1. Negotiable Instruments – written contracts for the payment of Have requisites of Sec.

1 of the does not contain requisites of

money; by its form, intended as a substitute for money and intended to NIL Sec. 1 of NIL
pass from hand to hand, to give the holder in due course the right to
Have right of recourse against
hold the same and collect the sum due.
intermediate parties who are no secondary liability of
2. Characteristics of Negotiable Instruments: secondarily liable intermediate parties
a. negotiability – right of transferee to hold the instrument and Holder in due course may have transferee merely steps into the
collect the sum due rights better than transferor shoes of the transferor
Subject is money subject is goods
b. accumulation of secondary contracts – instrument is negotiated
from person to person instrument is merely evidence
of title; thing of value are the
3. Difference between Negotiable Instruments from Non- Instrument itself is property of goods mentioned in the
Negotiable Instruments: value document

Negotiable Instruments Non-negotiable Instruments 5. Promissory Note – unconditional promise to pay in writing made
Contains all the requisites of does not contain all the by one person to anther, signed by the maker, engaging to pay on
Sec. 1 of the NIL requisites of Sec. 1 of the NIL demand or a fixed determinable future time a sum certain in money to
order or bearer. When the note is drawn to maker’s own order, it is not
Transferred by negotiation transferred by assignment
complete until indorse by him. (Sec. 184 NIL)
Holder in due course may have transferee acquires rights only
better rights than transferor of his transferor Parties:

prior parties merely warrant 1. maker

Prior parties warrant payment legality of title 2. payee

Transferee has right of 6. Bill of Exchange – unconditional order in writing addressed by

recourse against intermediate transferee has no right of one person to another, signed by the person giving it, requiring the
parties recourse person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer.
4. Difference between Negotiable Instruments and Negotiable
(Sec. 126 NIL)
Documents of Title

Negotiable Documents of Parties:

Negotiable Instruments Title
1. drawer
2. payee
3. drawee/ acceptor
7. Check – bill of exchange drawn on a bank and payable on PN CHECK
demand. (Sec. 185 NIL)
8. Difference between Promissory Note and Bill of Exchange – there are three (3) parties,
– there are two (2) parties, the the drawer, the drawee bank
Promissory Note Bill of Exchange maker and the payee and the payee

Unconditional promise unconditional order – may be drawn against any

person, not necessarily a bank – always drawn against a bank
Involves 2 parties involves 3 parties
– may be payable on demand or
Maker primarily liable drawer only secondarily liable at a fixed or determinable
future time -always payable on demand
only 1 presentment – for generally 2 presentments – for
payment acceptance and for payment – a promise to pay – an order to pay
9. Distinctions between a Check and Bill of Exchange 11. Other Forms of Negotiable Instruments:

CHECK BOE a. certificates of deposits

– always drawn upon a bank or – may or may not be drawn b. trade acceptances
banker against a bank
– may be payable on demand or c. bonds in the nature of promissory notes
at a fixed or determinable
– always payable on demand future time d. drafts which are bills of exchange drawn by 1 bank to another

– not necessary that it be – necessary that it be presented e. letters of credit

presented for acceptance for acceptance
12. Trust Receipt – a security transaction intended to aid in the
– drawn on a deposit – not drawn on a deposit
financing of importers and retailers who do not have sufficient funds to
– the death of a drawer of a finance their transaction and acquire credit except to use as collateral
check, with knowledge by the – the death of the drawer of the the merchandise imported
banks, revokes the authority of ordinary bill of exchange does 13. Requisites of a Negotiable Note (PN): (SUDO)
the banker pay not
It must:
– must be presented for – may be presented for
payment within a reasonable payment within a reasonable
a. be in writing signed by the drawer
time after its issue (6 months) time after its last negotiation.
b. contains an unconditional promise or order to pay a sum certain
10. Distinctions between a Promissory Note and Check in money
c. be payable on demand or at a fixed determinable future time
d. be payable to order or to bearer (Sec. 1 NIL) *In determining is the instrument is negotiable, only the instrument
14. Requisites of a Negotiable Bill (BOE): (SUDOC) itself and no other, must be examined and compared with the
requirements stated in Sec. 1. If it appears on the instrument that it
It must: lacks one of the requirements, it is not negotiable and the provisions of
the NIL do not govern the instrument. The requirement lacking cannot
1. be in writing signed by the drawer
be supplied by using a separate instrument in which that requirement
2. contains an unconditional promise or order to pay a sum certain in
money
which is lacking appears.
3. be payable on demand or at a fixed determinable future time
16. Sum is certain even if it is to be paid with:
4. be payable to order or to bearer
5. the drawee must be named or otherwise indicated with
a. interest
reasonable certainty (Sec. 1 NIL)
Notes on Section 1: b. in installments

