NEGOTIABLE INSTRUMENTS • 

     “A  bill  of  exchange  is  an  unconditional  order 

in  writing  addressed  by one person to another signed
GENERAL PRINCIPLES by the person giving it

PURPOSE OF CODIFICATION (1), requiring the person  to  whom  it  is  addressed  to 
pay  on  demand  or  at  a  fixed  or determinable future
      Chief  purpose  was  to  produce  uniformity  in 
time
the  laws  of  the  different states  upon  this  important 
subject,  so  that  the  citizens  of  each  state might  (2) a sum certain in money
know  the  rules  which  would  be  applied  to  their  (3) to order or to bearer”
notes,  checks, and other negotiable paper in every other
•      General characteristics:  the order or command to
state in which the law was
pay; drawer/maker; drawee
enacted,  since  it  is  an  absolute  impossibility  for  the 
commercial purchaser CHECK
      Second  purpose  was  to  preserve  the  law  as 
      A bill of exchange drawn on a bank payable on
nearly  as  possible  as  it then existed
demand
COMMON FORMS OF NEGOTIABLE
TO WHOM INSTRUMENTS MAY BE PAYABLE
INSTRUMENTS
1.    Bearer
1.    Promissory notes
2.    Order
2.    Bills of exchange
3.    To a specified person
3.    Checks, which are also bills of exchange, but of a
special kind WHEN IS IT PAYABLE TO BEARER?

PROMISSORY NOTE, SECTION 184 1.    When it is expressed to be so payable

2.    When it is payable to a person named therein or
      “A  negotiable  promissory  note,  within  the 
bearer
meaning  of  this  act,  is  an unconditional promise in
writing by one person to another, signed by the  maker  WHEN IS IT PAYABLE TO ORDER?
(1),  engaging  to  pay  on  demand  or  at  a  fixed  or 1.    When it is expressed to be payable to the order of a
determinable future time specified person
(2), a sum certain in money 2.    To a specified person or his order
 
(3) to order or to bearer
WHEN IS IT PAYABLE TO A SPECIFIED
(4).  Where a note is drawn to the maker’s own order, it
PERSON?
is not complete until indorsed by them.”

      Essentially a promise in writing to pay a sum       When  the  instrument  is  payable  to  a  specified 
certain in money person  named  in  the
      The promise is to pay on demand or on a fixed or instrument and no other
determinable future time PARTIES TO A PROMISSORY NOTE
      General  characteristics:  amount;  place  where 
contract  to  pay  is executed;  due  date;  absolute  1.    Maker—the person who executes the written
promise  to  pay  something;  payable  to order/bearer; promise to pay
payee; maker of the note 2.    Payee,  if  the  instrument  is  payable  to  order—
the  person  in  whose favor the promissory note is made
BILL OF EXCHANGE, SECTION 126 payable
3.    Bearer, if the instrument is payable to bearer

PARTIES TO A BILL OF EXCHANGE 

1.    Drawer—the person who executes the written order DELIVERY
to pay
      Consists  principally  of  placing  the  transferee 
2.    Payee,  if  the  instrument  is  payable  to  order—
in  possession  of  the instrument, but it must be
the  person  in  whose favor a bill of exchange is drawn
accompanied by the intent to transfer title
payable 
      “every   contract   on   a   negotiable   instrument  
3.    Bearer, if the instrument is payable to bearer
is   incomplete   and revocable  until  delivery  of  the 
4.    Acceptor—the  drawee  who  signifies  his  assent 
instrument  for  the  purpose  of  giving effect thereto”
to  the  order  of  the drawer.  It is  only when he accepts
 
the bill  that he becomes a party thereto and liable
thereon. NEGOTIATION
 
•      Transfer of an instrument from one person to
OTHER PARTIES TO NEGOTIATED another as to constitute the transferee the holder of the
INSTRUMENTS instrument
•      Mode of transferring an instrument
1.    Indorser and 
•      Effect is to make the transferee the holder of the
2.    Indorsee, in the case of instruments payable to order
instrument
3.    Persons negotiating by mere delivery
4.    Persons to whom the instrument is negotiated by HOW INSTRUMENT PAYABLE TO BEARER IS
delivery NEGOTIATED

INDORSER AND INDORSEE       May be negotiated by mere delivery

      When  the  negotiation  is  by  indorsement  HOW INSTRUMENT PAYABLE TO ORDER IS
completed  by  delivery,  the parties added are the NEGOTIATED
indorser and indorsee
      Must be negotiated by indorsement completed by
      Indorser—the one who negotiates the instrument
delivery
      Indorsee—the   one   to   whom   the   instrument  
      Indorsement  is  necessary  to  make  the 
is   negotiated   by indorsement
transferee  the  indorsee  and delivery  is  necessary  to 
 
place  the  transferee  in  possession  of  the instrument
WHERE INSTRUMENT IS PAYABLE TO  
BEARER
INDORSEMENT
•      Where  the  instrument  is  payable  to  bearer,  it 
      Legal  transaction,  effected  by  the  writing  of 
can  be  negotiated  by mere delivery without necessity
one’s  own  name  on  the back  of  the  instrument  or 
of indorsement 
upon  a  paper  attached  thereto,  with  or without 
HOLDER additional  words  specifying  the  person  to  whom  or 
to  whose order the instrument is to be payable whereby
      The payee or indorsee of a bill or note, who is in
one not only transfers
possession of it, or the bearer thereof
one’s full legal title to the paper transferred but likewise
      If the instrument is payable to order, he who is the
enters into an implied guaranty that the instrument will
payee or indorsee and who is in possession thereof
be duly paid
      If the instrument is payable to bearer, he who is in
possession thereof SPECIAL INDORSEMENT

ISSUE       Specifies the person to whom  or to whose order

the instrument is to be payable
      First  delivery  of  the  instrument,  complete  in 
 
form  to  a  person  who takes it as a holder
 
BLANK INDORSEMENT       When  an  instrument  has  been  dishonored  by 
non-payment  or  non-acceptance
      One  that  doesn’t  specify  the  person  to  whom 
 
or  to  whose  order  the instrument is to be payable
  DISCHARGE

NEGOTIATION, INDORSEMENT, DELIVERY, •      An instrument is discharged by payment in due

COMPARED. course by or on behalf of the principal debtor
 
1. Indorsement is merely the first step in the process of
negotiating an instrument which is payable to order  PARTIES PRIMARILY AND SECONDARILY
LIABLE
2. Where  the  instrument  is  payable  to  order,  neither 
is  delivery equivalent to negotiation •      Under  the  Negotiable Instruments Law,  the 
3. But  where  the  instrument  is  payable  to  bearer,  person  primarily  liable  on  an  instrument  is  the
delivery  is equivalent to negotiation person  who  by  the  terms  of  the  instrument  is 
absolutely  required  to pay the same
•      All other parties are secondarily liable
PRESENTMENT FOR ACCEPTANCE  

      Exhibiting the bill to the drawee and demanding IN BILLS OF EXCHANGE
that he accept it, that is, signify his assent to the order or
command of the drawer •      The acceptor is the one primarily liable

  •      He is absolutely required to pay the instrument as he

engages that he will pay it according to the tenor of his
ACCEPTANCE acceptance

      Signification of the drawee of his assent to the  

order of the drawer SECONDARY LIABILITY OF DRAWER

 
•      By  the  mere  drawing  of  the  instrument,  the 
DISHONOR BY ACCEPTANCE drawer  assumes  the liability stated in Section 61

      Where the bill is presented for acceptance, and •      The general tenor of the liability of the drawer is

acceptance is refused by  the  drawee,  or  cannot  be  that he will pay the bill if the drawee doesn’t accept or

obtained,  or  where  presentment  for acceptance is pay the bill.  

excused, and the bill is not accepted •      In  other  words,  he  is  not  absolutely  required  to 

  pay  the  bill—if  the drawee  pays,  then  he  is  not 
required  to  pay.    It  is  only  when  the drawee doesn’t
PRESENTMENT FOR PAYMENT pay that he will be required to pay.

