Negotiable Instruments 4.

Difference between Negotiable Instruments and

Negotiable Documents of Title

Law Negotiable Instruments Negotiable Documents of Title

Have requisites of Sec. 1 of the does not contain requisites of
1. Negotiable Instruments – written contracts for the payment
NIL Sec. 1 of NIL
of money; by its form, intended as a substitute for money and
intended to pass from hand to hand, to give the holder in due course Have right of recourse against
the right to hold the same and collect the sum due. intermediate parties who are no secondary liability of
secondarily liable intermediate parties
2. Characteristics of Negotiable Instruments: Holder in due course may have transferee merely steps into the
rights better than transferor shoes of the transferor
a. negotiability – right of transferee to hold the instrument and
collect the sum due Subject is money subject is goods
instrument is merely evidence of
b. accumulation of secondary contracts – instrument is
Instrument itself is property of title; thing of value are the goods
negotiated from person to person value mentioned in the document
3. Difference between Negotiable Instruments from Non-
5. Promissory Note – unconditional promise to pay in writing
Negotiable Instruments:
made by one person to anther, signed by the maker, engaging to
Negotiable Instruments Non-negotiable Instruments pay on demand or a fixed determinable future time a sum certain in
money to order or bearer. When the note is drawn to maker’s own
Contains all the requisites of Sec. does not contain all the requisites
order, it is not complete until indorse by him. (Sec. 184 NIL)
1 of the NIL of Sec. 1 of the NIL
Transferred by negotiation transferred by assignment Parties:

Holder in due course may have transferee acquires rights only of 1. maker
better rights than transferor his transferor 2. payee

prior parties merely warrant

6. Bill of Exchange – unconditional order in writing addressed
Prior parties warrant payment legality of title
by one person to another, signed by the person giving it, requiring
Transferee has right of recourse transferee has no right of the person to whom it is addressed to pay on demand or at a fixed or
against intermediate parties recourse determinable future time a sum certain in money to order or to
bearer. (Sec. 126 NIL)
 – drawn on a deposit – not drawn on a deposit
– the death of a drawer of a
check, with knowledge by the
Parties: banks, revokes the authority of – the death of the drawer of the
the banker pay ordinary bill of exchange does not
1. drawer
– must be presented for payment – may be presented for payment
2. payee
within a reasonable time after its within a reasonable time after its
3. drawee/ acceptor
issue (6 months) last negotiation.
7. Check – bill of exchange drawn on a bank and payable on
demand. (Sec. 185 NIL) 10. Distinctions between a Promissory Note and Check
8. Difference between Promissory Note and Bill of
PN CHECK
Exchange
– there are three (3) parties, the
Promissory Note Bill of Exchange – there are two (2) parties, the drawer, the drawee bank and the
maker and the payee payee
Unconditional promise unconditional order
– may be drawn against any
Involves 2 parties involves 3 parties
person, not necessarily a bank – always drawn against a bank
Maker primarily liable drawer only secondarily liable
– may be payable on demand or at
generally 2 presentments – for a fixed or determinable future
only 1 presentment – for payment acceptance and for payment time -always payable on demand

9. Distinctions between a Check and Bill of Exchange – a promise to pay – an order to pay

CHECK BOE
11. Other Forms of Negotiable Instruments:
– always drawn upon a bank or – may or may not be drawn
banker against a bank a. certificates of deposits

– may be payable on demand or at b. trade acceptances

a fixed or determinable future
– always payable on demand time c. bonds in the nature of promissory notes
– not necessary that it be – necessary that it be presented
presented for acceptance for acceptance d. drafts which are bills of exchange drawn by 1 bank to another

e. letters of credit
12. Trust Receipt – a security transaction intended to aid in the – It must be signed by the maker or drawer. It may consist of
financing of importers and retailers who do not have sufficient funds mere initials or even numbers, but the holder must prove that what
to finance their transaction and acquire credit except to use as is written is intended as a signature of the person sought to be
collateral the merchandise imported charged.

– The Bill must contain an order, something more than the

13. Requisites of a Negotiable Note (PN): (SUDO) mere asking of a favor.

It must: – Sum payable must be in money only. It cannot be made

payable in goods, wares, or merchandise or in property.
a. be in writing signed by the drawer
b. contains an unconditional promise or order to pay a sum – A drawee’s name may be filled in under Section 14 of the NIL
certain in money
15. Determination of negotiability
c. be payable on demand or at a fixed determinable future time
1. by the provisions of the Negotiable Instrument Law,
d. be payable to order or to bearer (Sec. 1 NIL)
particularly Section 1 thereof
2. by considering the whole instrument
14. Requisites of a Negotiable Bill (BOE): (SUDOC) 3. by what appears on the face of the instrument and not
elsewhere
It must:
*In determining is the instrument is negotiable, only the instrument
1. be in writing signed by the drawer
itself and no other, must be examined and compared with the
2. contains an unconditional promise or order to pay a sum
requirements stated in Sec. 1. If it appears on the instrument that it
certain in money
3. be payable on demand or at a fixed determinable future lacks one of the requirements, it is not negotiable and the provisions
time of the NIL do not govern the instrument. The requirement lacking
4. be payable to order or to bearer cannot be supplied by using a separate instrument in which that
5. the drawee must be named or otherwise indicated with requirement which is lacking appears.
reasonable certainty (Sec. 1 NIL)
Notes on Section 1: 16. Sum is certain even if it is to be paid with:

– In order to be negotiable, there must be a writing of some a. interest

kind, else there would be nothing to be negotiated or passed from
b. in installments
hand to hand. The writing may be in ink, print or pencil. It may be
upon parchment, cloth, leather or any other substitute of paper. c. in installments with acceleration clause
d. with exchange a. there is a fixed period after sight/date

e. costs of collection or attorney’s fees (Sec. 2 NIL) b. on or before a specified date/fixed determinable future time

17. General Rule: The promise or order should not depend on a c. on or at a fixed date after the occurrence of an event certain
contingent event. If it is conditional, it is non-negotiable. to happen though the exact date is not certain (Sec. 4 NIL)

Notes on Section 4

– If the instrument is payable upon a contingency, the

happening of the event does not cure the defect (still non-
Exceptions: negotiable)

a. indication of particular fund from which the acceptor disburses 19. General Rule: If some other act is required other than
himself after payment the payment of money, it is non-negotiable.

b. statement of the transaction which gives rise to the Exceptions:

instrument. (Sec. 3 NIL)
a. sale of collateral securities
But an order or promise to pay out of a particular fund is not
unconditional b. confession of judgment

Notes on Section 3 c. waives benefit of law

– The particular fund indicated should not be the direct source d. gives option to the holder to require something to be done in
of payment, else it becomes unconditional and therefore non- lieu of money (Sec. 5 NIL)
negotiable. The fund should only be the source of reimbursement.
Notes of Section 5
– A statement of the transaction does not destroy the
negotiability of the instrument. Exception: Where the promise to pay – Limitation on the provision, it cannot require something
or order is made subject to the terms and conditions of the illegal.
transaction stated.
– There are two kinds of judgements by confession: a) cognovit
18. Instrument is payable upon a determinable future time actionem b) relicta verificatione
if:
– Confessions of judgement in the Philippines are void as under the provisions of Sec. 14, 15, or 16 depending on how the
against public policy. instrument is delivered.

– If the choice lies with the debtor, the instrument is rendered 22. Instrument is payable to order:
non-negotiable.
– where it is drawn payable to the order of a specified person
20. The validity and negotiability of an instrument is not or
affected by the fact that:
1. it is not dated – to a specified person or his order
2. does not specify the value given or that any had been
given It may be drawn payable to the order of:
3. does not specify the place where it is drawn or payable
1. a payee who is not a maker, drawer, or drawee
4. bears a seal
2. the drawer or maker
5. designates the kind of current money in which payment is
3. the drawee
to be made (Sec. 6 NIL)
4. two or more payees jointly
5. one or some of several payees
6. the holder of an office for the time being (Sec. 8 NIL)
Notes on Section 8

21. Instrument is payable upon demand if: – The payee must be named or otherwise indicated therein with
reasonable certainty.
a. it is expressed to be so payable on sight or upon presentation
– If there is no payee, there would be no one to indorse the
b. no period of payment is stipulated
instrument payable to order. Therefore, useless to be considered
negotiable.
c. issued, accepted, or endorsed after maturity (Sec. 7 NIL)

– Joint payees in indicated by the conjunction “and”. To

Where an instrument is issued, accepted or indorsed when overdue,
negotiate, all must indorse.
it is, as regards to the person so issuing, accepting, or indorsing it,
payable on demand.
– Being several payees is indicated by the conjunction “or”.