– In order to be negotiable, there must be a writing of some kind, c. in installments with acceleration clause
else there would be nothing to be negotiated or passed from hand to
hand. The writing may be in ink, print or pencil. It may be upon d. with exchange
parchment, cloth, leather or any other substitute of paper.
e. costs of collection or attorney’s fees (Sec. 2 NIL)
– It must be signed by the maker or drawer. It may consist of
mere initials or even numbers, but the holder must prove that what is 17. General Rule: The promise or order should not depend on a
written is intended as a signature of the person sought to be charged. contingent event. If it is conditional, it is non-negotiable.

– The Bill must contain an order, something more than the mere Exceptions:
asking of a favor.
a. indication of particular fund from which the acceptor disburses
– Sum payable must be in money only. It cannot be made payable himself after payment
in goods, wares, or merchandise or in property.
b. statement of the transaction which gives rise to the instrument.
– A drawee’s name may be filled in under Section 14 of the NIL (Sec. 3 NIL)

15. Determination of negotiability But an order or promise to pay out of a particular fund is not
1. by the provisions of the Negotiable Instrument Law, particularly unconditional
Section 1 thereof
2. by considering the whole instrument Notes on Section 3
3. by what appears on the face of the instrument and not elsewhere
– The particular fund indicated should not be the direct source of Notes of Section 5
payment, else it becomes unconditional and therefore non-negotiable.
The fund should only be the source of reimbursement. – Limitation on the provision, it cannot require something illegal.

– A statement of the transaction does not destroy the – There are two kinds of judgements by confession: a) cognovit
negotiability of the instrument. Exception: Where the promise to pay or actionem b) relicta verificatione
order is made subject to the terms and conditions of the transaction
– Confessions of judgement in the Philippines are void as against
stated.
public policy.
18. Instrument is payable upon a determinable future time if:
– If the choice lies with the debtor, the instrument is rendered
a. there is a fixed period after sight/date non-negotiable.

b. on or before a specified date/fixed determinable future time 20. The validity and negotiability of an instrument is not affected
by the fact that:
c. on or at a fixed date after the occurrence of an event certain to 1. it is not dated
happen though the exact date is not certain (Sec. 4 NIL) 2. does not specify the value given or that any had been given
3. does not specify the place where it is drawn or payable
Notes on Section 4 4. bears a seal
5. designates the kind of current money in which payment is to be
– If the instrument is payable upon a contingency, the happening made (Sec. 6 NIL)
of the event does not cure the defect (still non-negotiable) 21. Instrument is payable upon demand if:

19. General Rule: If some other act is required other than the a. it is expressed to be so payable on sight or upon presentation
payment of money, it is non-negotiable.
b. no period of payment is stipulated
Exceptions:
c. issued, accepted, or endorsed after maturity (Sec. 7 NIL)
a. sale of collateral securities
Where an instrument is issued, accepted or indorsed when overdue, it
b. confession of judgment is, as regards to the person so issuing, accepting, or indorsing it,
payable on demand.
c. waives benefit of law
Notes on Section 7
d. gives option to the holder to require something to be done in lieu
of money (Sec. 5 NIL) – if the time for payment is left blank (as opposed to being omitted), it
may properly be considered as an incomplete instrument and fall under
the provisions of Sec. 14, 15, or 16 depending on how the instrument is c. payable to order of fictitious or non-existent person and this fact
delivered. was known to drawer

22. Instrument is payable to order: d. name of payee not name of any person

– where it is drawn payable to the order of a specified person or e. only and last indorsement is an indorsement in blank (Sec. 9 NIL)