      Consists  of  exhibiting  the  instrument  to  the   

person  primarily  liable thereon and demanding SECONDARY LIABILITY OF INDORSER

payment form him on the date of maturity
        He will pay the instrument if the person primarily
liable will not pay.
DISHONOR BY NON-PAYMENT  

      Where  the  instrument  is  presented  for  payment  SECONDARY LIABILITY OF ONE
and  payment  is refused or cannot be obtained,  or NEGOTIATING BY DELIVERY
where presentment for  payment is excused and the
instrument is overdue and unpaid       By merely delivering an instrument payable to

  bearer, without saying anything more, the person

negotiating by mere delivery assumes the liability
NOTICE OF DISHONOR mentioned in Section 65.  
      Under said section, the general tenor of liability is ACCUMULATION OF SECONDARY
similar to that of an indorser CONTRACTS
 
      Most   important   characteristic   of   negotiable  
IN PROMISSORY NOTES instruments   is   the accumulation of secondary
contracts which they pick up and carry with them as they
      The maker is primarily liable
are negotiated from one person to another
      Agreement of the maker is that he will pay the
      Advantage:  they  improve  as  they  pass  from 
instrument according to the tenor
hand  to  hand,  as  more debtors are added 
 

FUNCTION OF NEGOTIABLE INSTRUMENTS

Bill of exchange, defined.
1.    Substitute for money 
A bill of exchange is an unconditional order in writing
2.    Increase the purchasing medium in circulation
addressed by one person to another, signed by the person
 
giving it, requiring the person to whom it is addressed to
PAYMENT BY NEGOTIABLE INSTRUMENTS pay on demand or at a fixed or
determinable future time a sum certain in money to order 
      W/N the giving and taking of a promissory note or
or to bearer.
bill of exchange is prima  facie  absolute  payment  as 
in  the  case  of  money  or  merely  a prima facie TYPES OF BILLS OF EXCHANGE
conditional payment? 1. Draft
      The  delivery  of  the  promissory  notes  payable  2. Trade acceptance
to  order,  or  bills  of exchange  or  other  mercantile  3. Banker’s acceptance
documents  shall  produce  the  effect  of payment only 4. Treasury warrants
when they have been cashed, or when, through the fault 5. Money orders
of the creditor, they have been impaired 6. Clean bills of exchange
  7. Documentary bill of exchange
8. D/A bills of exchange
PRINCIPAL FEATURES OF NEGOTIABLE
9. D/P bills of exchange
INSTRUMENTS
10. Time or usance bills
1.    Negotiability 11. Bills in set
2.    Accumulation of secondary contracts as they are 12. Inland bills
transferred from one person to another 13. Foreign bills
 
DRAFT
NEGOTIABILITY  > Common
term for all bills of exchange and they are used
      Attribute or property whereby a bill, note or check
synonymously
passes or may pass from hand to hand similar to money,
so as to give the holder in due course the right  to hold IN BANK DRAFTS, DRAWER AND DRAWEE BA
NK ARE LIABLE TO PURCHASER OF DRAFT
the instrument and  collect the sums payable for himself
FOR NOT COMPLYING WITH HIS
free from defense. INSTRUCTIONS
 

PRIMARY PURPOSE OF NEGOTIABILITY >

      To  allow  bills  and  notes  the  effect  which  The drawee bank acting as “payor” bank is solely liable f

money,  in  the  form  of government bills or notes, or acts not done in accordance with the instructions of

supplies in the commercial world the drawer bank or of the purchaser of the draft
> The drawee bank has the burden of proving that it
didn’t violate
TRADE ACCEPTANCE Promissory Note, Defined

Sec. 184. Promissory note, defined.

> A bill of exchange payable to order and at a certain A negotiable promissory note within the meaning of
maturity, drawn by a seller against the purchaser of this Act is an unconditional  promise  in  writing 
goods as drawee, for a fixed sum of money, showing on made  by  one  person  to  another, signed by the
its face the acceptance of the purchaser of goods and that maker, engaging to pay on demand, or at a fixed or
it has arisen out of a purchase of goods by the acceptor determinable  future  time,  a  sum  certain  in 
> money  to  order  or  to bearer. Where a note is
A draft drawn by the seller on the purchaser of goods sol drawn to the maker's own order, it is not complete
d and accepted by such purchaser until indorsed by him.
>
SPECIAL TYPES OF PROMISSORY NOTES
States upon its face that the obligation of the acceptor ari
ses out of purchase of goods from the drawer 1.    Certificate of deposit
> Arises from credit obligations arising from the sale of 2.    Bonds
goods and must have a definite maturity 3.    Bank notes
4.    Due bills
 
BANKER’S ACCEPTANCE
CERTIFICATE OF DEPOSIT
> Draft of which the acceptor is a bank or banker
engaged generally in the business of granting banker’s > Written  acknowledgment  by  a  bank  of  the  receipt 
acceptance credit of  money  on deposit which the bank promises to pay to
> Similar to a trade acceptance the depositor, bearer, or to some other person or order
> Drawn against the bank instead of the buyer
BONDS

> A promise, under seal to pay money

> More formal in character
TRUST RECEIPT
> Runs for a longer period of time
> > Issued under different legal circumstances
The written or printed document signed by the entrustee 
CLASSES OF BONDS
in favor of the entruster containing terms and conditions
substantially complying with the provisions of this 1.    Mortgage bonds
decree 2.    Equipment bonds
> The legal title to the matter entrusted remains in the 3.    Collateral trust bonds
entruster but the 4.    Guaranteed bonds
entruster gives to the trustee a form of title which is goo 5.    Debentures
d and legal against everybody except the entruster 6.    Income bonds
> Entrustee—the person having or taking possession of  7.    Convertible 
goods, 8.    Redeemable
documents or instruments under a trust receipt transactio 9.    Registered bonds
n, and any 10.  Coupon bonds 
successor in interest of such person for the purpose or pu
REQUISITES AS TO A NEGOTIABLE NOTE
rposes specified in the trust receipt agreement
> Entruster—person holding title over the goods, docu 1. It must be in writing and signed by the maker  
ments, or 2. It must contain an unconditional promise to pay a sum
instruments subject of a TRA and any successor-in- certain in money
interest of such person 3. It  must  be  payable  on  demand,  or  at  a  fixed  or 
determinable future time
4. It must be payable to order or to bearer Cruz”
   

REQUISITES AS TO A NEGOTIABLE BILL EFFECT OF MERE REQUEST TO PAY

1. It must be in writing and signed by the maker >      The  instrument  is  not  negotiable  as  it  is  not 
2. It  must  contain  an  unconditional  order  to  pay  a  an  order  to  pay  but  a mere request to pay
sum  certain  in money >      “Please to let the bearer have P70 and place to  my
3. It  must  be  payable  on  demand,  or  at  a  fixed  or  account and you will oblige”
determinable future time
4. It must be payable to order or to bearer
 
5. The  drawee  must  be  named  or  otherwise 
indicated  therein  with reasonable certainty EFFECT OF MERE WORDS OF CIVILITY

THE INSTRUMENT MUST BE IN WRITING >      The  mere  fact  that  it  contains  words  of  civility 
or  courtesy  doesn’t make it non-negotiable
>      There must be a writing of some kind, for if the
 
instrument were not in writing, there would be nothing
to be negotiated or passed from hand to hand WHERE INSTRUMENT IS A NOTE, IT MUST
  CONTAIN A PROMISE TO PAY

THE INSTRUMENT MUST BE SIGNED BY THE 1. It is enough that words of equivalent meaning are
MAKER OR DRAWER used
2. The  promise  is  implied  from  promissory  words 
>      Full name must be written
contained  in  the instrument
>      At  least  the  surname  should  appear  and 
 
generally,  the  signature usually is by writing the
signer’s name THE PROMISE OR ORDER TO PAY MUST BE
>      But, where the name is not signed, the holder must UNCONDITIONAL
prove that what is written is intended as a signature of
>      It must not be subject to a condition
the person sought to be charged
>      It must be unconditional and absolute
>      Commonly,  it  is  found  in  the  lower  part  of 
 
the  instrument.    It  could also be signed anywhere as
long as the maker or drawer acknowledges the signature SUM PAYABLE MUST BE DEFINITE AND
to be his own. CERTAIN
 
>      The amount of money to be paid must be
IF A BILL, IT MUST CONTAIN AN ORDER TO determinable by inspection and must be stated plainly on
PAY the face of the instrument, and like the denomination of
money, must be started in the body of the instrument
•      It is an instrument demanding right
 
•      Any words which are equivalent to order or which
show the drawer’s will  that  the  money  should  be  SUM MUST BE PAYABLE IN MONEY ONLY
paid,  are  sufficient  to  make  the instrument a bill of
>      Money is the one standard of value in actual
exchange
business or more stable standard of value
 
>      Legal tender—that kind of money which the law
AN INSTRUMENT WITH AN EFFECT OF MERE compels the creditor to accept in payment of his debt
AUTHORITY TO PAY when tendered by the debtor in the right amount
>      But  if  authorized  by  law  or  consent  of 
>      It is not negotiable because it is not an order to pay
creditor,  cash  may  be substituted by other means, or
>      “I hereby authorize you to pay P1000 to Pedro
may be check
>      Instrument need not be payable in legal tender THE DRAWEE MUST BE NAMED
 
