Negotiable Instruments Law - Finals - Mama Gie Notes

Mama Gie Notes | Negotiable Instruments Law Finals Reviewer | Atty. Timoteo Aquino | 1st Sem., A.Y.
22-23 | SBCA-SOL
MODULE 6 o A corporation may claim that an act is an ultra vires act of the corporation &
may raise this defense even against a holder in due course
DEFENSES o Ultra vires act by an officer – merely voidable which may be enforced by
performance, ratification, or estoppel
REAL DEFENSES & PERSONAL DEFENSES o Ultra vires act by a corporation – void & cannot be validated
a. Concept & Effect. o By way of exception, an officer or agent of the corporation shall have the power
o Defenses – legal justifications of the persons who are sought to be held liable to execute or indorse a negotiable paper in the name of the corporation for the
§ if a defense is invoked, it is possible that there is a person who is accommodation of a 3rd person only if specifically authorized to do so
unlawfully deprived of the instrument & has a better right over the o Example: issuance of checks by an officer of the corporation cannot be
instrument considered as an ultra vires act of the officer if such check was done for the
o Real Defenses - Those that attach to the instrument itself & are available purpose of securing loans to finance activities of the corporation
against all holders, whether in due course or not, but only by the parties entitled
to raise them. (absolute defenses) ABSENCE OR FAILURE OF CONSIDERATION
o Personal Defenses - Those which are available only against a person not a • A matter of defense as against any person not a holder in due course
holder in due course or a subsequent holder who stands in privity with him. • Partial failure of consideration is a defense pro tanto (to an extent), whether the failure is
(equitable defenses) an ascertained & liquidated amount or otherwise
b. Enumeration of Real & Personal Defenses.
• A personal defense to the prejudiced party & available against any person not holder in
REAL DEFENSES PERSONAL DEFENSES due course
1) Minority (available only to the minor) 1) Failure or Absence of Consideration
2) Forgery 2) Illegal Consideration NON-DELIVERY & CONDITIONAL DELIVERY OF COMPLETE INSTRUMENTS
3) Non-delivery of Incomplete 3) Non-delivery of Complete
Section 16. Delivery; When Effectual; When Presumed. — Every contract on a
Instruments Instrument
negotiable instrument is incomplete & revocable until delivery of the instrument for
4) Material Alteration 4) Conditional Delivery of Complete
the purpose of giving effect thereto As between immediate parties, & as regards a
5) Ultra vires act of Corporation Instrument
remote party other than a holder in due course, the delivery, in order to be effectual,
6) Fraud in factum or esse contractus 5) Fraud in inducement
must be made either by or under the authority of the party making, drawing,
7) Illegality – if declared void for any 6) Filling up blank not within authority
accepting, or indorsing, as the case may be; & in such case the delivery may be
purpose 7) Duress or intimidation
shown to have been conditional, or for a special purpose only, & not for the purpose
8) Vicious force or violence 8) Filling up blank beyond reasonable
of transferring the property in the instrument. But where the instrument is in the
9) Want of authority time
hands of a holder in due course, a valid delivery thereof by all parties prior to him so
10) Prescription 9) Transfer in breach of faith
as to make them liable to him is conclusively presumed. And where the instrument is
11) Discharge in insolvency 10) Mistake
no longer in the possession of a party whose signature appears thereon, a valid &
11) Insertion of wrong date
intentional delivery by him is presumed until the contrary is proved.
12) Ante-dating or post-dating for
illegal or fraudulent purpose
• Summary on effect of defenses:
MINORITY & OTHER CAUSES OF INCAPACITY o As between immediate parties & as regards a remote party other than a holder
a. Minority – Section 22 of the Nil provides that negotiation by a minor passes title to the in due course, the delivery must be authorized in order to be effectual
instrument o Where the instrument is in the hands of a holder in due course, a valid delivery
o Minor himself is not liable & defense is available only to the minor thereof by all parties prior to him so as to make them liable to him is
b. Ultra Vires Acts – an ultra vires act is one committed outside the object for which a conclusively presumed
corporation is created o Where the instrument is no longer in the possession of a party whose signature
o A real defense but the negotiation passes to the instrument (Section 22 still appears thereon, a valid & intentional delivery by him is presumed until the
applies) contrary is proved
o A corporation cannot act as an accommodation party
Sources include: lecture notes, Atty. Aquino’s Nego book, San Beda Memory Aids, and other reviewers. There may be errors. Use at your own risk. -1-
Legend: * means it’s not listed in the syllabus but is in the book by Atty Aquino
Mama Gie Notes | Negotiable Instruments Law Finals Reviewer | Atty. Timoteo Aquino | 1st Sem., A.Y. 22-23 | SBCA-SOL
a. Rules* d. Presumed Delivery*

o Non-delivery, conditional delivery & delivery for special purpose without intent o If the instrument is no longer in the hands of the maker or the drawer, he is
to transfer title are all personal defenses presumed to have already delivered the instrument to another (payee) for the
o Rules in Section 16 are as follows: purpose of issuing the same
1. A negotiable instrument must be delivered. If the instrument is not o If the instrument is no longer in the hands of the indorser, he is presumed to
delivered, the contract concerning the instrument is incomplete & have delivered the same to the indorsee for purposes of transferring title
revocable. Thus, there must be delivery whenever the instrument is e. Conditional Delivery & Delivery for Special Purpose*
issued or negotiated. o Immediate parties – persons who are familiar with the circumstances regarding
2. Delivery must be either by or under the authority of the party making, the transfer
drawing, accepting, or indorsing the instrument § Whether or not the holder who is trying to collect based on the
3. If the instrument is no longer in the hands of the maker or the drawer, negotiable instrument is a holder in due course or not
he is presumed to have already delivered the instrument to another o It is important to establish which is the immediate or remote party in order to
(payee) for the purpose of issuing the same if the instrument is no determine if it can be established as against them if the delivery was
longer in the hands of the indorser, he is presumed to have delivered conditional or for a special purpose
the same to the indorsee for purposes of transferring title.
4. As between immediate parties & remote parties who are not holders NON-DELIVERY OF INCOMPLETE INSTRUMENT
in due course, the delivery of a complete instrument may be SECTION 15. Incomplete Instrument Not Delivered. — Where an incomplete
established to be conditional or for a special purpose & not for the instrument has not been delivered, it will not, if completed & negotiated without
purpose of transferring title. authority, be a valid contract in the hands of any holder, as against any person whose
5. As between immediate parties & remote parties who are not holders signature was placed thereon before delivery.
in due course, it may be established that there was no delivery at all
of the complete instrument.
• No prima facie authority to fill up the incomplete instrument because of the delivery of
6. As to holders in due course, it cannot be established that there was
said instrument
no delivery. Delivery is conclusive as to the holder in due course if
• It would not be a valid in the hands of any holder
he is in possession of a complete instrument.
• Defense involved is a real defense, available against any holder
7. As to holders in due course, it cannot be established that the delivery
was conditional or for a special purpose. As to him, delivery is • Subsequent indorsers are liable
conclusively presumed to be unconditional & for the purpose of
transferring title without any reservation or condition. COMPLETING THE INSTRUMENT OR FILLING UP BLANKS BEYOND AUTHORITY
b. Need for Delivery* SECTION 14. Blanks; When May Be Filled. — Where the instrument is wanting in any
o Delivery - transfer of possession of the negotiable instrument from one person material particular, the person in possession thereof has a prima facie authority to
to another with the intention to transfer title to the instrument. complete it by filling up the blanks therein. And a signature on a blank paper delivered
o It is noted that Section 16 also sees instances when instruments may have by the person making the signature in order that the paper may be converted into a
been delivered to a person other than the payee or one who is not entitled to negotiable instrument operates as a prima facie authority to fill it up as such for any
o Ordinarily, the transferee will acquire no right if the instrument was not amount. In order, however, that any such instrument when completed may be
delivered to him. enforced against any person who became a party thereto prior to its completion, it
c. Authority to Deliver* must be filled up strictly in accordance with the authority given & within a reasonable
o Delivery for purposes of issuances or negotiation may be made personally by time. But if any such instrument, after completion, is negotiated to a holder in due
the person who is supposed to transfer like the maker, drawer, or indorser course, it is valid & effectual for all purposes in his hands, & he may enforce it as if it
o Delivery may be made by an authorized agent or representative had been filled up strictly in accordance with the authority given & within a
o If the employee is not authorized to deliver the instrument, the contract of reasonable time.
transfer of the instrument is still incomplete.
• The defense available to parties primarily liable against the holders is classified as a
personal defense which is available against a holder who is not a holder in due course
a. Rules* o The maker or drawer has burden to prove that there was no authority to
1. A person in possession of an instrument that is wanting in a material particular complete the instrument or fill up the blank portions or that the person who
has prima facie authority to complete it by filling up the blanks therein strictly completed the instrument exceeded his authority
in accordance with the authority given & within a reasonable time o Authority is only to complete the instrument
2. If a person delivers a blank paper to another person containing his signature e. Completed according to authority*
for the purpose of converting it into a negotiable instrument, the person to o It is presumed that the instrument was completed in accordance with the
whom the instrument is delivered prima facie authority to fill it up for any authority that was given
amount f. Delivery of signed blank paper*
3. If the holder of the instrument, after it was filled up, is a holder in due course, o If a person delivers a blank paper containing his signature to another person,
the holder may enforce the instrument as if it has been filled up strictly in it is delivered to the person with prima facie authority to fill it up with any amount
accordance with the authority given & within a reasonable time o Requirements for presumption of authority to fill up the blank paper
b. Material particular* § There must be delivery of a paper to another person
o What should be missing in the material is a material particular § The paper that was delivered was a blank paper containing the
o Not limited to those requisites in Section 1 of the NIL signature of the person who will deliver
o Includes the matters mentioned in Section 125 of the NIL which states that § The delivery was for the purpose of converting the paper into a
material alteration includes changes in: negotiable instrument
§ Date g. Delivery with authority to holder in due course*
§ Sum payable, either principal or interest amounts o Section 14 still applies if the holder is a holder in due course even if what was
§ Time & place of payment delivered was a blank piece of paper signed by the person delivering the same
§ Number or the relations of the parties but without authority to convert it into a negotiable instrument
§ Medium or currency in which payment is to be made
§ A change which adds a place of payment where no place of payment FRAUD
is specified, or any other change or addition which alters the effect a. Fraud in Factum & Fraud in Inducement Distinguished
of the instrument in any respect o Fraud In factum (fraud in inducement) – exists in those cases in which a
c. Prima facie authority under Section 14* person, without negligence, has signed an instrument which was in fact a
o Following authorities are presumed: negotiable instrument, but was deceived as to the character of the instrument
§ That there is authority to fill up an incomplete but delivered & without knowledge of its, as where a not was signed by one under the belief
instrument that he was signing as a witness to a deed.
§ That the instrument was completed in accordance with the authority § Consent to sign obtained through fraud
that was given § This kind of fraud is a real defense because there is no contract. It
§ That if a person delivers a blank paper containing his signature to implies that the person did not know what he was signing. But where
another person for the purpose of converting it into a negotiable the signer by the exercise of reasonable diligence could have
instrument the person to whom the instrument is delivered has discovered the nature of the instrument, the fraud cannot be
authority to fill it up for any amount considered a real defense, as where a person, who can read, signed
d. Authority to complete instrument* a note but failed to read it
o If the maker or drawer delivers a pre-signed blank paper to another person for § Factors to consider in determining the presence of reasonable
the purpose of converting it into a negotiable instrument, that person is deemed opportunity to obtain knowledge:
prima facie authority to fill it up • Age & sex of the obligor
o Merely requires that the instrument be in the possession of a person other than • Intelligence, education, & business experience
the drawer or maker • Ability to read & understand the language used
o The moment the instrument is completed, the presumption is that the • The representations made to him & his reason to rely on
instrument was completed with prior authority from the maker or the drawer & them or to have confidence in the person making them
that the person who completed the instrument did not exceed his authority
• The presence or absence of any third person who might DURESS & INTIMIDATION
read or explain the instrument to him, or any other • Generally, duress/intimidation gives rise to personal defense
information o It is a real defense if it is vicious of if duress amounting to forgery
• the apparent necessity, or lack of it, for acting without • Duress – there must be an actual or threatened exercise or power possessed by the party
delay benefitted such as to deprive the maker of that quality of mind essential to making for a
o Fraud Esse Contractus (fraud in execution) – It is that which related to the contract
quality, quantity, value or character of the consideration of the instrument. In • Duress available even though there may be some consideration to support the instrument
this case, the signer is led by deception to execute what he knows is a
negotiable instrument. It implies that the signer knew what he was signing but ILLEGALITY
that he was induced by fraud to sign. • Generally, only a personal defense
§ Present when a person is induced to sign an instrument not knowing • Exception to this is when the law which declares the transaction illegal likewise declares
its character as a note or a bill that the negotiable instrument or document issued in connection therewith is void against
§ Such type of fraud is only a personal defense because it does not any party
prevent a contract.
b. Fraud in Collateral Obligation PRESCRIPTION
o Nature of such fraud is similar to fraud in inducement & the defense is a • Extinctive prescription – considered a real defense that may be raised even against a
personal defense holder in due course
• Prescriptive period for filing a claim based on a negotiable instrument is 10 years from
ANTE-DATING OR POST- DATING the time the cause of action accrued
SECTION 12. Antedated & Postdated. — The instrument is not invalid for the reason a. Distinguished from Stale Checks.
only that it is antedated or postdated, provided this is not done for an illegal or o A stale check is one which has not been presented for payment within a
fraudulent purpose. The person to whom an instrument so dated is delivered reasonable time/ within 6 months from issuance
acquires the title thereto as of the date of delivery. b. When the instrument has no date*
o If check is undated, the cause of action is reckoned from the date of the
• Personal defense is available against the holder if such ante or post-dating is done for issuance of the check (Section 17 of NIL)
illegal or fraudulent purpose
• The issuance of a postdated check to answer for a future installment payment will not MATERIAL ALTERATION
give rise to a defense because the post-dating of the check is not made for an illegal SECTION 124. Alteration of Instrument; Effect of. — Where a negotiable instrument
purpose is materially altered without the assent of all parties liable thereon, it is avoided,
• If ante-dating for the purpose of hiding an illegal imposition of grossly excessive interest except as against a party who has himself made, authorized, or assented to the
may make the ante-dating a defense alteration, & subsequent indorsers.
INSERTION OF A WRONG DATE -May be a personal defense But when an instrument has been materially altered & is in the h&s of a holder in due
SECTION 13. When Date May Be Inserted. — Where an instrument expressed to be course, not a party to the alteration, he may enforce payment thereof according to its
payable at a fixed period after date is issued undated, or where the acceptance of an original tenor.
instrument payable at a fixed period after sight is undated, any holder may insert SECTION 125. What Constitutes a Material Alteration. — Any alteration which
therein the true date of issue or acceptance, & the instrument shall be payable changes —
accordingly. The insertion of a wrong date does not avoid the instrument in the hands a) The date;
of a subsequent holder in due course; but as to him, the date so inserted is to be b) The sum payable, either for principal or interest;
regarded as the true date. c) The time or place of payment;
d) The number or the relations of the parties;
e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any o The acceptor is liable according to the tenor of his acceptance, the tenor of
other change or addition which alters the effect of the instrument in any respect, is a acceptance is deemed to be the original amount of the check
material alteration. f. Effect of alteration on payee who is a holder in due course*
o Payment of a check by the drawee includes its acceptance contemplated under
Section 62 of the NIL
• Effects:
o By paying the collecting bank, the drawee, recognized & complied with its
o Alteration by a party – Avoids the instrument except as against the party who
obligation to pay in accordance with the tenor of his acceptance
made, authorized, or assented to the alteration & subsequent indorsers.
§ Tenor of acceptance is determined by the terms of the bill as it is
§ However, if an altered instrument is negotiated to a HDC, he may
when the drawee accepts
enforce payment thereof according to its original tenor regardless of
o Payee of the altered check may be a holder in due course
or fraudulent.
§ A payee who is a holder in due course, who relies on the drawee
§ Since no distinction is made, it does not matter whether it is favorable
bank’s clearance & payment of the draft & not being negligent, is
or unfavorable to the party making the alteration. The intent of the
protected by Section 62
law is to preserve the integrity of the negotiable instruments.
o Banking institutions can protect themselves against liability on altered
o Alteration by a stranger (spoliation) - the effect is the same as where the
instruments either by qualifying their acceptance or certification, or by relying
alteration is made by a party which a HDC can recover on the original tenor of
on forgery insurance & special paper which will make alteration obvious
the instrument. (Sec. 124)
o If the collecting bank returned the amount to the drawee, the collecting bank
a. Concept*
cannot debit the money paid by the drawee bank from the payee’s account
o Alteration said to be material if it alters the effect of the instrument
o Collecting bank cannot be considered to have acted as the representative of
o Unauthorized change in an instrument that purports to modify the obligation or
the drawee bank when it debited respondent’s account, because the drawee
unauthorized changes to an incomplete instrument
bank had no right to recover what it paid
o No material alteration iof only serial number was altered
o Collecting bank cannot invoke the warranty of the payee/depositor who
o No alteration if the instrument is not dated & the payee inserted the true date
indorsed the instrument for collection to shift the burden it brought upon itself
b. Alteration that totally prevents recovery*
o If the drawee is made the drawer, the instrument cannot be enforced according
COMPARISON OF SECTIONS 14, 15, 16 OF THE NIL
to its original tenor because the drawee cannot be compelled to pay until he
SECTION 14 SECTION 15 SECTION 16
accepts the instrument
o If the instrument is dishonored, he cannot be made liable as a drawer because Delivery Delivered Undelivered Undelivered;
the change of liability from drawee to drawer was the result of a material Delivery may be
alteration made for a
c. Alteration of amount* conditional or for a
o Material alteration if the amount payable is altered special purpose only
o Section 124 provides that the altered instrument is not avoided as against a & not for the purpose
party who has himself made, authorized, or assented to the alteration & of transferring the
subsequent indorsers property in the
d. Liability of collecting bank* instrument
o If it involves a check & was deposited by the holder in a collecting bank, the Completeness Wanting in Blank Mechanically Mechanically
collecting bank will suffer the loss in case of material alteration any paper with incomplete complete
o Warranty of a collecting bank is that of a general indorser material signature
o Only recourse is against the collecting bank & against those who made the particular
alteration Authority of Prima Signature No authority to May negotiate if
e. Tenor of acceptance* person in facie operates complete &/or delivered to him by or
o An acceptor of a check after the amount indicated on the check has been possession authority as a prima negotiate instrument under the authority of
altered may be liable only for the original amount to facie the party making,
complete it authority indorsing, drawing or
by filling to fill it up accepting, as the o Forgery cannot be presumed

