or refuses acceptance or non-payment.
within twenty-four hours after such delivery or such
other period as the holder may allow, to return the bill 2. Ifa bill payable after sight is dishonored by non-
accepted or non-accepted to the holder, he will be acceptance but subsequently accepted by the drawee, the
deemed to have accepted the same. . holder has the right to have the acceptance dated as of the
first time the bill was presented for acceptance, in the ab-
1. This section treats of exceptions to the rule that sence of any contrary agreement.
acceptance must be in writing and signed by the drawee. 2.1 Example:
2. The exceptions are instances of constructive ac-
cepiance as follows:- A bill payable 30 days after sight was presented for
acceptance on May 01, 2006 but the drawee refused to
a) The drawee destroys the bill when it is pre-
accept. Subsequently, however, the drawee relented and
sented to him for acceptance; and
accepted the bill on May 10, 2006.
b) After the bill is delivered to the drawee for The holder in this case has the right to have the ac-
acceptance, he refuses to return the same ceptance dated on May 01, 2006 (the date the bill was first
within 24 Hours or within such period of time presented for acceptance) and not on May 10, 2006 (the
as the holder may have allowed. date of actual acceptance). Hence, the bill will mature 30

‘
150 NeGorTIABLE INSTRUMENTS Law Mave Easy ACCEPTANCE 151

days after my 01, 2006, or on May 31, 2006; and not on Example: Aeceptecd, payable at RCBC.
June 9, 2006. 3.1 But if the acceptance expressly states that
it is payable there only and not elsewhere, it is a
SECTION 139. Kinds of acceptance.—An accep-
qualified acceptance.
tance Is elther general or qualified. A general accep-
tance assents without qualification to the order of the Example: Accepted, payable only at RCBC.
drawer. A qualified acceptance in express terms varies
4. Kinds of qualified acceptance:
the effect of the bill as drawn.
a) Conditional
SECTION 140. What constitutes a general ac-
ceptance.—An acceptance to pay at a particular place Example: “Accepted, if X passes the Bar Exam.”
Is a general acceptance unless it expressly states that bi Partial
the bill Is to be paid there only and not elsewhere.
Example: A bill for P10,000,00.
SECTION 7141... Qualified acceptance—An ac- “Accented for P5,000.00"
ceptance Is qualified which is:
c) Local
(a) Conditional; that is to say, which makes pay-
ment by the acceptor dependent on the fulfillment of a Example: “Accepted, payable at RCBC only.”
condition therein stated; d) Qualified as to time
(b) Partial; that is to say, an acceptance to pay Example: A bill payable 30 days after date.
part only of the amount for which the bill ls drawn;
“Accepted, 60 days after date.”
(¢) Local; that is to say, an acceptance to pay
only at a particular place; 6) The acceptance of one or more of the
drawees but not of all.
(d) Qualified as to time;
(e} The acceptance of some one or more of the Example: The bill is drawn upon A, B and C; but the
drawees but not of all. bill is accapted only by A.

1. A general acceptarice Is one where lhe drawee SECTION 142. Rights of parties as to qualified
assents to the order of the drawer without varying the tenor acceptance.—The holder may refuse to take a qualified
of the bill as drawn. by the drawer. acceptance and if he does not obtain an unqualified
2. A qualified acceptance is one where the drawee
acceptance, he may treat the bill ae dishonored by
non-acceptance. Where a quallfied acceptance Is
varies the tenor of the bill such that he binds himself
taken, the drawer and indorsers are discharged from
thereon not in the exact terms as drawn by the drawer.
liability on the bill unless they have expressly or impli-
3..' An acceptance to pay at a particular place is a edly authorized the holder to take a qualifled accep-
general acceptance. tance, or subsequently assent thereto. When the
drawer or an indorser receives notice of a qualified
162 NeGoriase InsTRUMENTs Law Mace Easy

acceptance, he must, within a reasonable time, ex- CHAPTER xl

press his dissent to the holder or he wiil be deemed to
have assented thereto. PRESENTMENT FOR ACCEPTANCE
1. The holder has the right to have a general accep-
tance. If the holder cannot obtain an acceptance in accor- SECTION 143. When presentment for accep-
dance with the tenor of the bill as drawn by the drawer, the tance must be made.—Presentment for acceptance
holder may treat the bill as dishonored by non-acceptance. tnust be made:
2. If the holder takes a qualified acceptance, the (a) Where the bill is payable after sight, or In any
drawer and the indorsers are discharged from liability on other case, where presentment for acceptance Is nec-
the bill, unless they have expressly or impliedly consented essary In order ¢o fix the maturity of the instrument; or
to the qualified acceptance. (b) Where the bill expressly stipulates that it
shall be presented for acceptance: or
2.1. The drawer and the indorsers are dis-
charged because they warrant that the bill is what it (c) Where the bill is drawn payable elsewhere
purports to be and, therefore, they will pay it accord- than at the residence or place of business of the
drawee.
ing to its tenor as of the time they signed the bill.
Hence, the qualified acceptance varied the tenor of In no other case is presentment for acceptance
the bill and changed their contract without their con- necessary In order to render any party to the bili liable.
sent.
1. Presentment for acceptance Is the production of
3. Once the drawer and the indorsers are notified the bill of exchange to the drawee for his acceptance.
about the taking of a qualified acceptance by the holder, 2. Presentment for acceptance is required by law in
they must express their objection to the holder within a the fallowing instances:
reasonable time; otherwise, they shall be deemed to have
assented to the qualified acceptance. a) Bills payable after sight in order to fix the ma-
turity of the instrument;
6) Stipulation in the bill that it be presented for
aodeptance because the parties are bound
Y it;
c) Billy payable elsewhere than at the resi-
dence or place of business of the drawee.
This is to allow the drawee to make ar-
rangements for the payment of the bill.

