ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
important. It may be in ink, print or pencil. It may
be in parchment, cloth, leather or any other
substitute of paper. What is important is it is in
writing and such writing is capable of being
transferred or negotiated. (e.g. A note written on
a blackboard is not negotiable). In signing, the
maker thereby binds himself to be liable for the
note (Sec. 18) It may be the maker’s full name or
his surname only or signature. It may be in initials
or numbers. But , where the name is not signed,
the holder must prove that what is written is
intended as the signature of the person sought to
be charged. In fact, for as long as it be shown
that such was adopted and used by the maker as
his signature, it is sufficient. (Note: he who makes
it possible for the commission of fraud, bears the
loss).
ACT NO. 2031
February 03, 1911
THE NEGOTIABLE INSTRUMENTS LAW
I. FORM AND INTERPRETATION
Section 1. Form of negotiable instruments. An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed
by
the
maker
or
drawer;
(b) Must contain an unconditional
promise or order to pay a sum certain
in money;
(c) Must be payable on demand, or at
a fixed or determinable future time;
(d) Must be payable to order or to
bearer;
and
(e)
Where
the
instrument
is
addressed to a drawee, he must be
named or otherwise indicated therein
with reasonable certainty.
What is meant by “an unconditional
promise/order to pay a sum certain in
money?”
The promise to pay must be on the note itself
although it is not necessary to use the word
“promise.” It is enough that
1. equivalent words be used such as “agree”,
“will pay”, “shall pay”; or that
2. words implying a promise are contained in
the instrument such as “Good to” or
“payable on demand” (e.g. Good to X or
order P10.)
What are the requisites for a negotiable
note?
A Promissory note, to be negotiable , must
conform to the following requirements:
1. it must be in writing and signed by the
maker;
2. Must contain an unconditional promise to
pay a sum certain in money
3. must be payable on demand or at a fixed
or determinable future time
4. must be payable to order or bearer
Mere acknowledgement of a debt is not
enough but an acknowledgment followed by the
phrase “to be paid” implies a promise to pay. ( I
acknowledge a debt of P10 to be paid on
demand) Further, an instrument which stated “
Due X or order on demand P10” is negotiable
because “to be paid” though not stated, is
required by the sense of the statement. Similarly,
it is not necessary that the word “order” be used.
Equivalent words or those which show the
drawer’ will that the money should be paid are
sufficient. All that must be remembered is that
the BOE is more than mere asking of a favor and
that it is an instrument demanding a right. Thus,
a mere requests to pay or mere authorization to
ay is not enough to render it negotiable for it
gives a discretion whether or not to pay. To be
unconditional or absolute, the order or promise to
pay must not be subject to a condition ( a
contingent event). If the event is certain to
happen, it is not contingent nor is it a condition.
Under Art. 1179 of the NCC, a condition is a (1)
future and uncertain event; or (2) a past event
unknown to the parties (See also Sec. 3 for
further meaning).
What are the requisites of a negotiable bill?
A
bill of exchange, to be negotiable, must
conform to the following requirements:
1. in writing and signed by the drawer
2. contain an unconditional; order to pay a
sum certain in money
3. payable on demand or at a fixed or
determinable future time
4. payable to order or bearer
5. the drawee must be named or otherwise
indicated therein with reasonable certainty
What is meant by “in writing” and signed
by the maker or drawer?”
The instrument must in
were not there would be nothing
or passed from hand to hand.
which it is written and where it
writing for if it
to be negotiated
The medium in
is written is not
The amount of money to be paid must be
determinable (at the time of issue) by inspection
2
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
and must be stated plainly on the face of the
instrument. The sum is certain even is
mathematical computation is still needed
because the amount to be paid is still
ascertainable from the instrument alone without
reference to any outside source. (see also Sec. 2).
The payment must be for a sum of money . To be
negotiable, the bill or note must not be payable in
goods, wares, property or service nor in bonds,
stocks, checks or foreign bills. The reason for the
requirement is that money is the one standard of
value in actual business. Exception to this rule is
Sec. 5d. an instrument payable in money or
goods, services et. at the option of the holder.
Further, while R.A. 529 requires that the
discharge of obligations be in legal tender of the
Philippines the instrument’s negotiability and
validity are not affected by the fact that another
currency is stipulated (Sec. 6e) In such case, the
indemnity to be allowed should be expressed in
Phil. Currency on the basis of the current rate of
exchange at the time of payment. But, to be
negotiable, the instrument must state the
denomination in which it is to be payable.
In accordance with Sec. 9b, an instrument is
payable to bearer when
1. it is expressed to be so payable;
2. it is payable to a specified person or
bearer;
3. it is payable to the order of a fictitious or
non-existing person and this fact is known
to the maker or drawer;
4. when the name of the payee does not
purport to be the name of any person;
5. when the only or last indorsement is an
indorsement in blank
It is not important that the words “order” or “
bearer” be used. It is sufficient that words of
similar import are put in its place. (e.g. Pay to
B or assigns or “assignees” or “holder” or
“possessor”). A note payable to the order or
bearer is payable to order and such
instrument may be negotiated only by
bearer’s indorsement. (The bearer is the
payee.)
When is the indication of the drawee’s
name sufficient?
When is an instrument payable on demand?
It is sufficient that the name of the person
on whom a bill is drawn should appear on the
face of the instrument. Otherwise, the
instrument would not be negotiable. But,
under Sec. 14, the drawee’s name may be
omitted and be filled in under implied
authority like any other blank. (REMEMBER:
Sec. 14 refers to the incomplete but delivered
instruments and that the authority to fill up
should
be in strict accordance with the
authority given). Also, an acceptance by the
drawee may supply the omission of a
designation and renders said instrument
negotiable.
In accordance with Sec. 7, a note is payable on
demand:
1. When it is so expressed to be payable on
demand or at sight or on presentation;
2. when no time for payment is expressed;
3. when an instrument is issued, accepted or
indorsed when overdue- as to the party so
issuing, accepting or indorsing, it is
payable on demand.
When is an instrument payable at a fixed or
determinable future time?
In accordance with Sec. 4, an instrument is
payable at a determinable future time when it is
expressed to be payable1. at a fixed period “after date or sight; or
2. on or before a fixed or determinable future
time specified therein; or
3. 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.
Sec. 2. What constitutes certainty as to
sum. - The sum payable is a sum certain
within the meaning of this Act, although it
is to be paid:
1. with interest; or
2. 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.
When is an instrument payable to order? To
bearer?
What is the rule regarding the sum payable
being definite and certain?
It is payable at a fixed time when a date is
specified. But where the date is given as “Dec. 2,”
it is not fixed because the time of payment is not
determinable as the year is not given.
3
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Since a NI is a device intended to take the
place of money, it is therefore essential that it
represents a fixed amount of money. The amount
of money must be determinable by inspection
and must be stated plainly on the face/ body of
the instrument.
does not make the instrument payable upon a
contingency
(thus,
non-negotiable)
since
payment is surely to be made and its time of
payment is surely come. In a sense, it is deemed
to be payable on or before a fixed or
determinable future time specified therein
(sec.4b)
When can it be said that the sum is certain
despite the stipulation of interest?
What is the
exchange?
A stipulation of interest does not render
the sum to be paid as uncertain because given
the interest rate, the amount due can be easily
computed. Provided the principal sum is certain,
the amount due becomes a matter of
mathematical computation ascertainable from
the face of the instrument alone. Further, where
interest is stipulated but not specified (as to rate),
the note is still negotiable and the rate is to be
understood to be the legal rate which is 12% for
loans or forbearance of money.
What is an escalation
escalation clause?
clause?
A
as
on
provisions
for
Exchange is defined to be the difference in value
of the same amount of money in different
countries. The exchange may be at the (1)
current rate, or at a (2) fixed rate indicated
therein. Such provision does not render the
instrument non-negotiable because while the rate
of exchange is not always the same and while it is
technically true that resort must be had to
extrinsic evidence to ascertain what it is, yet the
current rate of exchange between 2 places at a
particular date is a matter of common
commercial knowledge, or at least easily
ascertained by any one so that the parties can
always, without difficulty, ascertain the exact
amount necessary to discharge the paper. It must
be remembered that this provision applies only to
instruments drawn in one country and payable in
another. Where an instrument is drawn in one
country and payable in the same country, there
can be no exchange, so a provision for payment
of exchange may be disregarded.
de-
An escalation clause is a stipulation in an
agreement pertaining to a loan or forbearance of
money, goods or credits providing that the rate of
interest agreed upon may be increased in the
event that the applicable maximum rate of
interest, is increased by law or by the Monetary
Board. De-escalation clause is stipulation in the
agreement that the rate of interest agreed upon
shall be reduced if the maximum rate of interest
is decreased by law or by the Monetary Board.
The escalation clause is valid if there is also a deescalation clause in the agreement.
What are the requirements
payment of installments?
rule
Why doesn’t a stipulation for attorney’s
fees render the sum uncertain?
Although such a stipulation will make the sum
payable after maturity uncertain, it will not affect
the certainty of the sum payable at maturity and,
therefore will not affect the negotiability of the
instrument in which it is stipulated. The purpose
of the stipulation is not to give the lender a larger
compensation for the loan than the law allows,
but to safeguard the lender against future loss or
damage by being compelled to retain counsel to
institute judicial proceedings to collect his debt.
The provision refers only to reasonable attorney’s
fees.
regards
1. The amount of installment must be
stated – (the sum payable for each
installment must not be uncertain.
It can be ascertainable.)
2. The
maturity
date
of
each
installment must be fixed or
determinable.
What is the rule on acceleration clause?
What is the effect of negotiable after the
note is overdue?
An instrument, which is to be paid in, stated
installment is not rendered non-negotiable
despite a provision that upon default of any
installment or of interest, the whole amount shall
become due. Such is called an acceleration
clause because it hastens the payment of the
whole note. The failure to pay any installment
renders the balance of the amount immediately
due and demandable. An acceleration clause
After the date of maturity, the instrument will no
longer be negotiable in the full commercial sense,
that is, in the sense that any transferee acquiring
it would not be a holder in due course, as he
acquire the instrument after it is overdue. Since
the transferee would not be a holder in due
4
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
course (HIDC), he would hold the instrument
subject to the defenses as if it were nonnegotiable.
debited. Eg. Pay to B or order P10 and charge the
same to my account.
What is a statement of transaction?
Sec. 3. When promise is unconditional. - An
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
Instruments are not issued without any
transaction upon which they are based. The
statement of transaction is the reason giving rise
to the issuance of the instrument and the mere
fact that it. Is stated in the instrument will not
make the promise or order conditional. Eg. Pay to
B or order P10 for payment of a debt.
(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.
But where the promise or order is made
subject to the terms and conditions of the
transaction stated, then the instrument is
rendered non-negotiable. Besides would be
contrary to the rule that the negotiability of an
instrument (whether there is an un-conditional
order or promise) must be determined only from
the document itself and not elsewhere. Eg. I
promise to pay B or order P10 subject to the
terms contained in the contract between A & C.
Normally, an instrument’s negotiability is not
affected by the fact that it is secured by a
mortgage. But, where such provision become in
the note will render the amount uncertain or
where such provisions become part of the note,
even though they are not in the note itself, the
instrument is rendered non-negotiable. Thus,
where the note is not only secured by a mortgage
but also made subject to its provisions, the note
is non-negotiable.
What are the difference between par A. and
the last par. of sec 3.?
In the first case, the particular fund indicated is
not the direct source of payment. It is only the
source of reimbursement. The payment of the
instrument is not made subject to the condition of
availability or sufficiency of funds in the said
account. Here, the drawee first pays the payee
from his own funds, then, afterwards, the drawee
pays himself from the funds indicated. The order
or promise to pay is upon the general credit of
the drawer or the maker. In the second case, the
particular fund indicated is the direct source of
payment. Here, there is only one act, which is
that the drawee pays directly from the fund
indicated. The payment is, thus, subject to the
condition that the funds indicated are sufficient.
But the funds indicated may or may not be
sufficient so that the instrument is rendered nonnegotiable because payment is conditional.
Sec. 4. Determinable future time; what
constitutes. - An instrument is payable at a
determinable future time, within the
meaning of this Act, which is expressed to
be payable:
 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.
Eg. 1st case- pays to B or order P10 and
reimburses yourself out of the money in your
hands.
2nd case- pays to B or order P10 out of my
part of the estate.
But, where the sum payable is to be paid out of a
particular fund yet payment is not restricted to
such fund alone, negotiability is not destroyed.
Eg. Pay to B or order P10 out of the monthly
rental due from A and secured to be paid by my
BPI account. Similarly, where the instrument
indicates a particular account to be debited with
the
amount,
the
instrument
remains
unconditional and negotiable. The instrument, in
this case, is to be first paid and afterwards, the
particular account will be debited. The payment is
not subject to the sufficiency of account to be
An instrument
payable
upon a
contingency is not negotiable, and the
happening of the event does not cure the
defect.
What does “at a fixed period after… sight”
mean?
5
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(c) waives the benefit of any law
intended for the advantage
or
protection of the obligor; or
“After sight” means after the drawee has seen
the
instrument
upon
presentments
doe
acceptance. The instrument becomes payable
after a fixed period subsequent to date of
presentment to the drawee.
(d) gives the holder an election to
require something to be done in lieu
of payment of money.
What is the rule on “the occurrence of a
specified events”?
But nothing in this section shall
validate
any
provision
or
stipulation
otherwise illegal.
It is essential that the specified event must be
certain to happen although the time of happening
is uncertain. If the event specified is not certain
to happen, then it is a condition and the
instrument would be rendered non-negotiable, it
is payable upon a contingency and, according to
the law, the happening of the contingency or
condition does not cure the defect.
What is the general rule as regards the
requirement of additional acts contained in
an instrument?
The general rule is that an instrument must not
contain an order or promise to do any act in
addition to payment of money. Otherwise the
instrument would be rendered non-negotiable.
But the rest of negotiability is whether or not the
promise to do any additional act would give rise
to a cause of action for breach of contract if the
said act is not done, if it does, the instrument is
rendered non-negotiable. Eg. I promise to pay X
or order P1000 and 1 horse. Such is nonnegotiable because it contains an additional act
to be performed aside from payment of money.
Eg. . I promise to pay X or order P1000 and a
horse. Such is also non-negotiable because the
choice to pay money or deliver the horse is at the
option of the debtor. But, if the phrase “ at the
option of X “ is added to the instrument, such is
negotiable because the option lies with the holder
rendering the sum payable still certain.
When an instrument states, “ I promise to
pay X or order P1000, 10 days after Y’s
death. Sgd.z. is this instrument negotiable
and why?
The instrument is negotiable because payment is
still certain to be made (unconditionally), i.e. Y’s
death will surely happen.
But if in the previous example, Z promises to pay
10 days before the death of ‘ Y, would such
instrument be negotiable?
No, because the maturity is uncertain (as no one
can tell exactly when another person will die).
Further, when Y is already dead, the instrument
will already be over due and will not be
negotiable in its full commercial sense.
What are the exceptions to the general
rule?
The negotiable character of an instrument
otherwise negotiable is not affected by a
provision which-
Sec. 5. Additional provisions not affecting
negotiability.
An
instrument
which
contains an order or promise to do any act
in addition to the payment of money is not
negotiable. But the negotiable character of
an instrument otherwise negotiable is not
affected by a provision which:
 authorizes the sale of collateral
securities in case the instrument
be not paid at maturity; or
1. Authorizes the sale of collateral securities
in case of failure to pay- the additional act
to be performed is to be executed after
the date of maturity. Before the date of
maturity, no additional act is to be
performed except the payment of money.
Eg. “ I promise to pay X or order P100 on
the December 31,1950 provided that if I
fail to do so, X may sell the rin I delivered
to secure payment of the note. Sgd. A.
(b)
authorizes
a
confession
of
judgment if the instrument be not
paid at maturity; or
2. Authorizes a confession of judgment if the
instrument be not paid- the additional act
6
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
is to be performed after the date of
maturity when the instrument ceases to
be negotiable in its full commercial sense.
A power of attorney to confess judgment
anytime before maturity renders a note
non-negotiable. Further, in the Philippines,
confessions of judgment have been
declared void as against public policy
because
But nothing in this section shall alter
or repeal any statute requiring in certain
cases the nature of the consideration to be
stated in the instrument.
What is the rule on payment in other
currencies (par. e)?
Even if the money in which the instrument
is to be payable is not legal tender, provided is
current money or foreign money which has a
fixed value in relation to the money of the
country in which the instrument is payable, the
negotiability of the instrument is not affected, as
it is still considered payable in money.
a. They enlarge the field for fraud. 2.
Promissor bargains away his day in
court and the effect of the
instrument is to strike down the
right of appeal accorded by the
statute. But while the provision as
to confession of judgment is not
rendered valid (because it is illegal)
by virtue of the last par. of sec.5,
the instrument is never the less
negotiable.
Sec. 7. When payable on demand. - An
instrument
is
payable
on
demand:
(a) When it is so expressed to be
payable on demand, or at sight, or on
presentation;
or
(c). Waives the benefit of any law intended for
the
advantage
or
protection
of
the
obligator- such as the rights to (1)
presentment for payment (sec.70); (2) notice
of honor (sec.110); (3) protest (sec.111).
These being rights, they may be waived
unless the waiver be contrary to law, public
policy, etc. (art.6 of NCC.)
(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.
Give example of the above.
(d) Gives the holder an election to require
something other than money- even if there is
an additional act, the instrument still remains
negotiable provided that the right to choose is
in the hands of the holder.
Ex. 1) of when “it is expressed to be payable on
demand”
“I promise to pay on demand P 1,000 to X
or bearer. Sgd. A.
Sec. 6. Omissions; seal; particular money. The validity and negotiable character of an
instrument are not affected by the fact that:
 it is not dated; or
-- Instead of “ on demand” the words “on sight”
or “ on presentation” may be used. The words “at
sight” are not ordinarily used in promissory notes.
(b) does not specify the value given,
or that any value had been given
therefor; or
2) Of when “ no time for payment is expressed”
“Pay to X or order P1, 000 to Y. sgd. Z.
(c) does not specify the place where
it is drawn or the place where it is
payable; or
-- Where the instrument contains a blank space
for the date but no date is indicated, it has been
held to be payable on demand. However, it may
be properly considered as an incomplete
instrument and may fall under the provisions if
sec.14 or 15 depending upon how it was
delivered (or not).
(d) bears a seal; or
(e) designates a particular kind of
current money in which payment is to
be made.
7
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
3. Of the last par.
a. as regards the person so
issuing
A note dated July 30, 1984 and
payable “30 days after date” is
issued on August 4,1984.
to order because it contains an unconditional
order to pay. A BOE may either be payable to
order or to bearer. Similarly, a PN may also be
payable to order or bearer.
What is the rule on naming the payee?
b. as regards the person so
accepting
A bill payable on August 20,1984 is
accepted by the drawee on August
21,1984.
The law requires that the payee must be
named or otherwise indicated with reasonable
certainty. The payee of an instrument payable to
order must be a person in being, natural or legal,
and ascertained at the time of issue. If there is no
payee indicated, no one could indorse the
instrument. Consequently, it is useless to
consider it as negotiable.
c. as regards the indorser
A note payable “30 days after
August 1, 1984” is indorsed on
September 2,1984.
-- After the date of maturity, the instrument can
no longer be negotiated as to make the partios
who acquire the instrument after the date of
maturity holders in sue course because they
become holders thereof with notice that it is
already overdue, as it can be determined from
the face of the instrument itself. It is payable in
demand only as between the immediate parties.
NOTES:
1) Where the instrument is payable
to the order of the drawer and it is acceptable by
the drawee, the instrument is equivalent to a
promissory note by the acceptor in favor if the
drawer.
2) Being joint payees is indicated
by the conjunction “and”.
Eg. “I promise to pay A and B or
order P100. sgd. X.”
Sec. 8. When payable to order. - The
instrument is payable to order where it is
drawn payable to the order of a specified
person or to him or his order. It may be
drawn payable to the order of:
(a) A payee who is not maker,
drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly;
or
(e) One or some of several
payees; or
(f) The holder of an office for
the time being.
3) Being solidary payees
indicated by the conjunction “or”.
is
Eg. “I promise to pay to the order
of A or B P100. sgd. X.”
4) Example of par. f – “ Pay to the
order of Cashier of U.P. P10.”
Is the following instrument payable to
order: “Pay to the order of Ms. Laya P100.
sgd. Coach.”?
Yes, because the instrument is payable to the
order of a specified person or to him or his order.
Where the instrument is payable to
order, the payee must be named or
otherwise indicated therein with reasonable
certainty.
What does payable to order mean?
When can an instrument originally payable
to order become one payable to bearer?
Under sec.98, when the only or last indorsement
is an indorsement in blank.
In BOE, it means that the drawee orders
the drawee to pay the payee indicated or if not
him, to anybody designated by him. Such
designation is made by indorsement of the
payee. In PN, the maker promises to pay the
payee indicated or if not him, to anybody
designated by him through (also) indorsement. It
does not mean that a bill is necessarily payable
What is the rule re: the conversion of order
noted to bearer notes?
8
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
The rule is once a bearer instrument,
always a bearer instrument. This rule refers to
instruments originally payable to bearer. But an
order instrument may be converted to a bearer
instrument by blank endorsement of the payee or
last endorsee. It may again be converted to an
order instrument, by virtue of sec. 35, by writing
over the signature in blank any contract not
inconsistent
with
the
character
of
the
endorsement.
who does not exist in the sense that he was not
intended to be payee by the drawer. Thus, an
instrument made payable to the order of nonexisting person or of a person having no interest
in the transaction where the makers believes that
such person exist and has an interest in the
transaction and intends that he shall receive the
same, is not payable to a fictitious person or to
bearer. Only if such maker, knowing the person to
be non-existing, never intended it to be paid to
the designated person, can the instrument be
payable to a fictitious person or to a bearer.
Sec. 9. When payable to bearer. - The
instrument
is
payable
to
bearer:
(a) When it is expressed to be so
payable;
or
NOTES:
1) Under the NIL, a check drawn
payable to the order of “cash” is a check payable
to bearer., and the bank may pay it to the person
presenting it for payment without the drawer’s
endorsement.