>      Requirement that refers only to bills of exchange
INSTRUMENT MUST SPECIFY >      Drawee’s name may be omitted and be filled in
DENOMINATION under implied authority like any other blank
>      An acceptance may supply the omission of the
>      Instruments should express the specific
designation
denomination of money when  it is payable in the money
 
of a foreign country in order that the courts may  be 
able  to  ascertain  its  equivalent  value;  otherwise,  it  IMPORTANCE OF FORMALITIES
is  non-negotiable
>      Essential for the security of the mercantile
 
transactions
PAYABLE ON DEMAND OR ON A FIXED OR >      Distinguish   the   negotiable   instrument   from  
DETERMINABLE FUTURE TIME the   ordinary   non-transferrable written contract
 
>      On demand
>      At a fixed or determinable future time
  Notes on Section 1:

WHERE NO YEAR IS SPECIFIED –          In order to be negotiable, there must be a writing

of some kind, else there would be nothing to be
>      Neither payable on demand or on a fixed or negotiated or passed from hand to hand. The writing
determinable future time may be in ink, print or pencil. It may be upon parchment,
>      Time of payment is not determinable as the year is cloth, leather or any other substitute of paper.
not stated
–          It must be signed by the maker or drawer. It may
 
consist of mere initials or even numbers, but the holder
THE INSTRUMENT MUST BE PAYABLE TO must prove that what is written is intended as a signature
of the person sought to be charged.
ORDER OR TO BEARER

>      An  instrument  is  not  negotiable  unless  made  –          The Bill must contain an order, something more
than the mere asking of a favor.
payable  to  a  person  or his order or bearer or unless
words of the similar or equivalent import are used such –          Sum payable must be in money only. It cannot be
as assigns or assignees or holder made payable in goods, wares, or merchandise or in
  property.

–          A drawee’s name may be filled in under Section

14 of the NIL
WHERE PAYABLE TO THE ORDER OF BEARER
15.   Determination of negotiability
>      Also negotiable 1. by the provisions of the Negotiable
>      This was held to be payable to order Instrument Law, particularly Section 1
>      The  payee  of  such  an  instrument  is  the  bearer  thereof
and  it  can  only  be negotiated by his indorsement  2. by considering the whole instrument
3. by what appears on the face of the
 
instrument and not elsewhere
WHERE PAYABLE TO A CERTAIN PERSON
*In determining is the instrument is negotiable, only the
>      Where the instrument is payable to a specified instrument itself and no other, must be examined and
compared with the requirements stated in Sec. 1. If it
person, it’s not payable to order
appears on the instrument that it lacks one of the
>      Payable to a certain person or his agent 
requirements, it is not negotiable and the provisions of
>      Where payable to “bearer B” the NIL do not govern the instrument. The requirement
  lacking cannot be supplied by using a separate
instrument in which that requirement which is lacking 19.   General Rule: If some other act is required other
appears. than the payment of money, it is non-negotiable.

16.   Sum is certain even if it is to be paid with: Exceptions:

a.       interest a.       sale of collateral securities

b.       in installments b.       confession of judgment

c.       in installments with acceleration clause c.       waives benefit of law

d.       with exchange d.       gives option to the holder to require something to
be done in lieu of money (Sec. 5 NIL)
e.       costs of collection or attorney’s fees (Sec. 2 NIL)
Notes of Section 5
17.   General Rule: The promise or order should not
depend on a contingent event. If it is conditional, it is –          Limitation on the provision, it cannot require
non-negotiable. something illegal.

Exceptions: –          There are two kinds of judgements by

confession: a) cognovit actionem b) relicta verificatione
a.       indication of particular fund from which the
acceptor disburses himself after payment –          Confessions of judgement in the Philippines are
void as against public policy.
b.       statement of the transaction which gives rise to the
instrument. (Sec. 3 NIL) –          If the choice lies with the debtor, the instrument
is rendered non-negotiable.
But an order or promise to pay out of a particular fund is
not unconditional 20.   The validity and negotiability of an instrument is
not affected by the fact that:
Notes on Section 3 1. it is not dated
2. does not specify the value given or that
–          The particular fund indicated should not be the any had been given
direct source of payment, else it becomes unconditional 3. does not specify the place where it is
and therefore non-negotiable. The fund should only be drawn or payable
the source of reimbursement. 4. bears a seal
5. designates the kind of current money in
–          A statement of the transaction does not destroy which payment is to be made (Sec. 6
the negotiability of the instrument. Exception: Where the NIL)
promise to pay or order is made subject to the terms and 21.   Instrument is payable upon demand if:
conditions of the transaction stated.
a.       it is expressed to be so payable on sight or upon
18.   Instrument is payable upon a determinable presentation
future time if:
b.       no period of payment is stipulated
a.       there is a fixed period after sight/date
c.       issued, accepted, or endorsed after maturity (Sec. 7
b.       on or before a specified date/fixed determinable NIL)
future time
Where an instrument is issued, accepted or indorsed
c.       on or at a fixed date after the occurrence of an when overdue, it is, as regards to the person so issuing,
event certain to happen though the exact date is not accepting, or indorsing it, payable on demand.
certain (Sec. 4 NIL)
Notes on Section 7
Notes on Section 4
– if the time for payment is left blank (as opposed to
–          If the instrument is payable upon a contingency, being omitted), it may properly be considered as an
the happening of the event does not cure the defect (still incomplete instrument and fall under the provisions of
non-negotiable)
Sec. 14, 15, or 16 depending on how the instrument is –          “fictitious person” means a person who has no
delivered. right to the instrument because the maker or drawer of it
so intended. He was not intended to be the payee.
22.   Instrument is payable to order:
–          where the instrument is drawn, made or prepared
–          where it is drawn payable to the order of a by an agent, the knowledge or intent of the signer of the
specified person or instrument is controlling.

–          to a specified person or his order –          Where the agent has no authority to execute the
instrument, the intent of the principal is controlling
It may be drawn payable to the order of:
24.   The date may be inserted in an instrument
1. a payee who is not a maker, drawer, or
when:
drawee
1. an instrument expressed to be payable at
2. the drawer or maker
a fixed period after date is issued undated
3. the drawee
2. where acceptance of an instrument
4. two or more payees jointly
payable at a fixed period after sight is
5. one or some of several payees
undated (Sec. 13 NIL)
6. the holder of an office for the time being  
(Sec. 8 NIL)
Effects:

Notes on Section 8 –          any holder may insert the true date of issuance or
acceptance
–          The payee must be named or otherwise indicated
therein with reasonable certainty. –          the insertion of a wrong date does not avoid the
instrument in the hands of a subsequent holder in due
–          If there is no payee, there would be no one to
course
indorse the instrument payable to order. Therefore
useless to be considered negotiable. –          as to the holder in due course, the date inserted
(even if it be the wrong date) is regarded as the true date.
–          Joint payees in indicated by the conjunction
“and”. To negotiate, all must indorse. 25.   Subsequent Holder in Due Course not affected
by the following deficiencies:
–          Being several payees is indicated by the
conjunction “or”. a.       incomplete but delivered instrument (Sec. 14 NIL)

23.   Instrument is payable to bearer : b.       complete but undelivered (Sec. 16 NIL)

a.       when it is expressed to be so payable c.       complete and delivered issued without
consideration or a consideration consisting of a promise
b.       when payable to the person named or bearer
which was not fulfilled (Sec 28 NIL)
c.       payable to order of fictitious or non-existent
26.   Holder in Due Course Affected by
person and this fact was known to drawer
Abnormality/Deficiency:
d.       name of payee not name of any person
a.       incomplete and undelivered instrument (Sec. 15
e.       only and last indorsement is an indorsement in NIL)
blank (Sec. 9 NIL)
b.       maker/drawer’s signature forged (Sec. 23 NIL)
Notes on Section 9

