NOTES IN NEGOTIABLE INSTRUMENTS LAW

Class of Atty. Zarah Villanueva-Castro (FEU / San Beda)

I. PRELIMINARY CONSIDERAT IONS
Classes of Negotiable Instruments:
Negotiable Instrument - a writ t en cont ract f or t he payment 1. Pr omi ssor y Not e (PN) - uncondit ional promise in writ ing
of money which complies wit h t he requirement s of Sec. 1 of by one person t o anot her signed by t he maker engaging
t he NIL, which by it s f orm and on it s f ace, is int ended as a t o pay on demand or at a f ixed or det erminable f ut ure
subst it ut e f or money and passes f rom hand t o hand as money, t ime, a sum cert ain in money t o order or t o bearer.
so as t o give t he holder in due course (HDC) t he right t o hold 2. Bi l l of Exchange (BE) -an uncondit ional order in writ ing
t he inst rument f ree f rom def enses available t o prior part ies. addressed by one person t o anot her, signed by t he
( Revi ewer on Commer cial Law, Sundi ang and Aqui no) person giving it , requiring t he person t o whom it is
addressed t o pay on demand or at a f ixed or
Functions of Negotiable Instrument : det erminable f ut ure t ime a sum cert ain in money t o
1. Subst it ut e f or money order or t o bearer.
2. Medium of exchange
3. Tool used in commercial t ransact ion. Bills in Set: one composed of several part s, each part
numbered and cont aining a ref erence t o t he ot her part s, t he

Two Distinctive Features of NI:
1. Negot iabi l i t y - it is t hat at t ribut e or propert y whereby a
bill or not e or check may pass f rom hand t o hand similar
t o money, so as t o give t he holder in due course t he
right t o hold t he inst rument and t o collect t he sum
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whole of t he part s const it ut ing but one bill.
Ri ght s of hol der s wher e par t s ar e negot i at ed
separ at el y:
1. If bot h are HDC, t he holder whose t it le f irst
accrues is considered t he t rue owner of t he

¾ Requisit es of Negot iabilit y:

payable f or himself f ree f rom def enses. bill.
2. But t he person who accept s or pays in due

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a. It must be in writ ing and signed by t he maker or course shall not be prej udiced.
drawer; Obl i gat i ons of hol der who i ndor ses 2 or mor e par t s
b. Must cont ain an uncondit ional promise or order t o of t he Bi l l i n Set :
pay a sum cert ain in money; 1. The person shall be liable on every such part .
c. Must be payable on demand, or at a f ixed or 2. Every indorser subsequent t o him is liable on
det erminable f ut ure t ime; t he part he has himself indorsed, as if such
d. Must be payable t o order or t o bearer; and part s were separat e bills.
e. Where t he inst rument is addressed t o a drawee, he
must be named or ot herwise indicat ed t herein wit h Distinctions between a Negotiable Instrument and a
reasonable cert aint y. Negotiable Document of Title
2. Accumul at i on of Secondar y Cont r act s - secondary
cont ract s are picked up and carried along wit h NEGOTIABLE INSTRUMENT NEGOTIABLE DOCUMENT
Negot iable Inst rument s as t hey are negot iat ed f rom one OF TITLE
person t o anot her; or in t he course of negot iat ion of The subj ect is money The subj ect is goods
negot iable inst rument s, a series of j uridical t ies bet ween
t he part ies t heret o arise eit her by law or by privit y. The
Has all t he requisit es of Does not have t hese
indorsers become secondarily liable t o t he holder.
Sec 1 of NIL requisit es
Distinctions: Negotiable and Non-Negotiable Instruments A holder of NI may run Int ermediat e part ies are
af t er t he secondary part ies not secondarily liable if t he
f or payment if dishonored document is dishonored
NEGOTIABLE NON-NEGOTIABLE
by t he part y primarily
Must cont ain all requisit es Does not cont ain all
liable
of sec. 1 requisit es of sec. 1
A holder, if HDC, may A holder can never acquire
Transf erable by Transf erable by
acquire right s over t he right s t o t he document
negot iat ion and assignment only
inst rument bet t er t han his bet t er t han his predecessors
assignment
predecessors
HDC can have right s A t ransf eree acquires no
bet t er t han his t ransf eror bet t er right t han his
t ransf eror PROMISSORY BILL OF EXCHANGE
Prior part ies warrant Prior part ies do not NOTE
payment (secondary warrant payment but Uncondit ional promise Uncondit ional order
liabilit y) merely t he legalit y of Involves 2 part ies Involves 3 part ies
t it le Maker is primarily liable Drawer is only secondarily
Governed by NIL NIL only by analogy liable
Transf eree is a holder in Transf eree is assignee Only one present ment : f or Two present ment s: f or
due course only payment accept ance and f or
Def enses generally not All def enses available payment
available against last t ransf eree
Instances when BILL may be treated as a NOTE:
1. Drawer and drawee are t he same person.
1. Drawee is a f ict it ious person.
2. Drawee has no capacit y t o cont ract .
3. When inst rument is so ambiguous, t he holder may t reat
it eit her as a BILL or a NOTE.
e. Where t he inst rument is addressed t o a drawee, he must
be named or ot herwise indicat ed t herein wit h reasonable
cert aint y.
1. Must be i n wr i t i ng, si gned by t he maker or dr awer ;
- Ot herwise it cannot be a subst it ut e f or money.

Other Forms of Negotiable Instruments 2. Must cont ain an uncondit ional pr omi se or or der t o pay a
1. Cert if icat e of deposit issued by banks, payable t o t he sum cer t ain i n money;
deposit or or his order, or t o bearer
2. Trade accept ance Cer t ai nt y of sum payabl e.
3. Bonds, which are in t he nat ure of promissory not es The sum payable is a sum cert ain alt hough it is t o be paid:
4. Draf t s, which are bills of exchange drawn by one bank a. Wit h int erest ; or

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upon anot her
All of t hese must comply wit h Sec. 1, NIL
Note : Let t ers of credit are not negot iable.
Legal Tender
That kind of money t hat t he law compels a credit or t o accept
in payment of his debt when t endered by t he debt or in t he
right amount .
Note : A negot iable inst rument alt hough int ended t o be a
subst it ut e f or money, is generally not a legal t ender.
b. By st at ed inst allment s; or
c. By st at ed inst allment s, wit h a provision t hat , upon
def ault in payment of any inst allment or of int erest ,
t he whole shall become due; or
d. Wit h exchange, whet her at a f ixed rat e or at t he
current rat e; or
e. Wit h cost s of collect ion or an at t orney's f ee, in case
payment shall not be made at mat urit y. (sec. 2)
Accel er at i on cl ause - renders whole debt due and
demandable upon f ailure of obligor t o comply wit h cert ain
condit ions.

Incidents in “ Life” of Negotiable Instrument When pr omi se is uncondi t i onal

1. Issue An unqualif ied order or promise t o pay is uncondit ional
2. Delivery t hough coupled wit h:
3. Negot iat ion a. An indicat ion of a part icular f und out of which
4. Present ment f or accept ance, in cert ain kinds of bills of reimbursement is t o be made or a part icular
exchange account t o be debit ed wit h t he amount ; or
5. Accept ance b. A st at ement of t he t ransact ion which gives rise t o