(b) When it is payable to a person
named therein or bearer; or
2) In sec.9e, the instrument
contemplated is one originally payable to
order. It becomes payable to bearer
where: (a) there is only one endorsement
and such is in blank: or (b) there are
several endorsement but the last one is in
blank. But, a blank endorsement cannot
make
a
non-negotiable
instrument
(because payable to a specified person)
negotiable. The word “indorsement refers
only to negotiable instruments.
(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.
Sec. 10. Terms, when sufficient. - 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.
What is the rule re: fictitious or non-existing
persons?
This provision has 2 requisites: (1) the
payee named must be fictitious or non-existent;
and (2) the one making the instrument so
payable must know him to be fictitious or nonexisting. The first requisite must be qualified. The
words “fictitious person” are not limited to
persons having no real existence. An existing
person may be considered a fictitious payee,
depending upon the intention of the one making
or drawing the instrument. “Fictitious person”
means never intended who has no right to the
instrument because the drawer or maker never
intended for it to be payable to the said person.
The want of interest in the payee is not the
controlling consideration in determining whether
an instrument is payable to bearer, as payable to
a fictitious person. Rather, it is the intention the
maker or drawer not to make said person the
payee. Thus, it does not matter whether the
name of the payee used by the drawer or maker
be that of one living or dead or one who never
existed. The name is fictitious when it is feigned
or pretended and a non-existent person is one
NOTES: It is advisable to use the words of the
law in order to avoid uncertainty. However, under
Sec. 10, it is not necessary to use the exact words
of the law. The substance of the transaction
rather than the form is the criterion for the
negotiability.
Sec. 11. Date, presumption as to. - 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.
NOTES: Sec, 11 applies to 3 cases: (1) the
instrument contains the date of issue, in which
case it is presumed to be the true date of making
or drawing; (2) in an accepted bill of exchange,
the acceptance is dated; in which case it is
presumed to bethe true date of acceptance; (3)
an instrument is indorsed and the indorsement is
dated, in which case it is presumed to be the
9
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
true date of indsorsement. But all such
presumptions may be rebutted by competent
proof to the contrary. The burden of proving
belongs to the persons who disputes the veracity
of the dates indicated.
holder may insert the true date of issue or
acceptance.
Rhoda issues an undated instrument to Sioson,
does the fact that is undated affect is
negotiability?
Sec. 12. Ante-dated and post-dated. - 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.
No. sioson can just fill in the true date of issues in
order to determine the date of maturity. But, the
instrument’s negotiability is not affected in
accordance with sec. 6.
In the same example, suppose Sioson puts a false
date on the instrument and negotiates it to Lyn,
an innocent party. What are the effects?
What is the rule on ante-dating and postdating?
The date Sioson inserted is void, but as to Lyn,
she can enforce it against Rhoda as the performer
is a subsequent holder in due course. Remember
the rule is that between 2 innocents, the one who
made possible the commission of the wrong
bears the loss. Also, as to Sioson, the instrument
becomes void. This being in accordance with this
section as well as with sec. 12, that ante or post
dating (which ever case) for fraudulent purposes
renders the instrument void.
Sec. 12 contemplates ante-dating or post –
dating where the parties have mutually agreed to
such dating. An instrument is post-dated when
the date written thereon is later than the true
date of its issuance or delivery. An instrument is
ante- dated when the date written thereon is
earlier than the true date of its issuance or
delivery. The general rule on such instrument is
that an ante-dated or post-dated instrument is
not rendered invalid or non-negotiable by that
fact alone. It may be negotiated before or after
the date given as long as it is not negotiated after
its maturity. The only limitation is that the antedating or post-dating is not done for illegal and
fraudulent purposes. Further, title to the
instrument is not acquired as of the date written
on the instrument but rather as of the actual date
of delivery.
Sec. 14. Blanks; when may be filled. - 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 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. 13. When date may be inserted. Where an instrument expressed to be
payable at a fixed period after date is
issued undated, or where the acceptance of
an instrument payable at a fixed period
after sight is undated, 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.
Is the date necessary to an instrument?
Under Sec. 6, the date is not necessary for
the negotiability of the instrument. However, the
date may be necessary; (1) where an instrument
is payable at a fixed period after date but is
issued updated; and (2) where an instrument is
payable at a fixed period after sight but the
acceptance is updated. In these 2 cases, any
What are the 2 steps in execution of NI?

10
The mechanical act of writing the
instrument completely and in accordance
with sec. 1, of NI; and
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)

trade or business and the facts of a
particular case sec. 193.)
so much so that lack of one of the two
would result in a failure to enforce the
instrument against said parties.
To a holder who is a HIDC- it is necessary
that either was followed for being a HIDG,
he takes the note (sec. 52)
The delivery of the instrument with the
intention of giving effect to it.
To what step does sec. 14 refer?
Sec. 14 refers to instrument that are
complete on its face but delivered by
maker/drawer. It applies to cases where
instrument is incomplete but delivered. The
step is, thus, not fully satisfied.
not
the
the
first
o
o
What are the 2 cases referred to in sec. 14?
What are the rules on each case?
o
o
1. PRIMA FACIE AUTHORITY TO FILL UP
BLANKSWhere the instrument is wanting in any
material
particular,
the
person
in
possession thereof has a prima facie
authority to complete it by filling up to the
blanks therein.
a. Material particular- may either be a
particular the omission of which will
render
the
instrument
nonnegotiable
Eg. Of (a) – name of payee, of the drawer
Of (b) – date, rate of interest, place of
payment
any particular proper to be inserted in a
negotiable instrument to make it complete
(given the circumstances of the instrument)
o
GIVEN 2 FACTS: (1) there is want of
material particular in the instrument;
and (2) there is possession by a person
other than the drawer or maker
THEN- the law presumes agency or
authority to fill up the blanks.
Complete and regular on its face;
Before it was overdue and without
notice or dishonor
In good faith and value
Without notice of infirmity in the
instrument or defect in the title of
the owner.

The maker or drawer cannot
blame an innocent party for
a mistake which he himself
made possible (for not
completing the notice).
THUS, failure to fill up strictly in accordance with
authority given and within a reasonable time is- a
personal defense. This is so because it is
available as a defense only as against those
holders not HIDC (including the person filling up).
The maker or drawer is not liable to them. But, as
to HIDC, it is not a valid defense. The maker is
still liable despite the error.
WITH REGARD TO PARTIES AFTER FILLING UP,
they are estopped or precluded from claiming
that the notice was not filled up strictly in
accordance with the authority given. As to them,
they negotiate the instrument for the value filled
up strictly.
2 PRIMA FACIE AUTHORITIES TO FILL UP TO
ANY AMOUNTA signature in a blank paper
delivered by a person making the
signature in order that the proper may be
converted into a negotiable instrument
operates as a prima facie authority to fill it
up as such for any amount.
1) GIVEN 2 FACTS: (1) A signature in a blank
paper, and (2) the paper is delivered with
the intention of having converted into a NI
(mere possession not being enough)
THEN- the law presumes authority to fill up
to any amount.
Suppose: Toby executed a note ”I promise
to pay Erwin or order-------. Sdg. Toby then
gave Erwin the note authorizing him to
place any amount not exceeding P5, 000.
But Erwin placed P10, 000 and negotiated it
to Ian. Can Ian go against Erwin? Can Ian go
against Toby?
As to Erwin, being a party to the completion and
having negotiated the note for such value, Erwin,
regardless of whether Ian is a HIDC or not, can be
held liable for the value. As to Toby, if Ian is not
HIDC, Toby cannot be held liable for the
erroneous completion (Toby), the holder must be
a HIDC, the note would be valid and effectual as if
it had been completed in strict accordance with
the authority given and within a reasonable time.
While it is true that Toby did not authorize such
amount, by his negligence in making the
fraudulent act possible, he rather the Ian- an
2) But, to hold PRIOR (before completion)
parties liable
To a person filling up and to holder not a
HIDC- (1) the blank must be filled up
strictly in accordance with the authority
given and (2) filled up within a reasonable
time. (Reasonable time depends on the
nature of the instrument, the usage of the
11
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
innocent party, must suffer the consequences of
its acts.
as they are considered to be parties whose
signature appear after the delivery (Erwin’s
signature would appear as an instrument.)
All notes when presented for payment arew
persumed to be complete and delivered. The
purpose of sec. 14, 15 & 16 is to show what
defenses are available to makers/drawers upon
the presentment of these instruments. For
example, in the hands of a HIDC when the note is
originallly incomplete and undelivered’ such
presumption is only prima facie. Proof of nondelivery may be presented to rebut the
presumption. In contrast, if the note was
mechanically but undelivered, the presumpiton is
conclusive as to a HIDC. No proof may be
presentewd to rebut it.
It has been held that where the custody of
the incomplete instrument has been entrusted to
another who wrongfully completes and negotiates
the note to a HIDC, delivery to the agent is
asufficient delivery to bind the drawer or maker.
If Ian, pretending to be a fan of Erap,
secures his autograph on a blank piece of
paper and, then, writes a promissory note
over it, may Ian enforce the note? If Ian
negotiate it Toby, may the latter enforce the
note against Erap?
Both may not enforce the note. Sec. 14, while it
allows for the filling up of a blank paper with a
signature, does not give such authority when the
said paper with no intention of it being converted
to a NI. It does not matter whether Toby is HIDC
or not. Toby’s remedy would be to go after Ian,
the endorser.
Sec.
15.
Incomplete
instrument
not
delivered.
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.
What is the rule on
undelivered instrument?
incomplete
Thus, the defense is only a personal defense. The
one who being held liable may only show lack of
delivery if and when the holder is not a HIDC
(may either an immediate party or a holder not a
HIDC). Once the holder proves that he is a HIDC,
the defense is no longer available.
and
What is meant by “immediate parties”
Here, both stances in the execution of a NI are
wanting. The non-delivery of an incomplete
instrument renders the note unenforceable as
against the person whose signature was placed
thereon and is a valid defense, not only between
the original parties but also against a HIDC. The
law does not make a distinction when it says that
it is not a “valid contract in the hands of any
holder” which includes a HIDC. It is, thus, a real
defense as it is available even as against a HIDC.
However, the invalidity of the instrument is only
with reference to parties whose signature appears
on the instrument prior to delivery. As to parties
whose signatures appear on the instrument after
delivery, the instrument may be invalid.
The term immediate parties is confined to those
who are immediate, in the sense of knowing or
bieng held know the conditions or limitations
placed upon the delivery of the instrument. It
means privity not proximity. The cretirion is
whether or not the party in question knows of the
conditions or limitationas placed upon delivery or
the facts that the instrument was not delivered
but stolen. Thus, if a party knows of such
conditions or limitation, he is an immediate party
even if he is physically remote (eg. Maker
indorsee who knows)n (NOTE: While proximity is
not the critirion, it is highly improbable that the
next party physically will not know such
conditions or limitations).
Suppose Toby, before he could complete a
note, placed the said paper between the
pages of his book. Erwin who borrowed the
book and finds the said note, completes it,
signs Toby’s name and negotiates it to Ian.
Ian negotiates it to Jon. Can Jon go against
Ian?
What may the maker, drawer, indorser show
as against the immediate party or a holder
not a HIDC?
As against such parties, he may prove that: (1) no
delivery was made; or (2) if there was a delivery,
it was not authorized; or if the delivery was made
or authorized, the delivery was conditional or for
a special purpose and not for the purpose of
transferring the title to the instrument. In
conditional deliveries, what is conditional is the
delivery, not the promise or order to pay. If the
As the note was incomplete and undelivered,
Toby has a real defense as against Jon. It does not
matter whether Jon is a HIDC or not. As to Toby,
there was never any valid contract to make him
liable. But, Jon can still go against Erwin and Ian
12
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
promise or order to pay is conditional, the
instrument is rendered non-negotiable. Eg. A
deliver the note to B with the condition that the
delivery be binding only if C’s signature was
secured. The delivery is not binding on A until C’s
signature appears thereon. (The promise or order
to pay remains unconditional on the face.) As to
special purposes, if a delivers a bearer instrument
to B for (1) safekeeping or (2) for collection, B
cannot enforce the note against A.
What is the general rule in Sec. 16?
Every contract on a NI even if it is
completely written is incomplete and revocable
until its delivery. Before delivery, the maker or
drawer can revoke, cancel or tear up the
instrument. The payee named therein acquires no
right until the instrument is delivered to him.
Delivery is essential to the validity of any NI. An
undelivered instrument is inoperative because
delivery is a prerequisite of liability. However, if a
complete instrument is found in the possession of
an immediate party or a remote party other than
a HIDC, there is a prima facie presumption of
delivery but subject to rebuttal. If the holder is a
HIDC the presumption becomes conclusive and
not subject to rebuttal.
What is the rule on lost or stolen
instrument?
As soon as the owner discover that he has lost a
NI, he should instantly give notice of the lose to
all parties on such paper and inform them not to
pay the amount to any one except to the loser or
is order. This is especially important in bearer
instrument (but may also apply to order
instrument). No title to a lost bill or note vest in
the finder and the owner when he has identified
it, may maintain ero an action where the
defendant found an article and refused to return
it to the owner) against the finder. If the finder
has negotiated it and has received value for it, an
action for money be maintained against him for
such use. A party liable will net be discharged if
he pays the amount to the holder of the lost
instrument before maturity or if he had notice of
the loss unless the holder is a HID. (in such case,
the party liable should recover from the finder).
If the note is found with immediate party
or a holder not a HIDC, the one being held liable
can show that delivery was not made either him
or under his authority. (Delivery may be made by
the maker/ drawer himself or through an
authorized agent. Delivery may also mean
issuance.) But, if the note is with a HIDC, the one
being held liable cannot prove such because he is
conclusively presumed to have delivered it. Thus,
is a maker denies having delivered a complete
note, the holder must only show that he is a HIDC
and the former can no longer prove his
accusation.
Sec. 17. Construction where instrument is
ambiguous. - Where the language of the
instrument is ambiguous or there are
omissions therein, the following rules of
construction apply:
(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;
Sec. 16. Delivery; when effectual; when
presumed. - 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.
(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;
13
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
express the true intention of the maker
because they are written by him while the
printed words are printed with no contract
in view.
(d) Where a note states “I promise to pay
Erwin or order P 10. sgd. Toby. Ian”, the
payee or holder may treat it as either a
note or bill according to his preference.
(e) Usually, the signature of the maker/drawer
is placed in the lower right hand corner if
the face, the acceptor across the face and
the indorser at the back. Where it is not
clear which if the three a person belongs
as he signs on the margins, he is
presumed to be an indorser.
(f) Where a note states “I promise to pay C or
order P10. sgd. A&B.”, the makers are
deemed to be solidarily bound.
(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;
(f) 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. 18. Liability of person signing in trade
or assumed name. - No person is liable on
the instrument whose signature does not
appear thereon, except as herein otherwise
expressly provided. But 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.
(g) 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.
 The rules stated shall not be availed of if the
terms of the instrument in question are clear and
admit of no doubt. It is only when the instrument
in question is ambiguous, doubtful or obscure or
when there are omissions therein will the rules
apply.
What is the general rule? Exceptions?
GENERAL RULE: A person whose signature does
not appear on the instrument cannot be held
liable thereon
EXCEPTIONS:
(1) The principal is liable if duly authorized
agent signs on his own behalf (Sec. 19);
(2) In case of forgery is liable even if his
signature does not appear on the
instrument (Sec. 23);
(3) Where a person sought to be charged
signs on paper separate from the
instrument itself, as in an allege although
the allege may be considered a part of the
instrument, or where an acceptance is
written on another paper other than the
bill (Sec. 134 & 135);
(4) Where a person signs under an assumed
or trade name- not really an exception,
rather an instance where a person’s
business name serves the same purpose
as his signature. There must be an
intention to be found by signing the trade
name.
EXAMPLE OF THE RULES:
(a) Where a PN reads “twelve pesos” in its
body and P 1,200 (in figures) at the
margin, the note is good only for P 12. The
reasons are: (a) the figures in the margin
do not form part of the instrument and is
only for convenience: (b) it is easier to
change the figures or to commit a mistake
than a sum in words. But when the words
are ambiguous or uncertain as when the
letter “Y” in eighty thousand is unclear
(with P8,000 on margin) or when the note
is payable for “one pesos” ( with P 100 on
margin) or P365 is written as “three sixty
five pesos”, the marginal figures control.
(b) Where the note stipulates that the amount
to be paid is “with interest at ______%
from____”, it is deemed payable from the
date in the note or if issue at the legal
rate.
(c) Where the note states “I promise to pay to
the rule of J.M ONLY P 10. sgd. X.” with
“J.M ONLY” in handwriting, the note is nonnegotiable as it is payable to a specified
person only. The handwritten words prevail
because the written words are deemed to
Sec. 19. Signature by agent; authority; how
shown. - The signature of any party may be
made by a duly authorized agent. No
particular form of appointment is necessary
for this purpose; and the authority of the
14
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
agent may be established as in other cases
of agency.
What is the authority of an agent by
procuration?
a. The party may sign personally or
thru an agent. Agency may be oral
or written authority. It may be
proved by oral or written evidence,
unless specific provisions of the
general law require otherwise (eg.
Statute of Frauds).
This agent has but a limited authority to sign and
he must act within the limits of his authority.
The words “per proc.” or “p.p.” serves as a
notice to whole world that the agent has but
a limited authority. It is the duties of the 3rd
person dealing with such agent ascertain the
limits of the agent’s authority. He must
remember that he is dealing at his own risk.
FORM: “Jose Cruz (principal), per proc.: Pedro
Vega (agent)”
Sec. 20. Liability of person signing as
agent, and so forth. - Where the instrument
contains or a person adds to his signature
words indicating that he signs for or on
behalf of a principal or in a representative
capacity, he is not liable on the instrument
if he was duly authorized; but the mere
addition of words describing him as an
agent, or as filling a representative
character, without disclosing his principal,
does not exempt him from personal liability.
Sec. 22. Effect of indorsement by infant or
corporation.- 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.
What are the requisites for an agent to
escape liability?
What is the rule: a minor or corporation
indorsing?
(1) The agent must be duly authorized.
(2) Must add words to his signature indicating
that he signs as an agent, that is, for or on
behalf of a principal.
(3) Must disclose his principal.
Ordinarily, a minor cannot give consent to
contracts and a contrast entered into by him
is avoidable. In the case of corporations, they
cannot perform acts beyond the escape of
their authority. Such acts would be ultra vires
Never the less, if a minor or a corporation
endorsee an instrument, the endorsee
acquires titles to it and can enforce it agains
the maker or acceptor or other parties prior
to the minor.
EXAMPLES
Of no.2 - “Jose Cruz by Pedro Vega”
“Pedro Vega as agent of “Jose Cruz”
Of no.3 – “sdg. Pedro Vega, agent” –
Vega is liable as he fails to disclose his principal
(even if he acts within his authority). “Agent” is
deemed as merely a descriptive word, also
“trustee”, “administrator” – one is not relieved
from liability by adding descriptive words.
Of no. 3 – the disclosure of the principal
in order to relieve the agent need not be in
signature (can be in the body). Eg. “ I promise to
pay X or order P100 for money loaned to Y & Co.
sgd. J, Treasurer.” The principal is obvious”.
Suppose: Lyn prepares a note for Paz, “ I promise
to pay Paz or order P1, 000. sdg. Lynn” But Paz is
only a minor. Paz negotiated the instrument to
Lawrence. Can he hold Lynn liable Paz?
Lawrence can hold Lynn liable because he
acquires title to the instrument by virtue of sec.
22. The instrument is validly his. But Lawrence
cannot hold Paz liable because Paz has a valid
defense – her minority. Minority is real defense in
the sense that the Paz may use it as against any
holder (even a HIDC). But, Lynn cannot make use
of the same defense as it is personal to the minor
– Paz. Further, as maker, Lynn warrants the
existence of the thing as well as the capacity of
the payee to enter into the contract. The maker is
therefore precluded from putting up the defense
that the payee had no capacity.
Sec. 21. Signature by procuration; effect of.
- 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.
15
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Sec. 22 is also applicable to endorsements
by lunatics, imbeciles, and other incapacitated
parties.
available as against the party who
perpetrated.
Duress amounting to fraud – ordinarily,
duress is a personal defense. The only
exception is if it amounts to forgery as
when someone forcibly takes one’s hands
-
Sec. 23. Forged signature; effect of. - 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.
and affixes that the person’s signature. Here,
there is a real defense as there was no
intention of issuing a negotiable instrument.
-
Fraudulent impersonation – in such
cases, the maker/drawer is said to
have a/double intent. First he intends
to make the instrument payable to the
person before him or in front of him –
the person is he is dealing with
regardless of whoever he is. The 2nd
intent is that he intends that it be
payable not to the person in front of
him but to the real person – the payee
that this person says he is. In general,
the rule is if the 1st intent was present
the maker/drawer is liable. So, what is
important is the determination of who
the payee intended is.
Eg. A person approaches me and says,
“ I am Pablo. I have a check in my favor for
P10, 000.” But the person is really Pedro. Now
I issue a check in the name of Pablo. What is
my intention?
What is forgery?
By forgery is meant the counterfeit making or
fraudulent alteration of any writing, and may
consist in the signing of another’s name or the
alteration of an instrument in the name, amount,
description of the person and the likes, with
intent to defraud. The intent to defraud
distinguishes forgery from innocent alterations
and spoliation.
1st : I intend to the check to the
person in front of me – to the person I am
What are the forgeries not referred to in
sec. 23?
-
dealing with. It does not matter whether
his name is Pablo or Pedro. I am making
fraud in factum – or fraud in esse
contractus. Here, there is fraud in the
sense that ther was really no intention
to issue an instrument. As it amounts
to forgery, it has the effects of forgery
such that it is a real defense.
eg. B obtains the signature of A
by telling A that it is only for
autograph purposes or that it is
for some document (other than
a NI) then B converts the paper
into a NI. The fraud here
amounts to forgery.
the transaction because of what he offers
regardless of his identity.
2nd : I intend to make the check
payable to the real Pablo – the person who
Pedro says he is.
