ZPG & ASSOCIATES (Zambales.Pablo.
Gonzales)
ACT NO. 2031
February 03, 1911
THE NEGOTIABLE INSTRUMENTS LAW
I. FORM AND INTERPRETATION
Section 1. Form of negotiable instruments. - An instrument
to be negotiable must conform to the following
requirements:
(a) It must be in writing and signed by the maker or
drawer;
(b) Must contain an unconditional promise or order
to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee,
he must be named or otherwise indicated therein
with reasonable certainty.
What are the requisites for a negotiable note?
A Promissory note, to be negotiable , must conform to the
following requirements:
1. it must be in writing and signed by the maker;
2. Must contain an unconditional promise to pay a sum
certain in money
3. must be payable on demand or at a fixed or
determinable future time
4. must be payable to order or bearer
What are the requisites of a negotiable bill?
A bill of exchange, to be negotiable, must conform to the
following requirements:
1. in writing and signed by the drawer
2. contain an unconditional; order to pay a sum certain
in money
3. payable on demand or at a fixed or determinable
future time
4. payable to order or bearer
5. the drawee must be named or otherwise indicated
therein with reasonable certainty
What is meant by “in writing” and signed by the maker or
drawer?”
The instrument must in writing for if it were not
there would be nothing to be negotiated or passed from hand
to hand. The medium in which it is written and where it is
written is not important. It may be in ink, print or pencil. It
may be in parchment, cloth, leather or any other substitute of
paper. What is important is it is in writing and such writing is
capable of being transferred or negotiated. (e.g. A note
written on a blackboard is not negotiable). In signing, the
maker thereby binds himself to be liable for the note (Sec. 18)
It may be the maker’s full name or his surname only or
signature. It may be in initials or numbers. But , where the
name is not signed, the holder must prove that what is
written is intended as the signature of the person sought to
be charged. In fact, for as long as it be shown that such was
adopted and used by the maker as his signature, it is
sufficient. (Note: he who makes it possible for the
commission of fraud, bears the loss).
What is meant by “an unconditional promise/order to pay a
sum certain in money?”
The promise to pay must be on the note itself although it
is not necessary to use the word “promise.” It is enough that
1. equivalent words be used such as “agree”, “will
pay”, “shall pay”; or that
2. words implying a promise are contained in the
instrument such as “Good to” or “payable on
demand” (e.g. Good to X or order P10.)
Mere acknowledgement of a debt is not enough but an
acknowledgment followed by the phrase “to be paid” implies
a promise to pay. ( I acknowledge a debt of P10 to be paid on
demand) Further, an instrument which stated “ Due X or
order on demand P10” is negotiable because “to be paid”
though not stated, is required by the sense of the statement.
Similarly, it is not necessary that the word “order” be used.
Equivalent words or those which show the drawer’ will that
the money should be paid are sufficient. All that must be
remembered is that the BOE is more than mere asking of a
favor and that it is an instrument demanding a right. Thus, a
mere requests to pay or mere authorization to ay is not
enough to render it negotiable for it gives a discretion
whether or not to pay. To be unconditional or absolute, the
order or promise to pay must not be subject to a condition (
a contingent event). If the event is certain to happen, it is not
contingent nor is it a condition. Under Art. 1179 of the NCC, a
condition is a (1) future and uncertain event; or (2) a past
event unknown to the parties (See also Sec. 3 for further
meaning).
The amount of money to be paid must be
determinable (at the time of issue) by inspection and must
be stated plainly on the face of the instrument. The sum is
certain even is mathematical computation is still needed
because the amount to be paid is still ascertainable from the
instrument alone without reference to any outside source.
(see also Sec. 2). The payment must be for a sum of money .
To be negotiable, the bill or note must not be payable in
goods, wares, property or service nor in bonds, stocks, checks
or foreign bills. The reason for the requirement is that money
is the one standard of value in actual business. Exception to
this rule is Sec. 5d. an instrument payable in money or goods,
services et. at the option of the holder. Further, while R.A.
529 requires that the discharge of obligations be in legal
tender of the Philippines the instrument’s negotiability and
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
validity are not affected by the fact that another currency is
stipulated (Sec. 6e) In such case, the indemnity to be allowed
should be expressed in Phil. Currency on the basis of the
current rate of exchange at the time of payment. But, to be
negotiable, the instrument must state the denomination in
which it is to be payable.
When is an instrument payable on demand?
In accordance with Sec. 7, a note is payable on demand:
1. When it is so expressed to be payable on demand or
at sight or on presentation;
2. when no time for payment is expressed;
3. when an instrument is issued, accepted or indorsed
when overdue- as to the party so issuing, accepting
or indorsing, it is payable on demand.
When is an instrument payable at a fixed or determinable
future time?
It is payable at a fixed time when a date is specified.
But where the date is given as “Dec. 2,” it is not fixed because
the time of payment is not determinable as the year is not
given.
In accordance with Sec. 4, an instrument is payable at a
determinable future time when it is expressed to be payable-
1. at a fixed period “after date or sight; or
2. on or before a fixed or determinable future time
specified therein; or
3. on or at a fixed period after the occurrence of a
specified event which is certain to happen though
the time of happening be uncertain.
When is an instrument payable to order? To bearer?
In accordance with Sec. 9b, an instrument is payable to
bearer when
1. it is expressed to be so payable;
2. it is payable to a specified person or bearer;
3. it is payable to the order of a fictitious or non-
existing person and this fact is known to the maker
or drawer;
4. when the name of the payee does not purport to be
the name of any person;
5. when the only or last indorsement is an indorsement
in blank
It is not important that the words “order” or “ bearer” be
used. It is sufficient that words of similar import are put
in its place. (e.g. Pay to B or assigns or “assignees” or
“holder” or “possessor”). A note payable to the order or
bearer is payable to order and such instrument may be
negotiated only by bearer’s indorsement. (The bearer is
the payee.)
When is the indication of the drawee’s name sufficient?
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It is sufficient that the name of the person on whom
a bill is drawn should appear on the face of the
instrument. Otherwise, the instrument would not be
negotiable. But, under Sec. 14, the drawee’s name may
be omitted and be filled in under implied authority like
any other blank. (REMEMBER: Sec. 14 refers to the
incomplete but delivered instruments and that the
authority to fill up should be in strict accordance with
the authority given). Also, an acceptance by the drawee
may supply the omission of a designation and renders
said instrument negotiable.
Sec. 2. What constitutes certainty as to sum. - The sum
payable is a sum certain within the meaning of this Act,
although it is to be paid:
1. with interest; or
2. by stated installments; or
(c) by stated installments, with a provision that,
upon default in payment of any installment or of
interest, the whole shall become due; or
(d) with exchange, whether at a fixed rate or at the
current rate; or
(e) with costs of collection or an attorney's fee, in
case payment shall not be made at maturity.
What is the rule regarding the sum payable being definite
and certain?
Since a NI is a device intended to take the place of
money, it is therefore essential that it represents a fixed
amount of money. The amount of money must be
determinable by inspection and must be stated plainly on the
face/ body of the instrument.
When can it be said that the sum is certain despite the
stipulation of interest?
A stipulation of interest does not render the sum to
be paid as uncertain because given the interest rate, the
amount due can be easily computed. Provided the principal
sum is certain, the amount due becomes a matter of
mathematical computation ascertainable from the face of
the instrument alone. Further, where interest is stipulated
but not specified (as to rate), the note is still negotiable and
the rate is to be understood to be the legal rate which is 12%
for loans or forbearance of money.
What is an escalation clause? A de-escalation clause?
An escalation clause is a stipulation in an agreement
pertaining to a loan or forbearance of money, goods or
credits providing that the rate of interest agreed upon may be
increased in the event that the applicable maximum rate of
interest, is increased by law or by the Monetary Board. De-
escalation clause is stipulation in the agreement that the rate
of interest agreed upon shall be reduced if the maximum rate
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
of interest is decreased by law or by the Monetary Board. The compensation for the loan than the law allows, but to
escalation clause is valid if there is also a de-escalation clause safeguard the lender against future loss or damage by being
in the agreement. compelled to retain counsel to institute judicial proceedings
to collect his debt. The provision refers only to reasonable
attorney’s fees.
What are the requirements as regards payment of
installments?
What is the effect of negotiable after the note is overdue?
1. The amount of installment must be stated –
(the sum payable for each installment must
not be uncertain. It can be ascertainable.)
After the date of maturity, the instrument will no longer be
2. The maturity date of each installment must
negotiable in the full commercial sense, that is, in the sense
be fixed or determinable.
that any transferee acquiring it would not be a holder in due
course, as he acquire the instrument after it is overdue. Since
What is the rule on acceleration clause?
the transferee would not be a holder in due course (HIDC), he
would hold the instrument subject to the defenses as if it
An instrument, which is to be paid in, stated installment is not
were non-negotiable.
rendered non-negotiable despite a provision that upon
default of any installment or of interest, the whole amount
shall become due. Such is called an acceleration clause
because it hastens the payment of the whole note. The failure Sec. 3. When promise is unconditional. - An unqualified
to pay any installment renders the balance of the amount order or promise to pay is unconditional within the meaning
immediately due and demandable. An acceleration clause of this Act though coupled with:
does not make the instrument payable upon a contingency (a) An indication of a particular fund out of which
(thus, non-negotiable) since payment is surely to be made reimbursement is to be made or a particular
and its time of payment is surely come. In a sense, it is account to be debited with the amount; or
deemed to be payable on or before a fixed or determinable
future time specified therein (sec.4b) (b) A statement of the transaction which gives rise
to the instrument.
What is the rule on provisions for exchange? But an order or promise to pay out of a particular fund is not
unconditional.
Exchange is defined to be the difference in value of the same
amount of money in different countries. The exchange may
What are the difference between par A. and the last par. of
be at the (1) current rate, or at a (2) fixed rate indicated
sec 3.?
therein. Such provision does not render the instrument non-
negotiable because while the rate of exchange is not always
the same and while it is technically true that resort must be
In the first case, the particular fund indicated is not the direct
had to extrinsic evidence to ascertain what it is, yet the
source of payment. It is only the source of reimbursement.
current rate of exchange between 2 places at a particular
The payment of the instrument is not made subject to the
date is a matter of common commercial knowledge, or at
condition of availability or sufficiency of funds in the said
least easily ascertained by any one so that the parties can
account. Here, the drawee first pays the payee from his own
always, without difficulty, ascertain the exact amount
funds, then, afterwards, the drawee pays himself from the
necessary to discharge the paper. It must be remembered
funds indicated. The order or promise to pay is upon the
that this provision applies only to instruments drawn in one
general credit of the drawer or the maker. In the second case,
country and payable in another. Where an instrument is
the particular fund indicated is the direct source of payment.
drawn in one country and payable in the same country, there
Here, there is only one act, which is that the drawee pays
can be no exchange, so a provision for payment of exchange
directly from the fund indicated. The payment is, thus,
may be disregarded.
subject to the condition that the funds indicated are
sufficient. But the funds indicated may or may not be
Why doesn’t a stipulation for attorney’s fees render the sum sufficient so that the instrument is rendered non-negotiable
uncertain? because payment is conditional.
st
Eg. 1 case- pays to B or order P10 and reimburses yourself
Although such a stipulation will make the sum payable after
out of the money in your hands.
maturity uncertain, it will not affect the certainty of the sum
nd
payable at maturity and, therefore will not affect the 2 case- pays to B or order P10 out of my part of the
negotiability of the instrument in which it is stipulated. The estate.
purpose of the stipulation is not to give the lender a larger

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
But, where the sum payable is to be paid out of a particular
fund yet payment is not restricted to such fund alone,
“After sight” means after the drawee has seen the instrument
negotiability is not destroyed. Eg. Pay to B or order P10 out of
upon presentments doe acceptance. The instrument becomes
the monthly rental due from A and secured to be paid by my
payable after a fixed period subsequent to date of
BPI account. Similarly, where the instrument indicates a
presentment to the drawee.
particular account to be debited with the amount, the
instrument remains unconditional and negotiable. The
instrument, in this case, is to be first paid and afterwards, the
What is the rule on “the occurrence of a specified events”?
particular account will be debited. The payment is not subject
to the sufficiency of account to be debited. Eg. Pay to B or
order P10 and charge the same to my account.
It is essential that the specified event must be certain to
happen although the time of happening is uncertain. If the
event specified is not certain to happen, then it is a condition
What is a statement of transaction?
and the instrument would be rendered non-negotiable, it is
payable upon a contingency and, according to the law, the
happening of the contingency or condition does not cure the
Instruments are not issued without any transaction
defect.
upon which they are based. The statement of transaction is
the reason giving rise to the issuance of the instrument and
the mere fact that it. Is stated in the instrument will not make
When an instrument states, “ I promise to pay X or order
the promise or order conditional. Eg. Pay to B or order P10 for
P1000, 10 days after Y’s death. Sgd.z. is this instrument
payment of a debt.
negotiable and why?
But where the promise or order is made subject to
the terms and conditions of the transaction stated, then the
instrument is rendered non-negotiable. Besides would be The instrument is negotiable because payment is still certain
contrary to the rule that the negotiability of an instrument to be made (unconditionally), i.e. Y’s death will surely
(whether there is an un-conditional order or promise) must happen.
be determined only from the document itself and not
elsewhere. Eg. I promise to pay B or order P10 subject to the
terms contained in the contract between A & C. Normally, an But if in the previous example, Z promises to pay 10 days
instrument’s negotiability is not affected by the fact that it is before the death of ‘ Y, would such instrument be negotiable?
secured by a mortgage. But, where such provision become in
the note will render the amount uncertain or where such
provisions become part of the note, even though they are not No, because the maturity is uncertain (as no one can tell
in the note itself, the instrument is rendered non-negotiable. exactly when another person will die). Further, when Y is
Thus, where the note is not only secured by a mortgage but already dead, the instrument will already be over due and will
also made subject to its provisions, the note is non- not be negotiable in its full commercial sense.
negotiable.

Sec. 5. Additional provisions not affecting negotiability. - An

Sec. 4. Determinable future time; what constitutes. - An
instrument is payable at a determinable future time, within
the meaning of this Act, which is expressed to be payable:
 At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time
specified therein; or
(c) On or at a fixed period after the occurrence of a
specified event which is certain to happen, though
the time of happening be uncertain.
instrument which contains an order or promise to do any act
in addition to the payment of money is not negotiable. But
the negotiable character of an instrument otherwise
negotiable is not affected by a provision which:
 authorizes the sale of collateral securities in
case the instrument be not paid at maturity; or
(b) authorizes a confession of judgment if the
instrument be not paid at maturity; or

An instrument payable upon a contingency is not
negotiable, and the happening of the event does not cure
the defect.
What does “at a fixed period after… sight” mean?
(c) waives the benefit of any law intended for the
advantage or protection of the obligor; or
(d) gives the holder an election to require
something to be done in lieu of payment of money.

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
But nothing in this section shall validate any valid (because it is illegal) by virtue of the
provision or stipulation otherwise illegal. last par. of sec.5, the instrument is never
the less negotiable.
What is the general rule as regards the requirement of
(c). Waives the benefit of any law intended for the
additional acts contained in an instrument?
advantage or protection of the
obligator- such as the rights to (1) presentment for
payment (sec.70); (2) notice of honor (sec.110); (3)
The general rule is that an instrument must not contain an
protest (sec.111). These being rights, they may be waived
order or promise to do any act in addition to payment of
unless the waiver be contrary to law, public policy, etc.
money. Otherwise the instrument would be rendered non-
(art.6 of NCC.)
negotiable. But the rest of negotiability is whether or not the
promise to do any additional act would give rise to a cause of
action for breach of contract if the said act is not done, if it
(d) Gives the holder an election to require something
does, the instrument is rendered non-negotiable. Eg. I
other than money- even if there is an additional act, the
promise to pay X or order P1000 and 1 horse. Such is non-
instrument still remains negotiable provided that the
negotiable because it contains an additional act to be
right to choose is in the hands of the holder.
performed aside from payment of money. Eg. . I promise to
pay X or order P1000 and a horse. Such is also non-negotiable
because the choice to pay money or deliver the horse is at
the option of the debtor. But, if the phrase “ at the option of Sec. 6. Omissions; seal; particular money. - The validity and
X “ is added to the instrument, such is negotiable because the negotiable character of an instrument are not affected by
option lies with the holder rendering the sum payable still the fact that:
certain.  it is not dated; or

(b) does not specify the value given, or that any

What are the exceptions to the general rule? value had been given therefor; or

(c) does not specify the place where it is drawn or

The negotiable character of an instrument otherwise the place where it is payable; or
negotiable is not affected by a provision which-
(d) bears a seal; or
1. Authorizes the sale of collateral securities in case of
failure to pay- the additional act to be performed is
(e) designates a particular kind of current money in
to be executed after the date of maturity. Before the
which payment is to be made.
date of maturity, no additional act is to be
performed except the payment of money. Eg. “ I
But nothing in this section shall alter or repeal any
promise to pay X or order P100 on the December
statute requiring in certain cases the nature of the
31,1950 provided that if I fail to do so, X may sell the
consideration to be stated in the instrument.
rin I delivered to secure payment of the note. Sgd. A.
What is the rule on payment in other currencies (par. e)?
2. Authorizes a confession of judgment if the
instrument be not paid- the additional act is to be
Even if the money in which the instrument is to be
performed after the date of maturity when the
payable is not legal tender, provided is current money or
instrument ceases to be negotiable in its full
foreign money which has a fixed value in relation to the
commercial sense. A power of attorney to confess
money of the country in which the instrument is payable, the
judgment anytime before maturity renders a note
negotiability of the instrument is not affected, as it is still
non-negotiable. Further, in the Philippines,
considered payable in money.
confessions of judgment have been declared void as
against public policy because

Sec. 7. When payable on demand. - An instrument is payable

a. They enlarge the field for fraud. 2.
Promissor bargains away his day in court
and the effect of the instrument is to strike
down the right of appeal accorded by the
statute. But while the provision as to
confession of judgment is not rendered
on
demand:
(a) When it is so expressed to be payable on
demand, or at sight, or on presentation; or
(b) In which no time for payment is expressed.

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Where an instrument is issued, accepted, or indorsed when (b) The drawer or maker; or
overdue, it is, as regards the person so issuing, accepting, or (c) The drawee; or
indorsing it, payable on demand. (d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time
Give example of the above.
being.

Where the instrument is payable to order, the

Ex. 1) of when “it is expressed to be payable on demand”
payee must be named or otherwise indicated therein with
“I promise to pay on demand P 1,000 to X or bearer. reasonable certainty.
Sgd. A. What does payable to order mean?

-- Instead of “ on demand” the words “on sight” or “ on In BOE, it means that the drawee orders the drawee
presentation” may be used. The words “at sight” are not to pay the payee indicated or if not him, to anybody
ordinarily used in promissory notes. designated by him. Such designation is made by indorsement
of the payee. In PN, the maker promises to pay the payee
indicated or if not him, to anybody designated by him
2) Of when “ no time for payment is expressed” through (also) indorsement. It does not mean that a bill is
necessarily payable to order because it contains an
“Pay to X or order P1, 000 to Y. sgd. Z.
unconditional order to pay. A BOE may either be payable to
order or to bearer. Similarly, a PN may also be payable to
order or bearer.
-- Where the instrument contains a blank space for the
date but no date is indicated, it has been held to be payable
on demand. However, it may be properly considered as an
What is the rule on naming the payee?
incomplete instrument and may fall under the provisions if
sec.14 or 15 depending upon how it was delivered (or not).
The law requires that the payee must be named or
otherwise indicated with reasonable certainty. The payee of
3. Of the last par.
an instrument payable to order must be a person in being,
a. as regards the person so issuing
natural or legal, and ascertained at the time of issue. If there
A note dated July 30, 1984 and payable “30
is no payee indicated, no one could indorse the instrument.
days after date” is issued on August 4,1984.
Consequently, it is useless to consider it as negotiable.
b. as regards the person so accepting
A bill payable on August 20,1984 is
accepted by the drawee on August 21,1984. NOTES: 1) Where the instrument is payable to the order of
the drawer and it is acceptable by the drawee, the instrument
c. as regards the indorser
is equivalent to a promissory note by the acceptor in favor if
A note payable “30 days after August 1,
the drawer.
1984” is indorsed on September 2,1984.
2) Being joint payees is indicated by the
conjunction “and”.
-- After the date of maturity, the instrument can no longer
Eg. “I promise to pay A and B or order P100.
be negotiated as to make the partios who acquire the
sgd. X.”
instrument after the date of maturity holders in sue course
because they become holders thereof with notice that it is 3) Being solidary payees is indicated by the
already overdue, as it can be determined from the face of the conjunction “or”.
instrument itself. It is payable in demand only as between the
Eg. “I promise to pay to the order of A or B
immediate parties.
P100. sgd. X.”
4) Example of par. f – “ Pay to the order of
Cashier of U.P. P10.”
Sec. 8. When payable to order. - The instrument is payable
to order where it is drawn payable to the order of a
specified person or to him or his order. It may be drawn
Is the following instrument payable to order: “Pay to the
payable to the order of:
order of Ms. Laya P100. sgd. Coach.”?
(a) A payee who is not maker, drawer, or
drawee; or

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Yes, because the instrument is payable to the order of a
specified person or to him or his order.
When can an instrument originally payable to order become
one payable to bearer?
Under sec.98, when the only or last indorsement is an
indorsement in blank.
What is the rule re: the conversion of order noted to bearer
notes?
The rule is once a bearer instrument, always a bearer
instrument. This rule refers to instruments originally payable
to bearer. But an order instrument may be converted to a
bearer instrument by blank endorsement of the payee or last
endorsee. It may again be converted to an order instrument,
by virtue of sec. 35, by writing over the signature in blank any
contract not inconsistent with the character of the
endorsement.
Sec. 9. When payable to bearer. - The instrument is payable
to
bearer:
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or
bearer; or
(c) When it is payable to the order of a fictitious or
non-existing person, and such fact was known to
the person making it so payable; or
(d) When the name of the payee does not purport
to be the name of any
person; or
(e) When the only or last indorsement is an
indorsement in blank.
What is the rule re: fictitious or non-existing persons?
This provision has 2 requisites: (1) the payee named
must be fictitious or non-existent; and (2) the one making the
instrument so payable must know him to be fictitious or non-
existing. The first requisite must be qualified. The words
“fictitious person” are not limited to persons having no real
existence. An existing person may be considered a fictitious
payee, depending upon the intention of the one making or
drawing the instrument. “Fictitious person” means never
intended who has no right to the instrument because the
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drawer or maker never intended for it to be payable to the
said person. The want of interest in the payee is not the
controlling consideration in determining whether an
instrument is payable to bearer, as payable to a fictitious
person. Rather, it is the intention the maker or drawer not to
make said person the payee. Thus, it does not matter
whether the name of the payee used by the drawer or maker
be that of one living or dead or one who never existed. The
name is fictitious when it is feigned or pretended and a non-
existent person is one who does not exist in the sense that he
was not intended to be payee by the drawer. Thus, an
instrument made payable to the order of non-existing person
or of a person having no interest in the transaction where the
makers believes that such person exist and has an interest in
the transaction and intends that he shall receive the same, is
not payable to a fictitious person or to bearer. Only if such
maker, knowing the person to be non-existing, never
intended it to be paid to the designated person, can the
instrument be payable to a fictitious person or to a bearer.
NOTES: 1) Under the NIL, a check drawn payable to the order
of “cash” is a check payable to bearer., and the bank may pay
it to the person presenting it for payment without the
drawer’s endorsement.
2) In sec.9e, the instrument contemplated is
one originally payable to order. It becomes payable
to bearer where: (a) there is only one endorsement
and such is in blank: or (b) there are several
endorsement but the last one is in blank. But, a
blank endorsement cannot make a non-negotiable
instrument (because payable to a specified person)
negotiable. The word “indorsement refers only to
negotiable instruments.
Sec. 10. Terms, when sufficient. - The instrument need not
follow the language of this Act, but any terms are sufficient
which clearly indicate an intention to conform to the
requirements hereof.
NOTES: It is advisable to use the words of the law in order to
avoid uncertainty. However, under Sec. 10, it is not necessary
to use the exact words of the law. The substance of the
transaction rather than the form is the criterion for the
negotiability.
Sec. 11. Date, presumption as to. - Where the instrument or
an acceptance or any indorsement thereon is dated, such
date is deemed prima facie to be the true date of the
making, drawing, acceptance, or indorsement, as the case
may be.
NOTES: Sec, 11 applies to 3 cases: (1) the instrument contains
the date of issue, in which case it is presumed to be the true
date of making or drawing; (2) in an accepted bill of
exchange, the acceptance is dated; in which case it is
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
presumed to bethe true date of acceptance; (3) an No. sioson can just fill in the true date of issues in order to
instrument is indorsed and the indorsement is dated, in determine the date of maturity. But, the instrument’s
which case it is presumed to be the true date of negotiability is not affected in accordance with sec. 6.
indsorsement. But all such presumptions may be rebutted by
competent proof to the contrary. The burden of proving In the same example, suppose Sioson puts a false date on the
belongs to the persons who disputes the veracity of the dates instrument and negotiates it to Lyn, an innocent party. What
indicated. are the effects?