– to a specified person or his order Notes on Section 9

It may be drawn payable to the order of: – “fictitious person” is not limited to persons having no legal
existence. An existing person may be considered fictitious depending on
1. a payee who is not a maker, drawer, or drawee the intention of the maker or the drawer.
2. the drawer or maker
3. the drawee – “fictitious person” means a person who has no right to the
4. two or more payees jointly instrument because the maker or drawer of it so intended. He was not
5. one or some of several payees
intended to be the payee.
6. the holder of an office for the time being (Sec. 8 NIL)
Notes on Section 8 – where the instrument is drawn, made or prepared by an agent,
the knowledge or intent of the signer of the instrument is controlling.
– The payee must be named or otherwise indicated therein with
reasonable certainty. – Where the agent has no authority to execute the instrument,
the intent of the principal is controlling
– If there is no payee, there would be no one to indorse the
instrument payable to order. Therefore useless to be considered 24. The date may be inserted in an instrument when:
negotiable. 1. an instrument expressed to be payable at a fixed period after date is
issued undated
– Joint payees in indicated by the conjunction “and”. To 2. where acceptance of an instrument payable at a fixed period after
negotiate, all must indorse. sight is undated (Sec. 13 NIL)

– Being several payees is indicated by the conjunction “or”. Effects:

23. Instrument is payable to bearer : – any holder may insert the true date of issuance or acceptance

a. when it is expressed to be so payable – the insertion of a wrong date does not avoid the instrument in
the hands of a subsequent holder in due course
b. when payable to the person named or bearer
– as to the holder in due course, the date inserted (even if it be 2. The holder has prima facie authority to fill it up as such for any
the wrong date) is regarded as the true date. amount. (Sec. 14 NIL)
Notes on Section 14
25. Subsequent Holder in Due Course not affected by the following
deficiencies: – if the instrument is wanting in material particular, mere
possession of the instrument is enough to presume prima facie authority
a. incomplete but delivered instrument (Sec. 14 NIL) to fill it up.

b. complete but undelivered (Sec. 16 NIL) – material particular may be an omission which will render the
instrument non-negotiable (e.g. name of payee), an omission which will
c. complete and delivered issued without consideration or a
not render the instrument non-negotiable (e.g. date)
consideration consisting of a promise which was not fulfilled (Sec 28
NIL) – in the case of the signature in blank, delivery with intent to
convert it into a negotiable instrument is required. Mere possession is
26. Holder in Due Course Affected by Abnormality/Deficiency: not enough.

a. incomplete and undelivered instrument (Sec. 15 NIL)

28. Incomplete and Undelivered Instrument:

b. maker/drawer’s signature forged (Sec. 23 NIL) General Rule: Where an incomplete instrument has not been delivered,
it will not, if completed and negotiated without authority, be a valid
27. Incomplete but Delivered Instrument:
contract in the hands of any holder against any person who signed
1. Where an instrument is wanting in any material particular: before delivery. (Sec. 15 NIL)

a. Holder has prima facie authority to fill up the blanks therein. Notes on Section 15

b. It must be filled up strictly in accordance with the authority – it is a real defense. It can be interposed against a holder in due
given and within a reasonable time. course.

c. If negotiated to a holder in due course, it is valid and effectual – delivery is not conclusively presumed where the instrument is
for all purpose as though it was filled up strictly in accordance with the incomplete
authority given and within reasonable time. (Sec. 14 NIL)
– defense of the maker is to prove non-delivery of the incomplete
2. Where only a signature on a blank paper was delivered: instrument.

1. It was delivered by the person making it in order that it may be 29. Complete but Undelivered:
converted into a negotiable instrument
General Rule: Every contract on a negotiable instrument is incomplete 6) If an instrument is completed and is found in the possession of
and revocable until delivery for the purpose of giving effect thereto. another, there is prima facie evidence of delivery and if it be a holder
in due course, there is conclusive presumption of delivery.
a. If between immediate parties and remote parties not holder in
due course, to be effectual there must be authorized delivery by the 7) delivery may be conditional or for a special purpose but such do
party making, drawing, accepting or indorsing. Delivery may be shown not affect the rights of a holder in due course.
to be conditional or for a special purpose only
30. General rule: a person whose signature does not appear on the
b. If the holder is a holder in due course, all prior deliveries instrument in not liable.
conclusively presumed valid
Exception:
c. If instrument not in hands of drawer/maker, valid and intentional
delivery is presumed until the contrary is proven (Sec. 16 NIL) 1. one who signs in a trade or assumed name (Sec. 18)
2. a duly authorized agent (Sec. 19)
Rules on delivery of negotiable instruments: 3. a forger (Sec. 23)