(a) The 1st intent governs because of the
theory of actual intent and of stopped
or negligence. If the check is
encashed, the bank, in paying Pedro
would merely give due course to my
real intent – that it be paid to the
person I directly dealt with and to
whom I intended it to be paid to.
Secondly, because the bank is
innocent as I am too, and as between
two innocent parties, the one who was
negligent must be bear the loss. I was
negligent is not ascertaining his
identity. I am stopped to deny my real
intent because it was within my power
to ascertain but that I failed to do so.
This must be distinguished from fraud in
document because the letter is only a
personal defense as there really was an
intention of issuing an instrument. Eg. A
sell to B a diamond rings showing the
merchandise to A. But it is only glass. A
makes out a check in B’s favor for it. While
the consent is vitiated, thus rendering the
contract voidable, there was still intent to
issue a check. The defense is only
16
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(b) The 1st intent cannot rule when the
maker/drawer issues to a person an
instrument where the person before
him purports only to be an agent of the
intend payee (given: maker was’nt
negligent).
EXCEPTIONS:
1) but, only the signature forged or made
without authority is stated by the law to
be inoperative, neither the instrument nor
the genuine signatures are rendered
inoperative. Proof that the one of several
signatures in a note was forged does not
necessarily avoid the note as to those
whose signatures as are genuine – such as
those who actively procured the forgery or
had knowledge.
What type of forgery does sec. 23 refer to?
Sec. 23says, “when a signature is forged…” it
applies therefore only to (1) forged signatures
(forger does not purport to be an agent of the
person whose signature he has forged) or (2)
signatures made without the authority of the
person whose signature it purports to be (forger
purports to be agent but has no authority). If the
problem is something else other than the
signature, then sec. 23 will not apply. If what was
changed was the amount or the name of the
payee, sec. 124 on material alternation rather
than sec. 23 should apply.
2) further, the instrument can be enforced by
holders to whose title ever the instrument
the forged signature is not necessary.,
such as, an endorsement of an instrument
which on its faco is payable to bearer.
Whether an indorsement on a not
necessary for the holder’s title is genuine
or forged is immaterial to his right to
recover such instruments can be
negotiated by mere delivery so that the
forged signature is irrelevant to his title.
What are the three fundamental rules as
to the effect of a forged signature?
PROBLEM: A made a Promissory note “I
promise to pay B or order P1, 000. sdg A. “A is
the maker and B is the payee. B however lost
the instrument. C found it and simulated the
signature of B and negotiated the instrument
to D. D negotiated it to E. Can E go against A,
B, C, D? Explain.
that the signature forged or made
without authority is wholly
inoperative;
that no right to retain the
instrument, or to give discharge
therefore or enforce payment
thereof against any party thereto
can be acquired through or under
such a signature forged or made
without authority.
That, nevertheless, as against a
party preclude from setting up to
the forgery or want of authority,
the signature forged or made
without authority is operative, and,
rights to retain the instrument the
instrument, to give discharge
therefore , or to enforce payment
thereof, can be acquired through or
under the signature forged or made
without the authority.
ANSWER:
First, does this problem involved sec.
23, forgery of a signature? Obviously, it does.
Second, find out where the forgery occurred.
In this case, the forgery occurred at the point
of C. So this is the cut-off point. All those
below or subsequent to the cut-off point. Are
liable to the holder. All those above or prior to
the cut-off point are not liable to the holder.
Visually
A } not liable
B } not liable
---------------------- cut-off point
C } liable
What is meant by “it is wholly inoperative?
D } liable
The word it refers to forged signature, not
to the whole instrument. It means that the forged
signature cannot be used to transfer title ever
that the instrument to another person. The forged
signature cannot operate to transfer title to
another. Because the signature is inoperative, the
holder never acquires valid title to the instrument
so that it is a real defense as against any holder.
E } holder
(1) as to D, under sec. 23, D is preclude from
setting up the defense of forgery. This is
because, under sec. 65 & 66, an indorser
warrants that an instrument is genuine
and in all respects what it purports it to
17
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
be. In other words, when D negotiated the
note to E, in effect, he said, the instrument
is genuine and it is valid. “ Having
impliedly said this, he cannot thereafter
say that the instrument is invalid. He is
stopped by his own warranty.
As to C, being the forger, he is guilty of
a criminal offense and is liable for all
the consequence of his criminal act.
But, more than that, under sec. 18 as
an exception to the general rule, the
forger is liable as he is deemed to have
signed under a trade name or assumed
name. Thus, the forger has the same
warranty as the general indorser.
Otherwise, the forger would be
occupying a position better than of a
general indorser.
holder can even cross out all those
indorsement not necessary (sec. 48). Once
an instrument is payable to bearer, it will
always remain a bearer instrument not
withstanding the special indorsement. If
the crosses them out, it will be as if the
note was delivered directly in him.
Therefore. E can hold A, B, C, D.
While the cut-off point rule is used
above in the situation of an
indorser, it is also applicable to
forgeries of a maker’s/drawer’s
signature such that all parties such
that all parties below the cut-off
point (all parties subsequent to the
maker/drawer) can be held liable
but not the maker/drawer. Further,
under sec. 18, he whose signature
does not appear thereon is not
liable on the instrument.
(1) As to B, because under sec. 10 “ A person
where signature does not appear thereon
is not liable on the instrument. “B did not
sign. Somebody signed for him without his
authority. His signature does not appear
on the instrument and thus, he cannot be
liable thereon. Moreover, under sec. 23,
the forged signature (made by C) is totally
or wholly inoperative. Therefore, no title
was validly transferred from B to C to D to
E. therefore E acquired only the right that
cannot be upheld as against B and any
party prior to the forgery, it being wholly
inoperative, there is no right even to
retain the instrument or to enforce
payment thereof against any party
thereto.
(2) As to A, insofar as A is concerned, the
signature forged is wholly inoperative and
therefore it did not validly transfer title to
the instrument to E. And E as against A
has no right to retain the instrument ant to
enforce payment thereof. (Further, A
bound himself to pay the order of B. E
cannot be regarded as such.
Who are precluded from setting up the
defense of forgery?
Those who warrant or admit the
genuineness of the signature in question:

indorser – whether general or qualified,
warrant that the instrument is
genuine and in all respects
what it purports to be (sec. 65
& 66)

person negotiating by mere delivery – also by
sec. 65.
Acceptors – by accepting the bills, he admits
genuineness

Those who, by their acts, silence or
negligence are stopped from setting up
the defense of forgery.
Whenever a party has, by his own
declaration, act or omission, intentionally
and deliberately led another in believe
that his or another’s signature in an
instrument is genuine, an to act upon such
belief, he cannot, in any litigation, a rising
out of such declaration, act or omission,
be permitted to set up the forgery of such
signature. Stopped arises from:
SUPPOSE: In problem 1, the note was a bearer
instrument but C, in forging B’s signature,
indicated that it was payable to him in the back
was put “ Pay to D. sgd.C.” D negotiated it to E,
(1) a declaration;
(2) an act;
(3) omission or negligence – (such as
unreasonable delay)
What are the causes of forgery in general?
“Pay to E. sgd.D” Can E now go against A,B,C,D?
(1) Sec. 23 applies only the instrument
payable to order not to those payable to
bearer. The forged signature of B is not
necessary to the title of the holder. The
I. Forgery of promissory notes:
18
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
i. forgery of an endorsement
in the note;
2.)forgery of the maker’s
signature
Metro Bank cleared…office all prior endorsement
and/ or lack of endorsement guaranteed. “ the
check cleared the same day and FNCB paid MB
the P 50, 000. Within 6 days, Sales whose
account was credited with the amount, withdrew
the money. But before the last withdrawal, MB,
alarmed at the activity of the account, clarified
the matter with FNCB which gave its approval.
Upon receipt of the check, Cunanan notified FNCB
of the alternation. FNCB asked MB to reimburse
the amount but the latter refused. Who is liable?
II. forgery of bills of exchange:
a) forgery of an indorsement in the bill;
b) forgery of the drawer’s signature.
a. with acceptance by the drawee, or
b. without such acceptance but the
bill is paid by the drawee.
The cut-off point rule discussed above is
a sufficient guide to see who can be held
liable on instruments payable to order
whether the forgery is of the
indorsement or maker’s/drawer’s
signature. What remains to be discussed
is the liability of the drawee in bills
where the indorsement is forged. (below)
SC declared that under CBC no. 9, the drawee
bank (FNCB) must return the check within 24 hrs.
from receiving it from the CB clearing house to
the collecting bank for any defect such as an
alteration. The stamped guarantee of MB must be
read with CBC no.? That the liability of the
collecting bank on such stamp is limited to the
said 24 hrs. Here, FNCB returned the check only
after 9 days. Further, the approval given by FNCB
of the last withdrawal shows the drawee’s
negligence and stopps them from claiming
otherwise. FNCB IS LIABLE.
As mentioned, when the note/bill is
payable to bearer, sec. 23 is not
applicable but a holder who is a HIDC
can recover not by virtue of sec. 16
(given the instrument is complete).
CBC No. 9 has been superseded by CBC
No. 580 (1997). Under 580 the attention of
the collecting bank must be called within
24 hrs. from the date of discovery of the
fraud, forgery or material alteration. If the
case happened at present, MB would have
to reimburse FNCB for the amount.
As to the acceptor, his acceptance
precludes him from setting up the
defense of forgery by virtue of his
warranties in accepting. Also, in paying
without previous acceptance, the
drawee cannot collect from the drawer
nor the recipient HIDC. The acceptor is
deemed constructively negligent in
failing to meet its obligation to know its
customer’s (drawer) signature. The basis
of such liability is not that payment is
tantamount to acceptance but that of his
negligence. (Here it is the drawer’s
signature which is forged).
This case, strictly speaking, involves
material alteration and is not applicable to
Sec. 23 except as tro the liabilities of the
drawee bank and the collecting bank in
cases falling within the scope of Sec. 23.
Therefore, if the drawee bank is vigilant as
to inform the collecting bank within 24
hrs. from discovery, the liability for forged
checks will lie with the latter. The remedy
of the collecting bank is to insure itself
against such losses. If the public cannot
hold the collecting bank liable, it will no
longer use checks but rather cash.
Commercial transaction s will bog down.
Consequently, the economy will stand still
and the banks will suffer. The drawee bank
is liable only for the signature of the
drawer. It is only to such party that the
bank has privity with. The collecting bank
has privity with the depositor who is the
principal culprit in the case. Thus, it has
duty of diligence.
What rules used govern checks?
The same rule used for the other NI – the cut-off
point rule – with the exception of the
determination of the drawee bank’s liability vis-àvis each other.
METRO BANK VS. FNCB (118 SCRA 537)
Cunanan & Co. drew a check for P 50, 000 with
FNCB as the drawee in favor of Manila Polo Club.
By unknown circumstances, Sales was able to
obtain the check, altered the same (making it
payable to cash and for P 50, 000) and deposited
it with Metro Bank. MB then sent the check to the
CB clearing house with stamp on the back: “
II. CONSIDERATION
Sec. 24. Presumption of consideration. Every negotiable instrument is deemed
19
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
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.
One who gives valuable consideration for
an instrument issued or negotiated to him is a
holder for value.
ILLUSTRATION: A, maker, B, payee. B indorses
to C, C to D, D to E, holder. Between A & B no
valuable consideration. Between B & C valuable
consideration is given. Between D & E it is not
known whether value was given.  E is a holder
for value as to A, B and C because at C’s time
there was valuable consideration given and A, B,
and C were partiers prior to the time when value
had been given. As to D, it is not known.
What does this section provide?
Under this Section, the mere introduction
or negotiation of a note raises a disputable
presumption of a sufficient consideration . It is
unnecessary to aver or prove consideration, for
consideration is imported and presumed from the
fact that it is a NI. The person (maker/drawer or
indorser) claiming that a payee or indorsee did
not give valuable consideration for an instrument
must prove that there really was no valuable
consideration given.
Sec.
27.
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. 25. Value, what constitutes. — Value is
any consideration sufficient to support a
simple contract. An antecedent or preexisting debt constitutes value; and is
deemed such whether the instrument is
payable on demand or at a future time.
Suppose: Erwin, out of love and affection,
issued a promissory note in favor of Anne
Marie, “ I promise to pay Anne Marie or
order P1,000.00. sgd. Erwin.” As a birthday
gift. But Anne Marie owes Peter P6000.00.
Because of the persistence of Peter for AM
to pay him, she surrenders the instrument
to him. Peter is now the holder. Can Peter
go against Erwin?
What is valuable consideration?
Consideration means inducement to a
contract that is, the cause, motive, price or
impelling influence which induces a contracting
party to enter into a contract. Valuable
consideration consists either in some right,
interests, profit or benefit accruing to the party
who makes the contract, or so, forbearance,
detriment, loss or some responsibility to act or
labor, or service given, suffered or undertaken by
the other side. Consideration founded on (1) love
and affection, or (2) upon gratitude, is good
consideration, but does not constitute such
valuable consideration as is sufficient to support
the obligation of a bill or note, as between
original parties. Included on this are gifts,
services without expectation of compensation,
moral obligations. These are not valuable
consideration contemplated by the NIL., although
the same are considered so by the Civil Code. A
valuable consideration need not be adequate. It is
sufficient
if
it
is
a
valuable
one.
Given the lack of valuable consideration
between Anne Marie and Erwin applying Sec. 27,
Peter is considered a holder for value to the
extent of his debt or lien- P600 and can go
against Erwin for such amount. As to the P400
remaining, as Peter is not considered a holder for
value to such extent, he may not collect it.
Absence of consideration, being a personal
defense (Sec. 28), can be used as against those
not HIDC. Since being a holder for value is one of
the requisites of a HIDC, Peter can not be
considered as HIDC and thus, the defense of lack
of consideration is available to Erwin as against
Peter. HOWEVER, if sufficient consideration
existed between Anne Marie and Erwin, Peter
may collect the entire sum subject to the
obligation to return the excess to AM. But, also, if
the defense of Erwin is a real defense, Peter may
not recover from the instrument despite his lien.
Sec. 26. What constitutes holder for value. Where value has at any time been given for
the instrument, the holder is deemed a
holder for value in respect to all parties who
become such prior to that time.
Sec. 28. Effect of want of consideration. Absence or failure of consideration is a
matter of defense as 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.
What is a holder for value?
20
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
What is absence of consideration? Failure of
consideration? Distinguish the two.
valuable consideration when he executed the
instrument as the law requires such absence. (In
contrast, under the Civil Law, the absence of
consideration renders the contract defective.) The
placing on the note of the words “ value
received” does not negate the character of the
note as an accommodation paper. The phrase
without receiving value therefore “ means without
receiving value by virtue of the instrument and
not as it apparently is supposed to mean, without
receiving payment for lending his name.
Absence of consideration is a total lack of
any valid consideration such as when the
consideration for commercial paper is clearly
fraudulent. Failure of consideration is the neglect
or failure of one of the parties to give, to do or to
perform the consideration agreed upon. Want or
absence of consideration embraces transactions
where no consideration was intended to pass
while failure of consideration was contemplated
but that it failed to pass.
ILLUSTRATION:
Illustrate partial failure of consideration.
1. ACCOMODATION MAKER- A wanted to
borrow money from B. But B would not
lend the money to A because of the
former’s bad reputation. A would only lend
B the money if the latter were able to
secure the signature of C. B asks C to
execute a PN in his(B) favor. C makes a
PN, “I promise to pay B or order P1,000.00
sgd. C.” B then indorses the note to A and
B gets the P1,000.00 from A.
Suppose that in a note for P1,000.00 the
extent of want of consideration is only P600.00
That is, B., payee, gave A, maker valuable
consideration to the extent of P400.00. A can
interpose want of consideration pro tanto, or
proportionate- only to the extent of P600.00. C,
holder, if he is not a HIDC, can only collect from A
P400.00. But, if he were a HIDC, he can collect
the entire amount.
In this eg., B is the accommodated
party. C is the accommodated party
(maker). He become a party to the
instrument as maker but only for
the purpose of lending his name or
credit to B so that B can raise the
money he needs. C who as a maker
is ordinarily primarily liable, is only
secondarily liable, is primarily
liable. This is because ultimately,
the accommodated party is the one
required to pay. But if due date
comes and B cannot pay, C can be
held liable to pay despite A’s
knowledge that C is only an
accommodated party. Then, C after
payment can have recourse as
against the one primarily liable, the
accommodated party -. (In my
opinion, when due date comes is C
that A should go against. After
payment, only then can B held
liable. So, the maker is still
primarily liable – at least, at first).
What kind of defense is absence or failure
of consideration?
Failure or absence of consideration ,
whether total or partial, can be interposed as a
defense only against persons not HIDC but not
against HIDC. These defenses are, therefore, only
personal or equitable defenses.
Sec. 29. Liability of accommodation party. An accommodation party is one who has
signed the instrument as maker, drawer,
acceptor, or indorser, without receiving
value therefor, and for the purpose of
lending his name to some other person.
Such a person is 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.
What is an accommodation party?
An accommodation party is one who has
signed the instrument as maker, drawer, acceptor
or indorser without receiving value therefore, and
for the purpose of lending his name to some
other person. The requisites therefore are : (1) he
must be a party to the instrument, signing as
maker, drawer, acceptor or indorser; (2) he must
not receive value therefore; and (3) he must sign
for the purpose of lending his name or credit.
Thus, it is not a valid defense that the
accommodation party did not receive any
A corporation cannot be held liable
as an accommodation party. This is
because a corporation cannot issue
instruments
without
a
consideration. And under sec. 22,
while title may pass as to the
instrument, the corporation may
not be held liable due to its want of
capacity (to issue “consideration less” NI). In such cash, it is the
21
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
officers who issued the instrument
who must be held liable in their
individual capacities. Such an act is
considered ultra vires. (See cases)
52, that is, the holder for value
must have acquired the instrument
complete and regular on its face,
before it is overdue and without
notice of previous dishonor. Where
he does not meet all these, thus
not a HIDC, sec. 28 not a sec. 29
applies. The accommodation party
may interpose the defense of its
being an accommodation party to a
holder not HIDC.
2) ACCOMODATION INDORSER – in the eg.
Above instead of asking C to execute a PN, B
makes a note favor of A. B asks C to indorse the
note without receiving value therefore. Here, C is
considered an accommodation indorser. Such
endorsement is for the purpose of better securing
the payment of the note.
A solidary accommodation party (1)
may demand from the principal
debtor reimbursement of the
amount he paid; and (2) may
demand contribution from his co–
accommodation makers without
first directing his action against the
principal debtor provided that (a)
he made the payment by virtue of
a judicial demand; or (b) the
principal debtor is insolvent.
3) ACCOMMODATION DRAWER – in the eg.
Above, instead of executing a PN, C executes a
BOE with B as the payee even though no valuable
consideration is received by C.B then indorses the
bill to A, who gives the proceeds to B.
4) ACCOMMODATION ACCEPTOR – in the eg.
Above, instead of ask C to accept the bill drawn
by him (B) in this own favor. Then, B indorses the
bill (that was accepted by C) to who gives the
money.
III. NEGOTIATION
What is the legal position of the
accommodation party?
Sec. 30. What constitutes 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. If payable to bearer, it is
negotiated by delivery; if payable to order,
it is negotiated by the indorsement of the
holder and completed by delivery.
The accommodation party is generally
regarded
as
a
surety
for
the
party
accommodated. It is not the accommodation
party that is ultimately liable for the instrument
issued. It is the accommodated party. When the
accommodation party makes payment to the
holder, they have the right to see the
accommodated party for reimbursement since
the relation between them is in effect that of
principal and sureties. The accommodated party
cannot recover from the accommodation party
because, as between them, absence of
consideration
is
a
valid
defense.
The
understanding between them is either: (1) the
accommodated party pays the instrument directly
to the holder; or (2) the accommodated party
reimburses
the
amount
paid
by
the
accommodation party to the holder.
DEFINITION OF TERMS:
1. Transfer- to convey property from
one person to another;
2. Holder- the payee or indorsee of a
bill or note who is in possession of
it or the bearer thereof (Sec. 191).
What
1.
2.
3.
A holder despite his knowledge
that the party he holds liable is just
an accommodation party can still
recover from such party as if there
was no contract of accommodation.
The knowledge of the holder does
not effect his being an otherwise
HIDC.
Thus,
to
hold
the
accommodation party liable, the
holder, except for the knowledge of
want consideration, must
meet all the requisites under sec.
are the 3 types of transfer?
by assignment;
by operation of law
by negotiation which may either be by
indorsement completed by delivery or by
mere delivery.
What is assignment?
Generally, it is a method of transferring a
non-negotiable instrument whereby the assignee
is merely placed in the position of the assignor
and acquires the instrument subject to all
defenses that might have been set up against the
original payee. The effect of the assignment is
that the p[arty holding the right drops out of the
contract and another takes his place. Each
assignee takes his chances as to the exact
22
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
position in which any party making an
assignment of it stands. Where the holder of a bill
payable to order transfers it without the
indorsement, it operates as an equitable
assignment but the assignee has the right to
compel the assignor to indorse the instrument
(Sec. 49).
according to the terms thereof. That, further, if
the instrument is not paid by the one primarily
liable, the indorser, after due notice of dishonor,
will pay. There is an added obligation upon the
instrument reside from what appears upon the
face of the instrument.
When does transfer of operation of law
occur?
Where is the indorsement written?
The full title to a bill or note may pass
without either assignment, indorsement or
delivery but by operation of law by:
1. the death of the holder, where title vests
in
his
personal
representative
(Succession);
2. the bankruptcy of the holder, where title
vests in the assignee or trustee
(insolvency), or
3. upon the death of a joint payee or
indorsee in which case the general rule is
that the title vests at once in the surviving
payee or indorsee.
The indorsement may be written (1) on
the instrument itself; or (2) upon a paper
attached thereto. Where it is written on the
instrument itself, it is usually written on the back.
But, the law looks to the intention of the parties
rather to the form as to indorsement. The place is
not essential. Where the instrument is written on
a paper attached to the instrument, such paper is
called an “alone.” The paper must be attached to
the instrument so as to become part of it. A
temporary attachment cannot be considered an
allonge. Further, the use of an allonge is not
limited to when there is an impossibility of
indorsing on the instrument due to lack of space.
