Negotiable Instruments Law

NEGOTIABLE INSTRUMENTS LAW
LAW a holder even though he be a holder only

for collection may sue in his own name.
RIGHTS OF THE HOLDER
A person who is neither the payee nor a
holder of a bad check has neither the
Sec. 51. Right of holder to sue; payment. — personality to sue nor a cause of action
The holder of a negotiable instrument may sue against the drawer.
thereon in his own name; and payment to him in
due course discharges the instrument. (2) Right to receive payment. — He may
receive payment and if the payment is in
due course (Sec. 88.), the instrument is
Meaning of holder. discharged.
"Holder" means the payee or indorsee of a bill or
note who is in possession of it, the bearer thereof Payment in due course is payment "made
entitled to receive the sum for which it calls. Thus, (a) at or after the maturity of the
the "holders" includes not only persons instrument (b) to the holder thereof (c) in
possessing bearer instruments but also payees good faith and without notice that his title
and indorsees possessing order instruments. is defective.
(3) Right of transferee of unindorsed

instrument to sue — A transferee of
Classes of holders.
unindorsed instrument is certainly not a
1. Holders simply (Sec. 51.) - Lowest kind of "holder" as defined by Section 191, and,
holder. therefore, cannot be a holder in due
2. Holders for value (see Sec. 26.); and course under Section 52. It is believed,
3. Holders in due course. (Sees. 52,57.) - nevertheless, that he may do so. If the
Highest kind of holder. "transfer vests in the transferee such title
as the transferor had" (Sec. 49.) and if the
transferor had legal title, this must pass by
A person who qualifies as a holder but does not
the transfer although subject to defenses.
meet all the conditions to qualify as a holder in
due course is called ordinary holder or mere
holder (or assignee or transferee).
The holder of a negotiable Instrument is not Sec. 52. What constitutes a holder in
necessarily the owner thereof. For example, a due course. — A holder in due course is a
thief who steals a bearer paper is a holder but holder who has taken the instrument
obviously is not the owner although he can legally under the following conditions:
transfer (negotiate) the same to another who then a) That it is complete and regular upon
becomes the new holder. its face;
b) That he became the holder of it before
it was overdue, and without notice that
Rights of holder in general. it had been previously dishonored, if
such was the fact;
In general, the following are the rights of a holder: c) That he took it in good faith and for
(1) Right to sue. — A holder may sue on the value;
instrument in his name. Under Section 51, d) That at the time it was negotiated to
him he had no notice of any infirmity
Page 1 of 41
in the instrument or defect in the titleLAW
Legaspi City, the sum of P200,000.00 with
of the person negotiating it. interest at twelve (12%) per cent per annum,
payable in equal installments of P20,000.00
monthly for ten (10) months starting October
What constitutes a holder in due course? 21, 1991.
A holder in due course is a holder who took the Manila September 21, 1991.
instrument under the conditions enumerated in
(Sgd.) Perla
Section 52. He takes the Instrument free of most
defenses, or adverse claims to it by other parties. Pay to the order of Reliable Finance Corp.
The law, in using the term "holder in due course," Automotive Company
uses it as the equivalent for the old expression
By:
"bona fide holder" or "bona fide holder for value
without notice. (Sgd.) Manager
Because Perla defaulted in the payment of her

installments, Reliable Finance Corporation
BAR QUESTIONS ALERT!!!!
initiated a case against her for a sum of money.
Q: What constitutes a holder in due course?
Perla argued that the promissory note is
(1996 BAR)
merely open to all defenses available to the
A: A holder in due course is one who has taken assignor and, therefore, Reliable Finance
the instrument under the following conditions: Corporation is not a holder in due course.
(1) That it is complete and regular upon its a. Is the promissory note a mere assignment of
face; credit or a negotiable instrument? Why?
(2) That he became a holder of it before it was
b. Is Reliable Finance Corporation a holder in
overdue and without notice that it had
due course? Explain briefly. (1992 BAR)
been previously dishonored, if such was
the fact; A:
(3) That he took it in good faith and for value;
(4) That at the time it was negotiated to him, a. The promissory note in the problem is a
he had no notice of any infirmity in the negotiable instrument, being in compliance with
instrument or defect in the title of the the provisions of Section 1 of the NIL. Neither the
person negotiating it. fact that the payable sum is to be paid with
interest nor that the maturities are in stated
installments renders uncertain the amount
payable.
Q: Perla brought a motor car payable in
installments from Automotive Company for b. YES. Reliable Finance Corporation is a holder
P250,000. She made a down payment of in due course given the factual settings. Said
P50,000 and executed a promissory note for corporation apparently took the promissory note
the balance. for value, and there are no indications that it
acquired it in bad faith.
The company subsequently indorsed the note
to Reliable Finance Corporation which
financed the purchase. The promissory note
read: Q: Larry issued a negotiable promissory note
to Evelyn and authorized the latter to fill up the
“For value received, I promise to pay amount in blank with his loan account in the
Automotive Company or order at its office in
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sum of P1,000. However, Evelyn insertedLAW
payment. Before X, T, who turned out to have
P5,000 in violation of the instruction. She filched the note from PN’s office, had endorsed
negotiated the note to Julie who had no the note after inserting his own name in the
knowledge of the infirmity. Julie in turn blank space as the payee. PN dishonored the
negotiated said note to Devi for value and who note, contending that he did not authorize its
had no knowledge of the infirmity. completion and delivery. Xxx Can the payee in
a promissory note be a “holder in due course”
a. Can Devi enforce the note against Larry and
within the NIL? Explain your answer. (2000
if she can, for how much? Explain.
BAR)
b. Supposing Devi endorses the note to Baby
A: NO, a payee in a promissory note cannot be a
for value but who has knowledge of the
“holder in due course” within the meaning of the
infirmity, can the latter enforce the note
NIL, because a payee is an immediate party in
against Larry? (1993 BAR)
relation to the maker. The payee is subject to
A: whatever defenses, real or personal, available to
the maker of the promissory note.
a. Devi can enforce the note against Larry since
she is a holder in due course. Since the document
delivered to Evelyn is in blank and she was
Q: X borrowed money from Y in the amount of
authorized to fill up the amount in the promissory
Php1Million and as payment, issued a check. Y
note, Devi can enforce against Larry the amount
then indorsed the check to his sister Z for no
of P5,000.00 as this case falls squarely under Sec
consideration. When Z deposited the check to
14 of the Negotiable Instruments Law. As against
her account, the check was dishonored for
a holder in due course, the instrument is always
insufficiency of funds.
valid and enforceable to the full extent. The
defense of filing- up contrary to authorization is a a. Is Z a holder in due course? Explain your
mere personal or equitable defense. (Villanueva, answer.
Commercial Law Review, 2009 edition)
b. Who is liable on the check, the drawer or the
b. Baby cannot enforce the note against Larry indorser? Explain your answer. (2012 BAR)
since she is not a holder in due course because
A:
Larry could interpose the real and personal
defenses to defeat the claim of Baby. However, a. NO. A holder in due course is a holder who has
because of the shelter principle in Negotiable taken the instrument under the following
Instruments Law, Baby could be elevated to a conditions: (a)That it is complete and regular
status of a holder in due course since a person upon its face; (b) That he became the holder of it
not holder in due course steps in the shoes of the before it was overdue, and without notice that it
prior party. Therefore, Baby could enforce the had been previously dishonored, if such was the
note against Larry the same way as Devi could fact; (c) That he took it in good faith and for value;
enforce it. (d) That at the time it was negotiated to him he
had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it. All of
Q: PN makes a promissory note for P5,000, but the four conditions must concur in order for a
leaves the name of the payee in blank because holder to qualify as a holder in due course. In the
he wanted to verify its correct spelling first. He case at hand, Z did not acquire the instrument for
mindlessly left the note on top of his desk at value. As such she cannot be considered as a
the end of the workday. When he returned the holder in due course.
following morning, the note was missing. It
turned up later when X presented it to PN for
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b. The drawer. The instrument was validlyLAW
When Section 54 is not applicable.
negotiated to Z by virtue of the endorsement
Section 54 is intended to define the situation in
made by Y despite lack of any consideration. The
which the holder must protect himself by refusing
drawer cannot evade liability since Z, as a holder
to make further payments.
of the instrument, has the right to collect upon the
same. Likewise, the drawer may not raise as a
defense the fact of lack of consideration since it is (1) It is applicable only where the obligation
a personal defense that may only be raised by Y incurred by the holder of a bill or note is
since the drawer is not privy to said transaction. such that upon discovering the infirmity in
the instrument, he is relieved from all
further legal obligations to make further
payments, as, for example, where the note
Sec. 53. Where person not deemed holder in has been transferred to him in
due course. — Where an instrument payable on consideration of his promise to make
demand is negotiated an unreasonable length of future payments to his transferor. In that
time after its issue, the holder Is not deemed a case, if it should turn out that, by reason of
holder in due course fraud on the part of the transferor, the
maker of the note had a defense thereto,
the transferee would be under no
Holder in due course in instrument payable on obligation to pay the balance of the
demand. amount that he had agreed to pay the
transferor.
One of the requisites of due course holding is that
the holder of the instrument became such "before (2) It does not apply where the holder has
it is overdue." As to what constitutes a reasonable given for the paper his promise which he
time, depends upon the facts of the particular must perform, as, for instance, when he
case. The law provides that "regard is to be had to has incurred liability to a third person. In
the nature of the instrument, the usage of trade or such a case, he is in the same position and
business (if any) with respect to such instruments, entitled to the same protection as one who
and the facts of the particular case." has paid for the instrument in money or
Under Section 53, if the negotiation of a demand property at the time of the transfer.
instrument is made outside of the reasonable time
after its issue, the holder cannot be deemed a
holder in due course, for the fact that the Sec. 55. When title is defective. — The title of a
instrument has been in circulation for such a person who negotiates an instrument is defective
length of time gives rise to a strong indication that within the meaning of this Act when he obtained
it has already been dishonored. the instrument, or any signature thereto, by fraud,
duress, or force and fear, or other unlawful
means, or for an illegal consideration, or when he
Sec. 54. Notice before full amount paid. — negotiates it in breach of faith, or under such
Where the transferee receives notice of any circumstances as amount to a fraud.
infirmity in the instrument or defect in the title of
the person negotiating the same before, he has
paid the full amount agreed to be paid therefore Defective title in general
he will be deemed a holder in due course only to
the extent of the amount theretofore paid by him. Defects of title are defined in Section 55 to cover
all those situations which are known as personal
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or equitable defenses (infra.) and also to coverLAW4. Illegal consideration. — A note given to
those equities of ownership where there is a stifle a criminal prosecution is invalid or in
breach of faith in negotiation. consideration of the payee killing a person.
Infirmities then must include things that are

5. Negotiation in breach of faith. — Where
wrong with the instrument itself as distinguished
the payee of a note negotiated it after
from those things that are lacking in the contracts
receiving payment from the maker; where
on the instruments.
the payee transfers the instrument in
Such infirmities are to be found in situations breach of agreement; where a note is
arising under Sections 13, 14, 15, 16 (usual given in payment of goods to be delivered
defects of the title), 21, 23,124, and 125. and the note is negotiated without delivery
of the goods; where a note held merely as
The object of Section 55, when taken in collateral or security is negotiated.
connection with Section 56, is to prevent one
from becoming a holder in due course who takes 6. Circumstances amounting to fraud. —
an instrument with notice that his transferor is not Where the payee of a note negotiated it
acting honestly. It is the same object as it is found after being told that the maker intends to
in the good faith in Section 52(c) but viewed from resist payment or that the transferor had
a somewhat different angle. The said clause has no legal right to transfer.
regard to the attitude of the taker of the
instrument, while Section 55 emphasizes rather
the honesty of the negotiator as brought to the
notice of the taker.
Sec. 56. What constitutes notice of defect. —
To constitute notice of an infirmity in the
instrument or defect in the title of the person
EXAMPLES: negotiating the same, the person to whom it is
1. Fraud. — Brokers employed to buy stock negotiated must have had actual knowledge of
represented that they bought the stock the infirmity or defect, or knowledge of such facts
and received a check, therefore, but had that his action in taking the instrument amounted
not in fact bought. It was held that their to bad faith.
title to the check was defective because
they obtained it by means of fraud.
In order to constitute notice, the transferee must
2. Duress, or force and fear. — Where A, have actual knowledge of the infirmity or defect;
by the use of violence and intimidation, or knowledge of such facts (which do not appear
forced P to indorse a promissory note in on the face of the instrument) that his action in
favor of A. taking the instrument amounts to bad faith. Actual
knowledge is usually shown by the instrument
3. Other unlawful means. —Where the itself.
instrument has been stolen. It has been
held that a person who acquires an
instrument by indorsement of a part Mere negligence to make inquiries not
thereof gets title by unlawful means since sufficient. — Under Sections 54 and 56,
the transfer is in contravention of the law. negligence in itself is not sufficient to constitute
notice since it is not the equivalent of either actual
knowledge or bad faith. The question of bad faith
or good faith is mostly a question of fact. Notice is
Page 5 of 41
to be determined by the simple test of honestyLAW
themselves, and may enforce payment of the
and good faith and not by speculative issue as to instrument for the full amount thereof against all
the indorsee's negligence. parties liable thereon.
Knowledge amounting to bad faith. — It is not Rights of a holder in due course.