Notes on Section 7
23. Instrument is payable to bearer :

– if the time for payment is left blank (as opposed to being omitted),
a. when it is expressed to be so payable
it may properly be considered as an incomplete instrument and fall
b. when payable to the person named or bearer – any holder may insert the true date of issuance or
acceptance
c. payable to order of fictitious or non-existent person and this
fact was known to drawer – the insertion of a wrong date does not avoid the instrument in
the hands of a subsequent holder in due course
d. name of payee not name of any person
– as to the holder in due course, the date inserted (even if it be
e. only and last indorsement is an indorsement in blank (Sec. 9 the wrong date) is regarded as the true date.
NIL)
25. Subsequent Holder in Due Course not affected by the
Notes on Section 9 following deficiencies:

– “fictitious person” is not limited to persons having no legal a. incomplete but delivered instrument (Sec. 14 NIL)
existence. An existing person may be considered fictitious depending
on the intention of the maker or the drawer. b. complete but undelivered (Sec. 16 NIL)

– “fictitious person” means a person who has no right to the c. complete and delivered issued without consideration or a
instrument because the maker or drawer of it so intended. He was consideration consisting of a promise which was not fulfilled (Sec 28
not intended to be the payee. NIL)

– where the instrument is drawn, made or prepared by an 26. Holder in Due Course Affected by
agent, the knowledge or intent of the signer of the instrument is Abnormality/Deficiency:
controlling.
a. incomplete and undelivered instrument (Sec. 15 NIL)
– Where the agent has no authority to execute the instrument,
the intent of the principal is controlling b. maker/drawer’s signature forged (Sec. 23 NIL)

24. The date may be inserted in an instrument when: 27. Incomplete but Delivered Instrument:
1. an instrument expressed to be payable at a fixed period
1. Where an instrument is wanting in any material particular:
after date is issued undated
2. where acceptance of an instrument payable at a fixed
a. Holder has prima facie authority to fill up the blanks therein.
period after sight is undated (Sec. 13 NIL)

b. It must be filled up strictly in accordance with the authority

Effects:
given and within a reasonable time.
c. If negotiated to a holder in due course, it is valid and effectual – delivery is not conclusively presumed where the instrument is
for all purpose as though it was filled up strictly in accordance with incomplete
the authority given and within reasonable time. (Sec. 14 NIL)
– defense of the maker is to prove non-delivery of the
2. Where only a signature on a blank paper was delivered: incomplete instrument.

1. It was delivered by the person making it in order that it 29. Complete but Undelivered:
may be converted into a negotiable instrument
2. The holder has prima facie authority to fill it up as such for General Rule: Every contract on a negotiable instrument is
any amount. (Sec. 14 NIL) incomplete and revocable until delivery for the purpose of giving
Notes on Section 14 effect thereto.

– if the instrument is wanting in material particular, mere a. If between immediate parties and remote parties not holder in
possession of the instrument is enough to presume prima facie due course, to be effectual there must be authorized delivery by the
authority to fill it up. party making, drawing, accepting or indorsing. Delivery may be
shown to be conditional or for a special purpose only
– material particular may be an omission which will render the
instrument non-negotiable (e.g. name of payee), an omission which b. If the holder is a holder in due course, all prior deliveries
will not render the instrument non-negotiable (e.g. date) conclusively presumed valid

– in the case of the signature in blank, delivery with intent to c. If instrument not in hands of drawer/maker, valid and
convert it into a negotiable instrument is required. Mere possession intentional delivery is presumed until the contrary is proven (Sec. 16
is not enough. NIL)

28. Incomplete and Undelivered Instrument: Rules on delivery of negotiable instruments:

General Rule: Where an incomplete instrument has not been 1) delivery is essential to the validity of any negotiable instrument
delivered, it will not, if completed and negotiated without authority,
be a valid contract in the hands of any holder against any person 2) as between immediate parties or those is like cases, delivery
who signed before delivery. (Sec. 15 NIL) must be with intention of passing title

Notes on Section 15 3) an instrument signed but not completed by the drawer or maker
and retained by him is invalid as to him for want of delivery even in
– it is a real defense. It can be interposed against a holder in the hands of a holder in due course
due course.
4) but there is prima facie presumption of delivery of an instrument 1. he must be duly authorized
signed but not completed by the drawer or maker and retained by 2. he must add words to his signature indicating that he signs
him if it is in the hands of a holder in due course. This may be as an agent
rebutted by proof of non-delivery. 3. he must disclose his principal (Sec. 20 NIL)
Notes on Section 20
5) an instrument entrusted to another who wrongfully completes it
and negotiates it to a holder in due course, delivery to the agent or – if an agent does not disclose his principal, the agent is
custodian is sufficient delivery to bind the maker or drawer. personally liable on the instrument.

6) If an instrument is completed and is found in the possession of 32. Per Procuration – operates as notice that the agent has
another, there is prima facie evidence of delivery and if it be a holder a limited authority to sign.
in due course, there is conclusive presumption of delivery.
Effects:
7) delivery may be conditional or for a special purpose but such do
– the principal in only bound if the agent acted within the limits
not affect the rights of a holder in due course.
of the authority given
30. General rule: a person whose signature does not appear
– the person who takes the instrument is bound to inquire into
on the instrument in not liable.
the extent and nature of the authority given. (Sec. 21 NIL)
Exception:

1. one who signs in a trade or assumed name (Sec. 18)

33. General rule: Infants and corporations incur no liability by their
2. a duly authorized agent (Sec. 19)
3. a forger (Sec. 23) indorsement or assignment of an instrument. (Sec. 22 NIL)

Effects:

– no liability attached to the infant or the corporation

– the instrument is still valid and the indorsee acquires title

31. General rule: an agent is not liable on the instrument if he were

duly authorized to sign for or on behalf of a principal.
34. General rule: a signature which is forged or made without
Requisites: authority is wholly inoperative.
Effects: – drawee bank is conclusively presumed to know the signature
of its drawer
1. no right to retain
2. no right to give a discharge – if endorser’s signature is forged, loss will be borne by the
3. no right to enforce payment can be acquired. (Sec. 23 forger and parties subsequent thereto
NIL)
– drawee bank is not conclusively presumed to know the
Exception: signature of the indorser. The responsibility falls on the bank which
last guaranteed the indorsement and not the drawee bank.
– the party against whom it is sought to be enforced is
precluded from setting up the forgery or want of authority. – Where the payee’s signature is forged, payments made by
the drawee bank to collecting bank is ineffective. No debtor/creditor
Notes on Section 23
relationship is created. An agency to collect is created between the
– Section 23 applies only to forged signatures or signatures person depositing and the collecting bank. Drawee bank may recover
made without authority from collecting bank who may in turn recover from the person
depositing.
– Alterations such as to amounts or like fall under section 124
Rules on liabilities of parties on a forged instrument
– Forms of forgery are a) fraud in factum b) duress amounting In a PN
to fraud c) fraudulent impersonation
– a party whose indorsement is forged on a note payable to
– Only the signature forged or made without authority is order and all parties prior to him including the maker cannot be held
inoperative, the instrument or other signatures which are genuine liable by any holder
are affected
– a party whose indorsement is forged on a note originally
– The instrument can be enforced by holders to whose title the payable to bearer and all parties prior to him including the maker
forged signature is not necessary may be held liable by a holder in due course provided that it was
mechanically complete before the forgery
– Persons who are precluded from setting up the forgery are a)
those who warrant or admit the genuineness of the signature b) – a maker whose signature was forged cannot be held liable by
those who are estopped. any holder

– Persons who are precluded by warranting are a) indorsers b)

persons negotiating by delivery c) acceptors.
In a BOE
– the drawer’s account cannot be charged by the drawee where – presumption is disputable
the drawee paid

– the drawer has no right to recover from the collecting bank

36. Where value has at any time been given for the instrument, the
– the drawee bank can recover from the collecting bank holder is deemed a holder for value in respect to all parties who
become such prior to that time. (Sec. 26 NIL)
– the payee can recover from the drawer

– the payee can recover from the recipient of the payment,

such as the collecting bank 37. Effect of want of consideration:

– the payee cannot collect from the drawee bank 1. Absence or failure of consideration may be set up against a
holder not a holder in due course (personal defense)
– the collecting bank bears the loss but can recover from the 2. Partial failure of consideration is a defense pro tanto (Sec
person to whom it paid 28 NIL)

– if payable to bearer, the rules are the same as in PN.

