PROTEST

-Protest is a formal written statement made by a notary public at the

request of a holder of bill of exchange stating that he has demanded
acceptance or payment of the bill, and that it has been refused, with the
reasons, if any, given by the drawee or acceptor for the dishonor,
whereupon, the notary public protests against all parties to such
instrument and declares that they will be held responsible for all loss or
damage arising from the dishonor of the bill.
When protest is required
• Protest is required only for foreign bills, or when a bill is accepted for honor, or
it is dishonored by the acceptor for honor, or contains a referee in case of need.
• The omission of the protest when such protest is required, will discharge the
drawer and indorsers. Inland bills and notes may, but need not, be protested to
charge the persons liable thereon.

The following are the instances when protest is required:

a. When a foreign bill is dishonored by non-acceptance. (Sec.152)
b. When a foreign bill has not been previously dishonored by non-acceptance is
dishonored by non payment.
c. Where the bill has been accepted for honor, it must be protested for non-
payment before it is presented for payment to the acceptor for honor.
(Sec.167)
d. Where the bill contains a referee in case of need, it must be protested for
non-payment before it is presented for payment to the referee in case of
need. (Sec.167)
e. Where the bill is dishonored by the acceptor for honor, it must be protested
for non-payment by him. (Sec.170)

Requisites of protest
1. How made
a. The protest must be annexed to the bill or must contain a copy thereof.
b. It must be under the hand and seal of the notary making it.
c. It must specify the following:
i. The time and place of presentment.
ii. It must be under the hand and seal of the notary making it.
iii. The cause or reason for protesting the bill,
iv. The demand made and the answer given, if any, or the fact
that the drawee or acceptor could not be found.

2. By whom made
Protest may be made by –
a. A notary public, or
b. Any respectable resident of the place where the bill is
dishonored, in the presence of two or more credible witnesses.
(Sec.154)
3. When made
The protest must be made on the day of its dishonor unless delay is
excused. When a bill has been duly noted, the protest may be
subsequently extended as of the day of noting. (Sec.155)
“Noting” means the notary public writes a note on the bill, or on a
paper attached thereto, or in his notarial register, consisting of his initials,
the month, day and year, the matters required to be included in the
protest together with the noting charges.
Delay in noting or protesting is excused when delay is caused by
circumstances beyond the control of the holder and not imputable to his
default, misconduct or negligence. When the cause of delay ceases to
operate, the bill must be noted or protested with reasonable diligence.
(Sec.159)
4. Where made
A bill must be protested at the place where the bill is dishonored.

Exception: Where a bill drawn payable at the place of business or

residence of some person other than the drawee has been dishonored
by non-acceptance, it must be protested for non-payment at the place
where it is expressed to be payable, and no further presentment for
payment to, or demand on, the drawee is necessary. (Sec.156)

When protest dispensed with

Protest is dispensed with by any circumstances that would
dispense with notice of dishonor. (Sec. 159, 112, 114 and 115.)
Instances when protest optional

1. When a bill has been previously protested for non-acceptance

A bill which has been previously protested for non-acceptance
may be subsequently protested for non-payment. (Sec.157)

2. Protest for better security

a. Grounds
i. When the acceptor has been adjudged a bankrupt or an
insolvent.
ii. When the acceptor has made an assignment for the
benefit of creditors.
 b. When made
After the bill has been accepted but before its maturity.
c. Against whom protested
i. Drawer
ii. Indorsers
d. Reason for protest
To give notice to the drawer and indorsers that in all
probability, the acceptor, by reason of his being adjudged a bankrupt
or an insolvent, would not be able to honor the bill at maturity, so
that they may make the necessary arrangements for its payment at
maturity if they do not want to be held liable thereon.
3. Protest where bill is lost
When a bill is lost, destroyed or is wrongly detained from the
person entitled to hold it, protest may be made on a copy or written
particulars thereof. (Sec.160)
 Acceptance for Honor
Acceptance for honor, concept
Acceptance for honor is an acceptance made by a person who is not a
party to the bill, after the bill has been protested for non-acceptance or for
better security, and before it is overdue, for the honor of the drawer or of any
one of the indorsers. Such acceptance is also called “acceptance supra protest.”

