X`CHAPTER I

SECTION 1: Form of Negotiable Instruments

An instrument to be negotiable must conform to the following requirements:

a.) It must be in writing and signed by the maker or drawer

b.) Must contain an unconditional promise or order to pay a sum certain in money
c.) Must be payable on demand, or at a fixed or determinable future time
d.) Must be payable to order or bearer
e.) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty

Functions
• Substitute for money although they do not constitute a legal tender
• Medium of exchange for most commercial transactions
• Medium of credit transactions

Characteristics
• Negotiability is that quality or attribute of a bill note whereby it may pass from one person to
another, so as to give the holder in due course the right to collect on the instrument.
• Accumulation of secondary contracts as they are transferred from one person or another.

Formal Requirements
• Form and Content
• Matters to be considered
➢ Whole of instrument
➢ Only what appears on the face of instrument
Provisions of negotiable instruments law

Non–Negotiable Instrument
– one which fails to meet the requirements stated in Section 1 to qualify as a negotiable one
– an instrument which in its inception was negotiable but has lost its quality of negotiability
(1) It is merely a simple contract in writing covered by the general provision of the Civil Code
(2) It may not be negotiated but it may be assigned or transferred, absent an express prohibition
against assignment or transfer written in the face of the instrument.

Contracts
– it is a meeting of minds or stipulation between parties which creates obligations enforceable by law in
case one does not comply
– it can be either written or oral

Instrument
– it refers to written contracts wherein all of the terms of agreements are documented
– it is the tool used to provide evidence that a contract existed between parties

Negotiable Instrument
– a document that has monetary value which guarantees payment of certain amount
– it is used as a substitute for money, medium of exchange for commercial transactions, and medium of
credit transaction
– it prevents inconvenience if there is no readily available cash as of the moment

Negotiability or Negotiable
– transferability of a bill or note from one party to another

Note: A mere “IOU or I owe you” or authorization for someone to pay money is not negotiable for it is an
informal document that states a person owes a debt to someone else and lack details be one.
2 Kinds of Negotiable Instruments
1.) Promissory Note
Definition of PN:
It is commonly referred to as a Note which is a written promise made by one to another to pay a
sum of money
Parties Involved: (Promise Paper)
Maker – one who makes a promissory note, signs the instrument and pays the amount therein
Payee – to whom the promise is made or to whom money is to be paid
Contents:
It must contain an unconditional promise to pay a sum certain in money.
Applicable Requirements to be Negotiable:
Subsections A, B, C, and D are necessary in order that a promissory note may be negotiable.

2.) Bill of Exchange (BoE)

Definition of BOE:
The issue has ordered a third person to pay.
Purpose of BoE:
(1) Drawer’s funds in hands of drawee – a written order made by one to a person requiring the latter
to make a specified payment to a named payee or 3rd person
(2) Liability of Drawee for Non-payment – assumes liability when he becomes an acceptor of BoE

Parties Involved: (Order Paper)

Drawer – one who issues and draws a bill of exchange and pays the amount therein to a third
party as he does not pay directly
Payee – to whom money is to be paid
Drawee or Acceptor – to whom the BoE is addressed and who is directed to pay a sum certain
in money to the payee, one is an acceptor once he indicates willingness to pay the bill
Parties need not all be distinct person as 2 parties can be the same person

Note: In the case of Cheques, Bank is the Drawee. Bank includes any person or association of persons
carrying on the business of banking, whether incorporated or not.

Contents:
It must contain an unconditional order to pay a sum certain in money.

Applicable Requirements to be Negotiable:

Subsections A, B, C, D, and E are necessary in order that a promissory note may be negotiable

(1) Instrument must be in writing.

Instrument refers to written documents wherein all of the terms of agreements are stated that provides
evidence that a contract existed between parties which can be passed from one to another.
It is an instrument containing written or printed matter that can be easily transferable without danger of
being uncollectible.
There is no oral negotiable instrument as difficulties may arise in determining liability or creating the
danger of fraud. Someone could intentionally manipulate or change the contract as there is no clear
record of the agreements.

(2) Instrument must be signed by the maker of drawer.

General Rule: The signature is placed at the lower right-hand corner of the instrument
Exception: As long as the person intends to make the instrument his own, it may be signed in any part
of the instrument (top, middle, bottom, or at margin)

(3) Instrument must contain an unconditional promise or order to pay.