–          “fictitious person” is not limited to persons

27.   Incomplete but Delivered Instrument:
having no legal existence. An existing person may be
considered fictitious depending on the intention of the 1. Where an instrument is wanting in any material
maker or the drawer. particular:

a.       Holder has prima facie authority to fill up the

blanks therein.
b.       It must be filled up strictly in accordance with the a.       If between immediate parties and remote parties
authority given and within a reasonable time. not holder in due course, to be effectual there must be
authorized delivery by the party making, drawing,
c.       If negotiated to a holder in due course, it is valid accepting or indorsing. Delivery may be shown to be
and effectual for all purpose as though it was filled up conditional or for a special purpose only
strictly in accordance with the authority given and within
reasonable time. (Sec. 14 NIL) b.       If the holder is a holder in due course, all prior
deliveries conclusively presumed valid
2. Where only a signature on a blank paper was
delivered: c.       If instrument not in hands of drawer/maker, valid
and intentional delivery is presumed until the contrary is
1. It was delivered by the person making it proven (Sec. 16 NIL)
in order that it may be converted into a
negotiable instrument Rules on delivery of negotiable instruments:
2. The holder has prima facie authority to
fill it up as such for any amount. (Sec. 14 1)    delivery is essential to the validity of any negotiable
NIL) instrument

Notes on Section 14 2)    as between immediate parties or those is like cases,

delivery must be with intention of passing title
–          if the instrument is wanting in material particular,
mere possession of the instrument is enough to presume 3)    an instrument signed but not completed by the
prima facie authority to fill it up. drawer or maker and retained by him is invalid as to him
for want of delivery even in the hands of a holder in due
–          material particular may be an omission which course
will render the instrument non-negotiable (e.g. name of
payee), an omission which will not render the instrument 4)    but there is prima facie presumption of delivery of
non-negotiable (e.g. date) an instrument signed but not completed by the drawer or
maker and retained by him if it is in the hands of a
–          in the case of the signature in blank, delivery holder in due course. This may be rebutted by proof of
with intent to convert it into a negotiable instrument is non-delivery.
required. Mere possession is not enough.
5)    an instrument entrusted to another who wrongfully
28.   Incomplete and Undelivered Instrument: completes it and negotiates it to a holder in due course,
delivery to the agent or custodian is sufficient delivery to
General Rule: Where an incomplete instrument has not
bind the maker or drawer.
been delivered, it will not, if completed and negotiated
without authority, be a valid contract in the hands of any 6)    If an instrument is completed and is found in the
holder against any person who signed before delivery. possession of another, there is prima facie evidence of
(Sec. 15 NIL) delivery and if it be a holder in due course, there is
conclusive presumption of delivery.
Notes on Section 15
7)    delivery may be conditional or for a special purpose
–          it is a real defense. It can be interposed against a
but such do not affect the rights of a holder in due
holder in due course.
course.
–          delivery is not conclusively presumed where the
30.   General rule: a person whose signature does not
instrument is incomplete
appear on the instrument in not liable.
–          defense of the maker is to prove non-delivery of
Exception:
the incomplete instrument.
1. one who signs in a trade or assumed name
29.   Complete but Undelivered: (Sec. 18)
2. a duly authorized agent (Sec. 19)
General Rule: Every contract on a negotiable instrument
3. a forger (Sec. 23)
is incomplete and revocable until delivery for the
purpose of giving effect thereto.  
31.   General rule: an agent is not liable on the –          Section 23 applies only to forged signatures or
instrument if he were duly authorized to sign for or on signatures made without authority
behalf of a principal.
–          Alterations such as to amounts or like fall under
Requisites: section 124

1. he must be duly authorized –          Forms of forgery are a) fraud in factum b) duress
2. he must add words to his signature amounting to fraud c) fraudulent impersonation
indicating that he signs as an agent
3. he must disclose his principal (Sec. 20 –          Only the signature forged or made without
NIL) authority is inoperative, the instrument or other
signatures which are genuine are affected
Notes on Section 20
–          The instrument can be enforced by holders to
–          if an agent does not disclose his principal, the whose title the forged signature is not necessary
agent is personally liable on the instrument.
–          Persons who are precluded from setting up the
32.   Per Procuration – operates as notice that the forgery are a) those who warrant or admit the
agent has a limited authority to sign. genuineness of the signature b) those who are estopped.

Effects: –          Persons who are precluded by warranting are a)

indorsers b) persons negotiating by delivery c) acceptors.
–          the principal in only bound if the agent acted
within the limits of the authority given –          drawee bank is conclusively presumed to know
the signature of its drawer
–          the person who takes the instrument is bound to
inquire into the extent and nature of the authority given. –          if endorser’s signature is forged, loss will be
(Sec. 21 NIL) borne by the forger and parties subsequent thereto

33.   General rule: Infants and corporations incur no –          drawee bank is not conclusively presumed to
liability by their indorsement or assignment of an know the signature of the indorser. The responsibility
instrument. (Sec. 22 NIL) falls on the bank which last guaranteed the indorsement
and not the drawee bank.
Effects:
–          Where the payee’s signature is forged, payments
–          no liability attached to the infant or the made by the drawee bank to collecting bank is
corporation ineffective. No debtor/creditor relationship is created.
An agency to collect is created between the person
–          the instrument is still valid and the indorsee
depositing and the collecting bank. Drawee bank may
acquires title
recover from collecting bank who may in turn recover
34.   General rule: a signature which is forged or made from the person depositing.
without authority is wholly inoperative.
Rules on liabilities of parties on a forged instrument
Effects: In a PN

1. no right to retain –          a party whose indorsement is forged on a note

2. no right to give a discharge payable to order and all parties prior to him including the
3. no right to enforce payment can be maker cannot be held liable by any holder
acquired.       (Sec. 23 NIL)
–          a party whose indorsement is forged on a note
Exception: originally payable to bearer and all parties prior to him
including the maker may be held liable by a holder in
–          the party against whom it is sought to be due course provided that it was mechanically complete
enforced is precluded from setting up the forgery or before the forgery
want of authority.
–          a maker whose signature was forged cannot be
Notes on Section 23 held liable by any holder
In a BOE 2. Partial failure of consideration is a
defense pro tanto (Sec 28 NIL)
–          the drawer’s account cannot be charged by the
drawee where the drawee paid  

–          the drawer has no right to recover from the Notes on Section 28
collecting bank
–          absence of consideration is where no
–          the drawee bank can recover from the collecting consideration was intended to pass.
bank
–          failure of consideration implies that
–          the payee can recover from the drawer consideration was intended by that it failed to pass

–          the payee can recover from the recipient of the –          the defense of want of consideration is
payment, such as the collecting bank ineffective against a holder in due course

–          the payee cannot collect from the drawee bank –          a drawee who accepts the bill cannot allege want
of consideration against the drawer
–          the collecting bank bears the loss but can recover
from the person to whom it paid  

–          if payable to bearer, the rules are the same as in 38.   An accommodation party is one who signs the
PN. instrument as maker, drawer, acceptor, or indorser
without receiving value therefor and for the purpose of
–          if the drawee has accepted the bill, the drawee lending his name to some other person.
bears the loss and his remedy is to go after the forger
Effects:
–          if the drawee has not accepted the bill but has
paid it, the drawee cannot recover from the drawer or the –          an accommodation party is liable to the holder
recipient of the proceeds, absence any act of negligence for value notwithstanding that such holder knew that of
on their part. the accommodation. (Sec. 28 NIL)

   

35.   Every negotiable instrument is deemed prima facie Notes on Section 28

to have been issued for a valuable consideration. (Sec.
–          the accommodated party cannot recover from the
24 NIL)
accommodation party
Effects:
–          want of consideration cannot be interposed by
–          every person whose signature appears thereon is the accommodation party
a party for value
–          an accommodation maker may seek
–          presumption is disputable reimbursement from a co-maker even in the absence of
any provision in the NIL; the deficiency is supplied by
  the New Civil Code.

36.   Where value has at any time been given for the –          he may do this even without first proceeding
instrument, the holder is deemed a holder for value in against the debtor provided:
respect to all parties who become such prior to that time.
(Sec. 26 NIL) a.       he paid by virtue of judicial demand

  b.       principal debtor is insolvent

37.   Effect of want of consideration:  

1. Absence or failure of consideration may 39.   An instrument is negotiated when:

be set up against a holder not a holder in
due course (personal defense) 1. it is transferred from one person to
another
 2. that the transfer must be in a manner as to 44.   Effects of a transfer without endorsement:
constitute the transferee a holder
–          the transferee acquires such title as the transferor
For a bearer instrument – by delivery had

For payable to order – by indorsement and delivery (Sec. –          the transferee acquires the right to have the
30 NIL) indorsement of the transferor

  –          negotiation takes effect as of the time the

indorsement is actually made (Sec. 49 NIL)
40.   Indorsement to be must be:
45.   Rights of a holder:
1. written
2. on the instrument itself or upon a piece of –          a holder may sue in his own name
paper attached (Sec. 31 NIL)
Notes on Section 31 –          a holder may receive payment.