153
154 NEGOTIABLE INSTRUMENTS Law Mave Easy * PRESENTMENT FOR ACCEPTANCE 155

Example: All bills required by law to be presented for accep-

tance must be presented for acceptance or negotiated
April 1, 2006 within a reasonable time after acquisitiori; otherwise, the
drawer and the indorsers will be discharged from liability
Pay to X or order the sum of P10,000.00 at thereon.
RCBC, Tower Branch, Makati City,
(Sgd) Y SECTION 145. Presentment; how made.—Pre-
sentment for acceptance must be made by or on be-
To: Z, Cebu City half of the holder at a reasonable hour, on a business
day and before the bill is overdue, to the drawee or
3. Other than the three (3) instances enumerated some person authorized to accept or refuse accep-
above, presentment for acceptance is not necessary with tance on his behalf; and
respect to other bilis of exchange. Hence, presentment for
(a) Where a bill is addressed to two or more
acceptance is not required in the following: drawees who are not partners, presentment must be
a) Bills payable on demand; made to them all unless one has authority to accept or
. b) Bills payable at sight; refuse acceptance for all, In°which case presentment
may be made to him only;
c) Bills payable on a fixed date;
(b) Where the drawee Is dead, presentment may
d) Bills payable several days after date;
be made to his personal representative;
e) Bills upon the occurrence of an event;
(c) Where the drawee has been adjudged a bank-
f) Bills payable several days after the occur- ‘ rupt or an insolvent or has made an assignment for the
rence of an event. benefit of creditors, presentment may be made to him
In all of the foregoing, presentment for acceptance is or to his trustee or assignee.
not necessary because the maturity of the instrument is SECTION 146. On what days presentment may
fixed or determinable; thus, what is necessary is merely a be made.—A bill may be presented for acceptance on
presentment for payment on due cate.
any day on which negotiable instruments may be pre-
4. Failure to make a presentment for acceptance sented for payment under the provisions of Sections
when required will discharge parties secondarily liable on seventy-two and elghty-five of this Act. When Saturday
the instrument. is not otherwise a holiday, presentment for acceptance
may be made before twelve o'clock noon on that day,
SECTION 144. When failure to present releases
drawer and Indorser.--Except as herein. otherwise 1. Who must make the presentment for acceptance?
provided, the holder of a bil! which is required by the The holder or any person duly authorized by him.
next preceding séction to be presented for acceptance 2. When must presentment for acceptance be
must either present it for acceptance or negotiate it made? At a reasonable hour, ona business day and be-
within a reasonable time. H he fails to do so, the
fore the bili is overdue.
drawer and ail indorser are discharged.
156 Necoriasce INSTRUMENTS Law Mave Easy PRESENTMENT FOR ACCEPTANCE 157

, 2.1 Under Section 85, only bills payable on SECTION 147. Presentment where time is insuf-
‘demand may be presented for payment before twelve ticlent.—Where the holder of a bill drawn payable
o’clock noon on a working Saturday. Under Section elsewhere than at the place of business or the resi-
146; in presentment for acceptance, all kinds of bills dence of the drawee has no time, with the exercise of
without distinction may be presented before twelve reasonable diligence, to represent the bill for accep-
o’clock noon on a Saturday when such day is not oth- tance before presenting it for payment on the day that
erwise a holiday. it falls due, the delay caused by representing the bill
tor acceptance before presenting it for payment is
3. To whom must presentment for acceptance be
excused and does not discharge the drawers and in-
made? To the drawee or any person duly authorized by dorsers.
him.
3.1. Ina bill addressed to two or more drawees 1. ‘tis possible that the holder is situated at a place
who are not partners, preseniment for acceptance ‘which is very far from the residence or place of business of
must be made to all of them, unless one has authority the drawee such that the distance between them would
to act for the others. The refusal by one of them to make it impossible for him to make a presentment fer ac-
accept will not constitute a dishonor of the instrument ceptance and a presentment for payment on due date
until all of them shall have refused the presentment without delay. In this case, the delay will not discharge the
for acceptance. The acceptance by one or more of drawer and the indorsers from liability on the instrurnent.
them but not by all of them will only constitute a quali- 2. Example:
fied acceptance of the instrument.”
January 26, 2006
8.1.1 If the two or more drawees are part-
Diliman, Quezon City’
ners, presentment to one of tham will suffice be-
cause the act of one will bind the others. Pay to the order of Gloria Rivera the sum of
P10,000.00 on January 30, 2006 at Philippine Bank of
3.2 If the drawee is dead, presentment is ex- Commerce, Diliman Branch.
cused. Although not necessary, presentrnent may
be, made to his personal representative. (Sgd) Nenita Pajela
To: Lordan Dalana
3.3 Where the drawee has been adjudged a
Houston, Texas, USA
bankrupt of an insolvent or has made an assignment
for the benefit of creditors, presentment may be.made
gither to the drawee himself or to his trustee or as- This is a bill which must be presented for acceptance
signee. Presentment is not excused, by the holder because it is payable at a placa other than
the residence or place of business of the drawee,
Assuming that Gloria received the bill on January 26,
2006, it is quite impossible tor her to present the instru-
| Section 1414 {e). ment for acceptance to Lordan in Houston, Texas, USA,
% Section 148 (a).
158 Necortiaste INSTRUMENTS LAW Mabe Easy PRESENTMENT FOR ACCEPTANCE 159

and then present the same bill for payment at PBC, Dili- f) Where an improper presentment is made,
man Branch, on January 30, 2006 without incurring any @.g. not done on a business day but on a
delay. Considering the time constraint and the distance Sunday or a holiday, but acceptance is re-
between them, the bill cannot be presented for acceptance fused on some other ground like the fact that
-and then for payment on its due date even with the exer- the drawer has no funds with the drawee, or
cise of reasonable diligence. Circumstances considered, that the drawer made no arrangement with
the delay in presentment is excused. the drawee for the payment of the bill.
- SECTION 148. Where presentment !s excugced.— 2. In all of the above cases, the holder may treat the
Presentment for acceptance is excused and a bili may bill as dishonored by non-acceptance.
be treated as dishonored by non-acceptance in either
SECTION 149. When dishonored by non-
of the following cases: ; acceptance.-—A bill is dishonored by non-acceptance —
{a) Whera the drawee is dead, or has absconded,
(a) When it is duly presented for acceptance and
or is a fictitious person or a person not having capac- such an acceptance as is prescribed by this Act is
ity to contract by bill. refused or can not be obtained; or
(b) where, after the exercise of reasonable dili- (b} When presentment for acceptance is ex-
gence, presentment can not be made. cused and the bill is not accepted.
(c)” Where, although presentment has been ir-
‘regular, acceptance has been refused on some other SECTION 150. Duty of holder where bill not ac-
ground. cepted.—Wheie a bill is duly presented for acceptance
and is not accepted within the prescribed time, the
1. Presentment for acceptance is excused in the fol- person presenting it must treat the bill as dishonored
lowing cases: by non-acceptance or he loses the right of recourse
a) Where the drawee ts dead because it is im- against the drawer and indorsers.
possible to make a presentment to him. SECTION 151. Rights of holder where bill not
b) Where the drawee is fictitious because there accepted.—When a bill is dishonored by non-
‘ is no one to whom presentment can be acceptance, an immediate right of recourse against the
made. drawer and indorsers accrues to the holder and no
c) Where the drawee has absconded because presentment for payment is necessary.
presentment would be an exercise in futility.
1. The holder may treat the bill as dishonored by
-d) Where a person has no capacity to contract
non-acceptance in the following cases:
because he cannot make a valid acceptance.
“e) Where, after the exercise of reasonable dili- a) When acceptance is refused by the drawee;
- gence, presentment cannot be made be- b) When acceptance cannot be obtained by the
cause the drawee is nowhere to be found, holder within the period prescribed by law;
160 NEGOTIABLE INSTRUMENTS Law Mave Easy
c) When presentment Is excused (See 148);
d) Where the drawee makes a qualified accep-
tance (Sec. 142);
e) Where the drawee refuses to write his ac-
ceptance on the face of the bill (Sec. 133);
f) When the drawee performs his promise by
any other means than the payment of money
(Sec. 132);
g) In any other case where the holder cannot
obtain an acceptance in accordance with the
tenor of the bill as drawn by drawer, or in ar-
cordance with the mandate of this Act.
2, When acceptance is refused or cannot be ob-
tained, it is the duty of the holder to treat the bill as dishon-
ored. Accordingly, he must within the time prescribed give
a notice of dishonor, or protest when required, to the
drawer and indorsers; otherwise, they will be discharged
from liability.
3. Proceedings on dishonor, or protest when re-
_ Ment or acceptance was refused, and stating the reasons,
quired, having been undertaken, an immediate right of
recourse accrues in favor of the holder against the drawer
and indorsers. The holder can forthwith go against the
drawer and indorsers without waiting for the maturity of the
instrument, and without need of making a presentment for
payment. .
3.1. An exception to this rule would be Section
165 in order to fix the Siability of ihe acceptor for
honor.
CHAPTER XIl
PROTEST
SECTION 152. In what cases protest neces-
sary.—Where a foreign bill appearing on its face to be
such Is dishonored by non-acceptance, It must be duly
protested for non-acceptance, and where such bill
‘which has not previously been dishonored by non-
payment, it must be duly protested for non-payment. If
it is not so protested, the drawer and Indorsers are
discharged. Where a bili does not appear on its face to
be a foreign bill, protest thereof in case of dishonor Is
unnecessary.
‘|. Protest Is a notarial act, being a formal statement
in writing made by a notary under his seal of office, at the
request of the holder of a bill or note, in which it is declared
that the bill or note described was on a certain day pre-
sented for payment (or acceptance), and that such pay-
if any, given for such refusal, whereupon the notary pro-
tests against all parties to such instrument, and declares
that they will be held responsible for all joss or damage
arising from its dishonor. It denotes also all the steps or
acts accompanying dishonor necessary to charge an in-
dorser.©
2. The reasons for requlring protest are as follows:
a) For uniformity in international transactions:
and
® Black's Law Dictionary, 5" Edition, p. 1101.
161
162 NEGOTIABLE INSTRUMENTS Law Mace Easy PROTEST mo, 163