The indorserment is not invalidated by the fact
that is written on another paper even if there is
still space for indorsement on the instrument
itself (Agbayani’s opinion).
What is negotiation?
It is the transfer of an instrument form one
person to another so as to constitute the other
the holder thereof. There is no negotiation if the
transfer does not make the transferee the holder
of the instrument. Where the instrument is
payable to order, it is negotiated by the
indorsement of the holder completed by delivery,
and where it is payable to bearer, by mere
delivery. But where the instrument is payable to
bearer and it was indorsed and delivered, the
transferor shall be liable as an indorser. Further,
for the holder to hold liable such indorser, the
former must be able to trace his title through an
unbroken chain of indorsement (Sec. 40)
NOTE: an indorsement has to be
only in writing. It may thus be
printed such as typewritten or
stamped.
Sec. 32. Indorsement must be of entire
instrument. - The indorsement must be an
indorsement of the entire instrument. An
indorsement which purports to transfer to
the indorsee a part only of the amount
payable, or which purports to transfer the
instrument to two or more indorsees
severally, does not operate as a negotiation
of
the
instrument.
But
where
the
instrument has been paid in part, it may be
indorsed as to the residue.
Sec. 31. Indorsement; how made. - The
indorsement must be written on the
instrument itself or upon a paper attached
thereto. The signature of the indorser,
without additional words, is a sufficient
indorsement.
What is the nature of indorsements?
What is the rule on indorsements of the
amount?
Indorsement is the writing of the name of
the indorser on the instrument with the intent
either in transfer the title to the same, or to
strengthen the security to the holder by assuming
a contingent liability for its future payment, or
both. An indorserment is not only a mode of
transfer. It involves also a new contract and an
obligation on the part of the indorser – an impiled
guaranty that the instrument will be duly paid
The general rule is that the indorserment must be
of the entire amount. An indorsement must of the
part of the instrument does not one rate as a
negotiation thereof but may constitute a valid
assignment binding between the parties ( thus,
the holder is susceptible to defenses available
23
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
against the assigner). An instrument is said to be
indorsed partially when eg. The note is for P1,000
but the indorsement states, “Pay to X P400”. But
where the instrument has been paid in part, it
may be indorsed as to the residue (eg. in the eg.
above, suppose the maker paid P6000 already.
The indorsement for P400 would then be valid as
the negotiation). Further, an indorsement which
purports to transfer the instrument to 2 or more
indorsees severally does not operate as a
negotiation. (eg. in the above eg., suppose the
indorsement read, “Pay to X P400 and Y P600 is
not a valid negotiation but “Pay to X and Y
P1,000” is).
BLANK INDORSEMENT- ONE WHICH SPECIFIES NO
INDORSEE. Such an indorsement generally
consists only of the signature of the indorser.
How are instruments so indorsed,
negotiated further?
Where the instrument is originally payable to
order and it is negotiated by the payee by special
indorsement, it can be negotiated by the indorsee
by indorsement completed by delivery. Where the
instrument is originally payable to order and it is
negotiated by the payee by blank indorsee, it can
be further negotiated by the holder by mere
delivery. Where the instrument is originally
payable to bearer, it can be further negotiated by
mere originally delivery, even if the original
bearer negotiated it by special indorsement.
(once a bearer instrument, always payable to
bearer).
Sec. 33. Kinds of indorsement. - An
indorsement may be either special or in
blank; and it may also be either restrictive
or qualified or conditional.
What are the kinds of indorsement?
Sec. 35. Blank indorsement; how changed
to special indorsement. - The holder may
convert a blank indorsement into a special
indorsement by writing over the signature
of the indorser in blank any contract
consistent with the character of the
indorsement.
It may either be: (1) special, or (2) in blank (both
sec. 34), or (3) restrictive, or (4)non – restrictive
(sec. 36), or (5) qualified, or (6) unqualified or
general (sec. 38,66), or (7) conditional, or (8)
unconditional,
or
(9)
joint
(sec.
41),
(10)successive (sec. 50,68), or (11) irregular (sec.
64), or (12) facultative (sec. 111).
The difference between special and blank
indorsement is only significant. When the
instrument is originally payable to order because
a bearer instrument, even if specially indorsed, is
no different from one indorsed in blank. They are
still negotiated by mere delivery.
Sec. 34. Special indorsement; indorsement
in blank. - A special indorsement specifies
the person to whom, or to whose order, the
instrument is to be payable, and the
indorsement of such indorsee is necessary
to
the
further
negotiation
of
the
instrument. An indorsement in blank
specifies no indorsee, and an instrument so
indorsed is payable to bearer, and may be
negotiated by delivery.
ILLUSTRATION: A makes a note with B as payee. B
negotiates it to C, signing only his signature. C,
holder, may place above such signature “Pay to
C” to convert the blank indorsement into a
special one.
What are the 2 kinds of indorsement
specified in sec.34?
SPECIAL INDORSEMENT- one that (1) specifies the
person to whom the inodrsement is payable (eg.
“Pay to A”) or (2) specifies to whose order it is
payable, (eg. “Pay to A or order”). In both cases,
the indorsement is followed by the signature of
the indorser. The omission of the words of
negotiability such as “ or order” and “ to the
order of “ do not affect the negotiability of the
instrument which is negotiable on its face (sec.
36) since it is only an indorsement.
LIMITATIONS: The holder must not write any
contract not consistent with the indorsement,
that is, the contract so written must not change
the contrat of the blank indorsement. Consistency
shall be judge with the intention of the parties.
Eg. of inconsistent – (1) “Pay to X and Y” when it
was intended to be payable to only one person.
(2) “ Demand and noticed waived”. (3) “ I
guaranty payment”. (4) “ without recourse.”
24
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
The restrictive indorsement which are
hold to negative the presumption of consideration
are such as to indicate that they are not intended
to pass title but merely to enable the indorsee to
collect for the indorser.
Sec. 36. When indorsement restrictive. - An
indorsement is restrictive which either:
(a) Prohibits the further negotiation
of
the
instrument;
or
(b) Constitutes the indorsee the
agent
of
the
indorser;
or
Mere absence of the words implying
power to negotiate does not make an
indorsement restrictive. Thus, “Pay to X” is the
same as “Pay to X order” where the instrument is
payable to order. The omission of the word
“order” does not render the indorsement
restrictive. But while the omission of the words of
negotiability in the indorsement does not affect
the negotiability of the instrument, ssuch
omission in the body thereof will render the
instrument non-negotiable. Restrictive
indorsements serve to limit only the negotiability
of an instrument originally negotiable.
(c) Vests the title in the indorsee in
trust for or to the use of some other
persons.
But the mere absence of words implying
power to negotiate does not make an
indorsement restrictive.
What is a restrictive indorsement?
A restrictive endorsement is one so worded that it
either restrict or prohibits entirely the futher
negotiation of an instrument, an indorser notifies
all prospective holders that the indorsee has only
the authority to deal with the instrument as
thereby directed and that the indorsee has only a
restrictive title thereto. By such indorsement, an
indorser can safeguard his interest whenever he
should find it necessary to entrust negotiable
paper to another. A restrictive indorsement
destroys the negotiability of the instrument and
bars further negotiation to a HIDC. All subsequent
indorsees acquire only the title of the first
indorsee under the restrictive indorsement.
Sec. 37. Effect of restrictive indorsement;
rights
of
indorsee.
A
restrictive
indorsement confers upon the indorsee the
right:
(a) to receive payment of the
instrument;
(b) to bring any action thereon that
the
indorser
could
bring;
(c) to transfer his rights as such
indorsee, where the form of the
indorsement authorizes him to do so.
But all subsequent indorsees acquire only
the title of the first indorsee under the
restrictive indorsement.
Eg. of (a) prohibition –
“Pay to C only” or “ Pay to C and no
other”.
Of (b) “ agency type” of restrictive
indorsement
for deposit”.
ILLUSTRATION: In the indorsement, “Pay to A for
collection. sgd. P”. a is merely an agent of P and
because of this, A may (1)receive payment of the
instrument; (2) bring any action thereon that the
indorsee could bring (subject to the same
defenses available against the indorser); and (3)
if authorized, may transfer his right to another by
negotiating the instrument. But such subsequent
indorsee acquires only the title of the agent, A,
whose right is merely to colloect.
“Pay to C collection”. or “Pay to C
Here, C does not acquire title over
the instrument. He is merely an
agent of the indorser. Thus, he is
subject to all the defenses available
as against the indorser.
Of (c) in trust for another –
-
“ Pay to X in trust for C.” or “ Pay
ti X for the use of C”.
-
The right to receive payment and the
right to bring any action that the indorser could
bring are available under any form of restrictive
indorsement. The 2 rights are the basic rights of
indorsees in instruments with restrictive
indorsement.
Here, there is transfer of legal title to
the instrument to the indorsee as
trustee. And give notice that the
paper cannot be negotiated by him
for his own debt or for his own
benifit. Further, it is he opinion of
“learned writers” that the indorsee is
not subject to the defenses available
as against the indorser.
Not all forms of restrictive indorsement
destroy negotiability of an instrument. Only those
which fall within sec. 36 (a) do so. While all three
25
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
forms of restrictivce indorsement impose some
degree of limitation and it is the indorsement
itself that discloses the extent of the limitation.
This is the reason for (c). The indorsee may, if
authorized, negotiate further the instrument but
all subsequent indorsees acquire only the title of
the original indorsee – an agent.
A qualified indorsement does not impair
the negotiable character of the instrument.
Sec. 39. Conditional indorsement. - 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.
What is an absolute indorsement? A
conditional indorsement?
Sec. 38. Qualified indorsement. - A qualified
indorsement constitutes the indorser a
mere assignor of the title to the instrument.
It may be made by adding to the indorser's
signature the words "without recourse" or
any words of similar import. Such an
indorsement does not impair the negotiable
character of the instrument.
What is qualified indorsement?
An absolute indorsement is one by which the
indorser binds himself to pay, upon no other
condition than the failure of prior parties to do so,
and upon due notice to him such failure. On the
other hand, a conditional indorsement is one by
which the indorser annexes some other condition
to his liability, that is, where there is some
condition in the indorsement. The indorsement is
subject to the happening of a contogent event
(an event that may or may not happen) or a past
event unknown to the parties. Like restrictive
indorsements, it must be remembered that the
pressure of conditions in the indorsements does
not render the instrument non-negotiable. Only if
the condition is on the face or on the original
contract of the instrument is the instrument
rendered non-negotiable as the promise or order
to pay is conditional.
It is one made by adding to the indorser’s
signature the words “ without recourse”,
“indorser not holden”, “ at indorsee’s one risk”,
ao any words of similar import. It constitutes the
indorser a mere assignor of the title to the
instrument. “Without recourse” means without
resort to a person who is secondarily liable after
the default of the person who is primarily liable.
The purpose of such indorsement is to trasfer title
without guaranteeing payment. In effect the
indorser states that “all parties to the paper and
genuine, that the indoreser is the lawful holder of
that paper and has title to it, and that he knows
of no reason why the indorsee cannot recover,
but that he does not guarantee the financial
responsibility of the parties on the paper.
When can the qualified indorser be held
secondarily liable?
ILLUSTRATION: A executes a note in favor of B for
P100. B indorses the note to C stating into the
indorsement, “Pay to C, if he passes the bar
exams. Sgd. B. “it is a conditional indorsement as
the event is not certain to happen (and it is in the
indorsement). But, under sec. 39, the maker can
disregard the condition and pay C the proceeds
despite the non-occurrence of the event. The
maker may also honor the condition set and
refuse to pay. If the note was paid, C holds the
proceeds thereof in trust while the condition is
not fulfilled. C does not acquire ownership over
the sum. It is upon fulfillment of the condition
that such ownership over the proceeds is
absolutely acquired by the conditional indorsee.
In general, an indorser is secondarily liable. A
qualified indorser is still secondarily liable but his
liability is limited. He is not entirely free from
secondarily liability. He is secondarily liable on
breaches of his warranties as an indorser under
sec. 65. He can be held liable if the instrument is
dishonored due to: 1 forgery 2 lack of good title
on the party of the indorser: 3 lack of capacity to
indorse on the part of prior or parties 4 the fact
that, at the time of indorsement, he knew that
the instrument was valueless or not valid. The
only thing he does not warrant is the solvency of
the person primarilyliable if the failure to recover
was due to the fact of the insolvency at the time
os indorsement, he is liable for breach of is
warranty that he did not know of any fact that the
instrument was valueless.
Sec. 40. Indorsement of instrument payable
to bearer. - Where an instrument, payable
to bearer, is indorsed specially, it may
nevertheless be further negotiated by
26
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
delivery; but the person indorsing specially
is liable as indorser to only such holders as
make title through his indorsement.
This section applies to instruments which
are originally payable to bearer. It does not apply
to order instruments converted to bearer
instruments because the only or last indorsement
is in blank.
indorse unless the one indorsing has
authority to indorse for the others.
This section applies only to instrument
payable to two or more payees jointly (eg. “Pay to
the order of A and B”). it does not apply to
instrument payable to two or more payees
severally. (eg. “Pay to the order of A and B”). the
latter may be negotiated by the indorsement of
one payee.
What is the rule on indorsements of bearer
instrument?
What is the rule in joint payees?
By virtue of this sec., an instrument payable to
bearer is not converted into an instrument
payable to order by being indorsed specially and
therefore, the indorsee mey further negotiate the
instrument by mere delivery. This means that an
instrument which is originally payable to bearer is
always payable to bearer. But, such indorser,
because of his indorsement, can be held liable
secondarily by those holders who can trace their
title to the instrument by the series of unbroken
indorsements form such special indorser. His
liability is that of a general indorser as provided
in sec. 66.
Where the instrument is payable to two or more
payees (jointly), all payees must each indorse in
order to negotiate the instrument. If only one
indorses, he passes only his part of the
instrument. But such an indorsement would not
operate as a valid negotiation because it would
not be an indorsement of the entire amount
which is contrary to sec. 32. Exception is made
for such rule: (1) where the payee or indorser has
authority to indorse for he others; and (2) where
the payees or indorsees are partners.
Sec. 42. Effect of instrument drawn or
indorsed
to
a
person
as
cashier. - Where an instrument is drawn or
indorsed to a person as "cashier" or other
fiscal officer of a bank or corporation, it is
deemed prima facie to be payable to the
bank or corporation of which he is such
officer, and may be negotiated by either the
indorsement of the bank or corporation or
the indorsement of the officer.
What is the presumption raised in sec. 42?
ILLUSTRATION: A executes a note payable to
bearer for P100 in favor of B. B delivered it to C. C
specially indorsed it to D. D specially indorsed it
to E, holder. Can E go against A,B,C,D,?
E cannot go against B, because there is
mere delivery and there is no unbroken chain of
indorsements. The rule is that the holder must
trace his title to the special indorser to make him
liable through an unbroken chain of indorsement.
The presumption is that the instrument payable
to the cashier or other fiscal officer of a bank or
corporation is presumed payable to the bank or
corporation to which such person is a cashier or
fiscal officer. It is presumed not payable to the
said officer. The instrument may be indorsed by
any duly authorized (by the laws of the said bank
or corporation) officer of the entity other than the
said cashier or fiscal officer. But the presumption
established is disputable by sufficient proof to the
contrary (eg. that the instrument really belongs
and is payable personally to the cashier as the
real creditor of the maker or drawer).
E cannot go against B because. As a
person who negotiates by mere delivery (to C),
warranty under sec. 65 extends only to the
immediate transferee. Thus, B is only liable to C,
not to D & E.
E can go against C & D because E can
trace his title to C (& D) through an unbroken
chain of indorsements.
NOTE: this section deals with special
indorsements, not blank indorsement. So, that if,
in the eg. above, C blankly indorsed it to D, E
cannot go against C as it would be impossible for
him to trace his title to C. (my opinion)
(contrary to Abad’s)
This rule is equally “applicable” to
instruments drawn payable to the treasurer of
municipal or public corporations (eg. a town). But,
since town does not fall within the scope of
“corporation” in sec. 42, the treasurer may not
indorse the said instrument.
Sec. 41. Indorsement where payable to two
or more persons. - Where an instrument is
payable to the order of two or more payees
or indorsees who are not partners, all must
27
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
have taken the instrument before it was overdue.
With this presumption, the person who claims
that the holder is not a HIDC, has the burden of
proving so.
Sec. 43. Indorsement where name is
misspelled, and so forth. - Where the name
of a payee or indorsee is wrongly
designated or misspelled, he may indorse
the instrument as therein described adding,
if he thinks fit, his proper signature.
ILLUSTRATION: An instrument drawn payable to
Alfie Almedo when the name of the payee is
really Alfie Almeda may be indorsed…
Sec. 46. Place of indorsement; presumption.
- Except where the contrary appears, every
indorsement is presumed prima facie to
have been made at the place where the
instrument is dated.
What is the importance of this sec.?
(1) by using the misspelled name – “Pay to
X. sgd. Alfie Almedo”.
(2) Or by writing the misspelled name
with the proper name - “Pay to X. sgd.
Alfie Almedo sdg. Alfie Almeda”.
The place of indorsement is sometimes material
because an indorsement is governed by the laws
of the state where it is indorsed, although the
instrument is drawn or made in a different state.
Sec. 44. Indorsement in representative
capacity. - Where any person is under
obligation to indorse in a representative
capacity, he may indorse in such terms as to
negative personal liability.
How must an agent indorse?
ILLUSTRATION: A bill is dated thus: “Manila, Phil.,
Jan. 7, 1990”.
It is subsequently indorsed without writing the
place of indorsement. The presumption is that it
was indorsed in Manila. But such presumption is
rebuttable.
He must indorse in the same manner as an agent
of the maker, drawer or acceptor should in order
to escape personal liability as required in sec. 20.
Thus, (1) he must add words describing himself
as an agent; and (2) at the same time disclose
his principal (he may also sign only the name of
the principal); and (3) he must be duly
authorized. Otherwise, he is personally liable.
Sec.
47.
Continuation
of
negotiable
character. - An instrument negotiable in its
origin continues to be negotiable until it has
been restrictively indorsed or discharged by
payment or otherwise.
What is the general rule on the negotiable
character of NI?
Sec. 45. Time of indorsement; presumption.
- 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.
What does this mean and why is it
important?
The rule is that once an instrument is negotiable
at its origin, it continues to be negotiable until 1 it
is respectively indorsed (in such a way that is
prohibits further negotiation of the instrument
under sec. 36 [a]); or 2 is discharged by payment
or otherwise. “ Otherwise” refers to the different
ways to discharge an instrument enumerated in
sec. 119.
When the payee indorsees the instrument without
dating his indorsement, the presumption is that
he indorsed it on or before the note’s maturity
date. But, this presumption is rebuttable or
disputable by the sufficient proof to the contrary
and the burden of proof is on the person who
claims it was negotiated after its date maturity. If
the indorsement id=s dated, then the
presumption in this sec. Will not arise but that
presumption in sec. 11 that the date written is
presumed the true date of indorsement. This
section is important because in order to
constitute one a holder in due course, he must
Does the negotiable character cease after
maturity?
No. the mercantile character (1) of the instrument
as negotiable instrument and (2) of the contracts
of the several parties to it, continues after it
maturity and until it is paid except (3) that an
indorsee or transferee after maturity takes the
instrument subject to defenses between the prior
parties, because after maturity such subsequent
parties take the instrument after becomes
28
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
overdue, and thus, under sec. 52(b), they are not
HIDC. Transfer to such transferees would be
equivalent to a mere assignment and subject to
defenses. The position of the holder is that he is a
holder with notice because he takes a bill, which,
on its face, ought to have been paid. He is bound
to make two inquiries: (1) has the bill been
discharged? And (2) if not, why not? Was there a
defect in the title of the person who held it at
maturity? But, even if he is not a HIDC, he
recover from the note subject only to defenses as
if it were non-negotiable.
(2) all subsequent indorsers are also relieved
from their liability on the instrument.
NOTE: conditional indorsements may not
be struck out even if they are not
necessary to the title.
Sec. 49. Transfer without indorsement; effect of.
- Where the holder of an instrument payable to
his order transfers it for value without indorsing
it, the transfer vests in the transferee such title as
the transferor had therein, and the transferee
acquires in addition, the right to have the
indorsement of the transferor. But for the purpose
of determining whether the transferee is a holder
in due course, the negotiation takes effect as of
the time when the indorsement is actually made.
Sec. 48. Striking out indorsement. - The
holder may at any time strike out any
indorsement which is not necessary to his
title. The indorser whose indorsement is
struck out, and all indorsers subsequent to
him, are thereby relieved from liability on
the instrument.
When may the holder strike out
indorsement?
This sec. applies only to instrument payable to
order. This contemplates a case where there is
delivery and payment of value but no
indorsement. There is lacking one element for the
negotiation of the instrument – the indorsement
by the payees or indorser. Thus, it operates as an
equitable assignment.
A holder may strike out any indorsement which is
not necessary to his title. But where an
instrument is transferred by a special
indorsement, the holder has no right to strike out
he name of the indorsee and place his name in its
place nor to convert such special inodrsement to
a blank one. An instrument payable to bearer on
its face may be negotiated by mere delivery
without indorsement. In case it is indorsed, the
holder, by virtue of sec. 48, may strike out all
intervening indorsemnent or any of them because
none of them are essential to his title. But an
instrument originally payable to order may be
negotiated only by the indorsement of the payee
completed by delivery. When the indorsement is
special the indorsement of the special indorsee is
necessary for further negotiation of the
instrument and may not be struck out. When the
indorsement is in blank the instrument becomes
payable to bearer and may be negotiated by
mere delivery. Any special indorsement
subsequent to such blank indorsement may be
struck out as they are not they are not necessary
to the holders’s title (he may claim that the
payee blankly indorsed to him) but the payee’s
indorsement itself may not be struck out as the
indorsement is necessary to his title.
What are the rights of the transferee for
value?
(1) the transferee acquires only the rights of
the transferor, such that if a defense is
available against the transferee.