The date Sioson inserted is void, but as to Lyn, she can

Sec. 12. Ante-dated and post-dated. - The instrument is not
enforce it against Rhoda as the performer is a subsequent
invalid for the reason only that it is ante-dated or post-
holder in due course. Remember the rule is that between 2
dated, provided this is not done for an illegal or fraudulent
innocents, the one who made possible the commission of the
purpose. The person to whom an instrument so dated is
wrong bears the loss. Also, as to Sioson, the instrument
delivered acquires the title thereto as of the date of
becomes void. This being in accordance with this section as
delivery.
well as with sec. 12, that ante or post dating (which ever case)
for fraudulent purposes renders the instrument void.
What is the rule on ante-dating and post-dating?

Sec. 12 contemplates ante-dating or post –dating

where the parties have mutually agreed to such dating. An
Sec. 14. Blanks; when may be filled. - Where the instrument
instrument is post-dated when the date written thereon is
is wanting in any material particular, the person in
later than the true date of its issuance or delivery. An
possession thereof has a prima facie authority to complete it
instrument is ante- dated when the date written thereon is
by filling up the blanks therein. And a signature on a blank
earlier than the true date of its issuance or delivery. The
paper delivered by the person making the signature in order
general rule on such instrument is that an ante-dated or post-
that the paper may be converted into a negotiable
dated instrument is not rendered invalid or non-negotiable by
instrument operates as a prima facie authority to fill it up as
that fact alone. It may be negotiated before or after the date
such for any amount. In order, however, that any such
given as long as it is not negotiated after its maturity. The
instrument when completed may be enforced against any
only limitation is that the ante-dating or post-dating is not
person who became a party thereto prior to its completion,
done for illegal and fraudulent purposes. Further, title to the
it must be filled up strictly in accordance with the authority
instrument is not acquired as of the date written on the
given and within a reasonable time. But if any such
instrument but rather as of the actual date of delivery.
instrument, after completion, is negotiated to a holder in
due course, it is valid and effectual for all purposes in his
Sec. 13. When date may be inserted. - Where an instrument
hands, and he may enforce it as if it had been filled up
expressed to be payable at a fixed period after date is issued
strictly in accordance with the authority given and within a
undated, or where the acceptance of an instrument payable
reasonable time.
at a fixed period after sight is undated, any holder may
insert therein the true date of issue or acceptance, and the
What are the 2 steps in execution of NI?
instrument shall be payable accordingly. The insertion of a
wrong date does not avoid the instrument in the hands of a
 The mechanical act of writing the instrument
subsequent holder in due course; but as to him, the date so
completely and in accordance with sec. 1, of NI;
inserted is to be regarded as the true date.
and
Is the date necessary to an instrument?
 The delivery of the instrument with the intention of
giving effect to it.
Under Sec. 6, the date is not necessary for the
negotiability of the instrument. However, the date may be
To what step does sec. 14 refer?
necessary; (1) where an instrument is payable at a fixed
period after date but is issued updated; and (2) where an
Sec. 14 refers to instrument that are not complete on its face
instrument is payable at a fixed period after sight but the
but delivered by the maker/drawer. It applies to cases where
acceptance is updated. In these 2 cases, any holder may
the instrument is incomplete but delivered. The first step is,
insert the true date of issue or acceptance.
thus, not fully satisfied.
Rhoda issues an undated instrument to Sioson, does the fact
What are the 2 cases referred to in sec. 14? What are the
that is undated affect is negotiability?
rules on each case?

1. PRIMA FACIE AUTHORITY TO FILL UP BLANKS-

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Where the instrument is wanting in any material
particular, the person in possession thereof has a
prima facie authority to complete it by filling up to
the blanks therein.
a. Material particular- may either be a
particular the omission of which will render
the instrument non-negotiable
Eg. Of (a) – name of payee, of the drawer
Of (b) – date, rate of interest, place of payment
any particular proper to be inserted in a negotiable
instrument to make it complete (given the circumstances
of the instrument)
o GIVEN 2 FACTS: (1) there is want of material
particular in the instrument; and (2) there is
possession by a person other than the drawer or
maker THEN- the law presumes agency or
authority to fill up the blanks.
2 PRIMA FACIE AUTHORITIES TO FILL UP TO ANY
AMOUNT-
A signature in a blank paper delivered by a
person making the signature in order that the proper
may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as
such for any amount.
1) GIVEN 2 FACTS: (1) A signature in a blank paper, and
(2) the paper is delivered with the intention of
having converted into a NI (mere possession not
being enough) THEN- the law presumes
authority to fill up to any amount.
2) But, to hold PRIOR (before completion) parties liable
To a person filling up and to holder not a HIDC- (1)
the blank must be filled up strictly in accordance
with the authority given and (2) filled up within a
reasonable time. (Reasonable time depends on the
nature of the instrument, the usage of the trade or
business and the facts of a particular case sec. 193.)
so much so that lack of one of the two would
result in a failure to enforce the instrument
against said parties.
To a holder who is a HIDC- it is necessary that either
was followed for being a HIDG, he takes the note
(sec. 52)
o Complete and regular on its face;
o Before it was overdue and without notice or
dishonor
o In good faith and value
o Without notice of infirmity in the
instrument or defect in the title of the
owner.
 The maker or drawer cannot blame
an innocent party for a mistake
which he himself made possible
(for not completing the notice).
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THUS, failure to fill up strictly in accordance with authority
given and within a reasonable time is- a personal defense.
This is so because it is available as a defense only as against
those holders not HIDC (including the person filling up). The
maker or drawer is not liable to them. But, as to HIDC, it is
not a valid defense. The maker is still liable despite the error.
WITH REGARD TO PARTIES AFTER FILLING UP, they are
estopped or precluded from claiming that the notice was not
filled up strictly in accordance with the authority given. As to
them, they negotiate the instrument for the value filled up
strictly.
Suppose: Toby executed a note ”I promise to pay Erwin or
order-------. Sdg. Toby then gave Erwin the note authorizing
him to place any amount not exceeding P5, 000. But Erwin
placed P10, 000 and negotiated it to Ian. Can Ian go against
Erwin? Can Ian go against Toby?
As to Erwin, being a party to the completion and having
negotiated the note for such value, Erwin, regardless of
whether Ian is a HIDC or not, can be held liable for the value.
As to Toby, if Ian is not HIDC, Toby cannot be held liable for
the erroneous completion (Toby), the holder must be a HIDC,
the note would be valid and effectual as if it had been
completed in strict accordance with the authority given and
within a reasonable time. While it is true that Toby did not
authorize such amount, by his negligence in making the
fraudulent act possible, he rather the Ian- an innocent party,
must suffer the consequences of its acts.
If Ian, pretending to be a fan of Erap, secures his autograph
on a blank piece of paper and, then, writes a promissory
note over it, may Ian enforce the note? If Ian negotiate it
Toby, may the latter enforce the note against Erap?
Both may not enforce the note. Sec. 14, while it allows for the
filling up of a blank paper with a signature, does not give such
authority when the said paper with no intention of it being
converted to a NI. It does not matter whether Toby is HIDC or
not. Toby’s remedy would be to go after Ian, the endorser.
Sec. 15. Incomplete instrument not delivered. - Where an
incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid
contract in the hands of any holder, as against any person
whose signature was placed thereon before delivery.
What is the rule on incomplete and undelivered instrument?
Here, both stances in the execution of a NI are wanting. The
non-delivery of an incomplete instrument renders the note
unenforceable as against the person whose signature was
placed thereon and is a valid defense, not only between the
original parties but also against a HIDC. The law does not
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
make a distinction when it says that it is not a “valid contract
in the hands of any holder” which includes a HIDC. It is, thus,
a real defense as it is available even as against a HIDC.
However, the invalidity of the instrument is only with
reference to parties whose signature appears on the
instrument prior to delivery. As to parties whose signatures
appear on the instrument after delivery, the instrument may
be invalid.
Suppose Toby, before he could complete a note, placed the
said paper between the pages of his book. Erwin who
borrowed the book and finds the said note, completes it,
signs Toby’s name and negotiates it to Ian. Ian negotiates it
to Jon. Can Jon go against Ian?
As the note was incomplete and undelivered, Toby has a real
defense as against Jon. It does not matter whether Jon is a
HIDC or not. As to Toby, there was never any valid contract to
make him liable. But, Jon can still go against Erwin and Ian as
they are considered to be parties whose signature appear
after the delivery (Erwin’s signature would appear as an
instrument.)
All notes when presented for payment arew persumed
to be complete and delivered. The purpose of sec. 14, 15 &
16 is to show what defenses are available to makers/drawers
upon the presentment of these instruments. For example, in
the hands of a HIDC when the note is originallly incomplete
and undelivered’ such presumption is only prima facie. Proof
of non-delivery may be presented to rebut the presumption.
In contrast, if the note was mechanically but undelivered, the
presumpiton is conclusive as to a HIDC. No proof may be
presentewd to rebut it.
It has been held that where the custody of the
incomplete instrument has been entrusted to another who
wrongfully completes and negotiates the note to a HIDC,
delivery to the agent is asufficient delivery to bind the drawer
or maker.
Thus, the defense is only a personal defense. The one who
being held liable may only show lack of delivery if and when
the holder is not a HIDC (may either an immediate party or a
holder not a HIDC). Once the holder proves that he is a HIDC,
the defense is no longer available.
What is meant by “immediate parties”
The term immediate parties is confined to those who are
immediate, in the sense of knowing or bieng held know the
conditions or limitations placed upon the delivery of the
instrument. It means privity not proximity. The cretirion is
whether or not the party in question knows of the conditions
or limitationas placed upon delivery or the facts that the
instrument was not delivered but stolen. Thus, if a party
knows of such conditions or limitation, he is an immediate
party even if he is physically remote (eg. Maker indorsee
who knows)n (NOTE: While proximity is not the critirion, it is
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highly improbable that the next party physically will not know
such conditions or limitations).
What may the maker, drawer, indorser show as against the
immediate party or a holder not a HIDC?
As against such parties, he may prove that: (1) no delivery
was made; or (2) if there was a delivery, it was not
authorized; or if the delivery was made or authorized, the
delivery was conditional or for a special purpose and not for
the purpose of transferring the title to the instrument. In
conditional deliveries, what is conditional is the delivery, not
the promise or order to pay. If the promise or order to pay is
conditional, the instrument is rendered non-negotiable. Eg. A
deliver the note to B with the condition that the delivery be
binding only if C’s signature was secured. The delivery is not
binding on A until C’s signature appears thereon. (The
promise or order to pay remains unconditional on the face.)
As to special purposes, if a delivers a bearer instrument to B
for (1) safekeeping or (2) for collection, B cannot enforce the
note against A.
What is the rule on lost or stolen instrument?
As soon as the owner discover that he has lost a NI, he should
instantly give notice of the lose to all parties on such paper
and inform them not to pay the amount to any one except to
the loser or is order. This is especially important in bearer
instrument (but may also apply to order instrument). No title
to a lost bill or note vest in the finder and the owner when he
has identified it, may maintain ero an action where the
defendant found an article and refused to return it to the
owner) against the finder. If the finder has negotiated it and
has received value for it, an action for money be maintained
against him for such use. A party liable will net be discharged
if he pays the amount to the holder of the lost instrument
before maturity or if he had notice of the loss unless the
holder is a HID. (in such case, the party liable should recover
from the finder).
Sec. 16. Delivery; when effectual; when presumed. - Every
contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto. As between immediate parties and as
regards a remote party other than a holder in due course,
the delivery, in order to be effectual, must be made either
by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in such
case, the delivery may be shown to have been conditional,
or for a special purpose only, and not for the purpose of
transferring the property in the instrument. But where the
instrument is in the hands of a holder in due course, a valid
delivery thereof by all parties prior to him so as to make
them liable to him is conclusively presumed. And where the
instrument is no longer in the possession of a party whose
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
signature appears thereon, a valid and intentional delivery
by him is presumed until the contrary is proved.
What is the general rule in Sec. 16?
Every contract on a NI even if it is completely written
is incomplete and revocable until its delivery. Before delivery,
the maker or drawer can revoke, cancel or tear up the
instrument. The payee named therein acquires no right until
the instrument is delivered to him. Delivery is essential to the
validity of any NI. An undelivered instrument is inoperative
because delivery is a prerequisite of liability. However, if a
complete instrument is found in the possession of an
immediate party or a remote party other than a HIDC, there is
a prima facie presumption of delivery but subject to rebuttal.
If the holder is a HIDC the presumption becomes conclusive
and not subject to rebuttal.
If the note is found with immediate party or a holder
not a HIDC, the one being held liable can show that delivery
was not made either him or under his authority. (Delivery
may be made by the maker/ drawer himself or through an
authorized agent. Delivery may also mean issuance.) But, if
the note is with a HIDC, the one being held liable cannot
prove such because he is conclusively presumed to have
delivered it. Thus, is a maker denies having delivered a
complete note, the holder must only show that he is a HIDC
and the former can no longer prove his accusation.
Sec. 17. Construction where instrument is ambiguous. -
Where the language of the instrument is ambiguous or there
are omissions therein, the following rules of construction
apply:
(a) Where the sum payable is expressed in
words and also in figures and there is a
discrepancy between the two, the sum
denoted by the words is the sum
payable; but if the words are
ambiguous or uncertain, reference
may be had to the figures to fix the
amount;
(b) Where the instrument provides for
the payment of interest, without
specifying the date from which
interest is to run, the interest runs
from the date of the instrument, and if
the instrument is undated, from the
issue thereof;
(c) Where the instrument is not dated, it will be
considered to be dated as of the time it was issued;
(d) Where there is a conflict between the written
and printed provisions of the instrument, the
written provisions prevail;
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(e) Where the instrument is so ambiguous that
there is doubt whether it is a bill or note, the holder
may treat it as either at his election;
(f) Where a signature is so placed upon the
instrument that it is not clear in what capacity the
person making the same intended to sign, he is to
be deemed an indorser;
(g) Where an instrument containing the word "I
promise to pay" is signed by two or more persons,
they are deemed to be jointly and severally liable
thereon.
 The rules stated shall not be availed of if the terms of the
instrument in question are clear and admit of no doubt. It is
only when the instrument in question is ambiguous, doubtful
or obscure or when there are omissions therein will the rules
apply.
EXAMPLE OF THE RULES:
(a) Where a PN reads “twelve pesos” in its body and P
1,200 (in figures) at the margin, the note is good only
for P 12. The reasons are: (a) the figures in the
margin do not form part of the instrument and is
only for convenience: (b) it is easier to change the
figures or to commit a mistake than a sum in words.
But when the words are ambiguous or uncertain as
when the letter “Y” in eighty thousand is unclear
(with P8,000 on margin) or when the note is payable
for “one pesos” ( with P 100 on margin) or P365 is
written as “three sixty five pesos”, the marginal
figures control.
(b) Where the note stipulates that the amount to be
paid is “with interest at ______% from____”, it is
deemed payable from the date in the note or if issue
at the legal rate.
(c) Where the note states “I promise to pay to the rule
of J.M ONLY P 10. sgd. X.” with “J.M ONLY” in
handwriting, the note is non-negotiable as it is
payable to a specified person only. The handwritten
words prevail because the written words are
deemed to express the true intention of the maker
because they are written by him while the printed
words are printed with no contract in view.
(d) Where a note states “I promise to pay Erwin or order
P 10. sgd. Toby. Ian”, the payee or holder may treat
it as either a note or bill according to his preference.
(e) Usually, the signature of the maker/drawer is placed
in the lower right hand corner if the face, the
acceptor across the face and the indorser at the
back. Where it is not clear which if the three a
person belongs as he signs on the margins, he is
presumed to be an indorser.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(f) Where a note states “I promise to pay C or order
P10. sgd. A&B.”, the makers are deemed to be
solidarily bound.
Sec. 18. Liability of person signing in trade or assumed
name. - No person is liable on the instrument whose
signature does not appear thereon, except as herein
otherwise expressly provided. But one who signs in a trade
or assumed name will be liable to the same extent as if he
had signed in his own name.
What is the general rule? Exceptions?
GENERAL RULE: A person whose signature does not appear
on the instrument cannot be held liable thereon
EXCEPTIONS:
(1) The principal is liable if duly authorized agent signs
on his own behalf (Sec. 19);
(2) In case of forgery is liable even if his signature does
not appear on the instrument (Sec. 23);
(3) Where a person sought to be charged signs on paper
separate from the instrument itself, as in an allege
although the allege may be considered a part of the
instrument, or where an acceptance is written on
another paper other than the bill (Sec. 134 & 135);
(4) Where a person signs under an assumed or trade
name- not really an exception, rather an instance
where a person’s business name serves the same
purpose as his signature. There must be an intention
to be found by signing the trade name.
Sec. 19. Signature by agent; authority; how shown. - The
signature of any party may be made by a duly authorized
agent. No particular form of appointment is necessary for
this purpose; and the authority of the agent may be
established as in other cases of agency.
a. The party may sign personally or thru an
agent. Agency may be oral or written
authority. It may be proved by oral or
written evidence, unless specific provisions
of the general law require otherwise (eg.
Statute of Frauds).
Sec. 20. Liability of person signing as agent, and so forth. -
Where the instrument contains or a person adds to his
signature words indicating that he signs for or on behalf of a
principal or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere
addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal,
does not exempt him from personal liability.
What are the requisites for an agent to escape liability?
(1) The agent must be duly authorized.
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(2) Must add words to his signature indicating that he
signs as an agent, that is, for or on behalf of a
principal.
(3) Must disclose his principal.
EXAMPLES
Of no.2 - “Jose Cruz by Pedro Vega” “Pedro Vega as
agent of “Jose Cruz”
Of no.3 – “sdg. Pedro Vega, agent” – Vega is liable as
he fails to disclose his principal (even if he acts within his
authority). “Agent” is deemed as merely a descriptive word,
also “trustee”, “administrator” – one is not relieved from
liability by adding descriptive words.
Of no. 3 – the disclosure of the principal in order to
relieve the agent need not be in signature (can be in the
body). Eg. “ I promise to pay X or order P100 for money
loaned to Y & Co. sgd. J, Treasurer.” The principal is obvious”.
Sec. 21. Signature by procuration; effect of. - A signature by
"procuration" operates as notice that the agent has but a
limited authority to sign, and the principal is bound only in
case the agent in so signing acted within the actual limits of
his authority.
What is the authority of an agent by procuration?
This agent has but a limited authority to sign and he must act
within the limits of his authority. The words “per proc.” or
“p.p.” serves as a notice to whole world that the agent has
but a limited authority. It is the duties of the 3rd person
dealing with such agent ascertain the limits of the agent’s
authority. He must remember that he is dealing at his own
risk.
FORM: “Jose Cruz (principal), per proc.: Pedro Vega (agent)”
Sec. 22. Effect of indorsement by infant or corporation.- The
indorsement or assignment of the instrument by a
corporation or by an infant passes the property therein,
notwithstanding that from want of capacity, the corporation
or infant may incur no liability thereon.
What is the rule: a minor or corporation indorsing?
Ordinarily, a minor cannot give consent to contracts and a
contrast entered into by him is avoidable. In the case of
corporations, they cannot perform acts beyond the escape of
their authority. Such acts would be ultra vires Never the less,
if a minor or a corporation endorsee an instrument, the
endorsee acquires titles to it and can enforce it agains the
maker or acceptor or other parties prior to the minor.
Suppose: Lyn prepares a note for Paz, “ I promise to pay Paz
or order P1, 000. sdg. Lynn” But Paz is only a minor. Paz
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
negotiated the instrument to Lawrence. Can he hold Lynn
liable Paz?
Lawrence can hold Lynn liable because he acquires title to the
instrument by virtue of sec. 22. The instrument is validly his.
But Lawrence cannot hold Paz liable because Paz has a valid
defense – her minority. Minority is real defense in the sense
that the Paz may use it as against any holder (even a HIDC).
But, Lynn cannot make use of the same defense as it is
personal to the minor – Paz. Further, as maker, Lynn warrants
the existence of the thing as well as the capacity of the payee
to enter into the contract. The maker is therefore precluded
from putting up the defense that the payee had no capacity.
Sec. 22 is also applicable to endorsements by lunatics,
imbeciles, and other incapacitated parties.
Sec. 23. Forged signature; effect of. - When a signature is
forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of
authority.
What is forgery?
By forgery is meant the counterfeit making or fraudulent
alteration of any writing, and may consist in the signing of
another’s name or the alteration of an instrument in the
name, amount, description of the person and the likes, with
intent to defraud. The intent to defraud distinguishes forgery
from innocent alterations and spoliation.
What are the forgeries not referred to in sec. 23?
- fraud in factum – or fraud in esse contractus.
Here, there is fraud in the sense that ther was
really no intention to issue an instrument. As it
amounts to forgery, it has the effects of forgery
such that it is a real defense.
eg. B obtains the signature of A by
telling A that it is only for autograph
purposes or that it is for some
document (other than a NI) then B
converts the paper into a NI. The fraud
here amounts to forgery.
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This must be distinguished from fraud in document
because the letter is only a personal defense as
there really was an intention of issuing an
instrument. Eg. A sell to B a diamond rings showing
the merchandise to A. But it is only glass. A makes
out a check in B’s favor for it. While the consent is
vitiated, thus rendering the contract voidable, there
was still intent to issue a check. The defense is only
available as against the party who perpetrated.
- Duress amounting to fraud – ordinarily, duress is
a personal defense. The only
exception is if it amounts to forgery as when someone
forcibly takes one’s hands
and affixes that the person’s signature. Here, there is a
real defense as there was no intention of issuing a
negotiable instrument.
- Fraudulent impersonation – in such cases, the
maker/drawer is said to have a/double intent.
First he intends to make the instrument payable
to the person before him or in front of him – the
person is he is dealing with regardless of
nd
whoever he is. The 2 intent is that he intends
that it be payable not to the person in front of
him but to the real person – the payee that this
st
person says he is. In general, the rule is if the 1
intent was present the maker/drawer is liable.
So, what is important is the determination of
who the payee intended is.
Eg. A person approaches me and says, “ I am Pablo.
I have a check in my favor for P10, 000.” But the person is
really Pedro. Now I issue a check in the name of Pablo.
What is my intention?
st
1 : I intend to the check to the person in
front of me – to the person I am
dealing with. It does not matter whether his name is
Pablo or Pedro. I am making
the transaction because of what he offers regardless
of his identity.
nd
2 : I intend to make the check payable to
the real Pablo – the person who
Pedro says he is.
st
(a) The 1 intent governs because of the theory of
actual intent and of stopped or negligence. If the
check is encashed, the bank, in paying Pedro
would merely give due course to my real intent
– that it be paid to the person I directly dealt
with and to whom I intended it to be paid to.
Secondly, because the bank is innocent as I am
too, and as between two innocent parties, the
one who was negligent must be bear the loss. I
was negligent is not ascertaining his identity. I
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
am stopped to deny my real intent because it
was within my power to ascertain but that I
failed to do so.
st
(b) The 1 intent cannot rule when the
maker/drawer issues to a person an instrument
where the person before him purports only to
be an agent of the intend payee (given: maker
was’nt negligent).
What type of forgery does sec. 23 refer to?
Sec. 23says, “when a signature is forged…” it applies
therefore only to (1) forged signatures (forger does not
purport to be an agent of the person whose signature he has
forged) or (2) signatures made without the authority of the
person whose signature it purports to be (forger purports to
be agent but has no authority). If the problem is something
else other than the signature, then sec. 23 will not apply. If
what was changed was the amount or the name of the payee,
sec. 124 on material alternation rather than sec. 23 should
apply.
What are the three fundamental rules as to the effect of
a forged signature?
that the signature forged or made without
authority is wholly inoperative;
that no right to retain the instrument, or to
give discharge therefore or enforce
payment thereof against any party thereto
can be acquired through or under such a
signature forged or made without authority.
That, nevertheless, as against a party
preclude from setting up to the forgery or
want of authority, the signature forged or
made without authority is operative, and,
rights to retain the instrument the
instrument, to give discharge therefore , or
to enforce payment thereof, can be
acquired through or under the signature
forged or made without the authority.
What is meant by “it is wholly inoperative?
The word it refers to forged signature, not to the
whole instrument. It means that the forged signature cannot
be used to transfer title ever that the instrument to another
person. The forged signature cannot operate to transfer title
to another. Because the signature is inoperative, the holder
never acquires valid title to the instrument so that it is a real
defense as against any holder.
EXCEPTIONS:
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1) but, only the signature forged or made without
authority is stated by the law to be inoperative,
neither the instrument nor the genuine signatures
are rendered inoperative. Proof that the one of
several signatures in a note was forged does not
necessarily avoid the note as to those whose
signatures as are genuine – such as those who
actively procured the forgery or had knowledge.
2) further, the instrument can be enforced by holders
to whose title ever the instrument the forged
signature is not necessary., such as, an endorsement
of an instrument which on its faco is payable to
bearer. Whether an indorsement on a not necessary
for the holder’s title is genuine or forged is
immaterial to his right to recover such instruments
can be negotiated by mere delivery so that the
forged signature is irrelevant to his title.
PROBLEM: A made a Promissory note “I promise to pay B
or order P1, 000. sdg A. “A is the maker and B is the
payee. B however lost the instrument. C found it and
simulated the signature of B and negotiated the
instrument to D. D negotiated it to E. Can E go against A,
B, C, D? Explain.
ANSWER:
First, does this problem involved sec. 23, forgery of
a signature? Obviously, it does. Second, find out where
the forgery occurred. In this case, the forgery occurred at
the point of C. So this is the cut-off point. All those below
or subsequent to the cut-off point. Are liable to the
holder. All those above or prior to the cut-off point are
not liable to the holder.
Visually
A } not liable
B } not liable
---------------------- cut-off point
C } liable
D } liable
E } holder
(1) as to D, under sec. 23, D is preclude from setting up
the defense of forgery. This is because, under sec. 65
& 66, an indorser warrants that an instrument is
genuine and in all respects what it purports it to be.
In other words, when D negotiated the note to E, in
effect, he said, the instrument is genuine and it is
valid. “ Having impliedly said this, he cannot
thereafter say that the instrument is invalid. He is
stopped by his own warranty.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
As to C, being the forger, he is guilty of a
criminal offense and is liable for all the
consequence of his criminal act. But, more than
that, under sec. 18 as an exception to the
general rule, the forger is liable as he is deemed
to have signed under a trade name or assumed
name. Thus, the forger has the same warranty
as the general indorser. Otherwise, the forger
would be occupying a position better than of a
general indorser.
(1) As to B, because under sec. 10 “ A person where
signature does not appear thereon is not liable on
the instrument. “B did not sign. Somebody signed for
him without his authority. His signature does not
appear on the instrument and thus, he cannot be
liable thereon. Moreover, under sec. 23, the forged
signature (made by C) is totally or wholly
inoperative. Therefore, no title was validly
transferred from B to C to D to E. therefore E
acquired only the right that cannot be upheld as
against B and any party prior to the forgery, it being
wholly inoperative, there is no right even to retain
the instrument or to enforce payment thereof
against any party thereto.
(2) As to A, insofar as A is concerned, the signature
forged is wholly inoperative and therefore it did not
validly transfer title to the instrument to E. And E as
against A has no right to retain the instrument ant to
enforce payment thereof. (Further, A bound himself
to pay the order of B. E cannot be regarded as such.
SUPPOSE: In problem 1, the note was a bearer instrument but
C, in forging B’s signature, indicated that it was payable to
him in the back was put “ Pay to D. sgd.C.” D negotiated it to
E, “Pay to E. sgd.D” Can E now go against A,B,C,D?
(1) Sec. 23 applies only the instrument payable to order
not to those payable to bearer. The forged signature
of B is not necessary to the title of the holder. The
holder can even cross out all those indorsement not
necessary (sec. 48). Once an instrument is payable to
bearer, it will always remain a bearer instrument not
withstanding the special indorsement. If the crosses
them out, it will be as if the note was delivered
directly in him. Therefore. E can hold A, B, C, D.
While the cut-off point rule is used above in
the situation of an indorser, it is also
applicable to forgeries of a
maker’s/drawer’s signature such that all
parties such that all parties below the cut-
off point (all parties subsequent to the
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maker/drawer) can be held liable but not
the maker/drawer. Further, under sec. 18,
he whose signature does not appear
thereon is not liable on the instrument.
Who are precluded from setting up the defense of forgery?
Those who warrant or admit the genuineness of the
signature in question:
 indorser – whether general or qualified, warrant that the
instrument is
genuine and in all respects what it
purports to be (sec. 65 & 66)
 person negotiating by mere delivery – also by sec. 65.
 Acceptors – by accepting the bills, he admits genuineness
Those who, by their acts, silence or negligence are
stopped from setting up the defense of forgery.
Whenever a party has, by his own declaration, act
or omission, intentionally and deliberately led
another in believe that his or another’s signature in
an instrument is genuine, an to act upon such belief,
he cannot, in any litigation, a rising out of such
declaration, act or omission, be permitted to set up
the forgery of such signature. Stopped arises from:
(1) a declaration;
(2) an act;
(3) omission or negligence – (such as unreasonable
delay)
What are the causes of forgery in general?
I. Forgery of promissory notes:
i. forgery of an endorsement in the
note;
2.)forgery of the maker’s signature
II. forgery of bills of exchange:
a) forgery of an indorsement in the bill;
b) forgery of the drawer’s signature.
a. with acceptance by the drawee, or
b. without such acceptance but the bill is paid
by the drawee.
The cut-off point rule discussed above is a
sufficient guide to see who can be held liable on
instruments payable to order whether the forgery
is of the indorsement or maker’s/drawer’s
signature. What remains to be discussed is the
liability of the drawee in bills where the
indorsement is forged. (below)
As mentioned, when the note/bill is payable to
bearer, sec. 23 is not applicable but a holder who
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
is a HIDC can recover not by virtue of sec. 16
(given the instrument is complete).
As to the acceptor, his acceptance precludes him
from setting up the defense of forgery by virtue of
his warranties in accepting. Also, in paying without
previous acceptance, the drawee cannot collect
from the drawer nor the recipient HIDC. The
acceptor is deemed constructively negligent in
failing to meet its obligation to know its
customer’s (drawer) signature. The basis of such
liability is not that payment is tantamount to
acceptance but that of his negligence. (Here it is
the drawer’s signature which is forged).
What rules used govern checks?
The same rule used for the other NI – the cut-off point rule –
with the exception of the determination of the drawee
bank’s liability vis-à-vis each other.
If the case happened at present, MB would have to
reimburse FNCB for the amount.
This case, strictly speaking, involves material
alteration and is not applicable to Sec. 23 except as
tro the liabilities of the drawee bank and the
collecting bank in cases falling within the scope of
Sec. 23.
Therefore, if the drawee bank is vigilant as to inform
the collecting bank within 24 hrs. from discovery,
the liability for forged checks will lie with the latter.
The remedy of the collecting bank is to insure itself
against such losses. If the public cannot hold the
collecting bank liable, it will no longer use checks but
rather cash. Commercial transaction s will bog down.
Consequently, the economy will stand still and the
banks will suffer. The drawee bank is liable only for
the signature of the drawer. It is only to such party
that the bank has privity with. The collecting bank
has privity with the depositor who is the principal
culprit in the case. Thus, it has duty of diligence.

