law on negotiable instruments (memory aid)

8/20/2019 Law on Negotiable Instruments (Memory Aid)

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San Beda College of Law6

MEMORY AID IN COMMERCIAL LAW

I. GENERAL CONCEPTS

NEGOTIABLE INSTRUMENT (NI) A written contract for the payment of

money which complies with therequirements of Sec. 1 of the NIL, whichby its form and on its face, is intendedas a substitute for money and passesfrom hand to hand as money, so as togive the holder in due course !"#$ theright to hold the instrument free fromdefenses available to prior parties.(Reviewer on Commercial Law,Professors Sundiang and Aquino) Functions: (Bar Review Materials in

Commercial Law, Jorge Miravite, !!ed")

1. %o supplement the currency of the government.

&. %o substitute for money andincrease the purchasing medium. Legal tender ' %hat (ind of

money which the law compels a creditorto accept in payment of his debt whentendered by the debtor in the rightamount.Note) A NI although intended to be asubstitute for money, is not legal tender.!owever, a chec( that has been clearedand credited to the account of thecreditor shall be equivalent to deliveryto the creditor of cash. (Sec" #!, $CBA)Features: (Reviewer on Commercial

Law, Professors Sundiang and Aquino) 1. Negotiability ' %hat attribute or

property whereby a bill or noteor chec( may pass from hand tohand similar to money, so as togive the holder in due course theright to hold the instrument and

to collect the sum payable forhimself free from defenses. %he essence of

negotiability whichcharacteri*es a negotiablepaper as a credit instrumentlies in its freedom tocirculate freely as asubstitute for money.+irestone %ire vs. #A, -S#A /01$

&. Accumulation of Secondary#ontracts ' Secondary contracts

are pic(ed up and carried along

with NI as they are negotiatedfrom one person to another or

in the course of negotiation of negotiable instruments, a seriesof 2uridical ties between theparties thereto arise either bylaw or by privity.

A!ica"i!it#:

%eneral Rule& %he provisions of the

NIL are not applicable if the instrumentinvolved is not negotiable. 'cetion& In the case of Borromeo

vs" Amancio Sun, *+ SCRA +#, the S#applied Section 13 of the NIL by analogy

in a case involving a "eed of Assignmentof shares which was signed in blan( tofacilitate future assignment of the sameshares. %he S# observed that thesituation is similar to Section 13 wherethe blan(s in an instrument may be filledup by the holder, the signing in blan(being with the assumed authority to doso. %he NIL was enacted for the purpose

of facilitating, not hindering orhampering transactions in commercialpaper. %hus, the statute should not betampered with hapha*ardly or lightly.Nor should it be brushed aside in orderto meet the necessities in a single case.4ichael 5sme6a vs. #itiban(, 7.. No.131&89, 4arch &, &003 #alle2o :.$

$in%s o& NI

'. PROMISSOR NOTE (PN) An unconditional promise in writing by

one person to another signed by thema(er engaging to pay on demand or ata fi;ed or determinable future time, a

sum certain in money to order or tobearer. Sec. 193$

. BILL OF E*C+ANGE (BE) An unconditional order in writing

addressed by one person to another,signed by the person giving it, requiringthe person to whom it is addressed topay on demand or at a fi;ed ordeterminable future time a sum certainin money to order or to bearer. Sec.1&/$

COMMERCIAL LAW COMMITTEE CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:

$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernano Lla/e (Insuran%e+, Alri%& Del Rosario(Trans0or!a!ion La*s+,S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n LemuelGa!ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+

NEGOTIABLE INSTRUMENTS LA, (NIL)(Act No. 2031, effective June 2, 1911)





C+EC$ < A bill of e;change drawn on

a ban( payable on demand. Sec. 19-$. Itis the most common form of bill of

e;change.

OT+ER FORMS OF NI1. #ertificate of deposit issued by

ban(s, payable to the depositor orhis order, or to bearer

&. %rade acceptance. =onds, which are in the nature of

promissory notes3. "rafts, which are bills of e;change

drawn by one ban( upon another-. "ebenture All of these must comply with Sec. 1,

NIL.Note: Letters of credit are notnegotiable because they are issued to aspecified person.

Instances -en a BE /a# "e treate% asa PN

a. %he drawer and the drawee arethe same person or

b. "rawee is a fictitious person orc. "rawee does not have the

capacity to contract. Sec. 10$d. >here the bill is drawn on a

person who is legally absente. >here the bill is ambiguous Sec.18?e@$

Parties to a NI'. Pro/issor# Note

a. 4a(er ' one who ma(espromise and signs the instrumentb. ayee ' party to whom thepromise is made or theinstrument is payable.

. Bi!! o& E0can1ea. "rawer ' one who givesthe order to pay money to athird partyb. "rawee ' person towhom the bill is addressed andwho is ordered to pay. !ebecomes an acceptor when heindicates his willingness to paythe billc. ayee ' party in whosefavor the bill is drawn or ispayable.

DISTINCTIONS

PROMISSORNOTE

BILL OFE*C+ANGE

Bnconditional

promise

Bnconditional

orderInvolves & parties Involves parties

4a(er is primarilyliable

"rawer is onlysecondarily liable

5nly onepresentment) forpayment

%wo presentments)for acceptance andfor payment

NEGOTIABLEINSTRUMENTS

NON2NEGOTIABLEINSTRUMENTS

5nly NI aregoverned by theNIL.

Application of theNIL is only byanalogy.

%ransferable bynegotiation or byassignment.

%ransferable only byassignment

A transferee can bea !"# if all therequirements arecomplied with

A transferee remainsto be an assigneeand can never be a!"#

A holder in duecourse ta(es the NIfree from personaldefenses

All defensesavailable to priorparties may beraised against thelast transferee

equires c!eantit!e3 one that isfree from anyinfirmities in theinstrument anddefects of title of prior transferors.($otes and Cases onBan-s, $egotia.le/nstruments and ot0er Commercial1ocuments,2imoteo B" Aquino)

%ransferee acquiresa %eri4ati4e tit!eonly. ($otes and Cases on Ban-s,$egotia.le/nstruments and ot0er Commercial1ocuments, 2imoteoB" Aquino)

Solvency of debtor isin the senseguaranteed by theindorsers because

they engage that theinstrument will beaccepted, paid orboth and that theywill pay if theinstrument isdishonored. ($otesand Cases on Ban-s,$egotia.le/nstruments and ot0er Commercial1ocuments, 2imoteoB" Aquino)

Solvency of debtor isnot guaranteed underArt. 1/&9 of the N##unless e;pressly

stipulated. ($otesand Cases on Ban-s,$egotia.le/nstruments and ot0er Commercial1ocuments, 2imoteoB" Aquino)







BILLOF E*C+ANGE C+EC$ Not necessarilydrawn on a deposit.%he drawee need notbe a ban(

It is necessary thata chec( be drawnon a ban( deposit.5therwise, therewould be fraud.

"eath of a drawer of a =5C, with the(nowledge of theban(, does notrevo(e the authorityof the drawee to

pay.

"eath of thedrawer of a chec(,with the(nowledge of theban(, revo(es theauthority of the

ban(er to pay.4ay be presented forpayment withinreasonable timeafter its lastnegotiation.

4ust be presentedfor payment withina reasonable timeafter its issue.

4ay be payable ondemand or at a fi;edor determinablefuture time

Always payable ondemand

NEGOTIABLEINSTRUMENT

NEGOTIABLE,ARE+OUSE

RECEIPTIf originally payableto bearer, it willalways remain sopayable regardless of manner of indorsement.

If payable tobearer, it will beconverted into areceipt deliverableto order, if indorsed specially.

A holder in duecourse may obtaintitle better than thatof the one whonegotiated theinstrument to him.

%he indorsee, evenif holder in duecourse, obtainsonly such title asthe person whocaused the deposithad over the goods.

ASSIGNMENT NEGOTIATIONertains to contractsin general

ertains to NI

!older ta(es theinstrument sub2ectto the defensesobtaining among theoriginal parties

!older in duecourse ta(es it freefrom personaldefenses availableamong the parties

7overned by the#ivil #ode

7overned by theNIL

II. NEGOTIABILITFor/ o& NI: Sec. 1$ $e#: ,UPOA

1. 4ust be in >riting and signed by thema(er or drawer

&. 4ust contain an Bnconditional

promise or order to pay a sumcertain in money

. 4ust be ayable on demand, or at afi;ed or determinable future time

3. 4ust be payable to 5rder or tobearer and

-. >hen the instrument is addressed toa drawee, he must be named orotherwise indicated therein withreasonable certainty.