necessary that the buyer of the instrument had
The following are the rights of a holder in due
notice or knowledge of the exact fraud or the
course:
particulars thereof, committed by the assignor,
since all that is required is "knowledge of such 1. He may sue on the instrument in his own
facts that his action in taking the instrument name (Sec. 51.);
amounted to bad faith." 2. He may receive payment and if the
payment is in due course, the instrument
is discharged (ibid.)}
Effect of a notice of defect. — Knowledge or 3. He holds the instrument free from any
chargeable notice of any defect, at the time of defect of title of prior parties;
taking of an instrument, which destroys the status 4. He holds the instrument free from
of a holder as a holder in due course, opens all defenses available to prior parties among
defenses otherwise cut off against him and not themselves; and
merely that relating to the defect of which he had 5. He may enforce payment of the instrument
notice, (see Sec. 58.) for the full amount thereof against all
parties liable thereon, (see Sec. 54.)
Thus, a holder with knowledge of failure of
consideration is subject to the defense that a note
was obtained by fraud. This does not, however,
In other words, one putting negotiable paper on
modify the rule that one holding from a holder in
the market is estopped from contesting the
due course may have all the rights of the latter.
consequences and incidents of his act; It is also
Notice to the agent is ordinarily deemed notice to
said that the basic principle on which paper
the principal and notice to a partner is notice to
having defects is sustained in the hands of a
the partnership.
holder in due course is comprehended in the
legal maxim that where loss has happened which
must fall on one of two innocent persons, it shall
Doctrine of constructive notice not applicable.
be borne by him who is the occasion of the loss.
—The doctrine has never been applied to
The one who made the wrong possible is
commercial paper. The true test as to negotiable
estopped by his neglect.
paper is that of good or bad faith. Thus, a notice
of lis pendens affecting land is applicable only to a
person who is dealing with the land itself, and a
This rule which permits a holder in due course to
purchaser of a negotiable instrument secured by
take an instrument free of all personal defenses is
a mortgage on the land is not dealing in land, and
a necessity if commercial papers are to circulate
constructive record notice of an infirmity in the
freely and prospective purchasers are to accept
instrument does not amount to bad faith.
them routinely and willingly. Real defenses, which
attach to the instrument itself, would be available
against all persons even as against a holder in
Sec. 57. Rights of holder in due course. — A
due course.
holder in due course holds the instrument free
from any defect of title of prior parties, and free
from defenses available to prior parties among
Page 6 of 41
Sec. 58. When subject to original defenses. —LAW
been discharged, she must disclose that
In the hands of any holder other than a holder in information to the transferee who provides value
due course, a negotiable instrument is subject to for the instrument. If not, the transfer by the HDC
the same defenses as if it were non-negotiable. to the new holder could be deemed fraudulent.
But a holder who derives his title through a holder This would destroy the shelter principle
in due course, and who is not himself a party to protections.
any fraud or illegally affecting the instrument, has
all the rights of such former holder in respect of
all parties prior to the latter. Note: An exception to the shelter rule is that it
does not apply if the holder in due course
transfers the instrument back to a prior holder
What is the Shelter Principle?
who was aware of its non-enforceable status and
Status as a holder in due course (HDC) may proceeded to transfer it to a holder in due course.
strengthen the rights of a holder to receive
payment on a negotiable instrument. When a
holder may not qualify as a HDC, the shelter rule
is a separate principle that may protect her rights.
Pursuant to the shelter rule, the transferee of a
negotiable instrument receives all of the rights of
the transferor of the instrument, unless the
transfer is carried out by fraud or illegal means.
This is important in situations where the transferor
is a holder in due course, but the transferee is not.
Example: A HDC may gift the negotiable

instrument to the transferee. In this case, the
transferee did not provide value for the instrument BAR QUESTION ALERT!!!
and does not qualify as a holder in due course.
Q: How does the “shelter principle” embodied
in the Negotiable Instruments Law operate to
give rights of a holder-in- due course to a
The shelter rule will allow the transferee to
holder who does not have the status of a
receive all of the rights of the transferor (a holder
holder-in-due course? Briefly explain. (2008
in due course) and receive heightened protection.
BAR)
This rule makes the paper more marketable for
the holder in due course. A: The shelter principle provides that a person, to
whom a holder in due course has transferred the
negotiable instrument, as well as any later
The shelter rule provides liquidity to a HDC who, transferee, will succeed to the rights of the holder
after accepting an instrument, learns of a dense in due course. As a result, transferees of holders
against its enforcement. The HDC could validly in due course are generally not subject to
transfer the instrument to another holder who has defenses against the payment of an instrument.
notice of the underlying defense. The new holder This doctrine ensures the free transferability of
would have the same rights as the HDC. It is the negotiable instrument.
important to note that, if a holder in due course
Its name derives from the idea that the
learns that there is a valid defense against
transferees “take shelter” in the rights of the
enforcement or that the underlying obligation has
holder in due course. However, this principle
Page 7 of 41
presupposes that the holder for value is not aLAW
through whose hands an instrument has passed
party to the fraud. was a holder in due course.
Since a holder for value merely steps into the

shoes of the indorser, the holder for value will be
BAR QUESTIONS ALERT!!!
able to acquire the rights of a holder in due
course if the indorser is a holder in due course. Q: Po Press issued in favor of Jose a postdated
crossed check, in payment of newsprint which
Jose promised to deliver. Jose sold and
Sec. 59. Who is deemed holder in due course. negotiated the check to Excel Inc. at a
— Every holder is deemed prima facie to be a discount. Excel did not ask Jose the purpose of
holder in due course; but when it is shown that crossing the check. Since Jose failed to deliver
the title of any person who has negotiated the the newsprint, Po ordered the drawee bank to
instrument was defective, the burden is on the stop payment on the check. Efforts of Excel to
holder to prove that he or some person under collect from Po failed. Excel wants to know
whom he claims acquired the title as holder in from you as counsel:
due course. But the last mentioned rules does not
a. Whether as second indorser and holder of
apply in favor of a party who became bound on
the crossed check, is it a holder in due course?
the instrument prior to the acquisition of such
defective title. b. Whether Po’s defense of lack of
consideration as against Jose is also available
as against Excel? (1994, 1995 BAR)
Rights of holder not in due course.
A:
A holder not in due course has the following
a. Excel Inc. is not a holder in due course. The act
rights:
of crossing the check imposes upon the holder
(1) He may sue on the instrument in his own thereof the duty to ascertain the indorser’s title to
name (Sec. 51.); the check or the nature of his possession or the
(2) He may receive payment and if the purpose for which it was issued. Excel is guilty of
payment is in due course, the instrument gross negligence amounting to legal absence of
is discharged (ibid.); good faith for its failure to inquire from Jose the
(3) He is entitled to the instrument but holds it purpose for which the three checks were crossed
subject to the same defenses as if it were despite the warning of the crossing, hence, it is
non-negotiable (Sec. 58.); and not deemed a holder in due course.
(4) He has all the rights of the holder in due
b. YES, the defense of lack of consideration as
course from whom he derives his title in
against Jose is also available as against Excel. For
respect of all parties prior to such holder,
not being a holder in due course, Excel is subject
provided he is not himself a party to any
to personal defenses as if the check were non-
fraud or illegality affecting the instrument.
negotiable, such as lack of consideration between
Po Press and Jose. In this case, Jose’s failure to
The presumption expressed in this section to the deliver the newsprint resulted in the absence of
effect that every holder is deemed prima facie to consideration for the issuance of the check.
be a holder in due course arises only in favor of a Consequently, Po Press cannot be made liable to
person who is a holder in the sense defined in pay the face value of the check.
Section 191, that is, a payee or indorsee who is in
possession of the instrument, or the bearer
thereof. There is no presumption that a person
Page 8 of 41
Q: On Oct 12, 1993, Chelsea Straights, aLAW he has received the check pursuant to that
corporation engaged in the manufacture of purpose, otherwise he is not a holder in
cigarettes, ordered from Moises 2,000 bales of due course.
tobacco. Chelsea issued to Moises two
crossed checks postdated 15 Mar 94 and 15
Apr 94 in full payment therefor. On 19 Jan 94 Q: On March 1, 1996, Pentium Company
Moises sold to Dragon Investment House at a ordered a computer from CD Bytes, and issued
discount the two checks drawn by Chelsea in a crossed check in the amount of P30,000
his favor. Moises failed to deliver the bales of post-dated Mar 31, 1996. Upon receipt of the
tobacco as agreed despite Chelsea’s demand. check, CD Bytes discounted the check with
Consequently, on 1 Mar 94 Chelsea issued a Fund House. On April 1, 1996, Pentium
“stop payment” order on the 2 checks issued stopped payment of the check for failure of CD
to Moises. Dragon, claiming to be a holder in Bytes to deliver the computer. Thus, when
due course, filed a complaint for collection Fund House deposited the check, the drawee
against Chelsea for the value of the checks. bank dishonored it. If Fund House files a
Rule on the complaint of Dragon. Give your complaint against Pentium and CD Bytes for
legal basis. (1995 BAR) the payment of the dishonored check, will the
complaint prosper? Explain (1996 BAR)
A: The complaint should be dismissed. The act of
crossing the check imposes upon the holder
thereof the duty to ascertain the indorser’s, in this
case Moises’ title to the check or the nature of his A: The case will prosper as against the CD Bytes,
possession. Failing in this respect, Dragon cannot the immediate indorser but not as against
be deemed a holder in due course and as such, Pentium Company. The effect of crossing a check
Moises is subject to personal defenses as if the relates to the mode of its presentment for
check were non- negotiable, such as lack of payment which must be made by the holder, or by
consideration between Chelsea and Moises for some person authorized to receive payment on
Moises’ failure to deliver the bales of tobacco. his behalf. Thus, in the absence of due
There being no consideration for the issuance of presentment, as in this case where the check was
the check, Chelsea cannot thus be made liable to not presented by the payee (CD Bytes) or the
pay the face value of the check and this proper party authorized to make presentment of
constitutes a defense not only against Moises but the checks, the drawer (Pentium Company)
even against Dragon who is not a holder in due cannot be held liable. However, Fund House may
course. recover from the immediate indorser, if the latter
has no valid excuse for refusing payment.
Q: What are the effects of crossing a check?

(1996 BAR) Q: Distinguish clearly (1) crossed checks from
cancelled checks (2004 BAR)
A: The effects of crossing a check are as follows:
A: A crossed check is one with two parallel lines
1. The check may not be encashed but only drawn diagonally on the left portion of the check.
deposited in a banks; On the other hand, a cancelled check is one
2. The check may be negotiated only once to marked or stamped "paid" and/or "cancelled" by
one who has an account with a bank; or on behalf of a drawee bank to indicate payment
3. The act of crossing a check serves as a thereof.
warning to the holder thereof that the
check has been issued for a definite
purpose so that the holder must inquire if
Page 9 of 41
Q: What is a crossed check? What are theLAW(c) the certifier of a check.
effects of crossing a check? Explain. (2005
Secondarily (conditionally) liable:
BAR)
(a) the drawer of a bill; and
A: A crossed check is a check with two parallel
(b) the indorser of a note or a bill.
lines written diagonally on the left top portion of
the check. The effects of crossing a check are: Not liable:
the check may not be encashed but only
deposited in the bank; the check may be (a) The drawee until he accepts the
negotiated only once to one who has an account instrument in which case, he becomes an
with a bank; and the act of crossing the check acceptor.
serves as a warning to the holder that the check
has been issued for a definite purpose so that he PRINCIPAL LIABLE SECONDARY LIABLE
must inquire if he has received the check PARTY PARTY
pursuant to that purpose, otherwise he is not a unconditionally bound - conditionally bound -
absolutely required to undertakes to pay the
holder in due course.
pay the instrument instrument only after
The act of crossing a check serves as a warning upon its maturity certain conditions have
to the drawee bank that payment must be made been fulfilled, to wit:
to the right party; otherwise the bank has no due presentment for
authority to use the drawer's funds deposited with payment or acceptance
to primary party (see
the bank. To be assured that it will avoid any
Sec. 70.), dishonor by
mistake in paying to the wrong party, banks
such party (see Sees.
adopted the policy that crossed checks must be
184 and 151.), and the
deposited in the payee's account. When taking of proceedings
withdrawal is made, the banks can be sure that required by law after
they are paying to the right party. dishonor, (see Sees.
89,118.)
are liable in the reverse
LIABILITIES OF PARTIES order in which they
signed the instrument
the liability of all
secondary parties to an
Sec. 60. Liability of maker. —The maker of a
instrument end when
negotiable instrument by making it engages that
the primary party pays
he will pay it according to its tenor, and admits the the full amount of the
existence of the payee and his then capacity to instrument to the
indorse. proper party
secondary parties face
only potential
Liability refers to the obligation of a party to a secondary liability on
negotiable instrument to pay the same according the instrument.
to its terms. The parties to a negotiable instrument
may be classified according to their liability as The rule operates to prevent the maker from
follows: escaping liability by showing the non-existence
Primarily liable: and incapacity of the payee. The payee must exist
because there is no negotiable instrument until it
(a) the maker of a promissory note; is delivered to him. The payee must have the
(b) the acceptor of a bill of exchange; and capacity to contract because the note is intended
Page 10 of 41
to be negotiated and not to be retained with dieLAW
conditional in the same manner as the liabilities of
payee. a general indorser. (see Sec. 66.) The phrase "to
any subsequent indorser" refers to any of the
indorsers between the drawer and the holder.
Sec. 61. Liability of drawer. — The drawer by They may also be called as intervening indorsers.
drawing the instrument admits the existence of Note that the drawer may, by express stipulation,
the payee and his then capacity to indorse; and inserted in the instrument, negative or limit his
engages that on due presentment the instrument own liability to the holder, (ibid.)
will be accepted or paid, or both, according to its
(3) Liability of a drawer of a check. — The
tenor, and that if it be dishonored, and the
drawer may not unilaterally discharge himself
necessary proceedings on dishonor be duly
from liability on checks issued by him merely as
taken, he will pay the amount thereof to the
security and not for value to a payee who
holder, or to any subsequent indorser who may
negotiated the same without his knowledge and
be compelled to pay it. But the drawer may insert
consent to a holder in due course, by the mere
in the instrument an express stipulation negativing
expediency of withdrawing his funds from the
or limiting his own liability to the holder.
drawee bank. By issuing a check, the drawer
impliedly represents that funds or credit are
available for its payment in the drawee bank.
Liability of drawer.
Just as the maker of a note, the drawer, by merely