Requisites of acceptance for honor

1. The bill must have been previously protested for non-acceptance or for
better security.
2. The acceptance for honor must be made before the bill is overdue.
3. The acceptance for honor must be made by a person who is not already a
party liable on the bill, i.e., he must be a stranger thereto.
4. The holder must give his consent to the acceptance for honor. (Sec.161)
The consent of the holder is necessary because there is a novation
through a substitution of the debtor.

Purpose of acceptance for honor

An acceptance for honor is made to save the credit of the drawer,
drawee or indorser, or somebody else.
How acceptance for honor is made
Acceptance for honor must comply with the following requisites:
1. It must be in writing
2. It must indicate that it is an acceptance for honor
3. It must be signed by the acceptor for honor. (Sec.162)

When acceptance for honor is deemed for the drawer

1. When the acceptance for honor expressly provides that it is being made
for the honor of the drawer.
2. When the acceptance for honor does not expressly state for whose
honor if is made.
Liability of acceptor for honor
1. Requisites for liability
i. The bill must be presented for payment to the drawee at
maturity.
ii. The drawee refuses to pay the bill.
iii. The bill must be protested for non-payment.
iv. Notice of dishonor must be given to the acceptor for
honor. (Sec.165)
2. To whom liable
The acceptor for honor is liable to the holder and to all parties
subsequent to party for whose honor he has accepted. (Sec.164)

Maturity of bill after sight is accepted for honor

If a bill payable after sight is accepted for honor, its maturity is calculated
from the date of the acceptance for honor (Sec.166)
Example:
B draws a bill payable 30 days after sight in favor of D, payee, and against
E, drawee. D presents the bill to E for acceptance on October 1, 2018, but the
latter refuses to accept it. X, a notary public protests the bill for non-acceptance
on October 1, 2018. On October 15, 2018, C, a stranger to the bill accepts the
bill for the honor of B, the drawer. The date of maturity is October 31, 2018,
counting 30 days from October 1, 2018, the date when X, the notary public,
noted the non-acceptance, and not on October 15, 2018, when C accepted the
bill for the honor of B.
When presentment of bill for payment to acceptor for honor made
1. If the bill is to be presented in the place where the protest for non-
payment was made, it must be presented for payment not later than the
day following its maturity. (Sec.168)
2. If it is to be presented at some other place than the place where it is was
protested, then it must be forwarded within the following time. (Sec. 168,
104):
a. If sent by mail, it must be deposited in the post-office in time to go
by mail the day following the date of maturity or if there be no mail at a
convenient hour on that day, the next mail thereafter.
b. If given otherwise than through the post-office, then within the time
that it would have been presented in due course by mail, had it been
deposited in the post-office within the time specified above.
When delay in making presentment for payment to acceptor for honor
excused
Delay in making presentment for payment to the acceptor for honor or
referee in case of need is excused when the delay is not imputable to his
default, misconduct or negligence. When the cause of delay ceases to
operate, presentment for payment must be made with reasonable
negligence. (Sec. 169,81)

Dishonor of bill by acceptor for honor

When the bill is dishonored by the acceptor for honor, it must be
protested for non-payment by him, and notice of dishonor given to the
drawer and indorsers; otherwise, they are discharged. (Sec.170)
 Payment of Honor
Payment for honor, concept
Payment for honor means payment of a bill of exchange after it
has been dishonored by non-payment and protested for non-payment,
by any person, including one already a party to the bill, for the honor of
one, or all the parties to the bill.
Requisites of payment for honor
1. The bill must have been protested for non-payment. (Sec.171)
2. The payment for honor must be attested by a notarial act of honor
which may be appended to the protest or form an extension of it.
This is important so that the payment will not operate as a mere
voluntary payment. (Sec.172)
3. The notarial act of honor must be founded on a declaration made by the
payer for honor of his intention to pay the bill for honor and for whose honor
he pays. (Sec.173)