– if the drawee has accepted the bill, the drawee bears the loss Notes on Section 28
and his remedy is to go after the forger

– if the drawee has not accepted the bill but has paid it, the
drawee cannot recover from the drawer or the recipient of the – absence of consideration is where no consideration was
proceeds, absence any act of negligence on their part. intended to pass.

– failure of consideration implies that consideration was

intended by that it failed to pass
35. Every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration. (Sec. 24 NIL) – the defense of want of consideration is ineffective against a
holder in due course
Effects:
– a drawee who accepts the bill cannot allege want of
– every person whose signature appears thereon is a party for consideration against the drawer
value
38. An accommodation party is one who signs the instrument as 2. that the transfer must be in a manner as to constitute the
maker, drawer, acceptor, or indorser without receiving value therefor transferee a holder
and for the purpose of lending his name to some other person.
For a bearer instrument – by delivery
Effects:
For payable to order – by indorsement and delivery (Sec. 30 NIL)
– an accommodation party is liable to the holder for value
notwithstanding that such holder knew that of the accommodation.
(Sec. 28 NIL)
40. Indorsement to be must be:

1. written
2. on the instrument itself or upon a piece of paper attached
Notes on Section 28
(Sec. 31 NIL)
Notes on Section 31
– the accommodated party cannot recover from the
accommodation party
– the paper attached with the indorsement is an allonge

– want of consideration cannot be interposed by the

– an allonge must be attached so that it becomes a part of the
accommodation party
instrument, it cannot be simply pinned or clipped to it.

– an accommodation maker may seek reimbursement from a

41. Kinds of Indorsements:
co-maker even in the absence of any provision in the NIL; the
1. Special (Sec. 34)
deficiency is supplied by the New Civil Code. 2. Blank (Sec. 35)
3. Restrictive (Sec. 36)
– he may do this even without first proceeding against the
4. Qualified (Sec. 38)
debtor provided: 5. Conditional (Sec. 39 NIL)
42. Effects of indorsing an instrument originally payable to
a. he paid by virtue of judicial demand
bearer:
b. principal debtor is insolvent
– it may further be negotiated by delivery

– the person indorsing is liable as indorser to such persons as

39. An instrument is negotiated when: to make title through his indorsement (Sec. 40 NIL)

1. it is transferred from one person to another Notes on Section 40

– Section 40 applies only to instruments originally payable to 46. Requisites for a Holder in Due Course (HDC):
bearer
a. receives the instrument complete and regular on its face
– It cannot apply where the instrument is payable to bearer
because the only or last indorsement is in blank. b. became a holder before it was overdue and had no notice that
it had been previously dishonored if such was the fact
43. A holder may strike out any indorsement which is not necessary
to his title. c. takes the instrument for value and in good faith

Effects: d. at time he took the instrument, no notice of infirmity in

instrument or defect in the title of the person negotiating it (Sec. 52
– An indorser whose indorsement is struck out is discharged NIL)

– All indorsers subsequent to such indorser who has been Notes on Section 52
discharged are likewise relieved. (Sec. 48 NIL)
– every holder is presumed to be a HDC (Sec. 59)
44. Effects of a transfer without endorsement:
– the person who questions such has the burden of proof to
– the transferee acquires such title as the transferor had prove otherwise

– the transferee acquires the right to have the indorsement of – if one of the requisites are lacking, the holder is not HDC
the transferor
– an instrument is considered complete and regular on its face
– negotiation takes effect as of the time the indorsement is if a) the omission is immaterial b) the alteration on the instrument
actually made (Sec. 49 NIL) was not apparent on its face

45. Rights of a holder: – an instrument is overdue after the date of maturity.

– a holder may sue in his own name – on the date of maturity, the instrument is not overdue and
the holder is a HDC
– a holder may receive payment.
– acquisition of the transferee or indorsee must be in good faith
Effects:
– good faith means lack of knowledge or notice of defect or
– if in due course it discharges the instrument (Sec. 51 NIL) infirmity
 3. insertion of wrong date where
payable at a fixed period after
47. A holder is not a HDC where an instrument payable on demand date and issued undated; or at a
is negotiated at an unreasonable length of time after its issue (Sec. fixed period after sight and
53 NIL) acceptance is undated Duress amounting to forgery

48. Rights of a HDC:

4. filling up the blanks contrary to
authority given or not within Fraud in factum or in esse
– holds the instrument free from any defect of title of prior
reasonable time contractus
parties 5. fraud in inducement Minority

– free from defenses available to prior parties among 6. acquisition of the instrument by
themselves (personal/ equitable defenses) force, duress or fear Marriage in case of a wife
Insanity where the insane person
– may enforce payment of the instrument for the full amount 7. acquisition of the instrument by has a guardian appointed by the
against all parties liable(Sec. 57 NIL) unlawful means court

Notes on Section 57 Ultra vires acts of a corporation

where its charter or by statue, it is
– Personal or equitable defenses are those which grow out of 8. acquisition of the instrument prohibited from issuing
the agreement or conduct of a particular person in regard to the for an illegal consideration commercial paper
instrument which renders it inequitable for him through legal title to 9. negotiation in breach of faith Want of authority of agent
enforce it. Can be set up against holders not HDC
10. negotiation under Execution of instrument
– Legal or real defenses are those which attach to the circumstances amounting to fraud between public enemies
instrument itself and can be set up against the whole world,
Illegality of contract made by
including a HDC. 1. Mistake statue
Personal Defenses Real Defenses 12. intoxication Forgery
1. absence or failure of 13. ultra vires acts of corporations
consideration Alteration
14. want of authority of the agent
2. want of delivery of complete Want of delivery of incomplete where he has apparent authority
instrument instrument
15. illegality of contract where
 form or consideration is illegal Exception:

16. insanity where there is no – where it is shown that the title of any person who has
notice of insanity negotiated the instrument is defective, the burden is on the holder to
prove that he is a HDC or that a person under whom he claims is a
HDC (Sec. 59 NIL)

49. A instrument not in the hands of a HDC is subject to the same

defenses as if it were non-negotiable.

Exception:
51. A maker is primarily liable:
– a holder who derives his title through a HDC and is not a
party to any fraud or illegality affecting the instrument, has all the Effects of making the instrument, the maker:
rights of such HDC in respect to all parties prior. (Sec. 58 NIL)
a. engages to pay according to tenor of instrument

b. admits existence of payee and his capacity to indorse (Sec. 60

Rights of a holder not a HDC NIL)

– may sue in his own name Notes on Section 60

– may receive payment and if it is in due course, the – a maker’s liability is primarily and unconditional
instrument is discharged
– one who has signed as such is presumed to have acted with
– holds the instrument subject to the same defenses as if it care and to have signed with full knowledge of its contents, unless
were non-negotiable fraud is proved

– if he derives his title through a HDC and is not a party to any – the payee’s interest is only to see to it that the note is paid
fraud or illegality thereto, has all the rights of such HDC according to its terms

– when two or more makers sign jointly, each is individually

liable for the full amount even if one did not receive the value given
50. General rule: every holder is deemed prima facie to be a holder
in due course.
– the maker is precluded from setting up the defense of a) the – the existence of the payee and his then capacity indorse
payee is fictional, b) that the payee was insane, a minor or a
corporation acting ultra vires 54. Irregular Indorser – a person not otherwise a party to an
instrument places his signature in blank before delivery is liable as
an indorser in the following manner:
1. if payable to order of a third person – liable to the payee
52. A drawer is secondarily liable and to all subsequent parties
2. if payable to order of the maker or drawer – liable to all
Effects of drawing the instrument, the drawer: parties subsequent to the maker or drawer
3. if payable to bearer – liable to all parties subsequent to the
1. admits the existence of the payee,
maker or drawer
2. the capacity of such payee to indorse
4. if signs for an accommodation party – liable to all parties
3. engages that on due presentment, the instrument will be
subsequent to the payee (Sec. 64 NIL)
accepted or paid or both according to its tenor.
55. Warranties where negotiating by delivery or qualified
If the instrument is dishonored, and the necessary proceedings on endorsement:
1. the instrument is genuine and in all respect what it
dishonor duly taken
purports to be
1. the drawer will pay the amount thereof to the holder 2. the indorser has good title to it
2. will pay to any subsequent indorser who may be compelled 3. all prior parties had the capacity to contract
to pay it. (Sec. 61 NIL) 4. indorser has no knowledge of any fact that would impair
Notes on Section 61 the validity or the value of the instrument.
Limitations of warranties:
– a drawer may insert an express stipulation to negative or
limit his liability -if by delivery – extends only to immediate transferee