signing his name on the bill as drawer, admits the Drawer distinguished from maker.
existence of the payee and his then capacity to
The following are the differences:
indorse the instrument at the time it was
executed. (1) The drawer issues a bill of exchange, while
the maker, a promissory note;
(1) Liability conditional. — However, the drawer
(2) The drawer is only secondarily liable, while
does not promise to pay the bill absolutely. He
the maker is primarily liable; and
makes no warranties but he engages to pay after
(3) The drawer can negative, or limit his
certain conditions are complied with, to wit:
liability, while the maker may not do so.
(a) The bill is presented for acceptance (see
Sec. 143.) or for payment (see Sec. 70.),
as the case may be, to the drawee; Sec. 62. Liability of acceptor. — The acceptor
(b) The bill is dishonored by non-acceptance by accepting the instrument engages that he will
or nonpayment, as the case may be; and pay it according to the tenor of his acceptance;
(c) The necessary proceedings of dishonor and admits —
are duly taken. Such proceedings are:
(a) The existence of the drawer, the
1) notice of dishonor is given to the
genuineness of his signature, and his
drawer (Sec. 89.) subject to certain
capacity and authority to draw the
exceptions (see Sec. 114.); and
instrument; and
2) in case of foreign bills, protest is made
(b) The existence of the payee and his then
followed by a notice of protest, (see
capacity to indorse.
Sec. 152.)
(2) Liability of a general indorser. — The

drawer, therefore, is only secondarily liable to the Liability of acceptor.
holder, or to any subsequent indorser, who may
be compelled to pay it. (Sec. 61.) His liabilities are (1) Liability of drawee before acceptance.
— As already pointed out, the drawee of a
Page 11 of 41
bill is not liable thereon beforeLAW representation) makes the drawee
acceptance, (see Sec. 189.) He is not primarily liable. The drawee who has
obligated to the payee or any holder to accepted cannot retract this admission as
accept a bill although he may be liable to against a holder for value, since he has
the drawer for breach of contract if he thereby obtained a suspension of the
refuses without valid reason to accept the holder's remedies against the drawer and
bill. As a general rule, a refusal by the an extension of credit.
drawee to accept a bill constitutes a
dishonor of the instrument which triggers (4) Payment of check despite stop-
the liability of secondary parties — drawer payment order. — If a drawee bank
and indorser — except those indorsing accepts or pays a check despite a stop
qualifiedly (Sec. 38.), that is, without payment order from the drawer, through
guaranteeing payment. Unless the drawee oversight or otherwise, it cannot refuse to
accepts, he owes no duty to either the pay the holder or recover what has been
payee or any other holder. His only paid; neither may it debit the drawer's
obligation is to the drawer to pay in account unless the acceptance nor
accordance with the latter's orders. payment was made prior to the receipt of
the order.
(2) Liability of drawee after acceptance. —
Once the drawee accepts, he becomes an (5) Similarity to liability of maker and
acceptor. He is in virtually the same drawer. — The acceptor has the same
position as the maker of a note. The same liability as the maker of a promissory note
result takes place when a drawee bank and the drawer of a bill with respect to the
certifies a check drawn on the bank. (Sec. existence of the payee and his capacity to
187.) The acceptor is primarily bound on indorse, (see comments under Sees. 60
the instrument for by his acceptance, he and 61.) Like the maker, neither
engages to pay it according to the terms presentment for payment nor notice of
of his acceptance, subject to no condition dishonor is necessary to charge him with
whatsoever. His acceptance, in other liability, except where he is an acceptor for
words, is a promise to pay. honor, (see Sec. 165.)
The bank (drawee) on which a check is

drawn, is under strict liability based on the
contract between the bank and its Sec. 63. When person deemed indorser. — A
customer (drawer), to pay the check only person placing his signature upon an instrument
to the payee's order. The drawer's otherwise than as maker, drawer or acceptor is
instructions are reflected on the face and deemed to be an indorser, unless he clearly
by the terms of the check, otherwise, the indicates by appropriate words his intention to be
bank violates its duty to charge the bound in some other capacity.
drawer's account only for properly payable
items and shall be liable for the amount
charged to the drawer's account. A person signing his name on the back of an
instrument is, nothing else appearing, a general
(3) Retraction of acceptance. — The bill of indorser (Sec. 66) and liable as such, (see Sec.
exchange itself implies a representation by 17[f].) Being an indorser, he is chargeable only
the drawer that the drawee is already in after presentment and notice of dishonor.
receipt of funds to pay, and the
acceptance (admission of the truth of that
Page 12 of 41
The rule is founded upon commercial necessity.LAW (a) If the instrument is payable to the order
The full and free circulation of negotiable papers of a third person, he is liable to the
which take the place of money is a matter of great payee and to all subsequent parties.
importance. To require each assignee, before (b) If the instrument is payable to the order
accepting them, to inquire into and investigate of the maker or drawer, or is payable to
every circumstance bearing upon the original bearer, he is liable to all parties
issuance and to take cognizance of all the equities subsequent to the maker or drawer.
between the original parties, would utterly destroy (c) If he signs for the accommodation of
their commercial value and seriously impede the payee, he is liable to all parties
business transactions. subsequent to the payee.
Liability of agent bank for collection. Irregular or anomalous indorsement explained.
As a mere agent for collection, a bank is not The term usually denotes an indorsement for
bound to know the genuineness of prior some purpose other than to transfer the
indorsements. instrument, or an indorsement by a stranger to
the instrument or by one not in the actual or
(1) An intermediate or collecting bank which
apparent chain of title, especially an indorsement
accepts a check for deposit and forwards
made prior to the delivery of the instrument to the
it to the drawee-bank for payment
payee.
stamped "all prior indorsements
guaranteed," does not indorse the check
as a general indorser but merely as an
The purpose of the indorsement not for transfer is
agent bank, guaranteeing only "prior
usually to add the signer's credit to the
indorsements," not the genuineness of
instrument.
the check itself, so that it is not liable to
the drawee bank which paid the check in
case the signature of the drawer was
forged. Based on this section, an irregular or anomalous
indorser is a person who, (1) not otherwise a
(2) A bank is estopped, however, from raising party to an instrument, (2) places thereon his
the non- negotiability of checks (it signature in blank, (3) before delivery. The phrase
accepts for deposit) on the back of which "not otherwise a party to an instrument" means
it stamped its guarantee of "all prior that the irregular indorser is not a maker, drawer,
indorsements and/ or lack of acceptor, or regular indorser there on.
indorsement" and subsequently
presented those checks for clearing with
another bank which on the strength of The irregular or anomalous indorser indorses the
the guarantee cleared the checks and instrument in an unusual, singular or peculiar
credited the account of the first bank. manner. His name appears where we would
naturally expect another name. Thus, if an
instrument is made payable to the order of P as
Sec. 64. Liability of Irregular Indorser. — the payee, P's name should appear on the back of
Where a person, not otherwise a party to an the instrument as the first indorser but instead we
instrument, places thereon his signature in blank find the name of X. In such case, X is an irregular
before delivery, he is liable as indorser, in or anomalous indorser. Usually, an irregular or
accordance with the following rules: anomalous indorser is an accommodation
indorser. He is not necessarily so where he
Page 13 of 41
participates in the consideration for theLAW
instrument
Liability of collecting/issuing bank.
The warranty "that the instrument is genuine and

Sec. 65. Warranty where negotiation by it all respects what it purports to be" covens all
delivery, and so forth. — Every person the defects in the instrument affecting the validity
negotiating an instrument by delivery or by a thereof, including a forged indorsement. Thus, the
qualified indorsement warrants — last indorser will be liable for the amount indicated
in the negotiable instrument even if a previous
(a) That the instrument is genuine and in all
indorsement was forged. It has been held in a line
respects what it purports to be;
of cases that "a collecting bank which indorses a
(b) That he has a good title to it;
check bearing a forged indorsement and presents
(c) That all prior parties had capacity to
it to the drawee bank guarantees all prior
contract;
indorsements, including the forged indorsement
(d) That he has no knowledge of any fact
itself, and ultimately should be held liable
which would impair the validity of the
therefor."
instrument or render it valueless.
But when the negotiation is by delivery only, the

warranty extends in favor of no holder other than Sec. 66. Liability of general indorser. — Every
the immediate transferee. indorser who indorses without qualification,
warrants to all subsequent holders in due course
The provisions of subdivision (c) of this section do
—
not apply to persons negotiating public or
corporation securities, other than bills and notes. (a) The matters and things mentioned in
subdivisions (a), (b) and (c) of the next
preceding section; and
Every indorser makes certain warranties or
(b) That the instrument is at the time of his
guarantees about the instrument the is
indorsement, valid and subsisting.
negotiating. (Sec. 65, 66.) This warranty liability is
unconditional, i.e., it is not conditioned upon And, in addition, he engages that on due
proper presentment and dishonor of the presentment, it shall be accepted or paid, or both,
Instrument and the giving of notice of the as the case may be, according to its tenor, and
dishonor. that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will
(1) Negotiation "by delivery" tinder Section 65
pay the amount thereof to the holder, or to any
means that indorsement is not necessary because
subsequent indorser who may be compelled to
the instrument is payable to bearer.
pay it.
The words "by delivery," therefore, refer to a
holder who negotiates the instrument in the same
condition in which he received it, making no Although Section 66 states that the warranties of
indorsement at all. So a blank indorser of an unqualified indorsers run "to all subsequent
instrument does not negotiate it "by delivery" holders in due course," it should not be construed
within this section as his liability would be literally in the sense that holders not in due
governed by Section 66. course cannot enforce the warranties.
(2) A qualified indorsement is made by adding to The warranties of Section 65 run to any person to
the indorser's signature the words "without whom the instrument has been negotiated and
recourse" or any words of similar import. there is no reason why the same result should not
Page 14 of 41
be obtained under Section 66. To hold otherwise,LAW QUALIFIED
the transferee of a qualified indorser would have INDORSER GENERAL INDORSER
greater rights than the transferee of a general (Sec. 65) (Sec. 66)
indorser. That he has no That the instrument is
knowledge of any fact at the time of his
The unqualified indorser, in addition to his which would impair the indorsement, valid and
warranties, engages to pay the instrument if it is validity of the subsisting
dishonored. In order to enforce his liability in this instrument or render it
respect, the following conditions must be valueless.
complied with:
But when the he engages that on due
(1) Due presentment for payment or acceptance, negotiation is by presentment, it shall be
as the case may be, must be made; and delivery only, the accepted or paid, or
warranty extends in both, as the case may
(2) If the instrument is dishonored (by non-
favor of no holder other be, according to its
presentment or non-acceptance), the necessary than the immediate tenor, and that if it be
proceedings on dishonor be duly taken. (Sec. 66, transferee. dishonored, and the
par. 2.) necessary proceedings
on dishonor be duly
These conditions, unless waived, must be met in
taken, he will pay the
order that a secondary party may be held liable
amount thereof to the
on his promissory liability as distinguished from holder, or to any
his warranty liability. The liability of the unqualified subsequent indorser
indorser is similar to that of the drawer, (see Sec. who may be compelled
61.) An indorsement is presumed unqualified. To to pay it.
be qualified, it must contain specific words
qualifying liability.
Sec. 67. Liability of indorser where paper

negotiable by delivery. — Where a person
General indorser and irregular indorser
places his indorsement on an instrument
distinguished.
negotiable by delivery, he incurs all the liabilities
The following are the differences: of an indorser.
(1) A general indorser makes either a blank or Sec. 68. Order in which indorsers are liable. —
special indorsement, while an irregular indorser As respects one another, indorsers are liable
always makes a blank indorsement; prima facie in the order in which they indorse; but
evidence is admissible to show that as between or
(2) A general indorser indorses the instrument among themselves, they have agreed otherwise.
after its delivery to the payee, while an irregular Joint payees or joint indorsees who indorse are
indorser indorses before its delivery to die payee; deemed to indorse jointly and severally.
and
(3) A general indorser is liable only to parties

subsequent to him, while an irregular indorser is Order of liability among indorsers.
liable to the payee and subsequent parties unless
(1) Among themselves. — This section
he signs for the accommodation of the payee in
governs the liability of indorsers only as
which case he is liable only to all parties
among themselves. It establishes a
subsequent to the payee.
disputable presumption that every
indorser is liable to all indorsers
subsequent to him. This prima facie order
Page 15 of 41
of liability may be rebutted because it mayLAWprincipal and the fact that he is acting only as
be shown by parol evidence either written agent.
or oral, hat "as between or among
themselves they have agreed otherwise."
Thus, an irregular indorser (Sec. 64.) will Liability of an agent or broker.
not be liable to the accommodated party
although from the order in which he (1) Personal liability. — This section refers to
indorsed; the latter appears subsequent to instruments which are payable to bearer and
the former. are, therefore, negotiable by delivery.
(2) To the holder. — The holder of an (a) The agent or broker who negotiates by
instrument which has been dishonored is mere delivery incurs the liabilities
not bound by the above section. As to him, prescribed in Section 65.
indorsers are liable in any order and none (b) If he negotiates the instrument by
of them can interpose as a defense against qualified indorsement, his warranties
him an agreement among themselves that are also those stated in Section 65 and
they are not liable in the order of their if by general indorsement, those stated
indorsements. The rule must be qualified in Section 66.
in the case of a qualified indorser and an
indorser of a bearer instrument, title to (2) Exemption from liability. — To escape
which the immediate holder took by personal liability, he must disclose his principal
delivery alone. and the fact that he is acting only as agent.
(Sec. 20.)
Parol evidence is not admissible to relieve a

