REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
LECTURE NOTES
NEGOTIABLE INSTRUMENTS
NEGOTIABLE INSTRUMENTS - a written contract for
the payment of money which complies with the
requirements of Sec. 1 of the NIL, which by its form
and on its face, is intended as a substitute for money
and passes from hand to hand as money, so as to give
the holder in due course (HDC) the right to hold the
instrument free from defenses available to prior
parties.
Form of Negotiable Instruments
To determine whether the instrument is negotiable or
not, the following must be considered:
1. The whole of the instrument
2. Those only appear on the face of the instrument
3. Compliance with the requirement under Section 1
of the Act.
The instrument need not follow the language of this
Act, but any terms are sufficient which clearly indicate
an intention to conform to the requirements hereof.
(Sec 10)
Two Distinctive Features of Negotiable
Instrument:
1. NEGOTIABILITY - it is that attribute or property
whereby a bill or note or check may pass from
hand to hand similar to money, so as to give the
holder in due course the right to hold the
instrument and to collect the sum payable for
himself free from defenses.
2. ACCUMULATION OF SECONDARY CONTRACTS secondary contracts are picked up and carried
along with Negotiable Instruments as they are
negotiated from one person to another; or in the
course of negotiation of negotiable instruments, a
series of juridical ties between the parties thereto
arise either by law or by privity. The indorsers
become secondarily liable to the holder.
Instrument with limited negotiability
1. Letter of credit – Payable to specified person.
2. Treasury warrant – Payable out of specific fund or
appropriation, hence conditional
3. Postal money order – Subject to restriction and
limitation under postal laws and regulation. (1
indorsement is allowed)
4. Bill of lading – Not contain an unconditional
promise or order to pay a sum certain in money
5. Certificate of stock - Not contain an unconditional
promise or order to pay a sum certain in money
6. Warehouse receipt - Not contain an unconditional
promise or order to pay a sum certain in money.
7. Quedan - Not contain an unconditional promise or
order to pay a sum certain in money.
8. Now account – Not payable to order or bearer
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Distinction
between
negotiable instruments
NEGOTIABLE
INSTRUMENTS
Must contain all requisites
of Sec.1 of the NIL
Transferable by
negotiation and
assignment.
Holder in due course can
acquire better rights than
his transferor
negotiable
and
non
NON NEGOTIABLE
INSTRUMENTS
Does not contain all
requisites of Sec.1 of the
NIL
Transferable by
assignment only
A transferee acquires no
better right than his
transferor
Prior parties warrant
payment (secondary
liability).
Prior parties do not
warrant payment but
merely the legality of his
title.
Governed by Negotiable
Instrument Law
Negotiable Instrument
Law only applies by
analogy
Transferee is a holder in
due
course.
Transferee is assignee
only.
Defenses generally not
available.
All defenses available
against last transferee
Special form of Promissory note
1. Certificate of deposit – It is a written
acknowledgement by a bank of the receipt of
money on deposit which the bank promises to pay
to the depositors.
2. Bond – It is an evidence of indebtedness issued by
a public or private corporation, promising to pay a
sum of money on a day certain in the future.
a. Registered bond – or one payable only to the
person whose name appears on the face of the
certificate and in the books of the company. –
Non negotiable
b. Coupon bond – or one to which are attached
coupon which entitle the holder to interest
when due. The interest coupon may be
detached and negotiated just like promissory
notes independent of the main instrument.
3. Bank note – It is an instrument issued by a bank
for circulation as money payable to bearer on
demand.
4. Due bill – It is a promissory note which shows on
its face an acknowledgement by a person of his
indebtedness to another.
5. Chattel mortgage note – Note secured by personal
property
6. Real estate mortgage note – Note secured by real
property
7. Title retaining note – Secured by conditional sales
contract which ordinarily provides that the title to
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RFBT3-Negotiable Instruments
the goods shall remain in the payee’s name until
the note is paid in full.
8. Collateral note – It is used when the maker pledge
securities to the payee to secure the payment of
the amount of the note.
9. Judgment note – Note to which is added a power
of attorney enabling the payee to take judgment
against the maker without the formality of a trial if
the note is not paid on its due date.
Other classes of bill of exchange
1. Bank draft – a bill of exchange drawn by a bank
against its branch or another bank.
2. Trade acceptance – a draft or bill of exchange
drawn by a seller on the purchaser of goods and
accepted by the latter by signing it as drawee. If
the instrumnent is drawn against a bank instead of
the purchaser, it is called banker’s acceptance.
Special type of checks
1. Memorandum check check with the word
“memorandum” “mem” or “memo” is written upon
the face of the check, signifying that the drawer
engages to pay the bona fide holder absolutely,
and not upon a condition to pay upon presentment
at maturity and if due notice of the presentment
and non payment should be given.
2. Cashier’s check – Drawn by the cashier of a bank
upon the bank itself and deemed accepted by the
act of issuance.
3. Manager’s check – one drawn by the bank’s
manager upon the bank itself.
4. Traveler’s check – It is one upon which the
holder’s signature must appear twice, one to be
affixed by him at the time it is issued and the
second or countersignature, to be affixed by him
in the presence of the payee before it is paid,
otherwise, it is incomplete.
5. Certified check – One which bears upon its face an
agreement by the drawee bank that the check will
be paid on presentment.
6. Crossed check – One which bears across its face
two parallel lines drawn diagonally, usually on the
upper left side.
7. Stale check – One which has not been presented
for payment within a reasonable time after its
issue. It is valueless and, therefore, should not be
paid.
Effectivity of Act 2031 – Sec
Sec. 1. Form of negotiable
instrument to be negotiable
following requirements:
(a) It must be in writing
maker or drawer;
"Written" includes printed,
print. (Sec 191)
198
instruments. - An
must conform to the
and signed by the
and "writing" includes
Signature
No person is liable on the instrument whose
signature does not appear thereon (Sec. 18)
Exception:
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1. One who signs in a trade or assumed name
will be liable to the same extent as if he had
signed in his own name. (Sec 18, (2))
2. The principal is bound by the signature of his
duly authorized agent (Sec 19)
3. Forgery (Sec 23)
4. Acceptance by the acceptor in a separate
paper (Sec 134)
5. Written promise by a person to accept the bill
before it is drawn. (Sec 135)
Nota bene:
a. Where a signature is so placed upon the
instrument that it is not clear in what capacity
the person making the same intended to sign,
he is to be deemed an indorser; (Sec 17, f)
b. A person placing his signature upon an
instrument otherwise than as maker, drawer,
or acceptor, is deemed to be indorser unless
he clearly indicates by appropriate words his
intention to be bound in some other capacity.
(Sec 63)
(b) Must contain an unconditional promise or
order to pay a sum certain in money;
Unconditional promise
Certainty as to sum
(Sec 3)
(Sec 2)
Unqualified
order
or
promise
to
pay
is
unconditional within the
meaning of this Act
though coupled with:
(a) An indication of a
particular fund out of
which reimbursement
is to be made or a
particular account to
be debited with the
amount; or
(b) A statement of the
transaction
which
gives rise to the
instrument.
But an order or promise
to pay out of a particular
fund is not unconditional.
The sum payable is a sum
certain within the meaning
of this act, although it is to
be paid (a) With interest; or
(b) By stated installments;
or
(c) By stated installments,
with a provision that,
upon
default
in
payment
of
any
installment
or
of
interest, the whole
shall become due; or
(d) With
exchange,
whether at a fixed rate
or at the current rate;
or
(e) With costs of collection
or an attorney's fee, in
case payment shall not
be made at maturity.
(c) Must be payable on demand, or at a fixed or
determinable future time;
Determinable future
Demand (Sec 7)
time (Sec 4)
An instrument is payable
on demand (a)
When
it
is
so
An instrument is payable
at a determinable future
time, within the meaning
of this Act, which is
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RFBT3-Negotiable Instruments
expressed to be payable
on demand, or at sight,
or on presentation; or
Promissory note
(Sec. 184)
Bill of
exchange (Sec
126)
Check (Sec
185)
It must be in
writing and signed
by the maker
It must be in
writing
and
signed by the
drawer
It must be in
writing
and
signed by the
drawer
Must contain an
unconditional
promise to pay a
sum certain in
money
Must contain an
unconditional
order to pay a
sum certain in
money
Must contain an
unconditional
order to pay a
sum certain in
money
Must be payable
(d) Must be payable to order or to bearer; and
on demand, or at
Payable to order (Sec
Payable to bearer (Sec a
fixed
or
8)
9)
determinable
future time
The instrument is payable The instrument is payable
to order where it is drawn to bearer Must be payable
payable to the order of a
to order or to
specified person or to him a. When it is expressed tobearer
be so payable; or
or his order. It may be
b. When it is payable to a
drawn payable to the
person named therein
order of –
or bearer; or
Must be payable
on demand, or at
a
fixed
or
determinable
future time
Must be payable
on demand
Must be payable
to order or to
bearer
Must be payable
to order or to
bearer
Where
the
instrument
is
addressed to a
drawee, he must
be
named
or
otherwise
indicated therein
with reasonable
certainty.
Where
the
instrument
is
addressed to a
bank, it must be
named
or
otherwise
indicated therein
with reasonable
certainty
(b) In which no time for
payment is expressed.
Where an instrument is
issued,
accepted,
or
indorsed when overdue,
it is, as regards the
person
so
issuing,
accepting, or indorsing
it, payable on demand.
(a) A payee who is not
maker, drawer, or
drawee; or
(b) The
drawer
or
maker; or
(c) The drawee; or
(d) Two or more payees
jointly; or
(e) One or some of
several payees; or
(f)
The holder of an
office for the time being.
Where the instrument is
payable to order, the
payee must be named or
otherwise
indicated
therein with reasonable
certainty.
expressed to be payable (a) At a fixed period after
date or sight; or
(b) On or before a fixed
or
determinable
future time specified
therein; or
(c) On or at a fixed
period
after
the
occurrence
of
a
specified event which
is certain to happen,
though the time of
happening
be
uncertain.
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.
Additional provisions not
affecting negotiability (Sec
5)
a.
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable certainty.
A bill may be addressed to two or more drawees
jointly, whether they are partners or not; but not
to two or more drawees in the alternative or in
succession. (Sec 128)
b.
Distinction of requisites of promissory note, bill
of exchange and a check:
d.
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RFBT3
c.
Authorizes the sale of
collateral securities in
case the instrument be
not paid at maturity;
Authorizes a confession
of judgment if the
instrument be not paid
at maturity;
Waives the benefit of
any law intended for
the advantage or
protection of the
obligor;
Gives the holder an
election to require
Omissions; seal;
particular money (Sec
6)
a.
b.
c.
d.
e.
It is not dated;
Does not specify the
value given, or that
any value had been
given therefor;
Does not specify the
place where it is
drawn or the place
where it is payable;
or
Bears a seal;
Designates a
particular kind of
current money in
which payment is to
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RFBT3-Negotiable Instruments
something to be done
in lieu of payment of
money.
be made.