b) To provide an authentic and satisfactory avi- SECTION 154. Protest, by whom made.—Protest
dence of due dishonor to the drawer ancl in- may be made by—
dorsers. (a) A notary public; or
3. Cases where protest is required: (b} By any respectable resident of the place
where the bill is dishonored, In the presence or two or
a) Where a foreign bill is dishonored by non- more credible witnesses.
acceptance.
b) Where a foreign bill is dishonored by non- i. Example of a Notice of Protest.
payment;
c) Where a dishonored bill has been accepted Republic of the Philippines)
for honor, prior te presentment for payment City of Makati )S.S.
to the acceptor for honor;™ ,
(Date)
d) Where a bill contains a referee in case of
need, prior to presentment for payment to To:
him;
e) Where a bill is protested for better security. You will please take notice thata__
for pesos, dated , payable
3.1 Other bills or notes may be protested al- at drawn by :
though it is not necessary to do so. in favor of on , indorsed by
you and due . , has been protested
SECTION 153. Protest; how made.—The protest by me on this day for aiter having made
must be annexed to the bill or must contain a copy legal demand for the same.
thereof, and must be under the hand and seal of the 1 hereby, at the request of
notary making it and must specify: , the
owner of , hotify you that the said holder
a) The time and place of presentrnent; looks to you for payment, damages, interest and costs as
b) The fact that presentment was made and the indorser thereof.
manner thereof;
c) The cause or reason for protesting he bill; Very respectfully,
d) The demand made and the answer given, if Anna Maria D. Abad
any, or the fact that the drawee or acceptor could not Notary Public
be found. Until , 2006_
Doc. No. _
Page No. ___
* Section 167, NIL. Book No. _
® Ibid.
*¢ Section 158, NIL. Series of 200_.
 164 ' Neootiasie INSTRUMENTS Law Mave Easy Protest 165 |

2. -Example of a Certificate of Protest: 3. The reason for the protest must be specified in
the certificate, ¢.g. that the drawer has no more funds in
Republic of the Philippiries) the possession of the drawee.
. City of Makati ) 8.8. 4, The drawer and indorsers are liable not only for
the vaiue of the face of the bill but also for damages such
Be it known that |, Anna Maria D, Abad, a duly em- as cost of re-exchange, interest and protest fees.
powered Notary Public, at the request of
did present on , the annexed check for 5. The presence of two or more credible witnosses
pesos, dated , signed are required only if the protest is prepared by a competent
by , to , and de- person other than a notary public.
manded payment thereof, which was refused, whereupon | SECTION 155. Protest; when to be made.—
solemnly protested, and by these presents do publicly and When a bill is protested, such protest must be made
solemnly protest the said instrument as against all parties
on the day of its dishonor unless delay is excused as
whom it may concern, for exchange, re-exchange, and all
herein provided. When a bill has been duly noted, the
costs, damages and interest already incurred, or hereafter
protest may be subsequentiy extended as of the date
Incurred, by reason of the non-payment thereof; and that |
of the necting.
hereby certify that on the same day | gave due notice to
the drawer and indorsers thereof by depositing in the post 1. The protest must be made on the very day the bil
office at , postage prepaid, notices thereof, is dishonored; otherwise, the drawer and indorsers are
directed to the parties to be charged as follows: ~ discharged, unless the delay is excused.
One for. CC directed to 2. it is enough that the notary public has duly noted
One for __ directedto_ under his signature the fact of dishonor in his notarial book
indicating therein that he has properly presented the in-
Each notice being directed to the reputed place of
strument and demanded its acceptance or payment at a
business of the person for whom it was intended.
particular place, date and time.
Reason for protest _ .
’ In witness whereof, | have hereunto set my hand and 2.1 The extended Certificate of Protest may be
affixed my seal of office this day of ee prepared by the notary public much later.
200_. . SECTION 156. Protest; where made.—A bill
must be protested at the place where it is dishonored,
Anna Maria D. Abad except that when a bill drawn payable at the place of
Notary Public
business or residence of some person other than the
Until 200_.
drawee has been dishonored by non-acceptance, it
must be protested for non-payment at the place where
Doc. No. it is expressed to be payable, and no further present-
Page No. ment for payment to, or demand on, the drawee is
Book No. necessary.
Series of 290_,
166 — Negotiate INSTRUMENTS Law Mane Easy Provest . 167