II. CONSIDERATION
METRO BANK VS. FNCB (118 SCRA 537)
Sec. 24. Presumption of consideration. - Every negotiable
instrument is deemed prima facie to have been issued for a
Cunanan & Co. drew a check for P 50, 000 with FNCB as the
valuable consideration; and every person whose signature
drawee in favor of Manila Polo Club. By unknown
appears thereon to have become a party thereto for value.
circumstances, Sales was able to obtain the check, altered the
same (making it payable to cash and for P 50, 000) and
What does this section provide?
deposited it with Metro Bank. MB then sent the check to the
CB clearing house with stamp on the back: “ Metro Bank
Under this Section, the mere introduction or
cleared…office all prior endorsement and/ or lack of
negotiation of a note raises a disputable presumption of a
endorsement guaranteed. “ the check cleared the same day
sufficient consideration . It is unnecessary to aver or prove
and FNCB paid MB the P 50, 000. Within 6 days, Sales whose
consideration, for consideration is imported and presumed
account was credited with the amount, withdrew the money.
from the fact that it is a NI. The person (maker/drawer or
But before the last withdrawal, MB, alarmed at the activity of
indorser) claiming that a payee or indorsee did not give
the account, clarified the matter with FNCB which gave its
valuable consideration for an instrument must prove that
approval. Upon receipt of the check, Cunanan notified FNCB
there really was no valuable consideration given.
of the alternation. FNCB asked MB to reimburse the amount
but the latter refused. Who is liable?
SC declared that under CBC no. 9, the drawee bank Sec. 25. Value, what constitutes. — Value is any
(FNCB) must return the check within 24 hrs. from receiving it consideration sufficient to support a simple contract. An
from the CB clearing house to the collecting bank for any antecedent or pre-existing debt constitutes value; and is
defect such as an alteration. The stamped guarantee of MB deemed such whether the instrument is payable on demand
must be read with CBC no.? That the liability of the collecting or at a future time.
bank on such stamp is limited to the said 24 hrs. Here, FNCB
returned the check only after 9 days. Further, the approval What is valuable consideration?
given by FNCB of the last withdrawal shows the drawee’s
negligence and stopps them from claiming otherwise. FNCB IS Consideration means inducement to a contract that
LIABLE. is, the cause, motive, price or impelling influence which
induces a contracting party to enter into a contract. Valuable
CBC No. 9 has been superseded by CBC No. 580
consideration consists either in some right, interests, profit or
(1997). Under 580 the attention of the collecting
benefit accruing to the party who makes the contract, or so,
bank must be called within 24 hrs. from the date of
forbearance, detriment, loss or some responsibility to act or
discovery of the fraud, forgery or material alteration.
labor, or service given, suffered or undertaken by the other

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
side. Consideration founded on (1) love and affection, or (2)
upon gratitude, is good consideration, but does not
constitute such valuable consideration as is sufficient to
support the obligation of a bill or note, as between original
parties. Included on this are gifts, services without
expectation of compensation, moral obligations. These are
not valuable consideration contemplated by the NIL.,
although the same are considered so by the Civil Code. A
valuable consideration need not be adequate. It is sufficient if
it is a valuable one.
Sec. 26. What constitutes holder for value. - Where value
has at any time been given for the instrument, the holder is
deemed a holder for value in respect to all parties who
become such prior to that time.
What is a holder for value?
One who gives valuable consideration for an
instrument issued or negotiated to him is a holder for value.
ILLUSTRATION: A, maker, B, payee. B indorses to C, C to D, D
to E, holder. Between A & B no valuable consideration.
Between B & C valuable consideration is given. Between D &
E it is not known whether value was given.  E is a holder for
value as to A, B and C because at C’s time there was valuable
consideration given and A, B, and C were partiers prior to the
time when value had been given. As to D, it is not known.
Sec. 27. When lien on instrument constitutes holder for
value. — Where the holder has a lien on the instrument
arising either from contract or by implication of law, he is
deemed a holder for value to the extent of his lien.
Suppose: Erwin, out of love and affection, issued a
promissory note in favor of Anne Marie, “ I promise to pay
Anne Marie or order P1,000.00. sgd. Erwin.” As a birthday
gift. But Anne Marie owes Peter P6000.00. Because of the
persistence of Peter for AM to pay him, she surrenders the
instrument to him. Peter is now the holder. Can Peter go
against Erwin?
Given the lack of valuable consideration between
Anne Marie and Erwin applying Sec. 27, Peter is considered a
holder for value to the extent of his debt or lien- P600 and
can go against Erwin for such amount. As to the P400
remaining, as Peter is not considered a holder for value to
such extent, he may not collect it. Absence of consideration,
being a personal defense (Sec. 28), can be used as against
those not HIDC. Since being a holder for value is one of the
requisites of a HIDC, Peter can not be considered as HIDC and
thus, the defense of lack of consideration is available to Erwin
as against Peter. HOWEVER, if sufficient consideration existed
between Anne Marie and Erwin, Peter may collect the entire
sum subject to the obligation to return the excess to AM. But,
also, if the defense of Erwin is a real defense, Peter may not
recover from the instrument despite his lien.
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Sec. 28. Effect of want of consideration. - Absence or failure
of consideration is a matter of defense as against any person
not a holder in due course; and partial failure of
consideration is a defense pro tanto, whether the failure is
an ascertained and liquidated amount or otherwise.
What is absence of consideration? Failure of consideration?
Distinguish the two.
Absence of consideration is a total lack of any valid
consideration such as when the consideration for commercial
paper is clearly fraudulent. Failure of consideration is the
neglect or failure of one of the parties to give, to do or to
perform the consideration agreed upon. Want or absence of
consideration embraces transactions where no consideration
was intended to pass while failure of consideration was
contemplated but that it failed to pass.
Illustrate partial failure of consideration.
Suppose that in a note for P1,000.00 the extent of
want of consideration is only P600.00 That is, B., payee, gave
A, maker valuable consideration to the extent of P400.00. A
can interpose want of consideration pro tanto, or
proportionate- only to the extent of P600.00. C, holder, if he
is not a HIDC, can only collect from A P400.00. But, if he were
a HIDC, he can collect the entire amount.
What kind of defense is absence or failure of consideration?
Failure or absence of consideration , whether total
or partial, can be interposed as a defense only against
persons not HIDC but not against HIDC. These defenses are,
therefore, only personal or equitable defenses.
Sec. 29. Liability of accommodation party. - An
accommodation party is one who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be
only an accommodation party.
What is an accommodation party?
An accommodation party is one who has signed the
instrument as maker, drawer, acceptor or indorser without
receiving value therefore, and for the purpose of lending his
name to some other person. The requisites therefore are : (1)
he must be a party to the instrument, signing as maker,
drawer, acceptor or indorser; (2) he must not receive value
therefore; and (3) he must sign for the purpose of lending his
name or credit. Thus, it is not a valid defense that the
accommodation party did not receive any valuable
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
consideration when he executed the instrument as the law
requires such absence. (In contrast, under the Civil Law, the
absence of consideration renders the contract defective.) The
placing on the note of the words “ value received” does not
negate the character of the note as an accommodation
paper. The phrase without receiving value therefore “ means
without receiving value by virtue of the instrument and not as
it apparently is supposed to mean, without receiving payment
for lending his name.
ILLUSTRATION:
1. ACCOMODATION MAKER- A wanted to borrow
money from B. But B would not lend the money to A
because of the former’s bad reputation. A would
only lend B the money if the latter were able to
secure the signature of C. B asks C to execute a PN in
his(B) favor. C makes a PN, “I promise to pay B or
order P1,000.00 sgd. C.” B then indorses the note to
A and B gets the P1,000.00 from A.
In this eg., B is the accommodated party. C
is the accommodated party (maker). He
become a party to the instrument as maker
but only for the purpose of lending his
name or credit to B so that B can raise the
money he needs. C who as a maker is
ordinarily primarily liable, is only
secondarily liable, is primarily liable. This is
because ultimately, the accommodated
party is the one required to pay. But if due
date comes and B cannot pay, C can be held
liable to pay despite A’s knowledge that C is
only an accommodated party. Then, C after
payment can have recourse as against the
one primarily liable, the accommodated
party -. (In my opinion, when due date
comes is C that A should go against. After
payment, only then can B held liable. So,
the maker is still primarily liable – at least,
at first).
A corporation cannot be held liable as an
accommodation party. This is because a
corporation cannot issue instruments
without a consideration. And under sec. 22,
while title may pass as to the instrument,
the corporation may not be held liable due
to its want of capacity (to issue
“consideration - less” NI). In such cash, it is
the officers who issued the instrument who
must be held liable in their individual
capacities. Such an act is considered ultra
vires. (See cases)
2) ACCOMODATION INDORSER – in the eg. Above instead of
asking C to execute a PN, B makes a note favor of A. B asks C
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to indorse the note without receiving value therefore. Here, C
is considered an accommodation indorser. Such endorsement
is for the purpose of better securing the payment of the note.
3) ACCOMMODATION DRAWER – in the eg. Above, instead of
executing a PN, C executes a BOE with B as the payee even
though no valuable consideration is received by C.B then
indorses the bill to A, who gives the proceeds to B.
4) ACCOMMODATION ACCEPTOR – in the eg. Above, instead
of ask C to accept the bill drawn by him (B) in this own favor.
Then, B indorses the bill (that was accepted by C) to who
gives the money.
What is the legal position of the accommodation party?
The accommodation party is generally regarded as a
surety for the party accommodated. It is not the
accommodation party that is ultimately liable for the
instrument issued. It is the accommodated party. When the
accommodation party makes payment to the holder, they
have the right to see the accommodated party for
reimbursement since the relation between them is in effect
that of principal and sureties. The accommodated party
cannot recover from the accommodation party because, as
between them, absence of consideration is a valid defense.
The understanding between them is either: (1) the
accommodated party pays the instrument directly to the
holder; or (2) the accommodated party reimburses the
amount paid by the accommodation party to the holder.
A holder despite his knowledge that the
party he holds liable is just an
accommodation party can still recover from
such party as if there was no contract of
accommodation. The knowledge of the
holder does not effect his being an
otherwise HIDC. Thus, to hold the
accommodation party liable, the holder,
except for the knowledge of want
consideration, must meet all the requisites
under sec. 52, that is, the holder for value
must have acquired the instrument
complete and regular on its face, before it is
overdue and without notice of previous
dishonor. Where he does not meet all
these, thus not a HIDC, sec. 28 not a sec. 29
applies. The accommodation party may
interpose the defense of its being an
accommodation party to a holder not HIDC.
A solidary accommodation party (1) may
demand from the principal debtor
reimbursement of the amount he paid; and
(2) may demand contribution from his co–
accommodation makers without first
directing his action against the principal
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
debtor provided that (a) he made the It is the transfer of an instrument form one person to
payment by virtue of a judicial demand; or another so as to constitute the other the holder thereof.
(b) the principal debtor is insolvent. There is no negotiation if the transfer does not make the
transferee the holder of the instrument. Where the
instrument is payable to order, it is negotiated by the
III. NEGOTIATION
indorsement of the holder completed by delivery, and where
it is payable to bearer, by mere delivery. But where the
Sec. 30. What constitutes negotiation. - An instrument is
instrument is payable to bearer and it was indorsed and
negotiated when it is transferred from one person to
delivered, the transferor shall be liable as an indorser.
another in such manner as to constitute the transferee the
Further, for the holder to hold liable such indorser, the
holder thereof. If payable to bearer, it is negotiated by
former must be able to trace his title through an unbroken
delivery; if payable to order, it is negotiated by the
chain of indorsement (Sec. 40)
indorsement of the holder and completed by delivery.
Sec. 31. Indorsement; how made. - The indorsement must be
DEFINITION OF TERMS:
written on the instrument itself or upon a paper attached
1. Transfer- to convey property from one
thereto. The signature of the indorser, without additional
person to another;
words, is a sufficient indorsement.
2. Holder- the payee or indorsee of a bill or
What is the nature of indorsements?
note who is in possession of it or the bearer
thereof (Sec. 191).
Indorsement is the writing of the name of the
What are the 3 types of transfer?
indorser on the instrument with the intent either in transfer
1. by assignment;
the title to the same, or to strengthen the security to the
2. by operation of law
holder by assuming a contingent liability for its future
3. by negotiation which may either be by indorsement
payment, or both. An indorserment is not only a mode of
completed by delivery or by mere delivery.
transfer. It involves also a new contract and an obligation on
the part of the indorser – an impiled guaranty that the
What is assignment?
instrument will be duly paid according to the terms thereof.
That, further, if the instrument is not paid by the one
Generally, it is a method of transferring a non-
primarily liable, the indorser, after due notice of dishonor,
negotiable instrument whereby the assignee is merely placed
will pay. There is an added obligation upon the instrument
in the position of the assignor and acquires the instrument
reside from what appears upon the face of the instrument.
subject to all defenses that might have been set up against
the original payee. The effect of the assignment is that the
p[arty holding the right drops out of the contract and another
Where is the indorsement written?
takes his place. Each assignee takes his chances as to the
exact position in which any party making an assignment of it
stands. Where the holder of a bill payable to order transfers it
The indorsement may be written (1) on the
without the indorsement, it operates as an equitable
instrument itself; or (2) upon a paper attached thereto.
assignment but the assignee has the right to compel the
Where it is written on the instrument itself, it is usually
assignor to indorse the instrument (Sec. 49).
written on the back. But, the law looks to the intention of the
parties rather to the form as to indorsement. The place is not
When does transfer of operation of law occur?
essential. Where the instrument is written on a paper
attached to the instrument, such paper is called an “alone.”
The full title to a bill or note may pass without either
The paper must be attached to the instrument so as to
assignment, indorsement or delivery but by operation of law
become part of it. A temporary attachment cannot be
by:
considered an allonge. Further, the use of an allonge is not
1. the death of the holder, where title vests in his
limited to when there is an impossibility of indorsing on the
personal representative (Succession);
instrument due to lack of space. The indorserment is not
2. the bankruptcy of the holder, where title vests in the
invalidated by the fact that is written on another paper even
assignee or trustee (insolvency), or
if there is still space for indorsement on the instrument itself
3. upon the death of a joint payee or indorsee in which
(Agbayani’s opinion).
case the general rule is that the title vests at once in
the surviving payee or indorsee. NOTE: an indorsement has to be only in
writing. It may thus be printed such as
What is negotiation? typewritten or stamped.

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
What are the 2 kinds of indorsement specified in sec.34?
Sec. 32. Indorsement must be of entire instrument. - The
SPECIAL INDORSEMENT- one that (1) specifies the person to
indorsement must be an indorsement of the entire
whom the inodrsement is payable (eg. “Pay to A”) or (2)
instrument. An indorsement which purports to transfer to
specifies to whose order it is payable, (eg. “Pay to A or
the indorsee a part only of the amount payable, or which
order”). In both cases, the indorsement is followed by the
purports to transfer the instrument to two or more
signature of the indorser. The omission of the words of
indorsees severally, does not operate as a negotiation of the
negotiability such as “ or order” and “ to the order of “ do not
instrument. But where the instrument has been paid in part,
affect the negotiability of the instrument which is negotiable
it may be indorsed as to the residue.
on its face (sec. 36) since it is only an indorsement.

BLANK INDORSEMENT- ONE WHICH SPECIFIES NO INDORSEE.

Such an indorsement generally consists only of the signature
What is the rule on indorsements of the amount?
of the indorser.