5eter/ination o& ne1otia"i!it#:

a. >hole instrument

b. >hat appears on the face of theinstrumentc. equisites enumerated in Sec.1 of theNILd. Should contain words or terms of negotiability. (%oenco, CommercialLaw Bar Reviewer, cited in Aquino, "*)

In determining the negotiability of an

instrument, the instrument in itsentirety and by what appears on its facemust be considered. It must comply



NEGOTIABLEINSTRUMENT

NEGOTIABLE5OCUMENT OFTITLE

Sub2ect is money Sub2ect is goods

Is itself theproperty withvalue

%he document is amere evidence of title ' the things of value being thegoods mentioned inthe document

!as all therequisites of Sec. 1of NIL

"oes not have theserequisites

A holder of NI mayrun after thesecondary partiesfor payment if dishonored by theparty primarilyliable.

Intermediate partiesare not secondarilyliable if thedocument isdishonored.

A holder, if aholder in duecourse, mayacquire rights overthe instrumentbetter than hispredecessors.

A holder can neveracquire rights to thedocument betterthan hispredecessors.





with the requirements of Sec. 1 of theNIL. #alte; hils. v. #A, &1& S#A 339$

%he acceptance of a bill of e;change

is not important in the determination of its negotiability. %he nature of acceptance is important only on thedetermination of the (ind of liabilities of the parties involved =#54 vs. Aruego,10& S#A -0$

RE6UISITES OF NEGOTIABILITa. It /ust "e -ritin1 an% si1ne% "# te/a7er or %ra-erAny (ind of material that substitutes

paper is sufficient.>ith respect to the signature, it is

enough that what the ma(er or draweraffi;ed shows his intent to authenticatethe writing. ($otes and Cases on Ban-s,$egotia.le /nstruments and ot0er Commercial 1ocuments, 2imoteo B"

Aquino)". Uncon%itiona! Pro/ise or Or%er toa# a su/ certain in /one#Bnconditional promise or order >here the promise or order is made to

depend on a contingent event, it isconditional, and the instrument involvedis non<negotiable. %he happening of theevent does not cure the defect. %he unconditional nature of the

promise or order is not affected by)a$ An indication of a particular fund out

of which reimbursement is to bemade, or a particular account to bedebited with the amount or

b$ A statement of the transaction whichgives rise to the instrument

>here the promise or order is sub2ect

to the terms and conditions of thetransaction stated, the instrument is

rendered non<negotiable. %he NI must beburdened with the terms and conditionsof that agreement to destroy itsnegotiability. (Cesar 3illanueva,Commercial Law Review, !!4 ed") =ut an order or promise to pay out of

a particular fund is N5% unconditional.Sec. $

FUN5 FOR REIMBURSEMENT

PARTICULAR FUN5FOR PAMENT

"rawee pays thepayee from his own

funds afterwards,

%here is only oneact< the drawee pays

directly from the

the drawee payshimself from theparticular fundindicated.

particular fundindicated. aymentis sub2ect to thecondition that thefund is sufficient.

articular fundindicated is N5% thedirect source of payment but only thesource of reimbursement.

articular fundindicated is thedirect source of payment.

ostal money orders are not negotiable

instruments. Some of the restrictionsimposed by postal laws and regulationsare inconsistent with the character of negotiable instruments. hil. Cducation#o. vs. Soriano, D S#A -98$

%reasury warrants are non<negotiable

because there is an indication of thefund as the source of payment of thedisbursement. 4etroban( vs. #A, 1D3S#A 1/D$

ayable in sum certain in money An instrument is still negotiable

although the amount to be paid ise;pressed in currency that is not legaltender so long as it is e;pressed inmoney. N= vs. Eulueta, 101 hil 1081,

Sec./ e$$. %he certainty is however not affected

although to be paid)a. >ith interest orb. =y stated installments orc. =y stated installments with an

acceleration claused. >ith e;change ore. >ith cost of collection or

attorneyFs fees. Sec. &$

%he dates of each installment must be

fi;ed or at least determinable and theamount to be paid for each installment. A sum is certain if the amount to be

unconditionally paid by the ma(er ordrawee can be determined on the faceof the instrument and is not affected bythe fact that the e;act amount is arrivedat only after a mathematicalcomputation. ($otes and Cases onBan-s, $egotia.le /nstruments and ot0er Commercial 1ocuments, 2imoteo B"

Aquino)

ACCELERATION INSECURIT E*TENSIONCOMMERCIAL LAW COMMITTEE CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:






CLAUSE CLAUSE CLAUSE

A clause thatrenders wholedebt due anddemandableupon failure of obligor tocomply withcertainconditions.

rovisions inthe contractwhichallows theholder toacceleratepayment if he deemshimself insecure.

#lauses inthe face of theinstrumentthat e;tendthe maturitydatesa. At theoption of the holderb. C;tensionto a furtherdefinitetime at theoption of the ma(eror acceptorc. Automa '

tically uponor after aspecifiedact orevent.

Instrument isstill negotiable

Instrumentis renderednon<negotiablebecause theholderFswhim andcapriceprevail

without thefault andcontrol of the ma(er

Instrumentis stillnegotiable($otes and Cases onBan-s,$egotia.le/nstrumentsand ot0er

Commercial1ocuments,2imoteo B"

Aquino)

E*TENSIONCLAUSE

E*TENSION UN5ER SEC. '8(&)

Stated on the face ofthe instrument

Agreement binding theholdera. %o e;tend the timeof payment orb. ostpone theholderFs right to

enforce the instrumentarties are boundbecause they too( theinstrument (nowingthat there is ane;tension clause

=inds the personsecondarily liable andtherefore cannot bedischarged fromliabilities if)a. !e consents orb. ight of recourse ise;pressly reserved.($otes and Cases onBan-s, $egotia.le/nstruments and ot0er Commercial1ocuments, 2imoteoB" Aquino)

c. Pa#a"!e on 5e/an% or at &i0e% or%eter/ina"!e &uture ti/e

PAABLE ON

5EMAN5

PAABLE AT A

FI*E5 OR 5ETERMINABLEFUTURE TIME

a. >here e;pressedto be payable ondemand, at sight oron presentationb. >here no periodof payment is statedc. >here issued,accepted, orindorsed aftermaturity only asbetween immediate

parties$. Sec. 8$

a. At a fi;ed periodafter date or sightb. 5n or before afi;ed ordeterminable futuretime specifiedtherein orc. 5n or at a fi;edperiod after theoccurrence of aspecified event,

which is certain tohappen, though thetime of happening isuncertain. Sec. 3$

If the day and the month, but not the

year of payment is given, it is notnegotiable due to its uncertainty.(Pandect of Commercial Law and

Jurisrudence, Justice Jose 3itug, +55 ed")

%. Pa#a"!e to Or%er or to Bearer

ayable to 5rder %he instrument is payable to order

where it is drawn payable to the order of a specified person, or to him or hisorder. Sec. 9$ %he payee must be named or otherwise

indicated therein with reasonablecertainty. %he instrument may be made payable

to the order of)a. A payee who is not the ma(er,

drawer or draweeb. %he drawer or ma(erc. %he draweed. & or more payees 2ointlye. 5ne or some of several payeesf. %he holder of an office for a

time beingayable to =earer %he instrument is payable to bearer)

a. >hen it is e;pressed to be sopayable or

b. >hen it is payable to a personnamed therein or to bearer or

c. >hen it is payable to the order of a

fictitious or non<e;isting person, andCOMMERCIAL LAW COMMITTEE CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:






such fact was (nown to the personma(ing it so payable or

d. >hen the name of the payee doesnot purport to be the name of any

person ore. >hen the only or last indorsement is

an indorsement in blan(. Sec. D$

Note: An instrument originally payableto bearer can be negotiated by meredelivery even if it is indorsed especially./f it is originall6 a B'AR'R instrument,it will alwa6s .e a B'AR'R instrument"

As opposed to an original order instrument becoming payable to bearer,if the same is indorsed specially, it canN5 L5N7C be negotiated further by

mere delivery, it has to be indorsed.