When date may be inserted
a. Where an instrument expressed to be payable
at a fixed period after date is issued undated
(e.g. 30 days after date, pay to the order of X
(Sgd Y)
b. Where the acceptance of an instrument
payable at a fixed period after sight is undated
(e.g. 30 days after sight, pay to the order of X
(sgd Y))
Any holder may insert therein the true date of
issue or acceptance, and the instrument shall be
payable accordingly. The insertion of a wrong date
does not avoid the instrument in the hands of a
subsequent holder in due course; but as to him,
the date so inserted is to be regarded as the true
date.

Where the instrument is not dated, it will be
considered to be dated as of the time it was
issued. (Sec 17,c)
Except where an indorsement bears date after the
maturity of the instrument, every negotiation is
deemed prima facie to have been effected before
the instrument was overdue. (Sec 45)
Material alteration. Any alteration which changes
the: a.) The date; (Sec 124)
* An instrument which
contains an order or
promise to do any act in
addition to the payment of
money is not negotiable.
Provisions on Joint parties
(payees/drawees/indorsers)

Two or more payees jointly. (Sec 8 d)

One or some of several payees. (Sec 8 e)

I promise to pay" is signed by two or more
persons, they are deemed to be jointly and
severally liable thereon. (Sec 17 g)

Where an instrument is 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. (Sec 41)

Joint payees or joint indorsees who indorse are
deemed to indorse jointly and severally. (Sec 68)

Where there are several persons, not partners
(Joint debtors), primarily liable on the instrument
and no place of payment is specified, presentment
must be made to them all (Sec 78)

Notice to joint persons who are not partners must
be given to each of them unless one of them has
authority to receive such notice for the others.
(Sec 100)

A bill may be addressed to two or more drawees
jointly, whether they are partners or not; but not
to two or more drawees in the alternative or in
succession. (Sec 128)

Where a bill is addressed to two or more drawees
who are not partners, presentment must be made
to them all unless one has authority to accept or
refuse acceptance for all, in which case
presentment may be made to him only. (Sec 145)

An indorsement which purports to transfer to two
or more indorsees severally, does not operate as a
negotiation of the instrument. (Sec 32)

Where two or more persons offer to pay a bill for
the honor of different parties, the person whose
payment will discharge most parties to the bill is
to be given the preference. (Sec 174)
Rules on Date:

The validity and negotiable character of an
instrument are not affected by the fact that (a) It
is not dated; (Sec 6)

Where the instrument or an acceptance or any
indorsement thereon is dated, such date is
deemed prima facie to be the true date of the
making, drawing, acceptance, or indorsement, as
the case may be. (Sec 11)

The instrument is not invalid for the reason only
that it is ante-dated or post-dated, provided this is
not done for an illegal or fraudulent purpose. The
person to whom an instrument so dated is
delivered acquires the title thereto as of the date
of delivery. (Sec 12)
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

Construction where instrument is ambiguous.
(Sec 17)
a. Where the sum payable is expressed in words and
also in figures and there is a discrepancy between
the two, the sum denoted by the words is the sum
payable; but if the words are ambiguous or
uncertain, reference may be had to the figures to
fix the amount;
b. Where the instrument provides for the payment of
interest, without specifying the date from which
interest is to run, the interest runs from the date
of the instrument, and if the instrument is
undated, from the issue thereof;
c. Where the instrument is not dated, it will be
considered to be dated as of the time it was
issued;
d. Where there is a conflict between the written and
printed provisions of the instrument, the written
provisions prevail;
e. Where the instrument is so ambiguous that there
is doubt whether it is a bill or note, the holder may
treat it as either at his election;
Instances where the holder may treat the
instrument as bill or notes at his option:
1. Where the instrument is so ambiguous that
there is doubt whether it is a bill or note (Sec
17, e)
2. When the drawer and the drawee is the same
person
3. Where the drawee is a fictitious person
4. When the drawee is a person not having
capacity to contract
f. Where a signature is so placed upon the
instrument that it is not clear in what capacity the
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g.



person making the same intended to sign, he is to
be deemed an indorser;

A person placing his signature upon an
instrument otherwise than as maker, drawer,
or acceptor, is deemed to be indorser unless
he clearly indicates by appropriate words his
intention to be bound in some other capacity.
(Sec 63)
Where an instrument containing the word "I
promise to pay" is signed by two or more persons,
they are deemed to be jointly and severally liable
thereon
A signature by "procuration" operates as notice
that the agent has but a limited authority to sign,
and the principal is bound only in case the agent in
so signing acted within the actual limits of his
authority. (Sec 21)
The indorsement or assignment of the instrument
by a corporation or by an infant passes the
property therein, notwithstanding that from want
of capacity, the corporation or infant may incur no
liability thereon. (Sec 22)
When a signature is forged or made without the
authority of the person whose signature it purports
to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against
any party thereto, can be acquired through or
under such signature, unless the party against
whom it is sought to enforce such right is
precluded from setting up the forgery or want of
authority. (Sec 23)
Cases of forgery
Cases of forgery of negotiable instrument may be
divided as follows:


Promissory note
a. Forgery of the maker’s signature
b. Forgery of the indorser’s signature
Bill of exchange or check
a. Forgery of the drawer’s signature
1. With acceptance by the drawee
2. Without acceptance of the drawee but the
bill is paid by the drawee
b. Forgery of the indorser’s signature
RULES IN CASES OF FORGED
SIGNATURE:

Where the drawer’s signature is forged and the
drawee pays it without having detected the
forgery, he cannot charge the amount thereof to
the drawer’s account. MOREOVER: The drawee
who has paid a forged bill whether previously
accepted or not, is prevented from recovering
from the recipient the amount he paid because he
is bound to know the drawer’s signature.
EXCEPT, if the person to whom it was paid was
guilty of fraud, negligence, or who has not given
value therefore.
RECOURSE: Recover from the forger.
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
Where the payee’s indorsement is forged and the
drawee bank pays it, he cannot charge the
account of the drawer BUT he can recover from
the one to whom he paid since he makes no
warranty as to genuineness of any indorsement.
BUT IF BEARER instrument, the drawee may debit
the drawer’s account since the indorsement may
be disregarded.
HOWEVER: if the DRAWEE’S negligence is the
proximate cause of the payment under a forged
instrument, the drawee is liable to the collecting
bank.
BUT: Where both the drawee and the collecting
banks are guilty of negligence, the degree of
negligence of each shall be weighed in considering
the amount of loss which each should bear.


Where a check has several indorsements on it and
one of the indorser’s signatures is forged, it was
held that it is only the negotiation based on the
forged or unauthorized signature, which is
inoperative. Thus, where the drawee bank paid it
to the encasher, the drawee bank can recover
since the indorser [Sec. 65-66] is supposed to
warrant to the drawee that the signature of the
payee and previous indorsers are genuine. One
who purchases a check is bound to satisfy himself
that the paper is genuine and that by indorsing it
or presenting it for payment, he impliedly assets
that he has performed his duty.
Prior parties are not liable to forgery of signature.
NOTE: CUT-OFF RULE – only if forged signature is
necessary to vest title to subsequent parties will prior
parties be excused from liability.
CONSIDERATION

Every negotiable instrument is deemed prima facie
to have been issued for a valuable consideration;
and every person whose signature appears
thereon to have become a party thereto for value.
(Sec 24)

Value is any consideration sufficient to support a
simple contract. An antecedent or pre-existing
debt constitutes value; and is deemed such
whether the instrument is payable on demand or
at a future time. (Sec 25)

What constitutes holder for value. — Where value
has at any time been given for the instrument, the
holder is deemed a holder for value in respect to
all parties who become such prior to that time.
(Sec 26)

When lien on instrument constitutes holder for
value. — Where the holder has a lien on the
instrument arising either from contract or by
implication of law, he is deemed a holder for value
to the extent of his lien. (Sec 27)

Effect of want of consideration. — Absence or
failure of consideration is a matter of defense as
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
against any person not a holder in due course; and
partial failure of consideration is a defense pro
tanto, whether the failure is an ascertained and
liquidated amount or otherwise. (Sec 28)
An accommodation party is one who has signed
the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for
the purpose of lending his name to some other
person. Such a person is liable on the instrument
to a holder for value, notwithstanding such holder,
at the time of taking the instrument, knew him to
be only an accommodation party. (Sec. 29)
NEGOTIATION
Mode of transfer of negotiable instruments
a.
b.
c.
Issue - means the first delivery of the instrument,
complete in form, to a person who takes it as a
holder; (Sec 191)
Negotiation - An instrument is negotiated when it
is transferred from one person to another in such
manner as to constitute the transferee the holder
thereof. (Sec 30)
Instrument
Negotiation
Payable to bearer
Delivey
Payable to order
Indorsement + Delivery
Assignment – Transfer of order instrument without
indorsement.
Instrument payable to bearer

Where an instrument, payable to bearer, is
indorsed specially, it may nevertheless be further
negotiated by delivery; but the person indorsing
specially is liable as indorser to only such holders
as make title through his indorsement. (Sec 40)

The holder may at any time strike out any
indorsement which is not necessary to his title.
The indorser whose indorsement is struck out, and
all indorsers subsequent to him, are thereby
relieved from liability on the instrument. (Sec 48)

Where a person places his indorsement on an
instrument negotiable by delivery, he incurs all the
liability of an indorser. (Sec. 67)