–          the paper attached with the indorsement is an

allonge

–          an allonge must be attached so that it becomes a

part of the instrument, it cannot be simply pinned or Effects:
clipped to it.
–          if in due course it discharges the instrument (Sec.
41.   Kinds of Indorsements: 51 NIL)
1. Special (Sec. 34)
2. Blank (Sec. 35) 46.   Requisites for a Holder in Due Course (HDC):
3. Restrictive (Sec. 36)
4. Qualified (Sec. 38) a.       receives the instrument complete and regular on its
5. Conditional (Sec. 39 NIL) face
42.   Effects of indorsing an instrument originally
b.       became a holder before it was overdue and had no
payable to bearer:
notice that it had been previously dishonored if such was
–          it may further be negotiated by delivery the fact

–          the person indorsing is liable as indorser to such c.       takes the instrument for value and in good faith
persons as to make title through his indorsement (Sec. 40
d.       at time he took the instrument, no notice of
NIL)
infirmity in instrument or defect in the title of the person
Notes on Section 40 negotiating it (Sec. 52 NIL)

–          Section 40 applies only to instruments originally Notes on Section 52

payable to bearer
–          every holder is presumed to be a HDC (Sec. 59)
–          It cannot apply where the instrument is payable
–          the person who questions such has the burden of
to bearer because the only or last indorsement is in
proof to prove otherwise
blank.
–          if one of the requisites are lacking, the holder is
43.   A holder may strike out any indorsement which is
not HDC
not necessary to his title.
–          an instrument is considered complete and regular
Effects:
on its face if a) the omission is immaterial b) the
–          An indorser whose indorsement is struck out is alteration on the instrument was not apparent on its face
discharged
–          an instrument is overdue after the date of
–          All indorsers subsequent to such indorser who maturity.
has been discharged are likewise relieved. (Sec. 48 NIL)
–          on the date of maturity, the instrument is not
overdue and the holder is a HDC
–          acquisition of the transferee or indorsee must be instrument by force,
in good faith duress or fear

7. acquisition of the Insanity where the insane

–          good faith means lack of knowledge or notice of
instrument by person has a guardian
defect or infirmity unlawful means appointed by the court

  Ultra vires acts of a

corporation where its
47.   A holder is not a HDC where an instrument payable 8. acquisition of the charter or by statue, it is
instrument for an prohibited from issuing
on demand is negotiated at an unreasonable length of illegal consideration commercial paper
time after its issue (Sec. 53 NIL)
9. negotiation in
48.   Rights of a HDC: breach of faith Want of authority of agent

10. negotiation under

–          holds the instrument free from any defect of title circumstances Execution of instrument  
of prior parties amounting to fraud between public enemies

Illegality of contract made

–          free from defenses available to prior parties
11.Mistake by statue
among themselves (personal/ equitable defenses)
12. intoxication Forgery
–          may enforce payment of the instrument for the
13. ultra vires acts of
full amount against all parties liable(Sec. 57 NIL) corporations

Notes on Section 57 14. want of authority

of the agent where
–          Personal or equitable defenses are those which he has apparent
authority
grow out of the agreement or conduct of a particular
person in regard to the instrument which renders it 15. illegality of
inequitable for him through legal title to enforce it. Can contract where form
or consideration is
be set up against holders not HDC
illegal
–          Legal or real defenses are those which attach to 16. insanity where
the instrument itself and can be set up against the whole there is no notice of
world, including a HDC. insanity

Personal Defenses Real Defenses 49.   A instrument not in the hands of a HDC is subject
1. absence or failure to the same defenses as if it were non-negotiable.
of consideration Alteration
Exception:
2. want of delivery
of complete Want of delivery of –          a holder who derives his title through a HDC and
instrument incomplete instrument
is not a party to any fraud or illegality affecting the
3. insertion of wrong instrument, has all the rights of such HDC in respect to
date where payable all parties prior. (Sec. 58 NIL)
at a fixed period
after date and issued
 Rights of a holder not a HDC
undated; or at a fixed
period after sight and
acceptance is Duress amounting to –          may sue in his own name
undated forgery
–          may receive payment and if it is in due course,
4. filling up the the instrument is discharged
blanks contrary to
authority given or
–          holds the instrument subject to the same defenses
not within Fraud in factum or in esse
reasonable time contractus as if it were non-negotiable

5. fraud in –          if he derives his title through a HDC and is not a

inducement Minority party to any fraud or illegality thereto, has all the rights
6. acquisition of the Marriage in case of a wife of such HDC
  2. will pay to any subsequent indorser who
may be compelled to pay it. (Sec. 61 NIL)
50.   General rule: every holder is deemed prima facie to
be a holder in due course. Notes on Section 61

Exception: –          a drawer may insert an express stipulation to

negative or limit his liability
–          where it is shown that the title of any person who
has negotiated the instrument is defective, the burden is 53.   An acceptor is primarily liable
on the holder to prove that he is a HDC or that a person
under whom he claims is a HDC (Sec. 59 NIL) By accepting the instrument, an acceptor:

  –          engages that he will pay according to the tenor of

his acceptance
51.   A maker is primarily liable:
–          admits the existence of the drawer, the
Effects of making the instrument, the maker: genuineness of his signature and his capacity and
authority to draw the instrument
a.       engages to pay according to tenor of instrument
–          the existence of the payee and his then capacity
b.       admits existence of payee and his capacity to indorse
indorse (Sec. 60 NIL)
54.   Irregular Indorser – a person not otherwise a
Notes on Section 60 party to an instrument places his signature in blank
before delivery is liable as an indorser in the following
–          a maker’s liability is primarily and unconditional
manner:
–          one who has signed as such is presumed to have 1. if payable to order of a third person –
acted with care and to have signed with full knowledge liable to the payee and to all subsequent
parties
of its contents, unless fraud is proved
2. if payable to order of the maker or drawer
–          the payee’s interest is only to see to it that the – liable to all parties subsequent to the
maker or drawer
note is paid according to its terms
3. if payable to bearer – liable to all parties
–          when two or more makers sign jointly, each is subsequent to the maker or drawer
individually liable for the full amount even if one did not 4. if signs for an accommodation party –
liable to all parties subsequent to the
receive the value given
payee (Sec. 64 NIL)
–          the maker is precluded from setting up the 55.   Warranties where negotiating by delivery or
defense of a) the payee is fictional, b) that the payee was qualified endorsement:
insane, a minor or a corporation acting ultra vires 1. the instrument is genuine and in all
respect what it purports to be
  2. the indorser has good title to it
3. all prior parties had the capacity to
52.   A drawer is secondarily liable contract
4. indorser has no knowledge of any fact
Effects of drawing the instrument, the drawer: that would impair the validity or the value
of the instrument.
1. admits the existence of the payee, Limitations of warranties:
2. the capacity of such payee to indorse
3. engages that on due presentment, the -if by delivery – extends only to immediate transferee
instrument will be accepted or paid or
both according to its tenor. -warranty of capacity to contract does not apply to
persons negotiating public or corporate securities (Sec.
If the instrument is dishonored, and the necessary 65 NIL)
proceedings on dishonor duly taken
Notes on Section 65
1. the drawer will pay the amount thereof to
the holder
–          a qualified indorser is one who indorses without –          warranties extend in favor of a) a HDC b)
recourse or sans recourse persons who derive their title from HDC c) immediate
transferees even if not HDC
–          recourse – resort to a person secondarily liable
after default of person primarily liable –          the indorser does not warrant the genuineness of
the drawer’s signature
–          a qualified indorser cannot raise the defense of a)
forgery b) defect of his title or that it is void c) the –          general indorser is only secondarily liable
incapacity of the maker, drawer or previous indorsers.
57.   General rule: Presentment for payment is not
–          a qualified Indorsement makes the indorser mere necessary to charge persons primarily liable on the
assignor of title of instrument, relieves him of general instrument. Presentment for payment is necessary to
obligation to pay if instrument is dishonored, but he is charge the drawer and indorsers. (Sec 70 NIL)
still liable for the warranties arising from instrument
only up to warranties of general indorser Notes on Section 70