A chec( that is payable to the order of

cash is payable to bearer. Reason& %hename of the payee does not purport tobe the name of any person. Ang %e(Lian vs. #A, 98 hil. 9$ FICTITIOUS PAEE RULE It is not necessary that the person

referred to in the instrument is reallynon<e;istent or fictitious to ma(e theinstrument payable to bearer. %he

person to whose order the instrument ismade payable may in fact be e;istingbut he is till fictitious or non<e;istentunder Sec. Dc$ of the NIL if the personma(ing it so payable does not intend topay the specified persons. (Reviewer onCommercial Law, Professors Sundiangand Aquino)

e. I%enti&ication o& 5ra-ee Applicable only to a bill of e;change

A bill may be addressed to & or more

drawees 2ointly whether they arepartners or not but not to & or moredrawees in the alternative or insuccession. Sec. 1&9$

OMISSIONS 9PROISIONS T+AT5O NOT AFFECT

NEGOTIABILIT

A55ITONALPROISONS NOT

AFFECTINGNEGOTIABILIT

a. It is not dated". It does notspecify the valuegiven or that any

%'$'RAL R7L'& If

some other act isrequired other thanor in addition to

value has beengivenc. It does notspecify the placewhere it is drawn orwhere it is payable%. It bears a seale. It designates aparticular (ind of current money inwhich payment is tobe made. Sec. /$

payment of money,the instrument isnot negotiable.Sec. -$

'8C'P2/9$S& a. Authori*es the

sale of collateralsecurities ondefault

b. Authori*esconfession of 2udgment ondefault

c. >aives thebenefit of lawintended toprotect the

debtor ord. Allows the

creditor theoption torequiresomething inlieu of money.

III. INTERPRETATION OF NEGOTIABLEINSTRUMENTS (Sec. ';)

a. "iscrepancy between the

amount in figures and that inwords ' the words prevail, but if the words are ambiguous,reference will be made to thefigures to fi; the amount.

b. ayment for interest is providedfor ' interest runs from the dateof the instrument, if undated,from issue thereof.

c. Instrument undated ' considerdate of issue.

d. #onflict between written andprinted provisions ' written

provisions prevail.e. >hen the instrument is so ambiguous

that there is doubt whether it isa bill or note, the holder maytreat it as either at his election

f. If one signs without indicating inwhat capacity he has affi;ed hissignature, he is considered anindorser.

g. If two or more persons sign :;e romise to a6,< their liability is2oint each liable for his part$but if they sign :/ romise to







a6,< the liability is solidaryeach can be compelled tocomply with the entireobligation$. Sec. 18$

I. TRANSFER AN5 NEGOTIATION

INCI5ENTS IN T+E LIFE OF A NI (+ Ag.a6ani, +55 ed")

a. Issueb. Negotiationc. resentment for acceptance, incertain (inds of =ills of C;changed. Acceptanceh. "ishonor by non<acceptancei. resentment for payment2. "ishonor by non<payment

(. Notice of dishonorl. "ischarge

MO5ES OF TRANSFER a. Negotiation ' the transfer of theinstrument from one person to anotherso as to constitute the transferee asholder thereof. Sec.0$b. Assignment ' %he transferee does notbecome a holder and he merely stepsinto the shoes of the transferor. Anydefense available against the transferoris available against the transferee.

($otes and Cases on Ban-s, $egotia.le/nstruments and ot0er Commercial1ocuments, 2imoteo B" Aquino) Assignment may be effected whether

the instrument is negotiable or non<negotiable. Sesbre6o vs. #A, &&& S#A3//$

+O, NEGOTIATION TA$ES PLACEa. Issuance ' first delivery of theinstrument complete in form to a personwho ta(es it as a holder. Sec. 1D1$

Steps)

1. 4echanical act of writingthe instrument completelyand in accordance with therequirements of Section 1and

2. %he delivery of thecomplete instrument by thema(er or drawer to thepayee or holder with theintention of giving effect toit. (20e Law on $egotia.le

/nstruments wit0 1ocuments

of 2itle, =ector de Leon,!!! ed")

". Su"se<uent Ne1otiation1. If payable to bearer, a

negotiable instrument maybe negotiated by meredelivery.

&. If payable to order, a NI maybe negotiated byindorsement completed bydelivery

Note: In both cases, delivery must beintended to give effect to the transfer of instrument. "evelopment =an( vs. Sima>ei, &1D S#A 8/$c. Inco/!ete ne1otiation o& or%erinstru/ent

>here the holder of an instrumentpayable to his order transfers it for valuewithout indorsing it, the transfer vests inthe transferee such title as thetransferor had therein and he alsoacquires the right to have theindorsement of the transferor. =ut forthe purpose of determining whether thetransferee is a holder in due course, thenegotiation ta(es effect as of the timewhen the indorsement is made. Sec. 3D$%. In%orse/ent Legal transaction effected by the

affi;ing oneGs signature at the)a. =ac( of the instrument orb. Bpon a paper allonge$ attached

thereto with or withoutadditional words specifying theperson to whom or to whoseorder the instrument is to bepayable whereby one not onlytransfers legal title to thepaper transferred but li(ewiseenters into an implied guarantythat the instrument will be dulypaid Sec. 1$

%'$'RAL R7L'& Indorsement must

be of the entire instrument. '8C'P2/9$& >here instrument has

been paid in part, it may be indorsedas to the residue. Sec. &$

Hinds of Indorsement)

A. SPECIAL ' Specifies the person towhom or to whose order, the instrumentis to be payable Sec. 3$=. BLAN$ ' Specifies no indorsee)





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1. Instrument becomes payable tobearer and may be negotiated bydelivery Sec. 3$

&. 4ay be converted to special

indorsement by writing over thesignature of indorser in blan(any contract consistent withcharacter of indorsement Sec.-$

#. ABSOLUTE ' 5ne by which indorserbinds himself to pay)

1. Bpon no other condition thanfailure of prior parties to do so

&. Bpon due notice to him of suchfailure.

". CON5ITIONAL ' ight of the indorseeis made to depend on the happening of a

contingent event. arty required to paymay disregard the conditions. Sec. D$C. RESTRICTIE = An indorsement isrestrictive, when it either)

a. rohibits further negotiation of the instrument or

b. #onstitutes the indorsee theagent of the indorser or

c. ests the title in the indorsee intrust for or to the use of someother persons. =ut mere absenceof words implying power tonegotiate does not ma(e an

indorsement restrictive. Sec./$

+. 6UALIFIE5 ' #onstitutes the indorsera mere assignor of the title to theinstrument. Sec. 9$ It is made by adding to the indoserGs

signature words li(e Jsans recourse,Kwithout recourseJ, Jindorser notholderJ, Jat the indorserGs own ris(J, etc.7. >OINT ' Indorsement payable to & ormore persons Sec. 31$!. IRREGULAR = A person who, nototherwise a party to an instrument,places thereon his signature in blan(before delivery Sec. /3$

5ther rules on indorsement

1. Negotiation is deemed prima facie tohave been effected before theinstrument is overdue e;cept if theindorsement bears a date after thematurity of the instrument. Sec. 3-$&. resumed to have been made at theplace where the instrument is datede;cept when the place is specified. Sec.

3/$

. >here an instrument is payable to theorder of & or more payees who are notpartners, all must indorse unlessauthority is given to one. Sec. 31$

3. >here a person is under obligation toindorse in a representative capacity, hemay indorse in such terms as to negativepersonal liability. Sec. 33$

RENEGOTIATION TO PRIOR PARTIES(Sec. ?8) >here an instrument is negotiated

bac( to a prior party, such party mayreissue and further negotiate the same.=ut he is not entitled to enforcepayment thereof against any interveningparty to whom he was personally liable.

Reason& %o avoid circuitousness of suits.

STRI$ING OUT IN5ORSEMENT %he holder may at any time stri(e out

any indorsement which is not necessaryto his title. %he indorser whoseindorsement is struc( out, and allindorsers subsequent to him, are therebyrelieved from liability on the instrument.Sec. 39$

CONSI5ERATION FOR T+E ISSUANCEAN5 SUBSE6UENT TRANSFER

Cvery NI is deemed prima facie to have

been issued for a valuable consideration.Cvery person whose signature appearsthereon is presumed to have become aparty thereto for value. Sec. &3$ >hat constitutes value)

a. An antecedent or pre<e;isting debtb. alue previously givenc. Lien arising from contract or byoperation of law. Sec. &8$

. +OL5ERS

+OL5ER A payee or endorsee of a bill or note

who is in possession of it or the bearerthereof. Sec. 1D1$

RIG+TS OF +OL5ERS IN GENERALSec. -1$a . 4ay sue thereon in his own nameb. ayment to him in due coursedischarges the instrument %he only disadvantage of a holder who

is not a holder in due course is that the





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negotiable instrument is sub2ect todefenses as if it were non<negotiable.(C0an ;an vs" 2an >im, +!5 P0il" !#)

+o!%er In 5ue Course (+5C) A holder who has ta(en the instrument

under the following conditions) $E: C O I1. Instrument is complete and regular

upon its face&. =ecame a holder before it was

overdue and without notice that ithad been previously dishonored

. +or 4alue and in good faith and3. At the time he too( it, he had no

notice of any infirmity in theinstrument or defect in the title of

the person negotiating it. Sec. -&$

Ri1ts o& a +5C:

1. 4ay sue on the instrument in his ownname

&. 4ay receive payment and if paymentis in due course, the instrument isdischarged

. !olds the instrument free from anydefect of title of prior parties andfree from defenses available toparties among themselves and

3. 4ay enforce payment of the

instrument for the full amountthereof against all parties liablethereon. Secs. -1 and -8$

Cvery holder of a negotiable

instrument is deemed prima facie aholder in due course. !owever, thispresumption arises only in favor of aperson who is a holder as defined inSection 1D1 of the NIL. %he weight of authority sustains the view that a payeemay be a holder in due course. !ence,

the presumption that he is a prima facieholder in due course applies in his favor.#ely Mang vs. #ourt of Appeals, 7.. No.19083, August 1-, &00$

+o!%er Not In 5ue Course 5ne who became a holder of an

instrument without any, some or all of the requisites under Sec. -& of the NIL. >ith respect to demand instruments,

if it is negotiated an unreasonable lengthof time after its issue, the holder isdeemed not a holder in due course.