Every person negotiating an instrument by
delivery warrants:
(a) That the instrument is
genuine and in all respects what it purports to be;
(b) That he has a good title to it; (c) That all prior
parties had capacity to contract;;(d) That he has
no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
The warranty however, extends in favor of no
holder other than the immediate transferee. (Sec
65)
Indorsement
1. Indorsement means an indorsement completed by
deliver (Sec 191)
2. The indorsement must be written on the
instrument itself or upon paper attached thereto
(allonged) (Sec 31)
3. The indorsement must be an indorsement of the
entire instrument.
Tenor of the Instrument: Pay to the order of X
P10,000 (Sgd Y)
a.
b.
Pay to A P8,000 – Partial indorsement
Pay to A P5,000 and B P5,000 (Sgd X) – two
or more indorsee severally
Exception: When the instrument has been paid in
part, it may indorsed as to the residue.
Allowed indorsement:
a. Pay to A and B
b. Pay to A or B
Distinction between negotiation and assignment
Negotiation
Assignment
Only negotiable
Ordinary contract
instrument
Transferee is a holder
Transferee is an assignee
Holder in due course
Assignee merely step into
acquire better title than
the shoes of his transferor
his transferor
Holder in due course is
Assignee is subject to
subject to real defense
personal and real defense
only
General indorser warrants Assignor does not warrant
the solvency of prior
the solvency of prior
parties
parties
Governed by Negotiable
Governed by Civil code on
instrument law
assignment of credits.
Kinds of Indorsement
1. Special (Sec 34) – specify the indorsee
2. Blank (ibid) – specify no indorsee
3. Restrictive
1. Prohibit further negotiation (i.e. Pay to “A
ony”; “A and no other person”)
2. Constitute the indorsee the agent of the
indorser (i.e., pay to A for “Collecton”;
“collection or remittance”; “collection only”;
“deposit”)
3. Vests the title in the indorsee in trust for
another (i.e., Pay to A “in trust for B”; as
trustee for B”; “for my use”; for the use of B”)
But all subsequent indorsees acquire only the title
of the first indorsee under the restrictive
indorsement. (Sec 36)
Effect: (Sec 37)
1.) Receive payment
2.) Bring any action thereon that the indorser
could bring;
3.) Transfer his rights as such indorsee, where the
form of the indorsement authorizes him to do
so.
Note: Only restrictive indorsement which prohibit
the further negotiation of the instrument rendered
the instrument non negotiable.
4. Non restrictive
Page 6 of 17
RFBT3
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
5. Qualified – Constitute the indorser as a mere
assignor of the title to the instrument. (i.e. Pay to
A “without recourse”; “indorser not holder”; sans
recourse”; “at indorsee’s own risk”; “indorser not
holder”. (Sec 38) Such an indorsement does not
impair the negotiable character of the instrument.
6. Unqualified or general – no condition
7. Conditional – Where an indorsement is conditional,
the party required to pay the instrument may
disregard the condition and make payment to the
indorsee or his transferee whether the condition
has been fulfilled or not. But any person to whom
an instrument so indorsed is negotiated will hold
the same, or the proceeds thereof, subject to the
rights of the person indorsing conditionally. (Sec
39)
8. Unconditional
9. Joint - Where an instrument is 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.
(Sec 41)
10. Successive - Where an instrument is negotiated
back to a prior party, such party may, subject to
the provisions of this Act, reissue and further
negotiable the same. But he is not entitled to
enforce payment thereof against any intervening
party to whom he was personally liable. (Sec 50)
As respects one another, indorsers are liable prima
facie in the order in which they indorse; but
evidence is admissible to show that, as between or
among themselves, they have agreed otherwise.
(Sec 68)
11. Irregular or anomalous - Where a person, not
otherwise a party to an instrument, places thereon
his signature in blank before delivery, he is liable
as indorser, in accordance with the following rules:
(Sec 64)
a. If the instrument is payable to the order of a
third person, he is liable to the payee and to
all subsequent parties.
b. If the instrument is payable to the order of the
maker or drawer, or is payable to bearer, he is
liable to all parties subsequent to the maker or
drawer.
c. If he signs for the accommodation of the
payee, he is liable to all parties subsequent to
the payee.
12. Facultative (Sec 111)
Holder
1. Holder – means a payee or indorsee of a bill or a
note who, is in possession of it, or the bearer
thereof. (Sec 191)
In the hands of any holder other than a holder in
due course, a negotiable instrument is subject to
the same defenses as if it were non-negotiable.
(Sec. 58)
2. Holder in due course (Sec 52)
Holder who has taken the instrument under the
following condition:
Page 7 of 17
RFBT3
a.
b.
That it is complete and regular upon its face;
That he became the holder of it before it was
overdue, and without notice that it has been
previously dishonored, if such was the fact;
c. That he took it in good faith and for value;
d. That at the time it was negotiated to him, he
had no notice of any infirmity in the
instrument or defect in the title of the person
negotiating it.
* Every holder is deemed prima facie to be a
holder in due course.
Exception: 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. (Sec 59)
Right of a holder in due course
a. He may sue in its own name; (Sec 51)
b. A holder in due course holds the instrument
free from any defect of title of prior parties,
c. Free from defenses available to prior parties
among themselves; (Sec 57)
d. May enforce payment of the instrument for the
full amount thereof against all parties liable
thereon. (Sec 57) and payment to hi in due
course discharged the instrument. (Sec 51)
3. Holder for value (Sec 26) – Where value has at
any time given for the instrument.
4. Partial holder in due course (Sec 54)
Where the transferee receives notice of any
infirmity in the instrument or defect in the title of
the person negotiating the same before he has
paid the full amount agreed to be paid therefor, he
will be deemed a holder in due course only to the
extent of the amount therefore paid by him.
5. Holder in due course by subrogation (Sec 58)
A holder who derives his title through a holder in
due course, and who is not himself a party to any
fraud or illegality affecting the instrument, has all
the rights of such former holder in respect of all
parties prior to the latter.
Classification of parties according to liability
Parties to a negotiable instrument (e.g. promissory
note, bill of exchange and checks) are classified
according to their liability as follows:
1. Primarily liable
Maker of a promissory note (Sec 60)
Acceptor of a bill of exchange (Sec. 62)
Certifier of a check (Sec. 187)
2. Secondarily liable
Drawer of a bill (Sec. 61)
General indorser of a bill or note (Sec. 66)
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
Acceptor for honor (Sec 165)
3. Not liable on the instrument
a. Drawee of a bill unless he accepts the bill.
A bill of itself does not operate as
assignment of the funds in the hands of
drawee available for the payment thereof,
the drawee is not liable on the bill unless
until he accepts the same. (Sec 127)
b.
an
the
and
and
Drawee bank in a check unless it accepts or
certifies the check.
A check of itself does not operate as an
assignment of any part of the funds to the
credit of the drawer with the bank, and the
bank is not liable to the holder unless and until
it accepts or certifies the check. (Sec. 189)
Condition of Drawer for Secondary liability (Sec
61)
1. That the bill is presented for acceptance (Sec.
143) when required or presented for payment
(Sec. 70), as the case may be, to the drawer.
2. That the bill is dishonored by non acceptance (Sec.
149) or non payment (Sec 83) as the case may
be.
3. That the necessary proceedings on dishonor be
duly taken such as notice of dishonor is given to
the drawer or in case of a foreign bills, protest is
made followed by a notice of protest. (Sec 152)
Condition of General indorser for Secondary
liability (Sec. 66)
1. That the instrument is presented for acceptance
(Sec. 143) when required or presented for
payment (Sec. 70), as the case may be, to the
drawer.
2. That the instrument is dishonored by non
acceptance (Sec. 149) or non payment (Sec 83) as
the case may be.
3. That the necessary proceedings on dishonor be
duly made .
Non acceptance (Sec
Non payment (Sec 83)
149)
A bill is dishonored by
nonacceptance —
(a)
When it is duly
presented for acceptance
and such an acceptance
as is prescribed by this
Act is refused or can not
be obtained; or
(b)
When
presentment
acceptance is
and the bill
accepted.
Page 8 of 17
RFBT3
for
excused
is not
The
instrument
dishonored
by
payment when:
is
non-
(a)
It
is
duly
presented for payment and
payment is refused or
cannot be obtained; or
(b)
Presentment
is
excused
and
the
instrument is overdue and
unpaid.
Distinction between Maker and Drawer
Maker
Drawer
Party to a Promissory note
Party
to
exchange
a
bill
Primary liable
Secondary liable
Cannot limit his liability
Can limit his liability
Unconditionally bound to
pay the instrument
Conditionally bound
pay the instrument
of
to
Distinction between Maker and Acceptor
Maker
Acceptor
Party
note
to
a
promissory
Party to a bill of exchange
Engage
to
pay
the
instrument according to
its tenor
Engage
to
pay
the
instrument according to its
acceptance.
Do
not
admit
the
existence of the drawer.
Admit the existence of the
drawer, the genuineness
of his signature, and his
capacity and authority to
draw the instrument
Distinction between qualified indorser (Sec. 65)
and general indorser (Sec. 66)
Qualified indorser
General indorser
(Sec 65)
1. That the instrument
is genuine and in all
respects
what
it
purports to be;
2. That he has a good
title to it;
3. That all prior parties
had
capacity
to
contract
Warrant that he has no
knowledge of any fact
which would impair the
validity
of
the
instrument or render it
valueless
There is no secondary
liability.
Defenses
(Sec 66)
Same
Warrant
that
the
instrument is, at the time
of
his
indorsement,
valid and subsisting
There is secondary liability.
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
1. Real defense – are defense that are available
against all parties including a holder in due course
because the defect is attached to the res or
instrument itself.
2. Personal defense – are defenses available to prior
parties among themselves but not against a holder
in due course.
Personal Defense
Real defense
Incomplete but delivered
(Sec 14)
Incomplete and
undelivered (Sec 15)
Complete but undelivered
(Sec 16)
Indorsement by infant or
corporation (available to
minor or corporation
only) (Sec 22)
Insertion of a wrong date
(Sec 13)
Forgery (Sec 23)
Ante date or post dated
(Sec 12)
Want of authority,
apparent and real (Sec
23)
Absence or failure of
consideration (Sec 28)
Material alteration (Sec
124)
Simple fraud or fraud in
inducement (Sec 55)
Prescription
Acquisition of instrument
by fraud, duress, or force
and fear
Fraud in factum or fraud
in esse contractus
Acquisition of instrument
by unlawful means
Acquisition of instrument
for an illegal consideration
By negotiation of the
instrument in breach of
faith
By negotiation under
circumstances that
amount to fraud.