Liability of joint payees or joint indorsees broker or other agent whose indorsement
who indorse. brings him within Section 69.
(1) Solidary liability. — Under Section 68,
"joint payees or joint indorsees who indorse
are deemed to indorse jointly and severally." BAR QUESTIONS ALERT!!!
Their liability, therefore, is solidary so that none Q: X, Y and Z signed a promissory note in
of them can escape liability just because favor of A stating: “We promise to pay A on
proper notice of dishonor (Sec. 89.) was not December 31, 2001 the sum of P5,000.
given to the other. “When the note fell due, A sued X and Y who
Parol evidence is inadmissible that they signed put up the defense that A should have
as guarantors only. But the one who pays may impleaded Z. Is the defense valid? Why?
demand reimbursement from the others. (2001 BAR)
(2) Joint liability. — Under Section 184, a note

made payable to the order of the maker is not A: The defense is not valid. The liability of X, Y
complete until indorsed by him. and Z under the promissory note is joint. Such
being the case, Z is not an indispensable party.
The fact that A did not implead Z will not
Sec. 69. Liability of an agent or broker. — prevent A from collecting the proportionate
Where a broker or other agent negotiates an share of X and Y in the payment of the loan.
instrument without indorsement, he incurs all
the liabilities prescribed by section sixty-five of
this Act, unless he discloses the name of his
Page 16 of 41
Q: A check for P50,000 was drawn againstLAWBank. YAMAHA Bank stamped a guaranty
drawee bank and made payable to XYZ on the check reading: “All prior
Marketing or order. The check was endorsements and/or lack of endorsement
deposited with payee’s account at ABC guaranteed.” Upon presentment of the
Bank which then sent the check for clearing check, LYRIC Bank funds the check. Days
to drawee bank. Drawee bank refused to later, Marlon goes to LYRIC Bank to collect
honor the check on ground that the serial his money market placement and discovers
number thereof had been altered. XYZ the foregoing transactions.
Marketing sued drawee bank. In instant suit,
Marlon thereupon sues LYRIC Bank which in
drawee bank contended that XYZ Marketing
turn files a third-party complaint against
as payee could not sue the drawee bank as
YAMAHA Bank. Discuss the respective
there was no privity between them. Drawee
rights and liabilities of the two banks. (2010
theorized that there was no basis to make it
BAR)
liable for the check. (1999 BAR)
A: Since the money market placement of
a. Is this contention correct?
Marlon is in the nature of a loan to Lyric Bank,
b. Is it proper for the drawee bank to and since he did not authorize the release of
dishonor the check for the reason that it had the money market placement to Ingrid, the
been altered? obligation of Lyric Bank to him has not been
paid. Lyric Bank still has the obligation to pay
A:
him. Since Yamaha Bank indorsed the check
a. YES. As a general rule, the drawee is not bearing the forged endorsement of Marlon and
liable under the check because there is no guaranteed all endorsements, including the
privity of contract between XYZ Marketing, as forged endorsement, when it presented the
payee, and ABC Bank as the drawee bank. check to Lyric Bank, it should be held liable to
However, if the action taken by the bank is an it. However, since the issuance of the check
abuse of right which caused damage not only was attended with the negligence of Lyric
to the issuer of the check but also to the Bank, it should share the loss with Yamaha
payee, the payee has a cause of action under Bank on a 50% basis.
quasi-delict.
b. The serial number is not a material particular

Q: Distinguish an irregular indorser from a
of the check. Its alteration does not constitute
general indorser. (2005 BAR)
material alteration of the instrument. The serial
number is not material to the negotiability of A: An irregular indorser, not otherwise a party
the instrument. to the instrument, places his signature thereon
in blank before delivery to add credit thereto. A
general indorser is a regular party to the
Q: Marlon deposited with LYRIC bank a instrument like a maker, drawer or acceptor
money market placement of P1M for a term and he signs upon delivery of the instrument
of 31 days. On maturity date, one claiming while an irregular indorser signs for valuable
to be Marlon called up the LYRIC Bank consideration.
account officer and instructed him to give
the manager’s check representing the
proceeds of the money market placement to Q: Pancho drew a check to Bong and Gerard
Marlon’s girlfriend, Ingrid. The check, which jointly. Bong indorsed the check and also
bore the forged signature of Marlon, was forged Gerard’s indorsement. The payor
deposited in Ingrid’s account with YAMAHA bank paid the check and charged Pancho’s
Page 17 of 41
account for the amount of the check. GerardLAWPresentment for payment to person
received nothing from the payment. Pancho primarily liable not necessary.
asked the payor bank to recredit his
It has been held that the rule that presentment
account. Should the bank comply? Explain
for payment is not necessary to charge the
fully. (2008 BAR)
person primarily liable is applicable to notes
A: YES, the bank should recredit the full payable on demand and suit thereon may be
amount of the check to the account of Pancho, maintained though no demand has been made.
considering that the check was payable to the
account of Pancho.
Practically, the only risk assumed by the holder
Considering that the check was payable to
of a check in case presentment was not made
Bong and Gerard jointly, the indorsement of
within a reasonable time, so far as the rights
Gerard was necessary to negotiate the check
against the drawer are concerned, is the
pursuant to Sec. 41 of the NIL, to wit: Where
insolvency of the drawee.
an instrument is payable to the order of 2 or
more payees or indorsees who are not
partners, all must indorse unless the one
indorsing has authority to indorse for the If the instrument is not presented to the person
others. Since Bong forged the signature of primarily liable, the drawer and the indorsers
Gerard without authority, the indorsement was are discharged from their secondary liability
wholly inoperative. unless such presentment is excused (Sees. 79,
80.) or dispensed with. (Sees. 82,151.) In the
event of non-acceptance or non-payment,
notice of dishonor must be given to the drawer
PRESENTMENT FOR PAYMENT
and each indorser, otherwise the party to
whom notice is not given will be released from
liability. (Sec. 89.)
Sec. 70. Effect of want of demand on the
principal debtor. — Presentment for payment
is not necessary in order to charge the person
Sec. 71. Presentment where instruments is
primarily liable on the instrument; but if the
not payable on demand and where payable
instrument is, by its terms, payable at a special
on demand. — Where the instrument is not
place, and he is able and willing to pay it there
payable on demand, presentment must be
at maturity, such ability and willingness are
made on the day it falls due. Where it is
equivalent to a tender of payment upon his
payable on demand, presentment must be
part. But, except as herein otherwise provided,
made within a reasonable time after its issue,
presentment for payment is necessary in order
except that in the case of a bill of exchange,
to charge the drawer and indorsers.
presentment for payment will be sufficient if
made within a reasonable time after the last
negotiation thereof.
Meaning of presentment for payment.
By presentment for payment is meant the

presentment of an instrument (i.e., promissory Date of presentment of instrument.
note or accepted bill) to the person primarily
The date of presentment depends on whether
liable for the purpose of demanding and
the instrument is payable at a fixed or
receiving payment.
determinable future time or on demand.
Page 18 of 41
If the instrument is payable at a fixed orLAWpresentment is made and consequently, the
determinable future time, presentment must be persons secondarily liable are discharged.
made on the date it falls due without period of
grace (Sec. 85.), otherwise, the drawer and
indorsers will be discharged from liability. (Sec. If the person primarily liable is absent or
70.) Presentment made before maturity is not inaccessible, then presentment must be made
effective and a notice to the makers before to any person of sufficient discretion at the
maturity reminding them of the date when the proper place of presentment. Thus, where a
note would fall due is not a proper note is payable at a certain store, presentment
presentment. for payment at such store to a person
connected therewith is sufficient and no
personal demand on the maker is necessary. If
If the instrument is payable on demand, the law the holder after the exercise of reasonable
makes a distinction as to presentment for diligence cannot find the person to make
payment between promissory notes and payment on the day and at the place of
ordinary bills of exchange, (see Sec. 186.) payment, he has done all that is required of
him.
The burden is on the holder of a note, when

seeking to hold an indorser, to prove due and
Sec. 73. Place of presentment —
timely presentment.
Presentment for payment is made at the
proper place:
Sec. 72. What constitutes a sufficient (a) Where a place for payment is specified in
presentment — Presentment for payment, to the instrument and it is there presented;
be sufficient, must be made —
(b) Where no place of payment is specified, but
(a) By the holder, or by some person the address of the person to make the
authorized to receive payment on payment is given in the instrument and it is
his behalf; there presented;
(b) At a reasonable hour on a business (c) Where no place of payment is specified and
day; no address Is given and the instrument is
presented at the usual place of business or
(c) At a proper place as herein defined;
residence of the person to make payment;
(d) To the person primarily liable on the
(d) In any other case if presented to the person
instrument, or if he is absent or
to make payment wherever he can be found,
inaccessible, to any person found at
or if presented at his last known place of
the place where the presentment is
business or residence.
made.
The proper, place of presentment is the place

Requisites for a sufficient presentment for
specified in the order of enumeration from
payment.
subsection
If the presentment for payment does not
(a) to subsection (d). This means that if
comply with any of the requisites provided in
subsection (a) can be applied, presentment
this section, the effect is the same as if no
made in any other place under subsections (b)
to (d) will be improper and, therefore, will not
Page 19 of 41
come under Section 72(c). Likewise,LAWSec. 76. Presentment where principal
subsection (c) should be made applicable only debtor is dead. — Where the person primarily
if subsections (a) and (b) cannot be applied. liable on the instrument is dead, and no place
Subsection (d) is applicable only if of payment is specified, presentment for
presentment cannot be made at any other payment must be made to his personal
place. representative, if such there be, and if, with the
exercise of reasonable diligence, he can be
found.
Sec. 74. Instrument must be exhibited. —
The instrument must be exhibited to the
person from whom payment is demanded, and Presentment where principal debtor is
when it is paid must be delivered up to the dead.
party paying it.
This section and Sections 77 and 78 are
applicable only if no place of payment is
specified. If there is a place specified in the
Presentment refers to the act of the holder of a
instrument, presentment should be made at
negotiable instrument of exhibiting a note to
such place.
the maker and demanding payment, or
showing a bill to the drawee and requesting its
acceptance or payment.
If the principal debtor is dead, presentment for
A valid presentment for payment consists of payment may be made to his executor or
something more than a mere demand. It administrator if there be one and can be found.
requires personal or face to face demand at But presentment may be dispensed with if with
the proper place, exhibiting the instrument to the exercise of reasonable diligence, no
the maker or acceptor from whom payment is personal representative can be found, (see
demanded. Sec. 82[a].) However, the holder is not excused
from giving notice of dishonor to the indorser,
if he wishes to hold the latter liable on the
Sec. 75. Presentment where instrument instrument.
payable at bank. — Where the instrument is
payable at a bank, presentment for payment
must be made during banking hours, unless Sec. 77. Presentment to persons liable as
the person to make payment has no funds partners. — Where the persons primarily
there to meet it at any time during the day, in liable on the instrument are liable as partners,
which case presentment at any hour before the and no place of payment is specified,
bank is closed on that day is sufficient. presentment for payment may be made to any
one of them, even though there has been a
dissolution of the firm.
Presentment where instrument payable at a
bank.
Presentment to persons liable as partners.
Where an instrument is payable at a bank, it is
equivalent to an order to the bank to make Each partner is an agent of the partnership or
payment, for the account of the principal his co-partners and is presumed to have
debtor. authority to act for the others. Hence,
presentment may be made to any one of them
Page 20 of 41
or to the agent of one of them. A dishonor byLAWfunds with the drawee unless arrangement has
one is a dishonor by all. been made for payment of the bill; or where
the drawer of a check has stopped payment
The same rule applies even though there has
thereof; or where the drawer of a check has
been a dissolution of the partnership. Thus, if a
withdrawn funds from the drawee-bank leaving
partner dies before the maturity of a
nothing with which to pay the check.
partnership note, a demand on the surviving
partner will be sufficient.
Neither is presentment required where the