¾ An order or promise t o pay out of a part icular f und is not

6. Dishonor by non-accept ance t he inst rument .
7. Present ment f or payment
8. Dishonor by non-payment uncondit ional.
9. Not ice of dishonor FUND FOR PARTICULAR FUND FOR
10. Discharge REIMBURSEMENT PAYMENT
Drawee pays t he payee There is only one act : t he
Issue - t he f irst delivery of t he inst rument , complet e in f orm, f rom his own f unds; drawee pays direct ly f rom
t o a person who t akes it as a holder. af t erwards, t he drawee t he part icular f und
pays himself f rom t he indicat ed. Payment is
Del i ver y - t ransf er of possession, act ual or const ruct ive, f rom part icular f und indicat ed. subj ect t o t he condit ion
one person t o anot her t hat t he f und is suf f icient .
Hol der – ref ers t o t he: Part icular f und indicat ed Part icular f und indicat ed is
a. The payee or indorsee of a bill or not e who is in is NOT t he direct source t he direct source of
possession of it , or of payment but only t he payment .
b. The bearer t hereof (sec. 191) source of reimbursement .
Bear er - t he person in possession of a bill or not e which is
Indicat ion in t he Indicat ion in t he
payable t o bearer.
inst rument does not inst rument makes t he
Per son - includes a body of persons, whet her incorporat ed or
af f ect t he uncondit ional promise or order
not .
nat ure of t he promise or condit ional.
order.
II. FORM AND INT ERPRET AT ION OF INST RUMENT S
3. Payabl e on demand or at a f i xed det er mi nabl e f ut ur e
t i me;
Requisites of Negotiability (Sec. 1, NIL
a. It must be in writ ing and signed by t he maker or drawer;
Cer t ai nt y of t i me of payment
b. Must cont ain an uncondit ional promise or order t o pay a
An inst rument is payable at a det erminable f ut ure t ime which
sum cert ain in money;
is expressed t o be payable:
c. Must be payable on demand, or at a f ixed or
a. At a f ixed period af t er dat e or sight ; or
det erminable f ut ure t ime;
b. On or bef ore a f ixed or det erminable f ut ure t ime
d. Must be payable t o order or t o bearer; and
specif ied t herein; or
 c. On or at a f ixed period af t er t he occurrence of a
specif ied event which is cert ain t o happen, t hough
t he t ime of happening be uncert ain.
¾ ¾
An inst rument payable upon a cont ingency is not
negot iable, and t he happening of t he event does not
¾ A promise t o pay “ when able, ” “ as soon as I can” , et c. ,
cure t he def ect . (sec. 4)
wit hout specif icat ion of an absolut e dat e is not
negot iable. However, t here is a dif f erence of opinion as
t o whet her it is a condit ional promise or an absolut e
promise t o pay at un unreasonable t ime:
a. Under t he f irst view, negot iabilit y is dest royed
bot h by t he condit ion and by want of a f ixed
t ime f or payment ;
b. Under t he second view, by t he general
principle t hat a promise t o pay wit hin a
reasonable t ime is not so cert ain as t o render
an inst rument negot iable.
Af t er si ght Dr af t - payable only af t er t he expirat ion of t he
st ipulat ed period f rom accept ance (legal sight ).
When payabl e on demand:
a. When it is so expressed t o be payable on demand,
or at sight , or on present at ion; or
b. In which no t ime f or payment is expressed.
Note: Where an inst rument is issued, accept ed, or indorsed
when overdue, it is, as regards t he person so issuing,
accept ing, or indorsing it , payable on demand.
4. Payabl e t o or der or t o bear er
When payabl e t o or der
The inst rument is drawn payable:
a. To t he order of a specif ied person or
¾ The payee must be named or ot herwise indicat ed t herein
b. To him or his order.
¾ It may be drawn payable t o t he order of :
wit h reasonable cert aint y.
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 j oint ly; or
e. One or some of several payees; or
f. The holder of an of f ice f or t he t ime being.
When payabl e t o bear er .
a. When it is expressed t o be so payable; or
b. When it is payable t o a person named t herein or
bearer; or
c. When it is payable t o t he order of a f ict it ious or
non-exist ing person, and such f act was known t o t he
person making it so payable; or
d. When t he name of t he payee does not purport t o be
t he name of any person; or
e. When t he only or last indorsement is an
indorsement in blank. (Sec. 9)
¾ Where t he inst rument is addressed t o a drawee
5. Ident i f i cat i on of t he dr awee
(meaning in a bill of exchange), he must be named
or ot herwise indicat ed wit h reasonable cert aint y.
The holder must know t o whom he should present it
f or accept ance and/ or payment ; ot herwise, t he
purpose of negot iable inst rument as a t ool in
commercial dealings will be great ly hampered.
(Revi ewer on Commer ci al Law, Sundi ang and
Aquino)
A bill may be addressed t o more t han one drawee
j oint ly, whet her t hey are part ners or not ; but not t o
t wo or more drawers in t he alt ernat ive or in
succession. ( Sec. 128)
Test of Negotiability: presence of requirement s in Sect ion 1
of NIL.
Factors that Determine Negotiability:
1. The whole inst rument it self
2. Only what appears on t he f ace of t he inst rument
3. Provisions of t he NIL, Sec. 1
BAR QUESTION (Q): Whi ch of t he f ol l owi ng
st i pul at i ons or f eat ur es of a pr omi ssor y not es (PN)
af f ect or do not af f ect i t s negot i abi l i t y, assumi ng
t hat t he PN i s ot her wi se negot iabl e? Indi cat e your
answer by wr i t i ng t he par agr aph number of t he
st i pul at i on or f eat ur e of t he PN as shown bel ow and
your cor r espondi ng answer , ei t her ‘ Af f ect ed” or
“ Not af f ect ed. ” Expl ai n.
(a) The dat e of t he PN i s “ Febr uar y 30, 2002. ”
(b) The PN bear s i nt er est payabl e on t he l ast day
of each cal endar quar t er at a r at e equal t o 5%
above t he t hen pr evai l i ng 91-day Tbi l l r at e as
publ i shed at t he begi nni ng of such cal endar
quar t er .
(c) The PN gi ves t he maker t he opt i on t o make
payment ei t her i n money or i n quant it y of
pal ay of equi val ent val ue.
(d) The PN gi ves t he hol der t he opt i on ei t her t o
r equi r e payment i n money or t o r equi r e t he
maker t o ser ve as t he bodyguar d or escor t of
t he hol der f or 0 days.
SUGGESTED ANSWER (SA):
(a) NOT AFFECTED. The dat e i s not one of t he
r equi r ement s f or negot i abi l i t y.
(b) NOT AFFECTED. The i nt er est i s t o be comput ed
at a par t i cul ar t ime and i s det er minabl e. It
does not make t he sum uncer t ai n or t he
pr omi se condi t ional .
(c) AFFECTED. Gi vi ng t he maker an opt i on r ender s
t he pr omi se condi t i onal .
(d) NOT AFFECTED. Gi vi ng t he hol der an opt i on
does not make t he pr omi se condit i onal .
Additional provisions not affecting negotiability.
General Rule: t he inst rument is non-negot iable if it cont ains
a promise or order t o do any act in addit ion t o t he payment
of money.
Except ions:
a. aut horizes t he sale of collat eral securit ies in case
t he inst rument be not paid at mat urit y; or
b. aut horizes a conf ession of j udgment if t he
inst rument be not paid at mat urit y; or
c. waives t he benef it of any law int ended f or t he
advant age or prot ect ion of t he obligor; or
d. gives t he holder an elect ion t o require somet hing t o
be done in lieu of payment of money.
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Confession of j udgment – a writ t en st at ement signed by
t he def endant , set t ing f ort h t he basis of liabilit y and
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aut horizing t he ent ry of j udgment t hereon.
Kinds of conf essi on of j udgment
a. cognivit act iomen – lit erally means “ he has
conf essed act ion” . It is a writ t en conf ession of
act ion by t he def endant acknowledging is
indebt edness t o t he plaint if f af t er t he act ion has
been f iled. It is given af t er t he act ion is brought t o
save expenses.
b. relict a verif icat ionem – lit erally means “ his
pleadings being abandoned. ” It is conf ession of
j udgment by wit hdrawal of t he def ense.
Note: However, warrant s of at t orney t o conf ess j udgment ,
are not aut horized nor cont emplat ed by our law. They are
void as against public policy because t hey enlarge t he f ield
f or f raud, because under t hese inst rument s, t he promissory
bargains away his right t o a day in court . The NIL does not
sanct ion nor validat ed any provision ot herwise illegal.
Omissions and Provisions that do not affect Negotiability
( Sec. 6)
The validit y and negot iable charact er of an inst rument are
not af f ect ed by t he f act t hat :
a. it is not dat ed; or
b. does not specif y t he value given, or t hat any value
had been given t heref ore; or
c. does not specif y t he place where it is drawn or t he
place where it is payable; or
d. bears a seal; or
e. designat es a part icular kind of current money in
¾ if it is not dat ed, t he inst rument will be considered t o be
which payment is t o be made.
¾ considerat ion f or t he inst rument is presumed. ( ar t . 154
dat ed as of t he t ime it was issued.
¾ sec. 73 specif ies where present ment f or payment should
NCC & sec. 25 NIL)
be made when t he place of payment is not specif ied
Rules of construction:
a. Where t he sum payable is expressed in words and also in
f igures and t here is a discrepancy bet ween t he t wo, t he
sum denot ed by t he words is t he sum payable; but if t he
words are ambiguous or uncert ain, ref erence may be had
t o t he f igures t o f ix t he amount ;
b. Where t he inst rument provides f or t he payment of
int erest , wit hout specif ying t he dat e f rom which int erest
is t o run, t he int erest runs f rom t he dat e of t he
inst rument , and if t he inst rument is undat ed, f rom t he
issue t hereof ;
c. Where t he inst rument is not dat ed, it will be considered
t o be dat ed as of t he t ime it was issued;
d. Where t here is a conf lict bet ween t he writ t en and
print ed provisions of t he inst rument , t he writ t en
provisions prevail;
e. Where t he inst rument is so ambiguous t hat t here is
doubt whet her it is a bill or not e, t he holder may t reat it
as eit her at his elect ion;
f. Where a signat ure is so placed upon t he inst rument t hat
it is not clear in what capacit y t he person making t he
same int ended t o sign, he is t o be deemed an indorser;
g. Where an inst rument cont aining t he word "I pr omi se t o
pay" is signed by t wo or more persons, t hey are deemed
t o be j oint ly and severally liable t hereon. (sec. 17)
¾ Pr esumpt i on of consi der at ion. - every negot iable
Consideration
inst rument is deemed pr i ma f aci e t o have been issued
f or a valuable considerat ion; and every person whose
signat ure appears t hereon t o have become a part y
¾ Val ue - any considerat ion suf f icient t o support a simple
t heret o f or value.
cont ract . An ant ecedent or pre-exist ing debt const it ut es
value; and is deemed such whet her t he inst rument is
¾ Hol der f or val ue – one who has given a valuable
payable on demand or at a f ut ure t ime.
considerat ion f or t he inst rument issued or negot iat ed t o
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him.
What const it ut es holder f or value:
where value has at any t ime been given f or t he
inst rument , t he holder is deemed a holder f or value
in respect t o all part ies who become such prior t o
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t hat t ime.
where t he holder has a lien on t he inst rument
arising eit her f rom cont ract or by implicat ion of
law, he is deemed a holder f or value t o t he ext ent
¾ Ef f ect of want of consi der at i on: a mat t er of def ense as
of his lien.
against any person not a holder in due course; and
part ial f ailure of considerat ion is a def ense pro t ant o,
whet her t he f ailure is an ascert ained and liquidat ed
amount or ot herwise.
Absence of consi der at i on – t ot al lack of any valid
considerat ion f or t he cont ract is only a personal
def ense.
Fai l ur e of consi der at i on – f ailure or ref usal or one part y
t o do, perf orm or comply wit h t he considerat ion agreed
upon is also only a personal def ense.
III. T RANSFER AND NEGOT IAT ION
Types of transfers:
1. Assi gnment - t ransf er of t it le t o t he inst rument , wit h t he
assignee generally t aking only such t it le as his assignor
has, subj ect t o all def enses available against his
assignor;
2. Negot iat i on - t ransf er of a negot iable inst rument f rom
one person t o anot her made in such a manner as t o
const it ut e t he t ransf eree t he holder t hereof
3. By Oper at i on of Law – such as by succession, by
insolvency.
Distinctions between Negotiation and Assignment
NEGOTIATION ASSIGNMENT
1. Ref ers only t o 1. Ref ers generally t o an
negot iable ordinary cont ract ;
inst rument s;
2. The t ransf eree is a 2. The t ransf eree is an
holder; assignee;
3. A holder in due course 3. An assignee is subj ect
is subj ect only t o real t o bot h real and
def enses; personal def enses;
4. A holder in due course 4. Generally, an assignee
 may acquire a bet t er
right t han t hat of a
prior part y
5. A general indorser
warrant s t he solvency
of prior part ies;
merely st eps int o t he
shoes of t he assignor;
5. An assignor does not
warrant t he solvency of
prior part ies unless
c. To t ransf er his right s as such indorsee,
where t he f orm of t he indorsement
aut horizes him t o do so.
But all subsequent indorsees acquire only t he
t it le of t he f irst indorsee under t he rest rict ive
indorsement . (sec. 37)