up the as such for case may be. o A real or absolute defense by the party whose signature was forged
blanks any o Whoever alleges forgery has the burden of proof
therein amount o Instrument may still be negotiable; there are parties after the forgery who may
When If filled up strictly in Not enforceable When delivery is still have rights & obligations under the NIL despite the forgery
enforceable accordance with made by or under b. Unauthorized Signature & Incomplete Signatures
authority given & within a authority of the party o In connection with Section 23, Section 41 of the Nil provides that where an
reasonable time making, indorsing, instrument is payable to the order of two or more payees or indorsees who are
drawing or accepting, not partners, all must indorse unless the one indorsing has authority to indorse
as the case may be. for the others
Kind of Defense Personal Real Personal c. Inoperative Forged Signature & Cut-off Rule
Rights of holder 1. If HDC, he can None in the hands of Can enforce the o In section 23, only the forged signature is inoperative
enforce the instrument any holder. instrument ; o Cut-off Rule – parties prior to the forged signature are cut-off from the parties
as completed against However, the Where the instrument after the forgery in the sense that the prior parties cannot be held liable & can
parties prior or invalidity of the is in the hands of a be held liable & can raise the defense of forgery
subsequent to the instrument is only HDC, a valid delivery o Holder can enforce the instrument against parties who came after the forgery
completion with reference to thereof by all parties o Prior parties are liable is if they are precluded from setting up the defense of
2. If not a HDC, he can parties whose prior to him so as to forgery either because of their warranties, representations, or their negligence
enforce the instrument signatures appear on make them liable to o Party whose signature was forged cannot be held liable by anyone
as completed only the instrument after him is conclusively o Also covers a forged indorsement – the forged signature of the payee or
against parties delivery, the presumed. Where the indorsee of a note or check
subsequent to the instrument is valid. instrument is no d. Persons Precluded from Setting Up Forgery
completion but not longer in the o This is the exception to the general rule of Section 23
against those prior possession of a party o Persons precluded include:
thereto. whose signature § Parties who warrant or admit the genuineness of the signature in
appears thereon, a question
valid & intentional § Those who, by their acts, silence, or negligence are estopped from
delivery to him is setting up the defense of forgery. These include acts or omissions
presumed until the that amount to ratification, express or implied
contrary is proved. 1) Warranty
§ Indorsers, persons negotiating by delivery, & acceptors are
FORGERY & WANT OF AUTHORITY warrantors of the genuineness of certain signatures on the
instrument
SECTION 23. Forged Signature; Effect of. — When a signature is forged or made
§ Example: acceptor is barred from setting up defense of forgery of
without the authority of the person whose signature it purports to be, it is wholly
signature of the drawer under Section 62
inoperative, & no right to retain the instrument, or to give a discharge therefor, or to
2) Negligence
enforce payment thereof against any party thereto, can be acquired through or under
§ A drawer who can otherwise recover from the drawee may be barred
such signature, unless the party against whom it is sought to enforce such right is
from doing so because of his negligence or may have to suffer
precluded from setting up the forgery or want of authority
reduction of the amount because of his (drawer’s) negligence
§ Drawee may be barred from raising the defense of forgery of
a. General Rules endorsement against collecting bank if it did not comply with the
o Forgery of a signature & the affixing of a signature in behalf of another without rules or agreement on the return of checks
authority are real defenses § Negligence cannot be imputed to the drawer by the mere fact that
o No one can gain title to the instrument through such forged signature against the person responsible for the forgery is his employee or even an
parties prior to the forgery independent auditor
3) Estoppel & Ratification c) Party who the made the obtain title through their
§ Ratification by the party whose signature was forged likewise forgery is liable indorsements.
precludes the said party from raising the defense Payee’s a) Maker & payee not liable. a) Maker is liable.
e. Effect of Mistaken Identity signature b) Indorsers subsequent to (Indorsement is not
• Mistaken identity may or may not involve forgery forged forgery are liable. necessary to title & the
• General rule: where the instrument is intended for the person to whom it is c) Party who made the forgery maker engages to pay
delivered, his indorsement will pass a good title to the holder in due course, is liable. holder)
though he procured the same by falsely representing himself to be another b) Party who made the forgery
person of the same name is liable
• Person to whom the instrument was delivered is the one for whom the one who Indorser’s a) Maker, payee & indorser a) Maker is liable.
delivered like the drawer intended it signature whose signature was forged (indorsement is not
• Rule is different if the drawer delivered it to the whom he thought to be forged is not liable. necessary to title & the
somebody else b) Indorsers subsequent to maker engages to pay the
f. Forgery in Promissory Note forgery are liable. (Because holder)
1) Forgery of Maker’s Signature of Their warranties) b) Indorser whose signature
§ If the maker’s signature is forged, the maker is not liable to all c) Party who made the forgery was forged not liable to one
subsequent parties whether the instrument is an order or bearer is liable. who is not a HDC provided
instrument the instrument is
§ Maker’s forged signature is wholly inoperative & no right to enforce mechanically complete
payment against the maker is obtained by the holder before the forgery.
§ Indorsers after the forgery are secondarily liable c) Party who made the forgery
2) Indorser’s Signature in Order & Bearer Instruments is liable.
§ In an Order Promissory Note
o Where the indorsement of the payee is forged in a note g. Forgery in Bills of Exchange
payable to order, the instrument cannot be enforced 1) Forgery of Drawer’s Signature
against the payee & the maker § Where the drawer’s signature is forged, the drawer is not liable
o Payee’s forged signature is wholly inoperative & no right whether or not the instrument is payable to bearer or payable to
to enforce can be obtained against any party to the forgery order
o Indorsers after the forgery are liable because they warrant § No right to enforce payment against the drawer under the forged
that they have good title to the instrument signature
§ In a Bearer Promissory Note § Checking account cannot be debited
o Signature of the payee or holder is unnecessary to pass o In cases of a check, drawer’s account cannot be debited
title to the instrument if his signature is forged
o Maker may still be liable toa. Holder in due course even if o A drawee-bank is bound to know the signature of its
an indorsement was forged after the issuance of the note clients
§ No recourse against collecting bank*
RULES ON FORGERY OF PROMISSORY NOTES o Drawee has no recourse against collecting bank
Order Instrument Bearer Instrument § Drawee-Acceptor’s Warranties*
Maker’s a) Maker is not liable because a) Maker is not liable. o Acceptor, by accepting the instrument, engages that he
signature he never became a party to b) Party who made the forgery will pay it according to the tenor of his acceptance
forged the instrument. is liable. § Admits existence of a drawer, the genuineness
b) Indorsers subsequent to c) Indorsers may be made of his signature, & his capacity & authority to
forgery are liable because of liable to those persons who draw the instrument
their warranties. o Drawee bank cannot recover amount from collecting bank
§ Negligence of drawee* of the checks even if the previous indorsements