‘4.’ General rule: A bill must be protested at the place SECTION 158. Protest before maturity where
where it is dishonored. acceptor Insolvent.—Where the acceptor has been
adjudged a bankrupt or an insolvent or has made an
. +1 Exception: Where a bill is drawn payable assignment for the benefit of credliors before the bill
_elsawhere than the residence or place of business of matures, the holder may cause the bill to be protested
the drawee. for better security against the drawer and indorsers.
2, Example:
1. Protest for batter security is one made by the
holder before the bill matures against the drawer and the
Pay to X or order the sum of P10,000.00 indorsers where the acceptor has been adjudged a bank-
payable at PNB, Manila. rupt or an insolvent or has made an assignment for th
(Sgd) Y benefit of craditors, 7
2. The law says that “the holder may cause the bill
To: Z, New Jersey, USA
to be protested for better security”. The use of he permis-
sive term “may” shows that the protest for better security is
X presents the bill for acceptance to Z in New Jersey only optional on the part of the holder. Since it is optional,
but Z dishonors the same by non-acceptance. Under the failure to protest for better security will not in any away
law, X must protest the bill for non-payment in Manila affect the liability of the drawer or indorsers.
where it is payable. No further presentment or demand for
payment to Z is necessary. 3. This section contemplates of a situation where a
bill has already been accepted by the drawee, However,
SECTION 157. Protest both for non-acceptance after acceptance, the acceptor was adjudged a bankrupt
and non-payment.—A bill which has been protested before the maturity of the bill. In this event, the holder may
for non-acceptance may be subsequently protested for protest the bill for better security in order to apprise the
non-payment. drawer and indorsers of the situation of the acceptor that,
in all probability, he will not be able to pay the bill on its
1. A bill which has been protested for non- due date; so that the drawer and the indorsers can make
acceptance need not be protested for non-payment. This is arrangements for the payment of the bill and preclude loss
so because after the bili has been protested for ncn- of re-exchange.
acceptance and the necessary proceedings on dishonor
are undertaken, the holder can immediately go after the SECTION 159. When protest dispensed with.—
drawer and the indorsers without waiting for the maturity of Protest is dispensed with by any circumstances which
the bill. That is why protest for non-payment is not neces- would dispense with notice of dishonor. Delay in not-
sary anymore. ing or protesting is excused when delay is caused by
circumstances beyond the control of the holder and
2. Although already a superfluity, the law allows the
holder at his option to protest for non-payment after the bill not imputable to his default, misconduct, or negli-
gence. When the cause of delay ceases to operate, the
has been protested for non-acceptance.
 168 NEGOTIABLE INSTRUMENTS Law Mave Easy

bill must be noted or protested with reasonable dili- CHAPTER Xill

gence.
ACCEPTANCE FOR HONOR
Please see discussions under Section 112, 113, 114
and 115.
SECTION 161. When bill may be accepted for
SECTION 160. Protest where bill is lost and so honor.—When a bill of exchange has been protested
forth.—When a bill is lost or destroyed or is wrongly for dishonor by non-acceptance or protested for better
detained from the person entitled to hold It, protest security and is not overdue, any person not being a
may be made on a copy or written particulars thereof. party already liable thereon may, with the consent of
Protest cannot be dispensed with the loss or destruc-
the holder, Intervene and accept the bill supra protest
for the honor of any party Ilable thereon or for the
tion of the bill, or where it is detained by a person. These
honor of the person for whose account the bill is
circumstances notwithstanding, protest and demand must
drawn. The acceptance for honor may be for part only
still be undertaken on a copy or written particulars of the
of the sum for which the bill is drawn: and where there
bill; otherwise, the drawer and indorsers will be discharged.
has been an acceptance for honor for one party, there
may be a further acceptance by a different person for
the honor of another party, —

i. Acceptance for honor is one which is undertaken

by a stranger before the bill is overdue after the dill has
been protested for dishonor by non-acceptance or better
security for the honor of any party liable thereon with the
consent of the holder.
2. Tha requisites for acceptance for honor are as fol-
lows:
a) The acceptor for honor must be a stranger,
and not a party already liable. on the bill, In
_ ofder to give additional security to the holder
. for the payment of the bill;
b) The acceptor for honor must appear before a
notary public and declare his acceptance for
honor in favor of a party liable on the bill and

169
170 NEGOTIABLE INSTRUMENTS Law Mane Easy ACCEPTANCE For Honor 171

- that he will pay the same on due date ac- wise, it shall be deemed to be for the honor of the
cording to law:® drawer.
c) The bill must not be overdue; SECTION 164. Liability of the acceptor for
d) The bill must have been priorily protested for honer.—The acceptor for honor is [lable to the holder
dishonor by non-acceptance or for better se- and to all parties to the bill subsequent to the party for
curity; and whose honor he has accepted.
e) It must be with the consent of the holder.
1. The acceptor for honor practically assumes the li-
7 2.1 The acceptance for honor is done in order ability of the person for whose honor he accepted the bill.
to save the credit of a party to the instrument. The flaw assumes consideration between them. In the
event the acceptor for is made liable on the bill, he has the
3. Acceptance for honor is also known as. accep-
right of recourse against the person for whose honor he
tance supra protest.
accepted.
SECTION 162. Acceptance for honor; how 2. Example:
made.—An acceptance for honor supra protest must
A (drawer), B (drawee) and C (payee). The bill is ne-
be in writing and indicate that it is an acceptance for gotiated by C to D; D to E, holder. E presents the bill for
honor and must be signed by the acceptor for honor.
acceptance to B but B refused and dishonored the bill by
SECTION 163. When deemed to be an accep- non-acceptance. E protests the bill for non-acceptance but
before its due date X accepts for the honor of A (drawer).
tance for honor of the drawer.—Where an acceptance
for honor does not expressly state for whose it is Subject to the provisions of Section 165, X is liable to
made, It is deemed to be an acceptance for the honor the holder (E) as well as to C and D, parties subsequent to
of the drawer. the party (A, drawer) for whose honor he has accepted.

1. Acceptance for honor must be made in writing SECTION 165. Agreement of acceptor for
and signed by tha acceptor for honor. honor.—The acceptor for honor, by such acceptance,
engages that he will, on due presentment, pay the bill
2. Example:
“according to the terms of his acceptance provided It
“Accepted supra protest for the honor of Danilo Da- shall not have been paid by the drawee and provided
tena”. also that it shall have been duly presented for payment
(Sgd) Encarnita Gaviola and protested for non-payment and notice of dishonor
given to him.
2.1 The name of the person for whose hanor
the acceptance is made should be identified; other- 1. The liability of the acceptor for honor is not abso-
lute. it is conditional.

® Gazzam vs. Armstrong, 3 Dana (Ky.) 544. See Note 7 U.S.L.