6. An indorser is not
liable unless t here be
expressly st ipulat ed or
t he insolvency is known
t o him;
6. An assignor is liable
even wit hout not ice of
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Such indorsement dest roys t he negot iabilit y of
t he inst rument and bars f urt her negot iat ion t o
a holder in due course.
d. Qual if i ed - const it ut es t he indorser a mere assignor

present ment and
not ice of dishonor;
7. Negot iat ion is
governed y t he NIL.
dishonor;
7. Governed by Art s. 1624
t o 1635 (on assignment
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of t he t it le t o t he inst rument . (sec. 38)
made by adding t o t he indorser's signat ure
words like "sans recourse, ” “ wit hout recourse",
"indorser not holder", "at t he indorser's own

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of credit s) of t he Civil risk", et c.
Code. The purpose of t his kind of indorsement is t o
t ransf er t it le wit hout guarant eeing payment by

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Methods of negotiation
1. Or der Inst r ument – Indorsement and Delivery.
2. Bear er Inst r ument – Delivery only.
Indorsement - legal t ransact ion ef f ect ed by t he writ ing of
one's own name at t he:
a. back of t he inst rument or
b. upon a paper ( al l onge) at t ached t heret o wit h or
wit hout addit ional words specif ying t he person t o
whom or t o whose order t he inst rument is t o be
payable whereby one not only t ransf ers legal t it le t o
t he paper t ransf erred but likewise ent ers int o an
implied guarant y t hat t he inst rument will be duly
t he primary part y.
It does not mean, however, t hat t he qualif ied
indorser incurs no liabilit y at all. The ef f ect is
merely t o limit his liabilit y. He is secondarily
liable f or breach of is warrant ies as an indorser
under Sec. 65. Thus, he is liable if t he
inst rument is dishonored by NON-ACCEPTANCE
or NON-PAYMENT due t o:
a. f orgery;
b. lack of good t it le t o t he inst rument
indorsed;
c. lack of capacit y t o cont ract on t he part of
prior part ies; or

¾ Gener al Rul e: indorsement must be of t he ent ire

paid. d. t he f act t hat t he inst rument was valueless
or not valid at t he t ime of t he indorsement
inst rument . which f act was known t o him.
Except i on: where inst rument has been paid in part , it e. Condi t i onal - right of t he indorsee is made t o

¾ Ki nds of i ndor sement : •

may be indorsed as t o t he residue. depend on t he happening of a cont ingent event
Part y required t o pay may disregard t he

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a. Speci al - specif ies t he person t o whom or t o whose condit ions.
order, t he inst rument is t o be payable (sec. 34) This kind of indorsement has no ef f ect on t he

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b. Bl ank - specif ies no indorsee: f urt her negot iat ion of t he inst rument . The
Inst rument is payable t o bearer and may be part y required t o pay, if he chooses, may make

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negot iat ed by delivery (sec. 34)
May be convert ed t o special indorsement by
writ ing over t he signat ure of indorser in blank
any cont ract consist ent wit h charact er of
indorsement .
c. Rest r i ct ive - when t he indorsement eit her:
i. Prohibit s f urt her negot iat ion of t he
inst rument ; or
ii. Const it ut es t he indorsee t he agent of t he
indorser; or
iii. Vest s t he t it l e in t he indorsee in t rust f or
or t o t he use of some ot her persons. But
mere absence of words implying power t o
negot iat e does not make an indorsement
payment , disregarding t he condit ion wit hout
incurring any liabilit y because he is expressl y
aut horized t o do so under Sec. 39. But t he
person who received payment will hold t he
proceeds subj ect t o t he right of t he condit ional
indorser.
f. Absol ut e - one by which indorser binds himself t o
pay:
i. upon no ot her condit ion t han f ailure of
prior part ies t o do so; and
ii. upon due not ice t o him of such f ailure.
g. Joint - indorsement of inst rument payable t o 2 or
more persons; all must indorse in order f or t he

• •
rest rict ive. t ransact ion t o operat e as a negot iat ion.
A rest rict ive indorsement conf ers upon t he Except ions t o t he rule requiring j oint
indorsee t he right : indorsement :
a. To receive payment of t he a. Where t he payees or indorsees are
inst rument ; part ners; and

b. To bring any act ion t hereon t hat t he b. Where t he payee or indorsee indorsing
indorser could bring; has aut horit y t o indorse f or t he
ot hers.
 h. Ir r egul ar - a person who, not ot herwise a part y t o
an inst rument , places t hereon his signat ure in blank
bef ore delivery.
¾
Rul es on Indor sement s:
• Ef f ect of t r ansf er wit hout indor sement :
a. t ransf er vest s in t he t ransf eree such t it le as t he
t ransf eror had t herein (assi gnment ) , and
b. t he right t o have t he indorsement of t he
à
t ransf eror.
For t he purpose of det ermining whet her t he
t ransf eree is a holder in due course, t he
negot iat ion t akes ef f ect as of t he t ime when
à
t he indorsement is act ually made.
Applicable only t o order inst rument s
•
Indor sement of a bear er i nst r ument : where an
inst rument , payable t o bearer, is indorsed specially,
it may nevert heless be f urt her negot iat ed by
delivery; but t he person indorsing specially is liable
as indorser t o only such holders as make t it le
t hrough his indorsement .
Note: The rule only applies t o originally bearer
inst rument s. If it is originally a BEARER inst rument ,
it will always be a BEARER inst rument . As opposed
t o an original order inst rument becoming payable t o
bearer, if t he same is indorsed specif ically, it can
NO LONGER be negot iat ed f urt her by mere delivery,
it has t o be indorsed.
•
St r i ki ng out i ndor sement s: t he holder may at any
t ime st rike out any indorsement , which is not
necessary t o his t it le. The indorser whose
indorsement is st ruck out and all indorsers
subsequent t o him, are t hereby relieved f rom
à
liabilit y on t he inst rument .
If t he inst rument is payabl e t o bear er on it s f ace,
t hen whet her or not t here are indorsement s on t he
back of t he inst rument would be immat erial t o t he
t it le of t he bearer, who is presumpt ively t he owner
and holder by his mere possession of such
inst rument . None of t he indorsement would be
necessary t o it ’ s t it le since mere delivery would
have been suf f icient t o t ransf er t it le f rom one
à
holder t o anot her.
Where t he inst rument is payabl e t o or der on it s
f ace, t he sit uat ion is dif f erent . First , t he
indorsement of a special indorsee is necessary f or
t he f urt her negot iat ion of t he inst rument . Second,
t he last indorsement cont rols t he met hod of f urt her
negot iat ion.
•
When pr i or par t y (r eacqui r er ) may negot i at e: where an
inst rument is negot iat ed back t o a prior part y, such
part y may reissue and f urt her negot iat e t he same. But
he is not ent it led t o enf orce payment t hereof against
à
any int ervening part y t o whom he was personally liable.
In t he f ollowing cases, a prior part y cannot f urt her
negot iat e t he inst rument :
1. Where it is payable t o t he order of a t hird
person, and has been paid by t he drawer;
2. Where it was made or accept ed f or
accommodat ion and has been paid by t he
part y accommodat ed;
3. In ot her cases, where t he inst rument is
discharged when acquired by a prior part y.
IV. HOLDERS
Classes of holders:
1. simple holder (sec. 51)
2. holder f or value (sec. 26)
3. holder in due course (sec. 52, 57)
Holder in Due Course
ƒ
holder who has t aken t he inst rument under t he f ollowing
condit ions:
a. That it is complet e and regular upon it s f ace;
b. That he became t he holder of it bef ore it was
overdue, and wit hout not ice t hat it has been
previously dishonored, if such was t he f act ;
c. That he t ook it in good f ait h and f or value;
d. That at t he t ime it was negot iat ed t o him, he had
no not ice of any inf irmit y in t he inst rument or
def ect in t he t it le of t he person negot iat ing it .
¾ When title defective - The t it le of a person who
negot iat es an inst rument is def ect ive when he obt ained
t he inst rument or any signat ure t heret o, by:
a. f raud,
b. duress, or f orce and f ear,
c. ot her unlawf ul means,
d. illegal considerat ion,
e. negot iat ion in breach of f ait h,
f. circumst ances amount ing t o f raud.
¾ What constitutes notice of defect . - The person t o
whom it is negot iat ed must have:
a. act ual knowledge of t he inf irmit y or def ect , or
b. knowledge of such f act s t hat his act ion in t aking t he
inst rument amount ed t o bad f ait h. (sec. 56)
¾ Notice before full amount is paid - where t he
t ransf eree receives not ice of any inf irmit y in t he
inst rument or def ect in t he t it le of t he person
negot iat ing t he same bef ore he has paid t he f ull amount
agreed t o be paid, he will be deemed a holder in due
course only t o t he ext ent of t he amount paid by him.
¾ When person not deemed a holder in due course -
where an inst rument payable on demand is negot iat ed
on an unreasonable lengt h of t ime af t er it s issue, t he
•
holder is not deemed a holder in due course.
Reasonabl e t ime, what const it ut es. - regard is t o be
had t o t he
a. nat ure of t he inst rument ,
b. t he usage of t rade or business wit h respect t o
such inst rument s, and t he
•
c. f act s of t he part icular case.
Ef f ect : in t he hands of any holder ot her t han a
holder in due course, a negot iable inst rument is
 subj ect t o t he same def enses as if it were non- IN A BILL OF 1. Drawer
negot iable. EXCHANGE 2. Accept or