The general rule is that the indorserment must be of the

How are instruments so indorsed, negotiated further?
entire amount. An indorsement must of the part of the
instrument does not one rate as a negotiation thereof but
may constitute a valid assignment binding between the
Where the instrument is originally payable to order and it is
parties ( thus, the holder is susceptible to defenses available
negotiated by the payee by special indorsement, it can be
against the assigner). An instrument is said to be indorsed
negotiated by the indorsee by indorsement completed by
partially when eg. The note is for P1,000 but the indorsement
delivery. Where the instrument is originally payable to order
states, “Pay to X P400”. But where the instrument has been
and it is negotiated by the payee by blank indorsee, it can be
paid in part, it may be indorsed as to the residue (eg. in the
further negotiated by the holder by mere delivery. Where the
eg. above, suppose the maker paid P6000 already. The
instrument is originally payable to bearer, it can be further
indorsement for P400 would then be valid as the
negotiated by mere originally delivery, even if the original
negotiation). Further, an indorsement which purports to
bearer negotiated it by special indorsement. (once a bearer
transfer the instrument to 2 or more indorsees severally does
instrument, always payable to bearer).
not operate as a negotiation. (eg. in the above eg., suppose
the indorsement read, “Pay to X P400 and Y P600 is not a
valid negotiation but “Pay to X and Y P1,000” is).
Sec. 35. Blank indorsement; how changed to special
indorsement. - The holder may convert a blank indorsement
into a special indorsement by writing over the signature of
Sec. 33. Kinds of indorsement. - An indorsement may be
the indorser in blank any contract consistent with the
either special or in blank; and it may also be either
character of the indorsement.
restrictive or qualified or conditional.

The difference between special and blank indorsement is

What are the kinds of indorsement?
only significant. When the instrument is originally payable to
order because a bearer instrument, even if specially indorsed,
is no different from one indorsed in blank. They are still
It may either be: (1) special, or (2) in blank (both sec. 34), or
negotiated by mere delivery.
(3) restrictive, or (4)non – restrictive (sec. 36), or (5)
qualified, or (6) unqualified or general (sec. 38,66), or (7)
conditional, or (8) unconditional, or (9) joint (sec. 41),
ILLUSTRATION: A makes a note with B as payee. B negotiates
(10)successive (sec. 50,68), or (11) irregular (sec. 64), or (12)
it to C, signing only his signature. C, holder, may place above
facultative (sec. 111).
such signature “Pay to C” to convert the blank indorsement
into a special one.
Sec. 34. Special indorsement; indorsement in blank. - A
special indorsement specifies the person to whom, or to
whose order, the instrument is to be payable, and the LIMITATIONS: The holder must not write any contract not
indorsement of such indorsee is necessary to the further consistent with the indorsement, that is, the contract so
negotiation of the instrument. An indorsement in blank written must not change the contrat of the blank
specifies no indorsee, and an instrument so indorsed is indorsement. Consistency shall be judge with the intention of
payable to bearer, and may be negotiated by delivery. the parties.

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Eg. of inconsistent – (1) “Pay to X and Y” when it was
intended to be payable to only one person. (2) “ Demand and
noticed waived”. (3) “ I guaranty payment”. (4) “ without
recourse.”
Sec. 36. When indorsement restrictive. - An indorsement is
restrictive which either:
(a) Prohibits the further negotiation of the
instrument; or
(b) Constitutes the indorsee the agent of the
indorser; or
(c) Vests the title in the indorsee in trust for or to
the use of some other persons.
But the mere absence of words implying power to negotiate
does not make an indorsement restrictive.
What is a restrictive indorsement?
A restrictive endorsement is one so worded that it either
restrict or prohibits entirely the futher negotiation of an
instrument, an indorser notifies all prospective holders that
the indorsee has only the authority to deal with the
instrument as thereby directed and that the indorsee has only
a restrictive title thereto. By such indorsement, an indorser
can safeguard his interest whenever he should find it
necessary to entrust negotiable paper to another. A
restrictive indorsement destroys the negotiability of the
instrument and bars further negotiation to a HIDC. All
subsequent indorsees acquire only the title of the first
indorsee under the restrictive indorsement.
Eg. of (a) prohibition –
“Pay to C only” or “ Pay to C and no other”.
Of (b) “ agency type” of restrictive indorsement
“Pay to C collection”. or “Pay to C for
deposit”.
- Here, C does not acquire title over the
instrument. He is merely an agent of the
indorser. Thus, he is subject to all the
defenses available as against the indorser.
Of (c) in trust for another –
“ Pay to X in trust for C.” or “ Pay ti X for
the use of C”.
- Here, there is transfer of legal title to the
instrument to the indorsee as trustee. And
give notice that the paper cannot be
negotiated by him for his own debt or for his
own benifit. Further, it is he opinion of
“learned writers” that the indorsee is not
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subject to the defenses available as against
the indorser.
The restrictive indorsement which are hold to
negative the presumption of consideration are such as to
indicate that they are not intended to pass title but merely to
enable the indorsee to collect for the indorser.
Mere absence of the words implying power to
negotiate does not make an indorsement restrictive. Thus,
“Pay to X” is the same as “Pay to X order” where the
instrument is payable to order. The omission of the word
“order” does not render the indorsement restrictive. But
while the omission of the words of negotiability in the
indorsement does not affect the negotiability of the
instrument, ssuch omission in the body thereof will render
the instrument non-negotiable. Restrictive indorsements
serve to limit only the negotiability of an instrument originally
negotiable.
Sec. 37. Effect of restrictive indorsement; rights of indorsee. -
A restrictive indorsement confers upon the indorsee the
right:
(a) to receive payment of the instrument;
(b) to bring any action thereon that the indorser
could bring;
(c) to transfer his rights as such indorsee, where the
form of the indorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of the
first indorsee under the restrictive indorsement.
ILLUSTRATION: In the indorsement, “Pay to A for collection.
sgd. P”. a is merely an agent of P and because of this, A may
(1)receive payment of the instrument; (2) bring any action
thereon that the indorsee could bring (subject to the same
defenses available against the indorser); and (3) if authorized,
may transfer his right to another by negotiating the
instrument. But such subsequent indorsee acquires only the
title of the agent, A, whose right is merely to colloect.
The right to receive payment and the right to bring
any action that the indorser could bring are available under
any form of restrictive indorsement. The 2 rights are the basic
rights of indorsees in instruments with restrictive
indorsement.
Not all forms of restrictive indorsement destroy
negotiability of an instrument. Only those which fall within
sec. 36 (a) do so. While all three forms of restrictivce
indorsement impose some degree of limitation and it is the
indorsement itself that discloses the extent of the limitation.
This is the reason for (c). The indorsee may, if authorized,
negotiate further the instrument but all subsequent
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
indorsees acquire only the title of the original indorsee – an
agent.
Sec. 38. Qualified indorsement. - A qualified indorsement
constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser's
signature the words "without recourse" or any words of
similar import. Such an indorsement does not impair the
negotiable character of the instrument.
What is qualified indorsement?
It is one made by adding to the indorser’s signature the words
“ without recourse”, “indorser not holden”, “ at indorsee’s
one risk”, ao any words of similar import. It constitutes the
indorser a mere assignor of the title to the instrument.
“Without recourse” means without resort to a person who is
secondarily liable after the default of the person who is
primarily liable. The purpose of such indorsement is to trasfer
title without guaranteeing payment. In effect the indorser
states that “all parties to the paper and genuine, that the
indoreser is the lawful holder of that paper and has title to it,
and that he knows of no reason why the indorsee cannot
recover, but that he does not guarantee the financial
responsibility of the parties on the paper.
When can the qualified indorser be held secondarily liable?
In general, an indorser is secondarily liable. A qualified
indorser is still secondarily liable but his liability is limited. He
is not entirely free from secondarily liability. He is secondarily
liable on breaches of his warranties as an indorser under sec.
65. He can be held liable if the instrument is dishonored due
to: 1 forgery 2 lack of good title on the party of the indorser:
3 lack of capacity to indorse on the part of prior or parties 4
the fact that, at the time of indorsement, he knew that the
instrument was valueless or not valid. The only thing he does
not warrant is the solvency of the person primarilyliable if the
failure to recover was due to the fact of the insolvency at the
time os indorsement, he is liable for breach of is warranty
that he did not know of any fact that the instrument was
valueless.
A qualified indorsement does not impair the negotiable
character of the instrument.
Sec. 39. Conditional indorsement. - Where an indorsement is
conditional, the party required to pay the instrument may
disregard the condition and make payment to the indorsee
or his transferee whether the condition has been fulfilled or
not. But any person to whom an instrument so indorsed is
negotiated will hold the same, or the proceeds thereof,
subject to the rights of the person indorsing conditionally.
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What is an absolute indorsement? A conditional
indorsement?
An absolute indorsement is one by which the indorser binds
himself to pay, upon no other condition than the failure of
prior parties to do so, and upon due notice to him such
failure. On the other hand, a conditional indorsement is one
by which the indorser annexes some other condition to his
liability, that is, where there is some condition in the
indorsement. The indorsement is subject to the happening of
a contogent event (an event that may or may not happen) or
a past event unknown to the parties. Like restrictive
indorsements, it must be remembered that the pressure of
conditions in the indorsements does not render the
instrument non-negotiable. Only if the condition is on the
face or on the original contract of the instrument is the
instrument rendered non-negotiable as the promise or order
to pay is conditional.
ILLUSTRATION: A executes a note in favor of B for P100. B
indorses the note to C stating into the indorsement, “Pay to
C, if he passes the bar exams. Sgd. B. “it is a conditional
indorsement as the event is not certain to happen (and it is in
the indorsement). But, under sec. 39, the maker can
disregard the condition and pay C the proceeds despite the
non-occurrence of the event. The maker may also honor the
condition set and refuse to pay. If the note was paid, C holds
the proceeds thereof in trust while the condition is not
fulfilled. C does not acquire ownership over the sum. It is
upon fulfillment of the condition that such ownership over
the proceeds is absolutely acquired by the conditional
indorsee.
Sec. 40. Indorsement of instrument payable to bearer. -
Where an instrument, payable to bearer, is indorsed
specially, it may nevertheless be further negotiated by
delivery; but the person indorsing specially is liable as
indorser to only such holders as make title through his
indorsement.
This section applies to instruments which are originally
payable to bearer. It does not apply to order instruments
converted to bearer instruments because the only or last
indorsement is in blank.
What is the rule on indorsements of bearer instrument?
By virtue of this sec., an instrument payable to bearer is not
converted into an instrument payable to order by being
indorsed specially and therefore, the indorsee mey further
negotiate the instrument by mere delivery. This means that
an instrument which is originally payable to bearer is always
payable to bearer. But, such indorser, because of his
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
indorsement, can be held liable secondarily by those holders
who can trace their title to the instrument by the series of
unbroken indorsements form such special indorser. His
liability is that of a general indorser as provided in sec. 66.
ILLUSTRATION: A executes a note payable to bearer for P100
in favor of B. B delivered it to C. C specially indorsed it to D. D
specially indorsed it to E, holder. Can E go against A,B,C,D,?
E cannot go against B, because there is mere delivery
and there is no unbroken chain of indorsements. The rule is
that the holder must trace his title to the special indorser to
make him liable through an unbroken chain of indorsement.
E cannot go against B because. As a person who
negotiates by mere delivery (to C), warranty under sec. 65
extends only to the immediate transferee. Thus, B is only
liable to C, not to D & E.
E can go against C & D because E can trace his title to C
(& D) through an unbroken chain of indorsements.
NOTE: this section deals with special indorsements,
not blank indorsement. So, that if, in the eg. above, C blankly
indorsed it to D, E cannot go against C as it would be
impossible for him to trace his title to C. (my opinion)
(contrary to Abad’s)
Sec. 41. Indorsement where payable to two or more persons.
- Where an instrument is payable to the order of two or
more payees or indorsees who are not partners, all must
indorse unless the one indorsing has authority to indorse for
the others.
This section applies only to instrument payable to two
or more payees jointly (eg. “Pay to the order of A and B”). it
does not apply to instrument payable to two or more payees
severally. (eg. “Pay to the order of A and B”). the latter may
be negotiated by the indorsement of one payee.
What is the rule in joint payees?
Where the instrument is payable to two or more payees
(jointly), all payees must each indorse in order to negotiate
the instrument. If only one indorses, he passes only his part
of the instrument. But such an indorsement would not
operate as a valid negotiation because it would not be an
indorsement of the entire amount which is contrary to sec.
32. Exception is made for such rule: (1) where the payee or
indorser has authority to indorse for he others; and (2) where
the payees or indorsees are partners.
Sec. 42. Effect of instrument drawn or indorsed to a person
as
cashier. - Where an instrument is drawn or indorsed to a
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person as "cashier" or other fiscal officer of a bank or
corporation, it is deemed prima facie to be payable to the
bank or corporation of which he is such officer, and may be
negotiated by either the indorsement of the bank or
corporation or the indorsement of the officer.
What is the presumption raised in sec. 42?
The presumption is that the instrument payable to the
cashier or other fiscal officer of a bank or corporation is
presumed payable to the bank or corporation to which such
person is a cashier or fiscal officer. It is presumed not payable
to the said officer. The instrument may be indorsed by any
duly authorized (by the laws of the said bank or corporation)
officer of the entity other than the said cashier or fiscal
officer. But the presumption established is disputable by
sufficient proof to the contrary (eg. that the instrument really
belongs and is payable personally to the cashier as the real
creditor of the maker or drawer).
This rule is equally “applicable” to instruments drawn
payable to the treasurer of municipal or public corporations
(eg. a town). But, since town does not fall within the scope of
“corporation” in sec. 42, the treasurer may not indorse the
said instrument.
Sec. 43. Indorsement where name is misspelled, and so
forth. - Where the name of a payee or indorsee is wrongly
designated or misspelled, he may indorse the instrument as
therein described adding, if he thinks fit, his proper
signature.
ILLUSTRATION: An instrument drawn payable to Alfie Almedo
when the name of the payee is really Alfie Almeda may be
indorsed…
(1) by using the misspelled name – “Pay to X. sgd.
Alfie Almedo”.
(2) Or by writing the misspelled name with the
proper name - “Pay to X. sgd. Alfie Almedo sdg.
Alfie Almeda”.
Sec. 44. Indorsement in representative capacity. - Where any
person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative
personal liability.
How must an agent indorse?
He must indorse in the same manner as an agent of the
maker, drawer or acceptor should in order to escape personal
liability as required in sec. 20. Thus, (1) he must add words
describing himself as an agent; and (2) at the same time
disclose his principal (he may also sign only the name of the
principal); and (3) he must be duly authorized. Otherwise, he
is personally liable.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Sec. 45. Time of indorsement; presumption. - Except where
an indorsement bears date after the maturity of the
Does the negotiable character cease after maturity?
instrument, every negotiation is deemed prima facie to have
been effected before the instrument was overdue.
What does this mean and why is it important?
No. the mercantile character (1) of the instrument as
negotiable instrument and (2) of the contracts of the several
parties to it, continues after it maturity and until it is paid
When the payee indorsees the instrument without dating his
except (3) that an indorsee or transferee after maturity takes
indorsement, the presumption is that he indorsed it on or
the instrument subject to defenses between the prior parties,
before the note’s maturity date. But, this presumption is
because after maturity such subsequent parties take the
rebuttable or disputable by the sufficient proof to the
instrument after becomes overdue, and thus, under sec.
contrary and the burden of proof is on the person who claims
52(b), they are not HIDC. Transfer to such transferees would
it was negotiated after its date maturity. If the indorsement
be equivalent to a mere assignment and subject to defenses.
id=s dated, then the presumption in this sec. Will not arise
The position of the holder is that he is a holder with notice
but that presumption in sec. 11 that the date written is
because he takes a bill, which, on its face, ought to have been
presumed the true date of indorsement. This section is
paid. He is bound to make two inquiries: (1) has the bill been
important because in order to constitute one a holder in due
discharged? And (2) if not, why not? Was there a defect in the
course, he must have taken the instrument before it was
title of the person who held it at maturity? But, even if he is
overdue. With this presumption, the person who claims that
not a HIDC, he recover from the note subject only to defenses
the holder is not a HIDC, has the burden of proving so.
as if it were non-negotiable.

Sec. 46. Place of indorsement; presumption. - Except where

Sec. 48. Striking out indorsement. - The holder may at any
the contrary appears, every indorsement is presumed prima
time strike out any indorsement which is not necessary to
facie to have been made at the place where the instrument
his title. The indorser whose indorsement is struck out, and
is dated.
all indorsers subsequent to him, are thereby relieved from
What is the importance of this sec.?
liability on the instrument.
When may the holder strike out indorsement?
The place of indorsement is sometimes material because an
indorsement is governed by the laws of the state where it is
A holder may strike out any indorsement which is not
indorsed, although the instrument is drawn or made in a
necessary to his title. But where an instrument is transferred
different state.
by a special indorsement, the holder has no right to strike out
he name of the indorsee and place his name in its place nor
to convert such special inodrsement to a blank one. An
ILLUSTRATION: A bill is dated thus: “Manila, Phil., Jan. 7,
instrument payable to bearer on its face may be negotiated
1990”.
by mere delivery without indorsement. In case it is indorsed,
It is subsequently indorsed without writing the place of the holder, by virtue of sec. 48, may strike out all intervening
indorsement. The presumption is that it was indorsed in indorsemnent or any of them because none of them are
Manila. But such presumption is rebuttable. essential to his title. But an instrument originally payable to
order may be negotiated only by the indorsement of the
payee completed by delivery. When the indorsement is
special the indorsement of the special indorsee is necessary
Sec. 47. Continuation of negotiable character. - An
for further negotiation of the instrument and may not be
instrument negotiable in its origin continues to be
struck out. When the indorsement is in blank the instrument
negotiable until it has been restrictively indorsed or
becomes payable to bearer and may be negotiated by mere
discharged by payment or otherwise.
delivery. Any special indorsement subsequent to such blank
What is the general rule on the negotiable character of NI?
indorsement may be struck out as they are not they are not
necessary to the holders’s title (he may claim that the payee
blankly indorsed to him) but the payee’s indorsement itself
The rule is that once an instrument is negotiable at its origin,
may not be struck out as the indorsement is necessary to his
it continues to be negotiable until 1 it is respectively indorsed
title.
(in such a way that is prohibits further negotiation of the
instrument under sec. 36 [a]); or 2 is discharged by payment
or otherwise. “ Otherwise” refers to the different ways to
What is the effect of striking out indorsement?
discharge an instrument enumerated in sec. 119.

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(1) the indorser whose indorsement is struck out is
relieved form liability (secondary) on the instrument;
and
(2) all subsequent indorsers are also relieved from their
liability on the instrument.
NOTE: conditional indorsements may not be struck
out even if they are not necessary to the title.
cannot be considered a HIDC as he had knowledge of a defect
on the title at the time of negotiation.
Sec. 50. When prior party may negotiate instrument. - Where
an instrument is negotiated back to a prior party, such party
may, subject to the provisions of this Act, reissue and further
negotiable the same. But he is not entitled to enforce
payment thereof against any intervening party to whom he
was personally liable.

Sec. 49. Transfer without indorsement; effect of. - Where the

ILLUSTRATION: A executed a note payable to the order of B. It
holder of an instrument payable to his order transfers it for
is indorsed as follows: A B C D E B.
value without indorsing it, the transfer vests in the transferee
- Under this sec., B may continue to negotiate the
such title as the transferor had therein, and the transferee
note or may recover from it as a holder (he
acquires in addition, the right to have the indorsement of the
keeps it instead of negotiating it). Where he
transferor. But for the purpose of determining whether the
negotiates it (prior to maturity), after paying the
transferee is a holder in due course, the negotiation takes
subsequent holder ( supposing he is held
effect as of the time when the indorsement is actually made.
secondarily liable), he may not claim payment
This sec. applies only to instrument payable to order. This from any of the intervening parties – C, D, E as it
contemplates a case where there is delivery and payment of would result in circuity of suits. Also, if B decides
value but no indorsement. There is lacking one element for to keep the note and try to recover from it, be
the negotiation of the instrument – the indorsement by the may not enforce payment against C, D, E for the
payees or indorser. Thus, it operates as an equitable same reason.
assignment.

What are the rights of the transferee for value?

IV. RIGHTS OF THE HOLDER
(1) the transferee acquires only the rights of the
transferor, such that if a defense is available against
Sec. 51. Right of holder to sue; payment. - The holder of a
the transferee.
negotiable instrument may to sue thereon in his own name;
(2) The transferee has also the right to require the
and payment to him in due course discharges the
transferor to indorse the instrument.
instrument.
ILLUSTRATION: A executes a note in favor of B but there is no
Who is a holder?
valuable consideration. B delivers the note to C for value and
under circumstances that would have made C a HIDC (such
that C does not know of the absence of consideration) where
The holder is the person who is physically in possession of the
it not for the lack of B’s indorsement. Can C recover from A?
instrument. If you are not in possession of an instrument, you
No, because C acquires only B’s rights and B cannot
cannot be a holder, much less, a holder in due course. Even if
collect from A who can set up the absence of consideration.
you are owners of an instrument but you are not physically in
The transferee is not a holder because while he is in
possession of it, the person primarily liable on the instrument
possession of the instrument, he is not he indorsee. He is
has all the right to refuse payment because upon payment of
merely an assignee.
the instrument of the instrument by the person primarily
liable thereon, he has all the right to retrieve the instrument.
What can it be determined whether such transferee is a
Once retrieved, he can have that instrument as a more
HIDC?
voucher of payment. It is possible that you may have lost the
instrument. The ownership over it by the copy of the lost of
The time for determining whether the transferee is a HIDC is
instrument (?). Only then will the person primarily liable on
as of the time of actual indorsement not a time of the
the instrument be compelled to pay the instrument.
delivery. The reason is that negotiation is completed at the
time of indorsement, not at the time of delivery.
What are the classes of holders?
ILLUSTRATION: In the eg. above, suppose the note was
delivered on Dec. 1, 1990 but was indorse only by B on Dec. (1) Holders in general (sec. 51);
15, 1990. but on Dec. 10, 1990, C found out of the absence of (2) Holders for value (sec. 26); and
consideration. Thus, on Dec. 15, the time of indorsement, C (3) Holders in due course (sec. 52,57)