Incomplete but delivered - Where the
instrument is wanting in any material particular,
the person in possession thereof has a prima facie
authority to complete it by filling up the blanks
therein. And a signature on a blank paper
delivered by the person making the signature in
order that the paper may be converted into a
negotiable instrument operates as a prima facie
authority to fill it up as such for any amount. In
order, however, that any such instrument when
completed may be enforced against any person
Page 9 of 17
RFBT3


who became a party thereto prior to its
completion, it must be filled up strictly in
accordance with the authority given and within a
reasonable time. But if any such instrument, after
completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in
his hands, and he may enforce it as if it had been
filled up strictly in accordance with the authority
given and within a reasonable time. (Sec 14)
Incomplete and undelivered - Where an
incomplete instrument has not been delivered, it
will not, if completed and negotiated without
authority, be a valid contract in the hands of any
holder, as against any person whose signature was
placed thereon before delivery. (Sec. 15)
Complete but undelivered - Every contract on a
negotiable instrument is incomplete and revocable
until delivery of the instrument for the purpose of
giving effect thereto. As between immediate
parties and as regards a remote party other than a
holder in due course, the delivery, in order to be
effectual, must be made either by or under the
authority of the party making, drawing, accepting,
or indorsing, as the case may be; and, in such
case, the delivery may be shown to have been
conditional, or for a special purpose only, and not
for the purpose of transferring the property in the
instrument. But where the instrument is in the
hands of a holder in due course, a valid delivery
thereof by all parties prior to him so as to make
them liable to him is conclusively presumed. And
where the instrument is no longer in the
possession of a party whose signature appears
thereon, a valid and intentional delivery by him is
presumed until the contrary is proved. (Sec. 16)
Summary on Presentment for payment
General Rule: Presentment for payment is not
necessary to charge the person primarily liable but it is
necessary to charge the Drawer and Indorser.
Exception:
a. Drawer - The drawer has no right to expect or
require that the drawee or acceptor will pay the
instrument. (Sec 79)
b. Indorser – The instrument was made or accepted
for indorser accomodation and he has no reason to
expect that the instrument will be paid if
presented. (Sec 80)
c. When presentment is dispensed with (Sec 82)
1. Presentment cannot be made after exercise of
reasonable diligence
2. Drawee is a fictitious person
3. Waiver f presentment, express or implied
d. When the bill is dishonored by non acceptance
(Sec 151)
Requisites for sufficient presentment
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. (Sec 74)
By
Holder or person authorized to received
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
Whom
payment on his behalf
To whom
General Rule:
Person primarily liable or in his
absence, any person found at the
place where presentment is made.
Exception: When no place of payment is
specified
-
When
1. When principal debtor Dead (Sec. 76)
o Personal representative if there be,
and if, with the exercise of
reasonable diligence he can be
found.
2. Persons liable as Partners (Sec 77)
o Any partner
3. Joint Debtor (Sec 78)
o Each of them
1. Not payable on demand (Sec 71)
a. On the day it falls due
2. Payable on demand
a. Promissory note – Reasonable time
after its issue
b. Bill of exchange – Reasonable time
after the last negotiation
3. Payable at bank (Sec 75)
c. Has fund - during banking
hours
d. No funds to meet it at any
time during the day – Any
hour before the bank is closed
It is equivalent to an order to the bank to
pay the same for the account of the
principal debtor. (Sec 87)
Time of maturity (Sec 85)
1. Time fixed – At the time fixed without
grace
2. Maturity fall on Sunday, holiday – next
succeeding business day
3. Maturity fall on Saturday
a. Payable on demand – Before
12:00 noon if Saturday is not a
holiday
b. Not payable on demand - next
succeeding business day
Note: The time of payment is determined
by excluding the day from which the time
is to begin to run, and by excluding the
date of payment.
Where
1. Place of payment specified – Place
specified (Sec 73)
2. Place not specified but the address of
the person to make is given - Address
indicated in the instrument;
3. Place of payment and address not
given – Usual place of business or
Page 10 of 17
RFBT3
residence of the person to make
payment.
4. Other cases – Where the person to
make payment he can be found or if
presented at his last known place of
business or residence.
Dishonored by non payment (Sec 83)
a. Duly presented for payment and payment is
refused or cannot be obtained.
b. Presentment is excused and the instrument is
overdue and unpaid.
Effect: Subject to the provision of the act, an
immediate right of recourse to all parties secondary
liable thereon accrues to the holder. (Sec 84)
Notice of Dishonor
General Rule:
When a negotiable instrument has been dishonored by
non-acceptance or non-payment, notice of dishonor
must be given to the drawer and to each indorser,
and any drawer or indorser to whom such notice
is not given is discharged.
Exception:
1. Notice of dishonor is waived (Sec 109)
Notice of dishonor may be waived either before
the time of giving notice has arrived or after the
omission to give due notice, and the waiver may
be expressed or implied.
2. Protest is waived (Sec 111)
A waiver of protest, whether in the case of a
foreign bill of exchange or other negotiable
instrument, is deemed to be a waiver not only of a
formal protest but also of presentment and notice
of dishonor.
3. Notice is dispensed with (Sec 112)
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
Notice of dishonor is dispensed with when, after
the exercise of reasonable diligence, it cannot be
given to or does not reach the parties sought to be
charged.
4. To the drawer (Sec 114)
Notice of dishonor is not required to be given to
the drawer in either of the following cases:
a. Where the drawer and drawee are the same
person;
b. When the drawee is fictitious person or a
person not having capacity to contract;
c. When the drawer is the person to whom the
instrument is presented for payment;
d. Where the drawer has no right to expect or
require that the drawee or acceptor will honor
the instrument;
e. Where the drawer has countermanded
payment.
5. To the indorser (Sec 115)
Notice of dishonor is not required to be given to an
indorser in either of the following cases:
a. When the drawee is a fictitious person or
person not having capacity to contract, and
the indorser was aware of that fact at the time
he indorsed the instrument;
b. Where the indorser is the person to whom the
instrument is presented for payment;
c. Where the instrument was made or accepted
for his accommodation.
6. Due notice of dishonor by non acceptance has
been given (Sec 116)
Where due notice of dishonor by non-acceptance
has been given, notice of a subsequent dishonor
by non-payment is not necessary unless in the
meantime the instrument has been accepted
notice to his principal. If he gives notice to his
principal, he must do so within the same time as if
he were the holder, and the principal, upon the
receipt of such notice, has himself the same time
for giving notice as if the agent had been an
independent holder. (Sec. 94)
Summary on Notice of Dishonor
By
By or on behalf of the holder, or by or on
behalf of any party to the instrument who
Whom
might be compelled to pay it to the holder.
(Sec 90)
To whom
Party himself
Duly authorized agent
Exception:
When
7. An omission to give notice of dishonor by nonacceptance does not prejudice the rights of a
holder in due course subsequent to the omission
(Sec 117)
Delay in giving notice of dishonor
Delay in giving notice of dishonor is excused when the
delay is caused by circumstances beyond the control
of the holder and not imputable to his default,
misconduct, or negligence. When the cause of delay
ceases to operate, notice must be given with
reasonable diligence. (Sec 113)



Where notice is given by or on behalf of the
holder, it inures to the benefit of all subsequent
holders and all prior parties who have a right of
recourse against the party to whom it is given.
(Sec. 92)
Where notice is given by or on behalf of a party
entitled to give notice, it inures to the benefit of
the holder and all parties subsequent to the party
to whom notice is given. (Sec. 93)
Where the instrument has been dishonored in the
hands of an agent, he may either himself give
notice to the parties liable thereon, or he may give
Page 11 of 17
RFBT3
General Rule:
Where
1. When party is Dead (Sec. 98)
o Personal representative
o Last residence or last place of
business
2. Notice to partner (Sec 99)
o Any partner
3. Joint person (Sec 100)
o Each of them
4. Bankrupt/insolvent (Sec 101)
o Party himself, or
o Trustee or assignee
1. Parties residing in the same place (Sec
103)
b. If given at the place of business of
the person to receive notice, it
must be given before the close of
business hours on the day
following.
c. If given at his residence, it must
be given before the usual hours of
rest on the day following.
d. If sent by mail, it must be
deposited in the post office in time
to reach him in usual course on
the day following
2. Parties not residing in the same place
(Sec 104)
c. If sent by mail, it must be
deposited in the post office in time
to go by mail the day following the
day of dishonor, or if there be no
mail at a convenient hour on last
day, by the next mail thereafter.
d. If given otherwise than through
the post office, then within the
time that notice would have been
received in due course of mail, if it
had been deposited in the post
office within the time specified in
the last subdivision.
1. Address given - Address indicated in
the instrument;
2. Address not given
a. Either to the post-office nearest to
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
b.
c.
his place of residence or to the
post-office where he is accustomed
to receive his letters; or
If he lives in one place and has his
place of business in another,
notice may be sent to either place;
or
If he is sojourning in another
place, notice may be sent to the
place where he is so sojourning.
(Sec 108)
DISCHARGEOF NEGOTIABLE INSTRUMENTS
Discharge of instrument - a release of all parties,
whether primary or secondary, from the obligations
arising thereunder. It renders the instrument without
force and effect and, consequently, it can no longer be
negotiated.