o Liability of the drawee can be traced to the drawee’s were forged
negligence § A collecting bank which indorses a check
2) Forgery of Indorser’s Signature in Order & Bearer Instrument bearing a forged indorsement & presents it to
§ In Order Bills of Exchange the drawee bank guarantees all prior
o Where the indorsement of the payee ina BOE was forged indorsements, including the forged indorsement
after delivery of the instrument by the drawer to the said itself, & ultimately should be held liable therefor
payee, the subsequent holder cannot enforce payment § Last indorser will be liable for the amount
thereof against the drawee, the drawer, or the payee indicated in the negotiable instrument even if a
o Parties prior to forgery can raise defense of forgery previous indorsement was forged
o Parties after the forgery are cut-off from the parties prior o Exceptions
to the forgery § One exception is when the issuance of the
§ Indorsers after the forgery may be secondarily check itself was attended with negligence
liable to the holders • The collecting bank is generally held
o Recourse Of Drawer Against Drawee* liable where the checks were
§ If the instrument involved is a check, the drawee negligently issued
cannot charge the account of the drawer if the o Doctrine Of Comparative Negligence
payee’s or any indorser’s signature is forged § The drawee bank may be adjudged co-liable
§ The drawee bank is obligated to return the full with the collecting bank under a fixed ratio
amounts of the check upon discovering that where the drawee’s negligence contributed to
they were not paid to the correct payee the occurrence of the loss; it is one of the
§ The drawee, in turn, has the right of recourse proximate causes that resulted in the payment
against the collecting bank of the check based on the forged indorsement
o Payment To A Person Other Than The Drawee* § Drawee bank can be made liable if it cannot
§ Rules on forged indorsement of the payee’s claim that its participation in the wrongful
signature apply in cases of unauthorized payment of a check was merely limited to its
payment of checks to persons other than the reliance on the guarantees of the collecting
named payee therein or his order bank
§ Drawee bank is liable to the drawer for the § In cases involving a manager’s check, the
amount of the checks drawee bank is not guilty of wrongfully paying a
• Drawee bank may seek check but also of negligence in issuing such
reimbursement from collecting bank check
§ If the checks are payable to the order of specific o Recourse Of Payee Against Collecting Bank
persons, the drawee bank is also under strict § If payee’s signature was forged, the payee may
liability to pay the checks to the named payee directly proceed against the collecting bank
therein § Collecting bank which reimbursed the drawee
§ If the drawee bank paid the value of the check bank may in turn seek reimbursement from the
despite the forgery or if the drawee paid to a person/s who caused the checks to be
person other than a payee, the drawee-bank deposited & received the unauthorized
cannot pass the blame upon the depositor, the payments
drawer o Recourse Of Drawer Against Collecting Bank
o Recourse Of Drawee Against Collecting Bank* § Drawer can opt to recover from the collecting
§ Collecting bank is liable to the drawer bank instead of from the drawee bank if the
§ Checks payable to order – collecting bank who payee’s signature is forged
is treated as last indorser is liable for payment
§ Latest jurisprudence allows recourse by the collecting bank or last

drawer against the collecting bank if the drawer endorser)
does not want to run after the drawee d) Party who made the forgery
o Recourse Of Collecting Bank is liable
§ When the collecting bank is made liable, the Payee’s a) Drawer, drawee & payee not a) Drawer is liable
collecting bank may recover from its depositor signature liable. b) Drawee is liable
who had not given value for the money paid to forged b) Indorsers subsequent to c) Payee is not liable
him & has no right to retain the money he forgery are liable. (such as d) Collecting bank is liable
received collecting bank) because of warranty
§ The depositor may be required to reimburse the c) Party who made the forgery e) Party who made the forgery
collecting bank if it is established from the is liable is liable
evidence on record that he received the Indorser’s a) Drawer, payee & indorser a) Drawer is liable.
proceeds of the checks as they were deposited signature whose signature was forged (indorsement not necessary
to his personal joint account instead of the forged not liable. to title)
account of the payee-corporation b) Drawee is liable if it paid. b) Drawee is liable.
§ In Bearer Bills of Exchange c) Indorsers subsequent to c) Indorser whose signature
o Holder of a bearer instrument can still recover from the forgery are liable. (such as was forged is liable because
drawer if a special indorsement was forged because the collecting bank) indorsement is not
forged signature is unnecessary for his title d) Party who made the forgery necessary to title.
o Drawee can charge the account of ethe drawer is liable. d) Party who made the forgery
o Bearer instrument is always a bearer instrument & can be is liable.
negotiated by mere delivery even if already specially
indorsed h. Forgery in Checks
o SEE PREVIOUS NOTES IN THIS MODULE
RULES ON FORGERY OF BILLS OF EXCHANGE o In cases of altered checks & checks with forged indorsements, the drawee
Order Instrument Bearer Instrument bank must notify & return them to the collecting bank before 4:00 p.m. of the
Drawer’s a) Drawer is not liable because a) Drawer is not liable. next day of clearing, but the drawee bank may still return them even after such
signature he was never a party to the b) Drawee is liable if it paid. time provided he does so within 24 hours from its discovery of the alteration or
forged instrument. Drawee cannot recover from forged instruments so that recovery of the amount may be had. BUT, in no
b) Drawee is liable if it paid (no the collecting bank. event beyond the period fixed or provided by law for filing of a legal action by
recourse to drawer) because c) Party who made the forgery the returning bank against the bank sending the same.
he admitted the is liable.
genuineness of the drawer’s
signature. Drawee cannot
recover from the collecting
bank because there is no
privity between the collecting
bank & the drawer. The latter
does not give any warranty
regarding the signature of
the drawer.
c) Indorsers subsequent to
forgery liable (such as
MODULE 7 • Acceptor for honor & referee in case of need*

o The law requires protest for non-payment by the drawee (Section 165 of the
ENFORCEMENT OF LIABILITY
NIL)
STEPS TO CHARGE THE PARTIES LIABLE.

PRESENTMENT FOR PAYMENT
• Notes:* 1. Requisites for Sufficiency
o Primary Liability* - unconditional promise attaches the moment the maker
a. Presentment must be by the holder, or by some person authorized to received
makes the instrument while the acceptor’s assent tot the unconditional order
payment on his behalf
attaches the moment he accepts the instrument
b. It must be made at a reasonable hour on a business day on the proper date
§ No further act is necessary in order for the liability to accrue
c. Presentment must be at the proper place
§ Presentment for payment is all that is necessary
d. Presentment must be to the person primarily liable in the instrument, or if he is
o Secondary liability* - covers the steps for the promissory note & bill of
absent or inaccessible, to any person found at the place where the
exchange below
presentment is made
• Steps in Promissory Note – in order to charge the general indorser with the liability e. The person entitled to present the instrument for payment must exhibit the
1. Presentment for payment must be made within the required period to the instrument to the person from whom the instrument is demanded & upon
maker (Section 70 of the NIL) payment must be delivered to the person paying it
2. Notice of dishonor should be given, if the promissory note, is dishonored by 2. Time of Presentment*
non-payment by the maker (Section 89 of the NIL) a. Time – depends on whether the instrument is payable on demand, on a fixed
• Steps in Bill of Exchange – in order to charge with liability the person secondarily liable date or at a determinable future time
1. Presentment for acceptance – or negotiation within a reasonable time after the b. Fixed Date – if the maturity date is fixed in the instrument, the instrument
bill was acquired – should be made only in the following instances (THESE should be presented for payment on the said fixed date
ARE MANDATORY CASES): c. Demand Promissory Note – presentment must be made within a reasonable
a. Where the bill is payable after sight, or in any other case, where time after its issue
presentment for acceptance is necessary to fix the maturity of the d. Demand Bill of Exchange – presentment for payment will be sufficient if made
instrument within a reasonable time after the last negotiation
b. Where the bill expressly stipulates that it shall be presented for e. Stale Check – must be presented within a reasonable time after its issue
acceptance i. Current bank practice is to require presentment within 6 months of
c. Where the bill is drawn payable elsewhere than at the residence or issuance
place of business of the drawee f. Payable at a Bank – presentment must be made during banking hours, unless
2. If dishonored by non-acceptance: the person to make payment has no funds there to meet it at any time during
a. Notice of dishonor should be given to the indorsers & drawers the day, in which case presentment at any hour before the bank is closed on
b. If the bill is a foreign bill, there must be protest for dishonor by non- that day is sufficient
acceptance (Section 159 of the NIL) 3. Date of Maturity*
3. If the bill is accepted:
SECTION 85. Time of Maturity. — Every negotiable instrument is payable at
a. Presentment for payment to the acceptor should be made
the time fixed therein without grace. When the day of maturity falls upon
b. If the bill is dishonored upon presentment for payment:
Sunday, or a holiday, the instrument is payable on the next succeeding
i. Notice of dishonor must be given to the persons
business day. Instruments falling due or becoming payable on Saturday are
secondarily liable on the bill
to be presented for payment on the next succeeding business day, except
ii. If the bill is a foreign bill, protest for dishonor by non-
that instruments payable on demand may, at the option of the holder, be
acceptance must be made
presented for payment before twelve o'clock noon on Saturday when that
• In all the above cases, the holder must either present the bill for acceptance or negotiate
entire day is not a holiday.
it within a reasonable time; otherwise, the drawer & all indorsers are discharged (Section
144 of the NIL)
Sources include: lecture notes, Atty. Aquino’s Nego book, San Beda Memory Aids, and other reviewers. There may be errors. Use at your own risk. - 10 -
6. Proper Place
SECTION 73. Place of Presentment. — Presentment for payment is made at
a. Priority Place – priority is the place specified in the instrument
the proper place —
b. Special Place – as provided in Section 70 of the NIL, if the instrument is
a) Where a place of payment is specified in the instrument & it is
payable at a special place & the person primarily liable is able & willing to pay
there presented;
it there at maturity, such ability & willingness are equivalent to the tender of
b) Where no place of payment is specified, but the address of the
payment upon his part
person t make payment is given in the instrument & it is there
c. “Place of Payment” – mere designation of town or city is not sufficient
presented;
i. Must be where the holder can present a note, where the maker can
c) Where no place of payment is specified & no address is given &
deposit or provide funds to meet it, & where a legal offer to pay can
the instrument is presented at the usual place of business or
be made
residence of the person to make payment;
d) In any other case if presented to the person to make payment
7. To Whom Presented
wherever he can be found, or if presented at his last known place
of business or residence. • Instrument must be presented to the person primarily liable on the instrument,
or if he is absent or inaccessible, to any person found at the place where the
a. If the instrument is payable on a fixed day, it should be paid on such date
present is made; person must be capacitated
b. If the maturity day falls on a Sunday, Saturday or a holiday, the instrument is
• Rule is subject to the following:
payable on the next succeeding business day
i. Where the person primarily liable on the instrument is dead & no
c. If the instrument is payable on a certain day & then the President declares it a
place of payment is specified, presentment for payment must be
special non-working holiday, then the instrument is payable on the next
made to his personal representative, if such there be, & if, with
business day
the exercise of reasonable diligence, he can be found
d. If the instrument is payable on demand, the instrument may, at the option of
ii. Where the persons primarily liable on the instrument are liable as
the holder, be presented for payment before 12noon on a Saturday when the
partners & no place of payment is specified, presentment for
entire day is not a holiday
payment may be made to any one of them, even though there has
4. How to Compute Determinable Time*
been a dissolution of the firm
• This deals with instruments that are
iii. Where there are several persons, not partners, primarily liable on
o Payable at a fixed period after date
the instrument & no place of payment is specified, presentment
o Payable at a fixed period after sight
must be made to them all
o Payable at a fixed period after the happening of a specified event
a. Partners
SECTION 86. Time; How Computed. — When the instrument is payable at a
SECTION 77. Presentment to Persons Liable as Partners . —
fixed period after date, after sight, or after that happening of a specified
Where the persons primarily liable on the instrument are liable
event, the time of payment is determined by excluding the day from which
as partners, & no place of payment is specified, presentment for
the time is to begin to run, & by including the date of payment.
payment may be made to any one of them, even though there
has been a dissolution of the firm.
5. Payable at a Bank
SECTION 87. Rule Where Instrument Payable at Bank. — Where the i. Each partner may represent the partnership & may bind the other
instrument is made payable at a bank it is equivalent to an order to the bank partners
to pay the same for the account of the principal debtor thereon. ii. Two requirements before presentment can be made to either
SECTION 127. Bill Not an Assignment of Funds in Hands of Drawee. — A bill persons primarily liable
of itself does not operate as an assignment of the funds in the hands of the 1. The persons primarily liable must be partners
drawee available for the payment thereof, & the drawee is not liable on the 2. There is no place of payment that is specified
bill unless & until he accepts the same. b. Joint Debtors
• Even if there is no assignment of funds, the statement in the instrument that it SECTION 78. Presentment to Joint Debtors. — Where there are
is payable at a bank is equivalent to an order to the bank to pay the same for several persons, not partners, primarily liable on the instrument,
the account of the principal debtor
& no place of payment is specified, presentment must be made b. Effect of dishonor