drawer and the drawee is considered a maker
Sec. 78. Presentment to joint debtors. —
and under Section 70, he is liable without
Where there are several persons, not partners,
presentment.
primarily liable on the instrument, and no place
of payment is specified, presentment must be
made to them all.
Sec. 80. When presentment not required to
charge the indorser. — Presentment for
payment is not required in order to charge an
Presentment to joint debtors.
indorser where the instrument was made or
If the parties primarily liable are not partners, accepted for his accommodation and he has
their liability is only joint. In a joint obligation, no reason to expect that the instrument will be
there are as many debts as there are debtors, paid if presented.
each debt being considered distinct and
separate from each other. (Art. 1208, Gvil
Code.) Hence, presentment must be made to When presentment not required to charge
all of them to hold the drawer and indorsers on indorser.
their secondary liability.
This section refers only to an indorser for
whose accommodation an instrument is mode
or accepted. As far as all other parties
Sec. 79. When presentment not required to
secondarily liable are concerned, presentment
charge the drawer. — Presentment for
is still necessary to charge them.
payment is not required in order to charge the
drawer where he has no right to expect or
require that the drawee or acceptor will pay
The reason for the rule is that the
the instrument.
accommodated payee-indorser is the real
debtor and not the maker or acceptor. Hence,
he is not discharged even if no presentment for
When presentment not required to charge
payment is made to the maker or acceptor
drawer.
who, in substance, is a surety for the debt.
This section refers only to the drawer. All other
parties secondarily liable will be discharged
unless presentment for payment is made to
fasten their liability.
Sec. 81. When delay in making presentment
Section 79 is an instance where a party is excused. — Delay in making presentment
secondarily liable is not discharged in spite of for payment is excused when the delay is
lack of presentment. Thus, presentment is not caused by circumstances beyond the control
required to charge the drawer where he has no of the holder, and not imputable to his default,
Page 21 of 41
misconduct, or negligence. When the cause ofLAWWaiver of presentment of a note by the maker
delay ceases to operate, presentment must be does not operate as a waiver by the indorser.
made with reasonable diligence. (Horton v. Reid, 87 P. 2d 936.)
When delay in making presentment Summary of rules as to presentment for

excused. payment.
Is should be noted that under this section only (1) Presentment for payment is not necessary
the delay in making of presentment is excused to charge persons primarily liable but is
and not the making of the presentment itself. necessary to change persons secondarily
Under Sections 79 and 80, like in Section 82, liable. (Sec. 70.)
presentment for payment itself is excused.
(2) In the following cases, presentment for
payment is not necessary to charge persons
secondarily liable:
Sec. 82. When presentment may be
dispensed with. — Presentment for payment (a) as to drawer, under Section 79;
is dispensed with —
(b) as to indorser, under Section 80;
(a) Where after the exercise of reasonable
diligence, presentment, as required by this Act (c) when presentment is dispensed with under
cannot be made; Section 82; and
(b) Where drawee is a fictitious person; (d) when the bill has been dishonored by non-
(c) By waiver of presentment, express or
acceptance as provided in Section 151.
implied.
When presentment may be dispensed with. Sec. 83. When instrument dishonored by
non-payment — The instrument is dishonored
The facts excusing presentment or failure to
by non-payment when —
give notice of dishonor, or a waiver thereof
must be especially pleaded. Proof thereof is (a) It is duly presented for payment and
not otherwise admissible. payment is refused or cannot be obtained; or
(b) Presentment is excused and the instrument

is overdue and unpaid.
"Presentment waived" or "waiving demand and
protest," written before the signature of the
drawer or indorser, is an express waiver.
The provision makes it clear that although
Implied waiver of presentment may be presentment may be excused, the indorser is
manifested by an act or conduct of a party still entitled to notice of dishonor of the
calculated to lead the holder to believe that instrument by its being overdue and unpaid.
presentment is waived or to mislead or prevent But where there has been no presentment for
him from treating the instrument as he payment and presentment is not excused, the
otherwise would like, for instance, where the instrument is not dishonored although it is
drawer promised from time to time to pay a bill, already overdue and unpaid.
making no objection on the ground that the bill
had not been presented to the drawee.
Sec. 84. Liability of person secondarily
liable, when instrument dishonored. —
Page 22 of 41
Subject to the provisions of this Act, when theLAWSec. 87. Rule where instrument payable at
instrument is dishonored by nonpayment, an bank. — Where the instrument is made
immediate right of recourse to all parties payable at a bank it is equivalent to an order to
secondarily liable thereon accrues to the the bank to pay the same for the account of the
holder. principal debtor thereon.
Effect of dishonor by non-payment. Time of maturity of instrument.
As to the holder, after an instrument is As the law expressly says that the instrument is
dishonored by nonpayment, the persons payable at the time fixed therein without grace,
secondarily liable become the principal debtors it is not permitted to show a custom or usage
and he need not proceed against the person fixing a date, of maturity different from that
primarily liable before suing them. clearly indicated on the face of the instrument.
If grace is provided in the instrument, the
instrument is payable on the last date of grace.
The "right of recourse to all parties secondarily
liable" means the right of the holder to enforce
the liabilities of said parties as defined in An instrument made payable at a bank is
Sections 61, 65 and 66. This right is equivalent to an order to pay addressed to the
"immediate" because the holder may bank. The bank may charge the amount of the
immediately bring suit against the secondary instrument out of the deposit of the maker or
parties and the latter cannot interpose the drawer without the necessity of getting
defense that the suit should have been brought additional authority from the latter. The
first against the maker or acceptor. instrument itself is sufficient authority. But a bill
of itself does not operate as assignment of the
funds in the hands of the drawee-bank
Sec. 85. Time of maturity. — Every negotiable available for the payment thereof and the bank
instrument is payable at the time fixed therein is not liable unless and until it accepts the
without grace. When the day of maturity fells same.
upon Sunday, or a holiday, the instruments is
payable on the next succeeding business day.
Instruments falling due or becoming payable Sec. 88. What constitutes payment in due
on Saturday are to be presented for payment course. — Payment is made in due course
on the next succeeding business day, except when it is made at or after the maturity of the
that instruments payable on demand may, at instrument to the holder thereof in good faith
the option of the holder, be presented for and without notice that his title is defective.
payment before twelve o'clock noon on
Saturday when that entire day is not a holiday.
Requisites of payment in due course.
Payment in due course is payment in the usual

Sec. 86. Time; How computed. —Where the
course of business. To effect a discharge of an
instrument is payable at a fixed period after
instrument (Sec. 119[a].) payment should be in
date, after sight, or after the happening of a
money since in a negotiable instrument, the
specified event, the time of payment is
promise or order is to pay a sum certain in
determined by excluding the day from which
money. (Sec. l[b].) The party bound to make
time is to begin to run, and by including the
payment has no right to do so in any other
date of payment.
Page 23 of 41
medium (Art. 1249, Civil Code.) in the absenceLAWis necessary to exhibit the instrument, which
of agreement to that effect. EF cannot do because he is not in possession
thereof.
b. NO, because CD negotiated the instrument

To constitute payment in due course, the
by delivery.
following requirements must be present:
(1) Payment must be made at or after date

of maturity. Q: Gemma drew a check on September 13,
1990. The holder presented the check to the
(2) Payment must be made to the holder.
drawee bank only on March 5, 1994. The
(3) Payment must be made in good faith bank dishonored the check on the same
and without notice that the holder's title date. After dishonor by the drawee bank,
is defective the holder gave a formal notice of dishonor
to Gemma through a letter dated April 27,
1994.
BAR QUESTIONS ALERT!!! a. What is meant by “unreasonable time” as
Q: applied to presentment?
a. AB issued a promissory note for P1,000 b. Is Gemma liable to the holder? (1994
payable to CD or his order on September BAR)
15, 2002. CD indorsed the note in blank and A:
delivered the same to EF. GH stole the note
from EF and on September 14, 2002 a. As applied to presentment for payment,
presented it to AB for payment. When asked “reasonable time” is meant not more than 6
by AB, GH said CD gave him the note in months from the date of issue. Beyond said
payment for two cavans of rice. AB period, it is “unreasonable time” and the check
therefore paid GH P1,000 on the same date. becomes stale.
On September 15, 2002, EF discovered that
b. NO. Aside from the check being already
the note of AB was not in his possession and
stale, Gemma is also discharged from liability
he went to AB. It was then that EF found out
under the check, being a drawer and a person,
that AB had already made payment made
whose liability is secondary, this is due to the
payment on the note. Can EF still claim
giving of the notice of dishonor beyond the
payment from AB? Why?
period allowed by law. The giving of notice of
b. As a sequel to the same facts narrated dishonor on April 27, 1994 is more than 1
above, EF, out of pity for AB who had month from March 5, 1994 when the check
already paid P1,000to GH, decided to was dishonored. Since it is not shown that
forgive AB and instead go after CD who Gemma and the holder resided in the same
indorsed the note in blank to him. Is CD still place, the period within which to give notice of
liable to EF by virtue of the indorsement in dishonor must be the same time that the notice
blank? Why? (2002 BAR) would reach Gemma if sent by mail.
A:
a. Since the instrument became a bearer

instrument, EF could no longer claim payment
from AB. EF is not a holder of the promissory
note. To make the presentment for payment, it
Page 24 of 41
NOTICE OF DISHONOR LAWprimarily liable and, therefore, is not entitled to
notice of dishonor. Even an accommodation
maker is not entitled to notice.
Sec. 89. To whom notice of dishonor must
An assignor of a check under Article 1628 of
be given. — Except as herein otherwise
the Civil Code is liable to the assignee in case
provided, when a negotiable instrument has
of dishonor of the check notwithstanding the
been dishonored by non-acceptance or non-
absence of notice of dishonor to the assignor.
payment, notice of dishonor must be given to
the drawer and each indorser, and any drawer
or indorser to whom such notice is not given is
discharged.
Sec. 90. By whom given.—The notice may be
given by or on behalf of the holder, or by or on
When instrument considered to be behalf of any party to the instrument who might
dishonored. be compelled to pay it to the holder, and who,
upon taking it up, would have a right to
A negotiable instrument is considered to be
reimbursement from the party to whom the
dishonored:
notice is given.
(1) If it is not accepted when presented for
acceptance; or
(2) If it is not paid when presented for payment By whom notice of dishonor given.
at maturity; or
(3) If presentment is excused or waived and Under this section, the notice may be given: (1)
the instrument is past due and unpaid, (see by the holder; or (2) another in behalf of the
Sees. 83,149.) holder; or (3) by a party to the instrument who
may be compelled to pay it to the holder and
who, upon taking it up, would have a right to
Meaning of notice of dishonor.
reimbursement from the party to whom the
Notice of dishonor is bringing, either verbally notice is given; or (4) another person in behalf
or in writing, to the knowledge of the drawer or of such party.
indorser of an instrument, the fact that a
So, notice by a mere stranger, (e.g., one who is
specified negotiable instrument, upon proper
no longer liable on, and has no interest in, the
proceedings taken, has not been accepted or
instrument) is ineffectual unless he is acting as
has not been paid and that the party notified is
agent of a party who is entitled to give notice of
expected to pay it.
dishonor. (Sec. 91.) It has been held that the
If such notice is given by a notary public, it is drawee who refuses to accept is not a party or
called a protest. chargeable on the bill, and notice from him of
non-acceptance is no degree better than from
Notice is essential; mere knowledge by the
any other stranger. One wrongfully in
indorser of non- payment is not sufficient.
possession of the instrument cannot give
notice without authority from the holder.
Only the drawer and indorsers or their agents The object of requiring the notice to come from
are entitled to notice of dishonor. The maker the holder is to enable him as the person
and acceptor do not have to be notified chiefly interested, to fix or waive the liabilities
because they are the very ones who of the persons secondarily liable.
dishonored the instrument. Thus, a joint maker,
though a surety, is not an indorser and is
Page 25 of 41
Sec. 91. Notice given by agent. — Notice ofLAWNotice of dishonor given by or on behalf of the
dishonor may be given by an agent either in party entitled to give notice (Sec. 90.) inures to
his own name or in the name of any party the benefit of: (1) the holder, and (2) all parties
entitled to give notice, whether that party be subsequent to the party to whom notice is
his principal or not. given including parties subsequent to the
holder who gave notice.
Authority to give notice not necessary.