Sec.-$

%'$'RAL R7L'& +ailure to ma(e

inquiry is not evidence of bad faith. '8C'P2/9$S&

1. >here a holderFs title is defective or

suspicious that would compel areasonable man to investigate, it cannotbe stated that the payee acquired thechec( without the (nowledge of saiddefect in the holderFs title and for thisreason the presumption that it is aholder in due course or that it acquiredthe instrument in good faith does note;ist. "e 5campo vs. 7atchalian, S#A -D/$&. !older to whom cashierFs chec( is notindorsed in due course and negotiatedfor value is not a holder in due course.

4esina v. IA#$ ights of a holder not in due course)

1. It can enforce the instrument and sueunder it in his own name.&. rior parties can avail against him anydefense among these prior parties andprevent the said holder from collectingin whole or in part the amount stated inthe instrumentNote: If there are no defenses, thedistinction between a !"# and one whois not a !"# is immaterial. ($otes and Cases on Ban-s, $egotia.le /nstrumentsand ot0er Commercial 1ocuments,2imoteo B" Aquino)

S+ELTER RULE A holder who derives his title through a

holder in due course, and who is nothimself a party to any fraud or illegalityaffecting the instrument, has all therights of such former holder in respect of all prior parties to the latter. Sec. -9$

ACCOMMO5ATION A legal arrangement under which aperson called the accommodation party,

lends his name and credit to anothercalled the acco//o%ate% art#,without any consideration.Acco//o%ation Part# (AP) equisites)

1. %he accommodation party must signas ma(er, drawer, acceptor, orindorser

&. !e must not receive value thereforand





San Beda College of Law1#


. %he purpose is to lend his name orcredit. Sec. &D$Note: :wit0out receiving valuet0erefor,< means without receiving

value by virtue of the instrument.#lar( vs. Sellner, 3& hil. 93$

Cffects) %he person to whom the

instrument thus e;ecuted issubsequently negotiated has a right of recourse against the accommodationparty in spite of the formerFs (nowledgethat no consideration passed betweenthe accommodation and accommodatedparties. Sec. &D$ ights Legal osition)

1. A is generally regarded as a suret6 for the party accommodated

&. >hen A ma(es payment to holder of the note, he has the right to sue theaccommodated party forreimbursement. Agro#onglomerates, Inc. vs. #A, 39S#A 3-0$

Liability) Liable on the instrument to a

holder for value notwithstanding suchholder at the time of the ta(ing of theinstrument (new him to be only anaccommodation party. !ence, Asregards, an A, the 3th condition, i"e",lac( of notice of infirmity in theinstrument or defect in the title of thepersons negotiating it, has noapplication. Stelco 4ar(eting #orp. vs.#ourt of Appeals, &10 S#A -1$ ights of As as against each other)

4ay demand contribution from his co<accommodation party without firstdirecting his action against the principaldebtor provided) a. !e made the payment by virtue

of 2udicial demand or b. %he principal debtor is insolvent.

%he relation between anaccommodation party is, in effect, oneof principal and surety ' theaccommodation party being the surety. Itis a settled rule that a surety is boundequally and absolutely with the principaland is deemed an original promissory anddebtor from the beginning. %he liabilityis immediate and direct. omeo 7arciavs. "ionisio Llamas, 7.. No. 1-31&8,"ecember 9, &00$ >ell<entrenched is the rule that the

consideration necessary to support a

surety obligation need not pass directlyto the surety, a consideration need notpass directly to the surety, aconsideration moving to the principal

alone being sufficient. Spouses CduardoCvangelista vs. 4ercator +inance #orp,7.. No. 1399/3, August &1, &00$

I. PARTIES ,+O ARE LIABLE

PRIMAR AN5SECON5ARLIABILIT OF

PARTIES

,ARRANTIES OFPARTIES

4a(es the partiesliable to pay thesum certain inmoney stated in the

instrument.

Impose no directobligation to pay inthe absence of breach thereof. In

case of breach, theperson whobreached the samemay either beliable or barredfrom asserting aparticular defense.

#onditioned onpresentment andnotice of dishonor(Camos and Loe?@Camos, $egotia.le/nstruments Law,+554 ed")

"oes not requirepresentment andnotice of dishonor.(Camos and Loe?@Camos,$egotia.le/nstruments Law,+554 ed")

'. Pri/ari!# Lia"!e (Sec. @8 an% @3NIL)

MA$ER ACCEPTOR OR 5RA,EE

A. Cngages to payaccording to thetenor of theinstrument and=. Admits thee;istence of thepayee and hiscapacity to indorse.

A. Cngages to payaccording to thetenor of hisacceptance=. Admits thee;istence of thedrawer, thegenuineness of his

signature and hiscapacity andauthority to drawthe instrumentand#. Admits thee;istence of thepayee and hiscapacity toindorse.

A bill of itself

does not operate asan assignment of

funds in the handsCOMMERCIAL LAW COMMITTEE CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:






of the draweeavailable for thepayment thereof and the drawee isnot liable unlessand until heaccepts the sameSec.1&8$

. Secon%ari!# Lia"!e (Sec. @'3 @ an%@@3 NIL)

5RA,ER GENERALIN5ORSER

IRREGULAR IN5ORSER

A. Admitsthee;istence of the payee

and hiscapacity toindorse=. Cngagesthat theinstrumentwill beaccepted orpaid by thepartyprimarilyliable and#. Cngagesthat if the

instrumentisdishonoredand properproceedingsare brought,he will payto the partyentitled tobe paid.

A. >arrantsallsubsequent!"# <

a. %hat theinstrument isgenuine andin all respectwhat itpurports tobeb. !e hasgood title toitc. All priorparties hadcapacity tocontractd. %he

instrumentis, at thetime of endorse<ment, validandsubsisting.=. Cngagesthat theinstrumentwill beaccepted orpaid, orboth, as thecase may be,

according toits tenor and#. If theinstrument isdishonoredandnecessaryproceedingson dishonorbe dulyta(en, hewill pay tothe partyentitled tobe paid.

A person,nototherwise aparty to an

instrument,places hissignaturethereon inblan(beforedelivery.Sec. /3$A. If instrumentpayable tothe orderof a rd

person, he

is liable tothe payeeandsubsequentparties.=. If instrumentpayable toorder of ma(er ordrawer orto bearer,he is liableto allpartiessubsequentto thema(er ordrawer.#. If hesigns foraccommo<dation of the payee,he is liableto allpartiessubsequentto the

payee.

. Li/ite% Lia"i!it# (Sec. @? Metroo!

Financin1 4. Sa/"o73 '8 SCRAD@)

6UALIFIE5IN5ORSER

PERSONNEGOTIATING B

5ELIER Cvery personnegotiatinginstrument bydelivery or by aqualifiedendorsementwarrants that)A. Instrument is

genuine and in allrespects what itpurports to be=. !e has good titleto it#. All prior partieshad capacity tocontract". !e has no(nowledge of anyfact which wouldimpair the validityof the instrument orrender it valueless.

A. >arranties sameas those of qualified indorsersand=. >arrantiese;tend toimmediatetransferee only.

PERSONNEGOTIATING BMERE 5ELIER

OR B 6UALIFIE5IN5ORSEMENT

GENERALIN5ORSER

No secondaryliability but isliable for breach ofwarranty

%here is secondaryliability, andwarranties

>arrants that hehas no (nowledge of any fact whichwould impair thevalidity of theinstrument orrender it valueless

>arrants that theinstrument is, atthe time of hisindorsement, validand subsisting

OR5ER OF LIABILIT %here is no order of liability among the

indorsers as against the holder. !e is

free to choose to recover from anyCOMMERCIAL LAW COMMITTEE CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:






indorser in case of dishonor of theinstrument. ($otes and Cases on Ban-s,$egotia.le /nstruments and ot0er Commercial 1ocuments, 2imoteo B"

Aquino) As respect one another, indorsers are

liable prima facie in the order in whichthey indorse unless the contrary isproven Sec./9$ %'$'RAL R7L'& 5ne whose signature

does not appear on the instrument shallnot be liable thereon. '8C'P2/9$S&

1. %he principal who signs through anagent is liable

&. %he forger is liable. 5ne who indorses in a separate

instrument allonge$ or where anacceptance is written on a separatepaper is liable

3. 5ne who signs his assumed or tradename is liable and

-. A person negotiating by delivery as inthe case of a bearer instrument$ isliable to his immediate indorsee.