1) delivery is essential to the validity of any negotiable instrument

2) as between immediate parties or those is like cases, delivery must 31. General rule: an agent is not liable on the instrument if he were
be with intention of passing title duly authorized to sign for or on behalf of a principal.

3) an instrument signed but not completed by the drawer or maker Requisites:

and retained by him is invalid as to him for want of delivery even in the
1. he must be duly authorized
hands of a holder in due course
2. he must add words to his signature indicating that he signs as an
agent
4) but there is prima facie presumption of delivery of an instrument
3. he must disclose his principal (Sec. 20 NIL)
signed but not completed by the drawer or maker and retained by him
Notes on Section 20
if it is in the hands of a holder in due course. This may be rebutted by
proof of non-delivery. – if an agent does not disclose his principal, the agent is
personally liable on the instrument.
5) an instrument entrusted to another who wrongfully completes it
and negotiates it to a holder in due course, delivery to the agent or 32. Per Procuration – operates as notice that the agent has a
custodian is sufficient delivery to bind the maker or drawer. limited authority to sign.

Effects:
– the principal in only bound if the agent acted within the limits – Alterations such as to amounts or like fall under section 124
of the authority given
– Forms of forgery are a) fraud in factum b) duress amounting to
– the person who takes the instrument is bound to inquire into the fraud c) fraudulent impersonation
extent and nature of the authority given. (Sec. 21 NIL)
– Only the signature forged or made without authority is
inoperative, the instrument or other signatures which are genuine are
affected
33. General rule: Infants and corporations incur no liability by their
indorsement or assignment of an instrument. (Sec. 22 NIL) – The instrument can be enforced by holders to whose title the
forged signature is not necessary
Effects:
– Persons who are precluded from setting up the forgery are a)
– no liability attached to the infant or the corporation those who warrant or admit the genuineness of the signature b) those
who are estopped.
– the instrument is still valid and the indorsee acquires title
– Persons who are precluded by warranting are a) indorsers b)
persons negotiating by delivery c) acceptors.
34. General rule: a signature which is forged or made without
– drawee bank is conclusively presumed to know the signature of
authority is wholly inoperative.
its drawer
Effects:
– if endorser’s signature is forged, loss will be borne by the forger
1. no right to retain and parties subsequent thereto
2. no right to give a discharge
3. no right to enforce payment can be acquired. (Sec. 23 NIL)
– drawee bank is not conclusively presumed to know the signature
of the indorser. The responsibility falls on the bank which last
Exception: guaranteed the indorsement and not the drawee bank.

– the party against whom it is sought to be enforced is precluded – Where the payee’s signature is forged, payments made by the
from setting up the forgery or want of authority. drawee bank to collecting bank is ineffective. No debtor/creditor
relationship is created. An agency to collect is created between the
Notes on Section 23 person depositing and the collecting bank. Drawee bank may recover
from collecting bank who may in turn recover from the person
– Section 23 applies only to forged signatures or signatures made
depositing.
without authority
Rules on liabilities of parties on a forged instrument – if the drawee has accepted the bill, the drawee bears the loss
In a PN and his remedy is to go after the forger

– a party whose indorsement is forged on a note payable to order – if the drawee has not accepted the bill but has paid it, the
and all parties prior to him including the maker cannot be held liable by drawee cannot recover from the drawer or the recipient of the
any holder proceeds, absence any act of negligence on their part.