(2) The transferee has also the right to
require the transferor to indorse the
instrument.
ILLUSTRATION: A executes a note in favor of B but
there is no valuable consideration. B delivers the
note to C for value and under circumstances that
would have made C a HIDC (such that C does not
know of the absence of consideration) where it
not for the lack of B’s indorsement. Can C recover
from A?
No, because C acquires only B’s rights and
B cannot collect from A who can set up the
absence of consideration. The transferee is not a
holder because while he is in possession of the
instrument, he is not he indorsee. He is merely an
assignee.
What can it be determined whether such
transferee is a HIDC?
The time for determining whether the transferee
is a HIDC is as of the time of actual indorsement
not a time of the delivery. The reason is that
negotiation is completed at the time of
indorsement, not at the time of delivery.
What is the effect of striking out
indorsement?
(1) the indorser whose indorsement is struck
out is relieved form liability (secondary) on
the instrument; and
29
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
ILLUSTRATION: In the eg. above, suppose the note
was delivered on Dec. 1, 1990 but was indorse
only by B on Dec. 15, 1990. but on Dec. 10, 1990,
C found out of the absence of consideration.
Thus, on Dec. 15, the time of indorsement, C
cannot be considered a HIDC as he had
knowledge of a defect on the title at the time of
negotiation.
retrieve the instrument. Once retrieved, he can
have that instrument as a more voucher of
payment. It is possible that you may have lost the
instrument. The ownership over it by the copy of
the lost of instrument (?). Only then will the
person primarily liable on the instrument be
compelled to pay the instrument.
What are the classes of holders?
Sec. 50. When prior party may negotiate
instrument. - 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.
(1) Holders in general (sec. 51);
(2) Holders for value (sec. 26); and
(3) Holders in due course (sec. 52,57)
What are the rights of a holder in general?
(1) He may sue on the instrument in his own
name; and
(2) He may receive payment and if the
payment in due course, the instrument is
discharged.
ILLUSTRATION: A executed a note payable to the
order of B. It is indorsed as follows: A
B
C
D
E
B.
- Under this sec., B may continue to
negotiate the note or may recover
from it as a holder (he keeps it instead
of negotiating it). Where he negotiates
it (prior to maturity), after paying the
subsequent holder ( supposing he is
held secondarily liable), he may not
claim payment from any of the
intervening parties – C, D, E as it would
result in circuity of suits. Also, if B
decides to keep the note and try to
recover from it, be may not enforce
payment against C, D, E for the same
reason.
Who has the right to sue on the instrument?
The holder of a negotiable instrument may sue in
his own name, even if he a holder only for
collection or as a pledge of an instrument. It is
believed that even a transferee of an indorsed
instrument (sec. 49) may sue in his own name if
the transferee could have done so. This is
because a transferee of an instrument for value
but without endorsement, under sec. 49 is vested
with such title such title as the transferor had if
the transferor had legal title, this must pass by
the transfer although subject to defenses.
What is “payment in due course”?
Payment in due course is payment made (1) at or
after the maturity of the instrument, (2) to the
holder thereof, (3) in good faith and without
notice that his title is defective.
IV. RIGHTS OF THE HOLDER
Sec. 51. Right of holder to sue; payment. The holder of a negotiable instrument may
to sue thereon in his own name; and
payment to him in due course discharges
the instrument.
Sec. 52. What constitutes a holder in due
course. - A holder in due course is a holder
who has taken the instrument under the
following conditions:
(a) That it is complete and regular
upon
its
face;
Who is a holder?
The holder is the person who is physically in
possession of the instrument. If you are not in
possession of an instrument, you cannot be a
holder, much less, a holder in due course. Even if
you are owners of an instrument but you are not
physically in possession of it, the person primarily
liable on the instrument has all the right to refuse
payment because upon payment of the
instrument of the instrument by the person
primarily liable thereon, he has all the right to
(b) 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
30
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
negotiated to him, he had no
notice of any infirmity in the
instrument or defect in the title
of the person negotiating it.
What is a holder in due course?
ILLUSTRATION OF NOT “COMPLETE AND
REGULAR”:
1) a note payable on a given date
without naming the year;
2) an accepted bill with no drawee
named;
3) a note payable to 2 payees but
indorsed only by 1;
4) a printed note altered in printing;
5) a note payable “on or before after
date”.
A HIDC is a holder who took the instrument under
the conditions enumerated in sec. 52. All the four
conditions must concur a HIDC. If any one of
them is absent., the holder cannot be considered
a HIDC. Under sec. 59, generally, every holder is
presumed prima facie to be a holder in due
course. Thus, a holder need out proved at a very
outset that he is a HIDC. Any one who claims
otherwise must prove that the holder in question
acquired the instrument with one or more
conditions lacking.
When is the instrument overdue?
An instrument is overdue after the date of
maturity. The date of maturity is the time fixed
therein. It may be a fixed or determinable future
time. If the instrument is payable on demand, the
date of maturity is determined by the date of
presentment. If it is a promissory note, it is
supposed to be presented within a reasonable
time after its issue. But if it is a bill, it is should be
presented within reasonable time after its last
negotiation. Eg. Suppose an instrument is issued
today, July 17. In Aug., it was negotiated. In Oct.,
again, until Dec. When was it supposed to be
presented?
If it was a PN, it must have been presented
within a reasonable time after its issue, July. But if
it was a BOE, it must be presented within a
reasonable time after its last negotiation, Dec.
The point of reckoning will differ. Reasonable time
is a relative term defending on a circumstance.
If the instrument is payable on the occurrence of
a specified opening of the event. When the
instrument contains an acceleration clause and
one installment is not paid. Knowledge of the
holder of this fact at the time of acquisition is
notice that the instrument is overdue. Similarly,
if, by the terms of an instrument, the principal is
due upon default of payment of interest, the
holder cannot be considered a HIDC where the
interest is overdue. If the holder acquired the
instrument on the date of maturity, it is not
overdue as the debtor has the whole day to pay.
(If presented to a ba, anytime before close of
banking hrs. if presented to a business office,
anytime before close of business hrs. And if
presented at the house of the person primarily
liable, anytime before the end of the VILMA Show
or before rest hours.) A NI in circulation past its
maturity date carries strong indication that it has
been dishonored.
When is an instrument “complete and
regular upon its face”?
Complete means that the holder acquired the
instrument without any material particular lacking
thereon, that all material particulars are present
on the face of instrument at the time the holder
acquired it. An instrument is deemed not
complete only when there is an omission of any
material particular or particular proper to be
inserted in a negotiable instrument without the
same will not be complete. (Not all forms of
omissions will make the instrument incomplete. It
must be necessary to the instrument).
Eg. The instrument is issued undated and
stated, “ I promiz to pay X or order
P100. sgd. Y”. Is it complete? Yes because
the date is not necessary.
But if the note stated, “ I promise to pay X
or order P100 30 days after date now
Becomes a material particular, as maturity
cannot be determined without it.
An incomplete instrument should put the holder
in inquiry as to why it is incomplete. If he fails to
do so, be takes the instrument subject to all
defenses as he is not a HIDC.
Regular means that the holder acquired it without
any alteration or changes or erasures apparent
on the face of the instrument. (The most common
type of irregularity is an alteration. It must be
apparent on the face; otherwise, the matter is
governed solely by sec. 124 which renders the
instrument void). If it appears that there was a
change in the amount or in the name of the
payee, etc., then the instrument is deemed not
regular on its face and the holder now has the
duty of inquiring. Otherwise, if no inquiry is
made , the holder acquires the instrument not in
good faith and deemed to have notice of a defect
or infirmity in the instrument.
An instrument may be dishonored either by nonacceptance (sec. 149) or by non-payment (sec.
85). Dishonored by non-acceptance, refers only to
a bill of exchange. While dishonor by nonpayment can only take place at the time of
maturity, dishonor by non-acceptance of a bill
31
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
may occur even before the date of its maturity.
The holder must, at the time of negotiation, have
no knowledge that it had been dishonored prior to
his acquisition. Thus, an overdue or dishonored
instrument may still be negotiated to the same
extent as before maturity (sec. 47) but, in case of
the former, the holder cannot be a HIDC, while in
the case of the latter, the holder without notice
can be a HIDC.
SUPPOSE: A PN reads: “ I promise to pay X or
order P100 on July 17, 1991. Today is the due
date. X presents the note at 10am. It was
dishonored by non-payment. At 12nn X
negotiated it to P.P is now the holder of the note.
Is P a HIDC?
 IT DEPENDS on whether at the time of
negotiation P knew of the fact that it was
dishonored. Since it was negotiated on the
due date, it was still on July 18, P can no
longer be HIDC as it is overdue and he is
charge with knowledge of dishonor. The
fact that the note was already dishonored
is not enough to deny P of his capacity of
being a HIDC if he had no knowledge of
such dishonor.
insignificant as compared to the face value, it
should be sufficient notice that there is something
wrong and failure to inquiry is equivalent to bad
faith.
What is meant by “without notice of
infirmity in instrument or defect in the title?
The NIL, in defining things that may be wrong
with an wrong with an instrument uses 3 terms.
(1) Defects of title, (2) defenses, and (3)
infirmities. Defects of title cover all those
situations giving rise to equitable defenses.
Defective title of a person over an instrument
may result from circumstances relating to the
person’s acquisition of the instrument or as to
how he negotiated it. Defect of title is further
elucidated in sec. 35. In the cases cited in said
section, the person acquiring the instrument is
said to have a defective title over it. But, in order
for the holder to be not a HIDC, he must have
knowledge of the defect atr the time of
negotiation. The term “defenses” includes 1.
mistake, 2. absence or failure of consideration
(sec. 28); 3 minority and other forms of
incapacity (sec. 22); 4. lack of authority of an
agent (sec. 19). Infirmities on the other hand,
include things that are wrong with the instrument
itself, they are illnesses which attach to the
instrument, such as:
(1) wrong date as inserted (sec. 13);
(2) filling up of a blank instrument not strictly
in accordance with the authority given or
not within a reasonable time (sec. 14);
(3) filling up and negotiating without authority
an incomplete and undelivered instrument
(sec. 15);
(4) lack of valid and intentional delivery of a
mechanically complete instrument (sec.
16);
(5) agent signing per procuration beyond the
scope of his authority (sec. 21);
(6) for forgery (sec. 23);
(7) material alternation (sec. 124 & 125).
As in the case of defects in title, the mere fact
that such defenses and infirmities exist does not
prevent the holder from being a HID. Rather, it is
the fact that, at the time of negotiation, he had
actual knowledge of such defects, defenses or
infirmities. This fourth condition must be read
together with the condition that the holder take in
good faith. In effect, the fourth condition
elucidates the meaning of good faith. Anyone
who acquires the instrument with notice of such
defects and infirmities would not qualify as a
taker in good faith. To constitute notice, under
sec. 56, the holder must have had actual
knowledge of the infirmity or defect or must have
acted in bad faith. The absence of knowledge and
What does acquired in good faith mean?
Good faith refers to the indorsee or transferee
and not to the indorser or transferee of the paper.
Even if the indorsee is in bad faith, the indorsee
may still be a HIDC. Under sec. 56, bad faith
means that he must have knowledge of facts
which render it, dishonest for him to take a
particular piece of NI. To show bad faith, it is not
necessary to show knowledge of the exact truth
but actual knowledge of some truth that would
prevent action by th commercially honest men.
Surmise, suspicion or fear is not enough. The
element of good faith must be read together with
the element of notice or knowledge of an infirmity
on the instrument or defect on the title of a prior
party. If the holder knew of such defect or
infirmity, he cannot be held to be in good faith.
The term “ holder in good faith” means a holder
without knowledge or notice of equities
(defenses) of any sort which could be set up
against a prior holder of the instrument.
What does “for value” mean?
As discussed in sec. 25, the holder must take the
instrument for valuable consideration. Any
consideration sufficient to support a simple
contract is value. But love and affection do not
constitute value. Where the holder takes the
instrument without giving valuable consideration,
he cannot be considered a holder for value,
moreso a HIDC. It is not necessary that the
consideration be adequate (art. 1355, NCC). But if
the amount asked for the instrument is
32
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
lack of bad faith is essential basis that renders a
holder a HIDC.
As previously stated, notice of defect can
also be presumed when (1) one takes an overdue
instrument, and (2) one acquires an instrument
for grossly inadequate consideration.
Remember that the concept of HIDC is only
applicable to negotiable instrument. Once the
instrument is non-negotiable, the assignee of the
instrument cannot be considered a HIDC.
Sec. 55. When title defective. - The title of a
person who negotiates an instrument is
defective within the meaning of this Act
when he obtained the instrument, or any
signature thereto, by fraud, duress, or force
and fear, or other unlawful means, or for an
illegal consideration, or when he negotiates
it in breach of faith, or under such
circumstances as amount to a fraud.
When is title of a person defective?
The title to a person in an instrument becomes
defective either:
(1) in the acquisition of the instrument –
(a) by fraud;
- refers to fraud in inducement he acquires the instrument by
falsely
inducing its issuance or
negotiation.
(b) by duress, or force and fear;
- refers to the use of violence and
intimidation to cause the issuance or
negotiation.
(c) by other unlawful means;
- such as theft.
(d) for an illegal consideration.
- the instrument is issued or
negotiated as a consideration for an illegal
act
or omission.
(2) in the negotiation of the instrument –
(a) with breach of faith;
- refers to negotiation of the
instrument in contravention of the terms
of
the agreement, or negotiation
after it has been paid (discharged), or
negotiation before the
consideration for the instrument is given.
(b) under circumstances as amount
to a fraud.
- refers to negotiation after
being told that payment would be resisted,
or transferor had no legal
right to transfer.
Sec. 53. When person not deemed holder in
due course. - Where an instrument payable
on
demand
is
negotiated
on
an
unreasonable length of time after its issue,
the holder is not deemed a holder in due
course.
One of the requisites of a HIDC is that he
aquires the instrument before it is overdue. But,
obviously, where the instrument is payable on
demand, the holder cannot determine whether
the instrument is overdue or not as there is no
maturity date. The law here states that the holder
must have acquired it a reasonable time after its
issue. As to what constitutes reasonable time,
regard must be had to the nature of the
instrument, the usage of trade of business with
respect to such instruments and the facts of a
particular case (sec. 193).
With the regard the BOE, the law states
that it should be presented within a reasonable
time from last negotiation. This should be read in
the light of sec. 53 so that the last negotiation
should be itself within a reasonable time from its
issue. This is especially true for checks where
after a certain period the check becomes stale if
not presented for payment within a reasonable
period of time from issue.
Sec. 54. Notice before full amount is paid. 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.
Sec. 56. What constitutes notice of defect. To constitutes notice of an infirmity in the
instrument or defect in the title of the
person negotiating the same, the person to
whom it is negotiated must have had actual
knowledge of the infirmity or defect, or
knowledge of such facts that his action in
taking the instrument amounted to bad
faith.
When does the holder have notice of
defect or infirmity?
ILLUSTRATION: A draws a bill in favor of B for P1,
000 with X as drawee. B indorsee it to C, who fails
to give value therefore. C indorses it to D upon
the terms of payment of P600 now and the
balance of P400, D discovers the absence of
consideration. Under the circumstances, D can be
considered a HIDC for the value paid by him
before he had notice of the defect - P600.
33
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
To constitute
notice or defect or infirmity,
the transferee must have actual knowledge,
either: (1) of the defect or infirmity, or (2) of
such facts that his action in taking the
instrument amounts to bad faith. Knowledge
of some truth (at least) that the instrument is
tainted in some way is necessary, not mere
suspicion or surmise. Bad faith consist in
guilty knowledge, or willful ignorance,
showing a vicious or evil mind. While mere
suspicion is not enough, where there is
knowledge of suspicious circumstances,
coupled with means of verifying them, taking
of the instrument may amount of bad faith (if,
willfully, no inquiry is made). But negligence,
even gross negligence, is not bad faith.
everybody. The instrument cannot be
enforced only against the person to whom the
real defense is available. Thus, the mere
existence of a real defense not imply that the
instrument is valueless and can never be
enforced. It just means that the instrument is
only unenforceable against the party entitled
to set up the defense (eg. the one primarily
liable) but can be enforced against those
whom such defense is not available (eg. those
secondarily liable). In many instances, the real
defense applies only to the person who made
the instrument (but there are exceptions). As
a general rule, a real defense is a defense
which the person against whom one is
endeavoring to recover may set up and that
person to usually the person primarily liable
upon the instrument. Further, a defense
available to the makers will not be available to
the indorser (nor will a defense available to
the indorser be available to the maker). [ in
case of joint maker defense available to one
joint maker is not, in general available to the
other except if the defense goes to the meat
of the case defeating holder’s right to recover.
For, eg,, if _ defense is minority, it is available
to both].
Sec. 57. Rights of holder in due course. - A
holder in due course holds the instrument
free from any defect of title of prior parties,
and free from defenses available to prior
parties among themselves, and may enforce
payment of the instrument for the full
amount thereof against all parties liable
thereon.
Personal or equitable defenses are those
which grow out of the personal or equitable
defenses.
What are the rights of a HIDC?
Agreement or conduct of a particular person
regard to the instrument which renders it
inequitable for him, though holding legal title,
to enforce it against the person being held
liable, but which are not available against
HIDC. They are called personal defenses
because they are only available against that
person (payee or indorsee) or a subsequent
holder who stands in privity with him
(1) he may sue on the instrument in his
own (sec. 51);
(2) he may receive payment and if
payment is in due course, the
instrument is discharged (sec.51);
(3) he holds the instrument free from any
defect of title of prior parties;
(4) he holds the instrument free from
defenses available to prior parties
among themselves; and
(5) he may enforce payment of the
instrument for the full amount thereof
against all parties liable thereon.
To what kind of defenses does a HIDC
hold the instrument free from?
What are the 2 kinds of defenses that
might be available to parties held liable
on the instrument?
A HIDC holds the instrument free from any
defect of title of prior parties and free from
defenses available to prior parties among
themselves. The defenses referred to in sec.
57 from which the HIDC is free from, are not
equitable defenses only, not legal defenses.
Real or legal defenses are those that attach to
the instrument itself and can be set the whole
world. It is available against the holders
including HIDC. They are called real defenses
because they attach to the res (the
instrument itself) regardless the merits or
demerits of the holder. In real defenses, the
right sought to be enforced has never existed
or ceased to exist. It is a defense against
everybody but it is not a defense available for
Does the HIDC hold the instrument free
from infirmities of the instrument?
No, the holder of the instrument, if a HIDC,
holds the instrument free from defect of title
34
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
prior parties and from defenses available to
prior parties among themselves (sec. 57) but
the law does not say that he acquires it free
from the infirmities of the instrument. An
infirmity is an illness, a defect which attaches
to the instrument itself – whenever it goes.
They are attached to the instrument. They are
real defenses which can be put up even
against HIDC. Infirmities are things that are
wrong with the instrument. The latter are only
personal defenses. (Abad’s opinion)
(DISREGARD THIS QUESTION)
-
Duress consist of depriving one of his
will and understanding and by threat
or
Unlawful means.
(7) acquisition of the instrument by
unlawful means; (sec.55)
(8) acquisition of the instrument for an
illegal consideration; (sec. 55)
(9) negotiation in breach of faith (sec. 55)
(10)negotiation under circumstances that
amount to fraud; (sec. 55)
(11)mistake;
[NOTE: But if infirmities are real defenses,
what good is it that the holder, under the sec.
52to be HIDC, must have no notice of an
infirmity in the instrument? Even if he had no
notice of it, the HIDC is prevented from
collecting from person liable because of a real
defense – the infirmity.]
-
in order that mistake may vitiate
consent, it must refer to the substance
of the
things which is the object of the
contract or those conditions which
have principally moved one or both
parties to enter into the contract.
(12) intoxication;
What are examples of personal
defenses?
- intoxication so as to deprive the person
sought to be charged of the exercise of
is understanding and reason.
(1) absence of failure of consideration,
partial or total;
- (read sec. 28) – want of consideration
may be raised only as between
immediate parties. (definition of
immediate in sec. 16)
(2) want of delivery of complete
instrument; (read sec. 16)
(3) inserting of wrong date in an
instrument where it is payable at a
fixed period after date and it is issued
undated, or where it is payable at a
fixed period after sight and the
acceptance is undated; (read sec. 13)
(4) filling up blank contrary to authority
given or not within reasonable time,
where the instrument is delivered;
(read sec. 14)
(5) fraud in inducement; (read sec. 55)
- in fraud in inducement, one knew that
he was signing a negotiable paper, and
thus, signed with knowledge that the
instrument would probably pass into
hands of an innocent purchaser but
was deceived into signing for a larger
amount than he intended, or on
different terms. The signer is led by
deception to execute what knows is a
negotiable instrument. This is different
from fraud in factum where here is no
intention to issue a NI.
(6) acquisition of instrument by force,
duress or fear (sec. 55)
(13) ultra vires acts of corporation where
the corporation has the power to issue
negotiable paper but the issuance was
not authorized for the particular
purpose for which it was issued.
(14) want of authority of agent where he
has apparent authority; (read art. 1869,
NCC)
(15) insanity where there is no notice of
insanity on the part of the one
contracting with the insane person;
(16) illegality of contract where form or
consideration is illegal;
- eg. usury notes; Gambling notes.
(17) set-off between immediate parties;
this is a defense only when the holder
has a debt against the person held
liable.
(18) discharge between original parties;
-
- “original parties”
35
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
he will pay it according to the tenor of his
acceptance and admits:
(a) The existence of the drawer, the
genuineness of his signature, and his
capacity and authority to draw the
instrument;
and
(b) The existence of the payee and
his then capacity to indorse.
Sec. 58. When subject to original
defense. - 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 nonnegotiable. But 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.
Sec. 63. When a person deemed 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.
When is a person deemed an indorser?
When there is no indication in what
capacity a person signs upon the instrument, he
is deemed an indorser.
Sec. 59. Who is deemed holder in due
course. - Every holder is deemed prima
facie to be a holder in due course; but
when it is shown that the title of any
person
who
has
negotiated
the
instrument was defective, the burden is
on the 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.
EXCEPTION: One making a note payable to his
own order does not assume liability as indorser
despite his indorsement.