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
What are the rights of a holder in general?
(1) He may sue on the instrument in his own name; and
(2) He may receive payment and if the payment in due
course, the instrument is discharged.
Who has the right to sue on the instrument?
The holder of a negotiable instrument may sue in his own
name, even if he a holder only for collection or as a pledge of
an instrument. It is believed that even a transferee of an
indorsed instrument (sec. 49) may sue in his own name if the
transferee could have done so. This is because a transferee of
an instrument for value but without endorsement, under sec.
49 is vested with such title such title as the transferor had if
the transferor had legal title, this must pass by the transfer
although subject to defenses.
What is “payment in due course”?
Payment in due course is payment made (1) at or after the
maturity of the instrument, (2) to the holder thereof, (3) in
good faith and without notice that his title is defective.
Sec. 52. What constitutes a holder in due course. - A holder
in due course is a holder who has taken the instrument
under the following conditions:
(a) That it is complete and regular upon its
face;
(b) That he became the holder of it before
it was overdue, and without notice that it
has been previously dishonored, if such
was the fact;
(c) That he took it in good faith and for
value;
(d) That at the time it was negotiated to
him, he had no notice of any infirmity in
the instrument or defect in the title of the
person negotiating it.
What is a holder in due course?
A HIDC is a holder who took the instrument under the
conditions enumerated in sec. 52. All the four conditions
must concur a HIDC. If any one of them is absent., the holder
cannot be considered a HIDC. Under sec. 59, generally, every
holder is presumed prima facie to be a holder in due course.
Thus, a holder need out proved at a very outset that he is a
HIDC. Any one who claims otherwise must prove that the
holder in question acquired the instrument with one or more
conditions lacking.
When is an instrument “complete and regular upon its
face”?
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Complete means that the holder acquired the instrument
without any material particular lacking thereon, that all
material particulars are present on the face of instrument at
the time the holder acquired it. An instrument is deemed not
complete only when there is an omission of any material
particular or particular proper to be inserted in a negotiable
instrument without the same will not be complete. (Not all
forms of omissions will make the instrument incomplete. It
must be necessary to the instrument).
Eg. The instrument is issued undated and stated, “ I
promiz to pay X or order
P100. sgd. Y”. Is it complete? Yes because the date is
not necessary.
But if the note stated, “ I promise to pay X or order
P100 30 days after date now
Becomes a material particular, as maturity cannot be
determined without it.
An incomplete instrument should put the holder in inquiry as
to why it is incomplete. If he fails to do so, be takes the
instrument subject to all defenses as he is not a HIDC.
Regular means that the holder acquired it without any
alteration or changes or erasures apparent on the face of the
instrument. (The most common type of irregularity is an
alteration. It must be apparent on the face; otherwise, the
matter is governed solely by sec. 124 which renders the
instrument void). If it appears that there was a change in the
amount or in the name of the payee, etc., then the
instrument is deemed not regular on its face and the holder
now has the duty of inquiring. Otherwise, if no inquiry is
made , the holder acquires the instrument not in good faith
and deemed to have notice of a defect or infirmity in the
instrument.
ILLUSTRATION OF NOT “COMPLETE AND REGULAR”:
1) a note payable on a given date without
naming the year;
2) an accepted bill with no drawee named;
3) a note payable to 2 payees but indorsed
only by 1;
4) a printed note altered in printing;
5) a note payable “on or before after date”.
When is the instrument overdue?
An instrument is overdue after the date of maturity. The date
of maturity is the time fixed therein. It may be a fixed or
determinable future time. If the instrument is payable on
demand, the date of maturity is determined by the date of
presentment. If it is a promissory note, it is supposed to be
presented within a reasonable time after its issue. But if it is a
bill, it is should be presented within reasonable time after its
last negotiation. Eg. Suppose an instrument is issued today,
July 17. In Aug., it was negotiated. In Oct., again, until Dec.
When was it supposed to be presented?
If it was a PN, it must have been presented within a
reasonable time after its issue, July. But if it was a BOE, it
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
must be presented within a reasonable time after its last
negotiation, Dec. The point of reckoning will differ.
Reasonable time is a relative term defending on a
circumstance.
If the instrument is payable on the occurrence of a specified
opening of the event. When the instrument contains an
acceleration clause and one installment is not paid.
Knowledge of the holder of this fact at the time of acquisition
is notice that the instrument is overdue. Similarly, if, by the
terms of an instrument, the principal is due upon default of
payment of interest, the holder cannot be considered a HIDC
where the interest is overdue. If the holder acquired the
instrument on the date of maturity, it is not overdue as the
debtor has the whole day to pay. (If presented to a ba,
anytime before close of banking hrs. if presented to a
business office, anytime before close of business hrs. And if
presented at the house of the person primarily liable, anytime
before the end of the VILMA Show or before rest hours.) A NI
in circulation past its maturity date carries strong indication
that it has been dishonored.
An instrument may be dishonored either by non-acceptance
(sec. 149) or by non-payment (sec. 85). Dishonored by non-
acceptance, refers only to a bill of exchange. While dishonor
by non-payment can only take place at the time of maturity,
dishonor by non-acceptance of a bill may occur even before
the date of its maturity. The holder must, at the time of
negotiation, have no knowledge that it had been dishonored
prior to his acquisition. Thus, an overdue or dishonored
instrument may still be negotiated to the same extent as
before maturity (sec. 47) but, in case of the former, the
holder cannot be a HIDC, while in the case of the latter, the
holder without notice can be a HIDC.
SUPPOSE: A PN reads: “ I promise to pay X or order P100 on
July 17, 1991. Today is the due date. X presents the note at
10am. It was dishonored by non-payment. At 12nn X
negotiated it to P.P is now the holder of the note. Is P a HIDC?
 IT DEPENDS on whether at the time of negotiation P
knew of the fact that it was dishonored. Since it was
negotiated on the due date, it was still on July 18, P
can no longer be HIDC as it is overdue and he is
charge with knowledge of dishonor. The fact that the
note was already dishonored is not enough to deny P
of his capacity of being a HIDC if he had no
knowledge of such dishonor.
What does acquired in good faith mean?
Good faith refers to the indorsee or transferee and not to the
indorser or transferee of the paper. Even if the indorsee is in
bad faith, the indorsee may still be a HIDC. Under sec. 56, bad
faith means that he must have knowledge of facts which
render it, dishonest for him to take a particular piece of NI. To
show bad faith, it is not necessary to show knowledge of the
exact truth but actual knowledge of some truth that would
prevent action by th commercially honest men. Surmise,
suspicion or fear is not enough. The element of good faith
- 28 -
must be read together with the element of notice or
knowledge of an infirmity on the instrument or defect on the
title of a prior party. If the holder knew of such defect or
infirmity, he cannot be held to be in good faith. The term “
holder in good faith” means a holder without knowledge or
notice of equities (defenses) of any sort which could be set up
against a prior holder of the instrument.
What does “for value” mean?
As discussed in sec. 25, the holder must take the instrument
for valuable consideration. Any consideration sufficient to
support a simple contract is value. But love and affection do
not constitute value. Where the holder takes the instrument
without giving valuable consideration, he cannot be
considered a holder for value, moreso a HIDC. It is not
necessary that the consideration be adequate (art. 1355,
NCC). But if the amount asked for the instrument is
insignificant as compared to the face value, it should be
sufficient notice that there is something wrong and failure to
inquiry is equivalent to bad faith.
What is meant by “without notice of infirmity in instrument
or defect in the title?
The NIL, in defining things that may be wrong with an wrong
with an instrument uses 3 terms. (1) Defects of title, (2)
defenses, and (3) infirmities. Defects of title cover all those
situations giving rise to equitable defenses. Defective title of a
person over an instrument may result from circumstances
relating to the person’s acquisition of the instrument or as to
how he negotiated it. Defect of title is further elucidated in
sec. 35. In the cases cited in said section, the person acquiring
the instrument is said to have a defective title over it. But, in
order for the holder to be not a HIDC, he must have
knowledge of the defect atr the time of negotiation. The term
“defenses” includes 1. mistake, 2. absence or failure of
consideration (sec. 28); 3 minority and other forms of
incapacity (sec. 22); 4. lack of authority of an agent (sec. 19).
Infirmities on the other hand, include things that are wrong
with the instrument itself, they are illnesses which attach to
the instrument, such as:
(1) wrong date as inserted (sec. 13);
(2) filling up of a blank instrument not strictly in
accordance with the authority given or not within a
reasonable time (sec. 14);
(3) filling up and negotiating without authority an
incomplete and undelivered instrument (sec. 15);
(4) lack of valid and intentional delivery of a
mechanically complete instrument (sec. 16);
(5) agent signing per procuration beyond the scope of
his authority (sec. 21);
(6) for forgery (sec. 23);
(7) material alternation (sec. 124 & 125).
As in the case of defects in title, the mere fact that such
defenses and infirmities exist does not prevent the holder
from being a HID. Rather, it is the fact that, at the time of
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
negotiation, he had actual knowledge of such defects, considered a HIDC for the value paid by him before he had
defenses or infirmities. This fourth condition must be read notice of the defect - P600.
together with the condition that the holder take in good faith.
In effect, the fourth condition elucidates the meaning of good
faith. Anyone who acquires the instrument with notice of Sec. 55. When title defective. - The title of a person who
such defects and infirmities would not qualify as a taker in negotiates an instrument is defective within the meaning of
good faith. To constitute notice, under sec. 56, the holder this Act when he obtained the instrument, or any signature
must have had actual knowledge of the infirmity or defect or thereto, by fraud, duress, or force and fear, or other
must have acted in bad faith. The absence of knowledge and unlawful means, or for an illegal consideration, or when he
lack of bad faith is essential basis that renders a holder a negotiates it in breach of faith, or under such circumstances
HIDC. as amount to a fraud.
As previously stated, notice of defect can also be When is title of a person defective?
presumed when (1) one takes an overdue instrument, and
(2) one acquires an instrument for grossly inadequate The title to a person in an instrument becomes defective
consideration. either:
Remember that the concept of HIDC is only applicable (1) in the acquisition of the instrument –
to negotiable instrument. Once the instrument is non- (a) by fraud;
negotiable, the assignee of the instrument cannot be - refers to fraud in inducement - he
considered a HIDC. acquires the instrument by falsely
inducing its issuance or negotiation.
(b) by duress, or force and fear;
Sec. 53. When person not deemed holder in due course. - - refers to the use of violence and intimidation
Where an instrument payable on demand is negotiated on to cause the issuance or
an unreasonable length of time after its issue, the holder is negotiation.
not deemed a holder in due course. (c) by other unlawful means;
One of the requisites of a HIDC is that he aquires the - such as theft.
instrument before it is overdue. But, obviously, where the (d) for an illegal consideration.
instrument is payable on demand, the holder cannot - the instrument is issued or negotiated as a
determine whether the instrument is overdue or not as there consideration for an illegal act
is no maturity date. The law here states that the holder must or omission.
have acquired it a reasonable time after its issue. As to what (2) in the negotiation of the instrument –
constitutes reasonable time, regard must be had to the (a) with breach of faith;
nature of the instrument, the usage of trade of business with - refers to negotiation of the instrument in
respect to such instruments and the facts of a particular case contravention of the terms of
(sec. 193). the agreement, or negotiation after it has
With the regard the BOE, the law states that it should been paid (discharged), or
be presented within a reasonable time from last negotiation. negotiation before the consideration for
This should be read in the light of sec. 53 so that the last the instrument is given.
negotiation should be itself within a reasonable time from its (b) under circumstances as amount to a
issue. This is especially true for checks where after a certain fraud.
period the check becomes stale if not presented for payment - refers to negotiation after being told that
within a reasonable period of time from issue. payment would be resisted,
or transferor had no legal right to
transfer.
Sec. 54. Notice before full amount is paid. - Where the
transferee receives notice of any infirmity in the instrument Sec. 56. What constitutes notice of defect. - To constitutes
or defect in the title of the person negotiating the same notice of an infirmity in the instrument or defect in the title
before he has paid the full amount agreed to be paid of the person negotiating the same, the person to whom it is
therefor, he will be deemed a holder in due course only to negotiated must have had actual knowledge of the infirmity
the extent of the amount therefore paid by him. or defect, or knowledge of such facts that his action in
taking the instrument amounted to bad faith.
ILLUSTRATION: A draws a bill in favor of B for P1, 000 with X When does the holder have notice of defect or
as drawee. B indorsee it to C, who fails to give value infirmity?
therefore. C indorses it to D upon the terms of payment of
P600 now and the balance of P400, D discovers the absence To constitute notice or defect or infirmity, the
of consideration. Under the circumstances, D can be transferee must have actual knowledge, either: (1) of the
defect or infirmity, or (2) of such facts that his action in

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
taking the instrument amounts to bad faith. Knowledge
of some truth (at least) that the instrument is tainted in
some way is necessary, not mere suspicion or surmise.
Bad faith consist in guilty knowledge, or willful ignorance,
showing a vicious or evil mind. While mere suspicion is
not enough, where there is knowledge of suspicious
circumstances, coupled with means of verifying them,
taking of the instrument may amount of bad faith (if,
willfully, no inquiry is made). But negligence, even gross
negligence, is not bad faith.
Sec. 57. Rights of holder in due course. - A holder in due
course holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior
parties among themselves, and may enforce payment of the
instrument for the full amount thereof against all parties
liable thereon.
What are the rights of a HIDC?
(1) he may sue on the instrument in his own (sec.
51);
(2) he may receive payment and if payment is in
due course, the instrument is discharged
(sec.51);
(3) he holds the instrument free from any defect of
title of prior parties;
(4) he holds the instrument free from defenses
available to prior parties among themselves; and
(5) he may enforce payment of the instrument for
the full amount thereof against all parties liable
thereon.
What are the 2 kinds of defenses that might be
available to parties held liable on the instrument?
Real or legal defenses are those that attach to the
instrument itself and can be set the whole world. It is
available against the holders including HIDC. They are
called real defenses because they attach to the res (the
instrument itself) regardless the merits or demerits of
the holder. In real defenses, the right sought to be
enforced has never existed or ceased to exist. It is a
defense against everybody but it is not a defense
available for everybody. The instrument cannot be
enforced only against the person to whom the real
defense is available. Thus, the mere existence of a real
defense not imply that the instrument is valueless and
can never be enforced. It just means that the instrument
is only unenforceable against the party entitled to set up
the defense (eg. the one primarily liable) but can be
enforced against those whom such defense is not
available (eg. those secondarily liable). In many
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instances, the real defense applies only to the person
who made the instrument (but there are exceptions). As
a general rule, a real defense is a defense which the
person against whom one is endeavoring to recover may
set up and that person to usually the person primarily
liable upon the instrument. Further, a defense available
to the makers will not be available to the indorser (nor
will a defense available to the indorser be available to
the maker). [ in case of joint maker defense available to
one joint maker is not, in general available to the other
except if the defense goes to the meat of the case
defeating holder’s right to recover. For, eg,, if _ defense
is minority, it is available to both].
Personal or equitable defenses are those which grow out
of the personal or equitable defenses.
Agreement or conduct of a particular person regard to
the instrument which renders it inequitable for him,
though holding legal title, to enforce it against the person
being held liable, but which are not available against
HIDC. They are called personal defenses because they are
only available against that person (payee or indorsee) or
a subsequent holder who stands in privity with him
To what kind of defenses does a HIDC hold the
instrument free from?
A HIDC holds the instrument free from any defect of title
of prior parties and free from defenses available to prior
parties among themselves. The defenses referred to in
sec. 57 from which the HIDC is free from, are not
equitable defenses only, not legal defenses.
Does the HIDC hold the instrument free from infirmities
of the instrument?
No, the holder of the instrument, if a HIDC, holds the
instrument free from defect of title prior parties and
from defenses available to prior parties among
themselves (sec. 57) but the law does not say that he
acquires it free from the infirmities of the instrument. An
infirmity is an illness, a defect which attaches to the
instrument itself – whenever it goes. They are attached
to the instrument. They are real defenses which can be
put up even against HIDC. Infirmities are things that are
wrong with the instrument. The latter are only personal
defenses. (Abad’s opinion) (DISREGARD THIS
QUESTION)
[NOTE: But if infirmities are real defenses, what good is it
that the holder, under the sec. 52to be HIDC, must have
no notice of an infirmity in the instrument? Even if he
had no notice of it, the HIDC is prevented from collecting
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
from person liable because of a real defense – the is understanding and reason.
infirmity.]
(13) ultra vires acts of corporation where the
corporation has the power to issue
What are examples of personal defenses? negotiable paper but the issuance was not
authorized for the particular
purpose for which it was issued.
(1) absence of failure of consideration, partial or
total; (14) want of authority of agent where he has apparent
- (read sec. 28) – want of consideration may be authority; (read art. 1869,
raised only as between immediate parties.
NCC)
(definition of immediate in sec. 16)
(2) want of delivery of complete instrument; (read (15) insanity where there is no notice of insanity on the
sec. 16) part of the one
(3) inserting of wrong date in an instrument where
contracting with the insane person;
it is payable at a fixed period after date and it is
issued undated, or where it is payable at a fixed (16) illegality of contract where form or consideration is
period after sight and the acceptance is illegal;
undated; (read sec. 13)
- eg. usury notes; Gambling notes.
(4) filling up blank contrary to authority given or not
(17) set-off between immediate parties;
within reasonable time, where the instrument is
delivered; (read sec. 14) - this is a defense only when the holder has a
(5) fraud in inducement; (read sec. 55) debt against the person held liable.
- in fraud in inducement, one knew that he was (18) discharge between original parties;
signing a negotiable paper, and thus, signed
- “original parties”
with knowledge that the instrument would
probably pass into hands of an innocent
purchaser but was deceived into signing for a
larger amount than he intended, or on different
terms. The signer is led by deception to execute
what knows is a negotiable instrument. This is
different from fraud in factum where here is no
intention to issue a NI.
(6) acquisition of instrument by force, duress or
fear (sec. 55)
- Duress consist of depriving one of his will and
understanding and by threat or
Unlawful means.
(7) acquisition of the instrument by unlawful
means; (sec.55)
(8) acquisition of the instrument for an illegal
consideration; (sec. 55)
(9) negotiation in breach of faith (sec. 55) Sec. 58. When subject to original defense. - In the hands
(10)negotiation under circumstances that amount to
of any holder other than a holder in due course, a
fraud; (sec. 55) negotiable instrument is subject to the same defenses
(11)mistake; as if it were non-negotiable. But a holder who derives
his title through a holder in due course, and who is not
- in order that mistake may vitiate consent, it
himself a party to any fraud or illegality affecting the
must refer to the substance of the
instrument, has all the rights of such former holder in
things which is the object of the contract or
respect of all parties prior to the latter.
those conditions which have principally moved
one or both parties to enter into the contract.
Sec. 59. Who is deemed holder in due course. - Every
(12) intoxication; holder is deemed prima facie to be a holder in due
course; but when it is shown that the title of any person
- intoxication so as to deprive the person sought to be
who has negotiated the instrument was defective, the
charged of the exercise of
burden is on the holder to prove that he or some person
under whom he claims acquired the title as holder in

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
due course. But the last-mentioned rule does not apply
in favor of a party who became bound on the The following are examples of words indicating that the
instrument prior to the acquisition of such defective person who signs on the instrument does not intend to be
title. bound as an indorser.

V. LIABILITIES OF PARTIES “ I hereby guarantee payment of this instrument.”

“ as surety”, “ as guarantor”,
Sec. 60. Liability of maker. - The maker of a negotiable “ for identification only”
instrument, by making it, engages that he will pay it
according to its tenor, and admits the existence of the payee But when the note itself reads., “ We, the signers, indorser,
and his then capacity to indorse. sureties, and all of us in solido, promise to pay, etc.”, the
signers on the back of the instrument before delivery were
Sec. 61. Liability of drawer. - The drawer by drawing the held to be bound in solido, not as indorsers. This is a case
instrument admits the existence of the payee and his then where the intent to be bound in some other capacity may be
capacity to indorse; and engages that, on due presentment, found on the face of the instrument.
the instrument will be accepted or paid, or both, according
to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the Sec. 64. Liability of irregular indorser. - Where a person, not
amount thereof to the holder or to any subsequent indorser otherwise a party to an instrument, places thereon his
who may be compelled to pay it. But the drawer may insert signature in blank before delivery, he is liable as indorser, in
in the instrument an express stipulation negativing or accordance with the following rules:
limiting his own liability to the holder. (a) If the instrument is payable to the order of a
third person, he is liable to the payee and to all
Sec. 62. Liability of acceptor. - The acceptor, by accepting subsequent parties.
the instrument, engages that he will pay it according to the
tenor of his acceptance and admits: (b) If the instrument is payable to the order of the
(a) The existence of the drawer, the genuineness of maker or drawer, or is payable to bearer, he is
his signature, and his capacity and authority to liable to all parties subsequent to the maker or
draw the instrument; and drawer.

(b) The existence of the payee and his then capacity (c) If he signs for the accommodation of the payee,
to indorse. he is liable to all parties subsequent to the payee.
Sec. 65. Warranty where negotiation by delivery and so
Sec. 63. When a person deemed indorser. - A person placing forth. — Every person negotiating an instrument by delivery
his signature upon an instrument otherwise than as maker, or by a qualified indorsement warrants:
drawer, or acceptor, is deemed to be indorser unless he (a) That the instrument is genuine and in all
clearly indicates by appropriate words his intention to be respects what it purports to be;
bound in some other capacity.
(b) That he has a good title to it;
When is a person deemed an indorser?
(c) That all prior parties had capacity to contract;
When there is no indication in what capacity a
person signs upon the instrument, he is deemed an indorser. (d) That he has no knowledge of any fact which
would impair the validity of the instrument or
EXCEPTION: One making a note payable to his own order render it valueless.
does not assume liability as indorser despite his indorsement. But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate
X placed his signature upon an instrument without indicating transferee.
in what capacity he was signing. Later, X souight to show, by
parole evidence, his intention to be bound merely as an The provisions of subdivision (c) of this section do not apply
agent. Can X be allowed to do this? to a person negotiating public or corporation securities
other than bills and notes.
X cannot be allowed to show by parole evidence that he did
not intend to be bound as an indorser. The law requires that Sec. 66. Liability of general indorser. - Every indorser who
he indicate by appropriate words his intention to be bound in indorses without qualification, warrants to all subsequent
some other capcity on the instrument itself. In the absence of holders in due course:
this indication, X is deemed an indorser.