Promissory Notes contains an unconditional promise to pay. Any words equivalent to “promise” or
assumption of responsibility for the payment of the note on the instrument or document is sufficient to
constitute a “promise to pay”. (I agree to pay, M obliges himself to pay, and I guaranty to pay)
Bill of Exchange contains an unconditional order to pay. Any words equivalent to “order” on the
instrument or document is sufficient. (The A [drawee] will much oblige B [drawer] to pay C [payee])
(4) Instrument must be payable in a sum certain in money.
Money is the standard of value or the agreed-upon medium of exchange. It is legal tender as it is declared
by law to be valid payment for any debts and financial obligations.

Based on Stable Monetary Unit or Monetary Unit Assumption, the value of peso is stable over time.
All other commodities may rise and fall in value; hence, it cannot be made payable in goods or
merchandises.

(5) Instrument must be payable on demand at a fixed or determinable future time.

(6) Instrument must be payable to order.

Payment to an identified or specified person or to him or his order.

(7) Instrument must be payable to bearer.

Payment “to whom” as it does not require the designation of an individual to be paid out. Bearer may be
named or not be named as it will not affect the negotiability of the instrument.

(8) The drawee must be named. (Bills & Checks)

An order which is not addressed to any person can’t be a bill. But the drawee is sufficiently indicated if
he is described with reasonable certainty though he is not named.
Additionally, the payee will know from whom he will receive the money given by the drawer. Instrument
is deemed non-negotiable if payee is not named or described as there is nobody who could give the
authority to collect. (Payable to Order)

Diff. incidence in life of negotiable instrument?

THE LIFE OF A NEGOTIABLE INSTRUMENT:

1. Issue
2. Negotiation
3. presentment for acceptance in certain bills
4. acceptance
5. dishonor by on acceptance
6. presentment for payment
7. dishonor by nonpayment
8. notice of dishonor
9. protest in certain cases
10. discharge

How negotiation takes place? (sec 30)

It takes place when the instrument is transferred from one person to another in such manner as to
constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable
to order it is negotiated by the indorsement of the holder completed by delivery.

Issuance of negotiation (CH I: SEC 14 - pp 62) and (sec 30)

The mechanical act of writing the instrument completely and in accordance with the requirements of
section 1. The delivery of the complete instrument by the maker or the drawer to the payee or holder with
the intention of giving effect to it.

Transferring a negotiable instrument:

Issue the first delivery of the instrument complete in form, to a person who takes it holder.

Difference between payables on demand, fixed, and determinable future time? (CH I: SEC 4,7)

Section 4. Payable on demand is when it is so expressed to be payable

-on demand, or at sight, or on presentation; or
-In which no time for payment is expressed.
Section 7. Payable at a fixed and determinable future time when it is expressed to be payable:
-At a fixed period after date or sight; or
-On or before a fixed or determinable future time specified therein; or
-On or at a fixed period after the occurrence of a specified event which is certain to happen, though the
time of happening be uncertain.

Payable on: Demand Fixed Determinable future

time
Meaning: A present debt due at A debt that is payable A time that can be
once. at a definite fixed determined with
period or time. certainty after the
execution of the
instrument.
May be called for At any time At a fixed period after At the determinable
payment: date or sight future time

Payable only when: On demand
Payment date may Not always seen of
be determined: the face of instrument
unless no time for
payment is expressed
or “at sight”
Arrival of the time for Arrival of the time of
payment payment
On the face of the On the face of the
instrument (can be instrument (can be
computed;”60 days determined; e.g.
after sight”) school semester)

Difference in payable to order and to bearer?

Payable to: order bearer

Meaning Payable to the Payable to the person in
order/instruction of a possession of a bill or note
specified person. which is payable to bearer.
Payable to the The party listed on the The holder of the instrument
document
Payee: Must be named or described Does not need to be named
w reasonable certainty

Sec. 8 The instrument is payable to order where it is drawn payable to the order of a specified person
or to him or his order. It may be drawn payable to the order of:
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.

Sec. 9 When payable to bearer. - The instrument is payable to

bearer:
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact was
known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any
person; or
(e) When the only or last indorsement is an indorsement in blank.