to them all. i. an immediate right of recourse to all parties secondarily liable
thereon accrues to the holder.
i.
If the debtors are joint debtors, each debtor is liable only for his/her
PRESENTMENT FOR ACCEPTANCE
respective share in the obligation
1. How Made
ii. If there are two or more makers or two or more acceptors, each
maker or acceptor is liable only for his/her respective share in the • Presentment for acceptance is required in the following cases (Section 143)
obligation, hence, there must be presentment to them i. Where the bill is payable after sight, or in any other case, where
8. Instrument Exhibited presentment for acceptance is necessary in order to fix the maturity
of the instrument; or
• The instrument must be produced by the holder or any person who is
ii. Where the bill expressly stipulates that it shall be presented for
presenting it for payment
acceptance; or
• The maker could not be made to pay if it does not appear that the person
iii. Where the bill is drawn payable elsewhere than at the residence or
claiming payment is still in possession of the promissory note. The maker will
place of business of the drawee.
only be liable to the holder in due course
• Checks – it is not necessary to present a check for acceptance
9. When Presentment Not Necessary or Excused
a. Excused in the following instances • Procedure for Presentment – must be made by or on behalf of the holder at a
i. As to the drawer, where he has no right to expect or require that the reasonable hour, on a business day & before the bill is overdue. The rules to
drawee or acceptor will pay the instrument (Section 79) be observed:
ii. As to the indorser, where the instrument was made or accepted for i. Where a bill is addressed to two or more drawees who are not
partners, presentment must be made to them all unless one has
his accommodation & he has no reason to expect that the instrument
authority to accept or refuse acceptance for all in which case
will be paid if presented (Section 80)
presentment may be made to him only
iii. Where, after the exercise of reasonable diligence, presentment, as
ii. Where the drawee is dead, presentment may be made to his
required by the NIL, cannot be made (Section 82)
personal representative
iv. Where the drawee is a fictitious person (Section 82)
iii. Where the drawee has been adjudged a bankrupt or an insolvent or
v. In case of waiver of presentment, express or implied (Section 82)
b. Waiver has made an assignment for the benefit of creditors, presentment
i. May be verbal or in writing may be made to him or to his trustee or assignee
ii. Must be clearly established & will not be inferred from doubtful or 2. Time to Present for Acceptance
unequivocal acts or language • Must be made at a reasonable hour on business day.
10. Retention of Liability Even if Not Presented SECTION 146. On What Days Presentment May Be Made. — A bill may be
• Non-presentment will not relieve the drawer of his liability but would only presented for acceptance on any day on which negotiable instruments may
discharge him from liability to the extent of the loss caused by the delay or non- be presented for payment under the provisions of sections seventy-two &
presentment eighty-five of this Act. When Saturday is not otherwise a holiday,
• Article 1249 of the Civil Code – delivery of the promissory notes payable to presentment for acceptance may be made before twelve o'clock, noon, on
order, or bills of exchange or other mercantile documents shall produce the that day.
effect of payment only when they have been cashed, or when through the fault
of the creditor they have been impaired • Rules to be followed:
11. Meaning of Dishonor for Non-Payment i. If the instrument states that it should be presented for acceptance
a. When instrument dishonored by non-payment: on a fixed day, it should be presented on such day
i. it is duly presented for payment & payment is refused or cannot be ii. If the day presentment for acceptance is supposed to be made falls
obtained; or on a Sunday or a holiday, the instrument is payable on the next
ii. presentment is excused & the instrument is overdue & unpaid succeeding business day
iii.
If the instrument is payable on demand, the instrument, at the option must be in writing & signed by the drawee. It must not express that the drawee will
of the holder, may be presented for payment before 12noon on a perform his promise by any other means than the payment of money.
Saturday when the entire day is not a holiday
• When time is insufficient, refer to Section 147 of the NIL
• Requirements before there can be acceptance:
SECTION 147. Presentment Where Time is Insufficient. — Where the holder o Acceptance must be in writing – no formal requirements
of a bill drawn payable elsewhere than at the place of business or the o Written acceptance must be signed by the drawee
residence of the drawee has no time with the exercise of reasonable o The drawee must assent to the promise to pay a sum certain in
diligence to present the bill for acceptance before presenting it for payment money & not by any other means
on the day that it falls due, the delay caused by presenting the bill for 1. Where Indicated
acceptance before presenting it for payment is excused, & does not a. Where an acceptance is written on a paper other than the bill itself, it does not
discharge the drawers & indorsers. bind the acceptor except in favor of a person to whom it is shown & who, on
faith thereof, receives the bill for value
3. When Delay or Presentment is Excused
• When Delay is Excused
i. Where the holder of a bill drawn payable elsewhere than at the place 2. Time to Accept & Effect of Retention
of business or the residence of the drawee has no time, with the a. In Section 136, drawee is allowed 24 hours after presentment to decide
exercise of reasonable diligence, to present the bill for acceptance whether to accept the bill or not
before presenting it for payment on the day that it falls due, the delay b. In Section 137, when a bill is delivered for acceptance destroys or refuses
caused by presenting the bill for acceptance before presenting it for within 24 hours, to return the bill accepted or non-accepted to the holder
payment is excused c. Constructive Acceptance (Section 137) – drawee is deemed to have accepted
• When non-presentment is excused – presentment for acceptance is excused in the following instances
& a bill may be treated as dishonored by non-acceptance in the following i. The bill was delivered to the drawee & he destroys it
cases: ii. The bill was delivered to the drawee but refuses within 24 hours or
i. Where the drawee is dead, or has absconded, or is a fictitious within such other period as the holder may allow to return the bill
person or a person not having capacity to contract by bill accepted or non-accepted
ii. Where, after the exercise of reasonable diligence, presentment d. Sections 136 & 137 Distinguished.
cannot be made i. 136 allows the drawee 24 hours in which to accept
iii. Where, although presentment has been irregular, acceptance has ii. 137 provides that refusal within 24 hours to return the bill or such
been refused on some other ground other time as the holder may allow amounts to acceptance
4. Meaning of Dishonor for Non-Acceptance 3. Future & Incomplete Bills
• Where a bill is duly presented for acceptance & is not accepted within the a. Acceptance of a future bill as stated in Section 135
prescribed time, the person presenting it must treat the bill as dishonored by SECTION 135. Promise to Accept; When Equivalent to Acceptance. — An
non-acceptance or he loses the right of recourse against the drawer & unconditional promise in writing to accept a bill before it is drawn is deemed
indorsers – proper notice of dishonor should be given to the drawers & an actual acceptance in favor of every person who, upon the faith thereof,
indorsers receives the bill for value.
• when a bill is dishonored by non-acceptance, an immediate right of recourse
against the drawer & indorsers accrues to the holder & no presentment for b. Acceptance of an incomplete bill as stated in Section 138
payment is necessary
SECTION 138. Acceptance of Incomplete Bill. — A bill may be accepted
before it has been signed by the drawer, or while otherwise incomplete, or
ACCEPTANCE
when it is overdue, or after it has been dishonored by a previous refusal to
SECTION 132. Acceptance; How Made, & So Forth . — The acceptance of a bill is the accept, or by non-payment. But when a bill payable after sight is dishonored
signification by the drawee of his assent to the order of the drawer. The acceptance by non-acceptance & the drawee subsequently accepts it, the holder, in the
absence of any different agreement, is entitled to have the bill accepted as 3. Effect of Absence of Notice on Separate Contract
of the date of the first presentment. a. Failure to give notice of dishonor to the drawer will not necessarily result in
absence of liability on the part of the drawer
b. The drawer may not escape liability under the separate undertaking where the
c. Acceptance of Overdue & Dishonored Bills
drawer promised to pay the full amount of the negotiable instrument
i. Stated also in Section 138, a bill can still be accepted after it has
4. Meaning Dishonor
been dishonored by a previous refusal to accept, or by non-payment
ii. Provides that when a bill payable after sight is dishonored by non- SECTION 83. When Instrument Dishonored by Non-payment. — The
acceptance & the drawee subsequently accepts it, the holder, in the instrument is dishonored by non-payment when —
absence of any different agreement, is entitled to have the bill a) It is duly presented for payment & payment is refused or cannot
accepted as of the date of the first presentment be obtained; or
4. Kinds of Acceptance b) Presentment is excused & the instrument is overdue & unpaid.
a. Qualified Acceptance SECTION 149. When Dishonored by Non-acceptance. — A bill is dishonored
i. Conditional – makes payment by the acceptor dependent on the by non-acceptance —
fulfillment of a condition a) When it is duly presented for acceptance & such an acceptance
ii. Partial – an acceptance to pay part only of the amount for which the as is prescribed by this Act is refused or cannot be obtained; or
bill is drawn b) When presentment for acceptance is excused, & the bill is not
iii. Local – an acceptance to pay only at a particular place accepted.
iv. Qualified as to time
v. The acceptance of some, one or more of the drawees but not of all 5. Who Should Give Notice & Effects
b. Holder may refuse qualified acceptance* a. Notice may be given by or on behalf of the holder, or by or on behalf of any
i. The holder may refuse to take a qualified acceptance & if he does party to the instrument who might be compelled to pay it to the holder, & who,
not obtain an unqualified acceptance, he may treat the bill as upon taking it up, would have a right to reimbursement from the party to whom
dishonored by non-acceptance the notice is given
c. Presumed Unqualified Acceptance* b. Where notice is given by or on behalf of the holder, it inures (come into
i. Acceptance is presumed to be unqualified or absolute operation) to the benefit of all subsequent holders & all prior parties who have
a right of recourse against the party whom it is given. If the notice is given by
NOTICE OF DISHONOR the indorser who may be compelled to pay, such notice inures to the benefit of
• When a negotiable instrument has been dishonored by non-acceptance or non-payment, the holder & all parties subsequent to the party to whom notice is given
notice of dishonor must be given to the drawer & to each indorser, & any drawer or 6. Agent*
indorser to whom such notice is not given is discharged from liability a. Notice of dishonor may be given by any agent either in his own name or in the
1. No Duty to Inform* name of any party entitled to give notice, whether that party be his principal or
a. Payee does not have a legal obligation to inform the drawer of the dishonor of not
the instrument
SECTION 94. When Agent May Give Notice. — Where the instrument has
b. Notice of dishonor is required only to preserve the right of the payee to recover
been dishonored in the hands of an agent, he may either himself give notice
on the check
to the parties liable thereon, or he may give notice to his principal. If he give
c. The drawee cannot complain if the payee did not give such notice because the notice to his principal, he must do so within the same time as if he were the
right that is lost belongs to the payee holder, & the principal upon the receipt of such notice has himself the same
2. Practice* time for giving notice as if the agent had been an independent holder.
a. Reasonable banking practice – when a check is given ti a creditor bank &
payment of an obligation is dishonored, the bank should immediately return it
7. Form of Notice
to the drawer who is also the debtor & demand its replacement or payment lest
it causes any prejudice to the drawer SECTION 95. When Notice Sufficient. — A written notice need not be signed,
& an insufficient written notice may be supplemented & validated by verbal
communication. A misdescription of the instrument does not vitiate the e. Notice to Bankrupt – Two situations contemplated
notice unless the party to whom the notice is given is in fact misled thereby. i. The party to whom notice should be given is declared by a court as
bankrupt or insolvent
SECTION 96. Form of Notice. — The notice may be in writing or merely oral
ii. The party to whom notice should be given has made an assignment
& may be given in any terms which sufficiently identify the instrument &
for the benefit of creditors
indicate that it has been dishonored by non-acceptance or non-payment. It
may in all cases be given by delivering it personally or through the mails.
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.
a.Requirements*
i. Must contain sufficient description of the bill or note SECTION 98. Notice Where Party is Dead. — When any party is dead, & his
ii. Must contain a statement that the instrument is dishonored upon death is known to the party giving notice, the notice must be given to a
presentment for acceptance or for payment personal representative, if there be one, & if with reasonable diligence he
iii. Must contain a statement that the instrument has been protested if can be found. If there be no personal representative, notice may be sent to
protest is required the last residence or last place of business of the deceased.
iv. Must contain an announcement of the intention to look to the party SECTION 99. Notice to Partners. — When the parties to be notified are
addressed for payment partners, notice to any one partner is notice to the firm even though there
b. Misdescription* - If there is misdescription, the notice is still valid & effective has been a dissolution.
except if a party was in fact misled SECTION 100. Notice to Persons Jointly Liable. — Notice to joint parties
c. Bouncing Check* - For purposes of applying BP 22, notice of dishonor must who are not partners must be given to each of them, unless one of them has
be in writing authority to receive such notice for the others.
d. How written notice is given* - If it is in writing, it can be delivered personally or
SECTION 101. Notice to Bankrupt. — Where a party has been adjudged a
by mail
bankrupt or an insolvent, or has made an assignment for the benefit of
8. To Whom Given
creditors, notice may be given either to the party himself or to his trustee or
a. In General - Notice may be given to either the party himself or the agents of
assignee.
the indorsers or drawers
b. Party is Dead
i. Service to the representatives only necessary under Section 98 9. Time & Place of Notice
when: a. Time to Give Notice
1. The person who should give notice knows that the person i. Notice must be given as soon as the instrument is dishonored,
to receive the notice is dead unless delay is excused
2. The person who is supposed to receive notice has a ii. When parties reside in the same place
personal representative 1. If given at a place of business, within business hours
3. The personal representative could be found after the 2. If given at his residence, before usual time of rest
exercise of reasonable diligence 3. If by mail, deposited within post office hours
ii. Notice is not necessary when: iii. When parties reside in different places
1. If there was, in fact, no personal representative 1. If sent by mail, must be mailed the day following the day
2. If the person to give notice is not aware of the death of the of dishonor
person who is supposed to receive notice 2. Other than post office, similar time frame if sent via post
3. If the personal representative cannot be found despite the office
exercise of reasonable diligence iv. Notice by persons who can be made to pay – same timeframe as
c. Notice to Partners primary party
i. Notice to one partner will bind the partnership – consistent with the b. Where Notice must be sent – to the address of the indorser or drawer via
mutual agency rule in partnership i. Post office
d. Notice to Joint Debtors ii. Place of business
i. Each debtor is responsible for his own share iii. Sent from where he is travelling to
SECTION 102. Time Within Which Notice Must Be Given. — Notice may be c) If he is sojourning in another place, notice may be sent to the place
given as soon as the instrument is dishonored; & unless delay is excused where he is so sojourning.
as hereinafter provided, must be given within the times fixed by this Act. But where the notice is actually received by the party within the time
SECTION 103. Where Parties Reside in Same Place. — Where the person specified in this Act, it will be sufficient, though not sent in accordance with
giving & the person to receive notice reside in the same place, notice must the requirement of this section.
be given within the following times:
a) If given at the place of business of the person to receive notice, it 10. Waiver of Notice
must be given before the close of business hours on the day a. Waiver – renouncing the benefit of the act or matter in his favor
following. b. Types of Waiver
b) If given at his residence, it must be given before the usual hours i. For waiver of dishonor
of rest of the day following. 1. Express
c) If sent by mail, it must be deposited in the post-office in time to 2. Implied
reach him in usual course on the day following.
SECTION 104. Where Parties Reside in Different Places. — Where the ii. Waiver
person giving & the person to receive notice reside in different places, the 1. Before the time of giving of notice
notice must be given within the following times: 2. After the failure to give notice
a) If sent by mail, it must be deposited in the post-office in time to go iii. Written waiver
by mail the day following the day of dishonor, or if there be no mail 1. Written on the instrument itself
at a convenient hour on that day, by the next mail thereafter. 2. Written above the signature of the indorser
b) If given otherwise than through the post-office, then within the c. To Whom Binding
time that notice would have been received in due course of mail, i. If the waiver is written on the instrument itself, it is binding on all
if it had been deposited in the post-office within the time specified parties
in the last subdivision. ii. If the waiver is written above the signature of the indorser, it is
binding only on the indorser & he is the only one who is deemed to
SECTION 105. When Sender Deemed to Have Given Due Notice. Where
have made the waiver
notice of dishonor is duly addressed & deposited in the post-office, the
d. Waiver of Protest
sender is deemed to have given due notice, notwithstanding any
i. Protest – formal statement in writing made by a notary public at the
miscarriage in the mails.
instance of the holder declaring that the instrument has been
SECTION 106. Deposit in Post-Office; What Constitutes. — Notice is deemed presented for payment or for acceptance but the same was
to have been deposited in the post-office when deposited in any branch dishonored
post-office or in any letter box under the control of the post-office ii. Protest is indispensable only in a foreign bill of exchange
department. iii. Effects of Waiver of Protest
SECTION 107. Notice of Subsequent Party; Time of . — Where a party 1. Protest itself is waived
receives notice of dishonor, he has, after the receipt of such notice, the 2. Presentment for payment or acceptance is also deemed
same time for giving notice to antecedent parties that the holder has after waived
the dishonor. 3. Notice of dishonor is also deemed waived
SECTION 108. Where Notice Must Be Sent. — Where a party has added an
address to his signature, notice of dishonor must be sent to that address; SECTION 109. Waiver of Notice. — Notice of dishonor may be waived, either
but if he has not given such address, then the notice must be sent as before the time of giving notice has arrived or after the omission to give due
follows: notice, & the waiver may be express or implied.
a) Either to the post-office nearest to his place of residence or to the SECTION 110. Whom Affected by Waiver . — Where the waiver is embodied
post-office where he is accustomed to receive his letters; or in the instrument itself, it is binding upon all parties; but, where it is written
b) If he lives in one place, & has his place of business in another, above the signature of an indorser, it binds him only.
notice may be sent to either place; or
SECTION 111. Waiver of Protest. — A waiver of protest, whether in the case c) Where the instrument was made or accepted for his
of a foreign bill of exchange or other negotiable instrument, is deemed to accommodation.
be a waiver not only of a formal protest, but also of presentment & notice of
dishonor. 13. Bills Previously Dishonored by Non-acceptance
a. Notice of dishonor no longer necessary if already dishonored by non-
11. Delay in Giving Notice acceptance
a. Reasonable diligence excuses the delay in the giving of notice b. If the drawee initially refused to accept but later changes his mind & accepts
b. Delay in giving notice of dishonor may discharge the person who is sought to the bill, holder or any other person must give notice of non-payment if the
be made liable acceptor subsequently dishonors by refusing to do the same
SECTION 113. Delay in Giving Notice; How Excused. — Delay in giving SECTION 116. Notice of Non-payment Where Acceptance Refused. — Where
notice of dishonor is excused when the delay is caused by circumstances due notice of dishonor by non-acceptance has been given, notice of a
beyond the control of the holder, & not imputable to his default, misconduct, subsequent dishonor by non-payment is not necessary, unless in the
or negligence. When the cause of delay ceases to operate, notice must be meantime the instrument has been accepted.
given with reasonable diligence.
14. Effect of Failure on HDC
12. When Notice is Excused or Unnecessary a. Right of the subsequent holder in d ue course who is not aware of the previous
a. Notice to drawer is unnecessary – See Section 114 dishonor is not affected by the failure to give notice
b. When notice is excused – See Section 115 SECTION 117 .Effect of Omission to Give Notice of Non-acceptance. — An
i. Fictitious drawee – may only blame himself if he is aware that the omission to give notice of dishonor by non-acceptance does not prejudice
drawee is not existing & he still indorsers the instrument the rights of a holder in due course subsequent to the omission.
ii. Indorser is Accommodated Party – the maker is the surety of the
indorser who is in effect the principal
RULES REGARDING FOREIGN BILLS
1. Protest – See Section 152
SECTION 114. When Notice Need Not Be Given to Drawer. — Notice of a. Three steps*
dishonor is not required to be given to the drawer in either of the following i. Presentment
cases: ii. Noting
a) Where the drawer and drawee are the same person. iii. Extending of the noting with a formal certificate
b) When the drawee is a fictitious person or a person not having b. When Required & When Discretionary
capacity to contract. i. Protest is indispensable where the bill of exchange is a foreign bill
c) When the drawer is the person to whom the instrument is 1. even if the foreign bill is not protested, the drawer may still
presented for payment. be liable under the underlying transaction
d) Where the drawer has no right to expect or require that the drawee 2. liability under the letter of undertaking is independent of
or acceptor will honor the instrument. the liability under the draft
e) Where the drawer has countermanded payment. ii. Inland Bills – See Section 118
SECTION 115. When Notice Need Not Be Given to Indorser. — Notice of 1. Permissible to protest inland bills but is discretionary
dishonor is not required to be given to an indorser in either of the following 2. Notary’s certificate of protest is the most convenient and
cases: certain mode of proving facts – prima facie evidence
a) Where the drawee is a fictitious person or a person not having iii. Cases when Protest is Necessary – See Section 157
capacity to contract, & the indorser was aware of the fact at the 1. When necessary
time he indorsed the instrument; a. If a foreign bill has been dishonored by non-
b) Where the indorser is the person to whom the instrument is acceptance
presented for payment;
b. If a foreign bill which was not previously ii. Exception – where the instrument is payable at the place of business
dishonored by non-acceptance has been or residence of a 3rd person, it must be protested there
dishonored by non-payment h. Protest Dispensed with – See Section 159
c. A bill that is supposed to be accepted for honor i. Grounds that dispense with notice also apply to protest
d. A bill that is to be presented to the acceptor for ii. Sections 109, 111, 112, 114, 115, 116, 117
honor or referee in case of need i. Distinguished from Notice of Dishonor
e. When the bill is dishonored by the acceptance NOTICE OF DISHONOR PROTEST
for honor Apply to any inland bills Does not apply mandatorily to
2. Note: inland bills but mandatory as to
a. Protest for non-payment is not mandatory if foreign bills
there was previous protest for non-acceptance May be verbal or written Always in writing
b. In one case, the SC ruled that protest is not Made by a holder or any person Made by a notary public or a
necessary to charge the guarantor or surety who may be compelled to pay respectable resident
c. Rationale Required to be made usually within Protest or noting thereof should be
i. For uniformity in international transactions because most countries one day after dishonor made on the day of dishonor
require it Not made or given in the place of As a rule, to be made in the place
ii. In order to furnish an authentic & satisfactory evidence of the dishonor but in the residence of the of dishonor
dishonor parties and other places mentioned
d. How protest is made – See Section 153 & 154 in Section 103
i. Requisites
1. The protest must be made by a notary public or any
SECTION 118. When Protest Need Not Be Made; When Must Be Made. —
respectable resident of the place where the bill is
Where any negotiable instrument has been dishonored it may be protested
dishonored in the presence of two witnesses
for non-acceptance or non-payment, as the case may be; but protest is not
2. The protest must be annexed to the bill or must contain a
required except in the case of foreign bills of exchange.
copy thereof
3. The protest must be under the hand and seal of the notary SECTION 152. In What Cases Protest Necessary. — Where a foreign bill
making the protest appearing on its face to be such is dishonored by non-acceptance, it must
4. Protest must specify the matters mentioned in Section 153 be duly protested for non-acceptance, & where such bill which has not
ii. Respectable Resident – in case there is no notary public in the place previously been dishonored by non-acceptance is dishonored by
of protest nonpayment, it must be duly protested for non-payment. If it is not so
iii. Lost, Destroyed, or Detained Bill – foreign bill can still be protested protested, the drawer & indorsers are discharged. Where a bill does not
e. When Made – See Section 155 appear on its face to be a foreign bill, protest thereof in case of dishonor is
i. Two alternative periods for the protest unnecessary.
1. If the protest is not duly noted, protest must be made on SECTION 153. Protest; How Made. — The protest must be annexed to the
the date of dishonor, or bill, or must contain a copy thereof, & must be under the hand & seal of the
2. If the protest is duly noted, it must be noted on the date of notary making it, & must specify —
dishonor and formal protest may be done subsequently a) The time & place of presentment;
f. Protest for Better Security Before Maturity – See Section 158 b) The fact that presentment was made & the manner thereof;
i. May be done before maturity if the acceptor is insolvent c) The cause or reason for protesting the bill;
ii. The failure of the acceptor to pay is being foreseen and the protest d) The demand made & the answer given, if any, or the fact that the
is being made in order to give the acceptor the opportunity to perform drawee or acceptor could not be found.
any act that will ensure payment SECTION 154. Protest; By Whom Made. — Protest may be made by —
g. Place of Protest – See Section 156 a) A notary public; or
i. General Rule – must be at a place where the instrument was
dishonored
b) By any respectable resident of the place where the bill is iv. The acceptance for honor must be made before the instrument is
dishonored, in the presence of two or more credible witnesses. overdue
v. The acceptance for honor must follow the formalities prescribed in
SECTION 155. Protest; When to Be Made. — When a bill is protested, such
Section 162
protest must be made on the day of its dishonor, unless delay is excused
e. How Acceptance for Honor is Made – See Section 162
as herein provided. When a bill has been duly noted, the protest may be
i. The acceptance for honor must be in writing
subsequently extended as of the date of the noting.
ii. The writing must expressly indicate that it is an acceptance for honor
SECTION 156. Protest; Where Made. — A bill must be protested at the place iii. The acceptance for honor must be signed by the acceptor
where it is dishonored, except that when a bill drawn payable at the place iv. It must not express that the acceptor for honor will perform his
of business or residence of some person other than the drawee has been promise by any other means other than payment of money
dishonored by non-acceptance, it must be protested for non-payment at the f. In Whose Favor – See Section 163
place where it is expressed to be payable, & no further presentment for i. Acceptor for honor may indicate the person in whose favor he is
payment to, or demand on, the drawee is necessary. accepting the bill of exchange
SECTION 157. Protest Both for Non-acceptance & Non-payment. — A bill g. Liability of Acceptor for Honor – See Section 164
which has been protested for non-acceptance may be subsequently i. The acceptor for honor is liable to the holder and to all parties to the
protested for non-payment. bill subsequent to the party for whose honor he has accepted
SECTION 158. Protest Before Maturity Where Acceptor Insolvent. — Where
the acceptor has been adjudged a bankrupt or an insolvent, or has made an h. Maturity Date of Sight Bills – See Section 166
assignment for the benefit of creditors before the bill matures, the holder i. Maturity calculated from the date of the noting for non-acceptance
may cause the bill to be protested for better security against the drawer & i. Other Formalities – See Sections 167, 168, 169, 170
indorsers. j. Distinguished from Ordinary Acceptance
SECTION 159. When Protest Dispensed With. — Protest is dispensed with ACCEPTANCE FOR HONOR ORDINARY ACCEPTANCE
by any circumstances which would dispense with notice of dishonor. Delay 1. Protest is a prerequisite 1. Protest is not necessary
in noting or protesting is excused when delay is caused by circumstances 2. The person who accepts is a 2. The person who accepts is a
beyond the control of the holder & not imputable to his default, misconduct, stranger party – the drawee
or negligence. When the cause of delay ceases to operate, the bill must be 3. There must be an express 3. Any word indicating an
noted or protested with reasonable diligence. statement that it is for honor acceptance is enough
4. Consent of the holder is 4. Consent of the holder is not
necessary necessary
2. Acceptance for Honor –
5. The liability of the acceptor for 5. The acceptor is primarily liable
a. There are instances when the original drawee does not want to accept the bill
honor is secondary 6. Payment by the acceptor in due
of exchange but there is a need to save the credit of certain parties
6. Payment for the acceptor for course discharges the bill
b. A stranger or 3rd person may accept the instrument for honor, making such
honor will not discharge the bill 7. Acceptance involves the entire
party liable to the holder and all parties
7. Acceptance for honor may be in instrument
c. Liabilities of Acceptor – See Section 165
favor of only one or some parties
i. Liability of the acceptor is secondary since he is to pay only if the
instrument is not paid by the drawer, having been duly presented for
payment and protested for non-payment and notice of dishonor is SECTION 161. When Bill May Be Accepted for Honor. — Where a bill of
given to him exchange has been protested for dishonor by non-acceptance or protested
d. Requisites for acceptance for honor – See Section 161 for better security, and is not overdue, any person not being a party already
i. Bill of exchange has been protested for dishonor by non-acceptance liable thereon may, with the consent of the holder, intervene and accept the
and for better security bill supra protest for the honor of any party liable thereon, or for the honor
ii. The acceptor must be a stranger to the bill of the person for whose account the bill is drawn. The acceptance for honor
iii. The holder must consent to the acceptance for honor may be for part only of the sum for which the bill is drawn; and where there
has been an acceptance for honor for one party, there may be a further ii. For the honor of the person for whose account it was drawn
acceptance by a different person for the honor of another party. c. Requisites – See Section 171, 172, 173
i. There must be prior protest for non-payment
SECTION 162. Acceptance for Honor; How Made. — An acceptance for
ii. It must be attested by a notarial act of honor which is either
honor supra protest must be in writing, and indicate that it is an acceptance
appended to the protest or form an extension to such protest
for honor, and must be signed by the acceptor for honor.
iii. The notarial act of honor must be founded on a declaration made by
SECTION 163. When Deemed to Be an Acceptance for Honor of the Drawer. the prayer for honor or by his agent declaring his intention to pay the
— Where an acceptance for honor does not expressly state for whose honor bill for honor
it is made, it is deemed to be an acceptance for the honor of the drawer. iv. The notarial act of honor must declare for whose honor he pays
SECTION 164. Liability of the Acceptor for Honor. — The acceptor for honor d. Preference – See Section 174
is liable to the holder and to all parties to the bill subsequent to the party i. Payment that discharges the most parties shall be given preference
for whose honor he has accepted. e. Effect of Payment on Subsequent Parties – See Section 175
SECTION 165. Agreement of Acceptor for Honor. — The acceptor for honor, i. Rule presents circuity of actions
by such acceptance engages that he will on due presentment pay the bill f. Holder Has No Option – See Section 176
according to the terms of his acceptance, provided it shall not have been i. Holder has no choice but to accept payment for honor
paid by the drawee, and provided also that it shall have been duly presented g. Rights for Payer for Honor – See Section 177
for payment and protested for non-payment and notice of dishonor given to i. Entitled to receive both the bill itself and the protest
him. h. Distinctions
SECTION 167. Protest of Bill Accepted for Honor, and So Forth . — Where a ACCEPTANCE FOR HONOR PAYMENT FOR HONOR
dishonored bill has been accepted for honor supra protest or contains a 1. There must be prior protest for 1. There must be protest for non-
reference in case of need, it must be protested for non-payment before it is non-acceptance or for better payment
presented for payment to the acceptor for honor or referee in case of need. security 2. The bill is already overdue
2. The bill is not yet overdue 3. The person who will pay may
SECTION 168. Presentment for Payment to Acceptor for Honor, How Made.
3. The acceptor must be a stranger be a stranger or may be a party
— Presentment for payment to the acceptor for honor must be made as
4. The consent of the holder is a 4. The consent of the holder is not
follows:
requisite necessary and the holder who
a) If it is to be presented in the place where the protest for
refuses to accept payment
nonpayment was made, it must be presented not later than the
loses his right of recourse
day following its maturity.
against any party who may be
b) If it is to be presented in some other place than the place where it
discharged by such payment
was protested, then it must be forwarded within the time specified
in section one hundred and four.
SECTION 169. When Delay in Making Presentment is Excused. — The PAYMENT BY PERSON PAYMENT FOR HONOR
provisions of section eighty-one apply where there is delay in making PRIMARILY LIABLE
presentment to the acceptor for honor or referee in case of need. 1. There is no need to protest for 1. There must be protest for non-
non-payment or non-acceptance payment
SECTION 170. Dishonor of Bill by Acceptor for Honor. — When the bill is
2. A notarial act is not necessary 2. A notarial act is necessary
dishonored by the acceptor for honor it must be protested for non-payment
3. The person who will pay is a 3. The person who will pay may
by him.
party – the maker or the drawee- be a stranger or may be a party
acceptor 4. It cannot be payment in due
8. Payment for Honor 4. Payment in due course course and payment discharges
a. The NIL allows payment supra protest in cases where the bill of exchange is discharges the instrument only the parties after the party
protested for non-payment 5. Payment is not in favor of in whose favor payment for
b. Payment for honor made for the honor of: (See Section 171) specific parties honor is made
i. Any person liable thereon or
5. Payment for honor is in favor of MODULE 8