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
a. The matters and things mentioned
in subdivisions (a), (b), and (c) of
the next preceding section; and
(b) That the instrument is, at the time of his
indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it
shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent
indorser who may be compelled to pay it.
Sec. 67. Liability of indorser where paper negotiable by
delivery. — Where a person places his indorsement on an
instrument negotiable by delivery, he incurs all the liability
of an indorser.
Sec. 68. Order in which indorsers are liable. - As respect one
another, indorsers are liable prima facie in the order in
which they indorse; but evidence is admissible to show that,
as between or among themselves, they have agreed
otherwise. Joint payees or joint indorsees who indorse are
deemed to indorse jointly and severally.
Sec. 69. Liability of an agent or broker. - Where a broker or
other agent negotiates an instrument without indorsement,
he incurs all the liabilities prescribed by Section Sixty-five of
this Act, unless he discloses the name of his principal and
the fact that he is acting only as agent.
ILLUSTRATION: X is an agent of Y. X delivers to Z a note
payable to bearer in his capacity as Y’ agent. When X made a
delivery, however, he did not tell Z that he was merely acting
as an agent. X incurs all the liabilities prescribed in Sec. 65. He
can not be released of these liabilities upon proving that he
was merely acting as an agent.
VI. PRESENTATION FOR PAYMENT
Sec. 70. Effect of want of demand on principal debtor. -
Presentment for payment is not necessary in order to charge
the person primarily liable on the instrument; but if the
instrument is, by its terms, payable at a special place, and he
is able and willing to pay it there at maturity, such ability
and willingness are equivalent to a tender of payment upon
his part. But except as herein otherwise provided,
presentment for payment is necessary in order to charge the
drawer and indorsers.
Sec. 71. Presentment where instrument is not payable on
demand and where payable on demand. - Where the
instrument is not payable on demand, presentment must be
made on the day it falls due. Where it is payable on
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demand, presentment must be made within a reasonable
time after its issue, except that in the case of a bill of
exchange, presentment for payment will be sufficient if
made within a reasonable time after the last negotiation
thereof.
Sec. 72. What constitutes a sufficient presentment. -
Presentment for payment, to be sufficient, must be made:
(b) By the holder, or by some person
authorized to receive payment on his
behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the
instrument, or if he is absent or inaccessible, to
any person found at the place where the
presentment is made.
What is the importance of Sec. 72?
Sec. 72 establishes the four requisites for a sufficient
presentment for payment. If the presentment does not
comply with ay of the four, it is not sufficient. Consequently,
it would be as if, the presentment was made and, thus, the
persons secondarily liable are discharged.
Who makes presentment?
Presentment for payment must be made (1) by the holder of
the instrument , or (2) by some person authorized to receive
payment on his behalf.
When and where must presentment be made?
It must be made “ at a reasonable hour on a business day.”
What is reasonable hour on a business day depends upon the
general custom at the place of the particular transaction. In
the Philippines, for example, commercial banks are open 9am
to 4 pm. Presentment for payment can not be made on a
Sunday or holiday (Sec. 85, 194). The presentment must be
made at the proper place as defined in Sec. 73.
To whom must presentment be made?
It must be made to the person primarily liable. If a note, it
must be made to the maker. If a bill, it must be made to the
acceptor. It is not made to the person secondarily liable. But,
if the person primarily liable is absent or inaccessible,
presentment can be made to any person found at such place
even without special authority given him.
Sec. 73. Place of presentment. - Presentment for payment is
made at the proper place:
(a) Where a place of payment is specified in the instrument
and it is there presented;
(b) Where no place of payment is specified but the address
of the person to make payment is given in the
instrument and it is there presented;
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(c) Where no place of payment is specified and no address
is given and the instrument is presented at the usual
place of business or residence of the person to make
payment;
(d) In any other case if presented to the person to make
payment wherever he can be found, or if presented at
his last known place of business or residence.
What is the rule on proper place of presentment?
The proper place of presentment is the place specified in the
order of enumeration from subsection (a) to subsection (d).
This means that if subsection (a) can be applied (eg. A place
of payment is actually specified), presentment in any other
place under subsection (b) to (d) will be improper and will not
meet the requirement of Sec. 72 (c). Similarly, subsec (c) is
only applicable if subsec. (a) and (b) cannot be applied. Lastly,
subsec. (d) is applicable only if presentment cannot be made
at any other place.
ILLUSTRATION:
Of (a) : “ I promise to pay to X or order P100 at PNB,
Manila. Sgd. Y.”
Of (b): “ In the same note, “PNB, Manila is omitted
but it was signed as “sgd. Y, 404 Regina Bldg.,
Manila;”
Of (c ): The note neither specifies a place of payment
nor does it indicate the address of the person to pay.
But the maker’s residence or business office is
known by the holder. Either place will do.
Of (d): If no place is specified, no address is given,
and both the address and business office is not
known, presentment is made when seen (anywhere).
Sec. 74. Instrument must be exhibited. - The instrument
must be exhibited to the person from whom payment is
demanded, and when it is paid, must be delivered up to the
party paying it.
Why is exhibition of the instrument necessary?
Presentment includes not only demand for payment
but also the exhibition of the instrument. Valid presentment
requires personal, or face to face demand at the proper
place, exhibiting the instrument to the person from whom
payment is demanded. If the instrument is not exhibited, the
presentment would be ineffectual, as the debtor is entitled to
see the instrument and demand its surrender upon payment.
Thus, the purpose of exhibition is to enable the debtor: (1) to
determine the genuineness of the instrument and the right of
the holder to receive the payment; and t (2) to enable him to
reclaim/ possession upon payment.
Can presentment be made through telephone?
No, because the instrument must be physically produced and
this is not possible through phone. This is because the person
primarily liable has the right to inspect and retrieve or take
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possession of the instrument upon payment. Once, it is
retrieved, the instrument becomes merely a voucher of
payment and prevents the instrument from being negotiated
rd
to innocent 3 parties who are unaware of the fact of
discharge and may hold the person primarily liable for
payment again.
When is exhibition excused?
(1) When the debtor does not demand to see the
instrument but refuses payment on some other grounds; and
(2) When the instrument is lost or destroyed.
Sec. 75. Presentment where instrument payable at bank. -
Where the instrument is payable at a bank, presentment for
payment must be made during banking hours, unless the
person to make payment has no funds there to meet it at
any time during the day, in which case presentment at any
hour before the bank is closed on that day is sufficient.
What is the rule where the instrument is payable at a bank?
Where an instrument is payable at a bank, it is
equivalent to an order to the bank to make payment for the
account of the principal debtor (Sec. 87). If the instrument is
payable at a bank and the person to make payment has fund
in the bank to meet it on the date of maturity, presentment
must be made during banking hours. Presentment made
outside banking hours is not sufficient inasmuch as banks do
not make payments outside of banking hours. In the
Philippines. The banking hours are from 9 am to 4 am (but
Agbayani claims it is only up to 2:30pm) from Monday to
Friday. There are no banking hours on Saturdays and
Holidays. Consequently presentment must be made between
9 am to 4 pm on ordinary days. Otherwise, presentment
would not be sufficient and persons secondarily liable on the
bill are discharged. But it must be remembered that the
person to make payment has until the close of banking hours
in which to pay it, and if before the close of such hours, he
deposits funds there enough to pay it, a demand earlier in the
day is premature. However, if the person to make payment
has no funds in the bank to meet the payment at any time
during the day, presentment at any hour before the bank is
closed is sufficient to hold persons secondarily liable- the
reason being that at any rate, the bill cannot be paid even is
presented during banking hours. (The last rule is important as
the persons secondarily liable may claim that presentment is
premature.
Sec. 76. Presentment where principal debtor is dead. -
Where the person primarily liable on the instrument is dead
and no place of payment is specified, presentment for
payment must be made to his personal representative, if
such there be, and if, with the exercise of reasonable
diligence, he can be found.
Sec. 77. Presentment to persons liable as partners. - Where
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
the persons primarily liable on the instrument are liable as
partners and no place of payment is specified, presentment
for payment may be made to any one of them, even though
there has been a dissolution of the firm.
Sec. 78. Presentment to joint debtors. - Where there are
several persons, not partners, primarily liable on the
instrument and no place of payment is specified,
presentment must be made to them all.
NOTE: The rules stated in all 3 sections apply only, to cases
where no place for presentment is specified. If there us a
place specified, these rules are inapplicable and presentment
must be made at the place specified.
What is the rule on the death of primary party?
In case of the death of the person primarily liable,
and no place of payment is specified, presentment for
payment may be made to his executor or administrator, (1) if
there be one, and (2) if he can be found. The holder must use
reasonable diligence to find the personal representative, if
there be one.
What is the rule if the persons primarily liable are partners?
Presentment may be made to any one of the
partners, even if their partnership has been dissolved. The
reason is that each partner is an agent of the partnership or
his co-partners. Accordingly, in case of death of one of the
makers who are partners, presentment shall not be made to
his personal representative but to the surviving partners.
What if the parties primarily liable are not partners?
If the persons primarily liable are not partners, their
liability is only joint. In joint obligation, there are as many
debts as there are debtors, each debt being considered
distinct and separate from 1208, C.C. ) Thus, presentment
must be made to all of them. However, if one of them is duly
authorized by the others for the purpose, presentment to him
would be sufficient.
Sec. 79. When presentment not required to charge the
drawer. - Presentment for payment is not required in order
to charge the drawer where he has no right to expect or
require that the drawee or acceptor will pay the instrument.
Sec. 80. When presentment not required to charge the
indorser. - Presentment is not required in order to charge an
indorser where the instrument was made or accepted for his
accommodation and he has no reason to expect that the
instrument will be paid if presented.
NOTE: Sec. 79 refers only to the drawer specifically. All other
parties secondarily liable will be discharged ( since no
presentment). Similarly, Sec. 80 refers only to the indorser for
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whose accommodation an instrument is made or accepted.
All others parties secondarily liable are discharged. These 2
sections give 2 exceptions to the general rule that if no
resentment for payment is made, the persons secondarily
liable are discharged.
When is presentment not required to charge the drawer
liable?
1. In case of a check upon which payment
has been stopped.
2. Where the drawer’s balance is less than
the amount of the check (at the time of
presentment) unless arrangements
have been made for payment of the
bill.
3. Where the drawer of a bill containing
the words “Pay from balance” had no
money on deposit with the drawee but
expected to arrange with the broker to
cover the drafts.
4. Where the drawer and the drawee are
the same person or where the drawee
is a fictitious person, or a person
without capacity to contract (Sec. 130)
because the holder mat treat it as a
note and the drawer is considered a
maker. Under section 70, a maker is
liable even without presentment.
Why is the accommodated party-indorse not discharged?
The accommodated party-indorser is the real debtor and not
the maker or acceptor. As the accommodated party did not
give value to the accommodation party, the former has no
reason to expect that the instrument will be paid upon
presentment.In effect, the accomodated party is the person
primarily liable. Hence, the accomodated party –indorser,
being in effect the person primarily liable is not discharged
even if no presentment for payment is made. This is in
consonance with the rule that failure to make presentment
for payment will not discharge the person primarily liable.
Sec. 81. When delay in making presentment is excused. -
Delay in making presentment for payment is excused when
the delay is caused by circumstances beyond the control of
the holder and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate,
presentment must be made with reasonable diligence.
Sec. 82. When presentment for payment is excused. -
Presentment for payment is excused:
(a) Where, after the exercise of reasonable
diligence, presentment, as required by this Act,
cannot be made;
(b) Where the drawee is a fictitious person;
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(c) By waiver of presentment, express or implied.
Sec. 83. When instrument dishonored by non-payment. - The
instrument is dishonored by non-payment when:
(a) It is duly presented for payment and payment is
refused or cannot be obtained; or
(b) Presentment is excused and the instrument is
overdue and unpaid.
Sec. 84. Liability of person secondarily liable, when
instrument dishonored. - Subject to the provisions of this
Act, when the instrument is dishonored by non-payment, an
immediate right of recourse to all parties secondarily liable
thereon accrues to the holder.
Sec. 85. Time of maturity. - Every negotiable instrument is
payable at the time fixed therein without grace. When the
day of maturity falls upon Sunday or a holiday, the
instruments falling due or becoming payable on Saturday
are to be presented for payment on the next succeeding
business day except that instruments payable on demand
may, at the option of the holder, be presented for payment
before twelve o'clock noon on Saturday when that entire
day is not a holiday.
Sec. 86. Time; how computed. - When the instrument is
payable at a fixed period after date, after sight, or after that
happening of a specified event, the time of payment is
determined by excluding the day from which the time is to
begin to run, and by including the date of payment.
NOTE: In determining the proper date for presentment, count
from the day following the date from which the time is to run
(e.g. the date of the instrument, or date of sight, or date of
the happening of the specified event) and include the last
day of the period as the maturity date.
But if dated 5 April 1991 and payable one month
after, the due date is 5 May 1991.
If dated 31 January and payable one month after,
the due date is Feb 28 or 29 depending on whether it is a leap
year.
Sec. 87. Rule where instrument payable at bank. - Where the
instrument is made payable at a bank, it is equivalent to an
order to the bank to pay the same for the account of the
principal debtor thereon.
Sec. 88. What constitutes payment in due course. - Payment
is made in due course when it is made at or after the
maturity of the payment to the holder thereof in good faith
and without notice that his title is defective.
What are the requisites for payment in due course?
(1) payment must be made at or after the date of
maturity;
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- payment made before maturity would
constitute a negotiation back the person
primarily liable and he can re-negotiate it (sec.
50).
(2) payment must be the holder; and
- payment to indorsee who is not in possession of
the instrument is not payment in due course
and is at the risk of the party so paying. Party
making payment must insist on the presentment
of the paper by the person demanding payment
in order to make sure that it is at the time in his
possession and not outstanding in other.
(3) payment must be made by the debtor in good
faith and without notice that the holder’s title is
defective.
- payment to a person by the debtor who knows
that such person stole it, is not payment in due
course , as such payment is not in good faith.
The maker or acceptor must satisfy himself,
when it is presented for payment, that the
holder traces his title through genuine
indorsements.
Medium of payment the payment of debts in money
shall be made in the currency stipulated and if not
possible, in the currency which legal tender in the
Philippines. When payment of an instrument is made
by giving (other than legal tender), as a general such
payment will not be considered absolute until the
paper given has been itself paid except when parties
agree otherwise.
A check presented by the holder to the bank where
it is drawn and receive as a deposit and credited to
his amount, this amounts to a payment of the
checks.
VII. NOTICE OF DISHONOR
Sec. 89. To whom notice of dishonor must be given. - Except
as herein otherwise provided, when a negotiable instrument
has been dishonored by non-acceptance or non-payment,
notice of dishonor must be given to the drawer and to each
indorser, and any drawer or indorser to whom such notice is
not given is discharged.
What a notice of dishonor?
Notice of dishonor is bringing, either verbally or by
writing to the knowledge of the drawer or indorser
of an instrument, the fact that a specified negotiable
instrument, upon proper proceedings taken, has not
been paid and that the party notified is expected to
pay it. (If such notice is given by a notary public, it is
called a protest (sec. 153).
What are the purposes of a notice of dishonor?
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
(1)to inform the parties secondarily liable that the
maker or acceptor, as the case may be has failed to
meet his engagement;
(2) to advice such parties that they will be required
to make payment.
What is the rule on notice of dishonor?
When an instrument is dishonored by (1) non-acceptance
(bill) or (2) non- payment (both bill and note), notice of such
dishonor must be given to persons secondarily liable, namely,
the drawer (in a bill) and indoresers (in both bill and note).
Otherwise, such parties are discharged. However, the holder
is not required to notify the drawer and all indorsers. He may
select to hold only one or some of the indorsers and any
party not so notified is discharge. Therefore, the holder, in
order to fix the liabilities of the parties secondarily liable,
must give a notice of dishonor at least, to such parties he may
have selected. Further, it is incumbent upon the holder to
prove the fact of giving notice, in accordance with the law, as
part of his case. His cause of action (enforcement of payment)
will not given substance or will not be upheld by court if he
fails to prove such fact. Lastly, the law does not require that
the notice be given to the persons primarily liable (maker or
acceptor) because they are the very ones who dishonored the
instrument.
NOTE: The exceptions to this general rule of notice are found
in secs. 109, 112, 114, 115, 116, 117.
In instruments payable in installments, does failure give such
notice of dishonor of a previous installment to persons
secondarily liable discharge them on succeeding installment?
It depends. If the instrument contains no acceleration clause,
they are not discharged because each installment is
equivalent to a separate note. If there is an acceleration
clause and it is automatic (in operation), they are discharged.
If the acceleration clause is optional and it is not exercised, it
is the same as if no such clause existed and as a result, they
are not discharged therefore. If the optional acceleration
clause has been exercised, the persons secondarily liable are
excused.
Sec. 90. By whom given. - The notice may be given by or on
behalf of the holder, or by or on behalf of any party to the
instrument who might be compelled to pay it to the holder,
and who, upon taking it up, would have a right to
reimbursement from the party to whom the notice is given.
Who gives the notice of dishonor?
(1) the holder; or
(2) another behalf of the holder; or
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(3) by a party to the instrument who may be compelled to
pay it to the holders;
- However, such a party cannot give notice of
dishonor to everybody but only to another party against
whom he has a right of reimbursement should such party
giving notice pay the instrument.
(4) another person in behalf of such party;
Notice by a mere stranger is ineffectual unless he is acting as
agent of a party who is entitled to give notice of dishonor.
ILLUSTRATION: M makes a note payable to the order of P. P
negotiates the note to A. A to B, B to C, C to D, holder. M
dishonors the note in the hands of D.
(a) D or his agent may give notice of dishonor to P, A, B, C, or
to any one of them.
(b) if the D notifies C only, the latter, who thereby can be
compelled by D to pay, may, in turn, notify P, A and/or B – to
whom C, if he pays,. Has the right of reimbursement.
(c) if D give notice only B, the effect is to discharge C due to
lack of notice since B would have no right of reimbursement
from C and thus, no right to give notice to him.
(d) C, upon his discharge, becomes a total stranger and as
such is not entitled to give notice unless he is acting as an
agent of a party who can give proper notice of dishonor.
May a maker or acceptor, at any time, give notice or
dishonor?
Yes, only when the maker or acceptor acts as an agent of the
person entitled to give notice.
Sec. 91. Notice given by agent. - Notice of dishonor may be
given by any agent either in his own name or in the name of
any party entitled to given notice, whether that party be his
principal or not.
NOTE: Notice of dishonor may be give by an agent (sec. 90).
The agent need not be authorized by the principal to give the
notice. Notice may be given by the agent: (1) in the name of
any party entitled to give the notice (sec. 90); or (2) in his
(agent’s) own name. Thus, any person can be agent of any
party entitled to give notice (so as long as he gives notice for
such party and not for his own sake).
Sec. 92. Effect of notice on behalf of holder. - Where notice
is given by or on behalf of the holder, it inures to the benefit
of all subsequent holders and all prior parties who have a
right of recourse against the party to whom it is given.
What does “benefit” mean?
The word “benefit” refers to the right to charge the person
secondarily liable who receive notice. In other words, the
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
party to whom this benefit inures can charge the party
receiving notice of dishonor, even if he himself did not give
the notice.
To whom does this benefit inure to?
Notice given by or on behalf of the holder inures to the
benefit:
(1) of all parties prior to the holder, who have the right of
recourse against the party to whom the notice is given; and
(2) of all holders subsequent to the holder giving notice.
ILLUSTRATION: M makes a note payable to the order of P. P
negotiates it to A. A to B, B to C, C to D, holder. M dishonors.
D notifies P, A B, and C.
(a)the notice given by D to P operates to the benefit of A,
B and C although they were not the one who gave the notice
as they have the right of recourse against P if any of them be
held liable to pay the instrument.
(b) but, the notice given by D to B does not operate to the
benefit of P and A since the latter do not have the right of
recourse against B. The notice to B, though, would benefit C
who has such right of recourse against B.
(c) if D subsequently negotiates the note E, the notice inures
to E’s benefit although he himself did not give any E need not
give another notice of dishonor.
(d) Suppose D, when the instrument was dishonored, gave
notice only P, A and C. D later negotiated it to E. Can E go
after B to whom notice was given? No. the effect of D’s
failure to notify B was to discharge him from liability. The
benefit of sec. 92 cannot be extended to those already
discharged. (following this trend of thought, if E goes after C
and the later pays, C can no longer go after B even if he had a
right of recourse against him).
Sec. 93. Effect where notice is given by party entitled
thereto. - Where notice is given by or on behalf of a party
entitled to give notice, it inures to the benefit of the holder
and all parties subsequent to the party to whom notice is
given.
How is sec. 93 different from sec. 92?
The principal involved is the same. However, the notice sec.
93 is given, not by the holder but by a party entitled to give
notice under sec. 90 namely, by party to the instrument who
might be compelled to pay it to the holder, and who, upon
taking it p, would have a right of reimbursement from the
party to whom notice is given. Such notice inures to the
benefit of: (1) the holder, and (2) all parties subsequent to the
party to whom notice is given.
ILLUSTRATION: M made a note payable to the order P. P
negotiated it to A. A to B, B to C, C to D, holder. M dishonors
the note and D notifies only C.
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(a) Ordinarily, A, B and P are considered discharged from their
liability for lack of notice (sec. 89).
(b) But, if C, within the time fixed by law (sec. 94, 107), gives
due notice to B, and B gives notice to A and A to P, all three
will not be considered discharged. (Subsequent notices must
each be within the time fixed by law).
(c) Can D go after P despite the absence of notice given by the
former to the latter? Yes, the notice given by A to P inured to
the benefit of D, holder (sec. 93) although the latter failed to
give notice P.
(d) Suppose D instead went after B and succeeded in
collecting. May B go after P? yes, Although B never gave
notice personally to P, the notice by A also inures to the
benefit of parties subsequent to the party to whom notice is
given.
Sec. 94. When agent may give notice. - Where the
instrument has been dishonored in the hands of an agent,
he may either himself give notice to the parties liable
thereon, or he may give notice to his principal. If he gives
notice to his principal, he must do so within the same time
as if he were the holder, and the principal, upon the receipt
of such notice, has himself the same time for giving notice as
if the agent had been an independent holder.
What may the agent do if the instrument in his hands is
dishonored?
(1) he may directly give notice to the persons secondarily
liable thereon; or
- the agent must do so within the time fixed by secs. 102,
103, 104 and 107. Otherwise, the parties secondarily liable
are discharged for lack of notice unless the principal himself
notified them.
(2) he may gave notice, within the time fixed by law, to his
principal.
- the time in which the principal was a party secondarily
liable.the principal, upon receiving such notice, has also the
same time for giving notice to the parties secondarily liable as
if the instrument was dishonored on the day he received the
notice. Thus, notice to the agent of dishonor does not
constitute notice to the principal. The agent is treated like an
independent holder.
Sec. 95. When notice sufficient. - A written notice need not
be signed and an insufficient written notice may be
supplemented and validated by verbal communication. A
misdescription of the instrument does not vitiate the notice
unless the party to whom the notice is given is in fact misled
thereby.
Sec. 96. Form of notice. - The notice may be in writing or
merely oral and may be given in any terms which sufficiently
identify the instrument, and indicate that it has been
dishonored by non-acceptance or non-payment. It may in all
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
cases be given by delivering it personally or through the
mails.
Is there any form required for the notice of dishonor?
No. Notice of dishonor may be in writing or merely oral. Thus,
notice may be given by telephone provided that it may be
clearly shown that the party notified was really
communicated with, that is fully indentified as the party at
the receiving end of the line.
What must the notice contain?
(1) sufficient description of the instrument to identify it;
(2) a statement that it has been presented for payment or for
acceptance, and that it has been dishonored. (If protest is
necessary, the notice must also cointain a statement that it
has been protested); and
(3) a statement that the party giving notice to look for the
party addressed for payment.
What if one of the three is omitted?
The fact that the insufficient does not invalidated it. The
notice may be supplemented by oral or verbal
communications stating the things lacking. In fact, even if the
notice was not be invalidated.
Supposing there is a misdescription of the instrument, will
that fact affect the validity of the notice?
Generally, misdescription of the instrument, such as to the
amount or the date of the name of the parties or the date of
maturity, does not vitiate the notice provided that the person
to whom such notice is addressed is not misled thereby as to
the identity of the instrument, if the said party is misled, the
notice is vitiated. The purpose of the notice is to appraise the
party entitled thereto of the dishonor of the instrument so
that if the said party, despite the misdescription, is not
misled, the notice is sufficient.
How may the notice be given?
The party giving said notice to serve notice: (1) by personal
delivery; or (2) by mail. But, in a personal service, it must be
shown that either actual personal service, or an ordinary
intelligent, diligent effort to make personal service upon the
indorser at his place of business during business hours or at
his residence if he has place of business, was made.
Sec. 97. To whom notice may be given. - Notice of dishonor
may be given either to the party himself or to his agent in
that behalf.
NOTE: Under sec. 91, the agent giving notice need not be
authorized by the principal. But, under sec. 97, an agent to be
competent to receive notice of dishonor must be authorized.
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The reason for the difference is that, while in sec. 91, the
giving of notice benefits the principal, in sec. 97, the receipt
of notice creates liability. If the agent, in sec. 97, is not
authorized, the notice in valid.
Suppose notice was attempted to be given to the party
himself but he was not present. Does the notice have to be
given only to an authorized agent?
No. Notice to agent must be distinguished from notice
attempted to be given to the party himself where he is
absent. In the latter case, the notice may be left with anyone
found in charge in the party’s place of residence or business.
Such notice is sufficient and it is irrelevant that the person
was not so authorized by the principal.
Sec. 98. Notice where party is dead. - When any party is
dead and his death is known to the party giving notice, the
notice must be given to a personal representative, if there
be one, and if with reasonable diligence, he can be found. If
there be no personal representative, notice may be sent to
the last residence or last place of business of the deceased.
What are the requisites of this sec.?
When the person to be given notice of dishonor (the party
sought to be charged) is dead, notice must be given to his
personal representative, provided that: (1) his death know to
the party giving notice,; (2) there is a personal representative;
and (3) if with reasonable diligence he could be found.
Accordingly, where the holder knew the indorser to be dead,
he must use reasonable diligence to find out whether there is
a personal representative of such decedent or not, and, if
there is one, his identity. But, although the party is dead, (1) if
his death is not known to the party giving notice but there is
no personal representative, or (3) if there is one but he
cannot be found with reasonable diligence, then, notice may
be sent to the last residence or last place of the deceased.
The first preference will be the person, the representative.
Only in his absence should the notice be sent to such place.
Sec. 99. Notice to partners. - Where the parties to be
notified are partners, notice to any one partner is notice to
the firm, even though there has been a dissolution.
NOTE: the reason for the rule is that each partner is an agent
of the partnership of which he is a member. Notice to one is
notice to the others. This is true even though the notice was
fraudulently suppressed by the partners receiving it.
Sec. 100. Notice to persons jointly liable. - Notice to joint
persons who are not partners must be given to each of them
unless one of them has authority to receive such notice for
the others.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
NOTE: Sec. 100 does not apply to joint payees or joint
indorsees. This is because, under sec. 68, such persons
deemed solidarily liable. Accordingly, sec. 100 applies to joint
parties other than joint payees and joint indorse, such as, to
drawers who sign a bill jointly, or to joint accommodation
indorsers who are not solidarily liable under sec. 68. if one of
such joint parties are not given notice, he will be discharged.
Sec. 101. Notice to bankrupt. - Where a party has been
adjudged a bankrupt or an insolvent, or has made an
assignment for the benefit of creditors, notice may be given
either to the party himself or to his trustee or assignee.
NOTE: This sec. contemplates 2 situations: (1) the party
secondarily liable has been declared a bankrupt or an
insolvent and (2) the party secondarily liable has made an
assignment of his properties for the benefit of creditors (even
if not bankrupt or insolvent). In either case, notice may be
given to the party himself or to his trustee or assignee. From
the moment that notice is duly served, the liability of the
secondary party is fixed.
In the case of bankruptcy or insolvency, it does not
mean that just because notice has been given, one can
immediately proceed against such party. It is still necessary to
file a complaint with the insolvency court and participate in
the insolvency proceedings together with all creditors so that
the properties of the insolvent may be distributed to all those
with claims – pro rata. But, the act of giving notice of
dishonor must be proven in court. Otherwise, absence of
proof discharge the insolvent from liability insofar as that
instrument is concerned.
Sec. 102. Time within which notice must be given. - Notice
may be given as soon as the instrument is dishonored and,
unless delay is excused as hereinafter provided, must be
given within the time fixed by this Act.
NOTE: The time for giving notice is fixed in secs. 103, 104 &
107.
May notice of dishonor be given before the date of
maturity?
No, because an instrument cannot be said to be dishonored
for non-payment unless presented and presentment must be
made on the date of maturity unless presentment is excused.
But even when presentment is excused, the instrument
cannot be said to be dishonored by non-payment unless it is
overdue and unpaid. Notice must be given only when it is
actually dishonored. Notice given before the instrument is
due is premature and insufficient.
ILLUSTRATION: A is in possession of a note which will mature
on Sept. 15, 1991 (30 days from today). The party primarily
liable told A that he will not pay the instrument on due date.
Can A, before Sept. 15, give notice of dishonor already? No,
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the note has not yet matured and notice given earlier than
such date is premature.
May it be given on the date of maturity?
Yes, provided that the notice of dishonor be given after the
close of banking hours. The party primarily liable is given the
whole day in which to make payment. If the instrument is
presented on the date of maturity and is dishonored, but
later in the day, the party is primarily liable manifests his
willingness to pay, any prior notice would be premature.
Remember, the party liable has the whole day in which to
make payment. Further, to give notice, the instrument must
have been: (1) presented for acceptance or for payment, and
(2) it was dishonored.
Why must notice be prompt?
The purpose of giving prompt notice is to give the persons
secondarily liable every opportunity to secure themselves.
Sec. 103. Where parties reside in same place. - Where the
person giving and the person to receive notice reside in the
same place, notice must be given within the following times:
(a) If given at the place of
business of the person to
receive notice, it must be
given before the close of
business hours on the day
following.
(b) If given at his
residence, it must be
given before the usual
hours of rest on the day
following.
(c) If sent by mail, it must be deposited in the post office in
time to reach him in usual course on the day following.
Sec. 104. Where parties reside in different places. - Where
the person giving and the person to receive notice reside in
different places, the notice must be given within the
following times:
NOTE: Secs. 103 & 104 refer to the maximum time limit
allowed by the law to give notice. It may be given earlier.
However, if the notice was given beyond the time limit, it
would be considered not to have been given ant the parties
secondarily liable will be discharged from liability. The time
limit for giving notice depends upon whether the person
receiving notice resides in the same place as the person as
the person giving it, or not
What means are provided for in secs. 103 and 104 to give
notice?
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
parties; but, where it is written above the signature of an
In sec. 103, notice of dishonor may be given either (1) indorser, it binds him only.
personally; or (2) by mail. In sec. 104, it may be given either
(1) by mail or (2) otherwise than by mail (eg. Messenger, Sec. 111. Waiver of protest. - A waiver of protest, whether in
telegram). the case of a foreign bill of exchange or other negotiable
instrument, is deemed to be a waiver not only of a formal
What is meant by protest but also of presentment and notice of dishonor.