Sec. 94. When agent may give notice. —
The agent need not be authorized by the
Where the instrument has been dishonored in
principal to give the notice. Under this section,
the hands of an agent, he may either himself
any person can be an agent of any party
give notice to the parties liable thereon, or he
entitled to give notice. The notice may be given
may give notice to the principal. If he gives
in the name of the agent or the party entitled to
notice to his principal, he must do so within the
give notice, (see Sec. 97.)
same time as if he were the holder, and the
principal upon the receipt of such notice has
himself the same time for giving notice as if the
agent had been an independent holder.
Sec. 92. Effect of notice on behalf of holder.
— Where notice is given by or on behalf of the
holder, it inures to the benefit of all subsequent When and to whom agent may give notice.
holders and all prior parties who have a right of
Under this section, the agent, in case the
recourse against the party to whom it is given.
instrument is dishonored in his hands, may
give notice either to his principal or directly to
the parties secondarily liable thereon without
Effect of notice given by holder. notifying his principal.
Notice of dishonor given by or on behalf of the
holder inures to the benefit of: (1) all holders
subsequent to the holder who has given notice;
and (2) all parties prior to the holder but
Sec. 95. When notice sufficient. — A written
subsequent to the party to whom notice has
notice need not be signed, and an insufficient
been given and against whom they have a right
written notice may be supplemented and
of recourse.
validated by verbal communication. A
misdescription of the instrument does not
vitiate the notice unless the party to whom the
Sec. 93. Effect where notice Is given by notice is given is in fact misled thereby.
party entitled thereto. — Where notice is
given by or on behalf of a party entitled to give Sec. 96. Form of notice. — The notice may be
notice, it Inures to the benefit of the holder and in writing or merely oral and may be given in
all parties subsequent to the party to whom any terms which sufficiently identify the
notice is given. instrument and indicate that it has been
dishonored by nonacceptance or nonpayment.
It may in all cases be given by delivering it
Effect of notice given by party entitled personally or through the mails.
thereto.
Form of notice.
Page 26 of 41
(1) Notice of dishonor may be in writing orLAWresidence or last place of business of the
merely oral. Notice may thus be given by deceased.
telephone, provided it be clearly shown that
the party notified was really communicated
with, that is fully identified as the party at the Notice where party is dead.
receiving end of the line. Notice may also be
sent by telegraph. When the party sought to be charged is dead,
the notice must be given to his personal
(2) A notice which contains a copy of the representative provided that:
instrument and declares that payment has
been demanded and refused, is sufficient. But (1) His death is known to the party, giving
notice;
a mere statement that the instrument is due
(2) There is a personal representative; and
and payable is insufficient notice.
(3) If with reasonable diligence the said
personal representative could be found.
Contents of notice. Accordingly, where the holder knows that the

party concerned is dead, he must use
Whether written or oral, the notice must set
reasonable diligence to find out whether there
forth:
is a personal representative of such decedent
(1) the identity of the instrument; or not.
(2) the fact that it has been dishonored by non-

acceptance or non-payment; and
Sec. 99. Notice to partners. — Where the
(3) a statement that the party giving notice parties to be notified are partners, notice to
intends to look to the party addressed for any one partner is notice to the firm even
payment. though there has been a dissolution.
How notice given. Notice to partners.
Notice of dishonor may be given: (1) by Each partner is an agent of the partnership.
personal delivery; or (2) by mail. The word Hence, notice to the partners is notice to the
"may" in the last sentence of Section 96 has partnership. This could still be true although
been construed to mean "must." the notice was fraudulently suppressed by the
partners receiving it. But the fraudulent partner
is liable to his co-partners, (see Sec. 77; Arts.
Sec. 97. To whom notice may be given. — 1794 and 1818, Civil Code.)
Notice of dishonor may be given either to the
Section 99 has no application to the individual
party himself or to his agent in that behalf.
undertakings of a partner.
Sec. 98. Notice where party is dead. —

Sec. 100. Notice to persons jointly liable. —
When any party is dead, and his death is
Notice to joint parties who are not partners
known to the party giving notice, the notice
must be given to each of them unless one of
must be given to a personal representative, if
them has authority to receive such notice for
there be one, and if with reasonable diligence
the others.
he can be found. If there be no personal
representative, notice may be sent to the last
Page 27 of 41
Notice to joint parties. LAWTime within which notice must be given.
Where persons not partners indorse, each is The times fixed for giving notice are provided
entitled to notice and upon failure to give such for in Sections 103,104, and 107. The times for
notice, neither could be charged, because as giving notice are those specified in Section 103
to them, each must have separate notice. if the party giving notice and the party to be
notified reside in the same place, that is, they
Under Section 68, joint payees or joint
reside within the corporate limits of the same
indorsees who indorse an instrument are
town or city, and those in Section 104, if they
deemed to indorse jointly and severally. Their
reside in different places. Delay in giving notice
liability is solidary, not joint; so that if one of
of dishonor within the period specified will
them is notified, that one is not discharged by
discharge the persons secondarily liable unless
reason of failure to give notice to the other joint
such delay is excused in accordance with
indorsees.
Section 119.
Sec. 101. Notice to bankrupt. — Where a

Sec. 103. Where parties reside in same
party has been adjudged a bankrupt or an
place. — Where the person giving and the
insolvent, or has made an assignment for the
person to receive notice reside in the same
benefit of creditors, notice may be given either
place, notice must be given within the following
to the party himself or to his trustee or
times:
assignee.
(a) If given at the place of business of the
person to receive notice, it must be given
Notice to bankrupt. before the close of business hours on the day
following.
This section contemplates two situations: (1)
the party secondarily liable has been declared (b) If given at his residence, it must be given
a bankrupt or an insolvent; and (2) the party before the usual hours of rest on the day
secondarily liable has made an assignment of following.
his properties for the benefit of creditors.
(c) If sent by mail, it must be deposited in the
post office in time to reach him in usual course
on the day following.
In either case, notice may be given to the party
himself or to his trustee or assignee. From the
moment that notice of dishonor is duly served,
Notice where parties reside in same place.
the liability of the secondary party is fixed.
However, it is necessary for the holder to file Section 103 provides for two means of giving
his claims in the insolvency proceedings and to notice of dishonor: personally, and by mail. The
prove the giving of due notice of dishonor place where the notice may be given is either
before he can enforce his rights against said the place of business or the residence of the
party, (see Act No. 1956, The Insolvency Law.) party to receive the notice, at the option of the
party giving the notice.
The specific words of Section 103 cannot be

Sec. 102. Time within which notice must be
modified by the definition of a reasonable time
given. — Notice may be given as soon as the
in Section 193 which has no application to this
instrument is dishonored and unless delay is
section but applies to cases like that described
excused as hereinafter provided, must be
in Section 144 and perhaps, others.
given within the times fixed by this Act.
Page 28 of 41
Sec. 104. Where parties reside in differentLAWWhen sender deemed to have given due
places. — Where the person giving and the notice.
person to receive notice reside in different
Notice by mail is deemed to have been
places, the notice must be given within the
properly made where: (1) the notice of
following times:
dishonor is duly addressed; and (2) deposited
(a) If sent by mail, it must be deposited in the in the post office.
post office in time to go by mail the day
As long as the sender has done everything
following the day of dishonor, or if there be no
which the law requires him to do, the notice
mail at a convenient hour on that day, by the
would still be considered on time although it
next mail thereafter.
does not reach the addressee due to
(b) If given otherwise than through the post miscarriage in the mails.
office, then within the time that notice would
The burden of proof rests upon the plaintiff to
have been received in due course of mail, if it
show a compliance with the statutory
has been deposited in the post office within the
provisions in order to hold the indorser (or
time specified in the last subdivision.
drawer) as the liability of the indorser depends
entirely upon compliance as to notice.
Notice where parties reside in different

places.
Sec. 106. Deposit in post office; what
Under the foregoing section, the notice may be constitutes. — Notice is deemed to have been
given by mail or otherwise than by mail. deposited in the post office when deposited in
any branch post office or in any letter box
The words "go by mail" means an actual
under the control of the post office department.
departure in the course of mail from the post
office in which the notice was deposited, in
case there is a mail from that post office to the
When notice deemed to have been
destination of the notice at a convenient hour
deposited.
on the required day.
Section 106 defines the act of depositing in the
The burden is upon the holder to prove that
post office.
the notice was mailed within the time
prescribed; it is not enough merely to show The notice may be deposited in: (1) the post
that the notice was deposited in the post office office, (2) any branch post office, or (3) any
on the day following the dishonor. It is also letter box under the control of the post office.
necessary to show that the notice was
deposited in time to go by mail the day So, deposit in a mail box is equivalent to
following the day of dishonor. deposit in the post office. But a notice properly
addressed and left in a place in the notary's
office where mail was usually collected by the
postman, was held not a mailing of the notice
Sec. 105. When sender deemed to have
as required by the law. Neither is deposit of a
given due notice. — Where notice of dishonor
notice of dishonor of a negotiable paper in a
is duly addressed and deposited in the post
private letter box of a private office a deposit
office, the sender is deemed to have given due
as required by Section 106. However, delivery
notice, notwithstanding any miscarriage in the
to a mail carrier while making his rounds has
mails.
been held a deposit within the meaning of this
section.
Page 29 of 41
Sec. 107. Notice to subsequent party; timeLAWWhat is important is that the party to be notified
of. — Where a party receives notice of actually receives the notice on time (Sees. 103
dishonor, he has, after the receipt of such and 104.) wherever the notice is given. (Sec.
notice, the same time for giving notice to 108, last par.) The law is not so much
antecedent parties that the holder has after the concerned with the address of the party to be
dishonor. misdirected, if it is in fact received, it is
sufficient compliance with die law.
The mere manner in which the notice is sent is

Time of notice to subsequent party.
wholly immaterial. But the burden of proof of
A party who receives notice of dishonor is actual receipt of the notice is on the party who
entitled to give notice of dishonor to prior gives the notice.
parties within the same period of time that the
holder has after the dishonor as if he were the
holder. Sec. 109. Waiver of notice. — Notice of
dishonor may be waived either before the time
In other words, under Section 107, the
of giving notice has arrived or after the
instrument is considered dishonored in the
omission to give due notice, and the waiver
hands of a party who receives a notice of
may be express or implied.
dishonor from the holder on the date he
receives such notice and not on the date the
instrument is dishonored in the hands of the
Waiver of notice of dishonor.
holder.
Waiver is the intentional abandonment of a
known right. With reference to notice of
Sec. 108. Where notice must be sent. — dishonor, waiver is the willingness on the part
Where a party has added an address to his of the drawer or the indorser concerned to be
signature, notice of dishonor must be sent to bound as such even without due notice of
that address; but if he has not given such dishonor. It may be made before die time of
address, then the notice must be sent as giving notice (see Sec. 110.) or after omission
follows: to give due notice.
(a) Either to the post office nearest to his place

of residence or to the post office where he is
The burden of proof is on the holder to show
accustomed to receive his letters; or
waiver of notice and, being in derogation of a
(b) If he lives in one place, and have his place statutory right, it must be proved by clear and
of business in another, notice may be sent to convincing evidence.
either place; or
Waiver is express when it is made orally or in
(c) If he is sojourning in another place, notice writing as when "notice of dishonor waived"
may be sent to the place where he is so appears above the signature of an indorser. It
sojourning. is implied where it is inferred from act or
language.
But where the notice is actually received by the
party within the time specified in this Act, it will Implied waiver usually takes place after there
be sufficient, though not sent in accordance has been omission to give notice.
with the requirements of this section.
Page 30 of 41
Sec. 110. Whom affected by waiver. —LAWcannot be given or does not reach the parties
Where the waiver is embodied in the sought to be charged.
instrument itself, it is binding upon all parties;
but where it is written above the signature of
an indorser, it binds him only. When notice dispensed with.
Reasonable diligence is a relative term. It

depends upon the circumstances of each case.
Persons affected by waiver.
It implies active search. Where the facts are
As to who are affected by an express waiver undisputed, it is a question of law whether
depends on where the waiver is written. sufficient diligence has been shown.
(1) If the waiver is embodied in the instrument

itself, that is, it appears in the body or on the
Sec. 113. Delay in giving notice of dishonor;
face of the instrument, it binds all parties.
how excused. — Delay in giving notice is
(2) If it is written above the signature of an excused when the delay is caused by
indorser, it binds him only. circumstances beyond the control of the
holder, and not imputable to his default,
misconduct or negligence. When the cause of
Sec. 111. Waiver of protest — A waiver of delay ceases to operate, notice must be given
protest, whether in the case of a foreign bill of with reasonable diligence.
exchange or other negotiable instrument, is
deemed to be a waiver not only of a formal
protest, but also of presentment and notice of When delay in giving notice excused.
dishonor.
The rule in this section is similar to that in
Section 81 excusing delay in making
presentment. Section 112 dispenses with the
Effect of waiver of protest.
duty to give notice but this section excuses
Protest is the formal instrument executed merely the delay in giving it.
usually by a notary public certifying that the
It has been held that delay in giving notice of
legal steps necessary to fix the liability of the
dishonor caused by the necessity of making
drawee and the indorsers have been taken,
inquiries as to the address of the party to be
(see Sec. 152.) Strictly speaking, the term
notified is excusable where the holder was
"protest" applies only to foreign bills (see Sec.
ignorant of the address. But the delay will not
152.) but the custom to treat inland bills and
be excused in the case where the holder's
notes in the same manner has become so
agent called at the defendant's place to give
nearly universal, in common usage, the term
him notice of dishonor, but he was absent from
means the taking of such steps as are required
the city, since notice by mail was practicable.
to charge the indorser. Where protest is
waived, the following are also deemed waived:
(a) presentment and (b) notice of dishonor.
Sec. 114. When notice need not be given to