What is forgery (CH I: SEC 23 - pp 82)

The counterfeit making or fraudulent alteration of any writing, and may consist in the signing of another’s
name or the alteration of an instrument in the name, amount, description of the person and the like, with
intent thereby to defraud.
Effects and rules on forgery in Promissory Notes and BOE (CH I: SEC 23 - pp 83)

Effect of forged signature

In both cases, the signature is wholly inoperative and so no right can be acquired through the forged
signature. Forgery is a real defense even against a holder in due course.

Rules on forgery
Forgery must be proven with clear and convincing evidence. It is not presumed. A person who questions
the genuineness and authenticity of a signature appearing on an instrument has the burden or proving
that the signature is forgery.

It is only the forged or unauthorized signature that is declared to be inoperative.

Rights may still exist and be enforced by virtue of such instrument as to those whose signatures thereto
are found to be genuine.

Exceptions:

If the party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.
Where the forged signature is not necessary to the holder’s title, in which case the forgery may be
disregarded.

CHAPTER II

Accommodation meaning and who is at accommodation party (CH II: SEC 29 - pp 102-105)

Accommodation note or bill is one to which the accommodation party has put his name, without
consideration, for the purpose of accommodating some other party who is to use it, and is expected to
pay it. In other words, it is a loan of one’s credit.

Accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor and for the purpose of lending his name to another party.
- He usually expects the accommodation party will pay the bill or note when it falls due. He
actually lends his credit to the party to whom the accommodation is made.
- He is classified according to the accommodated party’s status. If the accommodated party is the
maker, he is liable on the instrument to subsequent parties as if he were the maker.

CHAPTER III

Complete meaning of negotiation (CH III: SEC 30 - pp 109)

Negotiation is the transfer of a negotiable instrument from one person to another made is such a
manner as to constitute the transferee the holder thereof.
There is no negotiation if the transfer does not make the transferee the holder of the instrument.

Difference between assignment and negotiation (CH III: SEC 30 - pp 111-112)

While a negotiable instrument may either be negotiated or assigned, a non-negotiable instrument can
only be assigned or transferred, not negotiated.
The other distinctions are:
1. Negotiation refers only to negotiable instruments, while assignment refers generally to an
ordinary contract.
2. In negotiation, the transferee is a holder, while in assignment, the transferee is an assignee.
3. A holder in due course is subject only to real defenses, while an assignee is subject to both real
and personal defenses.
4. A holder in due course may acquire a better title or greater rights under the instrument than
those possessed by the transferor or a prior party, while generally, an assignment merely steps
into the shoes of the assignor.
 5. A general indorser warrants the solvency of prior parties, while an assignor does not warrant the
solvency of prior parties unless expressly stipulated or the insolvency is known to him
6. An indorser is not liable unless there be presentment and notice of dishonor, while an assignor
is liable even without notice of dishonor, and
7. Negotiation is governed by the negotiable instruments law, while assignment us governed by
articles 1624 to 1635 of the civil code (assignment of credits).

What is delivery (CH III & XVII: SEC 30 ; SEC 191)

DELIVERY (CH III SEC 30 ; XVII: SEC 191)

Delivery – the transfer of possession, actual or constructive, from one person to another
(1) Actual - when the instrument is handed over by one person to another or to his agent. In actual
delivery, parting of actual physical possession is indispensable.
(2) Constructive - actual physical transfer of the document is not required as in the eye of law, it is
deemed to have been delivered if there is express and absolute intention to hold the instrument
on behalf of the payee or the transferee.

PARTIES IN NEGOTIABLE INSTRUMENT

(1) Maker – one who makes a promissory note, signs the instrument, and pays the amount therein
(2) Payee – to whom the promise or order is made, to whom money is to be paid, or the one who is
entitled to receive amount mentioned in the note, bill of exchange, or check
(3) Drawer – one who issues and draws a bill of exchange and pays the amount therein to a third
party as he does not pay directly
(4) Drawee – to whom the BoE is addressed and who is directed to pay a sum certain in money to
the payee
(5) Acceptor – a drawee becomes an acceptor once he indicates willingness to pay the bill or a
drawee of a draft who has promised to honor the draft by signing on the instrument
(6) Bearer – one who is in the physical possession of a note or bill
(7) Endorser – one who is authorized to sign a negotiable security in order to transfer ownership
from one party to another
(8) Endorsee – to whom a negotiable instrument is transferred by endorsement.
(9) Subsequent Endorser – any of the endorsers between the drawer and holder
(10) Holder – a person who is in possession of a negotiable instrument that is either a bearer
instrument or made payable to a specified person
(11) Holder through a Holder in Due Course – one who acquires title from a prior holder in
due course
(12) Signature – A person placing his name on the face of an instrument is prima facie liable.
One is presumed to have acted with care and to have signed the instrument with full knowledge
of its contents. (SEC 60 - 172)