II. 5EFENSES

REAL 5EFENSES PERSONAL5EFENSES

%hose that attachto the instrumentitself and areavailable againstall holders,whether in duecourse or not, butonly by the partiesentitled to raisethem. a.(.aabsolute defenses$

%hose which areavailable only againsta person not a holderin due course or asubsequent holder whostands in privity withhim. a.(.a. equitabledefenses$

1. 4aterialAlteration&. >ant of delivery of

incompleteinstrument. "uressamounting toforgery3. +raud infactum or fraud inesse contractus-. 4inorityavailable to theminor only$/. 4arriage in thecase of a wife8. Insanity where

1. Absence or failureof consideration,partial or total&. >ant of delivery of

complete instrument. Insertion of wrongdate in an instrument3. +illing up of blan(contrary to authoritygiven or not withinreasonable time-. +raud ininducement/. Acquisition of instrument by force,duress, or fear8. Acquisition of theinstrument by

the insane personhas a guardianappointed by thecourt9. Bltra vires actsof a corporationD. >ant of authority of agent10. C;ecution of instrumentbetween publicenemies11. Illegality ' if declared void forany purpose1&. +orgery.

unlawful means9. Acquisition of theinstrument for anillegal considerationD. Negotiation inbreach of faith10. Negotiation undercircumstances thatamount to fraud11. 4ista(e1&. Into;icationaccording to betterauthority$1. Bltra vires acts of corporations wherethe corporation hasthe power to issuenegotiable paper butthe issuance was not

authori*ed for theparticular purpose forwhich it was issued13. >ant of authorityof agent where he hasapparent authority1-. Insanity wherethere is no notice of insanity on the part of the one contractingwith the insaneperson and1/. Illegality of contract where the

form or considerationis illegal.

EFFECTS OF CERTAIN 5EFENSESA. MINORIT Negotiation by a minor passes title to

the instrument. Sec.&&$. =ut the minoris not liable and the defense is personalto him

B. ULTRA IRES ACTS A real defense but the negotiation

passes title to the instrument. Sec. &&$

Note: A cororation cannot act as anaccommodation party. %he issuance orindorsement of negotiable instrument bya corporation without consideration andfor the accommodation of another isultra vires. #risologo<:ose v. #A, 118S#A -D3$

C. INCOMPLETE AN5 UN5ELIERE5 NI(Sec. '?)

If completed and negotiated without

authority, not a valid contract against a

person who has signed before delivery of COMMERCIAL LAW COMMITTEE CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:






the contract even in the hands of !"#but subsequent indorsers are liable. %hisis a real defense.5. INCOMPLETE BUT 5ELIERE5 NI

(Sec. ')1. !older has prima facie authority to

fill up the instrument.&. %he instrument must be filled up

strictly in accordance with theauthority given and withinreasonable time

. !"# may enforce the instrument asif filled up according to no. &.

E. COMPLETE BUT UN5ELIERE5 NI(Sec. '@)1. =etween immediate parties and

those who are similarly situated,delivery must be coupled with theintention of transferring title to theinstrument.

&. As to !"#, it is conclusivelypresumed that there was validdelivery and

. As against an immediate party andremote party who is not a !"#,presumption of a valid andintentional delivery is rebuttable.

F. FRAU5

FRAU5 IN FACTUMOR FRAU5 ININ5UCEMENT

FRAU5 INESSES

CONTRACTUSOR FRAU5 INE*ECUTION

%he person who signsthe instrumentintends to sign thesame as a NI but wasinduced by fraud

%he person isinduced to sign aninstrument not(nowing itscharacter as a billor note

G. ABSENCE OR FAILURE OF

CONSI5ERATION (Sec. D) ersonal defense to the pre2udiced

party and available against any personnot !"#.

+. PRESCRIPTION efers to e;tinctive prescription and

may be raised even against a !"#. Bnderthe #ivil #ode, the prescriptive period of an action based on a written contract is10 years from accrual of cause of action.

I. MATERIAL ALTERATION

Any change in the instrument which

affects or changes the lia.ilit6 of t0e arties in any way. Cffects)

'. Alteration by a party ' Avoids theinstrument ecet as against theparty who made, authori*ed, orassented to the alteration andsubsequent indorsers. !owever, if an altered instrument

is negotiated to a !"#, he mayenforce payment thereof accordingto its original tenor regardless of whether the alteration was innocentor fraudulent.

Note: Since no distinction is made, it

does not matter whether it isfavorable or unfavorable to the partyma(ing the alteration. %he intent of the law is to preserve the integrityof the negotiable instruments.

. Alteration by a stranger soliation$<the effect is the same as where thealteration is made by a party which a!"# can recover on the originaltenor of the instrument. Sec. 1&3$

#hanges in the following constitute

material alterations)a. "ateb. Sum payable, either for principal

or interestc. %ime or place of paymentd. Number or relations of the

partiese. 4edium or currency in which

payment is to be madef. %hat which adds a place of

payment where no place of payment is specified and

g. Any other change or additionwhich alters the effect of theinstrument in any respect. Sec.1&-$

A serial number is an item which

is not an essential requisite fornegotiability under Sec. 1, NIL, andwhich does not affect the rights of the parties, hence its alteration isnot material. N= vs. #A, &-/ S#A3D1$





Co/arison o& sections '3 '? an% '@ o& te ne1otia"!e instru/ents !a-

Section 14 Section 15 Section 16

"elivery "elivered BndeliveredBndeliveredNote) "elivery may be made for aconditional or for a special purposeonly and not for the purpose of transferring the property in theinstrument

#ompleteness 1. >anting in any materialparticular

1. =lan( paper withsignature

4echanically incomplete 4echanically complete

Authority of personin possession

1. rima facie authority tocomplete it by filling upthe blan(s therein

1.Signature operates as aprima facie authority tofill it up as such for anyamount

No authority to complete andOornegotiate instrument

4ay negotiate if delivered to him byor under the authority of the partyma(ing, indorsing, drawing oraccepting, as the case may be.

>hen enforceable If filled up strictly in accordance with authority givenand within a reasonable time

Not enforceable >hen delivery is made by or underauthority of the party ma(ing,indorsing, drawing or accepting, asthe case may be.

Hind of defense ersonal eal ersonal

ights of holder 1. If !"#, he can enforce the instrument ascompleted against parties prior or subsequent tothe completion

&. If not a !"#, he can enforce the instrument ascompleted only against parties subsequent to the

completion but not against those prior thereto.

None in the hands of any holder.!owever, the invalidity of theinstrument is only with reference toparties whose signatures appear onthe instrument after delivery, the

instrument is valid.

#an enforce the instrument.Note) >here the instrument is in thehands of a !"#, a valid deliverythereof by all parties prior to him soas to ma(e them liable to him isconclusively presumed. >here the

instrument is no longer in thepossession of a party whose signatureappears thereon, a valid andintentional delivery to him ispresumed until the contrary isproved.



>. FORGER #ounterfeit ma(ing or fraudulent

alteration of any writing, which mayconsist of)

+" Signing of anotherFs name withintent to defraud or

" Alteration of an instrument in thename, amount, name of payee, etc.with intent to defraud. (+ Ag.a6ani3+55 ed")

%'$'RAL R7L'& >hen a signature is

forged or made without the authority of the person, the signature notinstrument itself and the genuinesignatures$ is wholly inoperative Legal Cffects)

1. No right to retain the instrument

&. %o give a discharge therefore. %o enforce payment thereof

against any party thereto, canbe acquired through or undersuch signature

'8C'P2/9$& Bnless the party against

whom it is sought to enforce such right isprecluded from setting up the forgery orwant of authority. Sec. &$

Persons rec!u%e% &ro/ settin1 u%e&ense o& &or1er#1. %hose who warrant or admit the

genuineness of the signature inquestion. %his includes indorsers,persons negotiating by delivery andacceptors.

2. %hose who, by their acts, silence, ornegligence, are estopped fromsetting up the defense of forgery.