a specified person and the law
DISCHARGE
requires that there is a
statement of the person for
CONCEPT
whose honor payment is made
• Definition – release from further liability, obligation, or from the binding effect of the
negotiable instrument
SECTION 171. Who May Make Payment for Honor. — Where a bill has been
protested for non-payment, any person may intervene and pay it supra GROUND FOR DISCHARGE OF PERSONS PRIMARILY LIABLE
protest for the honor of any person liable thereon or for the honor of the 1. Payment – the holder of a negotiable instrument may sue in his own name and payment
person for whose account it was drawn. to him in due course discharges the instrument (payor must be in good faith)
SECTION 172. Payment for Honor; How Made. — The payment for honor a. Requisites – must concur
supra protest in order to operate as such and not as a mere voluntary i. Payment must be made by or in behalf of the principal debtor or the
payment must be attested by a notarial act of honor which may be accommodated party where the instrument is made or accepted for
appended to the protest or form an extension to it. his accommodation
SECTION 173. Declaration Before Payment for Honor. — The notarial act of ii. Payment must be made to the holder
honor must be founded on a declaration made by the payer for honor or by iii. The payor must be in good faith and without notice that his title is
his agent in that behalf declaring his intention to pay the bill for honor and defective
for whose honor he pays. iv. Payment must be made at or after maturity date of the instrument
SECTION 174. Preference of Parties Offering to Pay for Honor. — Where two b. Use of Another Instrument – payment cannot be made by delivering another
or more persons offer to pay a bill for the honor of different parties, the negotiable instrument
person whose payment will discharge most parties to the bill is to be given i. Delivery of a negotiable instrument does not produce the effect of
the preference. payment unless the same is encashed or the value thereof was
impaired through the fault of the oblige
SECTION 175. Effect on Subsequent Parties Where Bill is Paid for Honor. —
c. Return of Check – drawer’s possession of a check he previously issued may
Where a bill has been paid for honor, all parties subsequent to the party for
bolster his allegation that there was payment and full satisfaction of his
whose honor it is paid are discharged, but the payer for honor is subrogated
obligation
for, and succeeds to, both the rights and duties of the holder as regards the
d. By Whom Made – payment may operate as a discharge if made by the
party for whose honor he pays and all parties liable to the latter.
following parties:
SECTION 176. Where Holder Refuses to Receive Payment Supra Protest. — i. By a primary party, maker or acceptor if he is not a surety for a
Where the holder of a bill refuses to receive payment supra protest, he loses principal debtor who signed as a secondary party
his right of recourse against any party who would have been discharged by ii. If the primary party is a surety for a principal debtor who signed as a
such payment. secondary party, then a payment by the secondary party, who is also
SECTION 177. Rights of Payer for Honor. — The payer for honor, on paying the principal debtor
to the holder the amount of the bill and the notarial expenses incidental to iii. A payment on behalf of the principal debtor under the principles of
its dishonor, is entitled to receive both the bill itself and the protest. the law on agency
e. On Discharge of Liability
i. Payment by person secondarily liable – payment by secondary party
who is not the accommodated party will not discharge the instrument
ii. Striking out indorsement – allowed under Section 121 of the NIL
iii. Accommodated party – payment by such will discharge the
instrument; the person who made or accepted the instrument is only
a surety of the accommodated party
iv. Drawer – discharges the instrument
v. The acceptor will have no right of recourse against the drawer only DISCHARGE OF PERSONS SECONDARILY LIABLE
if the former already received the amount of the bill from the drawer 1. Discharge of Prior Party – cancellation of an indorsement of a person secondarily liable
or if he is in possession of an amount due to the drawer or if he is in by the intentional cancellation of his signature by the holder may result in the discharge
possession of an amount due to the drawer or if he is otherwise of other parties
obligated to the drawer a. Discharge by a prior party discharges a person secondarily liable
vi. Payment by third person – instrument is not discharged because 2. Tender of Payment – done by a valid tender or payment made by a prior party
payment is not made by a person primarily liable. 3. Release of Principal Debtor – discharges the instrument and the persons secondarily
f. To Whom – must be made to the holder liable have no more right of recourse against the principal debtor
2. Renunciation a. Where the release was made with reservation of the right of recourse against
a. Requisites the principal debtor, the persons secondarily liable are not discharged
i. Unless the instrument is delivered, it must be expressly provided for 4. Extension of Term – an agreement to extend the term of payment entered into with the
in writing principal debtor releases the persons secondarily liable
ii. Must be absolute and unconditional 5. Accommodation Party – liability remains not only primary but also unconditional to a
b. Does not affect the rights of a holder in due course without notice holder for value such that even if the accommodated party receives an extension of ethe
c. Must be done before, at or after the maturity of the instrument period for payment without the consent of the accommodation party, the latter is still liable
3. Cancellation – intentional cancellation discharges it; unintentional cancellation does not for the whole obligation and such extension does not release him, because as far as the
discharge it holder for value is concerned, he is a solidary co-debtor
a. Need not be in writing
4. Acts that Discharge Simple Contracts SECTION 88. What Constitutes Payment in Due Course. — Payment is made in due
a. Non-exclusive list of how an obligation is extinguished (Article 1231, NCC) course when it is made at or after the maturity of the instrument to the holder thereof in
i. Payment or performance good faith and without notice that his title is defective.
ii. Loss of the thing due
SECTION 119.Instrument; How Discharged. — A negotiable instrument is discharged —
iii. Condonation or remission of debt
a) By payment in due course by or on behalf of the principal debtor;
iv. Confusion or merger of the rights of creditor and debtor
b) By payment in due course by the party accommodated, where the instrument
v. Compensation
is made or accepted for accommodation;
vi. Novation
c) By the intentional cancellation thereof by the holder;
vii. Annulment or rescission
d) By any other act which will discharge a simple contract for the payment of
viii. Fulfillment of a resolutory condition
money;
ix. Prescription
e) When the principal debtor becomes the holder of the instrument at or after
b. Withdrawal of funds is not one of the grounds for extinguishment of a simple
maturity in his own right
contract
5. Novation – may extinguish an obligation in proper cases SECTION 120. When Persons Secondarily Liable on , Discharged. — A
person secondarily liable on the instrument is discharged —
PRINCIPAL DEBTOR BECOMES THE HOLDER a) By any act which discharges the instrument;
b) By the intentional cancellation of his signature by the holder;
• Instrument is discharged when the principal debtor becomes the holder of the instrument
c) By the discharge of a prior party;
at or after maturity date in his own right
d) By a valid tender of payment made by a prior party;
• However, maker is discharged even if he acquired the instrument through an agent who
e) By a release of the principal debtor, unless the holder's right of recourse
did not disclose his principal
against the party secondarily liable is expressly reserved;
f) By any agreement binding upon the holder to extend the time of payment, or to
SURRENDER OF THE INSTRUMENT
postpone the holder's right to enforce the instrument, unless made with the
• Instrument must be surrendered to the payor whenever discharge is by payment by or in
assent of the party secondarily liable, or unless the right of recourse against
behalf of the principal debtor, payment by the accommodated party, by renunciation, or
such party is expressly reserved
by any other ground that discharges simple contracts
SECTION 121. Right of Party Who Discharges Instrument. — Where the instrument is ii. Bank is both the drawer and the drawee
paid by a party secondarily liable thereon, it is not discharged; but the party so paying it iii. Manager’s check = the bank manager signs it
is remitted to his former rights as regard all prior parties, and he may strike out his own b. Similarity with Certified checks*
and all subsequent indorsements, and again negotiate the instrument, except — i. Manager’s check stands on same footing as certified check –
a) Where it is payable to the order of a third person, and has been paid by the deemed to be accepted by the bank upon its issuance
drawer; and ii. Holder of manager’s or cashier’s check other than holder in due
b) Where it was made or accepted for accommodation, and has been paid by the course is still subject for both real and personal defenses
party accommodated. c. When Cashier’s checks can be payable to bearer*
i. BSP generally disallows issuance of cashier’s, manager’s or
SECTION 122. Renunciation by Holder . — The holder may expressly renounce his rights
certified checks that are payable to bearer
against any party to the instrument before, at, or after its maturity. An absolute and
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 CIRCULAR NO. 259, Series of 2000
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. Pursuant to Monetary Board Resolution No. 1494 dated 1 September 2000,
additional anti-money laundering rules and regulations for banks are
SECTION 123. Cancellation; Unintentional; Burden of Proof . — A cancellation made
hereby issued as follows:
unintentionally, or under a mistake or without the authority of the holder, is inoperative,
but where an instrument or any signature thereon appears to have been cancelled the
Section 1. Issuance of Cashier's, Manager's or Certified Checks. Banks
burden of proof lies on the party who alleges that the cancellation was made
shall not issue cashier's, manager's or certified checks or other similar
unintentionally, or under a mistake or without authority.
instruments payable to cash, bearer, fictitious payee or numbered account.
When the person purchasing the above-mentioned instruments is not a