53. An acceptor is primarily liable -warranty of capacity to contract does not apply to persons
negotiating public or corporate securities (Sec. 65 NIL)
By accepting the instrument, an acceptor:
Notes on Section 65
– engages that he will pay according to the tenor of his
acceptance – a qualified indorser is one who indorses without recourse or
sans recourse
– admits the existence of the drawer, the genuineness of his
signature and his capacity and authority to draw the instrument – recourse – resort to a person secondarily liable after default
of person primarily liable
– a qualified indorser cannot raise the defense of a) forgery b) Notes on Section 66
defect of his title or that it is void c) the incapacity of the maker,
drawer or previous indorsers. – the indorser under Section 66 warrants the solvency of a prior
party
– a qualified Indorsement makes the indorser mere assignor of
title of instrument, relieves him of general obligation to pay if – the indorser warrants that the instrument is valid and
instrument is dishonored, but he is still liable for the warranties subsisting regardless of whether he is ignorant of that fact or not.
arising from instrument only up to warranties of general indorser
– warranties extend in favor of a) a HDC b) persons who derive
– the warranty is to the capacity of prior parties at the time the their title from HDC c) immediate transferees even if not HDC
instrument was negotiated. Subsequent incapacity does not breach
– the indorser does not warrant the genuineness of the
the warranty.
drawer’s signature
– lack of knowledge of the indorser as to any fact that would
– general indorser is only secondarily liable
impair the validity or the value of the instrument must be subsisting
all throughout. 57. General rule: Presentment for payment is not necessary to
charge persons primarily liable on the instrument. Presentment for
– a person Negotiating by Delivery warrants same as those of
payment is necessary to charge the drawer and indorsers. (Sec 70
qualified indorser and extends to immediate transferees only
NIL)
56. Warranties of a general indorser:
Notes on Section 70
1. the instrument is genuine and in all respect what it
purports to be
– presentation for payment – production of a BOE to the
2. the he has good title to it
drawee for his acceptance, or to a drawee or acceptor for payment.
3. all prior parties had the capacity to contract
Also presentment of a PN to the party liable for payment of the
4. that the instrument at the time of his indorsement was
valid and subsisting (Sec. 66 NIL) same.

In addition: – consists of a) a personal demand for payment at a proper

place b) the bill or note must be ready to be exhibited if required and
– engages that the instrument will be accepted or paid or both surrendered upon payment.
according to its tenor on due presentment
– parties primarily liable – persons by the terms of the
– engages to pay the amount thereof if it be dishonored and instrument are absolutely required to pay the same. E.g maker and
the necessary proceedings on dishonor are taken acceptors. They can be sued directly.
– if payable at the special place, and the person liable is willing is a bill – presentment must be made within reasonable time after
to pay there at maturity, such willingness and ability is equivalent to last negotiation.
tender of payment.
59. Presentment not required to charge the drawer:
– presentment is necessary to charge persons secondarily 1. he has no right to expect
liable otherwise they are discharged 2. he has no right to require

– Acts needed to charge persons secondarily liable: a) that the drawee or acceptor will pay (Sec 79 NIL)
presentment for payment/acceptance b) dishonor by
60. Presentment not required to charge the indorser where:
non-payment/non-acceptance c) notice of dishonor to secondary
1. the instrument was made or accepted for his
parties
accommodation
2. he has no reason to expect that the instrument will be paid
– Acts needed to charge persons secondarily liable in other
if presented (Sec. 80 NIL)
cases: a) Protest for non-payment by the drawee b) protest for non-
payment by the acceptor for honor

58. Proper presentment:

61. General rule: Presentment for payment necessary to charge
1. by the holder or an authorized person
persons secondarily liable otherwise they are discharged:
2. at a reasonable hour on a business day
3. at a proper place Exception:
4. to the person primarily liable or if absent to any person
found at the place where presentment is made (sec. 72 – Section 79 and 80
NIL)
Notes on Section 72

– only the holder or one authorized by him has the right to Notes on Section 79 and 80
make presentment for payment
– only the drawer or indorser are not discharged. All other
– presentment cannot be made on a Sunday or holiday parties secondarily liable are discharged.

– presentment for payment is made to the maker, or acceptor. 62. Presentment for payment excused if:
Not to the person secondarily liable.
a. after due diligence, presentment cannot be made
– if the instrument is payable on demand – a) if it is a note –
presentment must be made within reasonable time after issue b) if it b. presentment is waived
c. the drawee is a fictitious person (Sec 82 NIL) – presentment is excused and the instrument is overdue and
unpaid (Sec. 83 NIL)
Notes on Section 82

– what is excused is the failure to make presentment. There is

no need to make any presentment versus under section 81 (delay in 65. Effects of dishonor by non-payment:
presentment) presentment for payment is still required after the
cause of delay has ceased. – an immediate right of recourse to all parties secondarily liable
accrues to the holder. (Sec. 84 NIL)

Notes on Section 84
63. Summary of rules as to presentment for payment:
– parties cease to be secondarily liable and become principal
1. presentment not necessary to charge persons primarily debtors.
liable
2. necessary to charge persons secondarily liable except: – Liability becomes the same as that of the original obligors.

– the drawer under Sec. 79 66. Requisites for payment in due course:
1. made at or after the maturity of the instrument
– the indorser under Sec. 80 2. to the holder
3. in good faith
– when excused under Sec. 82 4. without notice of any defect in the holder’s title (sec. 88
NIL)
– when the instrument has been dishonored by non-acceptance
Notes on Section 88
under
– payment must be made to the possessor of the instrument
Sec. 83
– possession of the note by the maker is presumptive evidence
that it has been paid

64. How dishonored by non-acceptance:

– the instrument was duly presented but payment is refused or

67. Notice of Dishonor may be given:
cannot be obtained 1. by or on behalf or the holder
2. by or on behalf of any party who:
– is a party to the instrument and might be compelled to pay Exceptions:
the instrument
1. Waiver (Sec. 109)
– to a holder who having taken it up would have a right of 2. Notice is dispensed (Sec. 112)
reimbursement from the party to whom notice is given. (Sec. 90 NIL) 3. Not necessary to Drawer (Sec. 114)
4. Not necessary to Indorser (Sec. 115)
68. Notice:
1. may be written or oral (Sec. 96) – if notice is delayed, delay may be excused (Sec. 113)
2. written notice need not be signed or may be supplemented
by verbal communication (Sec. 95) 72. Instances when Notice of Dishonor Not Necessary to
3. may be by personal delivery or by mail (Sec. 96) Drawer
69. Notice may be waived either expressly or implied:
a. drawer and drawee same person
1. before the time of giving notice has arrived
2. after the omission to give due notice (Sec. 109 NIL)
b. drawee is a fictitious/incapacitated person
70. Protest may be waived:
c. drawer is the person to whom presentment for payment is
Effects:
made

– deemed a waiver of presentment and notice of dishonor as

d. drawer has no right to expect that the drawee will accept/pay
well (Sec. 111 NIL)
the instrument (Sec. 114 NIL)

Notes on Section 111

73. Instances when Notice Not Required to Indorser

– Where notice is waived, presentment is not waived

a. drawee was a fictitious/incapacitated person and the indorser
was aware of such at the time of indorsement
– Where presentment is waived, notice is also waived

b. indorser is the person to whom instrument was presented for

– Where protest is waived, notice and presentment is waived
payment
71. Notice of Dishonor – given by the holder to the parties
c. instrument made/accepted for his accommodation (Sec. 115
secondarily liable, drawer and each indorser, that the instrument was
NIL)
dishonored by non-acceptance or non-payment by the drawee/maker

74. Omission to give notice of dishonor by non-acceptance doe not

General rule: Any drawer or indorser to whom such notice is not
prejudice a HDC (Sec. 117 NIL)
given is discharged.
75. Protest only necessary for a foreign bill of exchange. Protest for c. discharge of prior party
other negotiable instruments is optional. (Sec. 118 NIL)
d. tender of payment by prior party
76. Causes of Discharge of the Instrument
e. release of principal debtor
a. payment by the debtor
f. extension of payment by the holder/postponement of right to
b. payment by accommodated party enforce without assent of secondary parties and without reservation
of right of recourse against secondary parties (Sec 120 NIL)
c. intentional cancellation by holder of instrument
78. Rights of a party secondarily liable who pays:
d. any other act discharging a simple monetary obligation
– the instrument is not discharge
e. debtor becomes holder of the instrument at/after maturity in
his own right ( Sec 119 NIL) – the party is remitted to his former rights as to all prior parties

Notes on Section 119 – the party may strike out his own and all subsequent
indorsements
– discharge of the instrument discharges all the parties thereto
– the party may negotiate the instrument again
– payment must be in due course, and by the principal debtor
or on his behalf Exception:

– if payment is not made by the principal debtor, payment only – an instrument cannot be renegotiated where it is payable to
cancels the liability of the payor and those obligated after him but order of a 3rd person and has been paid by the drawer
does not discharge the instrument.
– and instrument cannot be renegotiated where is was made or
– payment by an accommodation party does not discharge the accepted for accommodation and it has been paid by the party
instrument. accommodated.