¾
3. Indorsers
Gener al Rul e: every holder is deemed prima f acie t o be 4. Persons negot iat ing by delivery
a holder in due course
Except i on: when it is shown t hat t he t it le of any person 1. Parties Primarily Liable

•
who has negot iat ed t he inst rument was def ect ive, t he a. Maker (Sec. 60)
burden is on t he holder t o prove t hat he or some person engages t o pay according t o t he t enor of t he
under whom he claims acquired t he t it le as holder in due
•
inst rument ; and
course (shif t ing of burden of proof ). admit s t he exist ence of t he payee and his t hen
Li mi t at i on: t he last -ment ioned rule does not apply in capacit y t o indorse at t he t ime of t he making
f avor of a part y who became bound on t he inst rument
•
of t he not e.
prior t o t he acquisit ion of such def ect ive t it le. (sec. 59) A person placing his name on t he f ace of a not e

¾
Rights of a holder in due course:
a. he may sue on t he inst rument in his own name;
b. he may receive payment and if payment is in due
course, t he inst rument is discharged.
c. holds t he inst rument f ree f rom any def ect of t it le of
prior part ies,
d. holds t he inst rument f ree f rom def enses available t o
prior part ies among t hemselves, and
e. may enf orce payment of t he inst rument f or t he f ull
amount t hereof against all part ies liable t hereon.
¾
Payment in due cour se is payment made:
a. at or af t er t he mat urit y of t he inst rument
b. t o t he holder t hereof
c. in good f ait h and wit hout not ice t hat his t it le is
def ect ive.
¾
Shelter Rule:
a. derives his t it le t hrough a holder in due course, and
b. who is not himself a part y t o any f raud or illegalit y
af f ect ing t he inst rument , has all t he right s of such
f ormer holder in respect of all part ies prior t o t he
lat t er.
¾
Rights of a Holder NOT in Due Course
1. He may sue on t he inst rument in his own name;
2. He may receive payment and if t he payment is in
due course, t he inst rument is discharged;
3. He is ent it led t o t he inst rument but holds it subj ect
t o t he same def enses as if it were non-negot iable;
and
4. He has all t he right s of t he holder in due course
f rom whom he derived his t it le in respect of all
part ies prior t o such holder, provided he is not
himself a part y t o any f raud or illegalit y af f ect ing
t he inst rument .
V. LIABILIT IES OF PART IES
2.
Persons primarily liable on instrument : t he person who, by
t he t erms of t he inst rument , is absolut ely required t o pay t he
same. All ot her part ies are "secondar i l y" liable.
Classification of parties according to liability
is prima f acie a maker and liable as such; and
he is presumed t o have act ed wit h care and t o
have signed t he inst rument wit h f ull knowledge
of it s cont ent s.
•
b. Accept or or Drawee (Sec. 62)
engages t o pay according t o t he t enor of his
•
accept ance;
admit s:
1. t he exist ence of t he drawer,
2. t he genuineness of his signat ure and
3. his capacit y and aut horit y t o draw t he
inst rument ; and
4. t he exist ence of t he payee and his t hen
capacit y t o indorse.
Note: t he drawee is not liable unt il he accept s
•
t he inst rument
Where a check is cert if ied by a bank, it is
equivalent t o an accept ance. Since cert if icat ion is
equivalent t o accept ance, a bank which has
cert if ied a check whet her at t he request of t he
holder or of a drawer, has t he same liabilit ies and
makes t he same warrant ies as an accept or. It
cannot , af t er cert if icat ion, quest ion t he
genuineness of t he drawer’ s signat ure. If it
discovers t hat such signat ure is f orged subsequent
t o cert if icat ion but prior t o payment , it cannot
ref use t o pay on t he check. If it s discovery comes
af t er it has paid t he check, it cannot recover
back what it paid on t he ground of mist aken
payment unless t he holder is guilt y of f raud or
negligence.
•
If a drawee-bank accept s or pays a check despit e
a st op payment order f rom t he drawer, t hrough
oversight or ot herwise, it cannot ref use t o pay
t he holder or recover what has been paid; neit her
may it debit t he drawer’ s account unless t he
accept ance nor payment was made prior t o t he
receipt of t he order.
Parties Secondarily Liable
•
a. Drawer (Sec. 61)
admit s t he exist ence of t he payee and his
•
capacit y t o indorse;
engages t hat t he inst rument will be accept ed

•
or paid by t he part y primarily liable; and
IN A PROMISSORY 1. Maker engages t hat if t he inst rument is dishonored
NOTE 2. Indorser and proper proceedings are brought , he will
3. Persons negot iat ing by delivery pay t o t he part y ent it led t o be paid.

•
b. General Indorser (Sec. 66)
Warrant s:
 1. genuineness of t he inst rument ; à inst rument is genuine and in all respect s what

à
2. his good t it le t o it ; it purport s t o be;

à
3. capacit y t o cont ract of prior part ies; and he has good t it le t o it ;

• à
4. inst rument is valid and subsist ing. all prior part ies had capacit y t o cont ract ;
engages t hat t he inst rument will be accept ed he has no knowledge of any f act which would

•
or paid by t he part y primarily liable; and impair t he validit y of t he inst rument or render
engages t hat if t he inst rument is dishonored it valueless.

à
and proper proceedings are t aken, he will pay b. Per sons Negot i at i ng by Del i ver y
t o t he part y ent it led t o be paid. warrant ies same as t hose of qualif ied indorsers;

à
c. Irregular Indorser – a person, not ot herwise a part y and
t o an inst rument , places his signat ure t hereon in warrant ies ext end t o immediat e t ransf eree
blank bef ore delivery. only.

•
Rul es:
rd
If inst rument payable t o t he order of a 3 LIABILITY WARRANTY
person, he is liable t o t he payee and 1. To pay a sum cert ain. 1. No obligat ion t o pay.

•
subsequent part ies. 2. Requires Not ice of 2. Not ice of Dishonor is not a
If inst rument payable t o order of maker or Dishonor. requirement .
drawer, he is liable t o all part ies subsequent t o 3. Act ion can be brought 3. Act ion may be brought

•
t he maker or drawer.
If he signs f or accommodat ion of t he payee, he
is liable t o all part ies subsequent t o t he payee.
Distinctions:
PRIMARY PARTY SECONDARY PARTY
1. Uncondit ionally bound; 1. Condit ionally bound;
2. Absolut ely required t o 2. Undert akes t o pay only
pay upon t he mat urit y of af t er cert ain condit ions
t he inst rument . have been f ulf illed:
a. due present ment f or
payment or accept ance t o
primary part y;
b. dishonor by such
part y; and
c. t he t aking of
proceedings required by
law af t er dishonor.
INDORSER DRAWER
1. A part y t o eit her a not e 1. A part y only t o a bill;
or a bill; 2. The drawer makes such
2. Does not make any admission;
admission regarding t he 3. Makes no warrant ies, but
exist ence of t he payee and he engages t o pay af t er
his capacit y t o indorse; and cert ain condit ions are
3. Has warrant ies. complied wit h.
GENERAL INDORSER IRREGULAR INDORSER
1. Makes eit her a blank or 1. Always makes a blank
special indorsement ; indorsement ;
2. Indorses t he inst rument 2. Indorses bef ore it s
af t er it s delivery t o t he delivery;
payee; and 3. Liable t o t he payee and
3. Liable only t o part ies subsequent part ies unless
subsequent t o him he signs f or t he
accommodat ion of t he
payee in which case he is
liable only t o all part ies
subsequent t o t he payee.
3. Part ies wit h Limit ed Liabilit y (sec. 65; Met r opol
Financi ng v. Sambok, 120 SCRA 864)
a. Qual i f i ed Indor ser - warrant s t hat :
only on mat urit y of anyt ime.
inst rument .
BY MERE DELIVERY OR BY GENERAL INDORSER
QUALIFIED INDORSEMENT
1. No secondary liabilit y; 1. Wit h secondary liabilit y;
2. Warrant s t hat he has no 2. Warrant s t hat t he
knowledge of any f act , inst rument is, at t he t ime
which would impair t he of his indorsement , valid
validit y of t he inst rument and subsist ing.
or render it valueless.
4. Ot her part ies who may be liable:
Gener al Rul e: One whose signat ure does not appear on t he
inst rument shall not be liable t hereon.
Except i ons:
1. The principal who signs t hrough an agent is liable;
2. The f orger is liable;
3. One who indorses in a separat e inst rument (allonge) is
liable;
4. One who signs his assumed or t rade name is liable; and
5. A person negot iat ing by delivery (as in t he case of a
bearer inst rument ) is liable t o his immediat e indorsee.
Requisites for an Agent to escape liability:
1. must be duly aut horized;
2. add words t o his signat ure indicat ing t hat he signs as an
agent , t hat is, f or or on behalf of a principal, or in a
represent at ive capacit y; and
3. disclose his principal.
¾ A signat ure by “ procurat ion” operat es as not ice t hat t he
agent has but a limit ed aut horit y t o sign, and t he
principal is bound only in case t he agent in so signing
¾
act ed wit hin t he act ual limit s of his aut horit y. (sec. 21)
Indorsement or assignment of t he NI by a corporat ion or
by an inf ant passes t he propert y t herein,
not wit hst anding t hat f rom want of capacit y, t he
corporat ion or inf ant may incur no liabilit y t hereon.
(sec. 22)
Accomodation Party
One who has signed t he inst rument as maker, drawer, a. Absence or f ailure of considerat ion, part ial or t ot al;
accept or, or indorser, wit hout receiving value t heref or, and b. Want of delivery of complet e inst rument ;