X placed his signature upon an instrument
without indicating in what capacity he was
signing. Later, X souight to show, by parole
evidence, his intention to be bound merely as an
agent. Can X be allowed to do this?
X cannot be allowed to show by parole evidence
that he did not intend to be bound as an indorser.
The law requires that he indicate by appropriate
words his intention to be bound in some other
capcity on the instrument itself. In the absence of
this indication, X is deemed an indorser.
V. LIABILITIES OF PARTIES
Sec. 60. Liability of maker. - The maker of a
negotiable instrument, by making it,
engages that he will pay it according to its
tenor, and admits the existence of the
payee and his then capacity to indorse.
The following are examples of words indicating
that the person who signs on the instrument
does not intend to be bound as an indorser.
Sec. 61. Liability of drawer. - The drawer by
drawing
the
instrument
admits
the
existence of the payee and his then
capacity to indorse; and engages that, on
due presentment, the instrument will be
accepted or paid, or both, according to its
tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the
holder or to any subsequent indorser who
may be compelled to pay it. But the drawer
may insert in the instrument an express
stipulation negativing or limiting his own
liability
to
the
holder.
“ I hereby guarantee payment of this
instrument.”
“ as surety”, “ as guarantor”,
“ for identification only”
But when the note itself reads., “ We, the signers,
indorser, sureties, and all of us in solido, promise
to pay, etc.”, the signers on the back of the
instrument before delivery were held to be bound
in solido, not as indorsers. This is a case where
the intent to be bound in some other capacity
may be found on the face of the instrument.
Sec. 62. Liability of acceptor. - The acceptor,
by accepting the instrument, engages that
Sec. 64. Liability of irregular indorser. 36
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
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:
(a) If the instrument is payable to the
order of a third person, he is liable to
the payee and to all subsequent
parties.
And, in addition, he engages that, on due
presentment, it shall be accepted or paid,
or both, as the case may be, according to its
tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who
may be compelled to pay it.
Sec. 67. Liability of indorser where paper
negotiable by delivery. — Where a person
places his indorsement on an instrument
negotiable by delivery, he incurs all the
liability of an indorser.
(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.
Sec. 68. Order in which indorsers are liable.
- As respect one another, indorsers are
liable prima facie in the order in which they
indorse; but evidence is admissible to show
that, as between or among themselves,
they have agreed otherwise. Joint payees
or joint indorsees who indorse are deemed
to indorse jointly and severally.
(c) If he signs for the accommodation
of the payee, he is liable to all parties
subsequent to the payee.
Sec. 65. Warranty where negotiation by
delivery and so forth. — Every person
negotiating an instrument by delivery or by
a qualified indorsement warrants:
(a) That the instrument is genuine
and in all respects what it purports to
be;
Sec. 69. Liability of an agent or broker. Where a broker or other agent negotiates
an instrument without indorsement, he
incurs all the liabilities prescribed by
Section Sixty-five of this Act, unless he
discloses the name of his principal and the
fact that he is acting only as agent.
(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.
But when the negotiation is by delivery
only, the warranty extends in favor of no
holder other than the immediate transferee.
ILLUSTRATION: X is an agent of Y. X delivers to Z a
note payable to bearer in his capacity as Y’ agent.
When X made a delivery, however, he did not tell
Z that he was merely acting as an agent. X incurs
all the liabilities prescribed in Sec. 65. He can not
be released of these liabilities upon proving that
he was merely acting as an agent.
The provisions of subdivision (c) of this
section do not apply to a person negotiating
public or corporation securities other than
bills
and
notes.
VI. PRESENTATION FOR PAYMENT
Sec. 70. Effect of want of demand on
principal debtor. - Presentment for payment
is not necessary in order to charge the
person primarily liable on the instrument;
but if the instrument is, by its terms,
payable at a special place, and he is able
and willing to pay it there at maturity, such
ability and willingness are equivalent to a
tender of payment upon his part. But except
as herein otherwise provided, presentment
for payment is necessary in order to charge
the drawer and indorsers.
Sec. 66. Liability of general indorser. - Every
indorser who indorses without qualification,
warrants to all subsequent holders in due
course:
a. The matters and things
mentioned
in
subdivisions (a), (b), and
(c) of the next preceding
section; and
(b) That the instrument is, at the
time of his indorsement, valid and
subsisting;
Sec. 71. Presentment where instrument is
not payable on demand and where payable
37
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
on demand. - Where the instrument is not
payable on demand, presentment must be
made on the day it falls due. Where it is
payable on demand, presentment must be
made within a reasonable time after its
issue, except that in the case of a bill of
exchange, presentment for payment will be
sufficient if made within a reasonable time
after
the
last
negotiation
thereof.
presentment can be made to any person found at
such place even without special authority given
him.
Sec.
73.
Place
of
presentment.
Presentment for payment is made at the
proper place:
(a)
Where a place of
payment is specified in the instrument
and it is there presented;
(b)
Where no place of
payment is specified but the address of
the person to make payment is given in
the instrument and it is there presented;
(c)
Where no place of
payment is specified and no address is
given and the instrument is presented at
the usual place of business or residence
of the person to make payment;
(d)
In any other case
if presented to the person to make
payment wherever he can be found, or if
presented at his last known place of
business or residence.
Sec. 72. What constitutes a sufficient
presentment. - Presentment for payment, to
be sufficient, must be made:
(b) 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.
What is the rule on proper place of
presentment?
The proper place of presentment is the place
specified in the order of enumeration from
subsection (a) to subsection (d). This means that
if subsection (a) can be applied (eg. A place of
payment is actually specified), presentment in
any other place under subsection (b) to (d) will be
improper and will not meet the requirement of
Sec. 72 (c). Similarly, subsec (c) is only applicable
if subsec. (a) and (b) cannot be applied. Lastly,
subsec. (d) is applicable only if presentment
cannot be made at any other place.
What is the importance of Sec. 72?
Sec. 72 establishes the four requisites for a
sufficient presentment for payment. If the
presentment does not comply with ay of the four,
it is not sufficient. Consequently, it would be as if,
the presentment was made and, thus, the
persons secondarily liable are discharged.
Who makes presentment?
Presentment for payment must be made (1) by
the holder of the instrument , or (2) by some
person authorized to receive payment on his
behalf.
To whom must presentment be made?
ILLUSTRATION:
Of (a) : “ I promise to pay to X or order
P100 at PNB, Manila. Sgd. Y.”
Of (b): “ In the same note, “PNB, Manila is
omitted but it was signed as “sgd. Y, 404
Regina Bldg., Manila;”
Of (c ): The note neither specifies a place
of payment nor does it indicate the
address of the person to pay. But the
maker’s residence or business office is
known by the holder. Either place will do.
Of (d): If no place is specified, no address
is given, and both the address and
business office is not known, presentment
is made when seen (anywhere).
It must be made to the person primarily liable. If
a note, it must be made to the maker. If a bill, it
must be made to the acceptor. It is not made to
the person secondarily liable. But, if the person
primarily liable is absent or inaccessible,
Sec. 74. Instrument must be exhibited. 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.
When and where must presentment be
made?
It must be made “ at a reasonable hour on a
business day.” What is reasonable hour on a
business day depends upon the general custom
at the place of the particular transaction. In the
Philippines, for example, commercial banks are
open 9am to 4 pm. Presentment for payment can
not be made on a Sunday or holiday (Sec. 85,
194). The presentment must be made at the
proper place as defined in Sec. 73.
38
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Why is exhibition
necessary?
of
the
presentment must be made during banking
hours. Presentment made outside banking hours
is not sufficient inasmuch as banks do not make
payments outside of banking hours. In the
Philippines. The banking hours are from 9 am to 4
am (but Agbayani claims it is only up to 2:30pm)
from Monday to Friday. There are no banking
hours on Saturdays and Holidays. Consequently
presentment must be made between 9 am to 4
pm on ordinary days. Otherwise, presentment
would not be sufficient and persons secondarily
liable on the bill are discharged. But it must be
remembered that the person to make payment
has until the close of banking hours in which to
pay it, and if before the close of such hours, he
deposits funds there enough to pay it, a demand
earlier in the day is premature. However, if the
person to make payment has no funds in the
bank to meet the payment at any time during the
day, presentment at any hour before the bank is
closed is sufficient to hold persons secondarily
liable- the reason being that at any rate, the bill
cannot be paid even is presented during banking
hours. (The last rule is important as the persons
secondarily liable may claim that presentment is
premature.
instrument
Presentment includes not only demand
for payment but also the exhibition of the
instrument. Valid presentment requires personal,
or face to face demand at the proper place,
exhibiting the instrument to the person from
whom payment is demanded. If the instrument is
not exhibited, the presentment would be
ineffectual, as the debtor is entitled to see the
instrument and demand its surrender upon
payment. Thus, the purpose of exhibition is to
enable the debtor: (1) to determine the
genuineness of the instrument and the right of
the holder to receive the payment; and t (2) to
enable him to reclaim/ possession upon payment.
Can
presentment
telephone?
be
made
through
No, because the instrument must be physically
produced and this is not possible through phone.
This is because the person primarily liable has
the right to inspect and retrieve or take
possession of the instrument upon payment.
Once, it is retrieved, the instrument becomes
merely a voucher of payment and prevents the
instrument from being negotiated to innocent 3 rd
parties who are unaware of the fact of discharge
and may hold the person primarily liable for
payment
again.
Sec. 76. Presentment where principal
debtor is dead. - Where the person
primarily liable on the instrument is dead
and no place of payment is specified,
presentment for payment must be made to
his personal representative, if such there
be, and if, with the exercise of reasonable
diligence,
he
can
be
found.
When is exhibition excused?
(1) When the debtor does not demand to see
the instrument but refuses payment on some
other grounds; and
(2) When the instrument is lost or destroyed.
Sec. 77. Presentment to persons liable as
partners. - Where the persons primarily
liable on the instrument are liable as
partners and no place of payment is
specified, presentment for payment may be
made to any one of them, even though
there has been a dissolution of the firm.
Sec. 75. Presentment where instrument
payable at bank. - Where the instrument is
payable at a bank, presentment for
payment must be made during banking
hours, unless the person to make payment
has no funds there to meet it at any time
during the day, in which case presentment
at any hour before the bank is closed on
that day is sufficient.
Sec. 78. Presentment to joint debtors. Where there are several persons, not
partners, primarily liable on the instrument
and no place of payment is specified,
presentment must be made to them all.
NOTE: The rules stated in all 3 sections apply
only, to cases where no place for presentment is
specified. If there us a place specified, these rules
are inapplicable and presentment must be made
at the place specified.
What is the rule where the instrument is
payable
at
a
bank?
Where an instrument is payable at a bank,
it is equivalent to an order to the bank to make
payment for the account of the principal debtor
(Sec. 87). If the instrument is payable at a bank
and the person to make payment has fund in the
bank to meet it on the date of maturity,
What is the rule on the death of primary
party?
39
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
In case of the death of the person
primarily liable, and no place of payment is
specified, presentment for payment may be made
to his executor or administrator, (1) if there be
one, and (2) if he can be found. The holder must
use reasonable diligence to find the personal
representative, if there be one.
1. In case of a check upon which
payment has been stopped.
2. Where the drawer’s balance is
less than the amount of the
check
(at
the
time
of
presentment)
unless
arrangements have been made
for payment of the bill.
3. Where the drawer of
a bill
containing the words “Pay from
balance” had no money on
deposit with the drawee but
expected to arrange with the
broker to cover the drafts.
4. Where the drawer and the
drawee are the same person or
where the drawee is a fictitious
person, or a person without
capacity to contract (Sec. 130)
because the holder mat treat it
as a note and the drawer is
considered a maker. Under
section 70, a maker is liable
even without presentment.
What is the rule if the persons primarily
liable are partners?
Presentment may be made to any one of
the partners, even if their partnership has been
dissolved. The reason is that each partner is an
agent of the partnership or his co-partners.
Accordingly, in case of death of one of the makers
who are partners, presentment shall not be made
to his personal representative but to the surviving
partners.
What if the parties primarily liable are not
partners?
If the persons primarily liable are not
partners, their liability is only joint. In joint
obligation, there are as many debts as there are
debtors, each debt being considered distinct and
separate from 1208, C.C. ) Thus, presentment
must be made to all of them. However, if one of
them is duly authorized by the others for the
purpose, presentment to him would be sufficient.
Why is the accommodated party-indorse not
discharged?
The accommodated party-indorser is the real
debtor and not the maker or acceptor. As the
accommodated party did not give value to the
accommodation party, the former has no reason
to expect that the instrument will be paid upon
presentment.In effect, the accomodated party is
the
person
primarily
liable.
Hence,
the
accomodated party –indorser, being in effect the
person primarily liable is not discharged even if
no presentment for payment is made. This is in
consonance with the rule that failure to make
presentment for payment will not discharge the
person primarily liable.
Sec. 79. When presentment not required to
charge the drawer. - Presentment for
payment is not required in order to charge
the drawer where he has no right to expect
or require that the drawee or acceptor will
pay
the
instrument.
Sec. 80. When presentment not required to
charge the indorser. - Presentment is not
required in order to charge an indorser
where the instrument was made or
accepted for his accommodation and he has
no reason to expect that the instrument will
be
paid
if
presented.
Sec. 81. When delay in making presentment
is excused. - Delay in making presentment
for payment 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,
presentment must be made with reasonable
diligence.
NOTE: Sec. 79 refers only to the drawer
specifically. All other parties secondarily liable will
be discharged ( since no presentment). Similarly,
Sec. 80 refers only to the indorser for whose
accommodation an instrument is made or
accepted. All others parties secondarily liable are
discharged. These 2 sections give 2 exceptions to
the general rule that if no resentment for
payment is made, the persons secondarily liable
are discharged.
When is presentment not
charge the drawer liable?
required
Sec. 82. When presentment for payment is
excused. - Presentment for payment is
excused:
(a) Where, after the exercise of
reasonable diligence, presentment,
as required by this Act, cannot be
made;
to
40
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(b) Where the drawee is a fictitious
person;
Sec. 88. What constitutes payment in due
course. - Payment is made in due course
when it is made at or after the maturity of
the payment to the holder thereof in good
faith and without notice that his title is
defective.
(c) By waiver of presentment, express
or implied.
Sec. 83. When instrument dishonored by
non-payment.
The
instrument
is
dishonored by non-payment when:
(a) It is duly presented for payment
and payment is refused or cannot be
obtained;
or
What are the requisites for payment in due
course?
(b) Presentment is excused and the
instrument is overdue and unpaid.
Sec. 84. Liability of person secondarily
liable, when instrument dishonored. Subject to the provisions of this Act, when
the instrument is dishonored by nonpayment, an immediate right of recourse to
all parties secondarily liable thereon
accrues
to
the
holder.
(1) payment must be made at or after the
date of maturity;
- payment made before maturity would
constitute a negotiation back the
person primarily liable and he can renegotiate it (sec. 50).
(2) payment must be the holder; and
- payment to indorsee who is not in
possession of the instrument is not
payment in due course and is at the
risk of the party so paying. Party
making payment must insist on the
presentment of the paper by the
person demanding payment in order to
make sure that it is at the time in his
possession and not outstanding in
other.
(3) payment must be made by the debtor
in good faith and without notice that
the holder’s title is defective.
- payment to a person by the debtor
who knows that such person stole it, is
not payment in due course , as such
payment is not in good faith. The
maker or acceptor must satisfy
himself, when it is presented for
payment, that the holder traces his
title through genuine indorsements.
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.
Sec. 86. Time; how computed. - When the
instrument is payable at a fixed period after
date, after sight, or after that happening of
a specified event, the time of payment is
determined by excluding the day from
which the time is to begin to run, and by
including the date of payment.
Medium of payment the payment of debts
in money shall be made in the currency
stipulated and if not possible, in the
currency which legal tender in the
Philippines. When payment of an
instrument is made by giving (other than
legal tender), as a general such payment
will not be considered absolute until the
paper given has been itself paid except
when parties agree otherwise.
A check presented by the holder to the
bank where it is drawn and receive as a
deposit and credited to his amount, this
amounts to a payment of the checks.
NOTE: In determining the proper date for
presentment, count from the day following the
date from which the time is to run (e.g. the date
of the instrument, or date of sight, or date of the
happening of the specified event) and include
the last day of the period as the maturity date.
But if dated 5 April 1991 and payable one
month after, the due date is 5 May 1991.
If dated 31 January and payable one
month after, the due date is Feb 28 or 29
depending on whether it is a leap year.
Sec. 87. Rule where instrument payable at
bank. - Where the instrument is made
payable at a bank, it is equivalent to an
order to the bank to pay the same for the
account of the principal debtor thereon.
VII. NOTICE OF DISHONOR
Sec. 89. To whom notice of dishonor must
be given. - Except as herein otherwise
41
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
provided, when a negotiable instrument has
been dishonored by non-acceptance or nonpayment, 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.
In instruments payable in installments, does
failure give such notice of dishonor of a previous
installment to persons secondarily liable
discharge them on succeeding installment?
It depends. If the instrument contains no
acceleration clause, they are not discharged
because each installment is equivalent to a
separate note. If there is an acceleration clause
and it is automatic (in operation), they are
discharged. If the acceleration clause is optional
and it is not exercised, it is the same as if no such
clause existed and as a result, they are not
discharged therefore. If the optional acceleration
clause has been exercised, the persons
secondarily liable are excused.
What a notice of dishonor?
Notice of dishonor is bringing, either
verbally or by writing to the knowledge of
the drawer or indorser of an instrument,
the fact that a specified negotiable
instrument, upon proper proceedings
taken, has not been paid and that the
party notified is expected to pay it. (If such
notice is given by a notary public, it is
called a protest (sec. 153).
What are the purposes of a notice of
dishonor?
Sec. 90. By whom given. - The notice may
be given by or on behalf of the holder, or by
or on behalf of any party to the instrument
who might be compelled to pay it to the
holder, and who, upon taking it up, would
have a right to reimbursement from the
party to whom the notice is given.
(1)to inform the parties secondarily liable
that the maker or acceptor, as the case
may be has failed to meet his
engagement;
(2) to advice such parties that they will be
required to make payment.
Who gives the notice of dishonor?
(1) the holder; or
(2) another behalf of the holder; or
(3) by a party to the instrument who may be
compelled to pay it to the holders;
- However, such a party cannot give notice
of dishonor to everybody but only to another
party against whom he has a right of
reimbursement should such party giving notice
pay the instrument.
(4) another person in behalf of such party;
What is the rule on notice of dishonor?
When an instrument is dishonored by (1) nonacceptance (bill) or (2) non- payment (both bill
and note), notice of such dishonor must be given
to persons secondarily liable, namely, the drawer
(in a bill) and indoresers (in both bill and note).
Otherwise, such parties are discharged. However,
the holder is not required to notify the drawer and
all indorsers. He may select to hold only one or
some of the indorsers and any party not so
notified is discharge. Therefore, the holder, in
order to fix the liabilities of the parties
secondarily liable, must give a notice of dishonor
at least, to such parties he may have selected.
Further, it is incumbent upon the holder to prove
the fact of giving notice, in accordance with the
law, as part of his case. His cause of action
(enforcement of payment) will not given
substance or will not be upheld by court if he fails
to prove such fact. Lastly, the law does not
require that the notice be given to the persons
primarily liable (maker or acceptor) because they
are the very ones who dishonored the instrument.
Notice by a mere stranger is ineffectual unless he
is acting as agent of a party who is entitled to
give notice of dishonor.
ILLUSTRATION: M makes a note payable to the
order of P. P negotiates the note to A. A to B, B to
C, C to D, holder. M dishonors the note in the
hands of D.
(a) D or his agent may give notice of dishonor to
P, A, B, C, or to any one of them.
(b) if the D notifies C only, the latter, who thereby
can be compelled by D to pay, may, in turn, notify
P, A and/or B – to whom C, if he pays,. Has the
right of reimbursement.
(c) if D give notice only B, the effect is to
discharge C due to lack of notice since B would
have no right of reimbursement from C and thus,
no right to give notice to him.
(d) C, upon his discharge, becomes a total
stranger and as such is not entitled to give notice
NOTE: The exceptions to this general rule of
notice are found in secs. 109, 112, 114, 115, 116,
117.
42
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
unless he is acting as an agent of a party who can
give proper notice of dishonor.
recourse against P if any of them be held liable to
pay the instrument.
(b) but, the notice given by D to B does not
operate to the benefit of P and A since the latter
do not have the right of recourse against B. The
notice to B, though, would benefit C who has such
right of recourse against B.
(c) if D subsequently negotiates the note E, the
notice inures to E’s benefit although he himself
did not give any E need not give another notice of
dishonor.
(d) Suppose D, when the instrument was
dishonored, gave notice only P, A and C. D later
negotiated it to E. Can E go after B to whom
notice was given? No. the effect of D’s failure to
notify B was to discharge him from liability. The
benefit of sec. 92 cannot be extended to those
already discharged. (following this trend of
thought, if E goes after C and the later pays, C
can no longer go after B even if he had a right of
recourse against him).
May a maker or acceptor, at any time, give
notice or dishonor?
Yes, only when the maker or acceptor acts as an
agent of the person entitled to give notice.
Sec. 91. Notice given by agent. - Notice of
dishonor may be given by any agent either
in his own name or in the name of any party
entitled to given notice, whether that party
be his principal or not.
NOTE: Notice of dishonor may be give by an
agent (sec. 90). The agent need not be
authorized by the principal to give the notice.
Notice may be given by the agent: (1) in the
name of any party entitled to give the notice (sec.
90); or (2) in his (agent’s) own name. Thus, any
person can be agent of any party entitled to give
notice (so as long as he gives notice for such
party and not for his own sake).
Sec. 93. Effect where notice is given by
party entitled thereto. - Where notice is
given by or on behalf of a party entitled to
give notice, it inures to the benefit of the
holder and all parties subsequent to the
party to whom notice is given.
Sec. 92. Effect of notice on behalf of holder.
- 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.
How is sec. 93 different from sec. 92?