Ed. 132.
172 NecoriasLe INSTRUMENTS LAW Mane Easy ACCEPTANCE FOR Honon 173

2.‘ The ‘acceptor for honor engages that he will pay SECTION 167. Protest of bill accepted for honor,
the bill on due presentment according to the tenor of his and so forth.-Where a dishoncred bill has been ac-
acceptance, provided the following conditions are met: cepted for honor supra protest or contains a referes in
case of need, it must be protested for non-payment
a) The bill on due date has been duly presented before it ls prasented for payment to the acceptor for
for payment to the drawee; honor or referee in case of need.”
b) The drawee refused to pay;
SECTION 168. Presentment for payment to ac-
c) The bill is protested for non-payment; and ceptor for honor, how made.—Pfesentment for pay-
d) Notice of dishonor is given to the acceptor ment te the acceptor for honor must be made as fol-.
for honor. lows:
_ All of the above conditions must concur to fix the li- (a) If it is to be presented In the place where the
ability of the acceptor for honor. protest for non-payment was made, it must be pre-
sented net later than the day following its maturity.
SECTION 166. Maturity of bill payable after
(b) If it is to be presented In some other place
sight; accepted for honor.—Where a bill payable after than the place where It was protested, then it must be
sight fs accepted for honor, its maturity is calculated forwarded within the time specified in Section on hun-
from the date of the noting for non-acceptance and not dred and four.”
from the date of the acceptance for honor.
SECTION 169. When deiay in making present-
1. Example: ment Is excused.--The provisions of Section eighty-
one apply where there is delay In making presentment
, Thirty. (80) days after sight, pay to the order to the acceptor for honor or referee in case of need.’°
of X the sum of P70,000.00.
SECTION 170. Dishonor of bili by acceptor for
(Sgd) Y honor.—When the bill is dishonored by the acceptor
Ta: Z .
‘for honor, It must be protested for non-payment by.
him.
X presents the bill for acceptance on November 7,
2006, Z refused. The non-acceptance on November 7, 1. The bill may be presented for payment to the ac-
2006 is duly noted by @ Notary Public. However, on No- ceptor for honor at the place where the protest for non-
vember 15, 2006, A (a stranger to the bill) accepted for ihe payment was made on the day following its maturity; oth-
honor of Y (drawer). erwise, if made in any other place, Section 104 hereof will
Question: When will the bill mature? apply. .
Answer: December 7, 2006 (thirty days from the
date of the. noting for non-acceptance). °° Please see discussions under Sections 131 and 165.
a Please see discussions under Section 104. .
”° Pigase see discussions under Section 81.
174 NeGoriaBle INstauMenrs Law Mave Easy

2. In case of dishonor by the acceptor for honor, the

bill must be protested for non-payment by the holder;
CHAPTER XIV
oth-
erwise, partios secondarily fiable will be discharge from PAYMENT FOR HONOR
liability.'

SECTION 171. Who may make

t for paymen
honor.—Where a bill has been
protested for non-
payment, any person may interven
e and pay it supra
protest for the honor of any pers
on lIlabie thereon or
for the honor of the person for who
se account It was
drawn.

SECTION 172. Payment for honor;

how made.—
The payment for honor supra prote
st, in order to oper-
' ate as such and not as a mere volu
ntary payment must
he attested by a notarial act of honor whic
appended to the protest or form an h may be
extension to it.
SECTION 173. Declaration before payment
honor.—The notarial for
act of honor must be founded on
@ declaration made by the Payer for honor or by his
agent fn that behalf declaring his Intention to pay
bill for honor and for the
whose honor he pays.
1. Payment for honor may be made by anyb
ody.
Unlike acceptance for honor which must
be made by a
stranger, payment for honor may be
made either by a
stranger or a party already liable on the
bill. Similarly, the
purpose of the payment for honor is
to save the Credit of
the party to the instrument.
2. The payment for honor can be
made only after
the bill has been protested for non-paym
ent and noted by
@ notary public before whom the payer
for honor declares
that he will pay supra protest for the hono
r of @ party to the
bili.
The notary public records this declaration
in the protest

175
176 NeGoTIABLE INSTRUMENTS Law Mave Easy PAYMENT Fon Honor 177

or an extension of it. The payor for honor will then inform The payment for horor of Y will be preferred because
the person for whose honor he will pay about this deciara- it will discharge more parties to the bill.
tion. If the person for whose honor the biil will be paid con- SECTION 175. Effect on subsequent’ parties
sents thereto, the payor for honor will be entitled to reim- where bill is paid for honor.—Where a bill has been
bursement ; otherwise, if the payment for honor is done paid for honor, all parties subsequent to the party for
without his consent, the payment will be treated as a volun- whose honor It Is paid are discharged but the payer for
tary payment and the payor for honor will not be entitled to honor is subrogated for, and succeeds to, both the
reimbursernenit as a matter of right but merely to the extent rights and ‘duties of the holder as regards the party for
that the person for whose honor he paid is benefited whose honor he pays and all parties liable to the iatter.
thereby.
3. Requisites for payment for honor: 1, The following are the effects where a bill is paid
for honor:
a) The bill has been protested for non-payment:
b) Any person may pay supra protest; a) All parties subsequent to the party for whose
honor payment is made are discharged; and
c) lt must be attested by a notarial act of honor
appended to the protest, or an extension of b) The payer for honor succeeds to and ac-
it, founded on the declaration by the payor quires the rights and duties of the holder.
for honor that he will pay the bill for the honor 2. Example:
of a party thereto.
X draws a bill payable to the order of Y addressed to
d) The payer for honor must notify the person 2 as drawae. The bill is negotiated by Y to A; A to B; B to
for whose honor he will pay; and C; C to D, D to E, holder. Z refused to pay, E duly pro-
8) The person for whose honor the bill will be tested for non-payment. W pays for the honor of A which is
paid must give his consent. duly attested by a notarial act of honor. W then informs A
about his dectaration, to which A gives his consent.
4. Payment for honor applies only to bills of ex-
change. It does not apply to promissory notes. In this example, W (payer for honor) is subrogated for,
SECTION 174. Preference of parties offering to and succeeds to the rights of E (holder) as regards A (for
pay for honor.—Where two or more persons offer to whose honor payment is made) as well as X (drawer) and
pay a bill for the honor of different parties, the person Y (payee) who are parties liable to A,
whose payment will discharge most parties to the bill is B, C and D are discharged because they are parties
to be given the preference. subsequent to the party for whose honor payment is made.

Example: SECTION 176. Where holder refuses to receive

A (drawer), B (drawee), C (payee); the bill is subse- payment supra protest—Where the holder of a bil
refuses to receive payment supra protest, he loses his
quently indorsed to D, E, F, holder. X pays for the honor of
D; Y pays for the honor of C.
178 NecorTiaBLe INSTRUMENTS Law Mane Easy

right of recourse against any party who would have been CHAPTER XV
discharged by such payment.
BILLS INSET
In the example given above, if E (holder) refuses to
receive the payment supra protest of W (the payer of
honor), 'E loses his right of recourse against B, © and D SECTION 178. Bills in set constitute one bill.—
because, had he accepted they would have been dis- Where a bill is drawn in a set, each part of the set be-
charged by such payment. ing numbered and containing a reference to the other
parts, the whole of the parts constitutes one bill.
SECTION 177. Rights of payer for honor.—The
payer for honor, on paying to the holder the amount of 1. Abill in set actually constitutes only one whole bill
the bill and the notarial expenses incidental to its dis- which is divided into several parts, each part making a
honor, is entitled to receive both the bill itself and the reference to the other parts.
protest. 2. Example:
The payer for honor is entitled as a matter of right to
receive both the bill and protest so that he can enforce his Part |
rights against parties who are liable to him. P10,000.00 Manila, Philippines
February 5, 2006

Pay to Fides Abad or order the sum of TEN

THOUSAND (P10,000.00) FESOS (Second and
Thitd parts unpaid), thirty (30) days after sight at
PNB Fuente Osmefia Branch, Cebu City.