–          the warranty is to the capacity of prior parties at –          presentation for payment – production of a BOE
the time the instrument was negotiated. Subsequent to the drawee for his acceptance, or to a drawee or
incapacity does not breach the warranty. acceptor for payment. Also presentment of a PN to the
party liable for payment of the same.
–          lack of knowledge of the indorser as to any fact
that would impair the validity or the value of the –          consists of a) a personal demand for payment at a
instrument must be subsisting all throughout. proper place b) the bill or note must be ready to be
exhibited if required and surrendered upon payment.
–          a person Negotiating by Delivery warrants same
as those of qualified indorser and extends to immediate –          parties primarily liable – persons by the terms of
transferees only the instrument are absolutely required to pay the same.
E.g maker and acceptors. They can be sued directly.
56.   Warranties of a general indorser:
1. the instrument is genuine and in all –          if payable at the special place, and the person
respect what it purports to be liable is willing to pay there at maturity, such
2. the he has good title to it willingness and ability is equivalent to tender of
3. all prior parties had the capacity to payment.
contract
4. that the instrument at the time of his –          presentment is necessary to charge persons
indorsement was valid and subsisting secondarily liable otherwise they are discharged
(Sec. 66 NIL)
–          Acts needed to charge persons secondarily liable:
In addition: a) presentment for payment/acceptance b) dishonor by
non-payment/non-acceptance c) notice of dishonor to
–          engages that the instrument will be accepted or secondary parties
paid or both according to its tenor on due presentment
–          Acts needed to charge persons secondarily liable
–          engages to pay the amount thereof if it be in other cases: a) Protest for non-payment by the drawee
dishonored and the necessary proceedings on dishonor b) protest for non-payment by the acceptor for honor
are taken
58.   Proper presentment:
Notes on Section 66 1. by the holder or an authorized person
2. at a reasonable hour on a business day
–          the indorser under Section 66 warrants the 3. at a proper place
solvency of a prior party 4. to the person primarily liable or if absent
to any person found at the place where
–          the indorser warrants that the instrument is valid
presentment is made (sec. 72 NIL)
and subsisting regardless of whether he is ignorant of
that fact or not.
Notes on Section 72

–          only the holder or one authorized by him has the

right to make presentment for payment
–          presentment cannot be made on a Sunday or 1. presentment not necessary to charge
holiday persons primarily liable
2. necessary to charge persons secondarily
–          presentment for payment is made to the maker, liable except:
or acceptor. Not to the person secondarily liable.
–          the drawer under Sec. 79
–          if the instrument is payable on demand – a) if it
is a note – presentment must be made within reasonable –          the indorser under Sec. 80
time after issue b) if it is a bill – presentment must be
–          when excused under Sec. 82
made within reasonable time after last negotiation.
–          when the instrument has been dishonored by
59.   Presentment not required to charge the drawer:
non-acceptance under Sec. 83
1. he has no right to expect
2. he has no right to require
 
that the drawee or acceptor will pay (Sec 79 NIL)
64.   How dishonored by non-acceptance:
60.   Presentment not required to charge the indorser
–          the instrument was duly presented but payment is
where:
refused or cannot be obtained
1. the instrument was made or accepted for
his accommodation –          presentment is excused and the instrument is
2. he has no reason to expect that the
overdue and unpaid (Sec. 83 NIL)
instrument will be paid if presented (Sec.
80 NIL)  

  65.   Effects of dishonor by non-payment:

61.   General rule: Presentment for payment necessary to –          an immediate right of recourse to all parties
charge persons secondarily liable otherwise they are secondarily liable accrues to the holder. (Sec. 84 NIL)
discharged:
Notes on Section 84
Exception:
–          parties cease to be secondarily liable and become
–          Section 79 and 80 principal debtors.

Notes on Section 79 and 80 –          Liability becomes the same as that of the original
obligors.
–          only the drawer or indorser are not discharged.
All other parties secondarily liable are discharged. 66.   Requisites for payment in due course:
1. made at or after the maturity of the
62.   Presentment for payment excused if:
instrument
2. to the holder
a.       after due diligence, presentment cannot be made
3. in good faith
4. without notice of any defect in the
b.       presentment is waived
holder’s title (sec. 88 NIL)
c.       the drawee is a fictitious person (Sec 82 NIL) Notes on Section 88

Notes on Section 82 –          payment must be made to the possessor of the

instrument
–          what is excused is the failure to make
presentment. There is no need to make any presentment –          possession of the note by the maker is
versus under section 81 (delay in presentment) presumptive evidence that it has been paid
presentment for payment is still required after the cause
67.   Notice of Dishonor may be given:
of delay has ceased.
1. by or on behalf or the holder
2. by or on behalf of any party who:
 

–          is a party to the instrument and might be

63.   Summary of rules as to presentment for payment:
compelled to pay the instrument
–          to a holder who having taken it up would have a c.       drawer is the person to whom presentment for
right of reimbursement from the party to whom notice is payment is made
given. (Sec. 90 NIL)
d.       drawer has no right to expect that the drawee will
68.   Notice: accept/pay the instrument (Sec. 114 NIL)
1. may be written or oral (Sec. 96)
2. written notice need not be signed or may 73.   Instances when Notice Not Required to Indorser
be supplemented by verbal
communication (Sec. 95) a.       drawee was a fictitious/incapacitated person and
3. may be by personal delivery or by mail the indorser was aware of such at the time of
(Sec. 96) indorsement
69.   Notice may be waived either expressly or
implied: b.       indorser is the person to whom instrument was
1. before the time of giving notice has presented for payment
arrived
2. after the omission to give due notice (Sec. c.       instrument made/accepted for his accommodation
109 NIL) (Sec. 115 NIL)
70.   Protest may be waived:
74.   Omission to give notice of dishonor by non-
Effects: acceptance doe not prejudice a HDC (Sec. 117 NIL)

–          deemed a waiver of presentment and notice of 75.   Protest only necessary for a foreign bill of
dishonor as well (Sec. 111 NIL) exchange. Protest for other negotiable instruments is
optional. (Sec. 118 NIL)
Notes on Section 111
76.   Causes of Discharge of the Instrument
–          Where notice is waived, presentment is not
waived a.       payment by the debtor

–          Where presentment is waived, notice is also b.       payment by accommodated party
waived
c.       intentional cancellation by holder of instrument
–          Where protest is waived, notice and presentment
d.       any other act discharging a simple monetary
is waived
obligation
71.   Notice of Dishonor – given by the holder to the
e.       debtor becomes holder of the instrument at/after
parties secondarily liable, drawer and each indorser, that
maturity in his own right ( Sec 119 NIL)
the instrument was dishonored by non-acceptance or
non-payment by the drawee/maker

General rule: Any drawer or indorser to whom such

Notes on Section 119
notice is not given is discharged.
–          discharge of the instrument discharges all the
Exceptions:
parties thereto
1. Waiver (Sec. 109)
–          payment must be in due course, and by the
2. Notice is dispensed (Sec. 112)
3. Not necessary to Drawer (Sec. 114) principal debtor or on his behalf
4. Not necessary to Indorser (Sec. 115)
–          if payment is not made by the principal debtor,
– if notice is delayed, delay may be excused (Sec. 113) payment only cancels the liability of the payor and those
obligated after him but does not discharge the
72.   Instances when Notice of Dishonor Not instrument.
Necessary to Drawer
–          payment by an accommodation party does not
a.       drawer and drawee same person discharge the instrument.

b.       drawee is a fictitious/incapacitated person 77.   Discharge of Secondary Parties:

a.       any act discharging the instrument 2. the party who authorized or assented to
the alteration.
b.       cancellation of indorser’s signature by indorsers 3. subsequent indorsers

c.       discharge of prior party Exception:

d.       tender of payment by prior party –          if in the hands of a HDC, may be enforced
according to its original tenor
e.       release of principal debtor
Notes on Section 124
f.         extension of payment by the holder/postponement
of right to enforce without assent of secondary parties –          there is no distinction between fraudulent and
and without reservation of right of recourse against innocent alteration
secondary parties (Sec 120 NIL)
80.   Material Alteration – an alternation is said to be
78.   Rights of a party secondarily liable who pays: material if it alters the effect of the instrument.