Procedure for payment for honor

1. The payer for honor goes before a notary public and makes a declaration
of his intention to pay the bill and for whose honor he is paying the bill.
2. The notary public records the declaration either in the protest or on a
separate instrument.
3. After the declaration, the payer for honor notifies the person for whose
honor he is making the payment within a reasonable time.
Preference of parties offering to pay for honor
Where two or more persons offer to pay a bill for the honor of
different parties, the person whose payment will discharge most parties to
the bill is given the preference. (Sec.174)

Effect when bill is paid for honor

1. All parties subsequent to the party for whose honor the bill is paid are
discharged.
2. The payer for honor acquires the following rights:
a. He is subrogated for, and succeeds to, both rights and duties of the
holder as regards the party whose honor he paid the bill and the parties
liable to the latter. (Sec.175)
 b. On payment of the amount of the bill and the notarial
expenses incidental to dishonor, he is entitled to receive the bill itself
and the protest. (177)
Example:
R draws a bill of exchange against W. The bill is payable to the
order of P. Thereafter, P indorses the bill to A, A to B, B to C, and C to
H, holder. The bill is dishonored by non-payment by W; hence, it is
protested for non-payment. Y pays H for the honor of A. Here, B and C,
parties subsequent to A, are discharged. Y is subrogated for and
succeeds to the rights of H against A, the party for whose honor he
paid, and R and P, parties liable to A.
Effect if holder refuses to receive payment for honor
If the honor refuses to accept the payment for honor, he loses
his right of recourse against any party who would have been discharged
by the payment. (Sec.176)
 Bills in Set
Bill in set, concept
A bill in set is one composed of several parts, each part of the set
being numbered and containing a reference to the other parts, the whole of
the parts constituting but one bill. (Sec.178)

Purpose of a bill in set

A bill is drawn in set to increase the probability of the bill reaching its
intended recipient. To achieve this purpose, each part is transmitted through
different conveyances. Thus, the drawer sends each part separately to the
payee, who may transmit each part also by different conveyances to another
holder, or to the drawee. This will insure that the bill is promptly presented
for acceptance and payment.
Illustration
Manila, Philippines
October 1, 2018
First. Exchange for P300,000.00

Thirty days after sight of this First of Exchange (Second Part

Unpaid), pay to the order of Laurence Dalisay the sum of
P300,000.00 Value received and charge to the account of
(Sgd.) John Mark Allegre
To: Jhanna Vergara
456 Avenue of Strong
Las Vegas, Nevada
 Manila, Philippines
October 1, 2018
Second. Exchange for P300,000.00
Thirty days after sight of this Second of Exchange (First
Part Unpaid), pay to the order of Laurence Reyes the sum of
P300,000.00 Value received and charge to the account of
(Sgd.) John Mark Allegre
To: Jhanna Vergara
456 Avenue of Strong
Las Vegas, Nevada
Rights of holders where different parts are negotiated
If two or more parts of a set are negotiated to different
holders in due course, the holder whose first title accrues is as
between such holders the true owner of the bill. However, the
rights of a person who in due course accepts or pays the first
presented to him shall be protected. (Sec.179)