RULES ON FORGERA. Pro/issor# Notes

Or%erInstru/ent

BearerInstru/ent

Ma7erssi1nature&or1e%

a. 4a(er is notliable becausehe neverbecame aparty to theinstrument.b. Indorserssubsequent toforgery areliable becauseof theirwarranties.c. arty whothe made theforgery is

a. 4a(er is notliable.b. arty whomade theforgery isliable.c. Indorsersmay be madeliable to thosepersons whoobtain titlethrough theirindorsements.

liable.

Pa#eessi1nature&or1e%

a. 4a(er andpayee notliable.b. Indorserssubsequent toforgery areliable.c. arty whomade theforgery isliable.

a. 4a(er isliable.Indorsementis notnecessary totitle and thema(er engagesto pay holder$b. arty whomade theforgery isliable

In%orsers

si1nature&or1e%

a. 4a(er,payee andindorser whosesignature wasforged is notliable.

b. Indorserssubsequent toforgery areliable.=ecause of theirwarranties$c. arty whomade theforgery isliable.

a. 4a(er isliable.indorsementis notnecessary totitle and the

ma(er engagesto pay theholder$b. Indorserwhosesignature wasforged notliable to onewho is not a!"# providedthe instrumentismechanicallycomplete

before theforgery.c. arty whomade theforgery isliable.

B. Bi!!s o& E0can1e

Or%erInstru/ent

BearerInstru/ent

5ra-erssi1nature&or1e%

a. "rawer isnot liablebecause hewas never aparty to theinstrument.b. "rawee isliable if it paidno recourseto drawer$because headmitted thegenuiness of the drawerFssignature."rawee cannotrecover from

a. "rawer isnot liable.b. "rawee isliable if it paid."rawee cannotrecover fromthe collectingban(.c. arty whomade theforgery isliable.



the collectingban( becausethere is noprivitybetween thecollectingban( and thedrawer. %helatter does notgive anywarrantyregarding thesignature of the drawer.Associated=an( vs. #A$c. Indorserssubsequent toforgery liable

such ascollectingban( or lastendorser$d. arty whomade theforgery isliable

Pa#eessi1nature&or1e%

a. "rawer,drawee andpayee notliable.b. Indorserssubsequent to

forgery areliable. such ascollectingban($c. arty whomade theforgery isliable

a. "rawer isliableb. "rawee isliablec. ayee is notliable

d. #ollectingban( is liablebecause of warrantye. arty whomade theforgery is liable

In%orsers

si1nature&or1e%

a. "rawer,payee andindorser whosesignature wasforged notliable.b. "rawee isliable if it paid.c. Indorserssubsequent toforgery areliable. such ascollecting ban($d. arty whomade theforgery isliable.

a. "rawer isliable.indorsementnot necessary totitle$b. "rawee isliable.c. Indorserwhose signaturewas forged isliable becauseindorsement isnot necessary totitle.d. arty whomade theforgery is liable.

III. ENFORCEMENT OF LIABILIT

A. STEPS TO C+ARGE T+E PARTIESLIABLEa. Pri/ar# Lia"i!it#%he unconditional promise attaches the

moment the ma(er ma(es theinstrument while the acceptorFs assentto the unconditional order attaches themoment he accepts the instrument. Nofurther act is necessary in order for theliability to accrue. resentment forpayment is all that is necessary. ($otesand Cases on Ban-s, $egotia.le/nstruments and ot0er Commercial1ocuments, 2imoteo B" Aquino)". Secon%ar# Lia"i!it#

1. Steps in promissory noteindorsers$

a. resentment forpayment to the ma(er.

b. Notice of dishonor shouldbe given, if dishonoredby non<payment.

&. Steps in bill of e;changea. resentment for acceptance in thefollowing instances)

a. >here the bill is payableafter sight, or when it isnecessary in order to fi;the maturity of theinstrument

b. >here the bill e;presslystipulates that it shall bepresented foracceptance

c. >here the bill is drawnpayable elsewhere thanat the residence or placeof business of thedrawee. Sec. 13$

Note: In all the above cases, the holdermust either present the bill foracceptance or negotiate it within areasonable time otherwise, the drawerand all indorsers are discharged. Sec.133$&. If dishonored by non<acceptance

a. Notice of dishonor given todrawer and indorsers.

b. rotest in case of a foreign bill.. If bill is accepted)

a. resentment for payment to theacceptor.

3. If dishonored upon presentment forpayment

a. Notice of dishonor to persons

secondarily liable.



b. rotest for dishonor by non<payment in case of foreign bill.

B. PRESENTMENT

%he production of a =C to the draweefor his acceptance, or to the drawee oracceptor for payment or the productionof a N to the party liable for thepayment of the same. Sec. 80$

PRESENTMENT FOR PAMENT #onsists of)

1. Personal demand for a6ment at theproper place and

&. Readiness to e0i.it the instrumentif required, and to receive paymentand to surrender the instrument if

the debtor is willing to pay. equisites)

1. 4ade by the holder or any personauthori*ed to receive payment on hisbehalf

&. At a reasonable hour on a businessday

. At a proper place3. %o the person primarily liable or if he

is absent or inaccessible, to anyperson found at the place where thepresentment is made. Sec. 8&$

>hen should be made)

1. N payable on demand) withinreasonable time after its issue

&. =C payable on demand) withinreasonable time after its lastnegotiation

. Instrument payable on a specifieddate) on the date it falls due. Sec.81$

roper place)

1. lace specified&. Address of the person to ma(e

payment is given, in case no place is

specified. Bsual place of business or residenceof the person to ma(e payment, incase no place is specified and noaddress is given

3. In any other case, wherever theperson to ma(e payment can befound, or at his last (nown place of business or residence. Sec. 8$

>hen not required)

1. In order to charge the drawer wherehe has no right to e;pect or require

that the drawee or acceptor will paythe instrumentSec. 8D$

&. In order to charge an indorser whenthe instrument was made or

accepted for his accommodation andhe has no reason to e;pect that theinstrument will be paid if presented.Sec. 90$

>hen delay in ma(ing presentment or

of giving notice is e;cused)1. >hen caused by circumstancesbeyond the control of the holder and&. Not imputable to his default,misconduct, or negligence. Sec. 91$ >hen presentment for payment is

e;cused)1. After e;ercise of reasonable

diligence, it cannot be made&. "rawee is a fictitious person. C;press or implied waiver. Sec. 9&$

E0i"ition urposes)

1. %o enable the debtor to determinethe genuineness of the instrumentand the right of the holder toreceive payment and

&. %o enable him to reclaim possessionupon payment.

>hen e;cused)

1. >hen debtor does not demand to seethe instrument but refuses paymenton some other grounds, and

&. >hen the instrument is lost ordestroyed.

Secia! cases1. /nstrument a6a.le at a .an- ' 4ustbe made during ban(ing hours unlessthere are no funds to meet it at any timeduring the day, presentment at any hourbefore the ban( is closed on that day is

sufficient. Sec. 8-$&. Person lia.le is dead ' 4ay be madeto his personal representative, if therebe one, and if he can be found. Sec. 8/$

C. PRESENTMENT FOR ACCEPTANCE>hen required)

a. >here the bill is payable aftersight, or when it is necessary in orderto fi; the maturity of the instrumentb. >here the bill e;pressly stipulatesthat it shall be presented foracceptance



c. >here the bill is drawn payableelsewhere than at the residence orplace of business of the drawee. Sec.13$

!ow made)a. >here a bill is addressed to & or moredrawees who are not partners,presentment must be made to allb. >here drawee is dead, presentmentmay be made to his personalrepresentativec. >here the drawee is ad2udged aban(rupt, insolvent or made anassignment to his creditors, presentmentmay be made to him or his trustee orassignee >hen e;cused)

1. >here the drawee is dead, or hasabsconded, or is a fictitious personor a person not having capacity tocontract by bill

&. After e;ercise of reasonablediligence, presentment cannot bemade

. Although presentment has beenirregular, acceptance has beenrefused on some other ground. Sec.139$

If bill is duly presented for

acceptance and it is not accepted withinthe prescribed time, the personpresenting it must treat the bill asdishonored by non<acceptance or heloses the right of recourse against thedrawer and indorsers. Sec. 1-0$

5. ACCEPTANCE %he signification by the drawee of his

assent to the order of the drawer. It is the act by which the drawee

manifests his consent to comply with therequest contained in the bill of e;change

directed to him. For/: 4ust be in writing and signed by

the drawee and must not e;press thatthe drawee will perform his promise byany other means than the payment of money. Sec. 1&$ %he holder of the bill presenting the

same for acceptance may require thatthe acceptance be written on the bill,and if such request is refused, may treatthe bill as dishonored. Sec. 1$ $in%s:

1. %'$'RAL < assents withoutqualification to the order of thedrawer.