77. Discharge of Secondary Parties: 78. Renunciation by a holder discharges an instrument when:
1. it is absolute and unconditional
a. any act discharging the instrument 2. made in favor of a person primarily liable
3. made at or after maturity of the instrument
b. cancellation of indorser’s signature by indorsers 4. in writing or the instrument is delivered up to the person
primarily liable (Sec. 122 NIL)
 6. adding a place of payment where no place is specified
Notes on Section 122 7. any other which alters the affect of the instrument

– if renounced in favor of a party secondarily liable, only he is 81. Instances where a BOE may be treated as a PN:
exonerated from liability and all parties subsequent to him 1. where the drawer and the drawee are one and the same
2. where the drawee is a fictitious person
– discharge by novation is allowed 3. where the drawee has no capacity to contract (Sec. 130
NIL)
79. General rule: When materially altered, without the consent of all
parties liable, the instrument is avoided except as against: The holder has the option to treat it as a BOE or a PN

1. the party who has made the alteration

2. the party who authorized or assented to the alteration.
3. subsequent indorsers 82. Acceptance is the signification by the drawee of his assent to
the order of the drawer. It is an act by which a person on whom the
Exception: BOE is drawn assents to the request of the drawer to pay it. (Sec.
132 NIL)
– if in the hands of a HDC, may be enforced according to its
original tenor Acceptance may be:
1. actual
Notes on Section 124
2. constructive
3. general (Sec. 140)
– there is no distinction between fraudulent and innocent
4. qualified (Sec. 141)
alteration
Requisites of actual acceptance:
80. Material Alteration – an alternation is said to be
– in writing
material if it alters the effect of the instrument.
– signed by the drawee
Under Section 125 the following changes are considered material
alterations: – must not express the drawee will perform his promise by any
other means than payment of money
1. dates
2. the sum payable
– communicated or delivered to the holder
3. time and place of payment
4. number or relations of the parties 7. A holder has the right:
5. medium or currency for payment
 1. require that acceptance be written on the bill and if b. necessary to fix maturity date, where bill expressly stipulates
refused, treat it as if dishonored (Sec. 133) presentment, bill payable other than place of drawee (Sec. 143)
2. refuse to accept a qualified acceptance and may treat it as
dishonored (Sec. 142) c. when presentment is excused: drawee is dead, hides, is
8. Constructive Acceptance: fictitious, incapacitated person, after due diligence presentment
1. where the drawee to whom the bill has been delivered cannot be made, presentment is refused on another ground although
destroys it presentment is irregular (Sec. 148)
2. the drawee refuses within 24 hrs after such delivery or
within such time as is given, to return the bill accepted or 1. General rule: Protest is required only for foreign bills
not. (Sec. 137 NIL)
Notes on Section 137 Exception:

– drawee becomes primarily liable as an acceptor. – inland bills and notes may also be protested if desired

– mere retention is equivalent to acceptance Protest is required:

1. where the foreign bill is dishonored by non acceptance
9. When presentment for acceptance is necessary: 2. where the foreign bill is dishonored by non-payment
1. if necessary to fix the maturity of the bill 3. where the bill has been accepted for honor, it must be
2. if it is expressly stipulated that it shall be presented for protested for non-payment before it is presented for
acceptance payment to the acceptor for honor
3. if the bill is drawn payable elsewhere than the residence or 4. where the bill contains a referee in case of need, it must be
place of business of the drawee (Sec. 143 NIL) protested for non payment before presentment for
Notes on Section 143 payment to the referee in case of need (Sec. 152)
Notes on Section 152
– Presentment is the production of a BOE to the drawee for his
acceptance – Protest – formal statement in writing made by a notary under
his seal of office at the request of the holder, in which it is declare
– in on order case is presentment necessary to make parties that the some was presented for payment or acceptance (as the
liable. case may be) and such was refused.

90. Summary on presentment for acceptance of Bills of – it means all steps or acts accompanying the dishonor of a bill
Exchange: or note necessary to charge an indorser

a. to make the drawee primarily liable and for the accrual of – required when the instrument is a foreign bill of exchange.
secondary liability (Sec. 144)
– it must be made on the same date of dishonor, by a 3. Payment for Honor – payment made through a notarial
notary/respectable citizen of the place in the presence of 2 credible act of honor of a party liable/stranger to the bill after bill
witnesses so recourse to secondary parties has been dishonored by non-payment by the acceptor and
protested for non-payment by the holder
1. Acceptance for Honor (Sec. 161 NIL)– an acceptance of
a bill made by a stranger to it before maturirty, where the Requisites:
drawee of the bill has:
1. refused to accept it a. protest for non-payment
2. and the bill has been protested for non-acceptance
b. any person may pay supra protest
3. or where the bill has been protested for better security
Requisites for acceptance for honor:
Form for payment of honor:
1. payment must be attested by notarial act appended to the
– the bill must have been previously protested a) for non-
protest, or form an extension to it.
acceptance b) or for better security
2. notarial act of honor must be based on a declaration by the
payer for honor
– the bill is not overdue at the time of the acceptance for honor

– the acceptor for honor must be a stranger to the bill

4. Bills in Set – bill of exchange drawn in several parts, each
– the holder must give his consent
part of the set being numbered and containing a reference
to the other parts, the whole of the parts just constituting
Notes on Acceptance for Honor
one bill (Sec 178 NIL)
– Purpose: to save the credit of the parties to the instrument or
some party to it as the drawer, drawee, or indorser or somebody
else.
Source:
Commercial Law Memory Aid
– Acceptor for honor is liable to the holder and to all the parties
Negotiable Instruments Law
to the bill subsequent to the party for whose honor he has accepted
Ateneo Central Bar Operations 2001
(Sec. 164)
Posted in Commercial Law, Negotiable Instruments Law
2. How acceptance for honor is made:
5 Comments
1. in writing and indicated that it is an acceptance for honor
Tags: commecial law, commlaw, negotiable instruments law
2. signed by the person making the acceptance (Sec. 162 NIL)
Negotiable Instruments Law  Renunciation must be in writing unless instrument
delivered up to person primarily liable thereon
– Discharge 1. material alteration (sec. 124: material alteration w/o assent
of all parties liable avoids instrument except as against
DEC 19
party to alteration and subsequent indorsers)
Posted by Magz

NEGOTIABLE INSTRUMENTS LAW

Memory Aid 1. Of secondary parties
2. any act which discharges the instrument
Based on the Outline of the 1994 Edition of 3. intentional cancellation of signature by holder
Campos & Campos 4. discharge of prior party
DISCHARGE 5. valid tender of payment made by prior party
1. Of the Instrument 6. release of principal debtor, unless holder’s right of recourse
2. payment in due course by or on behalf of principal debtor vs. 2ndary party reserved
 Payment in due course: 7. any agreement binding upon holder to extend time of
1. made at or after maturity payment, or to postpone holder’s right to enforce
2. to the holder thereof instrument, unless made with assent of party secondarily
3. in good faith and without notice that his title is defective liable, or unless right of recourse reserved.
4. payment in due course by party accommodated where 8. Failure to make due presentment (sec. 70, 144)
party is made/ accepted for accommodation 9. failure to give notice of dishonor
5. intentional cancellation by holder 10. certification of check at instance of holder
 if unintentional or under mistake or without authority of 11. reacquisition by prior party
holder, inoperative. Burden of proof on party which alleges  where instrument negotiated back to a prior party, such
it was unintentional, etc. party may reissue and further negotiate, but not entitled to
1. any other act which discharges a simple contract enforce payment vs. any intervening party to whom he was
2. principal debtor becomes holder of instrument at or after personally liable
maturity in his own right  where instrument is paid by party secondarily liable, it’s
3. renunciation of holder: not discharged, but
 holder may expressly renounce his rights vs. any party to 1. the party so paying it is remitted to his former rights as
the instrument, before or after its maturity regard to all prior parties
 absolute and unconditional renunciation of his rights vs. 2. and he may strike out his own and all subsequent
principal debtor made at or after maturity discharges the indorsements, and again negotiate instrument, except
instrument  where it’s payable to order of 3rd party and has been paid
 renunciation does not affect rights of HDC w/o notice. by drawer
  where it’s made/accepted for accommodation and has 3. admits existence of payee and his then capacity to indorse
been paid by party accommodated.