Meaning of indorsement and all kinds (special, blank, absolute, conditional, prescriptive, qualified, joint,
and, irregular endorsement) (CH III: SEC 31-33,36,38,39,41 - pp 113-118)

Indorsement is the writing of the name of the payee in the instrument with the intent either to transfer
the title to the same, or to strengthen the security of the holder by assuming a contingent liability for its
future payment, or both.

KINDS OF INDORSEMENT:

Special Indorsement
It specifies the person to whom, or to whose order, the instrument is to be payable, and the
indorsement of such Indorsee is necessary to the further negotiation of the instrument. One where the
name of the payee is specified. Also known as “specific indorsement” or “indorsement in full”. It is an
unqualified indorsement.

Blank Indorsement
It specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by
delivery.
Absolute Indorsement
One by which the indorser binds himself to pay, upon no other condition than the failure of prior parties
to do so, and of due notice to him of such failure.

Conditional indorsement
One by which the indorser imposes some other condition to his liability, or on the indorsee’s right to
collect the proceeds of the instrument.

Restrictive Indorsement
One so worded that it either restricts or prohibits entirely the further negotiation of an instrument, or
modifies the rights of the holder or the liabilities of the indorser.

Qualified Indorsement
One which constitutes the indorser a mere assignor of the title to the instrument.

Joint Indorsement
An instrument payable to the order of two or more payees or indorsees who are not partners, all must
indorse unless the one indorsing has authority to indorse for the others.

Irregular Indorsement
An irregular indorser is one who not otherwise a party to an instrument, places his signature
thereon his signature in blank before delivery. Its an indorsement in an unusual, peculiar, or singular
manner. His name appears where he would naturally expect another name.

CHAPTER IV
Who is a holder and rights of them in general? (CH IV: SEC 51-52 - pp 146)

HOLDER (SEC 51 - 145)

Holder – a payee or indorsee of a bill or note who is in possession of the said negotiable instrument or
the bearer who is entitled to receive the sum for which the instrument calls or from the parties liable
CLASSES OF HOLDERS:
(1) Ordinary or Mere Holder –
(2) Holders for Value –
(3) Holders in Due Course –
RIGHTS OF HOLDER IN GENERAL:
(1) He may sue on the instrument in his name
(2) He may receive payment and if the payment is in due course, the instrument is discharged.

Who is a Holder in due course? (CH IV: SEC 52 - pp 147)

HOLDER IN DUE COURSE (SEC 52 - 147)

Holder in Due Course – a holder who took the instrument under the following conditions:
(a) Instrument is complete and regular upon its face
(b) He became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if
(c) He took it in good faith and for value
(d) At the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in
the title of the person negotiating it
– All conditions must be satisfied to qualify one as a holder in due course. If one is absent, the holder
cannot be considered as one in due course.
– HDC takes the instrument free of most defenses or adverse claims to it by other parties (such as
personal defenses; filing of wrong date in Sec 13)
HOLDER PRESUMED A HOLDER IN DUE COURSE (SEC 59 - 167)
– As a general rule, every holder is deemed prima facie a holder in due course.
– Except, when it is shown that the title of any person who has negotiated the instrument was defective,
the burden is on the holder to prove that he or some person under whom he claims acquired the title as
holder in due course.
– But the last-mentioned rule does not apply in favor of a party who became bound on the instrument
prior to the acquisition of such defective title.

Who is a Holder not in due course? (CH IV: SEC 58 - pp 164)

HOLDER NOT IN DUE COURSE (SEC 58 - 164)

– one who became a holder of an instrument without any, some, or all of the requisites under Section 52
– HNDC has all the rights of the HDC except that the instrument is subject to every available defenses,
such as real and personal defenses.