(Sgd) Astrid Manual

To: Bruno Barros
San Francisco, California, USA

179
180 NecoTiaBle INSTRUMENTS Law Made Easy BILLs INSET . 181

y (First Part of a bill in set consisting of 3 parts.) SECTION 179. Right of hclders where different
parts are negotiated.—Where two or more parts of a
set are negotiated to different holders in due course,
Part ll the holder whose title first accrues is, as between such
P16,000.00 Manila, Philippines holders, the true owner of the bill. But nothing in this
February 5, 2006 section affects the right of a person who, in due
course, accepts or pays the part first presented to him.
Pay to Fides Abad or order the sum of TEN
THOUSAND (P10,000.00) PESOS (First and Third SECTION 180. Liability of holder who indorses
parts unpaid), thirty (80) days after sight at PNB two or more parts of a set to different persons.—
Fuente Osmefia Branch, Cebu City. Where the holder of a set indorses two or more paris
to different persons he Ia liable on every such part,
(Sgd) Astrid Manuel and every indorser subsequent to. him Is iiable on the
To: Bruno Barros part he has himself indorsed, as if such parts were
San Francisco, California, USA separate bills,

SECTION 181. Acceptance of bills drawn in

(Second Part of a bill in set consisting of 3 parts.)
sets.—The acceptance may be written on any part and
it must be written on one part only. If the drawee ac-
Part it cepts more than one part and such accepted parts are
P10,000.00 Manila, Philippines negotiated to different hoiders in due course, he is
February 5, 2006 liable on every such part as if it were a separate bill.
Pay to: Fides Abad or order the sum of TEN SECTION 182, Payment by acceptor of bills
THOUSAND (P10,000.00} PESOS (First and Sec- drawn in sets.—When the acceptor of a bill drawn in a
ond parts unpaid), thirty (30) days after sight at PNB ‘set pays it without requiring the part bearing his ac-
Fuente Osmena Branch, Cebu City. ceptance to be delivered up to him, anc the part at
(Sgd) Astrid Manuel maturity is outstanding in the hands of a holder in due
course, he is liable to the holder thereon.
To: Bruno Barros
San Francisco, California, USA SECTION 183. Effect of discharging one of a
set.—Except as herein otherwise provided, where any
(Third part of a bill in set consisting of 3 parts.) one part of a Lill drawn in a set is discharged by pay-
ment or otherwise, the whole bill is discharged.
2.1 The three (3) parts of this bill in set consti-
tutes one whole bill. Each of these parts will be sent 3. If Fides, the payee, receives all three parts of the
by the drawer to the payee thru different conveyances bill, she is supposed to negotiate only one part of the bill. If
in order to make sure that at least one of them will
reach its destination.
182 NEGOTIABLE INSTRUMENTS Law Mave Easy
she negotiates all the parts, Fides will be liable for the
three parts as if each part is a separate instrument.
3.1 Let us suppose that Fides negotiated the
First Part to Anton on February 10, 2006; the Second
Part to Nessa on February 20, 2006; and the Third
Part to Nina on February 25, 2006; all of whom are
holders in due course. Since, the title of Anton ac-
crued first, he will be considered as the true owner of
the bill. However, if Anton dilly-dalfies, and Nessa is
able. to present her bill first to Bruno and the latter ac-
cepts and pays, Bruno will not be adversely affected
for having paid the part first presented to him.
3.2 If Anton, Nessa and Nina negotiate their re-
spective parts, they will be liable for their correspond-
ing part as if such part is separate bill of exchange. Alli
indorsers of each part are separately liable for the bill
they respectively indorsed.
4. Bruno, the drawee, is supposed to accept and
pay only one part of the bill drawn in set. The acceptance
must be in writing and signed by Bruno on any one of the
part of the bill in set.
4.1 If Bruno accepts more than one part, he will
be liable for the parts he has accepted as if such parts
are separate oills.
4.2 {t Bruno pays without requiring that the part
bearing his acceptance be dolivered up te him, and
such part is outstanding and in the hands of a holder
in due course, Bruno will be liable on the biil upon its
maturity to such holder.
.4.3 If Bruno pays for more than one part, he
cannot get reimbursement from Astrid, the drawer, for
having paid ihe other parts because the order of As-
trid is to pay only ene part.
5. lf any one of a bill drawn in set is discharged by
payment or otherwise, the whole bill is discharged.
CHAPTER XVI
PROMISSORY NOTES AND CHECKS
SECTION 184. Promissory note, defined.—A
negotiable promissory note within the meaning of this
Act is an uncenditional promise In writing made by
one person to another, signed by the maker, engaging
to pay on demand, or at a fixed or determinable future
time, a sum certain in money to order or bearer. Where
a note is drawn to the maker's own order, It is aot
complete until indorsed by him.
1. If the promissory note conforms with the requi-
sites of nagotiability as discussed in Chapter | hereof, it is
negotiable; otherwise, it is not.
2. Distinctions between a promissory note and a bill
of exchange:
a) A promissory note is an unconditional prom-
ise to pay; whereas, a bill of exchange is an
unconditional order to pay.
b) The maker who made the promissory note is
primarily liable; whereas, the drawer who
made the bill of exchange is only secondarily
liable.
¢) There are only two parties In a promissory
note, namely, the maker and the payee;
whereas, there are three parties in a bill of
exchange, namely, the drawer, the drawee
and the payee.
d) Presentment for acceptance is not required
in all cases in a promissory note; whereas,
183