The principal involved is the same. However, the
notice sec. 93 is given, not by the holder but by a
party entitled to give notice under sec. 90
namely, by party to the instrument who might be
compelled to pay it to the holder, and who, upon
taking it p, would have a right of reimbursement
from the party to whom notice is given. Such
notice inures to the benefit of: (1) the holder, and
(2) all parties subsequent to the party to whom
notice is given.
What does “benefit” mean?
The word “benefit” refers to the right to charge
the person secondarily liable who receive notice.
In other words, the party to whom this benefit
inures can charge the party receiving notice of
dishonor, even if he himself did not give the
notice.
ILLUSTRATION: M made a note payable to the
order P. P negotiated it to A. A to B, B to C, C to D,
holder. M dishonors the note and D notifies only
C.
(a) Ordinarily, A, B and P are considered
discharged from their liability for lack of notice
(sec. 89).
(b) But, if C, within the time fixed by law (sec. 94,
107), gives due notice to B, and B gives notice to
A and A to P, all three will not be considered
discharged. (Subsequent notices must each be
within the time fixed by law).
(c) Can D go after P despite the absence of notice
given by the former to the latter? Yes, the notice
given by A to P inured to the benefit of D, holder
(sec. 93) although the latter failed to give notice
P.
To whom does this benefit inure to?
Notice given by or on behalf of the holder inures
to the benefit:
(1) of all parties prior to the holder, who have the
right of recourse against the party to whom the
notice is given; and
(2) of all holders subsequent to the holder giving
notice.
ILLUSTRATION: M makes a note payable to the
order of P. P negotiates it to A. A to B, B to C, C to
D, holder. M dishonors. D notifies P, A B, and C.
(a)the notice given by D to P operates to the
benefit of A, B and C although they were not the
one who gave the notice as they have the right of
43
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(d) Suppose D instead went after B and
succeeded in collecting. May B go after P? yes,
Although B never gave notice personally to P, the
notice by A also inures to the benefit of parties
subsequent to the party to whom notice is given.
Is there any form required for the notice of
dishonor?
No. Notice of dishonor may be in writing or
merely oral. Thus, notice may be given by
telephone provided that it may be clearly shown
that the party notified was really communicated
with, that is fully indentified as the party at the
receiving end of the line.
Sec. 94. When agent may give notice. Where the instrument has been dishonored
in the hands of an agent, he may either
himself give notice to the parties liable
thereon, or he may give notice to his
principal. If he gives notice to his principal,
he must do so within the same time as if he
were the holder, and the principal, upon the
receipt of such notice, has himself the same
time for giving notice as if the agent had
been an independent holder.
What must the notice contain?
(1) sufficient description of the instrument to
identify it;
(2) a statement that it has been presented for
payment or for acceptance, and that it has been
dishonored. (If protest is necessary, the notice
must also cointain a statement that it has been
protested); and
(3) a statement that the party giving notice to
look for the party addressed for payment.
What may the agent do if the instrument in
his hands is dishonored?
(1) he may directly give notice to the persons
secondarily liable thereon; or
- the agent must do so within the time fixed
by secs. 102, 103, 104 and 107. Otherwise, the
parties secondarily liable are discharged for lack
of notice unless the principal himself notified
them.
(2) he may gave notice, within the time fixed by
law, to his principal.
- the time in which the principal was a party
secondarily liable.the principal, upon receiving
such notice, has also the same time for giving
notice to the parties secondarily liable as if the
instrument was dishonored on the day he
received the notice. Thus, notice to the agent of
dishonor does not constitute notice to the
principal. The agent is treated like an
independent holder.
What if one of the three is omitted?
The fact that the insufficient does not invalidated
it. The notice may be supplemented by oral or
verbal communications stating the things lacking.
In fact, even if the notice was not be invalidated.
Supposing there is a misdescription of the
instrument, will that fact affect the validity
of the notice?
Generally, misdescription of the instrument, such
as to the amount or the date of the name of the
parties or the date of maturity, does not vitiate
the notice provided that the person to whom such
notice is addressed is not misled thereby as to
the identity of the instrument, if the said party is
misled, the notice is vitiated. The purpose of the
notice is to appraise the party entitled thereto of
the dishonor of the instrument so that if the said
party, despite the misdescription, is not misled,
the notice is sufficient.
Sec. 95. When notice sufficient. - A written
notice need not be signed and an
insufficient written notice may be
supplemented and validated by verbal
communication. A misdescription of the
instrument does not vitiate the notice
unless the party to whom the notice is given
is in fact misled thereby.
How may the notice be given?
The party giving said notice to serve notice: (1)
by personal delivery; or (2) by mail. But, in a
personal service, it must be shown that either
actual personal service, or an ordinary intelligent,
diligent effort to make personal service upon the
indorser at his place of business during business
hours or at his residence if he has place of
business, was made.
Sec. 96. Form of notice. - The notice may be
in writing or merely oral and may be given
in any terms which sufficiently identify the
instrument, and indicate that it has been
dishonored by non-acceptance or nonpayment. It may in all cases be given by
delivering it personally or through the
mails.
Sec. 97. To whom notice may be given. Notice of dishonor may be given either to
the party himself or to his agent in that
behalf.
44
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
any one partner is notice to the firm, even
though there has been a dissolution.
NOTE: Under sec. 91, the agent giving notice
need not be authorized by the principal. But,
under sec. 97, an agent to be competent to
receive notice of dishonor must be authorized.
The reason for the difference is that, while in sec.
91, the giving of notice benefits the principal, in
sec. 97, the receipt of notice creates liability. If
the agent, in sec. 97, is not authorized, the notice
in valid.
NOTE: the reason for the rule is that each partner
is an agent of the partnership of which he is a
member. Notice to one is notice to the others.
This is true even though the notice was
fraudulently suppressed by the partners receiving
it.
Sec. 100. Notice to persons jointly liable. Notice to joint persons who are not partners
must be given to each of them unless one of
them has authority to receive such notice
for the others.
Suppose notice was attempted to be given to the
party himself but he was not present. Does the
notice have to be given only to an authorized
agent?
No. Notice to agent must be distinguished from
notice attempted to be given to the party himself
where he is absent. In the latter case, the notice
may be left with anyone found in charge in the
party’s place of residence or business. Such
notice is sufficient and it is irrelevant that the
person was not so authorized by the principal.
NOTE: Sec. 100 does not apply to joint payees or
joint indorsees. This is because, under sec. 68,
such persons deemed solidarily liable.
Accordingly, sec. 100 applies to joint parties other
than joint payees and joint indorse, such as, to
drawers who sign a bill jointly, or to joint
accommodation indorsers who are not solidarily
liable under sec. 68. if one of such joint parties
are not given notice, he will be discharged.
Sec. 98. Notice where party is dead. - When
any party is dead and his death is known to
the party giving notice, the notice must be
given to a personal representative, if there
be one, and if with reasonable diligence, he
can be found. If there be no personal
representative, notice may be sent to the
last residence or last place of business of
the deceased.
Sec. 101. Notice to bankrupt. - Where a
party has been adjudged a bankrupt or an
insolvent, or has made an assignment for
the benefit of creditors, notice may be given
either to the party himself or to his trustee
or
assignee.
NOTE: This sec. contemplates 2 situations: (1)
the party secondarily liable has been declared a
bankrupt or an insolvent and (2) the party
secondarily liable has made an assignment of his
properties for the benefit of creditors (even if not
bankrupt or insolvent). In either case, notice may
be given to the party himself or to his trustee or
assignee. From the moment that notice is duly
served, the liability of the secondary party is
fixed.
In the case of bankruptcy or insolvency, it
does not mean that just because notice has been
given, one can immediately proceed against such
party. It is still necessary to file a complaint with
the insolvency court and participate in the
insolvency proceedings together with all creditors
so that the properties of the insolvent may be
distributed to all those with claims – pro rata. But,
the act of giving notice of dishonor must be
proven in court. Otherwise, absence of proof
discharge the insolvent from liability insofar as
that instrument is concerned.
What are the requisites of this sec.?
When the person to be given notice of dishonor
(the party sought to be charged) is dead, notice
must be given to his personal representative,
provided that: (1) his death know to the party
giving notice,; (2) there is a personal
representative; and (3) if with reasonable
diligence he could be found. Accordingly, where
the holder knew the indorser to be dead, he must
use reasonable diligence to find out whether
there is a personal representative of such
decedent or not, and, if there is one, his identity.
But, although the party is dead, (1) if his death is
not known to the party giving notice but there is
no personal representative, or (3) if there is one
but he cannot be found with reasonable diligence,
then, notice may be sent to the last residence or
last place of the deceased. The first preference
will be the person, the representative. Only in his
absence should the notice be sent to such place.
Sec. 102. Time within which notice must be
given. - Notice may be given as soon as the
instrument is dishonored and, unless delay
Sec. 99. Notice to partners. - Where the
parties to be notified are partners, notice to
45
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
is excused as hereinafter provided, must be
given within the time fixed by this Act.
business hours on
the day following.
NOTE: The time for giving notice is fixed in secs.
103, 104 & 107.
(b) If given at his
residence, it must
be given before
the usual hours of
rest on the day
following.
May notice of dishonor be given before the
date of maturity?
No, because an instrument cannot be said to be
dishonored for non-payment unless presented
and presentment must be made on the date of
maturity unless presentment is excused. But even
when presentment is excused, the instrument
cannot be said to be dishonored by non-payment
unless it is overdue and unpaid. Notice must be
given only when it is actually dishonored. Notice
given before the instrument is due is premature
and insufficient.
(c) If sent by mail, it must be deposited in
the post office in time to reach him in usual
course on the day following.
Sec. 104. Where parties reside in different
places. - Where the person giving and the
person to receive notice reside in different
places, the notice must be given within the
following times:
ILLUSTRATION: A is in possession of a note which
will mature on Sept. 15, 1991 (30 days from
today). The party primarily liable told A that he
will not pay the instrument on due date. Can A,
before Sept. 15, give notice of dishonor already?
No, the note has not yet matured and notice
given earlier than such date is premature.
NOTE: Secs. 103 & 104 refer to the maximum
time limit allowed by the law to give notice. It
may be given earlier. However, if the notice was
given beyond the time limit, it would be
considered not to have been given ant the parties
secondarily liable will be discharged from liability.
The time limit for giving notice depends upon
whether the person receiving notice resides in the
same place as the person as the person giving it,
or not
May it be given on the date of maturity?
Yes, provided that the notice of dishonor be given
after the close of banking hours. The party
primarily liable is given the whole day in which to
make payment. If the instrument is presented on
the date of maturity and is dishonored, but later
in the day, the party is primarily liable manifests
his willingness to pay, any prior notice would be
premature. Remember, the party liable has the
whole day in which to make payment. Further, to
give notice, the instrument must have been: (1)
presented for acceptance or for payment, and (2)
it was dishonored.
What means are provided for in secs. 103
and 104 to give notice?
In sec. 103, notice of dishonor may be given
either (1) personally; or (2) by mail. In sec. 104, it
may be given either (1) by mail or (2) otherwise
than by mail (eg. Messenger, telegram).
What is meant by
Why must notice be prompt?
The purpose of giving prompt notice is to give the
persons secondarily liable every opportunity to
secure themselves.
(a) If sent by mail, it must be deposited in
the post office in time to go by mail the day
following the day of dishonor, or if there be
no mail at a convenient hour on last day, by
the
next
mail
thereafter.
Sec. 103. Where parties reside in same
place. - Where the person giving and the
person to receive notice reside in the same
place, notice must be given within the
following times:
(a) If given at the
place of business
of the person to
receive notice, it
must
be
given
before the close of
(b) If given otherwise than through the post
office, then within the time that notice
would have been received in due course of
mail, if it had been deposited in the post
office within the time specified in the last
subdivision.
Sec. 105. When sender deemed to have
given due notice. - Where notice of dishonor
is duly addressed and deposited in the post
office, the sender is deemed to have given
due
notice,
notwithstanding
any
miscarriage
in
the
mails.
46
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
after the exercise of reasonable diligence, it
cannot be given to or does not reach the
parties
sought
to
be
charged.
Sec. 106. Deposit in post office; what
constitutes. - Notice is deemed to have
been deposited in the post-office when
deposited in any branch post office or in any
letter box under the control of the postoffice
department.
Sec. 113. Delay in giving notice; how
excused. - 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. 107. Notice to subsequent party; time
of. - Where a party receives notice of
dishonor, he has, after the receipt of such
notice, the same time for giving notice to
antecedent parties that the holder has after
the
dishonor.
Sec. 114. When notice need not be given to
drawer. - 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;
Sec. 108. Where notice must be sent. Where a party has added an address to his
signature, notice of dishonor must be sent
to that address; but if he has not given such
address, then the notice must be sent as
follows:
(a) Either to the post-office nearest to
his place of residence or to the postoffice where he is accustomed to
receive
his
letters;
or
(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;
(b) If he lives in one place and has his
place of business in another, notice
may be sent to either place; or
(d) Where the drawer has no right to
expect or require that the drawee or
acceptor will honor the instrument;
(c) If he is sojourning in another
place, notice may be sent to the place
where he is so sojourning.
But where the notice is actually received by
the party within the time specified in this
Act, it will be sufficient, though not sent in
accordance with the requirement of this
section.
(e)
Where
the
drawer
has
countermanded payment.
Sec. 115. When notice need not be given to
indorser. — 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;
Sec. 109. Waiver of notice. - 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.
(b) Where the indorser is the person
to whom the instrument is presented
for
payment;
Sec. 110. Whom affected by waiver. - Where
the waiver is embodied in the instrument
itself, it is binding upon all parties; but,
where it is written above the signature of
an
indorser,
it
binds
him
only.
(c) Where the instrument was made
or accepted for his accommodation.
Sec. 111. Waiver of protest. - 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.
NOTES: Remember FICPA
This section applies only to the indorser
concerned. It does not excuse notice to other
indorsers. Failure to give to the others will result
in their discharge. Under subsec (c) , the indorser
(the accommodated party) is in fact the principal
debtor and is not entitled to notice.
Sec. 112. When notice is dispensed with. Notice of dishonor is dispensed with when,
47
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
EXAMPLE OF CASES WHER SEC. 115 DOES NOT
APPLY:
In these cases, notice of dishonor to the indorser
is not excused:
1. Where the maker of the instrument is a
partnership and the indorser sought to be
charged is a member thereof;
2. Where no presentment was actually
made;
3. where the indorser was treasurer of the
maker corporation, not active in its
management and signed the note in
behalf of the corp.
payment
of
money;
(e)
When
the
principal
debtor
becomes the holder of the instrument
at or after maturity in his own right.
Sec. 120. When persons secondarily liable
on the instrument are discharged. - A
person secondarily liable on the instrument
is discharged:
(a) By
any
act
which
discharges
the
instrument;
(b) By the intentional
cancellation
of
his
signature
by
the
holder;
The bottom line, for Sec. 114 and 115 is that
notice is not needed to the drawer or indorser
concerned when (1) he has knowledge of the
dishonor by means other than through a formal
notice; and (2) he has no reason to expect that
the instrument will be honored.
Sec. 116. Notice of non-payment where
acceptance refused. - Where due notice of
dishonor by non-acceptance has been given,
notice of a subsequent dishonor by nonpayment is not necessary unless in the
meantime
the
instrument
has
been
accepted.
(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;
Sec. 117. Effect of omission to give notice
of non-acceptance. - An omission to give
notice of dishonor by non-acceptance does
not prejudice the rights of a holder in due
course subsequent to the omission.
(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.
Sec. 118. When protest need not be made;
when must be made. - Where any
negotiable instrument has been dishonored,
it may be protested for non-acceptance or
non-payment, as the case may be; but
protest is not required except in the case of
foreign
bills
of
exchange.
VIII. DISCHARGE OF NEGOTIABLE
INSTRUMENTS
Sec. 119. Instrument; how discharged. - A
negotiable instrument is discharged:
(a) By payment in due course by or on
behalf of the principal debtor;
Why will the discharge of the instrument
operate to discharge the secondary parties?
(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;
If the instrument is discharged under sec. 119, it
ceases to have force and effect. Hence, all
parties, primary or secondary, will also be
discharged since there is no instrument to be
liable on. But the discharge of the secondary
parties does not necessarily bring about the
discharge of the instrument.
(d) By any other act which will
discharge a simple contract for the
When will cancellation of the signature
work as a discharge?
48
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
3.
It is only when the signature of the indorser is
intentionally cancelled by the holder that the
former is discharge as if he has never been a
party to the instrument. If there was a mistake in
the appreciation of facts, there is no intentional
cancellation. But, once an indorsement is
canncelled, there is prima facie presumption of
intention cancel. Also, the right of the holder to
cancel the signature of an indorser is subject to
the limitation that the indorserment is not
necessary to the holder’s title.
4.
NOTE: The right to renegotiate is qualified by the
exception provided in pars. (a) and (b).
Sec. 122. Renunciation by holder. - 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.
Aside from the indorser’s discharge, what
further effect will the cancellation have?
The discharge of a party by intentional
cancellation of his signature also operates as a
discharge of parties subsequent to the party
discharge. The reason for the rule is that the
discharge deprives a subsequent party of a right
of recourse against the party discharged by the
holder. Thus, suppose A, maker, issues a note in
favor of B. B negotiates it to C, C to D, D to E, E to
F, holder. F cancels C’s signature. D and E will
also be discharged because both would be denied
their right of recourse against C in case one of
them is made to pay the instrument.
Sec.
123.
Cancellation;
unintentional;
burden of proof. - 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.
PROBLEM: In the same example, if F, instead of
canceling the indorsement of C, presented the
note to A who refused to pay. F notifies
Sec. 124. Alteration of instrument; effect of.
- 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. 121. Right of party who discharges
instrument. - 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.
Sec. 125. What constitutes a material
alteration. - Any alteration which changes:
(b) 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
What are the effects of payment by a
secondary party?
1.
2.
The payer can strike out his indorsement
and those of subsequent parties to him.
The
payer
can
renegotiate
the
instrument.
The instrument is not discharged. But the
party paying is.
The payer is remitted to his former rights
against parties prior to him. If the payer
was a HIDC, even if at the time of
payment he already had notice of defects
of title, he can enforce his rights as if he
was a HIDC.
49
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
of payment is specified, or
any
other
change
or
addition which alters the
effect of the instrument in
any respect, is a material
alteration.
in case of need or not as he may see fit.
X. ACCEPTANCE
Sec. 132. Acceptance; how made, by and so
forth. - 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.
BILLS OF EXCHANGE
IX. FORM AND INTERPRETATION
Sec. 126. Bill of exchange, defined. - A bill
of exchange is an unconditional order in
writing addressed by one person to another,
signed by the person giving it, requiring the
person to whom it is addressed to pay on
demand or at a fixed or determinable future
time a sum certain in money to order or to
bearer.
Sec. 133. Holder entitled to acceptance on
face of bill. - 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. 127. Bill not an assignment of funds in
hands of drawee. - A bill of itself does not
operate as an assignment of the funds in
the hands of the drawee available for the
payment thereof, and the drawee is not
liable on the bill unless and until he accepts
the
same.
Sec.
134.
Acceptance
by
separate
instrument. - 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. 128. Bill addressed to more than one
drawee. - 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. 135. Promise
to accept; when
equivalent
to
acceptance.
An
unconditional promise in writing to accept a
bill before it is drawn is deemed an actual
acceptance in favor of every person who,
upon the faith thereof, receives the bill for
value.
Sec. 129. Inland and foreign bills 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. 136. Time allowed drawee to accept. 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. 130. When bill may be treated as
promissory note. - Where in a bill the
drawer and drawee are the same person or
where the drawee is a fictitious person or a
person not having capacity to contract, the
holder may treat the instrument at his
option either as a bill of exchange or as a
promissory
note.
Sec. 137. Liability of drawee returning or
destroying bill. - 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. 131. Referee in case of need. - 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 nonacceptance or non-payment. Such person is
called a referee in case of need. It is in the
option of the holder to resort to the referee
Sec. 138. Acceptance of incomplete bill. - 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
50
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
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.
qualified acceptance, he must, within a
reasonable time, express his dissent to the
holder or he will be deemed to have
assented
thereto.
XI. PRESENTMENT FOR ACCEPTANCE
Sec. 139. Kinds of acceptance. - An
acceptance is either general or qualified. A
general
acceptance
assents
without
qualification to the order of the drawer. A
qualified acceptance in express terms
varies the effect of the bill as drawn.
Sec. 143. When presentment for acceptance
must
be
made.
Presentment
for
acceptance must be made:
(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
Sec. 140. What constitutes a general
acceptance. - 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.
(b)
Where
the
bill
expressly
stipulates that it shall be presented
for
acceptance;
or
Sec. 141. Qualified acceptance. - An
acceptance is qualified which is:
(c) Conditional; that is to
say,
which
makes
payment
by
the
acceptor dependent on
the fulfillment of a
condition
therein
stated;
(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.
Sec. 144. When failure to present releases
drawer and indorser. - Except as herein
otherwise provided, the holder of a bill
which is required by the next preceding
section to be presented for acceptance
must either present it for acceptance or
negotiate it within a reasonable time. If he
fails to do so, the drawer and all indorsers
are discharged.
(b) Partial; that is to
say, an acceptance to
pay part only of the
amount for which the
bill
is
drawn;
(c) Local; that is to say,
an acceptance to pay
only at a particular
place;
What is presentment for acceptance?
Presentment for acceptance is the production or
exhibition of a bill of exchange to the drawee for
his acceptance.
(d) Qualified as to time;
What is the general rule on presentment for
acceptance?
(e) The acceptance of
some, one or more of
the drawees but not of
all.
GEN.RULE: Presentment for acceptance is not
necessary to render any party to the bill liable.
Sec. 142. Rights of parties as to qualified
acceptance. - 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 nonacceptance. 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
EXCEPTIONS:
1. Where it is payable after sight or in any
case where presentment for acceptance
is necessary to fix the maturity of the
instrument;
2. Where it is expressly stipulated;
3. Where it is drawn payable elsewhere than
at the residence or place of business of
the drawee.