– a party whose indorsement is forged on a note originally payable

to bearer and all parties prior to him including the maker may be held
liable by a holder in due course provided that it was mechanically 35. Every negotiable instrument is deemed prima facie to have been
complete before the forgery issued for a valuable consideration. (Sec. 24 NIL)

– a maker whose signature was forged cannot be held liable by Effects:

any holder
– every person whose signature appears thereon is a party for
value

In a BOE – presumption is disputable

– the drawer’s account cannot be charged by the drawee where

the drawee paid
36. Where value has at any time been given for the instrument, the
– the drawer has no right to recover from the collecting bank holder is deemed a holder for value in respect to all parties who
become such prior to that time. (Sec. 26 NIL)
– the drawee bank can recover from the collecting bank

– the payee can recover from the drawer

37. Effect of want of consideration:
– the payee can recover from the recipient of the payment, such
as the collecting bank 1. Absence or failure of consideration may be set up against a holder
not a holder in due course (personal defense)
– the payee cannot collect from the drawee bank 2. Partial failure of consideration is a defense pro tanto (Sec 28 NIL)

– the collecting bank bears the loss but can recover from the
person to whom it paid
Notes on Section 28
– if payable to bearer, the rules are the same as in PN.
 – an accommodation maker may seek reimbursement from a co-
maker even in the absence of any provision in the NIL; the deficiency is
– absence of consideration is where no consideration was supplied by the New Civil Code.
intended to pass.
– he may do this even without first proceeding against the debtor
– failure of consideration implies that consideration was intended provided:
by that it failed to pass
a. he paid by virtue of judicial demand
– the defense of want of consideration is ineffective against a
holder in due course b. principal debtor is insolvent

– a drawee who accepts the bill cannot allege want of

consideration against the drawer
39. An instrument is negotiated when:

1. it is transferred from one person to another

38. An accommodation party is one who signs the instrument as 2. that the transfer must be in a manner as to constitute the transferee
maker, drawer, acceptor, or indorser without receiving value therefor a holder
and for the purpose of lending his name to some other person.
For a bearer instrument – by delivery
Effects:
For payable to order – by indorsement and delivery (Sec. 30 NIL)
– an accommodation party is liable to the holder for value
notwithstanding that such holder knew that of the accommodation.
(Sec. 28 NIL) 40. Indorsement to be must be:

1. written
2. on the instrument itself or upon a piece of paper attached (Sec. 31
Notes on Section 28
NIL)
Notes on Section 31
– the accommodated party cannot recover from the
accommodation party
– the paper attached with the indorsement is an allonge

– want of consideration cannot be interposed by the

– an allonge must be attached so that it becomes a part of the
accommodation party instrument, it cannot be simply pinned or clipped to it.

41. Kinds of Indorsements:

 1. Special (Sec. 34) – negotiation takes effect as of the time the indorsement is
2. Blank (Sec. 35) actually made (Sec. 49 NIL)
3. Restrictive (Sec. 36)
4. Qualified (Sec. 38) 45. Rights of a holder:
5. Conditional (Sec. 39 NIL)
42. Effects of indorsing an instrument originally payable to bearer: – a holder may sue in his own name

– it may further be negotiated by delivery – a holder may receive payment.

– the person indorsing is liable as indorser to such persons as to Effects:

make title through his indorsement (Sec. 40 NIL)
– if in due course it discharges the instrument (Sec. 51 NIL)
Notes on Section 40
46. Requisites for a Holder in Due Course (HDC):
– Section 40 applies only to instruments originally payable to
a. receives the instrument complete and regular on its face
bearer

b. became a holder before it was overdue and had no notice that it

– It cannot apply where the instrument is payable to bearer
had been previously dishonored if such was the fact
because the only or last indorsement is in blank.

c. takes the instrument for value and in good faith

43. A holder may strike out any indorsement which is not necessary to
his title.
d. at time he took the instrument, no notice of infirmity in
instrument or defect in the title of the person negotiating it (Sec. 52
Effects:
NIL)
– An indorser whose indorsement is struck out is discharged
Notes on Section 52
– All indorsers subsequent to such indorser who has been
– every holder is presumed to be a HDC (Sec. 59)
discharged are likewise relieved. (Sec. 48 NIL)