(a) If sent by mail, it must be deposited in the post office in Sec. 112. When notice is dispensed with. - Notice of dishonor
time to go by mail the day following the day of dishonor, or is dispensed with when, after the exercise of reasonable
if there be no mail at a convenient hour on last day, by the diligence, it cannot be given to or does not reach the parties
next mail thereafter. sought to be charged.

(b) If given otherwise than through the post office, then Sec. 113. Delay in giving notice; how excused. - Delay in
within the time that notice would have been received in due giving notice of dishonor is excused when the delay is
course of mail, if it had been deposited in the post office caused by circumstances beyond the control of the holder
within the time specified in the last subdivision. and not imputable to his default, misconduct, or negligence.
Sec. 105. When sender deemed to have given due notice. - When the cause of delay ceases to operate, notice must be
Where notice of dishonor is duly addressed and deposited in given with reasonable diligence.
the post office, the sender is deemed to have given due
notice, notwithstanding any miscarriage in the mails. Sec. 114. When notice need not be given to drawer. - Notice
of dishonor is not required to be given to the drawer in
Sec. 106. Deposit in post office; what constitutes. - Notice is either of the following cases:
deemed to have been deposited in the post-office when (a) Where the drawer and drawee are the same
deposited in any branch post office or in any letter box person;
under the control of the post-office department.
(b) When the drawee is fictitious person or a person
Sec. 107. Notice to subsequent party; time of. - Where a not having capacity to contract;
party receives notice of dishonor, he has, after the receipt of
such notice, the same time for giving notice to antecedent (c) When the drawer is the person to whom the
parties that the holder has after the dishonor. instrument is presented for payment;

Sec. 108. Where notice must be sent. - Where a party has
added an address to his signature, notice of dishonor must
be sent to that address; but if he has not given such address,
then the notice must be sent as follows:
(a) Either to the post-office nearest to his place of
residence or to the post-office where he is
accustomed to receive his letters; or
(b) If he lives in one place and has his place of
business in another, notice may be sent to either
place; or
(c) If he is sojourning in another place, notice may
be sent to the place where he is so sojourning.
But where the notice is actually received by the party within
the time specified in this Act, it will be sufficient, though not
sent in accordance with the requirement of this section.
Sec. 109. Waiver of notice. - Notice of dishonor may be
waived either before the time of giving notice has arrived or
after the omission to give due notice, and the waiver may be
expressed or implied.
Sec. 110. Whom affected by waiver. - Where the waiver is
embodied in the instrument itself, it is binding upon all
(d) Where the drawer has no right to expect or
require that the drawee or acceptor will honor the
instrument;
(e) Where the drawer has countermanded
payment.
Sec. 115. When notice need not be given to indorser. —
Notice of dishonor is not required to be given to an indorser
in either of the following cases:
(a) When the drawee is a fictitious person or person
not having capacity to contract, and the indorser
was aware of that fact at the time he indorsed the
instrument;
(b) Where the indorser is the person to whom the
instrument is presented for payment;
(c) Where the instrument was made or accepted for
his accommodation.
NOTES: Remember FICPA
This section applies only to the indorser concerned.
It does not excuse notice to other indorsers. Failure to give to
the others will result in their discharge. Under subsec (c) , the

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
indorser (the accommodated party) is in fact the principal Sec. 120. When persons secondarily liable on the instrument
debtor and is not entitled to notice. are discharged. - A person secondarily liable on the
instrument is discharged:
EXAMPLE OF CASES WHER SEC. 115 DOES NOT APPLY: (a) By any act which discharges the
In these cases, notice of dishonor to the indorser is not instrument;
excused:
1. Where the maker of the instrument is a (b) By the intentional
partnership and the indorser sought to be charged cancellation of his signature by
is a member thereof; the holder;
2. Where no presentment was actually made;
3. where the indorser was treasurer of the maker (c) By the discharge of a prior
corporation, not active in its management and party;
signed the note in behalf of the corp.
(d) By a valid tender or payment
The bottom line, for Sec. 114 and 115 is that notice is not made by a prior party;
needed to the drawer or indorser concerned when (1) he has
knowledge of the dishonor by means other than through a (e) By a release of the principal
formal notice; and (2) he has no reason to expect that the debtor unless the holder's right
instrument will be honored. of recourse against the party
Sec. 116. Notice of non-payment where acceptance refused. secondarily liable is expressly
- Where due notice of dishonor by non-acceptance has been reserved;
given, notice of a subsequent dishonor by non-payment is
not necessary unless in the meantime the instrument has (f) By any agreement binding
been accepted. upon the holder to extend the
time of payment or to postpone
Sec. 117. Effect of omission to give notice of non-acceptance. the holder's right to enforce the
- An omission to give notice of dishonor by non-acceptance instrument unless made with
does not prejudice the rights of a holder in due course the assent of the party
subsequent to the omission. secondarily liable or unless the
right of recourse against such
Sec. 118. When protest need not be made; when must be party is expressly reserved.
made. - Where any negotiable instrument has been
dishonored, it may be protested for non-acceptance or non- Why will the discharge of the instrument operate to
payment, as the case may be; but protest is not required discharge the secondary parties?
except in the case of foreign bills of exchange.
If the instrument is discharged under sec. 119, it ceases to
VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS have force and effect. Hence, all parties, primary or
secondary, will also be discharged since there is no
Sec. 119. Instrument; how discharged. - A negotiable instrument to be liable on. But the discharge of the secondary
instrument is discharged: parties does not necessarily bring about the discharge of the
(a) By payment in due course by or on behalf of the instrument.
principal debtor;
When will cancellation of the signature work as a discharge?
(b) By payment in due course by the party
accommodated, where the instrument is made or It is only when the signature of the indorser is intentionally
accepted for his accommodation; cancelled by the holder that the former is discharge as if he
has never been a party to the instrument. If there was a
(c) By the intentional cancellation thereof by the mistake in the appreciation of facts, there is no intentional
holder; cancellation. But, once an indorsement is canncelled, there is
prima facie presumption of intention cancel. Also, the right of
(d) By any other act which will discharge a simple the holder to cancel the signature of an indorser is subject to
contract for the payment of money; the limitation that the indorserment is not necessary to the
holder’s title.
(e) When the principal debtor becomes the holder
of the instrument at or after maturity in his own Aside from the indorser’s discharge, what further effect will
right. the cancellation have?

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
The discharge of a party by intentional cancellation of his have been cancelled, the burden of proof lies on the party
signature also operates as a discharge of parties subsequent who alleges that the cancellation was made unintentionally
to the party discharge. The reason for the rule is that the or under a mistake or without authority.
discharge deprives a subsequent party of a right of recourse
against the party discharged by the holder. Thus, suppose A, Sec. 124. Alteration of instrument; effect of. - Where a
maker, issues a note in favor of B. B negotiates it to C, C to D, negotiable instrument is materially altered without the
D to E, E to F, holder. F cancels C’s signature. D and E will also assent of all parties liable thereon, it is avoided, except as
be discharged because both would be denied their right of against a party who has himself made, authorized, or
recourse against C in case one of them is made to pay the assented to the alteration and subsequent indorsers.
instrument. But when an instrument has been materially altered and is
in the hands of a holder in due course not a party to the
PROBLEM: In the same example, if F, instead of canceling the alteration, he may enforce payment thereof according to its
indorsement of C, presented the note to A who refused to original tenor.
pay. F notifies
Sec. 125. What constitutes a material alteration. - Any
Sec. 121. Right of party who discharges instrument. - Where alteration which changes:
the instrument is paid by a party secondarily liable thereon, (b) The date;
it is not discharged; but the party so paying it is remitted to (b) The sum payable, either for
his former rights as regard all prior parties, and he may principal or interest;
strike out his own and all subsequent indorsements and (c) The time or place of payment:
against negotiate the instrument, except: (d) The number or the relations of
(a) Where it is payable to the order of a third the parties;
person and has been paid by the drawer; and (e) The medium or currency in which
payment is to be made;
(b) Where it was made or accepted for (f) Or which adds a place of payment
accommodation and has been paid by the party where no place of payment is
accommodated. specified, or any other change or
addition which alters the effect of
What are the effects of payment by a secondary party? the instrument in any respect, is a
material alteration.
1. The instrument is not discharged. But the party
paying is. BILLS OF EXCHANGE
2. The payer is remitted to his former rights against
parties prior to him. If the payer was a HIDC, even IX. FORM AND INTERPRETATION
if at the time of payment he already had notice of
defects of title, he can enforce his rights as if he Sec. 126. Bill of exchange, defined. - A bill of exchange is an
was a HIDC. unconditional order in writing addressed by one person to
3. The payer can strike out his indorsement and those another, signed by the person giving it, requiring the person
of subsequent parties to him. to whom it is addressed to pay on demand or at a fixed or
4. The payer can renegotiate the instrument. determinable future time a sum certain in money to order
or to bearer.
NOTE: The right to renegotiate is qualified by the exception
provided in pars. (a) and (b). Sec. 127. Bill not an assignment of funds in hands of drawee.
Sec. 122. Renunciation by holder. - The holder may expressly - A bill of itself does not operate as an assignment of the
renounce his rights against any party to the instrument funds in the hands of the drawee available for the payment
before, at, or after its maturity. An absolute and thereof, and the drawee is not liable on the bill unless and
unconditional renunciation of his rights against the principal until he accepts the same.
debtor made at or after the maturity of the instrument
discharges the instrument. But a renunciation does not Sec. 128. Bill addressed to more than one drawee. - A bill
affect the rights of a holder in due course without notice. A may be addressed to two or more drawees jointly, whether
renunciation must be in writing unless the instrument is they are partners or not; but not to two or more drawees in
delivered up to the person primarily liable thereon. the alternative or in succession.

Sec. 123. Cancellation; unintentional; burden of proof. - A Sec. 129. Inland and foreign bills of exchange. - An inland bill
cancellation made unintentionally or under a mistake or of exchange is a bill which is, or on its face purports to be,
without the authority of the holder, is inoperative but both drawn and payable within the Philippines. Any other
where an instrument or any signature thereon appears to bill is a foreign bill. Unless the contrary appears on the face

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
of the bill, the holder may treat it as an inland bill.
Sec. 130. When bill may be treated as promissory note. -
Where in a bill the drawer and drawee are the same person
or where the drawee is a fictitious person or a person not
having capacity to contract, the holder may treat the
instrument at his option either as a bill of exchange or as a
promissory note.
Sec. 131. Referee in case of need. - The drawer of a bill and
any indorser may insert thereon the name of a person to
whom the holder may resort in case of need; that is to say,
in case the bill is dishonored by non-acceptance or non-
payment. Such person is called a referee in case of need. It is
in the option of the holder to resort to the referee in case of
need or not as he may see fit.
X. ACCEPTANCE
otherwise incomplete, or when it is overdue, or after it has
been dishonored by a previous refusal to accept, or by non
payment. But when a bill payable after sight is dishonored
by non-acceptance and the drawee subsequently accepts it,
the holder, in the absence of any different agreement, is
entitled to have the bill accepted as of the date of the first
presentment.
Sec. 139. Kinds of acceptance. - An acceptance is either
general or qualified. A general acceptance assents without
qualification to the order of the drawer. A qualified
acceptance in express terms varies the effect of the bill as
drawn.
Sec. 140. What constitutes a general acceptance. - An
acceptance to pay at a particular place is a general
acceptance unless it expressly states that the bill is to be
paid there only and not elsewhere.

Sec. 132. Acceptance; how made, by and so forth. - The Sec. 141. Qualified acceptance. - An acceptance is qualified
acceptance of a bill is the signification by the drawee of his which is:
assent to the order of the drawer. The acceptance must be (c) Conditional; that is to say,
in writing and signed by the drawee. It must not express which makes payment by the
that the drawee will perform his promise by any other acceptor dependent on the
means than the payment of money. fulfillment of a condition
therein stated;
Sec. 133. Holder entitled to acceptance on face of bill. - The
holder of a bill presenting the same for acceptance may (b) Partial; that is to say, an
require that the acceptance be written on the bill, and, if acceptance to pay part only of
such request is refused, may treat the bill as dishonored. the amount for which the bill is
drawn;
Sec. 134. Acceptance by separate instrument. - Where an
acceptance is written on a paper other than the bill itself, it (c) Local; that is to say, an
does not bind the acceptor except in favor of a person to acceptance to pay only at a
whom it is shown and who, on the faith thereof, receives particular place;
the bill for value.
(d) Qualified as to time;
Sec. 135. Promise to accept; when equivalent to acceptance.
- An unconditional promise in writing to accept a bill before (e) The acceptance of some, one
it is drawn is deemed an actual acceptance in favor of every or more of the drawees but not
person who, upon the faith thereof, receives the bill for of all.
value.
Sec. 142. Rights of parties as to qualified acceptance. - The
Sec. 136. Time allowed drawee to accept. - The drawee is holder may refuse to take a qualified acceptance and if he
allowed twenty-four hours after presentment in which to does not obtain an unqualified acceptance, he may treat the
decide whether or not he will accept the bill; the bill as dishonored by non-acceptance. Where a qualified
acceptance, if given, dates as of the day of presentation. acceptance is taken, the drawer and indorsers are
discharged from liability on the bill unless they have
Sec. 137. Liability of drawee returning or destroying bill. - expressly or impliedly authorized the holder to take a
Where a drawee to whom a bill is delivered for acceptance qualified acceptance, or subsequently assent thereto. When
destroys the same, or refuses within twenty-four hours after the drawer or an indorser receives notice of a qualified
such delivery or within such other period as the holder may acceptance, he must, within a reasonable time, express his
allow, to return the bill accepted or non-accepted to the dissent to the holder or he will be deemed to have assented
holder, he will be deemed to have accepted the same. thereto.

Sec. 138. Acceptance of incomplete bill. - A bill may be XI. PRESENTMENT FOR ACCEPTANCE
accepted before it has been signed by the drawer, or while