¾ Li abi l i t y: such a person is liable on t he inst rument t o a

f or t he purpose of lending his name t o some ot her person c. Insert ion of wrong dat e in an inst rument , where it is
payable at a f ixed period af t er dat e and it is issued
holder f or value, not wit hst anding such holder, at t he undat ed or where it is payable at a f ixed period
t ime of t aking t he inst rument , knew him t o be only an af t er sight and t he accept ance is undat ed;

¾ Ef f ect s:
accommodat ion part y. d. Filling up of blank cont rary t o aut horit y given or not
wit hin reasonable t ime, where t he inst rument is
1. accommodat ion part y is generally regarded as a delivered;
sur et y f or t he part y accommodat ed; e. Fraud in inducement ;
2. When accommodat ion part y makes payment t o f. Acquisit ion of inst rument by f orce, duress, or f ear;
holder of t he not e, he has t he right t o sue t he g. Acquisit ion of t he inst rument by unlawf ul means;
accommodat ed part y f or reimbursement . h. Acquisit ion of t he inst rument f or an illegal

¾
considerat ion;
Ri ght s of accommodat i on par t i es as agai nst each ot her : i. Negot iat ion in breach of f ait h;
t he ot her may demand cont ribut ion f rom his co- j. Negot iat ion under circumst ances t hat amount t o
accommodat ion part y wit hout f irst direct ing his act ion f raud;
against t he principal debt or provided: k. Mist ake;
1. he made t he payment by virt ue of j udicial demand; l. Int oxicat ion (according t o bet t er aut horit y);
or m. Ult ra vires act s of corporat ions where t he
2. t he principal debt or is insolvent . corporat ion has t he power t o issue negot iable paper
but t he issuance was not aut horized f or t he
Note: A cor por at i on cannot act as an accommodat ion part icular purpose f or which it was issued;
part y. The issuance or indorsement of negot iable n. Want of aut horit y of agent where he has
inst rument by a corporat ion wit hout considerat ion and o. apparent aut horit y;
f or t he accommodat ion of anot her is ul t r a vi r es. p. Insanit y where t here is no not ice of insanit y on t he
( Cr i sol ogo v. CA, 117 SCRA 594). part of t he one cont ract ing wit h t he insane person;
and
Order of liability of indorsers: q. Illegalit y of cont ract where t he f orm or
1. among t hemselves – indorsers are liable pr i ma f aci e in considerat ion is illegal.
t he order in which t hey indorse; but evidence is
admissible t o show t hat , as bet ween or among FRAUD IN FACTUM FRAUD IN INDUCEMENT
t hemselves, t hey have agreed ot herwise (sec. 68) 1. It exist s in t hose cases in 1. It is t hat which relat ed
2. t o t he holder – indorsers are liable in any order which a person, wit hout t o t he qualit y, quant it y,
negligence, has signed an value or charact er of t he
VI. DEFENSES inst rument which was in considerat ion of t he
f act a negot iable inst rument . In t his case,
inst rument , but was t he signer is led by
Kinds:
deceived as t o t he decept ion t o execut e what
1. Real/ Absolut e Def enses - t hose t hat at t ach t o t he
charact er of t he inst rument he knows is a negot iable
inst rument it self and are available against all holders,
and wit hout knowledge of inst rument . It implies t hat
whet her in due course or not .
it s, as where a not was t he signer knew what he
Exampl es:
signed by one under t he was signing but t hat he was
a. Alt erat ion;
belief t hat he was signing induced by f raud t o sign.
b. Non-delivery of incomplet e inst rument ;
as a wit ness t o a deed.
c. Duress amount ing t o f orgery;
d. Fraud in f act um or f raud in esse cont ract us; 2. This kind of f raud is a 2. Such t ype of f raud is only
e. Minorit y; real def ense because t here a personal def ense because
f. Marriage in t he case of a wif e; is no cont ract . It implies it does not prevent a
g. Insanit y where t he insane person has a guardian t hat t he person did not cont ract .
appoint ed by t he court ; know what he was signing.
h. Ult ra vires act s of a corporat ion, where t he But where t he signer by t he
corporat ion is absolut ely prohibit ed by it s chart er or exercise of reasonable
st at ut e f rom issuing any commercial paper under diligence could have
any circumst ances; discovered t he nat ure of
i. Want of aut horit y of agent ; t he inst rument , t he f raud
j. Execut ion of inst rument bet ween public enemies; cannot be considered a real
k. Illegalit y of cont ract where it is t he cont ract or def ense, as where a person,
inst rument it self which is expressly made illegal by who can read, signed a not e
st at ut e; and but f ailed t o read it .