Sec. 112. When notice Is dispensed with. — drawer. — Notice of dishonor is not required
Notice of dishonor is dispensed with when, to be given to the drawer in either of the
after the exercise of reasonable diligence, it following cases:
Page 31 of 41
(a) Where the drawer and drawee are theLAWmaturity and it is dishonored, he need not
same person. notify again the secondary parties.
(b) When the drawee is fictitious person or However, if the instrument is accepted after it
a person not having capacity to has been dishonored by non-acceptance, it is
contract. necessary for the holder to present the
instrument for payment upon maturity. In case
(c) When the drawer is the person to
of non-payment, the holder must give the
whom the instrument is presented for
corresponding notice of dishonor. Failure to do
payment.
so will discharge the secondary parties.
(d) Where the drawer has no right to
expect or require that the drawee or
acceptor will honor the instrument. Sec. 117. Effect of omission to give notice of
non- acceptance. — An omission to give
(e) Where the drawer has countermanded
notice of dishonor by non-acceptance does not
payment.
prejudice the rights of a holder in due course
subsequent to the omission.
Sec. 115. When notice need not be given to

indorser. — Notice of dishonor is not required
Effect of omission to give notice of non-
to be given to an indorser in either of the
acceptance.
following cases:
In case of dishonor by non-payment, no holder
(a) When the drawee is a fictitious person or a
subsequent thereto can be a holder in due
person not having capacity to contract, and the
course because the maturity of the instrument
indorser was aware of the fact at the time he
appears on the face thereof and, therefore, the
indorsed the instrument;
holder knows of such dishonor from the fact
(b) Where the indorser is the person to whom that the instrument is overdue, (see Sec.
the instrument is presented for payment; 52[b].) But any holder may present an
instrument for acceptance before maturity and
(c) Where the instrument was made or in order to dishonor it, all that the drawee has
accepted for his accommodation. to do is to refuse to accept it without having to
write anything on the instrument.
Sec. 116. Notice of non-payment where Under Section 117, the failure of the previous
accepted refused. — Where due notice of holder to give a notice of dishonor by non-
dishonor by non-acceptance has been given, acceptance cannot prejudice a holder, in due
notice of a subsequent dishonor by course who may still present the instrument to
nonpayment is not necessary, unless in the the drawee for acceptance and notify the
meantime the instrument has been accepted. drawer and indorsers if acceptance is refused.
When a bill is dishonored by non-acceptance, Sec. 118. When protest need not be made;
an immediate right of recourse against all when must be made. — Where any negotiable
secondary parties accrues to the holder and no instrument has been dishonored it may be
presentment for payment is necessary (see protested for non-acceptance or nonpayment,
Sec. 151.), since dishonor of the 'instrument by as the case may be; but protest is not required
non-payment is to be expected. If nevertheless except in the case of foreign bills of exchange.
the holder presents the bill for payment on
Page 32 of 41
Summary of rules as to notice of dishonor. LAW
5. Where the drawer has countermanded
payment
(1) Like presentment for payment, notice of
dishonor is not necessary to charge persons
primarily liable but is necessary to charge
DISCHARGE OF NEGOTIABLE INSTRUMENT
persons secondarily liable; and
(2) In the following cases, notice of dishonor is

not necessary to charge persons secondarily Sec. 119. Instrument; how discharged. — A
liable: negotiable instrument is discharged —
(a) when notice is waived under Section (a) By payment in due course by or on behalf of
109; the principal debtor;
(b) when protest is waived under Section (b) By payment in due course by the party
111; accommodated, where the instrument is made or
accepted for accommodation;
(c) when notice is dispensed with under
Section 112; (c) By the intentional cancellation thereof by the
holder;
(d) as to the drawer under Section 114;
(d) By any other act which will discharge simple
(e) as to an indorser under Section 115;
contract for the payment of money;
(f) where due notice of dishonor by non-
(e) When the principal debtor becomes the holder
acceptance has been given under
of the instrument at or after maturity in his own
Section 116; and
right.
(g) as to a holder in course, without notice
of dishonor by non-acceptance,
subsequent to the omission to give Meaning and effect of discharge of instrument.
notice under Section 117.
Discharge of an instrument means a release of all
parties, whether primary or secondary, from the
obligations arising thereunder. It renders the
BAR QUESTION ALERT!!!
instrument without force and effect and,
Q: When is notice of dishonor not required to consequently, it can no longer be negotiated.
be given to the drawer? (1996 BAR)
The Negotiable Instruments Law contains no
A: Notice of dishonor not required to be given to express provision for release of a party primarily
the drawer in any of the following cases: liable. The obvious reason is that none is
necessary. Such a party is absolutely bound to
1. Where the drawer and the drawee are the
pay in the first instance, and can be relieved only
same person;
by a discharge of the instrument itself.
2. When the drawee is a fictitious person or a
person not having capacity to contract;
In order that payment may produce the effect of
3. When the drawer is the person to whom the
discharging the instrument under subsection: (a),
instrument is presented for payment;
it must be made (a) by or on behalf of the
4. Where the drawer has no right to expect or principal debtor (b) at or after its maturity, (c) to
require that the drawee or acceptor will honor the the holder thereof, (d) in good faith and without
instrument; notice that the holder's title is defective. (Sec. 88.)
Page 33 of 41
Hence, payment by a stranger will not dischargeLAW
party secondarily liable thereon, it is not
the instrument unless the payment is for the discharged; but the party so paying it is remitted
debtor, (see Art. 1236, Civil Code.) to his former rights as regards all prior parties,
and he may strike out his own and all subsequent
indorsements, and again negotiate the instrument,
Sec. 120. When person secondarily liable on except —
the instrument are discharged. —A person
(a) Where it is payable to the order of a third
secondarily liable on the instrument is discharged:
person, and has been paid by the drawer; and
(a) By any act which discharges the instrument;
(b) Where it was made or accepted for
(b) By the intentional cancellation of his signature accommodation, and has been paid by the party
by the holder; accommodated.
(c) By the discharge of a prior party;
(d) By a valid tender of payment made by a prior Effect of reacquisition by prior party.
party;
Payment at or after maturity by a party
(e) By a release of the principal debtor, unless the secondarily liable does not discharge the
holder's right of recourse against the party instrument. It only cancels his own liability and
secondarily liable is expressly reserved; that of parties subsequent to him.
(f) By any agreement binding upon the holder to

extend the time of payment, or to postpone the
holder's right to enforce the instrument, unless
made with the assent of the party secondarily Sec. 122. Renunciation by holder— The holder
liable, or unless the right of recourse against such may expressly renounce his rights against any
party is expressly reserved. party to the instrument, before, at, or after its
maturity. An absolute and unconditional
renunciation of his rights against the principal
Methods of discharge of secondary parties. debtor made at or after the maturity of the
instrument discharges the instrument. But a
Section 120 applies only to parties secondarily renunciation does not affect the rights of a holder
liable on the instrument. A maker even though he in due course without notice. A renunciation must
be a surety for a co-maker, an accommodation be in writing, unless the instrument is delivered up
co-maker, and an accommodation acceptor are to the person primarily liable thereon.
not persons secondarily liable within this section.
(1) Any act which discharges instrument.

Meaning of renunciation.
(2) Intentional cancellation of signature.
The term renunciation describes the act of
(3) Discharge of prior party by act of holder. surrendering a right or claim with or without
(4) Valid tender of payment. recompense. While there are decisions to the
contrary, it has been held that Section 122, when
(5) Release of the principal debtor by act of read together with Sections 119 and 120, applies
holder. only to renunciation by a unilateral act of the
holder, i.e., a release without consideration.
Sec. 121. Right of party who discharges On the other hand, Section 119(e) would cover
instrument. — Where the instrument is paid by a the case of an oral renunciation supported by a
Page 34 of 41
consideration; so an oral release withoutLAW
Sec. 123. Cancellation; unintentional; burden
consideration is ineffective. of proof. — A cancellation made unintentionally,
or under a mistake or without the authority of the
holder, is inoperative; but where an instrument or
How renunciation by holder made. any signature thereon appears to have been
cancelled the burden of proof lies on the party
A renunciation of a debt evidenced by a who alleges that the cancellation was made
negotiable instrument must be made by a written unintentionally, or under a mistake or without
declaration to that effect. If oral, it should be authority.
accompanied by a surrender of the instrument to
the person primarily liable thereon. (Sec. 122.)
The mere expression of an intention or desire to Cancellation of an instrument is not limited to the
renounce is not enough. Thus, where the holder writing of the word "cancelled" or "paid" or the
of a demand note being in articulo mortis drawing of crisscross lines across the instrument.
instructed his nurse to write a memorandum to It includes tearing, erasure, obliteration, or
the effect that the note should be destroyed as burning. It may be made by any other means by
soon as it could be found, it was held that there which the intention to cancel the instrument may
was no renunciation under the law. be evidenced.
Section 122 deals with express renunciation and If the cancellation is made: (1) unintentionally, or
does not apply to or prevent a discharge by oral (2) by mistake or through fraud, or (3) without
novation under which the obligation of the other authority, it is inoperative. Cancellation, however,
persons is accepted in lieu of the maker of the is presumed to be intentional. Hence, the burden
instrument. is on the holder claiming its ineffectiveness to
overcome the presumption by contrary proof.
(A renunciation in favor of a secondary party may

be made by the holder before, at, or after maturity
of the instrument. The effect of the renunciation is
Sec. 124. Alteration of instrument; effect of. —
to discharge only such secondary party and all
Where a negotiable instrument is materially
parties subsequent to him but the instrument itself
altered without the assent of all parties liable
remains in force, (see Sec. 120[c].)
thereon, it is avoided, except as against a party
A renunciation in favor of the principal debtor may who has himself made, authorized, or assented to
be effected at or after maturity. The effect of the the alteration and subsequent indorsers.
renunciation is to discharge the instrument and all
parties thereto, provided the renunciation is made
absolutely and unconditionally. But when an instrument has been materially
altered and is in the hands of a holder in due
In either case, said renunciation does not affect
course, not a party to the alteration, he may
the rights of a holder in due course without notice.
enforce payment thereof according to its original
If the renunciation is made before maturity of the
tenor.
instrument, it runs the risk of being negotiated
later so as to gain new life in the hands of a holder
in due course since renunciation is only a
Meaning of material alteration.
personal defense.
Material alteration is defined to be any change in
the instrument which affects or changes the
liability of the parties in any way (as specified in
Page 35 of 41
Section 125 or changes the contract of the partiesLAW
Baby for P300,000. Again, the check was
in any respect. dishonored because of insufficient funds. Ben
sued Bong and Baby on the dishonored BPI
Any other alteration is immaterial and, therefore,
check. Bong interposed the defense that the
inoperative to affect the liability of any party to the
BPI check was discharged by novation when
instrument prior to the alteration. Thus, adding
Ben accepted the crossed DBP check as
words implied by law or making marginal figures
replacement for the BPI check. Bong cited
to make them correspond to the sum written in
Section 119 of the NIL which provides that a
words is not a material alteration.
negotiable instrument is discharged “by any
other act which will discharge a simple
contract for the payment of money.” Is Bong
Reason for rule in relation to material correct? (2014 BAR)
alteration.
A: NO. Bong is not correct. While Section 119 of
The law in relation to material alteration of the NIL in relation to Article 1231 of the Civil Code
instruments, rests upon public policy, in that, to provides that one of the modes of discharging a
maintain the integrity surrounding commercial negotiable instrument is by any other act which
relations, no party to be benefited should be will discharge a simple contract for the payment
permitted under any guise to alter the written of money, such as novation, the acceptance by
obligation of another without his authority or the holder of another check which replaced the
assent. To do otherwise would open the door to dishonored bank check did not result to novation.
the perpetration of all kinds of fraud to the
prejudice of the party or parties to be bound who There are only 2 ways which indicate the
have no control whatever over the possession of presence of novation and thereby produce the
such instruments which are passed from hand to effect of extinguishing an obligation by another
hand and, therefore, cannot prevent any person in which substitutes the same. First, novation must
possession thereof from making changes be explicitly stated and declared in unequivocal
therewith in disregard of honesty and good terms as novation is never presumed. Secondly,
conscience. the old and the new obligation must be
incompatible on every point. In the instant case,
The reason of the law imposing the discharge of there was no express agreement that the holder’s
the debt itself upon one who tampers with the acceptance of the replacement check will
instrument is upon the principle that "no man discharge the drawer and endorser from liability.
should be permitted to take the chance of gain by Neither is their incompatibility because both
the commission of a fraud, without running the checks were given precisely to terminate a single
risk of loss in case of detection." obligation arising from the same transaction.
BAR QUESTIONS ALERT!!! Q: PN is the holder of a negotiable promissory

note within the meaning of the NIL. The note
was originally issued by RP to XL as payee. XL
Q: Bong bought 300 bags of rice from Ben for indorsed the note to PN for goods bought by
P300,000. As payment, Bong indorsed to Ben a XL. The note mentions the place of payment on
BPI check issued by Baby in the amount of the specified maturity date as the office of the
P300,000. Upon presentment for payment, the corporate secretary of PX bank during banking
BPI check was dishonored because Baby’s hours. On maturity date, RP was at the
account from which it was drawn has been aforesaid office ready to pay the note but PN
closed. To replace the dishonored check, Bong did not show up. What PN later did was to sue
indorsed a crossed DBP check issued also by XL for the face value of the note, plus interest
Page 36 of 41
and costs. Will the suit prosper? Explain. (2000LAW
referral to the serial number being redundant and
BAR) inconsequential.
A: YES. The suit will prosper as far as the face