184 NEGOTIABLE INSTRUMENTS LAW Made Easy
presentment for acceptance is required
some cases in bills of exchange.
38. Some types of promissory notes:
a) Bank note. A promissory note issued
bank or banker authorized to do so, payable
to bearer on demand, and intended to circu-
late as money.”!
b) Banker's note. A commercial instrument re-
sembling a bank note in every parilcular ex-
cept that it is given by a private banker or un-
incorporated banking institution,’?
c) Certificate of deposit. A written acknowledg-
ment by a bank or banker of a deposit with
promise to pay to depositor, to his order, or
to some other person or to his order.”*
Bond. A certificate or evidence of a debt on
which the issuing company or governmental
body promises to pay the bond holders a
specified amount of interest for a specified
length of time, and to repay the loan on the
expiration date. In every case, a bond repre-
sents debt—its holder is a creditor of the
corporation and not a part owner as is the
shareholder. Commonly, bonds are secured
by a mortgage.”
Specific type of bonds may relate to finance, surety,
guaranty, appeals, performance, etc.
SECTION 185. Check defined.—A check is a bill
of exchange drawn on a bank payable on demand.
Except as herein otherwise provided, the provisions cf
71 Black's Law Dictionary, 5" Edition, p. 132.
72 Ibid, p. 133,
8 thid, p. 205.
7 Ibid, p. 161.
Promissory Notes AND CHECKS _ 185
this Act applicable to a bill of exchange payable on
in
demand apply to a check.
1. Distinctions between a check and a bill of ex-
change:
by a
a) A check is drawn against a bank; whereas, a
bill of exchange is drawn against a drawee
whioh Is not necessarily a bank.
b) A check is payable on demand; whereas, a
bill of exchange is payable on demand, or at
a fixed or determinable future time.
A check is not required to be presented for
acceptance; whereas, some bills of ex-
change are required to be presented for ac-
ceptance.
q) A check which is payable on demand is to be
presented for payment within a reasonable
time after its issue; whereas, a bill of ex-
change payable on demand is to be pre-
sented for payment within a reasonable time
after its last negotiation.
2. Some type of checks:
a) Cashier's check. A bank's own check drawn
on itself and signed by the cashier. It is a di-
rect obligation of the bank,” If it is signed by
the manager, it is called a Manager’s check.
Crossed check. A check which bears across
its face an addition of the words “and com-
pany” or any abbreviation thereof between
two paralle! transverse lines, either with or
without the words “not negotiable,” or two
parallel transverse jines simply, either with or
7° Black's Law Dictionary, 5" Edition, p, 215,
 NEGOTIAELE INSTRUMENTS Law Mave Easy Promissory Notes AND CHECKS 187
186

h) Stale check. A check which has not been

without the words “not negotiable”.” it is not presented for payment within a reasonable
negotiable and intended only for deposit.
time after its issue.°
Memorandum check. A check drawn by a
i) Bad check. A check which is dishonored on
borrower to a lender, for the amount of a
presentation for payment because of no, or
short loan, with the uncerstanding that it is
insufficient, funds or closed account.
not to be prasented at the bank, but will be
redeemed by the maker himself when the SECTION 186. Within what time a check must be
loan falls due. The understanding is evi- presented.—A check must be presented for payment
cenced by writing the word “Mem” on the within a reasonable time after its issue or the drawer
check.”” will be discharged from liability thereon to the extent
qd) Post dated check. A check which bears a of the loss caused by the delay.
date after the date of its issue. Its negotiabil-
ity is not affected by being postdated and itis 1. A check must be presented for payment within a
payable on its stated date.” responsible time after its issue; otherwise, the drawer will
be discharged from liability to the extent of the loss caused
@) Blank check. Check which is signed by by the delay.
drawer but left blank as to payee and/or
amount.” 1.1 What is a reasonable time is dependent
upon the circumstances of each case.
/) Personal check. An individual's own check
drawn on his account. 2. Example:
g) Traveller's check. Instrument purchased from
X has an account with ABC Bank for P200,000.00. X
bank, express company, or the like, in vari-
ous denominations, which can be used as owes Y the sum of P100,000.00. X issues to Y a check for
cash upon second signature by purchaser. It P100,000.00. Instead of presenting the check for payment
has the characteristics of a cashier's check at ABC Bank, Y kept the check for an unreasonable length
of the issuer. Pines vs. United States, C.C.A. of time. Subsequently, thereafter, while-the check is still in
lowa, 123 F. 2d 825, 828. It requires the sig- Y's possession, the Bank collapsed.
nature of the purchaser at tha time he buys it Let us suppose that X is able to claim the amount of
and also at the time when he uses it.®'
P100,00C.00 from the Philippine Deposit Insurance Corpo-
ration (PDIC). Hence, X lost the amount of P100,000.00
out of the total deposit he nad with the Bank. This then is
the extent of the loss caused by the delay. Therefore, X is
78 Chan vs. Tan, 109 Phil, 708, cited in Morsno, Phil. Law Diction-
ary. discharged from liability on his joan to Y to the tune of
7? Black's Law Dictionary, 5" Edition, p. 216.
78 thid, p. 216.
7? Ibid, p. 215. ® International Corporate Bank vs. Gueco, 351 SCRA’516 (2001).
°° Ibid,p. 216, * Black's Law Dictionary, 5" Edition, p, 127,
* Ibid, p. 1344.
 Promissory NovTEs AND CHECKS 189
188 NeGoTiaesLe INSTRUMENTS Law MADE Easy