–          the instrument is not discharge Under Section 125 the following changes are considered
material alterations:
–          the party is remitted to his former rights as to all
prior parties 1.dates
2.the sum payable
–          the party may strike out his own and all 3.time and place of payment
subsequent indorsements 4.number or relations of the parties
5.medium or currency for payment
–          the party may negotiate the instrument again 6.adding a place of payment where no place
is specified
Exception: 7. any other which alters the affect of the
instrument
–          an instrument cannot be renegotiated where it is
81.   Instances where a BOE may be treated as a PN:
payable to order of a 3rd person and has been paid by the 1. where the drawer and the drawee are one
drawer and the same
2. where the drawee is a fictitious person
–          and instrument cannot be renegotiated where is 3. where the drawee has no capacity to
was made or accepted for accommodation and it has contract (Sec. 130 NIL)
been paid by the party accommodated.
The holder has the option to treat it as a BOE or a PN
78. Renunciation by a holder discharges an
instrument when:  
1. it is absolute and unconditional
2. made in favor of a person primarily liable 82.   Acceptance is the signification by the drawee of his
3. made at or after maturity of the assent to the order of the drawer. It is an act by which a
instrument person on whom the BOE is drawn assents to the request
4. in writing or the instrument is delivered of the drawer to pay it. (Sec. 132 NIL)
up to the person primarily liable (Sec. 122
NIL) Acceptance may be:
Notes on Section 122 1. actual
2. constructive
–          if renounced in favor of a party secondarily 3. general (Sec. 140)
liable, only he is exonerated from liability and all parties 4. qualified (Sec. 141)
subsequent to him

–          discharge by novation is allowed Requisites of actual acceptance:

79.   General rule: When materially altered, without the –          in writing
consent of all parties liable, the instrument is avoided
except as against: –          signed by the drawee

1. the party who has made the alteration

–          must not express the drawee will perform his Exception:
promise by any other means than payment of money
–          inland bills and notes may also be protested if
–          communicated or delivered to the holder desired

7. A holder has the right:

1. require that acceptance be written on the
bill and if refused, treat it as if dishonored Protest is required:
(Sec. 133) 1. where the foreign bill is dishonored by
2. refuse to accept a qualified acceptance non acceptance
and may treat it as dishonored (Sec. 142) 2. where the foreign bill is dishonored by
8. Constructive Acceptance: non-payment
1. where the drawee to whom the bill has 3. where the bill has been accepted for
been delivered destroys it honor, it must be protested for non-
2. the drawee refuses within 24 hrs after payment before it is presented for
such delivery or within such time as is payment to the acceptor for honor
given, to return the bill accepted or not.     4. where the bill contains a referee in case of
(Sec. 137 NIL) need, it must be protested for non
Notes on Section 137 payment before presentment for payment
to the referee in case of need (Sec. 152)
–          drawee becomes primarily liable as an acceptor. Notes on Section 152

–          mere retention is equivalent to acceptance –          Protest – formal statement in writing made by a
notary under his seal of office at the request of the
9. When presentment for acceptance is
holder, in which it is declare that the some was presented
necessary:
for payment or acceptance (as the case may be) and such
1. if necessary to fix the maturity of the bill
was refused.
2. if it is expressly stipulated that it shall be
presented for acceptance
–          it means all steps or acts accompanying the
3. if the bill is drawn payable elsewhere
dishonor of a bill or note necessary to charge an indorser
than the residence or place of business of
the drawee (Sec. 143 NIL)
–          required when the instrument is a foreign bill of
Notes on Section 143
exchange.
–          Presentment is the production of a BOE to the
–          it must be made on the same date of dishonor, by
drawee for his acceptance
a notary/respectable citizen of the place in the presence
of 2 credible witnesses so recourse to secondary parties
–          in on order case is presentment necessary to
make parties liable. 1. Acceptance for Honor   (Sec. 161 NIL)–
an acceptance of a bill made by a stranger
90. Summary on presentment for acceptance of Bills
to it before maturirty, where the drawee
of Exchange: of the bill has:
1. refused to accept it
a.       to make the drawee primarily liable and for the
2. and the bill has been protested for non-
accrual of secondary liability (Sec. 144)
acceptance
3. or where the bill has been protested for
b.       necessary to fix maturity date, where bill expressly
better security
stipulates presentment, bill payable other than place of
Requisites for acceptance for honor:
drawee (Sec. 143)
–          the bill must have been previously protested a)
c.       when presentment is excused: drawee is dead,
for non-acceptance b) or for better security
hides, is fictitious, incapacitated person, after due
diligence presentment cannot be made, presentment is –          the bill is not overdue at the time of the
refused on another ground although presentment is acceptance for honor
irregular (Sec. 148)
–          the acceptor for honor must be a stranger to the
1. General rule: Protest is required only for bill
foreign bills
–          the holder must give his consent
 Notes on Acceptance for Honor 5. intentional cancellation by holder
 if unintentional or under mistake or
–          Purpose: to save the credit of the parties to the without authority of holder, inoperative.
instrument or some party to it as the drawer, drawee, or Burden of proof  on party which alleges it
indorser or somebody else. was unintentional, etc.
1. any other act which discharges a simple
–          Acceptor for honor is liable to the holder and to contract
all the parties to the bill subsequent to the party for 2. principal debtor becomes holder of
whose honor he has accepted (Sec. 164) instrument at or after maturity in his own
right
2. How acceptance for honor is made: 3. renunciation of holder:
1. in writing and indicated that it is an  holder may expressly renounce his rights
acceptance for honor vs. any party to the instrument, before or
2. signed by the person making the after its maturity
acceptance (Sec. 162 NIL)  absolute and unconditional renunciation
of his rights vs. principal debtor made at
  or after maturity discharges the
instrument
3. Payment for Honor – payment made  renunciation does not affect rights of
through a notarial act of honor of a party HDC w/o notice.
liable/stranger to the bill after bill has  Renunciation must be in writing unless
been dishonored by non-payment by the instrument delivered up to person
acceptor and protested for non-payment primarily liable thereon
by the holder 1. material alteration (sec. 124: material
alteration w/o assent of all parties liable
Requisites:
avoids instrument except as against party
to alteration and subsequent indorsers)
a.       protest for non-payment

b.       any person may pay supra protest

1. Of secondary parties
Form for payment of honor:
2. any act which discharges the instrument
1. payment must be attested by notarial act
3. intentional cancellation of signature by
appended to the protest, or form an
holder
extension to it.
4. discharge of prior party
2. notarial act of honor must be based on a
5. valid tender of payment made by prior
declaration by the payer for honor
party
6. release of principal debtor, unless
 
holder’s right of recourse vs. 2ndary party
4. Bills in Set – bill of exchange drawn in reserved
several parts, each part of the set being 7. any agreement binding upon holder to
numbered and containing a reference to extend time of payment, or to postpone
the other parts, the whole of the parts just holder’s right to enforce instrument,
constituting one bill (Sec 178 NIL) unless made with assent of party
secondarily liable, or unless right of
  recourse reserved.
8. Failure to make due presentment (sec. 70,
DISCHARGE 144)
1. Of the Instrument 9. failure to give notice of dishonor
2. payment in due course by or on behalf of 10. certification of check at instance of holder
principal debtor 11. reacquisition by prior party
 Payment in due course:  where instrument negotiated back to a
1. made at or after maturity prior party, such party may reissue and
2. to the holder thereof further negotiate, but not entitled to
3. in good faith and without notice that his enforce payment vs. any intervening party
title is defective to whom he was personally liable
4. payment in due course by party  where instrument is paid by party
accommodated where party is made/ secondarily liable, it’s not discharged, but
accepted for accommodation
 1. the party so paying it is remitted to his  Qualified Indorser and one Negotiating
former rights as regard to all prior parties by Delivery
2. and he may strike out his own and all 1. Instrument  genuine, in all respects what
subsequent indorsements, and again it purports to be
negotiate instrument, except 2. good title
 where it’s payable to order of 3rd party 3. all prior parties had capacity to contract
and has been paid by drawer 4. he had no knowledge of any fact w/c
 where it’s made/accepted for would impair validity of instrument or
accommodation and has been paid by render it valueless
party accommodated.  in case of negotiation by delivery only,
warranty only extends in favor of
 Kinds of Acceptance: immediate transferee
1. general
2. qualified  Liability of a General or Unqualified
1. conditional Indorser
2. partial 1. instrument genuine, good title, capacity
3. local of prior parties
4. qualified as to time 2. instrument is at time of indorsement valid
5. not all drawees and subsisting
3. on due presentment, it shall be accepted
* sec. 142 (rights of parties as to qualified acceptance) or paid, or both, according to tenor
4. if it be dishonored, and necessary
 Certification: Principles proceedings on dishonor be duly taken,
1. when check certified by bank on which he will pay the amt. To holder, or to any
it’s drawn, equivalent to acceptance subsequent indorser who may be
2. where holder of check procures it to be compelled to pay it
accepted/certified, drawer and all
indorsers discharged from al liability  
3. check not operate as assignment of any
part of funds to credit of drawer with  Order of Liability among Indorsers
bank, and bank is not liable to holder, 1. among themselves: liable prima facie in
unless and until it accepts or certifies the order they indorse, but proof of
check another agreement admissible
4. certification obtained at request of 2. but holder may sue any of the indorsers,
drawer: secondary parties not released regardless of order of indorsement
5. bank which certifies liable as an acceptor 3. joint payees/indorsees deemed to indorse
6. checks cannot be certified before payable jointly and severally