What are the real defenses and personal defenses? (CH IV: SEC 58 - pp 160)

DEFENSES (SEC 58 - 160)

Defenses – The grounds or reasons pleaded or offered by the defendant in a case showing why the
plaintiff should not be given the relief he seeks as a matter of law or fact
(1) Defendant – one who is being sued and accused of a crime or code
(2) Plaintiff – one who is filing the lawsuit and who has alleged that a wrongdoing has been done to
them
(3) Immediate Parties – those who are in direct contractual relation with each other
(4) Remote Parties – opposite of Immediate Parties
(5) Prior Parties

KINDS OF DEFENSES (SEC 58 - 160-163)

Real Defenses or Absolute and Universal
– it challenges and questions the legal validity of the instrument
– these can be used against all parties, including holders in due course

Forgery. A forged signature is a real or absolute defense, and a person whose signature on a negotiable
instrument is forged is deemed to have never become a party thereto and to have never consented to
the contract that allegedly gave rise to it. The counterfeiting of any writing, consisting in the signing of
another’s name with intent to defraud, is forgery.

Incomplete Instrument, completed and negotiated without authority, had not been delivered.
Suppose A makes a note for 10,000 with the name of the payee in blank and keeps it in his drawer. B
steals the note and inserts his name as payee and then indorsees the note to C, C to D, a holder in due
course. D cannot enforce the note against M as this instrument is not a valid contract in the hands of any
holder. (Sec 15 - 65)

Personal Defenses or Limited and Equitable

– questions the validity of the agreement for which the instrument was issued
– these can be used against original parties, immediate parties, or ordinary or mere holders but not
against holders in due course

Filing of Wrong Date. The insertion of a wrong date constitutes a material alteration. It is implied that
the instrument is void as to the person who knowingly inserted the wrong date. However, as to the holder
in due course, the date inserted, even if wrong, is to be regarded as the true date, hence, the instrument
is not void, after the instrument is endorsed to him. (Sec 13 - 61)

Absence of Consideration. (Sec 28 - 101)

What is a shelter rule?

SHELTER RULE
Under the shelter principle, a person who does not qualify as a holder in due course can, nonetheless,
acquire the rights and privileges of a holder in due course if he derives his title to the instrument through
a holder in due course. However, a person who previously held the instrument cannot improve his position
by later reacquiring it from a holder in due course if the former holder was a party to fraud or illegal activity
affecting the instrument or had notice of a claim or defense against the instrument.

Pursuant to the shelter rule, the transferee of a negotiable instrument receives all of the rights of
the transferor of the instrument, unless the transfer is carried out by fraud or illegal means. This
is important in situations where the transferor is a holder in due course, but the transferee is not.

Example: A HDC may gift the negotiable instrument to the transferee. In this case, the transferee did not
provide value for the instrument and does not qualify as a holder in due course. The shelter rule will allow
the transferee to receive all of the rights of the transferor (a holder in due course) and receive the
heightened protection.

CHAPTER V

What are the liability of the parties? (CH V: SEC 60 - pp 170)

LIABILITY OF THE PARTIES (SEC 60 - pp 170)

Liability – the obligation of a party to a negotiable instrument to pay the same according to its terms
Who are primarily and secondary liable? (CH V: SEC 60 - pp 170)

(1) Primarily Liable

(a) Maker of Promissory Note
(b) Acceptor of Bill of Exchange
(c) Certifier of a Check
(2) Secondarily Liable:
(a) Drawer of Bill of Exchange
(b) Indorser of Note or Bill
(3) Not Liable:
(a) Drawee, until he accepts the instrument in which case he becomes an acceptor

Note: As a General Rule, No person is liable on an instrument unless his signature appears thereon
(Sec 18-21). Hence, a person becomes a party to an instrument by signing his name thereon.
Primarily Liable Secondarily Liable

Unconditionally Liable or Bound Conditionally Liable or Bound

One who is absolutely required to pay the One who faces only potential secondary
instrument upon its maturity liability on the instrument if the ff occurs:
Instrument is properly and timely presented,
Liability is immediate when the instrument is Instrument is dishonored, Timely Notice of
signed or issued. Dishonor is Given to the SL Party

Liability ends when Primary Party pays the full

amount of the instrument to the proper party
(Sec 119-120)

MAKER DRAWER

one who makes a promissory note, signs the one who issues and draws a bill of exchange
instrument, and pays the amount therein and pays the amount to a third party
one who is primarily liable one who is secondarily liable
one who cannot limit his liability one who can negative or limit his liability
LIABILITY OF MAKER
(1) Unconditional Liability. He is expected to pay the instrument, hence, the holder will look for
payment to him.
(2) Admission of Maker. The maker admits the existence of the payee (by delivering the instrument
to the latter) and his capacity to endorse at the time of signing the note to prevent from escaping
liability by showing the non-existence and incapacity to contract of the payee.
(3) Presumption from Signature. A person placing his name on the face of an instrument is prima
facie liable. One is presumed to have acted with care and to have signed the instrument with full
knowledge of its contents.