&. 7AL//'1 < which in e;press terms

varies the effect of the bill asdrawn.a. #onditional < ma(es payment by

the acceptor dependent on thefulfillment of a condition thereinstated.

b. artial < an acceptance to paypart only of the amount forwhich the bill is drawn.

a. Local < an acceptance to payonly at a particular place.

b. Pualified as to timec. %he acceptance of some one or

more of the drawees but not of all. Sec. 131$

+orm)

1. 4ust be made by or on behalf of theholder

&. At a reasonable hour on a businessday

. =efore the bill is overdue and3. %o the drawee or some person

authori*ed to accept or refuse toaccept on his behalf.

I/!ie% Accetance

If after &3 hours, the drawee fails toreturn the instrument. !e is also deemedto have accepted the instrument whenhe destroys the same.

E. NOTICE OF 5IS+ONOR Notice given by holder or his agent to

party or parties secondarily liable thatthe instrument was dishonored by non<acceptance by the drawee of a bill or bynon<payment by the acceptor of a bill orby non<payment by the ma(er of a note.

Sec. 9D$ equisites)

1. 7iven by holder or his agent, or byany party who may be compelled bythe holder to pay Sec. D0$

&. 7iven to secondary party or hisagent Sec. D8$

. 7iven within the periods provided bylaw Sec. 10&$ and

3. 7iven at the proper place Secs. 10and 103$

>hen dispensed with)



1. >hen party to be notified (nowsabout the dishonor, actually orconstructively Secs. 113<118$

&. If waived Sec. 10D$ and

. >hen after due diligence, it cannotbe given Sec. 11&$.

!ow given)

1. =y bringing verbally or&. =y writing to the (nowledge of the

person liable the fact that aspecified instrument, upon properproceedings ta(en, has not beenaccepted or has not been paid, andthat the party notified is e;pectedto pay it.

%o whom given)

1. Non<acceptance bill$ ' to persons

secondarily liable, namely, thedrawer and indorsers as the casemay be.

&. Non<payment both bill and note$ 'indorsers.Note: Notice must be given topersons secondarily liable.5therwise, such parties aredischarged. Notice may be given tothe party himself or to his agent.

=y whom given)

1. %he holder&. Another on behalf of the holder. Any party to the instrument who may

be compelled to pay it to the holder,and who would have a right of reimbursement from the party towhom notice is given. Sec. D0$

5IS+ONOR B NON2PAMENT1. ayment is refused or cannot be

obtained after due presentment forpayment

&. resentment is e;cused and theinstrument is overdue and unpaid.

Sec. 9$

Cffect) %here is an immediate right of

recourse by the holder against personssecondarily liable. !owever, notice of dishonor is generally required. Sec. 93$

5IS+ONOR B NON2ACCEPTANCE Instances:

1. >hen it is duly presented foracceptance and such an acceptanceis refused or cannot be obtained or

&. >hen presentment for acceptance ise;cused, and the bill is notaccepted. Sec. 13D$

Cffect) Immediate right of recourse

against the drawer and indorsers accruesto the holder and no presentment forpayment is necessary. Sec. 1-1$

E&&ect o& !ac7 o& notice o& %isonor onNI -ic are a#a"!e in insta!!/ents1. $o acceleration clause ' failure to

give notice of dishonor on a previousinstallment does not dischargedrawers and indorsers as tosucceeding installments.

&. ;it0 acceleration clause ' failure togive notice of dishonor as to previous

installment will discharge thepersons secondarily liable as to thesucceeding installments.

To -ose "ene&it %oes a notice o& %isonor inure1. >hen given "# or on "ea!& o& ao!%er)

a. All parties prior to the holder,who have a right of recourseagainst the party to whom thenotice is given and

b. All holders subsequent to the

holder giving notice. Sec. D&$&. >hen given "# or on "ea!& o& aart# entit!e% to 1i4e notice)

a. %he holder andb. All parties subsequent to the

party to whom notice is given.Sec. D$

5isonor in te an%s o& an A1ent Agent can do either of the following)

1. "irectly give notice to personssecondarily liable thereon or

&. 7ive notice to his principal. Insuch case, he must give noticewithin the time allowed by lawas if he were a holder. Sec. D3$

A art# 1i4in1 notice is %ee/e% to a4e1i4en %ue notice -ere:

1. %he notice of dishonor is dulyaddressed, and

&. "eposited in the post<office,even when there is miscarriageof mail. Sec. 10-$



>here a party receives notice of

dishonor, he has, after the receipt of such notice, the same time for givingnotice to antecedent parties that the

holder has after the dishonor. Sec. 108$

,ai4er o& Notice o& 5isonor Cither before the time of giving notice,

or after the omission to give due notice.>aiver may be e;pressed or implied.Sec. 10D$ As to who are affected by an e0ress

-ai4er depends on where the waiver iswritten)

1. If it appears in the body or onthe face of the instrument, it bindsall parties but

&. If it is written above thesignature of an indorser, it bindshim only. Sec. 110$

Notice of dishonor is not required to begiven to the %ra-er in any of the ff.cases)

1. "rawer and drawee are thesame

&. "rawee is a fictitious person ornot having the capacity tocontract

. "rawer is the person to whomthe instrument is presented forpayment

3. %he drawer has no right toe;pect or require that thedrawee or acceptor will honorthe instrument

-. >here the drawer hascountermanded payment. Sec.113$

Notice of dishonor is not required to begiven to an in%orser in the ff. cases)

1. "rawee is a fictitious person ordoes not have the capacity tocontract, and indorser wasaware of that fact at the time heindorsed the instrument

&. Indorser is the person to whomthe instrument is presented forpayment

. Instrument was made oraccepted for hisaccommodation. Sec. 11-$

If an instrument is not accepted by

the drawee, there is no sense presenting

it again for payment, and notice of dishonor must at once be given. If therewas acceptance, presentment forpayment is still required and if payment

is refused, there is a need for notice of dishonor. Sec. 11/$

An omission to give notice of dishonor

by non<acceptance does not pre2udicethe rights of a holder in due coursesubsequent to the omission. Sec. 118$

F. FOREIGN BILL OF E*C+ANGE1. "rawn in the hilippines but payable

outside the hilippines.&. ayable in the hilippines but drawn

outside the hilippines.

INLAN5 BE FOREIGN BEA bill which or on itsface purports to beboth drawn andpayable within thehilippines.

5ne which is or onits face purports tobe drawn or payableoutside thehilippines.

NOTICE OF5IS+ONOR

PROTEST

equired in inlandbill

equired in foreignbill

4ay be oral orwritten

Always written

4ay be made by aparty or agent

4ade by a notarypublic or arespectable residentin the presence of witness

4ade in residence of parties

4ade in the place of dishonor

PROTEST %he formal instrument e;ecuted

usually by a notary public certifying that

the legal steps necessary to fi; theliability of the drawee and the indorsershave been ta(en. >ho ma(es)

1. A notary public or&. Any respectable resident of the

place where the bill is dishonored, inthe presence of & or more crediblewitnesses. Sec. 1-3$

Protest &or "etter securit# ' 5ne

made by the holder of a bill after it hasbeen accepted but before it matures,



against the drawer and indorsers, wherethe acceptor has been adudged aban(rupt or an insolvent, or has made anassignment for the benefit of the

creditors. Sec. 1-9$ rotest is necessary only in case of

foreign bills of e;change, which havebeen dishonored by non<acceptance ornon<payment, as the case may be. If itis not so protested, the drawer andindorsers are discharged. Sec. 119$

ACCEPTANCE FOR +ONOR An underta(ing by a stranger to a bill

after protest for the benefit of any partyliable thereon or for the honor of theperson for whose account the bill is

drawn which acceptance inures also tothe benefit of all parties subsequent tothe person for whose honor it isaccepted, and conditioned to pay thebill when it becomes due if the originaldrawee does not pay it. Secs. 1/1<180$ Re<uisites:

1. %he bill must have been protestedfor dishonor by non<acceptance orfor better security

&. %he acceptor for honor must be astranger and not a party alreadyliable on the instrument

. =ill must not be overdue3. Acceptance for honor must be with

the consent of the holder of theinstrument.

For/a! re<uisites:

1. 4ust be in writing&. 4ust indicate that it is an

acceptance for honor. Signed by the acceptor for honor3. 4ust contain an e;press or implied

promise to pay money-. %he accepted bill for honor must be

delivered to the holder.