1. Status of drawee prior to acceptance or payment

Reference: University of the Philippines  sec. 127 (bill not an assignment of funds in hands of
BarOps ’99 drawee)
Commercial Law – Val Feria, Mina Herrera, Gary Mallari &  sec. 189 (when check operates as assignment)
Rachel Ramos
Posted in Negotiable Instruments Law 1. Liability of Acceptor
 Promises to pay inst according to its tenor
Leave a comment  Admits the following:
Tags: Negotiable Instruments Law - Discharge 1. existence of drawer
2. genuineness of his signature
Negotiable Instruments Law – 3. his capacity and authority to draw the instrument
Liabilities of Parties 4. existence of payee and his then capacity to endorse
 sec. 191, 132, 133, 138 — formal requisites of acceptance
DEC 19  sec. 136, 137, 150 — constructive acceptance
 sec. 134, 135 — acceptance on a separate instrument
Posted by Magz
 Kinds of Acceptance:
NEGOTIABLE INSTRUMENTS LAW 1. general
2. qualified
Memory Aid
1. conditional
Based on the Outline of the 1994 Edition of 2. partial
Campos & Campos 3. local
4. qualified as to time
LIABILITIES OF PARTIES
5. not all drawees
1. PRIMARY PARTIES
 Person primarily liable: person who by the terms of the
instrument is absolutely required to pay the same.
 Sec. 70 (effect of want of demand on principal debtor) * sec. 142 (rights of parties as to qualified acceptance)

 Certification: Principles
1. when check certified by bank on which it’s drawn,
1. Liability of Maker
equivalent to acceptance
2. Promises to pay it according to its tenor
2. where holder of check procures it to be accepted/certified,
drawer and all indorsers discharged from al liability
3. check not operate as assignment of any part of funds to  Liability of a General or Unqualified Indorser
credit of drawer with bank, and bank is not liable to holder, 1. instrument genuine, good title, capacity of prior parties
unless and until it accepts or certifies check 2. instrument is at time of indorsement valid and subsisting
4. certification obtained at request of drawer: secondary 3. on due presentment, it shall be accepted or paid, or both,
parties not released according to tenor
5. bank which certifies liable as an acceptor 4. if it be dishonored, and necessary proceedings on dishonor
6. checks cannot be certified before payable be duly taken, he will pay the amt. To holder, or to any
subsequent indorser who may be compelled to pay it

1. SECONDARY PARTIES
2. Liability of Drawer  Order of Liability among Indorsers
3. Admits existence of payee and his then capacity to endorse 1. among themselves: liable prima facie in the order they
4. Engages that on due presentment instrument will be indorse, but proof of another agreement admissible
accepted, or paid, or both, according to its tenor and that 2. but holder may sue any of the indorsers, regardless of
5. If it be dishonored, and the necessary proceedings on order of indorsement
dishonor be duly taken, he will pay the amount thereof to 3. joint payees/indorsees deemed to indorse jointly and
the holder or to an subsequent indorser who may be severally
compelled to pay it

1. Liability of Accomodation Party

 drawer may insert in the instrument an express stipulation  Definition: one who signed instrument as
negativing / limiting his own liability to holder maker/drawer/acceptor/ indorser w/o receiving value
1. Liability of Indorsers: thereof, for the purpose of lending his name to some other
 Qualified Indorser and one Negotiating by Delivery person
1. Instrument genuine, in all respects what it purports to be  AP liable on the instrument to holder for value even if
2. good title holder, at time of taking instrument, knew he was only an
3. all prior parties had capacity to contract AP
4. he had no knowledge of any fact w/c would impair validity  Liability of Irregular Indorser
of instrument or render it valueless  Where a person not otherwise a party to an
 in case of negotiation by delivery only, warranty only instrument, places thereon his signature in
extends in favor of immediate transferee blank before delivery, he’s liable as an
indorser, in accordance w/ these rules:
1. Instrument payable to order of 3rd person: liable to payee discloses name of principal and fact that he’s only acting as
and to all subsequent parties agent
2. Instrument payable to the order of maker/drawer, or
payable to bearer: liable to all parties subsequent to I. Presentment For Acceptance
maker/drawer
3. Signs for accommodation of payee, liable to all parties When presentment for acceptance must be made
subsequent to payee
1. bill payable after sight, or in other cases where
 Sadaya v Sevilla Rules:
presentment for acceptance necessary to fix maturity
1. a joint and several accommodation maker of a negotiable
2. where bill expressly stipulates that it shall be presented for
promissory note may demand from the principal debtor
acceptance
reimbursement for the amt. That he paid to the payee
3. where bill is drawn payable elsewhere than at residence /
2. a joint and several accommodation maker who pays on the
place of business of drawee
said promissory note may directly demand reimbursement
from his co-accommodation maker without first directing
When failure to present releases drawer/indorser
his action vs. the principal debtor provided:
1. he made the payment by virtue of a judicial
Failure to present for acceptance of negotiate bill of exchange within
demand
reasonable time
2. or the principal debtor is insolvent

Reasonable Time
1. Liability of an Agent
 Signature of any party may be made by duly authorized
Must consider
agent, establish as in ordinary agency
 Where instrument contains or a person adds to his 1. nature of instrument
signature words indicating that he signs for or on behalf of 2. usage of trade or business with respect to instrument
a principal, he is not liable on the instrument if he was duly 3. facts of each case
authorized, but the mere addition of words describing him
as an agent without disclosing his principal, does not
exempt from personal liability.
 Signature per procuration operates as notice that the agent How and When Made Sec. 145, 146, 147
has but a limited authority to sign, and the principal is
bound on ly in case the agent in so signing acted within the When Excused Sec. 148
actual limits of his authority
 Where a broker or agent negotiates an instrument without
indorsement, he incurs all liabilities in Sec. 65, unless he
Dishonor and Effects Manner Sec. 74, 72, 75
 sec. 149 (when dishonored by non-acceptance)
 sec. 150 (duty of holder where bill not accepted) Place Sec. 73
 sec. 151 (rights of holder where bill not accepted)
 sec. 89 (to whom notice of dishonor must be given) To Whom Sec. 72, 76, 77, 78
 sec. 117 (effect of omission to give notice of non-
acceptance) Dishonor by nonpayment Sec. 83, 84
II. For Payment

Where necessary Sec. 70

Notice of Dishonor
Where not necessary Sec. 79, 80, 82, 151, 111
General rule: to drawer and to each indorser, and any drawer or
Date and time of presentment of instrument bearing fixed maturity indorser to whom such notice is not given is discharged
Sec. 71, 85, 86, 194

Form, Contents, Time Sec. 95, 96, 102, 103, 104, 105, 106, 108, 113
Date of presentment
 Where instrument not payable on demand: presentment
must be made on date it falls due
By Whom Given
 Where payable on demand: presentment must be made
 By or on behalf of the holder or any party to the instrument
within reasonable time after issue, except that in case of a
who may be compelled to pay it to the holder, and who,
bill of exchange, presentment for payment will be sufficient
upon taking it up, would have a right to reimbursement
if made within a reasonable time after last negotiation (but
from the party to whom the notice is given
note: though reasonable time from last negotiation, it may
 Notice of dishonor may be given by an agent either in his
be unreasonable time from issuance thus holder may not
own name or in the name of any party entitled to give
be HDC under sec. 71)
notice, whether that party be his principal or not
 Check must be presented for payment within reasonable
 Where instrument has been dishonored in
time after its issue or drawer will be discharged from
hands of agent, he may either himself give
liability thereon to extent of loss caused by delay
notice to the parties liable thereon, or he may
give notice to his principal (as if agent an
independent holder)