LIABILITY OF DRAWER (SEC 61 - 173)

(1) Conditional Liability. One who faces only potential secondary liability on the instrument if the ff
occurs: instrument is properly and timely presented and instrument is dishonored, and timely
notice of dishonor is given to the drawer. In case of Foreign Bills, Protest is made followed by a
notice of protest.
(2) Secondary Liability.
(3) Liability of a Bank or Drawer of a Check. By issuing a check, the drawer impliedly represents
that funds or credit are available for its payment in the drawee bank. If the banker unjustifiably
refuses to honor the cheque of its customer, it shall be liable for damages.

LIABILITY OF ACCEPTOR (SEC 62 -175)

(1) Liability of Drawee before acceptance. The drawee of the bill is not liable and his only obligation
is to the drawer to pay in accordance with the latter’s orders. A refusal to accept a bill constitutes
a dishonor of the bill which triggers the liability of secondary parties - drawer and indorsers
(2) Liability of Drawee after acceptance. Until the bill has been accepted, the drawer is the principal
debtor. The drawee becomes an acceptor and assumes the liability to the instrument. He is
virtually in the same position as the maker of a note. Same result happens with a Certifier, who
certifies a check drawn on a bank.

LIABILITY OF A GUARANTOR (SEC 63 - 178)

(1) A person who writes “I hereby guarantee payment of this instrument” or “payment guarantee” and
signs on the back of the instrument indicates willingness to be bound as a guarantor.
(2) He is liable only subsidiarily after the assets of the principal debtor have been exhausted.
(3) He is not discharged from liability for the lack of due presentment or due notice of dishonor as he
waives the need for presentment, protest, or notice of honor.
(4) If indorsement is made for identification only, a party is liable as a guarantor and not as indorser.

LIABILITY AS SURETY
(1) A person who writes his name followed by the words “as surety” on the back of the instrument
indicates willingness to be bound as a surety rather than as an indorser.
(2) He is primarily and absolutely liable with the principal debtor without benefit of exhaustion of the
properties of the latter unlike the guarantor
(3) He is not discharged from liability for the lack of due presentment or due notice of dishonor as he
waives the need for presentment, protest, or notice of honor.

Diff. warranties of parties (CH V: SEC 63, 65, 66 - pp 177, 181, 184)

CHAPTER VI
What is presentment for payment and presentment for acceptance (CH VI-XI: SEC 70-143 pp 192)

PRESENTMENT FOR PAYMENT (SEC 70 - 192)

Presentment for Payment – the presentation of an instrument, such as note and bill, to the person
primarily liable for the purpose of demanding and receiving payment.

“POP” NOT NECESSARY TO PERSONS PRIMARILY LIABLE

(1) Liability absolute on date for payment. The holder can sue the persons primarily liable as soon
as the date for payment has passed without the instrument being paid
 (2) Instrument is payable at a special place. If it is payable at a special place and the primary party
is able and willing to pay it there at maturity, such ability and willingness are equivalent to a tender
of payment upon his part.

(3) Where “POP” is required by terms of instrument.

Ex: If it is payable at a bank, then it must be made during banking hours. If the instrument is not
paid and is overdue due to the failure to present the note at maturity in the bank, the primary party
cannot be considered in delay and at fault. He is not liable for the costs and interests subsequently
accruing after maturity although he is not relieved from making payment of the amount due - the
principal amount and interest up to maturity.

Tender of Payment – the act, on the part of the debtor, of offering to the creditor the thing or amount
due. (kakayahan ng debtor na mag-comply sa kanyang obligation on demand)

“POP” TO PERSONS SECONDARILY LIABLE NECESSARY

(1) Presentment first to the primary party required. The persons secondarily liable, the drawer
and endorser, undertake to pay only if the instrument is dishonored.
(2) Presentment not made. The persons secondarily liable are discharged from their secondary
liability if the instrument is not presented to the persons primarily liable.