A negotiable instrument is discharged: (Sec 119)
a. By payment in due course by or on behalf of
the principal debtor;
b. By payment in due course by the party
accommodated, where the instrument is made
or accepted for his accommodation;
c. By the intentional cancellation thereof by the
holder;
d. By any other act which will discharge a simple
contract for the payment of money;
e. When the principal debtor becomes the holder
of the instrument at or after maturity in his
own right.
A person secondarily liable on the instrument is
discharged: (Sec 120)
a. By any act which discharges the instrument;
b. By the intentional cancellation of his signature
by the holder;
c. By the discharge of a prior party;
d. By a valid tender or payment made by a prior
party;
e. By a release of the principal debtor unless the
holder's right of recourse against the party
secondarily liable is expressly reserved;
f. By any agreement binding upon the holder to
extend the time of payment or to postpone the
holder's right to enforce the instrument unless
made with the assent of the party secondarily
liable or unless the right of recourse against
such party is expressly reserved.
Spoliation – alteration made by a stranger.
Where the instrument is paid by a party
secondarily liable thereon, it is not discharged; but
the party so paying it is remitted to his former
rights as regard all prior parties, and he may strike
out his own and all subsequent indorsements and
against negotiate the instrument, except:
a. Where it is payable to the order of a third
person and has been paid by the drawer; and
b. Where it was made or accepted for
accommodation and has been paid by the
party accommodated.
Page 12 of 17
RFBT3

The holder may expressly renounce his rights
against any party to the instrument before, at, or
after its maturity. An absolute and unconditional
renunciation of his rights against the principal
debtor made at or after the maturity of the
instrument discharges the instrument. But a
renunciation does not affect the rights of a holder
in due course without notice. A renunciation must
be in writing unless the instrument is delivered up
to the person primarily liable thereon. (Sec 122)
Effects of Renunciation:
1. A renunciation in favor of a secondary party may
be made by the holder before, at or after maturity
of the instrument.
Effect: only such secondary party is discharged
and all parties subsequent to him but the
instrument itself remains in force.
2. A renunciation in favor of the principal debtor may
be effected at or after maturity.
Effect: the instrument is discharged and all parties
thereto provided the renunciation is made



A cancellation made unintentionally or under a
mistake or without the authority of the holder, is
inoperative but where an instrument or any
signature thereon appears to have been cancelled,
the burden of proof lies on the party who alleges
that the cancellation was made unintentionally or
under a mistake or without authority. (Sec 123)
Where a negotiable instrument is materially
altered without the assent of all parties liable
thereon, it is avoided, except as against a party
who has himself made, authorized, or assented to
the alteration and subsequent indorsers. But when
an instrument has been materially altered and is in
the hands of a holder in due course not a party to
the alteration, he may enforce payment thereof
according to its original tenor. (Sec. 124)
What constitutes a material alteration Any
alteration which changes:
a. The date;
b. The sum payable, either for principal or
interest;
c. The time or place of payment:
d. The number or the relations of the parties;
e. The medium or currency in which payment is
to be made;
f. Or which adds a place of payment where no
place of payment is specified, or any other
change or addition which alters the effect
of the instrument in any respect, is a
material alteration.
BILL OF EXCHANGE

An inland bill of exchange is a bill which is, or on
its face purports to be, both drawn and payable
within the Philippines. Any other bill is a foreign
bill. Unless the contrary appears on the face of the
bill, the holder may treat it as an inland bill. (Sec
129)
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments

The drawer of a bill and any indorser may insert
thereon the name of a person to whom the holder
may resort in case of need; that is to say, in case
the bill is dishonored by non-acceptance or nonpayment. Such person is called a referee in case of
need. It is in the option of the holder to resort to
the referee in case of need or not as he may see
fit. (Sec 131)
Acceptance

The acceptance of a bill is the signification by the
drawee of his assent to the order of the drawer.
The acceptance must be in writing and signed by
the drawee. It must not express that the drawee
will perform his promise by any other means than
the payment of money. (Sec 132)

The holder of a bill presenting the same for
acceptance may require that the acceptance be
written on the bill, and, if such request is refused,
may treat the bill as dishonored. (Sec 133)

Where an acceptance is written on a paper other
than the bill itself, it does not bind the acceptor
except in favor of a person to whom it is shown
and who, on the faith thereof, receives the bill for
value. (Sec 134)

The drawee is allowed twenty-four hours after
presentment in which to decide whether or not he
will accept the bill; the acceptance, if given, dates
as of the day of presentation. (Sec 136)

Where a drawee to whom a bill is delivered for
acceptance destroys the same, or refuses within
twenty-four hours after such delivery or within
such other period as the holder may allow, to
return the bill accepted or non-accepted to the
holder, he will be deemed to have accepted
the same. (Sec 137)

A bill may be accepted before it has been signed
by the drawer, or while otherwise incomplete, or
when it is overdue, or after it has been dishonored
by a previous refusal to accept, or by non
payment. But when a bill payable after sight is
dishonored by non-acceptance and the drawee
subsequently accepts it, the holder, in the absence
of any different agreement, is entitled to have the
bill accepted as of the date of the first
presentment. (Sec 138)

Kinds of acceptance (Sec 139)
a. General acceptance. — assents without
qualification to the order of the drawer. An
acceptance to pay at a particular place is a
general acceptance unless it expressly states
that the bill is to be paid there only and not
elsewhere. (Sec 140)
b. Qualified acceptance
- An acceptance is
qualified which is: (Sec 141)
1. Conditional - that is to say, which makes
payment by the acceptor dependent on the
fulfillment of a condition therein stated;
2. Partial - that is to say, an acceptance to pay
part only of the amount for which the bill is
drawn;
3. Local - that is to say, an acceptance to pay
only at a particular place;
Page 13 of 17
RFBT3

4. Qualified as to time;
5. The acceptance of some, one or more of the
drawees but not of all.
The holder may refuse to take a qualified
acceptance and if he does not obtain an
unqualified acceptance, he may treat the bill as
dishonored by non-acceptance. Where a qualified
acceptance is taken, the drawer and indorsers are
discharged from liability on the bill unless they
have expressly or impliedly authorized the holder
to take a qualified acceptance, or subsequently
assent thereto. When the drawer or an indorser
receives notice of a qualified acceptance, he must,
within a reasonable time, express his dissent to
the holder or he will be deemed to have assented
thereto. (Sec 142)
PRESENTMENT FOR ACCEPTANCE

Presentment for acceptance must be made: (Sec
143)
a. Where the bill is payable after sight, or in any
other case, where presentment for acceptance
is necessary in order to fix the maturity of the
instrument; or
b. Where the bill expressly stipulates that it shall
be presented for acceptance; or
c. Where the bill is drawn payable elsewhere
than at the residence or place of business of
the drawee.
In no other case is presentment for acceptance
necessary in order to render any party to the bill
liable.
General Rule:
The holder of a bill which is required to present it for
acceptance must either present it for acceptance or
negotiate it within a reasonable time. If he fails to do
so, the drawer and all indorsers are discharged.
Exception:
Presentment for acceptance is excused and a bill may
be treated as dishonored by non-acceptance in either
of the following cases: (Sec 148)
a.
b.
c.