   

1. SECONDARY PARTIES 1. Liability of  Accomodation Party

2. Liability of Drawer  Definition: one who signed instrument as
3. Admits existence of payee and his then maker/drawer/acceptor/ indorser w/o
capacity to endorse receiving  value thereof, for the purpose
4. Engages that on due presentment of lending his name to some other person
instrument will be accepted, or paid, or  AP liable on the instrument to holder for
both, according to its tenor and that value even if  holder,  at time of taking
5. If it be dishonored, and the necessary instrument, knew he was only an AP
proceedings on dishonor be duly taken,  Liability of Irregular Indorser
he will pay the amount thereof to the  Where a person not
holder or to an subsequent indorser who otherwise a party to an
may be compelled to pay it instrument, places thereon
his signature in blank
  before delivery, he’s liable
as an indorser, in
 drawer may insert in the instrument an accordance w/ these rules:
express stipulation negativing / limiting 1. Instrument payable to order of 3rd person:
his own liability to holder liable to payee and to all subsequent
1. Liability of Indorsers: parties
 2. Instrument payable to the order of  sec. 149 (when dishonored by non-
maker/drawer, or payable to bearer: liable acceptance)
to all parties subsequent to maker/drawer  sec. 150 (duty of holder where bill not
3. Signs for accommodation of payee, liable accepted)
to all parties subsequent to payee  sec. 151 (rights of holder where bill not
 Sadaya v Sevilla Rules: accepted)
1. a joint and several accommodation maker  sec. 89 (to whom notice of dishonor must
of a negotiable promissory note may be given)
demand from the principal debtor  sec. 117 (effect of omission to give notice
reimbursement for the amt. That he paid of non-acceptance)
to the payee II. For Payment
2. a joint and several accommodation maker
who pays on the said promissory note Where necessary Sec. 70
may directly demand reimbursement from
his co-accommodation maker without Where not necessary Sec. 79, 80, 82, 151, 111
first directing his action vs. the principal
debtor provided: Date and time of presentment of instrument bearing
1. he made the payment by fixed maturity Sec. 71, 85, 86, 194
virtue of a judicial demand
2. or the principal debtor is  
insolvent
Date of presentment
 Where instrument not payable on
demand: presentment must be made on
date it falls due
 Where payable on demand: presentment
must be made within reasonable time
after issue, except that in case of a bill of
I.  Presentment For Acceptance exchange, presentment for payment will
be sufficient if made within a reasonable
When presentment for acceptance must be made time after last negotiation (but note:
though reasonable time from last
1. bill payable after sight, or in other cases negotiation, it may be unreasonable time
where presentment for acceptance from issuance thus holder may not be
necessary to fix maturity HDC under sec. 71)
2. where bill expressly stipulates that it shall  Check must be presented for payment
be presented for acceptance within reasonable time after its issue or
3. where bill is drawn payable elsewhere drawer will be discharged from liability
than at residence / place of business of thereon to extent of loss caused by delay
drawee
 
When failure to present releases drawer/indorser
Delay excused Sec. 81
Failure to present for acceptance of negotiate bill of Manner Sec. 74, 72, 75
exchange within reasonable time  Place Sec. 73
To Whom Sec. 72, 76, 77, 78
Dishonor by nonpayment Sec. 83, 84
Reasonable Time

Must consider Notice of Dishonor

1. nature of instrument General rule: to drawer and to each indorser, and any
2. usage of trade or business with respect to drawer or indorser to whom such notice is not given is
instrument discharged
3. facts of each case
Form, Contents, Time Sec. 95, 96, 102, 103, 104, 105,
How and When Made Sec. 145, 146, 147 106, 108, 113

When Excused Sec. 148 By Whom Given

 By or on behalf of the holder or any party
Dishonor and Effects to the instrument who may be compelled
 to pay it to the holder, and who, upon Negotiable Non-negotiable
taking it up, would have a right to Instruments Instruments 
reimbursement from the party to whom
Contains all the does not contain all the
the notice is given
requisites of Sec. 1 of requisites of Sec. 1 of
 Notice of dishonor may be given by an the NIL the NIL
agent either in his own name or in the
name of any party entitled to give notice, Transferred by transferred by
whether that party be his principal or not negotiation assignment
 Where instrument has Holder in due course transferee acquires
been dishonored in hands may have better rights rights only of his
of agent, he may either than transferor transferor 
himself give notice to the
Prior parties warrant prior parties merely
parties liable thereon, or payment warrant legality of title
he may give notice to his
principal (as if agent an Transferee has right of
independent holder) recourse against transferee has no right
intermediate parties of recourse 
In whose favor notice operates
1. when given by/on behalf of holder: 4.       Difference between Negotiable Instruments and
insures to benefit of Negotiable Documents of Title
1. all subsequent holders and
2. all prior parties who have Negotiable Negotiable Documents
Instruments of Title 
a right of recourse vs. the
party to whom it’s given does not contain
2. where notice given by/on behalf of a Have requisites of Sec. requisites of Sec. 1 of
party entitled to give notice: insures for 1 of the NIL NIL
benefit of a.  holder , and Have right of recourse
against intermediate
b. all parties subsequent to party to whom notice given parties who are no secondary liability
secondarily liable of intermediate parties
Waiver Sec. 109, 110
Holder in due course transferee merely steps
may have rights better into the shoes of the
Where not necessary to charge drawer
than transferor transferor
1. drawer/drawee same person
2. drawee fictitious, incapacitated Subject is money subject is goods
3. drawer is person to whom instrument is
instrument is merely
presented for payment evidence of title; thing
4. drawer has no right to expect/require that of value are the goods
drawee/acceptor will honor instrument Instrument itself is mentioned in the
5. drawer countermanded payment property of value document
Where not necessary to charge indorser
1. drawee fictitious, incapacitated, and 4. Promissory Note – unconditional promise to pay
indorser aware of the fact at time of in writing made by one person to anther, signed
indorsement by the maker, engaging to pay on demand or a
2. indorser is person to whom instrument fixed determinable future time a sum certain in
presented for paymt
money to order or bearer. When the note is
3. instrument made/accepted for his
drawn to maker’s own order, it is not complete
accommodation
until indorse by him. (Sec. 184 NIL)

Parties:

1. maker
      Difference between Negotiable Instruments from 2. payee
Non-Negotiable Instruments: 6.       Bill of Exchange – unconditional order in writing
addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to – may be drawn against
pay on demand or at a fixed or determinable future time any person, not – always drawn
a sum certain in money to order or to bearer. (Sec. 126 necessarily a bank against a bank
NIL) – may be payable on
demand or at a fixed or -always payable on
Parties: determinable future time demand

1. drawer – a promise to pay – an order to pay

2. payee 11.   Other Forms of Negotiable Instruments:
3. drawee/ acceptor
7.       Check – bill of exchange drawn on a bank and a.       certificates of deposits
payable on demand. (Sec. 185 NIL)
8.       Difference between Promissory Note and Bill of b.       trade acceptances
Exchange
c.       bonds in the nature of promissory notes
Promissory Note Bill of Exchange 
d.       drafts which are bills of exchange drawn by 1
Unconditional promise unconditional order bank to another
Involves 2 parties involves 3 parties
e.       letters of credit
drawer only secondarily
Maker primarily liable liable 12.   Trust Receipt – a security transaction intended to
aid in the financing of importers and retailers who do not
generally 2
presentments – for have sufficient funds to finance their transaction and
only 1 presentment – acceptance and for acquire credit except to use as collateral the merchandise
for payment payment imported.
9.       Distinctions between a Check and Bill of
Exchange

CHECK BOE

– always drawn upon a – may or may not be

bank or banker drawn against a bank

– may be payable on
– always payable on demand or at a fixed or
demand determinable future time

– not necessary that it

be presented for – necessary that it be
acceptance presented for acceptance

– drawn on a deposit – not drawn on a deposit

– the death of a drawer

of a check, with
knowledge by the – the death of the
banks, revokes the drawer of the ordinary
authority of the banker bill of exchange does
pay not

– must be presented for – may be presented for

payment within a payment within a
reasonable time after reasonable time after its
its issue   (6 months) last negotiation.
10.   Distinctions between a Promissory Note and
Check

PN CHECK

– there are three (3)

– there are two (2) parties, the drawer,
parties, the maker and the the drawee bank and
payee the payee