MODULE 9 regular bank client, the issuing bank shall require the purchaser to present
CHECKS his/her proof of residence together with his/her driver's license, passport,
employment I.D. or other photo identification card. A register for cashier's,
DEFINITION & PARTIES. – See Section 185 manager's or certified checks issued shall be maintained by the bank.
• Check – bill of exchange payable on demand drawn on a bank
Section 2. Sanction. Any violations of the provision of this Circular shall be
SECTION 185. Check, Defined. — A check is a bill of exchange drawn on a bank
subject to a fine of P30,000 per transaction.
payable on demand. Except as herein otherwise provided, the provisions of this Act
applicable to a bill of exchange payable on demand apply to a check. CIRCULAR NO. 291,Series of 2001
SECTION 186. Within What Time a Check Must Be Presented. — A check must be
The Monetary Board, in its Resolution No. 707 dated 10 May 2001 decided
presented for payment within a reasonable time after its issue or the drawer will be
to authorize the issuance of cashier's, manager's or certified checks or
discharged from liability thereon to the extent of the loss caused by the delay.
other similar instruments in blank or payable to cash, bearer or numbered
SECTION 189. When Check Operates as an Assignment. — A check of itself does not account as an exception from the provisions of Circular No. 259, subject to
operate as an assignment of any part of the funds to the credit of the drawer with the the following conditions:
bank, and the bank is not liable to the holder, unless and until it accepts or certifies a) That the amount of each check shall not exceed P10,000.00;
the check. b) That the buyer of the check is properly identified as required
under Circular No. 259 dated 29 September;
KINDS OF CHECKS c) That a register of said checks shall be maintained with the
1. Cashier’s & Manager’s Checks following minimum information:
a. Definitions* i. Date issued;
i. Bills of exchange drawn by a bank upon itself and is accepted by its ii. Amount;
issuance iii. Name of buyer;
iv. Date paid; b. Applicable Laws – See Code of Commerce Section 541
v. If the aggregate instruments purchased by the same i. No provision in the NIL for crossed check
person within any thirty (30)-day period amounts to at c. Bill of Exchange Act Provisions – See Bills of Exchange Act of 1882 No. 76
least fifty thousand pesos (P50,000), the purpose of the and 77
buyer should be stated. i. Differentiates general crossing from special crossing and provides
d) That banks which issue as well as those which accept as deposits, rules on the conversion from one type to another
said cashier's, manager's or certified checks or other similar d. Effects of Crossing – See Section 72
instruments issued in blank or payable to cash, bearer or i. On presentment of payment, must be made by the holder or by some
numbered account shall take such measure(s) as may be person authorized to receive payment on his behalf
necessary to ensure that said instruments are not being ii. Identity of the holder or authorized person is dependent on the
used/resorted to by the buyer or depositor in furtherance of a instruction stated on the face of the crossed check
money-laundering activity. iii. Specific Effects:
e) That the deposit of said instruments shall be subject to the same 1. The check may not be encashed but only deposited in the
requirements/scrutiny applicable to cash deposits. bank
f) That transactions involving said instruments should be 2. The check may be negotiated only once – to one who has
accordingly reported to the Bangko Sentral ng Pilipinas if there is an account with the bank
reasonable ground to suspect that said transactions are being 3. The act of crossing serves as a warning to the holder that
used to launder funds of illegitimate origin. the check has been issued for a definite purpose so that
he must inquire if he has received the check pursuant to
that purpose
2. Certified Checks – See Sections 187 & 188
iv. On Manager’s Checks
a. Definition – drawn by a depositor upon funds to his credit in a bank which a
1. Can be crossed too and the bank cannot allow another
proper officer of the bank certifies will be paid when duly presented for payment
person to encash the manager’s check which were all
b. Distinguished from Acceptance
crossed
i. Certification at the instance of the holder discharges liability, no
v. Warning - To the holder that the check cannot be presented to the
discharge in ordinary acceptance
drawee bank for payment in cash and it can only be deposited in the
ii. In certification, the bank debits the drawer’s account at the time of
payee’s bank account
certification and sets aside the funds out of the drawer’s control
vi. Duty to Inquire
c. Note: even if the drawer does not actually have any deposit in the drawee bank,
1. Holder has the duty to ascertain the indorser’s title to the
the certification legally obligates the latter to honor the certified check
check or the nature of his possession
2. Failing this, the holder is declared guilty of gross
SECTION 187. Certification of Check; Effect of . — Where a check is certified negligence amounting to legal absence of good faith
by the bank on which it is drawn, the certification is equivalent to an e. Kinds of Crossed Checks
acceptance. i. Special - If the name of a bank appears between the parallel lines,
SECTION 188. Effect Where the Holder of Check Procures it to be Certified the check is said to be specially crossed, and payment should be
. — Where the holder of a check procures it to be accepted or certified, the made only if presented by the named bank
drawer and all indorsers are discharged from liability thereon. ii. General - If no name appears between the parallel lines or the words
“and Co.” in between the lines, the check is said to be generally
3. Certification Procured by Holder – See Section 188 crossed, and payment should be made only upon presentment by
a. Drawer and all indorsers discharged from liability where the holder was the one some bank.
who procured the certification or acceptance of the check f. Effect on Negotiability
i. Negotiability is not affected by it being crossed, whether generally or
4. Crossed Check specially
a. Definition – when 2 parallel lines are drawn across its face or across a corner
thereof.
NIL, SECTION 72. What Constitutes a Sufficient Presentment. — BILLS OF EXCHANGE ACT OF 1882
Presentment for payment, to be sufficient, must be made — 77. [Crossing by Drawer or after Issue.]-
a) By the holder, or by some person authorized to receive payment 1) A cheque may be cross generally or specially by the drawer.
on his behalf; 2) Where a cheque is uncrossed, the holder may cross it generally
b) At a reasonable hour on a business day; or specially.
c) At a proper place as herein defined; 3) Where a cheque is crossed generally the holder may cross it
d) To the person primarily liable on the instrument, or if he is absent specially.
or inaccessible, to any person found at the place where the 4) Where a cheque is crossed generally or specially, the holder may
presentment is made. add the words "not negotiable."
CODE OF COMMERCE: 5) Where a cheque is crossed specially, the banker to whom it is
Sec. 541. The maker or any legal holder of a check shall be entitled to crossed may again cross it specially to another banker for
indicate therein that it be paid to a certain banker or institution, which he collection.
shall do by writing across the face the name of said banker or institution, 6) Where an uncrossed cheque, or a cheque crossed generally, is
or only the words "and company." sent to a banker for collection, he may cross it specially to
himself.
The payment made to a person other than the banker or institution shall not BILLS OF EXCHANGE ACT OF 1882
exempt the person on whom it is drawn, if the payment was not correctly 78. Crossing a material part of cheque.
made. A crossing authorized by this Act is a material part of the cheque; it
shall not be lawful for any person to obliterate or, except as authorised
On account of the fact that the law merchant applies here in the absence of by this Act, to add to or alter the crossing.
statutory provisions, the provision of the Bills of Exchange Act of England BILLS OF EXCHANGE ACT OF 1882
also applies and is in fact cited in Philippine jurisprudence. 79. Duties of banker as to crossed cheques.
BILLS OF EXCHANGE ACT OF 1882 1) Where a cheque is crossed specially to more than one banker
75. [Revocation of banker’s authority.] except when crossed to an agent for collection being a banker,
The duty and authority of a banker to pay a cheque drawn on him by his the banker on whom it is drawn shall refuse payment thereof.
customer are determined by— 2) Where the banker on whom a cheque is drawn which is so crossed
1) Countermand of payment: nevertheless pays the same, or pays a cheque crossed generally
2) Notice of the customer’s death. otherwise than to a banker, or if crossed specially otherwise than
BILLS OF EXCHANGE ACT OF 1882 to the banker to whom it is crossed, or his agent for collection
76. [General and Special Crossings Defined.] - being a banker, he is liable to the true owner of the cheque for any
1) Where a check bears across its face an addition of- loss he may sustain owing to the cheque having been so paid.
a) The words abbreviation "and company" or any thereof Provided that where a cheque is presented for payment
between two parallel transverse lines, either with or without which does not at the time of presentment appear to be
the words "not negotiable"; or crossed, or to have had a crossing which has been
b) Two parallel transverse lines simply, either with or without obliterated, or to have been added to or altered otherwise
the words "not negotiable"; that addition constitutes a than as authorised by this Act, the banker paying the cheque
crossing, and the cheque is crossed generally. in good faith and without negligence shall not be
2) Where a cheque bears across its face an addition of the name of a responsible or incur any liability, nor shall the payment be
banker, either with or without the words "not negotiable," that questioned by reason of the cheque having been crossed,
addition constitutes a crossing, and the cheque is crossed specially or of the crossing having been obliterated or having been
and to that banker. added to or altered otherwise than as authorised by this Act,
and of payment having been made otherwise than to a
banker or to the banker to whom the cheque is or was
crossed, or to his agent for collection being a banker, as the BILL OF EXCHANGE CHECK
case may be. Not necessarily drawn on a deposit. It is necessary that a check is drawn on a
BILLS OF EXCHANGE ACT OF 1882 The drawee need not be a bank. bank deposit. The drawee is always a
80. Protection to banker and drawer where cheque is crossed. bank.
Where the banker, on whom a crossed cheque [F22(including a cheque Death of a drawer of a BOE, with the Death of a drawer of a check, with the
which under section 81A below or otherwise is not transferable)] is knowledge of the bank, does not revoke knowledge of the bank, revokes the
drawn, in good faith and without negligence pays it, if crossed the authority of the drawee to pay authority of the banker to pay
generally, to a banker, and if crossed specially, to the banker to whom May be presented for payment within a Must be presented for payment within a
it is crossed, or his agent for collection being a banker, the banker reasonable time after its last negotiation reasonable time after its issue
paying the cheque, and, if the cheque has come into the hands of the because it may be further negotiated
payee, the drawer, shall respectively be entitled to the same rights and May be payable on demand or at a fixed Always payable on demand
be placed in the same position as if payment of the cheque had been or determinable future time
made to the true owner thereof.
BILLS OF EXCHANGE ACT OF 1882 CLEARING OF CHECKS.
81. Effect of crossing on holder. 1. Definition – the process of collecting the amount of the check from the drawee bank
Where a person takes a crossed cheque which bears on it the words a. Clearing is the process for presentment for payment of the check through the
“not negotiable,” he shall not have and shall not be capable of giving a collecting bank
better title to the cheque than that which the person from whom he took 2. Effect of Payment Before Clearing: DRAWINGS AGAINST UNCOLLECTED DEPOSITS
it had. (DAUD) Checks
a. If a check is deposited ina checking account or a demand deposit, the check
BILLS OF EXCHANGE ACT OF 1882
must be cleared first before the drawer-depositor can issue a check out of said
82. Protection to Collecting Banker
checking account that will include the amount of the deposited check
Where a banker in good faith and without negligence receives payment
for a customer of a cheque crossed generally or specially to himself,
and the customer has no title or a defective title thereto, the banker shall Manual of Regulations for Banks provides:
not incur any liability to the true owner of the cheque by reason only of Sec. X202 Temporary Overdrawings; Drawings Against Uncollected Deposits. The
having received such payment. following regulations shall govern temporary overdrawing and drawings against
uncollected deposits (DAUDs).
a. Temporary overdrawings.
5. Memorandum & Traveler’s Checks
Temporary overdrawings against current accounts shall not be
a. Memorandum Checks – it is like an ordinary check except that the word
allowed, unless caused by normal bank charges and other fees incidental
“memorandum,” “mem” or “memo” is written upon the face of the check,
to handlings such accounts.
signifying that the drawer engages to pay the bona fide holder absolutely, and
Banks which violate these regulations shall be subject to a fine of
not upon a condition to pay upon presentment at maturity and if due notice of
one-tenth of one percent (1/10 of 1%) per day of violation, computed on the
the presentment and nonpayment should be given.
basis of the amount of overdrawings or fines in amounts as may be
b. Traveler’s Checks - one upon which the holder’s signature must appear twice,
determined by the Monetary Board, but not to exceed Thirty thousand
one to be affixed by him at the time it is issued and the second o counter-
pesos (P30,000.00) a day for each violation.
signature, to be affixed by him in the presence of the payee before it is paid,
Technical overdrawings arising from "forced posting" in-clearing
otherwise it is incomplete
checks shall be debited by banks under "Returned Checks and Other Cash
Items Not in Process of Collection? Which is part of Other Assets" in the
DISTINGUISHED FROM OTHER BILLS OF EXCHANGE, PROMISSORY NOTES &
Statement of Condition. Items to be lodged under this account shall consist
NEGOTIABLE ORDER OF WITHDRAWAL (NOW)
only of in-clearing checks which may result in "technical overdrawn"
• Negotiable Order of Withdrawal (NOW) – a check for purposes of applying Article accounts.
315(b) (estafa)
o Interest-bearing deposit accounts that combine the payable on demand feature
of checks and the investment feature of savings accounst
1) Clearing under MICR b. Recoverable damages