Where the drawee is dead, or has absconded, or is
a fictitious person or a person not having capacity
to contract by bill.
Where, after the exercise of reasonable diligence,
presentment can not be made.
Where, although presentment has been irregular,
acceptance has been refused on some other
ground.
Presentment for acceptance must be made by or
on behalf of the holder at a reasonable hour, on a
business day and before the bill is overdue, to the
drawee or some person authorized to accept or
refuse acceptance on his behalf; and (Sec 145)
a. Where a bill is addressed to two or more
drawees who are not partners, presentment
must be made to them all unless one has
authority to accept or refuse acceptance for
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments

all, in which case presentment may be made
to him only;
b. Where the drawee is dead, presentment may
be made to his personal representative;
c. Where the drawee has been adjudged a
bankrupt or an insolvent or has made an
assignment for the benefit of creditors,
presentment may be made to him or to his
trustee or assignee.
A bill may be presented for acceptance on any day
on which negotiable instruments may be
presented for payment under the provisions of
Sections seventy-two and eighty-five of this Act.
When Saturday is not otherwise a holiday,
presentment for acceptance may be made before
twelve o'clock noon on that day. (Sec 146)
Sec.
72.
What
constitutes
a
sufficient
presentment. — Presentment for payment, to be
sufficient, must be made:
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.
Sec 85. Time of maturity. — Every negotiable
instrument is payable at the time fixed therein
without grace. When the day of maturity falls upon
Sunday or a holiday, the instruments falling due or
becoming payable on Saturday are to be
presented for payment on the next succeeding
business day except that instruments payable on
demand may, at the option of the holder, be
presented for payment before twelve o'clock noon
on Saturday when that entire day is not a holiday..



Where the holder of a bill drawn payable
elsewhere than at the place of business or the
residence of the drawee has no time, with the
exercise of reasonable diligence, to present the bill
for acceptance before presenting it for payment on
the day that it falls due, the delay caused by
presenting the bill for acceptance before
presenting it for payment is excused and does not
discharge the drawers and indorsers. (Sec 147)
Where a bill is duly presented for acceptance and
is not accepted within the prescribed time, the
person presenting it must treat the bill as
dishonored by nonacceptance or he loses the right
of recourse against the drawer and indorsers. (Sec
150)
When a bill is dishonored by nonacceptance, an
immediate right of recourse against the drawer
and indorsers accrues to the holder and no
presentment for payment is necessary. (Sec 151)
PROTEST
General Rule:
Page 14 of 17
RFBT3
Where a foreign bill appearing on its face to be such is
dishonored by nonacceptance, it must be duly
protested for nonacceptance, by nonacceptance is
dishonored and where such a bill which has not
previously been dishonored by nonpayment, it must
be duly protested for nonpayment. If it is not so
protested, the drawer and indorsers are
discharged. Where a bill does not appear on its face
to be a foreign bill, protest thereof in case of dishonor
is unnecessary. (Sec 152)
Exception:
Protest is dispensed with by any circumstances which
would dispense with notice of dishonor.
A notice of dishonor is dispensed with when, after the
exercise of reasonable diligence, it cannot be given to
or does not reach the parties sought to be charged.
(Sec 112)
Delay in noting or protesting is excused when
delay is:
1. Caused by circumstances beyond the control of the
holder and not imputable to his default,
misconduct, or negligence.
2. When the cause of delay ceases to operate, the bill
must be noted or protested with reasonable
diligence
Summary on PROTEST
The protest must be annexed to the bill
How
or must contain a copy thereof, and
must be under the hand and seal of the
notary making it and must specify:
(a)
The
time
presentment;
and
place
of
(b)
The fact that presentment was
made and the manner thereof;
(c)
The
cause
protesting the bill;
or
reason
for
(d)
The demand made and the
answer given, if any, or the fact that the
drawee or acceptor could not be found.
(Sec 153)
By whom
Protest may be made by — (Sec 154)
(a)
A notary public; or
(b)
By any respectable resident of
the place where the bill is dishonored, in
the presence of two or more credible
witnesses
When
When a bill is protested, such protest
must be made on the day of its dishonor
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
unless delay is excused as herein
provided. When a bill has been duly
noted, the protest may be subsequently
extended as of the date of the noting.
(Sec 155)
Where



A bill must be protested at the place
where it is dishonored, except that when
a bill drawn payable at the place of
business or residence of some person
other than the drawee has been
dishonored by nonacceptance, it must be
protested for non-payment at the place
where it is expressed to be payable, and
no further presentment for payment to,
or demand on, the drawee is necessary.
(Sec 156)
A bill which has been protested for non-acceptance
may be subsequently protested for non-payment.
(Sec 157)
Protest before maturity where acceptor insolvent.
— Where the acceptor has been adjudged a
bankrupt or an insolvent or has made an
assignment for the benefit of creditors before the
bill matures, the holder may cause the bill to be
protested for better security against the drawer
and indorsers. (Sec. 158)
When a bill is lost or destroyed or is wrongly
detained from the person entitled to hold it,
protest may be made on a copy or written
particulars thereof. (Sec 160)
ACCEPTANCE FOR HONOR
Sec. 161. When bill may be accepted for honor. —
When a bill of exchange has been protested for
dishonor by non-acceptance or protested for better
security and is not overdue, any person not being a
party already liable thereon may, with the consent of
the holder, intervene and accept the bill supra protest
for the honor of any party liable thereon or for the
honor of the person for whose account the bill is
drawn. The acceptance for honor may be for part only
of the sum for which the bill is drawn; and where
there has been an acceptance for honor for one party,
there may be a further acceptance by a different
person for the honor of another party.
Sec. 162. Acceptance for honor; how made. — An
acceptance for honor supra protest must be in writing
and indicate that it is an acceptance for honor and
must be signed by the acceptor for honor.
Sec. 163. When deemed to be an acceptance for honor
of the drawer. — Where an acceptance for honor does
not expressly state for whose honor it is made, it is
Page 15 of 17
RFBT3
deemed to be an acceptance for the honor of the
drawer.
Sec. 164. Liability of the acceptor for honor. — The
acceptor for honor is liable to the holder and to all
parties to the bill subsequent to the party for whose
honor he has accepted.
Sec. 165. Agreement of acceptor for honor. — The
acceptor for honor, by such acceptance, engages that
he will, on due presentment, pay the bill according to
the terms of his acceptance provided it shall not have
been paid by the drawee and provided also that is
shall have been duly presented for payment and
protested for non-payment and notice of dishonor
given to him.
Sec. 166. Maturity of bill payable after sight; accepted
for honor. — Where a bill payable after sight is
accepted for honor, its maturity is calculated from the
date of the noting for non-acceptance and not from
the date of the acceptance for honor.
Sec. 167. Protest of bill accepted for honor, and so
forth. — Where a dishonored bill has been accepted
for honor supra protest or contains a referee in case of
need, it must be protested for non-payment before it
is presented for payment to the acceptor for honor or
referee in case of need.
Sec. 168. Presentment for payment to acceptor for
honor, how
made. — Presentment for payment to the acceptor for
honor must be made as follows:
(a)
If it is to be presented in the place where the
protest for non-payment was made, it must be
presented not later than the day following its maturity.
(b)
If it is to be presented in some other place
than the place where it was protested, then it must be
forwarded within the time specified in Section one
hundred and four.
Sec. 169. When delay in making presentment is
excused. — The provisions of Section eighty-one apply
where there is delay in making presentment to the
acceptor for honor or referee in case of need.
Sec. 170. Dishonor of bill by acceptor for honor. —
When the bill is dishonored by the acceptor for honor,
it must be protested for non-payment by him.
XIV — PAYMENT FOR HONOR
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
Payment for Honor - payment made by a person,
whether a party to the bill or not, after it has been
protested for non-payment, for the benefit of any
party liable thereon or for the benefit of the person for
whose account it was drawn. (Secs. 171-177)
Requisites:
1. the bill has been dishonored by nonpayment
2. it has been protested for non-payment;
3. payment supra protest (another term for payment
for honor because prior protest for non-payment is
required) is made by any person, even by a party
thereto;
4. the payment is attested by a notarial act of honor
which must be appended to the protest or form an
extension of it;
5. the notarial act must be based on the declaration
made by the payor for honor or his agent of his
intention to pay the bill for honor and for whose
honor he pays.
Note: If the above formalities are not complied with,
payment will operate as a mere voluntary payment
and the payor will acquire no right to full
reimbursement against the party for whose honor he
pays.
Sec. 171. Who may make payment for honor. —
Where a bill has been protested for non-payment, any
person may intervene and pay it supra protest for the
honor of any person liable thereon or for the honor of
the person for whose account it was drawn.
Sec. 172. Payment for honor; how made. — The
payment for honor supra protest, in order to operate
as such and not as a mere voluntary payment, must
be attested by a notarial act of honor which may be
appended to the protest or form an extension to it.
Sec. 173. Declaration before payment for honor. —
The notarial act of honor must be founded on a
declaration made by the payer for honor or by his
agent in that behalf declaring his intention to pay the
bill for honor and for whose honor he pays.
Sec. 174. Preference of parties offering to pay for
honor. — Where two or more persons offer to pay a
bill for the honor of different parties, the person whose
payment will discharge most parties to the bill is to be
given the preference.
Sec. 175. Effect on subsequent parties where bill is
paid for
honor. — Where a bill has been paid for honor, all
parties subsequent to the party for whose honor it is
paid are discharged but the payer for honor is
subrogated for, and succeeds to, both the rights and
Page 16 of 17
RFBT3
duties of the holder as regards the party for whose
honor he pays and all parties liable to the latter.
Sec. 176. Where holder refuses to receive payment
supra protest. — Where the holder of a bill refuses to
receive payment supra protest, he loses his right of
recourse against any party who would have been
discharged by such payment.
Sec. 177. Rights of payer for honor. — The payer for
honor, on paying to the holder the amount of the bill
and the notarial expenses incidental to its dishonor, is
entitled to receive both the bill itself and the protest.
BILLS IN SET