DATE OF PRESENTMENT OF INSTRUMENT (SEC 71 - 194)

(1) Payable at a fixed or determinable future time – Presentment made before maturity is not
effective. It must be made on the day it falls due without a grace period. Otherwise, the persons
secondarily liable are discharged from liability.
(2) Payable on Demand – In the case of a note, a presentment must be made within a reasonable
time after its issue. In the case of a bill of exchange, presentment for payment will be sufficient if
made within a reasonable time after the last negotiation thereof. “Last Negotiation” means the
last transfer for value.

Grace Period – a period of time a payment can be delayed w/o a penalty being imposed

“POP”, TO BE SUFFICIENT, MUST BE MADE: (SEC 72 -195)

(a) By the holder, or by some person authorized to receive payment on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument, or if he is absent or inaccessible, to any person
found at the place where the presentment is made.

PLACE OF PRESENTMENT (SEC 73 - 196)

(a) Where a place of payment is specified in the instrument and it is there presented;
(b) Where no place of payment is specified but the address of the person to make payment is given
in the instrument and it is there presented;
(c) Where no place of payment is specified and no address is given and the instrument is presented
at the usual place of business or residence of the person to make payment;
(d) In any other case if presented to the person to make payment wherever he can be found, or if
presented at his last known place of business or residence.

INSTRUMENT MUST BE EXHIBITED (SEC 74 - 197)

The instrument must be exhibited to the person from whom payment is demanded, and when it is paid
must be delivered up to the party paying it.

It must be exhibited in order to determine the genuineness of the instrument and the endorsements and
the right of the holder to receive payment and to take possession of it upon payment to guard against a
lawsuit by a subsequent holder.

The acceptor who pays a bill has the right to have the instrument delivered to him for use as a voucher
in settlement of accounts with the drawer.
Presentment – act of the holder of a negotiable instrument of showing a note to the maker and
demanding payment or showing a bill to the drawee and requesting its agreement to pay the bill.
Valid Presentment requires a personal or face to face demand at the proper place, showing the
instrument to the maker, acceptor, or certifier from whom payment is demanded.

CHAPTER X
ACCEPTANCE (SEC 132 - 261)
Acceptance of a Bill – the signification by the drawee of his assent to the order of the drawer. The act
by which the drawee gave his consent to comply with the request contained in the bill of exchange
directed to him and it contemplates a promise to pay.

The acceptance must be in writing, signed by the drawee, and contain an express or implied promise to
pay money - accepted, honored, or mere signature of the drawee, in the face of the bill. The acceptance
must be delivered and made known to the holder of the instrument.
Until the bill has been accepted, the drawer is the principal debtor. Upon acceptance, the bill becomes
note. The drawee becomes an acceptor and assumes the liability to the instrument.

CHAPTER XI

PRESENTMENT FOR ACCEPTANCE (SEC 143 - 271)

Presentment for Acceptance – the presentation or exhibition of a Bill of Exchange (BOE) to the drawee
for his acceptance or agreement to pay the bill. It includes a presentment for payment.

“POA” IS NECESSARY
(a) Bill payable after sight. Where the bill is payable after sight, the presentment for acceptance is
necessary in order to fix the maturity date of the instrument.
(b) Bill with express stipulation. Where the bill expressly stipulates that it shall be presented for
acceptance. (To comply with the expressed stipulation of the parties in the bill itself.)
(c) Bill payable elsewhere. Where the bill is drawn payable elsewhere than at the residence or place
of business of the drawee. (To inform the drawee of the existence of the bill so he can make
arrangements for its payment on the date of maturity at the place designated.)

“POA” IS NOT NECESSARY

Some need not be presented for acceptance but only for payment in order to charge the drawer or
indorsers: bills payable on demand (checks), time bills, bills payable at a date certain or at a fixed time
The holder of a bill which is required to be presented for acceptance must either present it for acceptance
or negotiate it within a reasonable time. If he fails to do so, the persons secondarily liable, the drawer and
all endorsers, are discharged. (SEC 144 - 272)

CHAPTER VII
DISHONOR – it is the refusement to accept or pay a draft or a promissory note when it is properly
presented.
An instrument is dishonored when presentment is properly made and acceptance or payment is refused
or cannot be obtained within the prescribed time. Negotiable Instrument is considered to be
Dishonored:
(1) It is not accepted when presented for acceptance
(2) It is not paid when presented for payment at maturity
(3) If presentment is excused or waived and the instrument is past due and unpaid

What is notice of Dishonor?