– the person who questions such has the burden of proof to prove
44. Effects of a transfer without endorsement:
otherwise
– the transferee acquires such title as the transferor had
– if one of the requisites are lacking, the holder is not HDC
– the transferee acquires the right to have the indorsement of the
transferor
– an instrument is considered complete and regular on its face if – Legal or real defenses are those which attach to the instrument
a) the omission is immaterial b) the alteration on the instrument was itself and can be set up against the whole world, including a HDC.
not apparent on its face
Personal Defenses Real Defenses
– an instrument is overdue after the date of maturity.
1. absence or failure of
consideration Alteration
– on the date of maturity, the instrument is not overdue and the
holder is a HDC 2. want of delivery of Want of delivery of incomplete
complete instrument instrument
– acquisition of the transferee or indorsee must be in good faith
3. insertion of wrong date
– good faith means lack of knowledge or notice of defect or where payable at a fixed
period after date and issued
infirmity
undated; or at a fixed period
after sight and acceptance is
undated Duress amounting to forgery
47. A holder is not a HDC where an instrument payable on demand is 4. filling up the blanks
negotiated at an unreasonable length of time after its issue (Sec. 53 contrary to authority given or Fraud in factum or in esse
NIL) not within reasonable time contractus

48. Rights of a HDC:

5. fraud in inducement Minority
6. acquisition of the
– holds the instrument free from any defect of title of prior instrument by force, duress or
parties fear Marriage in case of a wife

– free from defenses available to prior parties among themselves 7. acquisition of the Insanity where the insane person
(personal/ equitable defenses) instrument by unlawful has a guardian appointed by the
means court
– may enforce payment of the instrument for the full amount Ultra vires acts of a corporation
against all parties liable(Sec. 57 NIL) 8. acquisition of the where its charter or by statue, it
instrument for an illegal is prohibited from issuing
Notes on Section 57 consideration commercial paper

– Personal or equitable defenses are those which grow out of the 9. negotiation in breach of
agreement or conduct of a particular person in regard to the instrument faith Want of authority of agent
which renders it inequitable for him through legal title to enforce it.
Can be set up against holders not HDC
 10. negotiation under Execution of – may receive payment and if it is in due course, the instrument is
circumstances amounting to instrument between public discharged
fraud enemies
– holds the instrument subject to the same defenses as if it were
Illegality of contract made by non-negotiable
1. Mistake statue
12. intoxication Forgery – if he derives his title through a HDC and is not a party to any
fraud or illegality thereto, has all the rights of such HDC
13. ultra vires acts of
corporations
14. want of authority of the
50. General rule: every holder is deemed prima facie to be a holder in
agent where he has apparent
authority due course.

15. illegality of contract Exception:

where form or consideration
is illegal – where it is shown that the title of any person who has
negotiated the instrument is defective, the burden is on the holder to
16. insanity where there is no
prove that he is a HDC or that a person under whom he claims is a HDC
notice of insanity
(Sec. 59 NIL)

49. A instrument not in the hands of a HDC is subject to the same 51. A maker is primarily liable:
defenses as if it were non-negotiable.
Effects of making the instrument, the maker:
Exception:
a. engages to pay according to tenor of instrument
– a holder who derives his title through a HDC and is not a party
to any fraud or illegality affecting the instrument, has all the rights of b. admits existence of payee and his capacity to indorse (Sec. 60
such HDC in respect to all parties prior. (Sec. 58 NIL) NIL)

Notes on Section 60

Rights of a holder not a HDC – a maker’s liability is primarily and unconditional

– may sue in his own name

– one who has signed as such is presumed to have acted with care By accepting the instrument, an acceptor:
and to have signed with full knowledge of its contents, unless fraud is
proved – engages that he will pay according to the tenor of his
acceptance
– the payee’s interest is only to see to it that the note is paid
according to its terms – admits the existence of the drawer, the genuineness of his
signature and his capacity and authority to draw the instrument
– when two or more makers sign jointly, each is individually liable
for the full amount even if one did not receive the value given – the existence of the payee and his then capacity indorse