Where a bill is drawn in a set, each part of the set
being numbered and containing a reference to the
other parts, the whole of the parts constitutes one
bill. (Sec 178)

Where two or more parts of a set are negotiated to
different holders in due course, the holder whose
title first accrues is, as between such holders, the
true owner of the bill. But nothing in this section
affects the right of a person who, in due course,
accepts or pays the parts first presented to him.
(Sec. 179)

Where the holder of a set indorses two or more
parts to different persons he is liable on every
such part, and every indorser subsequent to him is
liable on the part he has himself indorsed, as if
such parts were separate bills. (Sec 180)

The acceptance may be written on any part and it
must be written on one part only. If the drawee
accepts more than one part and such accepted
parts negotiated to different holders in due course,
he is liable on every such part as if it were a
separate bill. (Sec 181)

Payment by acceptor of bills drawn in sets. —
When the acceptor of a bill drawn in a set pays it
without requiring the part bearing his acceptance
to be delivered up to him, and the part at maturity
is outstanding in the hands of a holder in due
course, he is liable to the holder thereon. (Sec
182)

Except as herein otherwise provided, where any
one part of a bill drawn in a set is discharged by
payment or otherwise, the whole bill is discharged.
(Sec 183)
XVI — PROMISSORY NOTES AND CHECKS

PROMISSORY NOTE - an unconditional promise in
writing made by one person to another, signed by
the maker, engaging to pay on demand, or at a
fixed or determinable future time, a sum certain in
money to order or to bearer. Where a note is
drawn to the maker's own order, it is not complete
until indorsed by him. (Sec 184)

CHECK - A check is a bill of exchange drawn on a
bank payable on demand. Except as herein
otherwise provided, the provisions of this Act
applicable to a bill of exchange payable on demand
apply to a check. (Sec 185)
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT3-Negotiable Instruments
a.
b.
c.
d.
A check must be presented for payment within
a reasonable time after its issue or the drawer
will be discharged from liability thereon to the
extent of the loss caused by the delay. (Sec
186)
Where a check is certified by the bank on
which it is drawn, the certification is equivalent
to an acceptance. (Sec 187)
Where the holder of a check procures it to
be accepted or certified, the drawer and all
indorsers are discharged from liability
thereon. (Sec 188)
A check of itself does not operate as an
assignment of any part of the funds to the
credit of the drawer with the bank, and the
bank is not liable to the holder unless and until
it accepts or certifies the check. (Sec 189)
BATAS PAMBANSA BLG. 22
AN ACT PENALIZING THE MAKING OR DRAWING AND
ISSUANCE OF A CHECK WITHOUT SUFFICIENT FUNDS
OR CREDIT AND FOR OTHER PURPOSES.
Checks without sufficient funds.

Any person who makes or draws and issues
any check to apply on account or for value,
knowing at the time of issue that he does not
have sufficient funds in or credit* with the
drawee bank for the payment of such check in full
upon its presentment, which check is subsequently
dishonored by the drawee bank for insufficiency of
funds or credit or would have been dishonored for
the same reason had not the drawer, without any
valid reason, ordered the bank to stop payment.

Any person who, having sufficient funds in or
credit with the drawee bank when he makes or
draws and issues a check, shall fail to keep
sufficient funds or to maintain a credit to cover the
full amount of the check if presented within a
period of ninety (90) days from the date appearing
thereon, for which reason it is dishonored by the
drawee bank.
Where the check is drawn by a corporation,
company or entity, the person or persons who
actually signed the check in behalf of such drawer
shall be liable under this Act. (Sec 1)
Penalty
1. Imprisonment of not less than thirty days but not
more than one (1) year or
Page 17 of 17
RFBT3
2. By a fine of not less than but not more than
double the amount of the check which fine shall in
no case exceed Two Hundred Thousand Pesos, or
3. Both such fine and imprisonment at the discretion
of the court.
Note: * The word "credit" as used herein shall be
construed to mean an arrangement or understanding
with the bank for the payment of such check (Sec 4)
Evidence of knowledge of insufficient funds

The making, drawing and issuance of a check
payment of which is refused by the drawee
because of insufficient funds in or credit with such
bank, when presented within ninety (90) days
from the date of the check, shall be prima facie
evidence of knowledge of such insufficiency of
funds or credit unless such maker or drawer
pays the holder thereof the amount due
thereon, or makes arrangements for payment
in full by the drawee of such check within (5)
banking days after receiving notice that such
check has not been paid by the drawee. (Sec
2)
Duty of drawee; rules of evidence

It shall be the duty of the drawee of any check,
when refusing to pay the same to the holder
thereof upon presentment, to cause to be written,
printed, or stamped in plain language thereon, or
attached thereto, the reason for drawee's dishonor
or refusal to pay the same: Provided, That where
there are no sufficient funds in or credit with such
drawee bank, such fact shall always be explicitly
stated in the notice of dishonor or refusal. In all
prosecutions under this Act, the introduction in
evidence of any unpaid and dishonored check,
having the drawee's refusal to pay stamped or
written thereon or attached thereto, with the
reason therefor as aforesaid, shall be prima facie
evidence of the making or issuance of said check,
and the due presentment to the drawee for
payment and the dishonor thereof, and that the
same was properly dishonored for the reason
written, stamped or attached by the drawee on
such dishonored check.
Notwithstanding receipt of an order to stop
payment, the drawee shall state in the notice that
there were no sufficient funds in or credit with
such bank for the payment in full of such check, if
such
be
the
fact.
(Sec
3)