NOTICE OF DISHONOR (SEC 89 - 212)

– It brings the fact that a specified negotiable instrument has not been accepted or has not been paid
and that the party notified is expected to pay it to the knowledge of persons secondarily liable (drawer of
a bill or endorser of an instrument - note or bill), either verbally or by writing.
– Only the drawer and endorsers or their agents are entitled to notice of dishonor as the maker and
acceptor are the very ones who dishonored the instrument, hence, they do not have to be notified.
 OBJECT OF NOTICE OF DISHONOR
(1) To inform the parties secondarily liable that the maker or acceptor has failed to meet his
engagement or obligation
(2) To advise such parties that they will be required to make payment
Note: It is called a PROTEST if such notice is given by a notary public

Dishonor and effects thereof?

EFFECT OF FAILURE TO GIVE NOTICE OF DISHONOR

– Notice of Dishonor must be given when an instrument is dishonored by non-acceptance on presentment
for acceptance (bill) or by non-payment at its maturity (both note and bill) to the persons secondarily liable
– If such notice is not given to any such person, he is discharged and he becomes a total stranger but
he is still liable for breach of warranties pertaining to the instrument
– Holder is not required to notify the drawer and all the indorsers as he may select to hold one or some
of the indorsers and any party to whom such notice is not given is discharged

NOTICE OF DISHONOR IS GIVEN BY (SEC 90 -214)

(1) By or on behalf of the Holder
(2) By or on behalf of any party to the instrument who might be compelled to pay it to the holder and
who would have the right to reimbursement from the party to whom such notice is given

EFFECTS OF NOTICE GIVEN BY HOLDER (SEC 92 - 215)

Notice of Dishonor may benefit:
(1) All subsequent holders to the holder who has given notice (sumunod sa nagbigay)
(2) All prior parties who have a right of recourse against the party who has received notice of dishonor
and who is liable to the former (sumunod sa nabigyan)

Example: M makes a note payable to the order of P. The note is endorsed successively by P to A, by A
to B, by B to C, and by C to D, present holder. The note is dishonored in the hands of D.

EFFECTS OF NOTICE GIVEN BY PARTY ENTITLED THERETO (SEC 93 - 216)

Notice of Dishonor may benefit:
(1) Holder
(2) All subsequent holders to the holder who gave notice (sumunod sa nagbigay)
(3) All parties subsequent to the party to whom notice is given (sumunod sa nabigyan)
………………………………………………………………………………………………………………………
1. Difference between payables on demand, fixed, and determinable future time (CH I: SEC 4,7
2. Difference in payable to order and to bearer
3. Instances when it is payable to order and to bearer (CH I: SEC 8-9 - pp 48-51)
4. Diff. incidence in life of negotiable instrument
5. How negotiation takes place
6. Issuance of negotiation (CH I: SEC 14 - pp 62)
7. What is forgery (CH I: SEC 23 - pp 82)
8. Effects and rules on forgery in Promissory Notes and BOE (CH I: SEC 23 - pp 83)
9. Accommodation meaning and who is at accommodation party (CH II: SEC 29 - pp 100-105)
10. Complete meaning of negotiation (CH III: SEC 30 - pp 109)
11. Difference between assignment and negotiation (CH III: SEC 30 - pp 111-112)
12. Meaning of indorsement and all kinds (special, blank, absolute, conditional, prescriptive, qualified, joint, and,
irregular endorsement) (CH III: SEC 31-33 - pp 113-118)

13. Who is a holder and rights of them in general (CH IV: SEC 51-52 - pp 146)
14. Holder in due course (CH IV: SEC 52 - pp 147)
15. Holder not in due course (CH IV: SEC 58 - pp 164)
16. What are the real defenses and personal defenses (CH IV: SEC 58 - pp 160)
17. What is a shelter rule
18. Liability of the parties (CH V: SEC 60 - pp 170)
19. Who are primarily and secondary liable (CH V: SEC 60 - pp 170)
20. Diff. warranties of parties (CH V: SEC 63, 65, 66 - pp 177, 181, 184)
21. What is presentment for payment and presentment for acceptance (CH VI-XI: SEC 70-143 pp 192)
22. Notice of Dishonor (CH VII: SEC 89 - pp 212)
23. Dishonor and effects thereof
24. What is delivery (CH III & XVII: SEC 30 ; SEC 191)