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 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Sec. 143. When presentment for acceptance must be made. -
Presentment for acceptance must be made:
(a) Where the bill is payable after sight, or in any
other case, where presentment for acceptance is
necessary in order to fix the maturity of the
instrument; or
(b) Where the bill expressly stipulates that it shall
be presented for acceptance; or
(c) Where the bill is drawn payable elsewhere than
at the residence or place of business of the drawee.
In no other case is presentment for acceptance necessary in
order to render any party to the bill liable.
Sec. 144. When failure to present releases drawer and
indorser. - Except as herein otherwise provided, the holder
of a bill which is required by the next preceding section to
be presented for acceptance must either present it for
acceptance or negotiate it within a reasonable time. If he
fails to do so, the drawer and all indorsers are discharged.
What is presentment for acceptance?
Presentment for acceptance is the production or exhibition of
a bill of exchange to the drawee for his acceptance.
What is the general rule on presentment for acceptance?
GEN.RULE: Presentment for acceptance is not necessary to
render any party to the bill liable.
EXCEPTIONS:
1. Where it is payable after sight or in any case where
presentment for acceptance is necessary to fix the
maturity of the instrument;
2. Where it is expressly stipulated;
3. Where it is drawn payable elsewhere than at the
residence or place of business of the drawee.
In these three cases, it is necessary (1) to present the
bill for acceptance, or (2) to negotiate it within reasonable
time to charge the drawer and all indorsers. The reason is
that the drawer and indorser have a right in having the bill
accepted immediately in order to shorten the time of
payment and thus put a limit to the period of their liability
and likewise to enable them to protect themselves by other
means before it is too late, if the bill is not accepted and paid
within the time originally contemplated by them. In the 3
cases, where the bill is not presented for acceptance nor
negotiated within reasonable time, the parties secondarily
liable will be discharged from liability. Other than the 3 cases,
presentment for acceptance is not required and failure to do
so would not affect the instrument in any manner.
However, there is nothing wrong in making
presentment for acceptance in other cases (even if not
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required). And, if the bill is dishonored, by non-acceptance,
the holder may treat the bill as if it had required acceptance.
What are the reasons for the exceptions?
In exception (1) it is essential to present for
acceptance to fix the maturity date of the instrument. (e.g. A
bill payable 30 days after sight will not mature unless seen by
the drawee. Only when it is seen will the 30 day period
start). In exception (2) it is to comply with the expressed
stipulation of the parties in the bill itself. In exception (3) it is
to inform the drawee of the existence of the bill so that he
can make arrangements for its payment on the date of
maturity at the place designated.
Sec. 145. Presentment; how made. - Presentment for
acceptance must be made by or on behalf of the holder at a
reasonable hour, on a business day and before the bill is
overdue, to the drawee or some person authorized to
accept or refuse acceptance on his behalf; and
(a) Where a bill is addressed to two or more
drawees who are not partners, presentment must
be made to them all unless one has authority to
accept or refuse acceptance for all, in which case
presentment may be made to him only;
(b) Where the drawee is dead, presentment may be
made to his personal representative;
(c) Where the drawee has been adjudged a
bankrupt or an insolvent or has made an
assignment for the benefit of creditors,
presentment may be made to him or to his trustee
or assignee.
How should presentment for acceptance be made?
In order that presentment for acceptance may be proper, it is
necessary that it be:
(a) made by or on behalf of the holder;
(b) at a reasonable hour;
(c) on a business day;
(d) before the bill is overdue;
(e) within a reasonable time after acquisition
thereof; and
(f) to the drawee or some person authorized to
accept or refuse acceptance on his behalf.
To whom should presentment for acceptance be made?
Generally, it must be made to the drawee or some
person authorized to accept or refuse acceptance on his
behalf. However, where there are 2 or more drawees,
presentment must be made to all of them unless (1) one is
duly authorized to accept or refuse acceptance, or (2) they
are partners. Where the drawee is dead, it may be made to
his personal representative. “May” is used because by Sec.
148(a), presentment is really excused. Where the drawee is
adjudged a bankrupt or has made an assignment, it may be
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
made to him or his trustee or his assignee. But, here, the use
of “may” does not excuse non-presentment. It is used to
mean that the choice of to whom presentment will be made
is in the alternative.
Sec. 146. On what days presentment may be made. - A bill
may be presented for acceptance on any day on which
negotiable instruments may be presented for payment
under the provisions of Sections seventy-two and eighty-five
of this Act. When Saturday is not otherwise a holiday,
presentment for acceptance may be made before twelve
o'clock noon on that day.
NOTE: The rule in Sec. 72 and 85 regarding day of
presentment for payment is the same as for presentment for
acceptance. Only in Sec. 146, no distinction is made between
instruments payable on demand and those payable at a fixed
or determinable future time unlike in Sec. 85. Thus, whether
it is payable on demand or at a fixed date, where it is
presentment for acceptance, it may be made before 12 noon
on Saturday provided it is not a holiday.
Sec. 147. Presentment where time is insufficient. - Where
the holder of a bill drawn payable elsewhere than at the
place of business or the residence of the drawee has no
time, with the exercise of reasonable diligence, to present
the bill for acceptance before presenting it for payment on
the day that it falls due, the delay caused by presenting the
bill for acceptance before presenting it for payment is
excused and does not discharge the drawers and indorsers.
NOTE: Sec. 147 excuses delay in making presentment for
payment when such is caused by presenting the bill for
acceptance at a place other than the place where the bill ids
drawn payable.
Sec. 148. Where presentment is excused. - Presentment for
acceptance is excused and a bill may be treated as
dishonored by non-acceptance in either of the following
cases:
(a) Where the drawee is dead, or has absconded, or
is a fictitious person or a person not having capacity
to contract by bill.
(b) Where, after the exercise of reasonable
diligence, presentment can not be made.
(c) Where, although presentment has been
irregular, acceptance has been refused on some
other ground.
NOTE: Sec. 147 excuses delay in making presentment for
payment caused by presenting the bill for acceptance. Sec.
148 excuses non-presentment for acceptance.
Where the drawee is (1) dead; (2) has absconded; (3)
fictitious; or (4) a person not having capacity to contract,
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presentment for acceptance is excused because it would be
futile to expect that a valid acceptance would be given.
An irregular presentment in which acceptance is
refused on the other ground is where presentment is made
on a Sunday and thus, irregular but the acceptance is
refused on the ground that the drawee has no funds ion the
hands of the drawee.
Sec. 149. When dishonored by nonacceptance. - A bill is
dishonored by non-acceptance:
(a) When it is duly presented for acceptance and
such an acceptance as is prescribed by this Act is
refused or can not be obtained; or
(b) When presentment for acceptance is excused
and the bill is not accepted.
NOTE: As to par (a) cases provided for in Sec. 132, 133 and
142. As to par. (b), it refers to Sec,. 148. But, it is not sufficient
that presentment for acceptance be excused but also that the
bill remains not accepted.
Sec. 150. Duty of holder where bill not accepted. - Where a
bill is duly presented for acceptance and is not accepted
within the prescribed time, the person presenting it must
treat the bill as dishonored by nonacceptance or he loses
the right of recourse against the drawer and indorsers.
What is the duty of the holder in Sec. 150?
If, within 24 hrs. after presentment (sec. 136) the bill
is not accepted, the person presenting it must treat the bill as
dishonored. This means that the holder must take the
necessary proceedings against the drawer and each indorser ,
that is, have the bill protested when required and give notice
of dishonor. Otherwise, the drawer and the indorsers will be
discharged.
Sec. 151. Rights of holder where bill not accepted. - When a
bill is dishonored by nonacceptance, an immediate right of
recourse against the drawer and indorsers accrues to the
holder and no presentment for payment is necessary.
What are the rights of the holder where bill is not accepted?
When a bill is dishonored by non-acceptance, the
holder, after giving notice of dishonor and protesting when
required, may immediately proceed against the drawer and
indorsers for the value of the bill without waiting for the date
of maturity. Presentment for payment need not be made
since payment can not be expected after acceptance has
been refused. There is no point in waiting for the date of
maturity to present the bill for payment. But if the bill is
subsequently accepted, presentment for payment is
necessary.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
XII. PROTEST
Sec. 152. In what cases protest necessary. - Where a foreign
bill appearing on its face to be such is dishonored by
nonacceptance, it must be duly protested for
nonacceptance, by nonacceptance is dishonored and where
such a bill which has not previously been dishonored by
nonpayment, it must be duly protested for nonpayment. If it
is not so protested, the drawer and indorsers are
discharged. Where a bill does not appear on its face to be a
foreign bill, protest thereof in case of dishonor is
unnecessary.
Sec. 153. Protest; how made. - The protest must be annexed
to the bill or must contain a copy thereof, and must be
under the hand and seal of the notary making it and must
specify:
(a) The time and place of presentment;
(b) The fact that presentment was made and the
manner thereof;
(c) The cause or reason for protesting the bill;
(d) The demand made and the answer given, if any,
or the fact that the drawee or acceptor could not be
found.
Sec. 154. Protest, by whom made. - Protest may be made by:
(a) A notary public; or
(b) By any respectable resident of the place where
the bill is dishonored, in the presence of two or
more credible witnesses.
Sec. 155. Protest; when to be made. - When a bill is
protested, such protest must be made on the day of its
dishonor unless delay is excused as herein provided. When a
bill has been duly noted, the protest may be subsequently
extended as of the date of the noting.
Sec. 156. Protest; where made. - A bill must be protested at
the place where it is dishonored, except that when a bill
drawn payable at the place of business or residence of some
person other than the drawee has been dishonored by
nonacceptance, it must be protested for non-payment at the
place where it is expressed to be payable, and no further
presentment for payment to, or demand on, the drawee is
necessary.
Sec. 157. Protest both for non-acceptance and non-payment.
- A bill which has been protested for non-acceptance may be
subsequently protested for non-payment.
Sec. 158. Protest before maturity where acceptor insolvent. -
Where the acceptor has been adjudged a bankrupt or an
insolvent or has made an assignment for the benefit of
creditors before the bill matures, the holder may cause the
bill to be protested for better security against the drawer
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and indorsers.
Sec. 159. When protest dispensed with. - Protest is
dispensed with by any circumstances which would dispense
with notice of dishonor. Delay in noting or protesting is
excused when delay is caused by circumstances beyond the
control of the holder and not imputable to his default,
misconduct, or negligence. When the cause of delay ceases
to operate, the bill must be noted or protested with
reasonable diligence.
Sec. 160. Protest where bill is lost and so forth. - When a bill
is lost or destroyed or is wrongly detained from the person
entitled to hold it, protest may be made on a copy or
written particulars thereof.
XIII. ACCEPTANCE FOR HONOR
Sec. 161. When bill may be accepted for honor. - When a bill
of exchange has been protested for dishonor by non-
acceptance or protested for better security and is not
overdue, any person not being a party already liable thereon
may, with the consent of the holder, intervene and accept
the bill supra protest for the honor of any party liable
thereon or for the honor of the person for whose account
the bill is drawn. The acceptance for honor may be for part
only of the sum for which the bill is drawn; and where there
has been an acceptance for honor for one party, there may
be a further acceptance by a different person for the honor
of another party.
Sec. 162. Acceptance for honor; how made. - An acceptance
for honor supra protest must be in writing and indicate that
it is an acceptance for honor and must be signed by the
acceptor for honor. chanrobles law
Sec. 163. When deemed to be an acceptance for honor of the
drawer. - Where an acceptance for honor does not expressly
state for whose honor it is made, it is deemed to be an
acceptance for the honor of the drawer.
Sec. 164. Liability of the acceptor for honor. - The acceptor
for honor is liable to the holder and to all parties to the bill
subsequent to the party for whose honor he has accepted.
Sec. 165. Agreement of acceptor for honor. - The acceptor
for honor, by such acceptance, engages that he will, on due
presentment, pay the bill according to the terms of his
acceptance provided it shall not have been paid by the
drawee and provided also that is shall have been duly
presented for payment and protested for non-payment and
notice of dishonor given to him.
Sec. 166. Maturity of bill payable after sight; accepted for
honor. - Where a bill payable after sight is accepted for
honor, its maturity is calculated from the date of the noting
for non-acceptance and not from the date of the acceptance
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
for honor.
Sec. 167. Protest of bill accepted for honor, and so forth. -
Where a dishonored bill has been accepted for honor supra
protest or contains a referee in case of need, it must be
protested for non-payment before it is presented for
payment to the acceptor for honor or referee in case of
need.
Sec. 168. Presentment for payment to acceptor for honor,
how made. - Presentment for payment to the acceptor for
honor must be made as follows:
(a) If it is to be presented in the place where the
protest for non-payment was made, it must be
presented not later than the day following its
maturity.
(b) If it is to be presented in some other place than
the place where it was protested, then it must be
forwarded within the time specified in Section one
hundred and four.
Sec. 169. When delay in making presentment is excused. -
The provisions of Section eighty-one apply where there is
delay in making presentment to the acceptor for honor or
referee in case of need.
Sec. 170. Dishonor of bill by acceptor for honor. - When the
bill is dishonored by the acceptor for honor, it must be
protested for non-payment by him.
XIV. PAYMENT FOR HONOR
Sec. 171. Who may make payment for honor. - Where a bill
has been protested for non-payment, any person may
intervene and pay it supra protest for the honor of any
person liable thereon or for the honor of the person for
whose account it was drawn.
Sec. 172. Payment for honor; how made. - The payment for
honor supra protest, in order to operate as such and not as a
mere voluntary payment, must be attested by a notarial act
of honor which may be appended to the protest or form an
extension to it.
Sec. 173. Declaration before payment for honor. - The
notarial act of honor must be founded on a declaration
made by the payer for honor or by his agent in that behalf
declaring his intention to pay the bill for honor and for
whose honor he pays.
What is payment for honor?
Payment for honor is payment made by a person, whether a
party to the bill or not, after it has been protested for non-
payment, for the benefit of any party liable thereon, or for
the benefit of the person whose account it was drawn. It is
also called payment supra protest because prior protest for
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non-payment is required. It is not applicable to promissory
notes. Payment for honor may be availed of when the holder,
knowing that the bill has already been dishonored for non-
payment, does not want to indorse the bill and thereby incur
the liabilities of an indorser.
What is the difference between acceptance for honor and
payment for honor?
In acceptance for honor, there is an acceptor for honor. In
payment for honor, there is a payor for honor. The difference
between the two is that while in the former, the acceptor
must ber a stranger to the bill, in the latter, the payer for
honor may be a party liable on the bill. Further, in the former,
the bill must not be overdue. In the latter, it is overdue. Also,
in the former, there may be several acceptors while, in the
latter, there can only be one payer. Finally, in the former, the
protest must be for non-acceptance or for better security,
while, in the latter, it is for non-payment.
What are the requisites to perform a valid payment for
honor?
1. The bill has been dishonored for non-payment
2. The bill has been protested for non-payment
3. Payment supra protest is made by any person, even a
party thereto and as to form
4. the payment must be attested by notarial act appended
to the protest, or form an extension to it
5. The notarial act must be based on the declaration by the
payer for honor or his agent of his intention to pay the
bill for honor and for whose honor he pays.
What is the procedure for payment for honor?
1. The payer or his agent goes to a notary public and
declares his intention to pay the bill and for whose honor
he pays.
2. The notary then records the declaration in the protest or
in a separate paper attached to it.
3. the payer then notifies the person for whose honor he
pays within reasonable time.
What if the payment for honor is not attested by a notarial
act?
It will operate as a mere voluntary payment and the
payer acquires no right to full reimbursement against the
party for whose honor he pays. (Art. 1236-1237, NCC). He
acquires the right of reimbursement only up to the extent
that the party for whose honor he paid is benefited thereby.
Similarly, failure to notify the person for whose honor he
pays within reasonable time will result in the payment being
considered in the same manner.
Sec. 174. Preference of parties offering to pay for honor. -
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Where two or more persons offer to pay a bill for the honor
of different parties, the person whose payment will
discharge most parties to the bill is to be given the
preference.
Note: The rule is different in acceptance for honor (Sec. 161,
last clause)
ILLUSTRATION:
A draws a bill payable to B, with X as drawee. B
negotiates it to C, C to D, D to E, E to F, holder. X refuses to
honor it and F duly protests non-payment. If Y offers to pay
for the honor of C, while Z offers to pay for the honor of B,
the latter’s (Z) will be preferred as Z’s payment will discharge
more (C, D, E). Y’s offer will only work to discharge D & E.
Sec. 175. Effect on subsequent parties where bill is paid for
honor. - Where a bill has been paid for honor, all parties
subsequent to the party for whose honor it is paid are
discharged but the payer for honor is subrogated for, and
succeeds to, both the rights and duties of the holder as
regards the party for whose honor he pays and all parties
liable to the latter.
What are the effects of payment for honor?
1. All parties subsequent to the party whose honor it is
paid are discharged; and
2. The payer for honor is subrogated for, and succeeds
to, both the rights and duties of the holder as
regards the party whose honor he pays and all
parties liable to the latter.
ILLUSTRATION: In the example above, suppose Z did not offer
and, as a result, Y made payment. What are the effects?
a. D and E are discharged because they are
parties subsequent to the party for whose
honor it is paid ( C ).
b. Y acquires the rights of F, holder, as against
C, B,A and X because C is the party for
whose honor he pays and the rest are
considered as parties liable to C.
Sec. 176. Where holder refuses to receive payment supra
protest. - Where the holder of a bill refuses to receive
payment supra protest, he loses his right of recourse against
any party who would have been discharged by such
payment.
NOTE: In payment for honor, the holder cannot refuse
payment. If he does, he cannot recover from the parties who
would have been discharged had he accepted it. The rule is
different from acceptance for honor because in such a case,
the holder’s consent is necessary.
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ILLUSTRATION: In the above example, if Y offers to pay for
the honor of C and F refuses, F loses the right of recourse
against D and E as they are parties who would have been
discharged had the holder accepted payment. But as to C, the
party in whose honor Y offers to pay, is not discharged
because, as to him, even if F accepted, C would not be
discharged. The party for whom the instrument is paid for is
never discharged from liability by the payment for honor of
the payer.
Sec. 177. Rights of payer for honor. - The payer for honor, on
paying to the holder the amount of the bill and the notarial
expenses incidental to its dishonor, is entitled to receive
both the bill itself and the protest.
What are the rights of the rights of the payer for honor?
1. He acquires the rights of the holder (Sec. 175); and
2. He has also the right to receive the bill and the
protest.
The purpose of (2) is to enable him to enforce his rights
against those who are liable to him by virtue of Sec. 175.
XV. BILLS IN SET
Sec. 178. Bills in set constitute one bill. - Where a bill is
drawn in a set, each part of the set being numbered and
containing a reference to the other parts, the whole of the
parts constitutes one bill.
Sec. 179. Right of holders where different parts are
negotiated. - Where two or more parts of a set are
negotiated to different holders in due course, the holder
whose title first accrues is, as between such holders, the
true owner of the bill. But nothing in this section affects the
right of a person who, in due course, accepts or pays the
parts first presented to him.
Sec. 180. Liability of holder who indorses two or more parts
of a set to different persons. - Where the holder of a set
indorses two or more parts to different persons he is liable
on every such part, and every indorser subsequent to him is
liable on the part he has himself indorsed, as if such parts
were separate bills.
Sec. 181. Acceptance of bill drawn in sets. - The acceptance
may be written on any part and it must be written on one
part only. If the drawee accepts more than one part and
such accepted parts negotiated to different holders in due
course, he is liable on every such part as if it were a separate
bill.
Sec. 182. Payment by acceptor of bills drawn in sets. - When
the acceptor of a bill drawn in a set pays it without requiring
the part bearing his acceptance to be delivered up to him,
and the part at maturity is outstanding in the hands of a
holder in due course, he is liable to the holder thereon.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
Sec. 183. Effect of discharging one of a set. - Except as
herein otherwise provided, where any one part of a bill
drawn in a set is discharged by payment or otherwise, the
whole bill is discharged.
XVI. PROMISSORY NOTES AND CHECKS
Sec. 184. Promissory note, defined. - A negotiable
promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand,
or at a fixed or determinable future time, a sum certain in
money to order or to bearer. Where a note is drawn to the
maker's own order, it is not complete until indorsed by him.
Sec. 185. Check, defined. - A check is a bill of exchange
drawn on a bank payable on demand. Except as herein
otherwise provided, the provisions of this Act applicable to a
bill of exchange payable on demand apply to a check.
Sec. 186. Within what time a check must be presented. - A
check must be presented for payment within a reasonable
time after its issue or the drawer will be discharged from
liability thereon to the extent of the loss caused by the
delay.
When are checks supposed to be presented for payment?
Checks are to be presented within a reasonable time
after its issue or the drawer will be discharged from liability to
the extent of the loss caused by the delay of presentment.
Although a check is a BOE, it must be presented within a
reasonable time from issues and not from last negotiation so
that the transfer of a check to successive holders does not
extend the time for presentment. A check is intended for
immediate use and not to circulate as promissory note. But
the discharge of the drawer is predicated on the fact of loss
so that, if there were no lose, then the drawer is not
discharged (though the check is stale) and the original
obligation subsists.
What are the requisites in order to discharge the drawer?
1. The check is not presented within a reasonable time
after its issue;
2. The drawer suffers loss; and
3. The loss suffered by the drawer is attributable to the
delay.
What is reasonable time?
What constitutes reasonable time is dependent upon the
circumstances of each case. But the test is whether or not the
payee employed such diligence as a prudent man would
exercise in his own affairs. As stated earlier, our banking
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practice sets the period within which presentment of a check
must be made- 6 months. Otherwise, it is considered as stale.
What is meant by “to the extent of the loss caused by the
delay?”
The discharge of the drawer is conditioned upon the suffering
of a loss attributable to the delay. If no loss or injury is
shown, the drawer is not discharged. The only loss which
would be sustained by the drawer in case resentment was not
made within a reasonable time would be that caused by the
insolvency of the bank subsequent to the delivery and prior
to the presentment of the check. It does not include the
withdrawal by the drawer of the funds or deposits as the
benefits from the money he withdrew.
HOW COMPUTED: PDIC- the insurance benefits given
for deposits is set at Php40,000.00:
Formula:
1. Get ratio between – PDIC: amount of deposit
2. MULTIPLY RATIO WITH AMOUNT OF CHECK
3. Thus, Loss= PDIC__________ x amount of check
Amount of Deposit
4. Loss= extent of drawer’s discharge
Suppose F, holder of a check for Php10,000.00 drawn by A. A
has a deposit with the bank of Php80,000.00. F fails to
present the check within reasonable time from issue. During
such time, the bank collapsed. Can A go against the bank?
No. the fact that A issued a check does not mean that the
issuance immediately resulted in an assignment of funds in
favor of the payee. There is as yet no privity of contract
between F and the bank so that F cannot go against the bank.
Can F go against A, drawer? Yes, but only to the
extent not considered as lost. PDIC insures the depositor of
Php40,000.00. The amount of loss is thus computed:
LOSS= PDIC x amt. of check = 40,000.00 x 10,000.00
Deposit 80,000.00
= ½ x P10,000.00= P5,000.00
The loss being to the extent of P5,000.00. F can only collect
P5,000.00 from A.
Finally, an unreasonable delay in the presentment of
a check will discharge the indorsers whether or not he is
prejudiced by the delay as the law presumes that he is
prejudiced.
Sec. 187. Certification of check; effect of. - Where a check is
certified by the bank on which it is drawn, the certification is
equivalent to an acceptance.
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
What is certification of a check?
Certification is an agreement whereby the bank against
whom a check is drawn, undertakes to pay it at any future
time when presented for payment. It is equivalent to
acceptance in that the drawee bank is bound on the
instrument upon certification. It implies that the bank
recognizes that the check is good; that the check is drawn
upon sufficient funds in the hands of the drawee; that they
have been set apart for its satisfaction; and that they shall be
so applied whenever the check is presented for payment. The
purpose of procuring certification is to impart strength and
credit to the paper by obtaining an acknowledgment from the
certifying bank that the drawer has funds therein sufficient to
cover the check and securing the engagement of the bank
that the check will be paid upon presentation. When a check
is certified, it ceases to possess the character of a check, and
represents so much money on deposit, payable to the holder
on demand.
Suppose the bank wrote across the check “certified” and it
was signed by an authorized official, is that sufficient
certification? Is there a form required?
Yes, it is sufficient as no particular form, is required, only that
it be in writing. This is the usual method of certification.
Another is the use of the word “good” followed by the bank
officer’s signature. But, “ok” followed by the signature is not
acceptable. If it’s “good” it’s ok. If it’s “ok” it’s not good.
What are the effects of “certification”
1.) It is equivalent to acceptance and is the operative
act that makes the drawee bank liable;
2.) It operates as an assignment of the funds of the
drawer in the hands of the drawee bank;
3.) If obtained by the holder, it discharges persons
secondarily liable thereon; and
4.) The payee or holder for all intents and purposes,
becomes the depositor of the drawee bank with
rights and duties of one.
Supposing the holder of the check presented the check for
certification but the bank refused. Can the instrument be
considered by the holder as dishonored?
No. The certification of the check is not part of the warranties
of the drawer. In so far as the drawer is concerned, he only
warrants that the check will be paid if it is presented for
payment. It is not part of the warranties of the drawer that
the check, if presented , will be certified or accepted by the
bank. The refusal to certify will not mean a dishonor of the
check. What will constitute a dishonor will be the non-
payment of the check because the checks being payable on
demand need not be presented for acceptance.
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Sec. 188. Effect where the holder of check procures it to be
certified. - Where the holder of a check procures it to be
accepted or certified, the drawer and all indorsers are
discharged from liability thereon.
NOTE: Where the holder procures the certification, the
drawer and endorsers are discharged. The reason for the rule
is that certification has the same effect as if the holder had
drawn the money redeposited it and taken a certificate of
deposit for it. Thus, the drawer (and indorser) is discharged
on the check and on the original debt. Further, only indorsers
at the time of certification are discharged, not those
subsequent.
However, if the certification is not obtained by the
holder but by other, i.e. the drawer (even at the instance of
the holder), or any other person, the drawer and the
indorsers are not discharged from liability.
Sec. 189. When check operates as an assignment. - A check
of itself does not operate as an assignment of any part of
the funds to the credit of the drawer with the bank, and the
bank is not liable to the holder unless and until it accepts or
certifies the check.
What is the rule on checks as regards the funds?
Check drawn in the ordinary form is not an
assignment of the funds of the drawer in the bank. It does not
constitute a transfer of any money to the credit of the holder.
It is simply an order by the drawer to pay the amount of the
check on presentment, and which may be countermanded
and payment forbidden by the drawer at any time before it is
actually cashed. The banker’s liability to accept and pay is
conditioned upon the sufficiency of the drawer’s money in
the hands of the bank. When the holder procures the check
to be certified, the check operates as an assignment of a part
of the funds to the credit of the drawer with the bank. The
funds to be under the control of the drawer and transfer to
the credit of the holder or payee.
Can the holder sue the bank of the check is not accepted or
certified?
No. Before acceptance or certification, the bank is
not liable and the holder has no right to sue the drawee bank
on the check. As a general rule, an action may not be
maintained by the payee of the check against the bank on
which it is drawn, unless the check has been accepted or
certified. Without acceptance or certification there is no
privity of contract between the drawee bank and the payee
or holder of the check.
When may a stop payment order be made?
As a check of itself does not operate as a n
assignment of funds of the drawer, the latter may
 ZPG & ASSOCIATES (Zambales.Pablo.Gonzales)
countermand (withdraw the order to pay) payment before its
acceptance or certification. The order to stop payment must
be communicated to the bank before the check to which it
refers has been paid.
SUMMARY OF RIGHTS AND LIABILITIES OF THE PARTIES
2. Where the drawee bank refuses to certify, or accept, or
pay a check:
The holder has no action against it as a check is of
itself is not an assignment if the funds of the drawer
and the drawee bank is not liable on the check until
it has accepted or certified it.
Neither has the holder a right of action against the
drawer where the drawee bank refuses to accept or
certify the check but he has a right of action against
the drawer where the drawee bank refuses to pay.
While the holder has no right of action against the
drawee bank which refuses to pay, accept, or certify
the check, the drawer has a right of action against
the drawee bank so refusing.
XVII. GENERAL PROVISIONS
Sec. 190. Short title. - This Act shall be known as the
Negotiable Instruments Law.
Sec. 191. Definition and meaning of terms. - In this Act,
unless the contract otherwise requires:
"Acceptance" means an acceptance completed by
delivery or notification;
"Action" includes counterclaim and set-off;
"Bank" includes any person or association of
persons carrying on the business of banking,
whether incorporated or not;
"Bearer" means the person in possession of a bill or
note which is payable to bearer;
"Bill" means bill of exchange, and "note" means
negotiable promissory note;
"Delivery" means transfer of possession, actual or
constructive, from one person to another;
"Holder" means the payee or indorsee of a bill or
note who is in possession of it, or the bearer
thereof;
"Indorsement" means an indorsement completed
by delivery;
"Instrument" means negotiable instrument;
- 52 -
"Issue" means the first delivery of the instrument,
complete in form, to a person who takes it as a
holder;
"Person" includes a body of persons, whether
incorporated or not;
"Value" means valuable consideration;
"Written" includes printed, and "writing" includes
print.
Sec. 192. Persons primarily liable on instrument. - The
person "primarily" liable on an instrument is the person
who, by the terms of the instrument, is absolutely required
to pay the same. All other parties are "secondarily" liable.
Sec. 193. Reasonable time, what constitutes. - In
determining what is a "reasonable time" regard is to be had
to the nature of the instrument, the usage of trade or
business with respect to such instruments, and the facts of
the particular case.
Sec. 194. Time, how computed; when last day falls on
holiday. - Where the day, or the last day for doing any act
herein required or permitted to be done falls on a Sunday or
on a holiday, the act may be done on the next succeeding
secular or business day.
Sec. 195. Application of Act. - The provisions of this Act do
not apply to negotiable instruments made and delivered
prior to the taking effect hereof.
Sec. 196. Cases not provided for in Act. - Any case not
provided for in this Act shall be governed by the provisions
of existing legislation or in default thereof, by the rules of
the law merchant.
Sec. 197. Repeals. - All acts and laws and parts thereof
inconsistent with this Act are hereby repealed.
Sec. 198. Time when Act takes effect. - This Act shall take
effect ninety days after its publication in the Official Gazette
of the Philippine Islands shall have been completed.
Enacted: February 3, 1911