In these three cases, it is necessary (1) to
present the bill for acceptance, or (2) to negotiate
51
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
it within reasonable time to charge the drawer
and all indorsers. The reason is that the drawer
and indorser have a right in having the bill
accepted immediately in order to shorten the
time of payment and thus put a limit to the
period of their liability and likewise to enable
them to protect themselves by other means
before it is too late, if the bill is not accepted and
paid within the time originally contemplated by
them. In the 3 cases, where the bill is not
presented for acceptance nor negotiated within
reasonable time, the parties secondarily liable will
be discharged from liability. Other than the 3
cases, presentment for acceptance is not required
and failure to do so would not affect the
instrument in any manner.
be made to him or to his trustee or
assignee.
How should presentment for acceptance be
made?
In order that presentment for acceptance may be
proper, it is necessary that it be:
(a) made by or on behalf of the holder;
(b) at a reasonable hour;
(c) on a business day;
(d) before the bill is overdue;
(e) within
a
reasonable
time
after
acquisition thereof; and
(f) to the drawee or some person
authorized to accept or refuse
acceptance on his behalf.
However, there is nothing wrong in making
presentment for acceptance in other cases (even
if not required). And, if the bill is dishonored, by
non-acceptance, the holder may treat the bill as if
it had required acceptance.
To
whom
should
acceptance be made?
presentment
for
Generally, it must be made to the drawee
or some person authorized to accept or refuse
acceptance on his behalf. However, where there
are 2 or more drawees, presentment must be
made to all of them unless (1) one is duly
authorized to accept or refuse acceptance, or (2)
they are partners. Where the drawee is dead, it
may be made to his personal representative.
“May” is used because by Sec. 148(a),
presentment is really excused. Where the drawee
is adjudged a bankrupt or has made an
assignment, it may be made to him or his trustee
or his assignee. But, here, the use of “may” does
not excuse non-presentment. It is used to mean
that the choice of to whom presentment will be
made is in the alternative.
What are the reasons for the exceptions?
In exception (1) it is essential to present
for acceptance to fix the maturity date of the
instrument. (e.g. A bill payable 30 days after sight
will not mature unless seen by the drawee. Only
when it is seen will the 30 day period start). In
exception (2) it is to comply with the expressed
stipulation of the parties in the bill itself. In
exception (3) it is to inform the drawee of the
existence of the bill so that he can make
arrangements for its payment on the date of
maturity at the place designated.
Sec. 145. Presentment; how made. 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
(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 all,
in which case presentment may be
made
to
him
only;
Sec. 146. On what days presentment may
be made. - A bill may be presented for
acceptance on any day on which negotiable
instruments may be presented for payment
under the provisions of Sections seventytwo 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.
NOTE: The rule in Sec. 72 and 85 regarding day
of presentment for payment is the same as for
presentment for acceptance. Only in Sec. 146, no
distinction is made between instruments payable
on demand and those payable at a fixed or
determinable future time unlike in Sec. 85. Thus,
whether it is payable on demand or at a fixed
date, where it is presentment for acceptance, it
may be
made before 12 noon on Saturday
provided
it
is
not
a
holiday.
(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
Sec. 147. Presentment where time is
insufficient. - Where the holder of a bill
52
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
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.
is excused
accepted.
and
the
bill
is
not
NOTE: As to par (a) cases provided for in Sec.
132, 133 and 142. As to par. (b), it refers to Sec,.
148. But, it is not sufficient that presentment for
acceptance be excused but also that the bill
remains not accepted.
Sec. 150. Duty of holder where bill not
accepted. - 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.
NOTE: Sec. 147 excuses delay in making
presentment for payment when such is caused by
presenting the bill for acceptance at a place other
than the place where the bill ids drawn payable.
Sec. 148. Where presentment is excused. Presentment for acceptance is excused and
a bill may be treated as dishonored by nonacceptance in either of the following cases:
(a) Where the drawee is dead, or has
absconded, or is a fictitious person or
a person not having capacity to
contract
by
bill.
What is the duty of the holder in Sec. 150?
If, within 24 hrs. after presentment (sec.
136) the bill is not accepted, the person
presenting it must treat the bill as dishonored.
This means that the holder must take the
necessary proceedings against the drawer and
each indorser , that is, have the bill protested
when required and give notice of dishonor.
Otherwise, the drawer and the indorsers will be
discharged.
(b) Where, after the exercise of
reasonable diligence, presentment
can
not
be
made.
(c) Where, although presentment has
been irregular, acceptance has been
refused on some other ground.
Sec. 151. Rights of holder where bill not
accepted. - 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.
NOTE: Sec. 147 excuses delay in making
presentment for payment caused by presenting
the bill for acceptance. Sec. 148 excuses nonpresentment for acceptance.
What are the rights of the holder where bill
is not accepted?
Where the drawee is (1) dead; (2) has
absconded; (3) fictitious; or (4) a person not
having capacity to contract, presentment for
acceptance is excused because it would be futile
to expect that a valid acceptance would be given.
When a bill is dishonored by nonacceptance, the holder, after giving notice of
dishonor and protesting when required, may
immediately proceed against the drawer and
indorsers for the value of the bill without waiting
for the date of maturity. Presentment for payment
need not be made since payment can not be
expected after acceptance has been refused.
There is no point in waiting for the date of
maturity to present the bill for payment. But if the
bill is subsequently accepted, presentment for
payment is necessary.
An irregular presentment in which
acceptance is refused on the other ground is
where presentment is made on a Sunday and
thus, irregular but the acceptance is refused on
the ground that the drawee has no funds ion the
hands of the drawee.
Sec.
149.
When
dishonored
by
nonacceptance. - A bill is dishonored by
non-acceptance:
(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
XII. PROTEST
Sec. 152. In what cases protest necessary. 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
(b) When presentment for acceptance
53
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
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.
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. 153. Protest; how made. - The protest
must be annexed to the bill 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
and
place
of
presentment;
Sec. 159. When protest dispensed with. Protest
is
dispensed
with
by
any
circumstances which would dispense with
notice of dishonor. Delay in noting or
protesting is excused when 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, the bill must be
noted
or
protested
with
reasonable
diligence.
(b) The fact that presentment was
made and the manner thereof;
(c) The cause or reason for protesting
the
bill;
Sec. 160. Protest where bill is lost and so
forth. - 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.
(d) The demand made and the answer
given, if any, or the fact that the
drawee or acceptor could not be
found.
Sec. 154. Protest, by whom made. - Protest
may be made by:
(a)
A
notary
public;
or
XIII. 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.
(b) By any respectable resident of the
place where the bill is dishonored, in
the presence of two or more credible
witnesses.
Sec. 155. Protest; when to be made. - When
a bill is protested, such protest must be
made on the day of its dishonor 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. 156. Protest; where made. - 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. 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. chanrobles law
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
deemed to be an acceptance for the honor
of
the
drawer.
Sec. 157. Protest both for non-acceptance
and non-payment. - A bill which has been
protested for non-acceptance may be
subsequently protested for non-payment.
Sec. 164. Liability of the acceptor for honor.
- The acceptor for honor is liable to the
holder and to all parties to the bill
Sec. 158. Protest before maturity where
acceptor insolvent. - Where the acceptor
54
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
subsequent to the party for whose honor he
has
accepted.
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. 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. 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. 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. 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. 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.
What is payment for honor?
Payment for honor is 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 whose account it was drawn. It is also
called payment supra protest because prior
protest for non-payment is required. It is not
applicable to promissory notes. Payment for
honor may be availed of when the holder,
knowing that the bill has already been dishonored
for non-payment, does not want to indorse the bill
and thereby incur the liabilities of an indorser.
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.
What is the difference between acceptance
for
honor
and
payment
for
honor?
(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.
In acceptance for honor, there is an acceptor for
honor. In payment for honor, there is a payor for
honor. The difference between the two is that
while in the former, the acceptor must ber a
stranger to the bill, in the latter, the payer for
honor may be a party liable on the bill. Further, in
the former, the bill must not be overdue. In the
latter, it is overdue. Also, in the former, there may
be several acceptors while, in the latter, there
can only be one payer. Finally, in the former, the
protest must be for non-acceptance or for better
security, while, in the latter, it is for non-payment.
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.
What are the requisites to perform a valid
payment for honor?
1. The bill has been dishonored for non-payment
2. The bill has been protested for non-payment
3. Payment supra protest is made by any person,
even a party thereto and as to form
XIV. PAYMENT FOR HONOR
Sec. 171. Who may make payment for
honor. - Where a bill has been protested for
non-payment, any person may intervene
55
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
4. the payment must be attested by notarial act
appended to the protest, or form an extension
to it
5. The notarial act must be based on the
declaration by the payer for honor or his
agent of his intention to pay the bill for honor
and for whose honor he pays.
is paid are discharged but the payer for
honor is subrogated for, and succeeds to,
both the rights and duties of the holder as
regards the party for whose honor he pays
and all parties liable to the latter.
What are the effects of payment for honor?
1. All parties subsequent to the party whose
honor it is paid are discharged; and
2. The payer for honor is subrogated for, and
succeeds to, both the rights and duties of
the holder as regards the party whose
honor he pays and all parties liable to the
latter.
What is the procedure for payment for
honor?
1. The payer or his agent goes to a notary public
and declares his intention to pay the bill and
for whose honor he pays.
2. The notary then records the declaration in
the protest or in a separate paper attached to
it.
3. the payer then notifies the person for whose
honor he pays within reasonable time.
ILLUSTRATION: In the example above, suppose Z
did not offer and, as a result, Y made payment.
What are the effects?
a. D and E are discharged because
they are parties subsequent to the
party for whose honor it is paid
( C ).
b. Y acquires the rights of F, holder,
as against C, B,A and X because C
is the party for whose honor he
pays and the rest are considered as
parties liable to C.
What if the payment for honor is not
attested by a notarial act?
It
will operate
as a mere voluntary
payment and the payer acquires no right to full
reimbursement against the party for whose honor
he pays. (Art. 1236-1237, NCC). He acquires the
right of reimbursement only up to the extent that
the party for whose honor he paid is benefited
thereby. Similarly, failure to notify the person for
whose honor he pays within reasonable time will
result in the payment being considered in the
same manner.
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. 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.
NOTE: In payment for honor, the holder cannot
refuse payment. If he does, he cannot recover
from the parties who would have been discharged
had he accepted it. The rule is different from
acceptance for honor because in such a case, the
holder’s consent is necessary.
Note: The rule is different in acceptance for
honor (Sec. 161, last clause)
ILLUSTRATION: In the above example, if Y offers
to pay for the honor of C and F refuses, F loses
the right of recourse against D and E as they are
parties who would have been discharged had the
holder accepted payment. But as to C, the party
in whose honor Y offers to pay, is not discharged
because, as to him, even if F accepted, C would
not be discharged. The party for whom the
instrument is paid for is never discharged from
liability by the payment for honor of the payer.
ILLUSTRATION:
A draws a bill payable to B, with X as
drawee. B negotiates it to C, C to D, D to E, E to F,
holder. X refuses to honor it and F duly protests
non-payment. If Y offers to pay for the honor of C,
while Z offers to pay for the honor of B, the
latter’s (Z) will be preferred as Z’s payment will
discharge more (C, D, E). Y’s offer will only work
to
discharge
D
&
E.
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.
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
56
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
whole bill is discharged.
What are the rights of the rights of the
payer for honor?
XVI. PROMISSORY NOTES AND CHECKS
1. He acquires the rights of the holder (Sec.
175); and
2. He has also the right to receive the bill
and the protest.
The purpose of (2) is to enable him to enforce
his rights against those who are liable to him
by virtue of Sec. 175.
Sec. 184. Promissory note, defined. - A
negotiable promissory note within the
meaning of this Act is 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.
XV. BILLS IN SET
Sec. 178. Bills in set constitute one bill. 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. 185. Check, defined. - 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. 179. Right of holders where different
parts are negotiated. - 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. 186. Within what time a check must be
presented. - 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.
When are checks supposed to be presented for
payment?
Sec. 180. Liability of holder who indorses
two or more parts of a set to different
persons. - 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.
Checks are to be presented within a
reasonable time after its issue or the drawer will
be discharged from liability to the extent of the
loss caused by the delay of presentment.
Although a check is a BOE, it must be presented
within a reasonable time from issues and not from
last negotiation so that the transfer of a check to
successive holders does not extend the time for
presentment. A check is intended for immediate
use and not to circulate as promissory note. But
the discharge of the drawer is predicated on the
fact of loss so that, if there were no lose, then the
drawer is not discharged (though the check is
stale) and the original obligation subsists.
Sec. 181. Acceptance of bill drawn in sets. 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. 182. 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.
What are the requisites in order to discharge the
drawer?
1. The check is not presented within a
reasonable time after its issue;
2. The drawer suffers loss; and
3. The loss suffered by the drawer is
attributable to the delay.
Sec. 183. Effect of discharging one of a set.
- Except as herein otherwise provided,
where any one part of a bill drawn in a set
is discharged by payment or otherwise, the
What is reasonable time?
What constitutes reasonable time is dependent
upon the circumstances of each case. But the test
57
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
is whether or not the payee employed such
diligence as a prudent man would exercise in his
own affairs. As stated earlier, our banking
practice sets the period within which presentment
of a check must be made- 6 months. Otherwise, it
is considered as stale.
Finally, an unreasonable delay in the
presentment of a check will discharge the
indorsers whether or not he is prejudiced by the
delay as the law presumes that he is prejudiced.
Sec. 187. Certification of check; effect of. Where a check is certified by the bank on
which it is drawn, the certification is
equivalent to an acceptance.
What is meant by “to the extent of the loss
caused by the delay?”
The discharge of the drawer is conditioned upon
the suffering of a loss attributable to the delay. If
no loss or injury is shown, the drawer is not
discharged. The only loss which would be
sustained by the drawer in case resentment was
not made within a reasonable time would be that
caused by the insolvency of the bank subsequent
to the delivery and prior to the presentment of
the check. It does not include the withdrawal by
the drawer of the funds or deposits as the
benefits from the money he withdrew.
What is certification of a check?
Certification is an agreement whereby the bank
against whom a check is drawn, undertakes to
pay it at any future time when presented for
payment. It is equivalent to acceptance in that
the drawee bank is bound on the instrument upon
certification. It implies that the bank recognizes
that the check is good; that the check is drawn
upon sufficient funds in the hands of the drawee;
that they have been set apart for its satisfaction;
and that they shall be so applied whenever the
check is presented for payment. The purpose of
procuring certification is to impart strength and
credit
to
the
paper
by
obtaining
an
acknowledgment from the certifying bank that
the drawer has funds therein sufficient to cover
the check and securing the engagement of the
bank that the check will be paid upon
presentation. When a check is certified, it ceases
to possess the character of a check, and
represents so much money on deposit, payable to
the holder on demand.
HOW COMPUTED: PDIC- the insurance
benefits given for deposits is set at Php40,000.00:
Formula:
1. Get ratio between – PDIC: amount of
deposit
2. MULTIPLY RATIO WITH AMOUNT OF CHECK
3. Thus, Loss= PDIC__________
x amount of
check
Amount of Deposit
4. Loss= extent of drawer’s discharge
Suppose F, holder of a check for Php10,000.00
drawn by A. A has a deposit with the bank of
Php80,000.00. F fails to present the check within
reasonable time from issue. During such time, the
bank collapsed. Can A go against the bank?
Suppose the bank wrote across the check
“certified” and it was signed by an authorized
official, is that sufficient certification? Is there a
form required?
Yes, it is sufficient as no particular form, is
required, only that it be in writing. This is the
usual method of certification. Another is the use
of the word “good” followed by the bank officer’s
signature. But, “ok” followed by the signature is
not acceptable. If it’s “good” it’s ok. If it’s “ok” it’s
not good.
No. the fact that A issued a check does not mean
that the issuance immediately resulted in an
assignment of funds in favor of the payee. There
is as yet no privity of contract between F and the
bank so that F cannot go against the bank.
Can F go against A, drawer? Yes, but only
to the extent not considered as lost. PDIC insures
the depositor of Php40,000.00. The amount of
loss is thus computed:
What are the effects of “certification”
1.) It is equivalent to acceptance and is the
operative act that makes the drawee bank
liable;
2.) It operates as an assignment of the funds
of the drawer in the hands of the drawee
bank;
3.) If obtained by the holder, it discharges
persons secondarily liable thereon; and
4.) The payee or holder for all intents and
purposes, becomes the depositor of the
drawee bank with rights and duties of one.
LOSS= PDIC x amt. of check = 40,000.00 x
10,000.00
Deposit
80,000.00
= ½ x P10,000.00= P5,000.00
The loss being to the extent of P5,000.00. F can
only collect P5,000.00 from A.
58
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
The banker’s liability to accept and pay is
conditioned upon the sufficiency of the drawer’s
money in the hands of the bank. When the holder
procures the check to be certified, the check
operates as an assignment of a part of the funds
to the credit of the drawer with the bank. The
funds to be under the control of the drawer and
transfer to the credit of the holder or payee.
Supposing the holder of the check presented the
check for certification but the bank refused. Can
the instrument be considered by the holder as
dishonored?
No. The certification of the check is not part of
the warranties of the drawer. In so far as the
drawer is concerned, he only warrants that the
check will be paid if it is presented for payment. It
is not part of the warranties of the drawer that
the check, if presented , will be certified or
accepted by the bank. The refusal to certify will
not mean a dishonor of the check. What will
constitute a dishonor will be the non-payment of
the check because the checks being payable on
demand need not be presented for acceptance.
Can the holder sue the bank of the check is not
accepted or certified?
No. Before acceptance or certification, the
bank is not liable and the holder has no right to
sue the drawee bank on the check. As a general
rule, an action may not be maintained by the
payee of the check against the bank on which it is
drawn, unless the check has been accepted or
certified. Without acceptance or certification
there is no privity of contract between the drawee
bank and the payee or holder of the check.
Sec. 188. Effect where the holder of check
procures it to be certified. - Where the
holder of a check procures it to be accepted
or certified, the drawer and all indorsers are
discharged from liability thereon.
When may a stop payment order be made?
As a check of itself does not operate as a
n assignment of funds of the drawer, the latter
may countermand (withdraw the order to pay)
payment before its acceptance or certification.
The
order
to
stop
payment
must
be
communicated to the bank before the check to
which it refers has been paid.
NOTE:
Where
the
holder
procures
the
certification, the drawer and endorsers are
discharged. The reason for the rule is that
certification has the same effect as if the holder
had drawn the money redeposited it and taken a
certificate of deposit for it. Thus, the drawer (and
indorser) is discharged on the check and on the
original debt. Further, only indorsers at the time
of certification are discharged, not those
subsequent.
SUMMARY OF RIGHTS AND LIABILITIES OF
THE PARTIES
2. Where the drawee bank refuses to certify, or
accept, or pay a check:
The holder has no action against it as a
check is of itself is not an assignment if
the funds of the drawer and the drawee
bank is not liable on the check until it has
accepted or certified it.
Neither has the holder a right of action
against the drawer where the drawee bank
refuses to accept or certify the check but
he has a right of action against the drawer
where the drawee bank refuses to pay.
While the holder has no right of action
against the drawee bank which refuses to
pay, accept, or certify the check, the
drawer has a right of action against the
drawee bank so refusing.
However, if the certification is not
obtained by the holder but by other, i.e. the
drawer (even at the instance of the holder), or
any other person, the drawer and the indorsers
are
not
discharged
from
liability.
Sec. 189. When check operates as
assignment. - A check of itself does
operate as an assignment of any part of
funds to the credit of the drawer with
bank, and the bank is not liable to
holder unless and until it accepts
certifies the check.
an
not
the
the
the
or
What is the rule on checks as regards the funds?
Check drawn in the ordinary form is not an
assignment of the funds of the drawer in the
bank. It does not constitute a transfer of any
money to the credit of the holder. It is simply an
order by the drawer to pay the amount of the
check on presentment, and which may be
countermanded and payment forbidden by the
drawer at any time before it is actually cashed.
XVII. GENERAL PROVISIONS
Sec. 190. Short title. - This Act shall be
known as the Negotiable Instruments Law.
Sec. 191. Definition and meaning of terms. 59
ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
In this Act, unless the contract otherwise
requires:
"Acceptance" means an acceptance
completed by delivery or notification;
instruments, and the facts of the particular
case.
Sec. 194. Time, how computed; when last
day falls on holiday. - Where the day, or the
last day for doing any act herein required or
permitted to be done falls on a Sunday or
on a holiday, the act may be done on the
next succeeding secular or business day.
"Action" includes counterclaim and
set-off;
"Bank" includes any person or
association of persons carrying on
the business of banking, whether
incorporated or not;
Sec. 195. Application of Act. - The
provisions of this Act do not apply to
negotiable instruments made and delivered
prior to the taking effect hereof.
"Bearer" means the person in
possession of a bill or note which is
payable to bearer;
"Bill" means bill of exchange, and
"note" means negotiable promissory
note;
Sec. 196. Cases not provided for in Act. Any case not provided for in this Act shall
be governed by the provisions of existing
legislation or in default thereof, by the rules
of the law merchant.
"Delivery" means transfer of
possession, actual or constructive,
from one person to another;
Sec. 197. Repeals. - All acts and laws and
parts thereof inconsistent with this Act are
hereby repealed.
"Holder" means the payee or indorsee
of a bill or note who is in possession
of it, or the bearer thereof;
Sec. 198. Time when Act takes effect. - This
Act shall take effect ninety days after its
publication in the Official Gazette of the
Philippine Islands shall have been
completed.
"Indorsement" means an indorsement
completed by delivery;
"Instrument" means negotiable
instrument;
"Issue" means the first delivery of the
instrument, complete in form, to a
person who takes it as a holder;
Enacted: February 3, 1911
"Person" includes a body of persons,
whether incorporated or not;
"Value" means valuable
consideration;
"Written" includes printed, and
"writing" includes print.
Sec. 192. Persons primarily liable on
instrument. - The person "primarily" liable
on an instrument is the person who, by the
terms of the instrument, is absolutely
required to pay the same. All other parties
are
"secondarily"
liable.
Sec.
193.
Reasonable
time,
what
constitutes. - In determining what is a
"reasonable time" regard is to be had to the
nature of the instrument, the usage of trade
or
business
with
respect
to
such
60