¾
l. Forgery.
2. Personal/ Equit able Def enses – t hose which are available Effects of Defenses:
only against a person not a holder in due course or a 1. Compl et e and undel i ver ed i nst r ument
subsequent holder who st ands in privit y wit h him.
Exampl es:
 • as bet ween immediat e part ies and as regards a
remot e part y ot her t han a holder in due course, t he
•
delivery must be aut horized in order t o be ef f ect ual
where t he inst rument is in t he hands of a holder in
due course, a valid delivery t hereof by all part ies
prior t o him so as t o make t hem liable t o him is
•
conclusively presumed
where t he inst rument is no longer in t he possession
of a part y whose signat ure appears t hereon, a valid
and int ent ional delivery by him is presumed unt il
t he cont rary is proved
•
2. Incompl et e but del i ver ed i nst r ument
where t he inst rument is want ing in any mat erial
part icular, t he person in possession t hereof has a
prima f acie aut horit y t o complet e it by f illing up t he
•
blanks t herein.
it must be f illed up st rict ly in accordance wit h t he
•
aut horit y given and wit hin a reasonable t ime
if any such inst rument , af t er complet ion, is
negot iat ed t o a holder in due course, it is valid and
ef f ect ual f or all purposes in his hands, and he may
enf orce it as if it had been f illed up st rict ly in
accordance wit h t he aut horit y given and wit hin a
reasonable t ime.
•
3. Incompl et e and undel i ver ed i nst r ument
it will not , if complet ed and negot iat ed wit hout
aut horit y, be a valid cont ract in t he hands of any
holder, as against any person whose signat ure was
•
placed t hereon bef ore delivery.
However, subsequent indorsers are liable.
•
4. For ger y
count erf eit making or f raudulent alt erat ion of any
writ ing, which may consist of :
1. signing of anot her’ s name wit h int ent t o
def raud; or
2. alt erat ion of an inst rument in t he name,
amount , name of payee, et c. wit h int ent t o
•
def raud.
Ef f ect : signat ure is wholly inoperat ive, and no right
t o ret ain t he inst rument , or t o give a discharge
t heref ore, or t o enf orce payment t hereof against
any part y t heret o, can be acquired t hrough or under
•
such signat ure
Except ion: unless t he part y against whom it is
sought t o enf orce such right is precluded f rom
•
set t ing up t he f orgery or want of aut horit y.
Cut-Off Rule
General Rule: Part ies prior t o t he f orged signat ure
are cut -of f f rom t he part ies af t er t he f orgery in t he
sense t hat prior part ies cannot be held liable and
can raise t he def ense of f orgery. The holder can
only enf orce t he inst rument against part ies who
became such af t er t he f orgery.
Except ion: When t he prior part ies are precluded
f rom set t ing up t he def ense of f orgery.
Per sons pr ecl uded f r om set t i ng up t he def ense of
f or ger y ar e:
1. Those who by t heir act s, silence, or negligence,
are est opped f rom set t ing up t he def ense of
f orgery;
2. Those who warrant or admit t he genuineness of
t he signat ure in quest ion. These include act s or
omissions t hat amount t o rat if icat ion, express
or implied.
Note: Persons precluded f rom set t ing up t he
def ense of f orgery may st ill recover damages under
•
t he NCC provisions on quasi-delict s.
Rules on Forgery:
A. Pr omi ssor y Not es
1. Maker’ s signat ure f orged
Or der Inst r ument
a. Maker is not liable because he never
became a part y t o t he inst rument .
b. Indorsers subsequent t o f orgery are liable
because of t heir warrant ies.
c. Part y who made t he f orgery is liable.
Bear er Inst r ument
a. Maker is not liable.
b. Indorsers may be made liable t o t hose
persons who obt ain t it le t hrough t heir
indorsement s.
c. Part y who made t he f orgery is liable.
2. Payee’ s signat ure f orged
Or der Inst r ument
a. Maker and payee not liable
b. Indorsers subsequent t o t he f orgery is
liable.
c. Part y who made t he f orgery is liable
Bear er Inst r ument
a. Maker is liable. Indorsement is not
necessary t o t it le and t he maker engages
t o pay holder.
b. Part y who made t he f orgery is liable
3. Indorser’ s signat ure f orged
Or der Inst r ument
a. Maker, payee, and indorser who signat ure
was f orged is not liable.
b. Indorsers subsequent t o f orgery are liable
because of t heir warrant ies.
c. Part y who made t he f orgery is liable.
Bearer Inst rument
a. Maker is liable. Indorsement is not
necessary t o t it le and t he maker engages
t o pay holder.
b. Indorser whose signat ure was f orged is not
liable
c. Part y who made t he f orgery is liable.
B. Bi l l of Exchange
1. Drawer’ s signat ure f orged
In an Or der Inst r ument
a. Drawer is not liable.
b. Drawee is liable if it paid (nor recourse t o
drawer) because he admit t ed t he
genuineness of t he drawer’ s signat ure.
Drawee cannot recover f rom t he collect ing
bank because t here is no privit y bet ween
t he collect ing bank and t he drawer. There
is no warrant y as t o t he signat ure of t he
drawer. ( Associ at ed Bank v. CA)
c. Indorsers subsequent t o f orgery are liable.
d. Part y who made t he f orgery is liable
In a Bear er Inst r ument
a. Drawer is not liable
b. Drawee is liable if it paid. Drawee cannot
recover f rom t he collect ing bank because
 it is bound t o known t he drawer’ s
signat ure since t he lat t er is it s deposit or.
c. Part y who made t he f orgery is liable.
2. Payee’ s signat ure f orged
Or der Inst r ument
a. Drawer, drawee and payee not liable. Cut -
of f rule applies.
b. Indorsers subsequent t o f orgery are liable.
c. Part y who made t he f orgery is liable
Bear er Inst r ument
a. Drawer is liable. His indorsement is not
necessary t o pass t it le.
b. Drawee is liable. No privit y bet ween
drawer and payee because indorsement of
payee is not necessary ( Ang Tek Lian case,
87 SCRA 383)
c. Payee is not liable
d. Collect ing bank is liable because of
warrant y.
e. Part y who made t he f orgery is liable.
3. Indorser’ s signat ure f orged
Or der Inst r ument
a. Drawer, payee and indorser whose
signat ure was f orged are not liable.
b. Drawee is liable if it paid.
c. Indorsers subsequent t o f orgery are liable.
d. Part y who made t he f orgery is liable.
Bear er Inst r ument
a. Drawer is liable. Indorsement is not
necessary t o pass t it le.
b. Drawee is liable.
c. Indorser whose signat ure was f orged is
liable because indorsement is not
necessary t o pass t it le.
d. Part y who made t he f orgery is liable.
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5. Al t er at i on
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Ef f ect : t he inst rument is avoided
Except ions:
1. against a part y who has himself made,
aut horized, or assent ed t o t he alt erat ion
2. subsequent indorsers
3. holder in due course not a part y t o t he
alt erat ion - he may enf orce payment according
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t o it s original t enor
Changes const it ut ing mat erial alt erat ion:
1. dat e;
2. sum payable, eit her f or principal or int erest ;
3. t ime or place of payment ;
4. number or relat ions of t he part ies;
5. medium or currency in which payment is t o be
made;
6. t hat which adds a place of payment where no
place of payment is specif ied; and
7. any ot her change or addit ion which alt ers t he
ef f ect of t he inst rument in any respect .
Note: a mat erial alt erat ion is one t hat alt ers t he
ef f ect of t he inst rument ; one which changes t he
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it ems required t o be st at ed under Sec. 1, NIL.
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Spoliat ion – alt erat ion made by a st ranger.
The general rule denies t he drawee bank’ s right t o
charge against t he drawer’ s account t he amount of
an alt ered check. However, t he lat t er’ s negligence,
bef ore or af t er t he alt erat ion, may est op him f rom
set t ing such alt erat ion as against an innocent
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drawee bank who has paid t he check.
In cases of alt ered checks and checks wit h f orged
indorsement s, t he drawee bank must not if y and
ret urn t hem t o t he collect ing bank bef ore 4: 00 p. m.
of t he next day of clearing, but t he drawee bank
may st ill ret urn t hem even af t er such t ime provided
he does so wit hin 24 hours f rom it s discovery of t he
alt erat ion or f orged inst rument s so t hat recovery of
t he amount may be had. BUT, in no event beyond
t he period f ixed or provided by law f or f iling of a
legal act ion by t he ret urning bank against t he bank
sending t he same.
Note: Alt erat ion is only a part ial real def ense
because a holder in due course can st ill enf orce it
according t o it s original t enor.
VII. ENFORCEMENT OF LIABILIT Y
Presentment for payment – t he present at ion of an
inst rument t o t he person primarily liable f or t he purpose of
demanding and receiving payment .
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General Rules:
present ment f or payment t o charge persons
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primarily liable is not necessary
present ment f or payment t o charge persons
secondarily liable is necessary
Except ions:
a. drawer - where he has no right t o expect or require
t hat t he drawee or accept or will pay t he inst rument
(sec. 79)
b. indorser - where t he inst rument was made or
accept ed f or his accommodat ion and he has no
reason t o expect t hat t he inst rument will be paid if
present ed.
c. when dispensed:
i. where, af t er t he exercise of reasonable
diligence, present ment as required cannot
be made;
ii. where t he drawee is a f ict it ious person;
iii. by waiver of present ment , express or
implied. (sec. 82)
d. when t he inst rument has been dishonored by non-
accept ance (sec. 151)
Sufficiency of presentment.
It must be:
1. made by t he holder or any person aut horized t o
receive payment on his behalf ;
2. at a reasonable hour on a business day;
3. at a proper place;
4. t o t he person primarily liable or if he is absent or
inaccessible, t o any person f ound at t he place
where t he present ment is made.
How made:
1. personal demand f or payment at t he proper place; and
2. readiness t o exhibit t he inst rument if required, and t o
receive payment and t o surrender t he inst rument if t he
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debt or is willing t o pay.
Pur pose of exhi bi t i on:
To enable t he debt or t o:
 a. det ermine t he genuineness of t he inst rument and
t he right of t he holder t o receive payment ; and
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b. t o enable him t o reclaim possession upon payment .
When exhi bi t i on excused:
a. when debt or does not demand t o see t he inst rument
but ref uses payment on some ot her grounds, and
b. when t he inst rument is lost or dest royed.
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When made:
where t he inst rument is payable at a f ixed or
det erminable f ut ure t ime, present ment must be made
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on t he day it f alls due
where it is payable on demand:
a. pr omi ssor y not e: present ment must be made wit hin
a reasonable t ime af t er it s issue
b. bi l l of exchange: present ment f or payment will be
suf f icient if made wit hin a reasonable t ime af t er
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t he last negot iat ion t hereof
t he check must be present ed f or payment wit hin a
reasonable t ime af t er it s issue or t he drawer will be
discharged f rom liabilit y t hereon t o t he ext ent of t he
loss caused by t he delay.
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Time of maturity:
every negot iable inst rument is payable at t he t ime f ixed
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t herein wit hout grace
when t he day of mat urit y f alls upon a Sunday or a
holiday, t he inst rument s are t o be present ed f or
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payment on t he next succeeding business day
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when t he day of mat urit y f alls upon a Sat urday:
Inst rument is payable at a f ixed or det erminable
f ut ure t ime (t ime inst rument ) - present ed f or
ƒ
payment is on t he next succeeding business day
inst rument s is payable on demand - at t he opt ion of
t he holder, be present ed f or payment :
a. bef ore 12: 00 noon on Sat urday when
t hat ent ire day is not a holiday or
b. t he next succeeding business day.
ƒ
How comput ed:
excluding t he day f rom which t he t ime is t o begin t o
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run, and by including t he dat e of payment
applies t o inst rument s which are payable at a f ixed
period af t er dat e, af t er sight , or af t er t hat
happening of a specif ied event .
Proper place for presentment:
a. Where a place of payment is specif ied in t he inst rument
and it is t here present ed;
b. Where no place of payment is specif ied but t he address
of t he person t o make payment is given in t he
inst rument and it is t here present ed;
c. Where no place of payment is specif ied and no address is
given and t he inst rument is present ed at t he usual place
of business or residence of t he person t o make payment ;
d. In any ot her case if present ed t o t he person t o make
payment wherever he can be f ound, or if present ed at
his last known place of business or residence.
When delay in presentment excused – delay is caused by
circumst ances beyond t he cont rol of t he holder and not
imput able t o his def ault , misconduct , or negligence. When
t he cause of delay ceases t o operat e, present ment must be
made wit h reasonable diligence.
Presentment for acceptance – t he product ion or exhibit ion
of a bill of exchange t o t he drawee f or his accept ance or
payment
General Rule: present ment f or accept ance is not necessary t o
render any part y t o t he bill liable.
Except ion: present ment f or accept ance must be made:
a. Where t he bill is payable af t er sight , or where
present ment f or accept ance is necessary in order t o
f ix t he mat urit y of t he inst rument ; or
b. Where t he bill expressly st ipul at es t hat it shall be
present ed f or accept ance; or
c. Where t he bill is drawn payable elsewhere, t hen at
t he residence or place of business of t he drawee.
(sec. 143)
Note: in all t he above cases, t he holder must eit her present
t he bill f or accept ance or negot iat e it wit hin a reasonable
t ime; ot herwise, t he drawer and all indorsers are discharged.
How made :
1. made by or on behalf of t he holder;
2. at a reasonable hour;
3. on a business day;
4. bef ore t he bill is overdue and wit hin reasonable
t ime;
5. t o t he drawee or some person aut horized t o accept
or ref use accept ance on his behalf .
Days presentment may be made . If dat e of present ment is:
a. Sunday or a holiday – must be made on t he next
succeeding business day
b. Sat urday – bef ore 12: 00 noon on Sat urday provided
t hat it is not a holiday.
When delay for presentment excused:
a. bill is drawn payable elsewhere t han at t he place of
business or t he residence of t he drawee.
b. holder has no t ime, wit h t he exercise of reasonable
diligence, t o present t he bill f or accept ance bef ore
present ing it f or payment on t he day t hat it f alls
due.
Effect : does not discharge t he drawers and indorsers.
Where presentment is excused:
a. Where t he drawee is dead, or has absconded, or is a
f ict it ious person or a person not having capacit y t o
cont ract by bill.
b. Where present ment can not be made af t er t he
exercise of reasonable diligence
c. Where, alt hough present ment has been irregular,
accept ance has been ref used on some ot her ground.
Not e: bill may be t reat ed as dishonored by non-
accept ance.
Duty of holder where bill not accepted. - where a bill is
duly present ed f or accept ance and is not accept ed wit hin t he
prescribed t ime (24 hours – sec. 136), t he person present ing
it must t reat t he bill as dishonored by non-accept ance or he
loses t he right of recourse against t he drawer and indorsers.
Acceptance: t he signif icat ion by t he drawee of his assent t o
t he order of t he drawer. It is t he act by which t he drawee
manif est s his consent t o comply wit h t he request cont ained
in t he bill of exchange direct ed t o him.
How made :
1) must be in writ ing
2) signed by t he drawee
3) must not express t hat t he drawee will perf orm his
promise by any ot her means t han t he payment of
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money.
t he holder of t he bill present ing t he same f or accept ance
may require t hat t he accept ance be writ t en on t he bill,
and if such request is ref used, may t reat t he bill as
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dishonored.
where an accept ance is writ t en on a paper ot her t han
t he bill it self , it does not bind t he accept or except in
f avor of a person t o whom it is shown and who, on t he
f ait h t hereof , receives t he bill f or value.
Period for drawee to accept - allowed 24 hours af t er
present ment in which t o decide whet her or not he will accept
t he bill; if accept ance is given, it dat es as of t he day of
present at ion.
Constructive/ Implied acceptance: where a drawee ref uses
wit hin 24 hours af t er delivery or wit hin such ot her period as
t he holder may allow, t o ret urn t he bill accept ed or non-
accept ed t o t he holder, he will be deemed t o have accept ed
t he same.
Note: same ef f ect if t he drawee dest roys t he inst rument .
Kinds:
1. Gener al - assent s wit hout qualif icat ion t o t he order of
t he drawer.
2. Qual if i ed - which in express t erms varies t he ef f ect of
t he bill as drawn.
a. Condit ional - makes payment by t he accept or
dependent on t he f ulf illment of a condit ion
t herein st at ed.
b. Part ial - an accept ance t o pay part only of t he
amount f or which t he bill is drawn.
i. Local - an accept ance t o pay only at a
part icular place.
ii. Qualif ied as t o t ime
iii. The accept ance of some one or more of
t he drawees but not of all.
3. Const r uct ive
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Rights of parties as to qualified acceptance.
Holder : he may ref use t o t ake a qualif ied accept ance
and if he does not obt ain an unqualif ied accept ance, he
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may t reat t he bill as dishonored by non-accept ance.
Drawer or indorser : when he receives not ice of a
qualif ied accept ance, he must , wit hin a reasonable t ime,
express his dissent t o t he holder or he will be deemed t o
have assent ed t heret o (implied assent ).
Effect of taking a qualified acceptance : t he drawer and
indorsers are discharged f rom liabilit y on t he bill unless t hey
have expressly or impliedly aut horized t he holder t o t ake a
qualif ied accept ance, or subsequent ly assent t heret o.
Other rules of acceptance:
• a bill may be accept ed bef ore it has been signed by t he
drawer, or while ot herwise incomplet e, or when it is
overdue, or af t er it has been dishonored by a previous
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ref usal t o accept , or by non payment
when a bill payable af t er sight is dishonored by non-
accept ance and t he drawee subsequent ly accept s it , t he
holder, in t he absence of any dif f erent agreement , is
ent it led t o have t he bill accept ed as of t he dat e of t he
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f irst present ment .
an uncondit ional promise in writ ing t o accept a bill
bef ore it is drawn is deemed an act ual accept ance
in f avor of every person who, upon t he f ait h
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t hereof , receives t he bill f or value.
where a check is cert if ied by t he bank on which it is
drawn, t he cert if icat ion is equivalent t o an
accept ance.
Ef f ect : t he drawer and all indorsers are discharged
f rom liabilit y t hereon.
Acceptance for Honor - an undert aking by a st ranger t o a bill
af t er prot est f or t he benef it of any part y liable t hereon or f or
t he honor of t he person f or whose account t he bill is drawn
which accept ance inures also t o t he benef it of all part ies
subsequent t o t he person f or whose honor it is accept ed, and
condit ioned t o pay t he bill when it becomes due if t he
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original drawee does not pay it .
Requi sit es:
1. t he bill must have been prot est ed f or dishonor
by non-accept ance or f or bet t er securit y;
2. t he accept or f or honor must be a st ranger and
not a part y already liable on t he inst rument ;
3. bill must not be overdue;
4. accept ance f or honor must be wit h t he consent
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of t he holder of t he inst rument .
For mal i t i es:
1. must be in writ ing;
2. must indicat e t hat it is an accept ance f or
honor;
3. signed by t he accept or f or honor;
4. must cont ain an express or implied promise t o
pay money;
5. t he accept ed bill f or honor must be delivered
t o t he holder.
Notice of Dishonor - not ice given by t he holder or his agent
t o a part y or part ies secondarily liable t hat t he inst rument
was dishonored by non-accept ance by t he drawee of a bill, or
by non-payment by t he accept or of a bill or by non-payment
by a maker of a not e.
- If such not ice is given by a not ary public, it is called
PROTEST.
¾
Ef f ect of f ailure t o give not ice : part ies secondarily liable
are discharged
¾
Requi sit es:
1. Given by holder or his agent , or by any part y who
may be compelled by t he holder t o pay;
2. Given t o secondary part y or his agent ;
3. Given wit hin t he periods provided by law;
4. Given at t he proper place.
¾
When not i ce of di shonor di spensed wi t h:
 1. when part y t o be not if ied knows about t he dishonor,
act ually or const ruct ively;
2. if waived; and
3. when af t er due diligence, it cannot be given.
¾
How gi ven:
1. by bringing verbally or
2. by writ ing t o t he knowledge of t he person liable t he
f act t hat a specif ied inst rument , upon proper
proceedings t aken, has not been accept ed or has
not been paid, and t hat t he part y not if ied is
expect ed t o pay it .
¾
To whom given:
1. Non-accept ance (bill) – t o persons secondarily
liable, namely, t he drawer and indorsers as t he case
may be.
2. Non-payment (bot h bill and not e) – indorsers.
Note: Not ice must be given t o persons secondarily
liable. Ot herwise, such part ies are discharged.
Not ice may be given t o t he part y himself or t o his
agent .
¾
By whom gi ven:
1. t he holder
2. anot her on behalf of t he holder
3. any part y t o t he inst rument who may be compelled
t o pay it t o t he holder, and who would have a right
of reimbursement f rom t he part y t o whom not ice is
given.
¾
Not ice of dishonor gi ven by or on behal f of a hol der
inures t o t he benef it of :
a. all part ies prior t o t he holder, who have a right
of recourse against t he part y t o whom t he
not ice is given; and
b. all holders subsequent t o t he holder giving
not ice.
¾
Not ice of dishonor gi ven by or on behal f of a par t y
ent i t l ed t o gi ve not i ce inures t o t he benef it of :
a. t he holder; and
b. all part ies subsequent t o t he part y t o whom
not ice is given.
¾
Where an inst rument is di shonor ed i n t he hands of an
agent , he can do eit her of t he f f . :
a. direct ly give not ice t o persons secondarily
liable t hereon; or
b. give not ice t o his principal. In such case, he
must give not ice wit hin t he t ime allowed by
law as if he were a holder.
¾
A part y giving not ice is deemed t o have gi ven due not i ce
where:
a. t he not ice of dishonor is duly addressed, and
b. deposit ed in t he post -of f ice, even when t here
is miscarriage of mail.
¾ Where a part y receives not ice of dishonor, he has, af t er
t he receipt of such not ice, t he same t ime f or giving
not ice t o ant ecedent part ies t hat t he holder has af t er
t he dishonor.
¾ Not ice may be waived eit her bef ore t he t ime of giving
not ice, or af t er t he omission t o give due not ice. Waiver
may be expressed or implied.
¾
As t o who are af f ect ed by an express waiver depends on
where t he waiver is writ t en:
1. if it appears in t he body or on t he f ace of t he
inst rument , it binds all part ies; but
2. if it is writ t en above t he signat ure of an
indorser, it binds him only.
¾
Not ice of dishonor is not required t o be given t o t he
drawer in any of t he f f . cases:
1. drawer and drawee are t he same;
2. drawee is a f ict it ious person or not having t he
capacit y t o cont ract ;
3. drawer is t he person t o whom t he inst rument is
present ed f or payment ;
4. t he drawer has no right t o expect or require
t hat t he drawee or accept or will honor t he
inst rument ;
5. where t he drawer has count ermanded
payment .
¾
Not ice of dishonor is not required t o be given t o an
indorser in t he f f . cases:
1. drawee is a f ict it ious person or does not have
t he capacit y t o cont ract , and indorser was
aware of t hat f act at t he t ime he indorsed t he
inst rument ;
2. indorser is t he person t o whom t he inst rument
is present ed f or payment ;
3. inst rument was made or accept ed f or his
accommodat ion.
¾
If an inst rument is not accept ed by t he drawee, t here is
no sense present ing it again f or payment , and not ice of
dishonor must at once be given. If t here was
accept ance, present ment f or payment is st ill required
and if payment is ref used, t here is a need f or not ice of
dishonor.
¾
An omission t o give not ice of dishonor by non-accept ance
does not prej udice t he right s of a holder in due course
subsequent t o t he omission.
Dishonor by Non-Payment
When inst rument dishonored by non-payment :
a. it is duly present ed f or payment and payment is
ref used or cannot be obt ained; or
b. present ment is excused and t he inst rument is
overdue and unpaid.
Ef f ect of dishonor: an immediat e right of recourse t o all
part ies secondarily liable t hereon accrues t o t he holder.
Dishonor by Non-Acceptance
Inst ances:
a. When it is duly present ed f or accept ance and such
an accept ance is ref used or can not be obt ained; or
b. When present ment f or accept ance is excused and
t he bill is not accept ed (sec. 149)
 Ef f ect : an immediat e right of recourse against t he
drawer and indorsers accrues t o t he holder and no
present ment f or payment is necessary.
Note: where a bill is duly present ed f or accept ance and
is not accept ed wit hin t he prescribed t ime (24 hours),
t he person present ing it must t reat t he bill as dishonored
by non-accept ance.
When Inst rument Considered t o be Dishonored
a. If it is not accept ed when present ed f or accept ance;
or
b. If it is not paid when present ed f or payment at
mat urit y; or
c. If present ment is excused or waived and t he
inst rument is past due and unpaid.
Protest - t he f ormal inst rument execut ed usually by a not ary
public cert if ying t hat t he legal st eps necessary t o f ix t he
liabilit y of t he drawee and t he indorsers have been t aken.
¾
Ef f ect of wai ver : where prot est is waived, present ment
and not ice of dishonor are also deemed waived. But
where t he not ice of dishonor is waived, present ment is
not waived.
¾
Appl i cabi l it y: prot est is necessary only in case of f oreign
bills of exchange which have been dishonored by non-
accept ance or non-payment , as t he case may be. If it is
not so prot est ed, t he drawer and indorsers are
discharged.
¾
Foreign Bill of Exchange:
1. Drawn in t he Philippines but payable out side t he
Philippines.
2. Payable in t he Philippines but drawn out side t he
Philippines.
¾
Pr ot est may be made by: :
1. a not ary public; or
2. any respect able resident of t he place where t he bill
is dishonored, in t he presence of 2 or more credible
wit nesses.
Pr ot est f or bet t er secur i t y is one made by t he holder of a bill
af t er it has been accept ed but bef ore it mat ures, against t he
drawer and indorsers, where t he accept or has been adj udged
a bankr upt or an i nsol vent , or has made an assi gnment f or
t he benef it of t he credit ors.
VIII. DISCHARGE
Discharge of instrument - a release of all part ies, whet her
primary or secondary, f rom t he obligat ions arising
t hereunder. It renders t he inst rument wit hout f orce and
ef f ect and, consequent ly, it can no longer be negot iat ed.
Instances:
1. By payment in due course by or on behalf of t he
principal debt or;
2. Payment by accommodat ed part y;
3. Int ent ional cancellat ion by t he holder;
4. By any act which will discharge a simple cont ract
f or t he payment of money;
5. When t he principal debt or becomes t he holder of
t he inst rument at or af t er mat urit y in his own right .
By any act which would discharge a simple contract:
1. Payment or perf ormance;
2. Loss of t he t hing due;
3. Condonat ion or remission;
4. Conf usion or Merger;
5. Compensat ion;
6. Novat ion;
7. Annulment or Rescission;
8. Fulf illment of a resolut ory condit ion;
9. Prescript ion.
When persons secondarily liable on the instrument are
discharged:
1. By any act which discharges t he inst rument ;
2. By t he int ent ional cancellat ion of his signat ure by
t he holder;
3. By t he discharge of a prior part y;
4. By a valid t ender of payment made by a prior part y;
5. By t he release of t he principal debt or, unless t he
holder’ s right of recourse against t he part y
secondarily liable is expressly reserved;
6. By any agreement binding upon t he holder t o ext end
t he t ime of payment or t o post pone t he holder’ s
right t o enf orce t he inst rument .
¾
In t he f ollowing cases, t he agreement t o ext end t he t ime
of payment does not discharge a part y secondarily liable:
1. where t he ext ension of t ime is consent ed t o by such
part y;
2. where t he holder expressly reserves his right of
recourse against such part y.
¾
Payment at or af t er mat urit y by a part y secondarily
liable does not discharge t he inst rument . It only cancels
his own liabilit y and t hat of t he part ies subsequent t o
him.
Effects of Renunciation:
1. A renunciat ion in f avor of a secondary part y may be
made by t he holder bef ore, at or af t er mat urit y of
t he inst rument . Ef f ect : only such secondary part y is
discharged and all part ies subsequent t o him but t he
inst rument it self remains in f orce.
2. A renunciat ion in f avor of t he principal debt or may
be ef f ect ed at or af t er mat urit y. Ef f ect : t he
inst rument is discharged and all part ies t heret o
provided t he renunciat ion is made uncondit ionally
and absolut ely.
Note: In eit her case, renunciat ion does not af f ect t he
right s of a holder in due course wit hout not ice.
¾
Cancellat ion of an inst rument includes t earing, erasure,
oblit erat ion, or burning. It is not limit ed t o writ ing of
t he word ‘ cancelled” , or “ paid” , or drawing of criss-
cross lines across t he inst rument .
Payment for Honor - payment made by a person, whet her a
part y t o t he bill or not , af t er it has been prot est ed f or non-
payment , f or t he benef it of any part y liable t hereon or f or count ermand by t he payor af t er
t he benef it of t he person f or whose account it was drawn. indorsement .