The RCOCI shall be immediately reversed the following day, value i. Moral damages – may be awarded under Article 2207 of the NCC;
dated on date of original presentation of Checks and Other Cash Item may result in impeachment of the credit of the drawer
(COCI) to PCHC for Integrated Greater Manila local exchanges (Integrated 1. In culpa contractual or breach of contract, moral damages
GM LX) or to Regional Clearing Center (RCC) for regional local exchanges are recoverable only if the defendant acted fraudulently or
(RLX). in bad faith or is found guilty of gross negligence
The checks lodged under "RCOCI" which were dishonored due to amounting to bad faith or wanton disregard
insufficiency of funds shall be returned not later than 7:30 a.m. on the a. Breach must be wanton, reckless, malicious, or
clearing day immediately following the original date of presentation of the in bad faith, oppressive or abusive
COCi to PCHC or RCC. 2. Exemplary Damages – may be sustained by way of
2) Clearing through CICS example or correction for the public good
In case a check clearing item is dishonored under the CICS, the c. Proximate Cause – proof that the bank’s negligence or wrongful act or
Drawee bank shall generate the pertinent electronic documents on the omission is the proximate cause of the injury of the drawer is required before
dishonored clearing item due to insufficiency of funds and electronically damages can be awarded
submit the same to the Presenting Bank through the CICS within the i. Doctrine of Last Clear Chance – antecedent negligence of a person
prescribed period or not later than 7:30 a.m. on the clearing day does not preclude the recovery of damages for the supervening
immediately following the original date of presentation for clearing of the negligence of, or bar a defense against liability sought by another, if
check clearing item through the CICS. the person sought to be made liable had the last fair chance of
"Peso DDAs maintained by foreign correspondent banks with avoiding injury
UBs/KBs shall not be subiect to the above-mentioned regulations: ii. If the damage was caused solely by the drawer’s own act or
Provided, That: omission, the bank will not be liable and it will be treated as damnum
i. The maintenance of non-resident correspondent bank's absque injuria
peso checking accounts and overdrawings therefrom are 1. Bank is nor liable for damages by reason of the repeated
covered by reciprocal arrangement; improper and irregular handling of his account by the
ii. Temporary overdrawings are covered within fifteen (15) drawer
days from the date overdrawings are incurred; and 2. The bank will not be liable if the alleged embarrassment
iii. Such accounts are credited only through foreign or inconvenience of the depositor was timely and
exchange inward remittance. adequately contained, corrected or eradicated.
3) Drawings against uncollected deposits. d. Mitigation of Liability – may be mitigated by reason of the contributory
Drawings against uncollected deposits (DAUDs) shall be prohibited negligence of the depositor/drawer
except when the drawings are made against uncollected deposits i. It does not follow that there will be mitigation of liability just because
representing manager's/ cashier's/treasurer's checks, treasury warrants, there was inadvertence on the part of the drawer
postal money orders and duly funded "on us" checks which may be ii. Mistake in using wrong deposit slip cannot be taken against the
permitted at the discretion of each bank. (Sec. X202, MORB as amended by depositor
Circular No. 681, Series of 2010). 2. Wrongful Honor
a. Drawee bank is liable to the depositor-drawer for honoring a check that
contains a forged signature or only one signature for a joint-payees account
LIABILITY OF THE DRAWEE FOR WRONGFULLY DISHONORING & HONORING A CHECK
b. Mitigation of Liability – such as in the case of pre-signed checks
1. Wrongful Dishonor
a. Failure of bank employee to credit the amount deposited to the drawer-
STOPPING PAYMENT
depositor which will cause a check to be dishonored constitutes actionable
1. Note: if a bank pays a check after it has been notified to stop payment, it pays on its own
negligence
responsibility
2. Iron Clad Rule - Prohibits the countermanding of payment of certified checks.
a. The holder must be a holder in due course before the stop payment order may
not be successfully invoked against him.
b. The purchaser of a manager’s check may validly countermand payment to a