OR5INARACCEPTANCE

ACCEPTANCEFOR +ONOR

No previous protestis required

revious protest isrequired

#onsent of holder isimplied

#onsent of holderis required

"rawee is acceptor Acceptor must bestranger to the bill

Acceptor isprimarily liable

Acceptor issecondarily liable

PAMENT FOR +ONOR ayment made by a person, whether a

party to the bill or not, after it has been

protested for non<payment, for thebenefit of any party liable thereon or forthe benefit of the person for whoseaccount it was drawn. Secs. 181<188$ Re<uisites:

1. %he bill has been dishonored by non<payment

&. It has been protested for non<payment

. ayment supra protest another termfor payment for honor because priorprotest for non<payment is required$is made by any person, even by a

party thereto3. %he payment is attested by a

notarial act of honor which must beappended to the protest or form ane;tension of it

-. %he notarial act must be based onthe declaration made by the payorfor honor or his agent of hisintention to pay the bill for honorand for whose honor he pays.

Note) If the above formalities are notcomplied with, payment will operate as

a mere voluntary payment and the payorwill acquire no right to fullreimbursement against the party forwhose honor he pays.

In payment for honor, the payee

cannot refuse payment. If he refuses,he cannot recover from the parties whowould have been discharged had heaccepted the same. In acceptance forhonor, the holderFs consent is necessary. %he payor for honor is given the right

to receive both the bill and the protestobviously to enable him to enforce hisrights against the parties who are liableto him.

BILLS IN SET 5ne composed of several parts, each

part being numbered and containing areference to the other parts, the wholeof the parts constituting but one bill. urpose) It is usually availed of in

cases where a bill had to be sent to adistant place through some conveyance.



If each part is sent by different means of conveyances, the chance that at leastone part of the set would reach itsdestination would be greater.

Ri1ts o& o!%ers -ere arts arene1otiate% searate!#

1.If both are !"#, the holder whosetitle first accrues is considered thetrue owner of the bill.

&.=ut the person who accepts or paysin due course shall not bepre2udiced. Sec. 18D$

O"!i1ations o& o!%er -o in%orses or/ore arts o& te "i!! in set

1.%he person shall be liable on every

such part&.Cvery indorser subsequent to him is

liable on the part he has himself indorsed, as if such parts wereseparate bills. Sec. 190$

I*. 5ISC+ARGE

5ISC+ARGE OF NI A release of all parties, whether

primary or secondary, from theobligations arising thereunder. Itrenders the instrument without force

and effect and, consequently, it can nolonger be negotiated. (20e Law on$egotia.le /nstruments wit0 1ocumentsof 2itle, =ector de Leon, !!! ed") Instances)

1. =y payment in due course by or onbehalf of the principal debtor

&. ayment by accommodated party. Intentional cancellation by the

holder3. =y any act which will discharge a

simple contract for the payment of money Sec. 11D$

-. >hen the principal debtor becomesthe holder of the instrument at orafter maturity in his own right.

PAMENT IN 5UE COURSE equisites)

1. ayment must be made at or aftermaturity.

&. ayment must be made to theholder.

. ayment must be made in good faithand without notice that the holderFs

title is defective. Sec. 99$

=y whom made)

a. =y ma(er or acceptor or

b. Surety if a primary party orc. =y an agent on behalf of the

principal

RENUNCIATION (Sec. ') %he act of surrendering a right or claim

without recompense, but it can beapplied with equal propriety to therelinquishing of a demand upon anagreement supported by a consideration.(+ Ag.a6ani +55 ed") Cffects)

1. A renunciation in favor of a

secondary party may be made by theholder before, at or after maturityof the instrument. %he effect is todischarge only such secondary partyand all parties subsequent to himbut the instrument itself remains inforce.

&. A renunciation in favor of theprincipal debtor may be effected ator after maturity. %he effect is todischarge the instrument and allparties thereto provided therenunciation is made unconditionallyand absolutely.

Note: In either case, renunciation doesnot affect the rights of a holder in duecourse without notice.

CANCELLATION It includes the act of tearing, erasing,

obliterating, or burning. It is not limitedto writing of the word QcancelledK, orpaidK, or drawing of criss<cross linesacross the instrument. Sec. 1&$ It maybe made by any other means by which

the intention to cancel the instrumentmay be evident.

5ISC+ARGE OF PERSONS SECON5ARILLIABLE1. =y any act which discharges the

instrument&. =y the intentional cancellation of his

signature by the holder. =y the %ischarge of a prior party3. =y a 4alid tender of payment made

by a prior party-. =y the release of the principal

debtor, unless the holderFs right of



recourse against the partysecondarily liable is e;presslyreserved

/. =y any agreement binding upon the

holder to e;tend the time of payment or to postpone the holderFsright to enforce the instrument.Sec. 1&0$

/n t0e following cases, t0e

agreement to etend t0e timeof a6ment does not disc0arge a

art6 secondaril6 lia.le&a$ where the e;tension of time is

consented to by such partyb$ where the holder e;pressly

reserves his right of recourseagainst such party.

ayment at or after maturity by aparty secondarily liable does notdischarge the instrument. It onlycancels his own liability and that of theparties subsequent to him. Sec. 1&1$

*. C+EC$S A bill of e;change drawn on a ban(

payable on demand Sec. 19-$

CONCEPTS:1. #ertification of #hec(s An agreement whereby the ban(

against whom a chec( is drawn,underta(es to pay it at any future timewhen presented for payment. Cffects)

a. Cquivalent to acceptance Sec.198$ and is the operative actthat ma(es ban(s liable

b. Assignment of the funds of thedrawer in the hands of thedrawee Sec. 19D$

c. If obtained by the holder,discharges the persons

secondarily liable thereon Sec.199$&. A chec( of itself does not operate asan assignment of any part of the funds tothe credit of the drawer with the ban(.%he ban( is not liable to the holder,unless and until it accepts or certifiesthe chec(. Sec. 19D$. A chec( must be presented forpayment within reasonable time after itsissue or the drawer will be dischargedfrom liability thereon to the e;tent of the loss caused by the delay. Sec. 19/$

easonable time) Sec. 1D, NIL$

a. Nature of the instrumentb. Bsage of business or tradec. %he facts of the particular case

3. >here the holder of a chec( procuresit to be accepted or certified, thedrawer and all indorsers are dischargedfrom liability thereon. Sec. 19/$-. efusal of drawee ban( to certify %he holder has no action against the

ban( but he has a right of action againstthe drawer. %he drawer in turn has rightof action against the ban( based on theoriginal contact of deposit betweenthem.

Crosse% Cec7

A chec( which in addition to the usualcontents of an ordinary chec( containsalso the name of a certain ban(er orbusiness entity through whom it must bepresented for payment. Cffects)

a$ %hat the chec( may not beencashed it may only be depositedwith the ban(

b$ %hat the chec( may be negotiatedonly once to a person who has anaccount with the ban( and

c$ %hat it serves as a warning to theholder that the chec( has beenissued for a definite purpose.=ataan #igar vs. #A, &0 S#A /3$

%he NIL is silent with respect to

crossed chec(s, although the #ode of #ommerce ma(es reference to suchinstrument. Nonetheless, this #ourt hasta(en 2udicial cogni*ance of the practicethat a chec( with & parallel lines in theupper left hand corner means that itcould only be deposited and not

converted into cash. 20e effects of crossing a c0ec- t0us, relates to t0emode of a6ment, meaning that thedrawer had intended the chec( fordeposit only by the rightful person, i"e",the payee named therein. #ely Mang vs.#ourt of Appeals, 7.. No. 19083,August 1-, &00$

IRON CLA5 RULE rohibits the countermanding of

payment of certified chec(s. epublicof the hilippines vs. N=$



Note: %he holder must be a holder indue course before the stop paymentorder may not be successfully invo(edagainst him. 4esina vs. IA#, 13/ S#A

3D8, -0-$

TPES OF C+EC$S (Cesar 3illanueva,Commercial Law Review, !!4 ed")

a. Casiers Cec7 5ne drawn by the cashier of a ban(, in

the name of the ban( against the ban(itself payable to a third person. It is aprimary obligation of the issuing ban(and accepted in advance upon issuance.%an vs. #A, &D S#A 10$

b. Mana1ers Cec7 A chec( drawn by the manager of a

ban( in the name of the ban( itself payable to a third person. It is similar tothe cashierFs chec( as to the effect anduse.

c. Me/oran%u/ Cec7

A chec( given by a borrower to a lenderfor the amount of a short loan, with theunderstanding that it is not to bepresented at the ban(, but will beredeemed by the ma(er himself whenthe loan falls due and whichunderstanding is evidenced by writingthe word memorandumK, memoK ormemK on the chec(.

d. Certi&ie% Cec7 An agreement whereby the ban(

against whom a chec( is drawn

underta(es to pay it at any future timewhen presented for payment. Sec. 198$

law on negotiable instruments (memory aid)

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