SECTION 187. Certification of check; effect of. —

P100,000-00. Consequently, in the present case, Y would
Where a check Is certified by the bank on which It Is
not be entitled to be paid by X at all because of nis failure
drawn, the certification is equivalent to an acceptance.
to present the check for payment within a reasonable time.
This is only fair because had Y presented the check SECTION 188. Effect where the holder of check
for payment within a reasonable time, X foan with him procures it to be certified—Where the holder of a
would have been paid and X would have only the amount check procures it to be accepted or certified, the
of P100,000.00 on deposit with the Bank; which amount drawer and all indorsers are discharged from liability
would be covered by PDIC. thereon.
3. If the drawer does not suffer any loss or damage
SECTION 189. When check operates as an as-
notwithstanding the delay, the drawer will not be discharge
signment.—A check of Itself does not operate as an
from liability.
assignment of any part of the funds to the credit of the
4. A check is not legal tender. Although it is in- drawer with the bank, and the bank is not llable to the
tended as a substitute for money, it is not money per sa. holder unless and until it accepts or certifies the
5. Acheck produces the effect of payment only once check.
it is encashed.
6. Court have taken cognizance of the practice that 1. Certified check, The check of a depositor drawn
a crossed check means that it could only be deposited and on a bank on the face of which the bank has written or .
stamped the words “accepted” or “certified” with the date
not converted into cash.
and signature of a bank official. The check then becomes
7. Forgery of a check. When a bank pays a forged an obligation of the bank. The certification of a check is a
check, it must be considered as paying out of its own funds statement of fact, amounting to an estoppel of the bank to
and cannot charge the amount so paid to the depositor.®” deny liability; a warranty that sufficient funds are on deposit
7.1. A collecting bank which indorses a check and have been set aside. It means that bank holds money
bearing a forged indorsement and presents it to the to pay check and is liable to pay it to proper party.
drawee bank guarantees all prior indorsement, includ- 2. Cartification of a check is acceptance.
ing the forged indorsement itself, and ultimately 3. Where the holder procures the certification of a
should be held fiable therefor.** check, the drawer and indorsers are discharged.
3.1 Where the drawer or indorsers procure the
certification of a check, they are not discharged.
4 Bank of the Philippine Islands vs. Court of Appeals, 326 SCRA 4. The certification of a check operates as assign-
641 (2000). . ment of funds irom the credit of the drawer to that of the
Pio Barreto Realty Development Corporation vs. Court cf Ap- payee or holder,
peals, 360 SCRA 127 (2001).
°° Vang vs. Court of Appeals, 409 SCRA 159 (2009). 4.1 An uncertified check does not operate as
37 Traders Royal Bank vs. Radio Philippines Network, Inc. 390 an assignment of funds of the drawer in the bank.
SCRA 608 (2002).
* Ibid.
190 NeGoTIABLE INSTRUMENTS Law Mace Easy
Hence, the holder of a check cannot sue the bank if
‘the latter refuses to honor the check because there is
no privity of contract between the holder
bank.
5. Tachnically, once a check is certified, the amount
represented by the check is already segregated from the
funds of the drawer in the bank and reserved for payment
thereof. The check can then circulate like money. It can be
presented at any time to the bank for payment.
CASES
1. For allowing payment on the checks to a wrongful
and fictitious payee, the drawee bank becomes liable to iis
depositor-drawer. (Bank of the Phil. Istands vs, Cassa
Montessori Internationale, 480 SCRA 261 [2004].)
2. A bank which cashes a check drawn upon an-
other Bank, without requiring proof as to the identity of
persons presenting it, or making inquiries with regard to
them, cannot hold the proceeds against the drawee when
the proceeds of the checks were afterwards diverted to the
hands of a third party. (Philippine Commercial Internationa!
Bank vs. Court of Appeals, 350 SCRA 446 [2001.])
3. Failure of depositor to make prompt reconciliation
of the monthly bank statements furnished by the bank
constitutes negligence for which the bank cannot be
blamed in case depositors checks are forged. (Metropoli-
tan Waterworks and Sewerage System vs. Court of Ap-
peals, 143 SCRA 20 [1986]).
4. Even assuming that presentment is needed, fail-
ure to present a manager's check for payment within a
reasonable time wil result to the discharge of the drawer
only to the extent of the loss caused by the delay. (Interna-
tional Corporate Bank vs, Gueco, 35+ SCRA 516 [2001].
5. While delivery of a check produces the effect of
payment only when it is encashed, the rule is otherwise if
Promissory Notes AND CHECKS, 191
the debtor was prejudiced by the creditor's unreasonable
delay in presentment—acceptance of a check implies an
and the undertaking of due diligence in presenting it for payment.
(Pio Barreto Realty Development Corporation vs. Court of
Appeals, 360 SCRA 127 [2001].
6. The effects of crossing a check are: (1) that the
check may not be encashed but only deposited in the
bank; (2) that the check may be negotiated only once — to
one who has an account with a bank; and (3) that the act
of crossing the check serves as a warning to the holder
that the check has been served for a definite purpose so
that he must inquire if he has received the check pursuant
to that purpose. (Associated Bank vs. Court of Appeals,
208 SCRA 465 [1992].
7. A memorandum check falls within the ambit of
Batas Pambansa Bidg. 22. (People vs. Nitafan, 215 SCRA
79 [1992}.
8. A check, whether a manager's check or an ordi-
nary check, is r.ot a legai tender and an offer of a check in
payment of a debt is not a valid tender of payment and
may be refused receipt by the obligee or creditor. (Philip-
pine Airlines, Inc. vs. Court of Appeals, 181 SCRA 557
(1990).
 GENERAL Provisions 193

“Written” includes printed, and “writing” includes

CHAPTER XVII print.
GENERAL PROVISIONS SECTION 192. Persons primarily Wable on in-
strument.—The person “primarily” liable on an Instru-
ment Is the person who, by the terms of the instru-
SECTION 190. Short title—This Act shail be
ment, is absolutely required to. pay the same. All other
known as the Negotiable Instruments Law. parties are “secondarily” liable.
SECTION 191. Definitions and meaning of SECTION 193. Reasonable time, what consii-
terms.—in this Act, unless the contract otherwise re- tutes. in determining what is a “reasonable time”, re-
quires: gard is to be had to the nature of the instrument, the
“Acceptance” means.an acceptance completed by ‘usage of trade or business with respect to such in-
delivery or notification; struments, and the facts of the particular case.
“Action” includes counterclaim and set-off;
In determining what is a “reasonable time”, regard is
“Bank” Includes any person or association of to be had to the nature of the instrument, the usage of
persons carrying on the business of banking, whether trade or business with respect to such Instrument, and
incorporated or not; facts of the particular case.®
“Bearer” means the person in possession of a bill
or note which is payable to bearer; SECTION 194. Time, how computed; when last
day talls on holiday.—Where the day, or the last day
“Bilr’ means bill of exchange, and “note” means for doing any act herein required or permitied to be
negotiable promissory note;
done falls on Sunday or on a holiday, the act may be
“Delivery” means transfer of possession, actual done on the next succeeding secular or business day.
or constructive, frem one person to another;
“Holder” means the payee or indorsee of a bill or SECTION 195. Application of Act—-The provi-
‘note who is in possession of it, or the bearer thereof; sions of this Act do not apply to negotiable [nstru-
ments made and delivered prior to the taking effect
“Indorsement” means an indorsement completed hereof. .
by delivery;
“Issue” means the first delivery of the instrument, SECTION 196. Cases not provided for In- Act.—
complete in form, to a person who takes it as a holder; Any case not provided for In this Act shall be gov-
“Person” Includes a body of persons, whether iri- erned by the provisions of existing leglslation. or in
corporated or not; default thereof, by the rules of the jaw merchant.
“Value” means valuable consideration;

° Intemational Corporate Bank vs. Gueco, 351 SCRA 516

192
[2001)).
 194 Neaoriaste INSTRUMENTS AW MADE Easy

“1, Law merchant refers to a system of rules, cus-

toms and usages generally recognized and adopted by
merchants and traders in the conduct of their transaction
and the solution of their controversies. Its adoption by the
court in the resolution of cases before it gave rise to what
is now known as Law Merchant.
2. Under common law, delay in notice of dishonor,
where such notice is required, discharges the drawer only
to the extent of the [oss caused by the celay. This rule
finds application in this jurisdiction pursuant to Section 196
of the Negotiable {nstruments Law which states, “Any case
not provided for in this Act shall be governed by the provi- .
sions of existing legislation, or in default thereof, by the
rules of the Law Merchant.” Under Section 186 of the Ne- Py “* ot . tan
gotiable instruments Law, delay in the presentment of 4 } i s f ee
checks discharges the drawer. However, Section 186 re- t eet 4 an LEU itt
fers only to delay in presentment of checks but is silent on ¥ te Hie ANG ant ‘ "hah dap
delay in giving notice of dishonor. Consequently, the com- BE tgs
_ mon law or Law Merchant can supply this gap in accor- ood Tae fete pe .

dance with Section 196 of the negotiable Instruments i tn rot, ‘

Law.°°

MAY - - 2011
——o0o——
MAY — - 2008

boa
® Great Asian Sales Center Corporation vs. Court of Appeals, ve en
381 SCRA 557 [2002]).

ONAL scious
_ ATENEO PROFESSITIRRARV