holder who is not a holder in due course
CRIMES INVOLVING CHECKS

1. Estafa
a. Essential Elements
i. That the offender postdated or issued a check in payment of an
obligation contracted at the time the check was issued
ii. That such postdating or issuing a check was done when the offender
had no funds in the bank, or his funds deposited therein were not
sufficient to cover the amount of the check
iii. Deceit or damage to the payee thereof
2. Violation of Batas Pambansa Blg. 22 – Bouncing Check Law
a. Gravamen – issuance of a worthless check; reason for writing it is immaterial
b. Who is Liable – may be committed both by the drawer and the indorser; if it
was a corporate check, the corporate officer who signed it may be liable
c. Foreign Check – may cover foreign checks if they are either drawn or issued
in the Philippines though payable outside the Philippines
d. Two Ways of Violating
i. By making or drawing and issuing a check to apply on account or for
value knowing at the time of issue that the check is not sufficiently
funded
ii. By having sufficient funds in or credit with the drawee bank at the
time of issue but a failing to keep sufficient funds therein or credit
with said bank to cover the full amount of the check when presented
to the drawee bank within a period of 90 days
e. Elements – under the first situation
i. The making, drawing and issuance of any check to apply for account
or for value
ii. The knowledge of the maker, drawer, or issuer that at the time of
issue he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment
iii. Subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had
not the drawer, without any valid cause, ordered the bank to stop
payment
3. Check Kiting
a. Kiting – wrongful practice of taking advantage of the float, the time that elapses
between the deposit of the check in one bank and its collection at another
b. Check kiting – procedure whereby checks written on accounts in separate
banks are used to generate short term purchasing power through the use of
the bank’s credit
c. The criminal practice is punishable under estafa in the RPC, but it is also
possible that the liability is purely civil if there is mutual agreement between the
parties involved

Negotiable Instruments Law - Finals - Mama Gie Notes

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Mama Gie Notes | Negotiable Instruments Law Finals Reviewer | Atty. Timoteo Aquino | 1st Sem., A.Y.

a. Rules* d. Presumed Delivery*

by filling to fill it up accepting, as the o Forgery cannot be presumed

§ Negligence of drawee* of the checks even if the previous indorsements

§ Latest jurisprudence allows recourse by the collecting bank or last

MODULE 7 • Acceptor for honor & referee in case of need*

STEPS TO CHARGE THE PARTIES LIABLE.

& no place of payment is specified, presentment must be made b. Effect of dishonor

5. Payment for honor is in favor of MODULE 8

When the person purchasing the above-mentioned instruments is not a

1) Clearing under MICR b. Recoverable damages

b. The purchaser of a manager’s check may validly countermand payment to a

CRIMES INVOLVING CHECKS

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