Delay excused Sec. 81

In whose favor notice operates
1. when given by/on behalf of holder: insures to benefit of
1. all subsequent holders and When necessary: sec. 152,
2. all prior parties who have a right of recourse
vs. the party to whom it’s given Form and contents: sec. 153
2. where notice given by/on behalf of a party entitled to give
notice: insures for benefit of a. holder , and By whom made: sec. 154

b. all parties subsequent to party to whom notice given Time and Place: sec. 155, 156

For better security: sec. 158

Waiver Sec. 109, 110 Excused: sec. 159

Where not necessary to charge drawer Waiver: sec. 111

1. drawer/drawee same person
2. drawee fictitious, incapacitated
3. drawer is person to whom instrument is presented for
Acceptance for Honor
payment
4. drawer has no right to expect/require that drawee/acceptor
Sec. 161, 131, 171
will honor instrument
5. drawer countermanded payment

Bills in Set: 178-183

Where not necessary to charge indorser

1. drawee fictitious, incapacitated, and indorser aware of the
fact at time of indorsement Reference: University of the Philippines
2. indorser is person to whom instrument presented for paymt BarOps ’99
3. instrument made/accepted for his accommodation Commercial Law – Val Feria, Mina Herrera, Gary Mallari &
Rachel Ramos
Posted in Negotiable Instruments Law

Protest 3 Comments
Definition: testimony of some proper person that the regular legal Tags: Negotiable Instruments Law - Liabilities of Parties
steps to fix the liability of drawer and indorsers have been taken
Negotiable Instruments Law – unless the party against whom it is sought to enforce such right is
precluded from setting up forgery/want of authority
Defenses and Equities
DEC 19 precluded:

Posted by Magz 1. parties who make certain warranties, like a general

indorser or acceptor
NEGOTIABLE INSTRUMENTS LAW 2. estopped/negligent parties
Memory Aid * note rules on Acceptance/Payment Under Mistake as applied to:
1. 1. overdraft
Based on the Outline of the 1994 Edition of
2. 2. stop payment order
Campos & Campos 3. 3. forged indorsements
DEFENSES AND EQUITIES
KINDS OF DEFENSES 1. MATERIAL ALTERATION
1. real defense – attaches to instrument; on the principle that  Where NI materially altered w/o assent of all parties liable
the right sought to be enforced never existed/there was no thereon, avoided, except as vs. a
contract at all 1. party who has himself made, authorized or assented to
2. personal defense – growing out of agreement; renders it alteration
inequitable to be enforced vs. defendant 2. and subsequent indorsers.
DEFENSES  But when an instrument has been materially altered and is
1. INCAPACITY: real; indorsement/assign by corp/infant: in the hands of a HDC not a party to the alteration, HDC
passes property but corp/infant no liability may enforce payment thereof according to orig. tenor
1. ILLEGALITY: personal, even if no K because void under CC  Material Alteration
1409 1. change date
1. FORGERY: real (lack of consent): 2. sum payable, either for principal or interest
1. forged 3. time of payment
2. made without authority of person whose 4. number/relations of parties
signature it purports to be. 5. medium/currency of payment, adds place of payment
General Rule: where none specified, other change/addition altering effect
1. wholly inoperative of instrument in any respect.
2. no right to retain instrument, or give discharge, or enforce *material alteration a personal defense when used to deny liability
payment vs. any party, can be acquired through or under according to org. tenor of instrument, but real defense when relied
such signature (unless forged signature unnecessary to on to deny liability according to altered terms.
holder’s title) 1. FRAUD
Exception: 2. fraud in execution: real defense (didn’t know it was NI)
 3. fraud in inducement: personal defense (knows it’s NI but Commercial Law – Val Feria, Mina Herrera, Gary Mallari &
deceived as to value/terms) Rachel Ramos
1. DURESS Posted in Negotiable Instruments Law
 Personal, unless so serious as to give rise to a real defense
for lack of contractual intent Leave a comment
1. COMPLETE, UNDELIVERED INSTRUMENT Tags: Negotiable Instruments Law - Defenses and Equities
 Personal defense (sec. 16)
 If instrument not in poss. Of party who signed, delivery Negotiable Instruments Law – Holder
prima facie presumed in Due Course
 If holder is HDC, delivery conclusively presumed
1. INCOMPLETE, UNDELIVERED INSTRUMENT DEC 19
 Real defense (sec. 15)
Posted by Magz
 Instrument will not, if completed and negotiated without
authority, be a valid contract in the hands of any holder, as NEGOTIABLE INSTRUMENTS LAW
against any person whose signature was placed thereon Memory Aid
before delivery
10. INCOMPLETE, DELIVERED Based on the Outline of the 1994 Edition of
 Personal defense (sec. 14) Campos & Campos
 2 Kinds of Writings:
HOLDER IN DUE COURSE
1. Where instrument is wanting in any material particular:
HOLDER
person in possession has prima facie authority to complete
it by filing up blanks therein Sec. 191
2. Signature on blank paper delivered by person making the
signature in order that the paper may be converted into a RIGHTS OF HOLDER
NI: prima facie authority to fill up as such for any amount 1. sue thereon in his own name
 In order that any such instrument, when completed, ma be 2. payment to him in due course discharges instrument
enforced vs. any person who became a party thereto prior
to its completion:
1. must be filled up strictly in accordance w/ authority given
2. within a reasonable time HOLDER IN DUE COURSE: REQUISITIES
 but if any such instrument after completion is negotiated to 1. complete and regular upon its face
HDC, it’s valid for all purposes in his hands, he may enforce  sec. 124 (effect of alteration)
it as if it had been filled up properly.  sec. 125 (what constitute material alterations)
Reference: University of the Philippines 1. holder became such before it was overdue, without notice
BarOps ’99 of any previous dishonor
  sec. 53 (demand inst. nego after unreasonable length of General Rule: in the hands of any holder other than a HDC, NI is
time: not HDC) subject to same defenses as if it were non-negotiable.
 sec. 12 (effect antedating/postdating) Exception: holder who derives title through HDC and who is not
1. taken in good faith and for value himself a party to any fraud or illegality has all rights of such former
 sec. 24 (presumption of consideration)
holder in respect to all parties prior to the latter.
 sec 25 (definition. of value)
 sec. 26 (definition. holder for value)
 sec. 27 (lien as value)
1. at time negotiated to him, he had no notice (sec. 56-def; WHO DEEMED HDC
54-notice before full amt. paid) of —  prima facie presumption in favor of holder
1. infirmity in instrument  but when shown that title of any person who has
2. defect in title of person negotiating negotiated instrument was defective (sec. 55—when title
1. instrument/signature obtained defective): burden reversed (now with holder)
through fraud, etc., illegal  but no reversal if party being made liable became bound
consideration/means, or prior to acquisition of defective title (i.e., where defense is
2. instrument negotiated in breach not his own)
of faith, or fraudulent
circumstances

Reference: University of the Philippines

BarOps ’99
RIGHTS OF HOLDER IN DUE COURSE: Commercial Law – Val Feria, Mina Herrera, Gary Mallari &
1. holds instrument free of any defect of title of prior parties
Rachel Ramos
2. free from defenses available to prior parties among
Posted in Negotiable Instruments Law
themselves
3. may enforce payment of instrument for full amount, Leave a comment
against all parties liable Tags: Negotiable Instruments Law - Holder in Due Course

Negotiable Instruments Law

* if in the hand of any holder (note definition of holder) other than a
– Transfer
HDC, vulnerable to same defenses as if non-negotiable DEC 19

Posted by Magz

RIGHTS OF PURCHASER FROM HOLDER IN DUE COURSE:

NEGOTIABLE INSTRUMENTS LAW
 Memory Aid  Sec. 48 (cancellation of indorsement)
 Sec. 45, 46 (presumptions)
Based on the Outline of the 1994 Edition of  Indorsement must be of entire instrument. (can’t be
Campos & Campos indorsement of only part of amount payable, nor can it be
TRANSFER to two or more indorsees severally. But okay to indorse
DELIVERY residue of partially paid instrument)
 NI incomplete and revocable until delivery for the purpose  Sec. 67 (liability of indorser where paper negotiable by
of giving effect thereto delivery)
 as between  Sec. 63 (when person deemed indorser)
1. immediate parties KINDS OF INDORSEMENT
2. a remote party other than holder in due course 1. as to manner of future method of negotiation
2. special – specifies the person to whom/to whose order the
delivery, to be effectual, must be made by or under the authority of instrument is to be payable; indorsement of such indorsee
the party making/drawing/accepting/indorsing is necessary to further negotiation.
3. Blank – specifies no indorsee, instrument so indorsed is
 in such case delivery may be shown to have been payable to bearer, and may be negotiated by delivery
conditional, or for a special purpose only, and not for the  the holder may convert a blank indorsement into a special
purpose of transferring the property in the instrument. indorsement by writing over the signature of the indorser
PRESUMPTION OF DELIVERY in blank TV any contract consistent with the character of
Where the instrument is no longer in the possession of a party whose the indorsement
signature appears thereon, a valid and intentional delivery by him is
presumed until the contrary is proved (*if in the hands of a HDC,
presumption conclusive) 1. as to kind of title transferred
NEGOTIATION 2. restrictive
 When an instrument is transferred from one person to  prohibits further negotiation of instrument,
another as to constitute the transferee the holder thereof.  constitutes indorsee as agent of indorser, or
 If payable to BEARER, negotiated by delivery; if payable to  vests title in indorsee in trust for another
ORDER, negotiated by indorsement of holder + delivery  rights of indorsee in restrictive ind.:
INDORSEMENT  receive payment of inst.
 Indorser generally enters into two contracts:  Bring any action thereon that indorser could
1. sale or assignment of instrument bring
2. to pay instrument in case of default of maker  Transfer his rights as such indorsee, but all
 Sec. 31 (how indorsement made) subsequent indorsees acquire only title of first
 Sec. 41 (where payable to two or more) indorsee under restrictive indorsement
 Sec. 43 (indorsement where name misspelled)
 1. non-restrictive 1. such title as transferor had therein
2. right of tranferee to have indorsement of transferor
 for purposes of determining HDC negotiation effective upon
actual indorsement
1. as to kind of liability assumed by indorser
2. qualified-constitutes indorser as mere assignor of title (eg.
“without recourse”)
3. unqualified Reference: University of the Philippines
BarOps ’99
Commercial Law – Val Feria, Mina Herrera, Gary Mallari &
Rachel Ramos
1. as to presence/absence of express limitations put by
indorser upon primary obligor’s privileges of paying the
holder Posted in Negotiable Instruments Law
2. conditional – additional condition annexed to indorser’s Leave a comment
liability.
Tags: Negotiable Instruments Law - Transfer
 Where an indorsement is conditional, a party required to
pay the instrument may disregard the condition, and make Negotiable Instruments Law
payment to the indorsee or his transferee, whether
condition has been fulfilled or not
– Negotiability
 Any person to whom an instrument so indorsed is DEC 19
negotiated will hold the same/proceeds subject to rights of
person indorsing conditionally Posted by Magz
1. unconditional
NEGOTIABLE INSTRUMENTS LAW
Memory Aid

Based on the Outline of the 1994 Edition of

INDORSEMENT OF BEARER INST.
 Where an instrument payable to bearer is indorsed
Campos & Campos
specially, it may nevertheless be further negotiated by
delivery
NEGOTIABILITY
 Person indorsing specially liable as indorser to only such REQUISITES
holders as make title through his indorsement 1. 1. in writing and signed by maker or drawer
UNINDORSED INSTRUMENTS  no person liable on the instrument whose signature does
 Where holder of instrument payable to his order transfers it not appear thereon ( subject to exceptions)
for value without indorsing, transfer vests in transferee
  one who signs in a trade or assumed name liable to the or at a fixed or determinable future time
same extent as if he had signed in his own name
 signature of any party may be made by a duly authorized  when it’s expressed to be payable at a fixed period after
agent, no particular form of appt. necessary date or sight, or
 on or before a fixed or determinable future time fixed
1. unconditional promise or order to pay therein, or
 unqualified order or promise to pay is unconditional though  on or at a fixed period after the occurrence of a specified
coupled with event which is certain to happen, though the time of
1. an indication of a particular fund out of which happening be uncertain
reimbursement to be made, or a particular account to be  an instrument payable upon a contingency not negotiable,
debited with amount, or and happening of event doesn’t cure it
1. a statement of the transaction which gives * relate to sec. 11 ( presumption as to date) and sec. 17
rise to the instrument (construction where instrument ambiguous)
 an order or promise to pay out of a particular fund is not * note effect of acceleration provisions, p. 30 Campos
unconditional * note effect of provisions extending time of payment, p. 40 Campos
a sum certain in money
 even if stipulated to be paid— 1. 4. payable to order
1. with interest, or  where it is drawn payable to the order of a specified person
2. by stated installments, or or to him or his order. May be drawn payable to order of —
3. by stated installments with a provision that upon default in  when the instrument is payable to order the payee must be
payment of any installment/interest, the whole shall named or otherwise indicated therein with reasonable
become due, or certainty
4. with exchange, whether at a fixed rate or at the current 1. a payee not the maker/drawer/drawee, or
rate, or 2. drawer or maker, or
5. with costs of collection or an attorney’s fee, in case 3. drawee, or
payment not made at maturity 4. two or more payees jointly, or
5. holder of an office for time being
1. 3. payable on demand, or bearer,
 when expressed to be payable on demand, or at sight, or  when expressed to be so payable
on presentation;  when payable to person named therein or bearer
 when no time for payment expressed, or  when payable to order or fictitious/non-existent person,
 where an instrument is issued, accepted or indorsed when and such fact known to the person making it so payable, or
overdue, it is, as regards the person so issuing, accepting,  when name of payee doesn’t purport to be the name of any
or indorsing it, payable on demand person, or
 when the only/last indorsement is in blank
 1. 5. where addressed to drawee: such drawee named/ Negotiable Instruments Law
indicated therein with reasonable certainty
 bill may be addressed to two or more drawees jointly, – Definitions
whether partners or not, but not to two or more drawees in
DEC 19
the alternative or in succession
 bill may be treated as a PN, at option of holder, where Posted by Magz
1. drawer and drawee are same person
2. drawee is fictitious/incapacitated
NEGOTIABLE INSTRUMENTS LAW
EFFECT OF ADDITIONAL PROVISIONS Memory Aid

Based on the Outline of the 1994 Edition of

Gen. Rule: order/promise to do any act in addition to the payment of
Campos & Campos
money renders instrument non-negotiable.
DEFINITIONS
Exception: negotiability not affected by provisions w/c

1. authorize sale of collateral security if instrument not paid at NEGOTIABLE INSTRUMENT

maturity  Written contract for the payment of money, by its form
2. authorize confession of judgment… intended as substitute for money and intended to pass
3. waives benefit of any law intended for from hand to hand to give the holder in due course the
advantage/protection of obligor right to hold the same and collect the sum due
4. give holder election to require something to be done in lieu
of money
CONTINUATION OF NEGOTIABLE CHARACTER PROMISSORY NOTE
Until  unconditional promise in writing made by one person to
another signed by the maker
1. restrictively indorsed  engaging to pay on demand, or at a fixed or determinable
2. discharged by payment or otherwise future time a sum certain in money to order or to bearer
Reference: University of the Philippines  where a note is drawn to the maker’s own order, it is not
BarOps ’99 complete until indorsed by him
Commercial Law – Val Feria, Mina Herrera, Gary Mallari &
Rachel Ramos
Posted in Negotiable Instruments Law
BILL OF EXCHANGE
5 Comments  unconditional order in writing addressed by one person to
Tags: Negotiable Instruments Law - Negotiation another signed by the person giving it
  requiring the person to whom it’s addressed to pay on Payee or indorsee of a bill or note who is in possession of it, or the
demand or at a fixed or determinable future time a sum bearer thereof.
certain in money to order or to bearer
 check: bill of exchange drawn on a bank payable on
demand. Kinds of checks:
1. personal check THE LIFE OF A NEGOTIABLE INSTRUMENT:
2. manager’s/cashier’s check – drawn by a bank on itself. 1. issue
Issuance has the effect of acceptance 2. negotiation
3. memorandum check – “memo” is written across its face, 3. presentment for acceptance in certain bills
signifying that drawer will pay holder absolutely without 4. acceptance
need of presentment 5. dishonor by on acceptance
4. crossed check – 6. presentment for payment
7. dishonor by nonpayment
8. notice of dishonor
 effects: 9. protest in certain cases
1. check may not be encashed but only deposited in bank 10. discharge
2. may be negotiated only once, to one who has an acct. with
a bank
3. warning to holder that check has been issued for a definite
purpose so that he must inquire if he received check
pursuant to such purpose, otherwise not HDC
 kinds:
1. general (no word between lines, or “co” between lines)
2. special (name of bank appearing between parallel lines)

BEARER

Person in possession of a bill/note payable to bearer

HOLDER