Discharge of a bill in set

General rule: Where any one part of a bill drawn in set is
discharged by payment or otherwise, the whole bill is discharged.
(Sec.183). This is so because the different parts of the bill
constitutes but one bill. (Sec.178)
Exceptions:
1. Where the holder of a set indorses two or more parts to
different persons, the discharge of one part does not relieve
him from liability for the other parts, because he is liable on
every part that he indorsed as if each one were a separate
bill. Any indorser subsequent to him will be liable for the part
he indorsed. (Sec. 180)
2. Where the drawee accepts more than one part and such
accepted parts are negotiated to different holders in due
course, the discharge of one part does not relieve him from
liability for the other parts that bears his acceptance,
because he is liable on every part that he accepted as if it
were a separate bill. (Sec.181)
3. Where the acceptor of a bill in se pays without requiring the part
that bears his acceptance to be delivered up to him., and that part at
maturity is outstanding in the hands of a holder in due course, he is
liable to the holder thereon. (Sec.182)
Bills of Exchange and Checks
Basic rules on bill of exchange
1. A bill of exchange does not operate as an assignment of funds in the
hands of the drawee and the drawee is not liable until he accepts
the same. (Sec.127)
2. A bill may be addressed to two or more drawees jointly but not in
the alternative or in succession. (Sec.128)
Examples:
i. “To A and B” – Instrument is negotiable.
ii. “To A or B” – Instrument is not negotiable.
iii. “To A, or in his absence, B” – Instrument is not negotiable.
3. An inland bill of exchange is a bill which is, or on its face purports to
be both drawn and payable in the Philippines.
Any other bill is a foreign bill, that is,
- The bill on its face purports to be drawn in the Philippines but
payable outside the Philippines, or
- The bill on its face purports to be drawn outside the Philippines but
payable in the Philippines.
Unless the contrary appears on the face of the bill, the holder
may treat it as an inland bill. (Sec.129)
Importance of the distinction
A foreign bill of exchange requires protest in case of dishonor.
4. A bill of exchange may be treated as a promissory note in
any of the following cases:
a. Where the drawer and drawee are the same
person.
b. Where the drawee is a fictitious person.
c. Where the drawee is a person not having capacity
to contract. (Sec.130)

Note: In Section 17, where the instrument is so

ambiguous that there is doubt on whether it is a bill or a
note, the holder may treat it as either at his option.
5. The drawer and any indorser may insert on the bill the name of
any person to whom the holder may resort in case of need; that
is, in case of dishonor by non-acceptance or non-payment.
a. Such person is referred to as a referee in case of need.
b. The holder, at his option, may resort to the referee in case
of need as he may see fit.
c. If the referee pays the holder, he may recover the amount
from the drawer or indorser who named him.
Kinds of bill of exchange
1. Sight draft – A sight draft is a written order on the drawee to pay,
upon presentation or a sight or on demand, the amount indicated
in the instrument.
2. Time draft
A time draft is a bill of exchange which is payable by the drawee
within a certain period after its acceptance. It is of two kinds:
- Time draft after sight
- Time draft after date
3. Trade acceptance – A bill of exchange drawn by the seller on the
buyer of goods and accepted by the latter.
4. Inland bill – One which is, or on its face, purports to be
both drawn and payable in the same country. (See Sec.129)
5. Foreign bill – One which is drawn in one country and
payable in another country.
6. Bill in set – One composed of various parts, each part of the
set being numbered and containing a reference to the other
parts, the whole of the parts constituting but one bill. (Sec.
178)
Basic rules on checks
1. A check of itself does not operate as an assignment of the funds
of the drawer in the hands of the bank, and the bank is not
liable until it accepts or certifies the check. (Sec.189)
2. A check must be presented for payment within a reasonable
time after its issue. Otherwise, the drawer will be discharged
from liability thereon to the extent of the loss caused by the
delay. (Sec.186)
A check not presented within a reasonable time after issue is
a stale check. By current banking practice, a check becomes stale
after more than six (6) months or one hundred eighty (180) days.
(Wong vs. Court of Appeals, G.R. No. 117857, February 2, 2001)
3. A check is payable on the demand although not stated on its
face. In issuing a check, a drawer represents that he has
sufficient funds with the bank for its payment. (Firestone vs. Ines
Chaves, 18 SCRA 356)
Effect when check is post-dated
The post-dating of a check produces the effect of
converting it from a demand instrument to a time instrument
because it is an order to pay a specified amount at the future
date indicated thereon. Accordingly, it cannot be cashed with the
bank against which it is drawn or be deposited before the date
stated on the check.
4. Effect of certification of a check
a. It is equivalent to acceptance. (Sec.187)
b. If procured by the holder, the drawer and all
indorsers are discharged. (Sec.188)
c. It operates as an assignment of the funds of the
drawer in the hands of the drawee bank. (Sec.189)
Crossing of a check
a. How crossed
i. Specially – Here, the name of the bank or other business institution
appears between two parallel diagonal lines on the upper left portion
of the check. The drawee must pay the check only with the intervention
of such bank or company. (See Bank of America, NT & SA vs. Associated
Citizens Bank, G.R. No. 141001, May 21, 2009; Go vs. Metropolitan
Bank and Trust and Co., infra.)
ii. Generally – Here, no words are written or the words “& Co.” appear
between the parallel lines on the check. In this case, the drawee bank
should not cash the same but merely accept it for deposit. (See Bank of
America vs. Associated Citizens Bank, supra; Go vs. Metropolitan Bank
and Trust Co., infra)
b. Purposes
i. To have the check deposited only to the account of the payee.
ii. To have the check paid only with the intervention of a particular
banker when its name is placed between the parallel lines crossing
the check.
iii. To obtain assurance that the check will be paid only to the
rightful person.
c. Effects of crossing a check
In Bank of America, NT & SA vs. Associated Citizens Bank,
G.R. No. 14001, May 21, 2009, citing Bataan Cigar vs. Court of
Appeals, G.R. No. 93048, March 3, 1994, the Supreme Court
enumerated the following effects of crossing a check:
i. That the check may not be cashed but only deposited in the
bank.
ii. That the check may be negotiated only once – to one who has
an account with a bank, and
iii. That the act of crossing the check serves as a warning to the
holder that the check has been issued for a definite purpose so
that such holder must inquire if the check has been received
pursuant to that purpose; otherwise, he is not a holder in due
course.
Kinds of checks
• Memorandum check – A check which, across its face, is
written the word “Memorandum” or “Memo”. It is regarded
as a contract whereby the drawer engages to pay the bona
fide holder absolutely and not upon a condition to pay upon
presentment and non-payment.
• Cashier’s check – A check drawn by the cashier of a bank in
the name of the bank and against the bank itself payable to a
third person or order. It is accepted in advance by the bank
by the act of its issuance.
• Manager’s check – A check drawn by the manager of a bank in
the name of the bank and against the bank itself payable to a
third person or order. Its effect and use are the same as those of
a cashier’s check.
• Traveler’s check – A check used by a traveler to supply him with
funds in lieu of cash. It is signed by the holder upon issuance,
and countersigned by him before it is paid.
• Certified check – A check which bears the word “certified” on its
face, signifying that the check is recognized and accepted by the
bank as a valid appropriation of the amount specified thereon,
and as drawn against funds held by the bank.
• Crossed check – A check which bears two parallel lines usually
drawn diagonally on the upper left portion of its face.
Distinctions between check and bill of exchange