¾
Requi sit es:
1. t he bill has been dishonored by non-payment ;
2. it has been prot est ed f or non-payment ;
3. payment supra prot est (anot her t erm f or payment
f or honor because prior prot est f or non-payment is
required) is made by any person, even by a part y
t heret o;
4. t he payment is at t est ed by a not arial act of honor
which must be appended t o t he prot est or f orm an
ext ension of it ;
5. t he not arial act must be based on t he declarat ion
made by t he payor f or honor or his agent of his
int ent ion t o pay t he bill f or honor and f or whose
honor he pays.
Note: If t he above f ormalit ies are not complied wit h,
payment will operat e as a mere volunt ary payment and
t he payor will acquire no right t o f ull reimbursement
against t he part y f or whose honor he pays.
¾ In payment f or honor, t he payee cannot ref use payment .
If he ref uses, he cannot recover f rom t he part ies who
would have been discharged had he accept ed t he same.
In accept ance f or honor, t he holder’ s consent is
necessary.
o The bank’ s manager signs manager’ s check
while cashier’ s check is signed by t he bank
cashier.
2. Cert if ied Check – one drawn by a deposit or upon f unds t o
his credit in a bank which a proper of f icer of t he bank
cert if ies will be paid when duly present ed f or payment
3. St ale check – one which has not been present ed f or
payment wit hin a reasonable t ime af t er it s issue
4. Crossed check – when 2 parallel lines are drawn across
it s f ace or across a corner t hereof . If t he name of a bank
appears bet ween t he parallel lines, t he check is said t o
be speci al l y cr ossed , and payment should be made only
if present ed by t he named bank. If no name appears
bet ween t he parallel lines, t he check is said t o be
gener al l y cr ossed, and payment should be made only
upon present ment by some bank.
Effect s of crossing a check:
a. That t he check may not be encashed but only be
deposit ed in t he bank;
b. That t he check may be negot iat ed only once t o one
who has an account wit h a bank; and
c. That t he act of crossing t he check serves as a