value of the note is concerned, but not with
(1) Date. —A change in the date of the
respect to the interest due subsequent to the
instrument whether it hastens or
maturity of the note and the costs of collection.
postpones the time of payment is material;
RP was ready and willing to pay the note at the
so also, a change in the date from which
specified place of payment on the specified
interest is to run.
maturity date, but PN did not show up. PN lost his
right to recover the interest due subsequent to (2) Sum payable. —- Any change in the
the maturity of the note and the cost of collection. amount of the principal or interest whether
increasing or reducing it is always a
material alteration. The addition of the
words "with interest" with or without a
fixed rate, is also material.
Sec. 125. What constitutes a material
alteration. — Any alteration which changes — (3) Time of payment. — A change in the
maturity of die instrument whether the
(a) The date;
time of payment is thereby curtailed or
(b) The sum payable, either for principal extended is material.
or interest;
(4) Place of payment.—Any alteration which
(c) The time or place of payment; changes the place of payment or inserts a
place of payment where none is specified
(d) The number or the relations of the is material. Thus, the change of the place
parties; of payment from a town to a particular
(e) The medium or currency in which bank is material since the maker is
payment is to be made; deprived of the advantages under Section
70 of an instrument payable at a special
(f) Or which adds a place of payment place and possibly subject him to the
where no place of payment is disadvantages of an instrument payable at
specified, or any other change or a bank.
addition which alters the effect of the
instrument in any respect, is a (5) Number or relations of the parties. —
material alteration. The addition of a comaker; the addition of
the word "surety" after the name of a co-
maker; or the word "trustee" after the
When alteration is material. name of the payee; the erasure of the
payee's name, and the insertion of the
Under Section 125, a change in any of the name of another person or just leaving a
matters mentioned or any other change which space blank; the erasure of words "agent
alters the effect of the instrument in any respect for P" in a check payable to "X, agent P",
constitutes a material alteration. Any other leaving X's name; the erasure of the word
alteration is immaterial and will not discharge the "or"; and the insertion of the words "Agent,
instrument. Thus, the alteration on the serial Phil. National Bank" after the check was
number of a check is not a material alteration, an transferred by the payee, which converts
item which is not an essential requisite for the Bank from a mere drawee to a drawer,
negotiability and, therefore, the drawee-bank is and therefore, changes its liability are
not justified to refuse the check in question, the
Page 37 of 41
examples of the alterations which changeLAW
A: ND Bank should bear the loss if XM Bank
the number or relations of the parties. returned the altered check to ND Bank within 24
hours after its discovery of the alteration. Under
(6) Medium or currency of payment — Any
the given facts, William discovered the alteration
change in the medium or currency in
when the altered check was returned to him after
which payment is to be made is a material
a month. It may safely be assumed that William
alteration like the insertion of die words "in
immediately advised XM Bank of such fact and
current funds", or the words "in gold
that William immediately advised XM Bank of such
coins" or when a note payable in pesos,
fact and that the latter promptly notified ND Bank
Philippine currency, is changed by making
thereafter. CB Circular No. 9, as amended, on
it appear as payable in American dollars.
which the decisions of the Supreme Court, in the
(7) Other alterations. — Under the last Hongkong & Shanghai Banking Corporation v.
paragraph, the substitution of the words People’s Bank & Trust Co. and Republic Bank v.
"or bearer" for "or order"; writing the CA, et al. were based was expressly cancelled
words "protest waived" above a blank and superseded by the CB Circular No. 317,
indorsement and the erasure of the words dated December 23, 1970. The latter was in turn
"without recourse" above the signature of amended by CB Circular No. 580, dated
an indorser likewise constitute material September 19, 1977. As to the altered checks,
alterations as they alter the effect of the the new rules provide that the drawee bank can
instrument. still return them even after 4:00pm of the next day
provided it does so within 24 hours from
A change in the pronoun "I" to "We" in a discovery of the alteration but in no event beyond
promissory note is a material alteration the period fixed or provided by law for filing of a
since it changes the obligation from legal action by the returning bank against the
solidary to a joint one. bank sending the same. Assuming that the
relationship between the drawee bank and the
collecting bank is evidenced by some written
BAR QUESTION ALERT!!! document, the prescriptive period would be 10
years.
Q: William issued to Albert a check for

P100,000 drawn on XM Bank. Albert alerted Checks
the amount of the check to P210,000, and
deposited the check to his account with ND Q: Mr. Pablo sought to borrow P200,000 from
Bank. When ND Bank presented the check for Mr. Carlos. The latter agreed to loan the
payment through the Clearing House, XM Bank amount in the form of a post-dated check
honored it. Thereafter, Albert withdrew the which was crossed (i.e., two parallel lines
P210, 000 and closed his account. diagonally drawn on the top left portion of the
check). Before the due date of the check, Mr.
When the check was returned to him after a Pablo discounted it with Mr. Noble. On due
month, William discovered the alteration. XM date, Mr. Noble deposited the check with his
Bank recredited P210,000 to William’s current bank. The check was dishonored. Mr. Noble
account, and sought reimbursement from ND sued Mr. Pablo. The court dismissed Mr.
Bank. ND Bank refused, claiming that XM Bank Noble’s complaint. Was the court’s decision
failed to return the altered check to it within correct? (1991 BAR)
the 24- hour clearing period.
A: The court’s decision was incorrect. Mr. Pablo
Who, as between, XM Bank and ND Bank, and Mr. Carlos, being immediate parties to the
should bear the loss? Explain. (1996 BAR) instrument, are governed by the rules of privity.
Page 38 of 41
Given the factual circumstances of the problem,LAW
The bank files an action for recovery of the
Mr. Pablo has no valid excuse from denying amount paid to B because the check presented
liability. Mr. Pablo undoubtedly had benefited in has no sufficient funds. Decide the case. (1998
the transaction. To hold otherwise would also BAR)
contravene the basic rules of unjust enrichment.
A: The bank cannot recover the amount paid to B
Even in negotiable instruments, the Civil Code
for the check. When the bank honored the check,
and other laws of general application can still
it became an acceptor. As acceptor, the bank
apply suppletorily.
became primarily and directly liable to the
payee/holder B.
The recourse of the bank should be against X and

its bookkeeper who conspired to make X’s ledger
Q: Mr. Lim issued a check drawn against BPI
show that he has sufficient funds.
Bank in favor of Mr. Yu as payment for certain
shares of stock which he purchased. On the
same day that he issued the check to Mr. Yu,
Mr. Lim ordered BPI to stop payment. Per
standard banking practice, Mr. Lim was made Q: Gaudencio, a store owner, obtained a P1 M
to sign a waiver of BPI’s liability in the event loan from Bathala Financing Corporation
that it should pay Mr. Yu through oversight or (BFC). As security, Gaudencio executed a
inadvertence. Despite the stop order by Mr. “Deed of Assignment of Receivables,”
Lim, BPI nevertheless paid Mr. Yu upon assigning 15 checks received from various
presentation of the check. Mr. Lim sued BPI for customers who bought merchandise from his
paying his order. Decide the case. (1991 BAR) store. The checks were duly indorsed by
Gaudencio’s customers.
A: In the event that Mr. Lim, in fact, had sufficient
legal reasons to issue the stop payment order, he The Deed of Assignment contains the following
may sue BPI for paying against his order. The stipulation:
waiver executed by Mr. Lim did not mean that it
need not exercise due diligence to protect the “If, for any reason, the receivables or any part
interest of its account holder. It is not amiss to thereof cannot be paid by the obligors, the
state that the drawee, unless the instrument had ASSIGNOR unconditionally and irrevocably
earlier been accepted by it, is not bound to honor agrees to pay the same, assuming the liability
payment to the holder of the check that thereby to pay, by way of a penalty, 3% of the total
excludes it from any liability if it were to comply amount unpaid, for the period of delay until the
with the stop payment order. same is fully paid.”
When the checks became due, BFC deposited

them for collection, but the drawee banks
dishonored all the checks for one of the
following reasons: “account closed,” “payment
Q: X draws a check against his current account
stopped,” “account under garnishment,” or
with the Ortigas branch of Bonifacio Bank in
“insufficiency of funds”. BFC wrote Gaudencio
favor of B. Although X does not have sufficient
notifying him of the dishonored checks, and
fund, the bank honors the check when it is
demanding payment of the loan. Because
presented to payment. Apparently, X has
Gaudencio did not pay, BFC filed a collection
conspired with the bank’s bookkeeper so that
suit.
his ledger card would show that he still has
sufficient funds. In his defense, Gaudencio contended that: (a)
BFC did not give timely notice of dishonor of
Page 39 of 41
the checks; and (b) considering that theLAW
No civil liability could be adjudged against her
checks were duly indorsed, BFC should because of her acquittal from the criminal
proceed against the drawers and the indorsers charge. It was Freddie who was civilly liable to
of the checks. Foton, Pura claimed. Pura added that she
could not be an accommodation party either
Are Gaudencio’s defenses tenable? Explain.
because she only came in after Freddie failed
(2009 BAR)
to pay the purchase price, or 6 months after
A: NO. Gaudencio’s defenses are untenable. The the execution of the contract between Foton
cause of action of BFC was really on the contract and Freddie. Her liability was limited to her act
of loan, with the checks merely serving as of issuing a worthless check, but by her
collateral to secure the payment of the loan. By acquittal in the criminal charge, there was no
virtue of the Deed of Assignment which he signed, more basis for her to be held civilly liable to
Gaudencio undertook to pay for the receivables if Foton. Pura’s act of issuing the subject check
for any reason they cannot be paid by the did not, by itself, assume the obligation of
obligors. Freddie to Foton or automatically make her a
party to the contract. Is Pura liable? (2014
BAR)
A: YES. Pura is liable. The rule is that every act or

Q: A criminal complaint for violation of BP22 omission punishable by law has its accompanying
was filed by Foton Motors, an entity engaged civil liability. The civil aspect of every criminal
in the business of car dealership, against Pura case is based on the principle that every person
Felipe with the office of the City Prosecutor of criminally liable is also civilly liable. If the accused
Quezon City. The office found probable cause however, is not found to be criminally liable, it
to indict Pura and filed an information before does not necessarily mean that she will not
the MeTC of Quezon City, for her issuance of a likewise be held civilly liable because extinction of
postdated check in the amount of the penal action does not carry with it extinction
P1,020,000.00 which was subsequently of civil action. Although Pura was not an
dishonored upon presentment due to “Stop accommodation party, she cannot escape civil
Payment”. liability. In cases of violation of BP 22, a special
law, the intent in issuing a check is immaterial.
Pura issued the check because her son, Pura issued the bouncing check. Thus, regardless
Freddie, attracted by a huge discount of of her intent, she remains civilly liable because
P220,000, purchased a Foton Blizzard 4x2 from the act or omission, the making and issuing of the
Foton. subject check, from which her civil liability arises.
The term of the transaction was Cash-on-
Delivery and no down payment was required.
The car was delivered on May 14, 1997, but
Freddie failed to pay upon delivery. Despite Q: Is a manager’s check as good as cash? Why
non- payment, Freddie took possession of the or why not? (2015 BAR)
vehicle. Pura was eventually acquitted of the
charge of violating BP 22 but was found civilly A: YES, the Supreme Court held in various
liable for the amount of the check plus legal decisions that a manager’s check is good as cash.
interest. Pura appealed the decision as A manager’s check is a check drawn by the bank
regards the civil liability, claiming that there against itself. It is deemed pre- accepted by the
was no privity of contract between Foton and bank from the moment of issuance. The check
Pura. becomes the primary obligation of the bank which
issues it and constitutes its written promise to pay.
Page 40 of 41
By issuing it, the bank in effect commits its totalLAW
resources, integrity and honor behind the check.
(Tan v. CA, 239 SCRA 310; International
Corporate Bank v. Gueco, 351 SCRA 516;
Metrobank v. Chiok, GR No. 172652, Nov. 26,
2014)
ALTERNATIVE ANSWER: NO, because under

the Civil Code (Article 1249), the delivery of
negotiable instruments like checks which include
manager’s checks shall produce the effect of
payment only when they have been cashed. Also,
under the New Central Bank Act (Sec. 60),
checks which include manager’s checks do not
have legal tender power and their acceptance for
the payment of debts is at the option of the
creditor. Under the same law (Sec. 52), only notes
and coins issued by the Bangko Sentral, that is,
the Philippine Peso, shall be deemed as legal
tender for all debts in the Philippines.
***
O Great St. Joseph of Cupertino who while on earth did
obtain from God the grace to be asked at your examination
only the questions you knew, obtain for me a like favour in
the examinations for which I am now preparing. In return I
promise to make you known and cause you to be invoked.
Through Christ our Lord.
St. Joseph of Cupertino, Pray for us.
Page 41 of 41

Negotiable Instruments Law - SEC 51-125 de Leon

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LAW a holder even though he be a holder only

(3) Right of transferee of unindorsed

Because Perla defaulted in the payment of her

Infirmities then must include things that are

Knowledge amounting to bad faith. — It is not Rights of a holder in due course.

Example: A HDC may gift the negotiable

Since a holder for value merely steps into the

Q: What are the effects of crossing a check?

Just as the maker of a note, the drawer, by merely

(2) Liability of a general indorser. — The

The bank (drawee) on which a check is

Liability of agent bank for collection. Irregular or anomalous indorsement explained.

The warranty "that the instrument is genuine and

But when the negotiation is by delivery only, the

Sec. 67. Liability of indorser where paper

(3) A general indorser is liable only to parties

Parol evidence is not admissible to relieve a

(2) Joint liability. — Under Section 184, a note

b. The serial number is not a material particular

By presentment for payment is meant the

The burden is on the holder of a note, when

The proper, place of presentment is the place

Neither is presentment required where the

When delay in making presentment Summary of rules as to presentment for

(b) Presentment is excused and the instrument

Effect of dishonor by non-payment. Time of maturity of instrument.

Payment in due course is payment in the usual

b. NO, because CD negotiated the instrument

(1) Payment must be made at or after date

a. Since the instrument became a bearer

Authority to give notice not necessary.

Contents of notice. Accordingly, where the holder knows that the

(2) the fact that it has been dishonored by non-

How notice given. Notice to partners.

Sec. 98. Notice where party is dead. —

Sec. 101. Notice to bankrupt. — Where a

The specific words of Section 103 cannot be

Notice where parties reside in different

The mere manner in which the notice is sent is

(a) Either to the post office nearest to his place

Reasonable diligence is a relative term. It

(1) If the waiver is embodied in the instrument

Sec. 114. When notice need not be given to

Sec. 115. When notice need not be given to

(2) In the following cases, notice of dishonor is

(c) By the discharge of a prior party;

(f) By any agreement binding upon the holder to

(1) Any act which discharges instrument.

(A renunciation in favor of a secondary party may

BAR QUESTIONS ALERT!!! Q: PN is the holder of a negotiable promissory

A: YES. The suit will prosper as far as the face

Q: William issued to Albert a check for

The recourse of the bank should be against X and

When the checks became due, BFC deposited

A: YES. Pura is liable. The rule is that every act or

ALTERNATIVE ANSWER: NO, because under

Through Christ our Lord.