Check Bill of Exchange

(1)Always drawn against a bank or a banker. (1)May or may not be drawn against a bank
or a banker.
(2)Always payable on demand. (2)May be payable on demand or at fixed, or
determinable future time.
(3)Presentment for acceptance is not (3)Presentment for acceptance is required in
required. certain cases.
(4)Drawer must have funds in the hands of (4)Drawer need not have funds with the
the drawee. drawee.
(5)Must be presented for payment within a (5)When payable on demand, it must be
reasonable time after issue. presented for payment within a
reasonable time after the last negotiation.
(6)Death of the drawer of the check revokes (6)Death of the drawer does not revoke the
the bank’s authority to pay. drawee’s authority to pay.
Instruments that are not negotiable
• Treasury warrants – A treasury warrant is a check drawn by a
competent officer of the Philippines authorizing another to
pay a particular sum of money. It is an obligation or security
of the Philippines.
• Letter of credit – A letter of credit is a letter addressed by a
banker to another certifying that the person whose name
appears thereon is entitled to draw a bill of exchange up to a
certain maximum amount, with an undertaking to honor the
bill of exchange upon presentation.
• Postal Money Order – An instrument, representing remittance
in cash, issued by the government postal authorities through
money order offices, for public convenience and to insure
greater security in the transfer of money through the mails. It is
not negotiable because of the restrictions imposed on them by
postal laws.
• Withdrawal slips – It is not negotiable because they lack the
freedom to circulate freely as a substitute for money which
characterizes a negotiable paper as a credit instrument.