¾
The payor f or honor is given t he right t o receive bot h t he
bill and t he prot est obviously t o enable him t o enf orce
his right s against t he part ies who are liable t o him.
warning t o t he holder t hat t he check has been
issued f or a def init e purpose so t hat he must inquire
if he has received t he check pursuant t o t hat
purpose.

5. Memorandum Check – it is like an ordinary check except

IX. CHECKS
Check - a bill of exchange drawn on a bank payable on
demand.
Check distinguished from and
BILLOF EXCHANGE
Not necessarily drawn
on a deposit . The drawee
need not be a bank.
Deat h of a drawer of a
BOE, wit h t he knowledge
of t he bank, does not
revoke t he aut horit y of t he
drawee t o pay.
May be present ed f or
payment wit hin a
reasonable t ime af t er it s
last negot iat ion because it
may be f urt her negot iat ed.
May be payable on demand
or at a f ixed or
det erminable f ut ure t ime
ordinary bill of exchange
CHECK
It is necessary t hat a check
is drawn on a bank deposit .
The drawee is always a
bank.
Deat h of t he drawer of a
check, wit h t he knowledge
of t he bank, revokes t he
aut horit y of t he banker t o
pay.
Must be present ed f or
payment wit hin a
reasonable t ime af t er it s
issue.
Always payable on demand
t hat t he word “ memorandum, ” “ mem” or “ memo” is
writ t en upon t he f ace of t he check, signif ying t hat t he
drawer engages t o pay t he bona f ide holder absolut ely,
and not upon a condit ion t o pay upon present ment at
mat urit y and if due not ice of t he present ment and non-
payment should be given.
6. Traveler’ s check – one upon which t he holder’ s signat ure
must appear t wice, one t o be af f ixed by him at t he t ime
it is issued and t he second o count er-signat ure, t o be
af f ixed by him in t he presence of t he payee bef ore it is
paid, ot herwise it is incomplet e
Iron Clad Rule: Prohibit s t he count ermanding of
payment of cert if ied checks. ( Republ i c of t he Phi l i ppi nes
v. PNB. GR No. 16106. December 1, 1961)

Kinds of checks:
1. Manager’ s / Cashier’ s Check – drawn by a bank on it self
and t heref ore, it is a primary obligat ion of t he bank.
o It is accept ed in advance by t he act of it s
issuance and is not subj ect to