– the maker is precluded from setting up the defense of a) the 54. Irregular Indorser – a person not otherwise a party to an
payee is fictional, b) that the payee was insane, a minor or a instrument places his signature in blank before delivery is liable as an
corporation acting ultra vires indorser in the following manner:
1. if payable to order of a third person – liable to the payee and to all
subsequent parties
2. if payable to order of the maker or drawer – liable to all parties
52. A drawer is secondarily liable subsequent to the maker or drawer
3. if payable to bearer – liable to all parties subsequent to the maker or
Effects of drawing the instrument, the drawer: drawer
4. if signs for an accommodation party – liable to all parties subsequent
1. admits the existence of the payee, to the payee (Sec. 64 NIL)
2. the capacity of such payee to indorse 55. Warranties where negotiating by delivery or qualified
3. engages that on due presentment, the instrument will be accepted
endorsement:
or paid or both according to its tenor.
1. the instrument is genuine and in all respect what it purports to be
2. the indorser has good title to it
If the instrument is dishonored, and the necessary proceedings on
3. all prior parties had the capacity to contract
dishonor duly taken
4. indorser has no knowledge of any fact that would impair the validity
or the value of the instrument.
1. the drawer will pay the amount thereof to the holder
2. will pay to any subsequent indorser who may be compelled to pay it. Limitations of warranties:
(Sec. 61 NIL)
-if by delivery – extends only to immediate transferee
Notes on Section 61
-warranty of capacity to contract does not apply to persons negotiating
– a drawer may insert an express stipulation to negative or limit
public or corporate securities (Sec. 65 NIL)
his liability
Notes on Section 65
53. An acceptor is primarily liable
– a qualified indorser is one who indorses without recourse or sans – engages that the instrument will be accepted or paid or both
recourse according to its tenor on due presentment

– recourse – resort to a person secondarily liable after default of – engages to pay the amount thereof if it be dishonored and the
person primarily liable necessary proceedings on dishonor are taken

– a qualified indorser cannot raise the defense of a) forgery b) Notes on Section 66

defect of his title or that it is void c) the incapacity of the maker,
drawer or previous indorsers. – the indorser under Section 66 warrants the solvency of a prior
party
– a qualified Indorsement makes the indorser mere assignor of
title of instrument, relieves him of general obligation to pay if – the indorser warrants that the instrument is valid and subsisting
instrument is dishonored, but he is still liable for the warranties arising regardless of whether he is ignorant of that fact or not.
from instrument only up to warranties of general indorser
– warranties extend in favor of a) a HDC b) persons who derive
– the warranty is to the capacity of prior parties at the time the their title from HDC c) immediate transferees even if not HDC
instrument was negotiated. Subsequent incapacity does not breach the
– the indorser does not warrant the genuineness of the drawer’s
warranty.
signature
– lack of knowledge of the indorser as to any fact that would
– general indorser is only secondarily liable
impair the validity or the value of the instrument must be subsisting all
throughout. 57. General rule: Presentment for payment is not necessary to charge
persons primarily liable on the instrument. Presentment for payment is
– a person Negotiating by Delivery warrants same as those of
necessary to charge the drawer and indorsers. (Sec 70 NIL)
qualified indorser and extends to immediate transferees only
Notes on Section 70
56. Warranties of a general indorser:
1. the instrument is genuine and in all respect what it purports to be
– presentation for payment – production of a BOE to the drawee
2. the he has good title to it
for his acceptance, or to a drawee or acceptor for payment. Also
3. all prior parties had the capacity to contract
presentment of a PN to the party liable for payment of the same.
4. that the instrument at the time of his indorsement was valid and
subsisting (Sec. 66 NIL)
– consists of a) a personal demand for payment at a proper place
b) the bill or note must be ready to be exhibited if required and
In addition:
surrendered upon payment.
– parties primarily liable – persons by the terms of the instrument – if the instrument is payable on demand – a) if it is a note –
are absolutely required to pay the same. E.g maker and acceptors. They presentment must be made within reasonable time after issue b) if it is
can be sued directly. a bill – presentment must be made within reasonable time after last
negotiation.
– if payable at the special place, and the person liable is willing
to pay there at maturity, such willingness and ability is equivalent to 59. Presentment not required to charge the drawer:
tender of payment. 1. he has no right to expect
2. he has no right to require
– presentment is necessary to charge persons secondarily liable
otherwise they are discharged that the drawee or acceptor will pay (Sec 79 NIL)

– Acts needed to charge persons secondarily liable: a) 60. Presentment not required to charge the indorser where:
presentment for payment/acceptance b) dishonor by non-payment/non- 1. the instrument was made or accepted for his accommodation
acceptance c) notice of dishonor to secondary parties 2. he has no reason to expect that the instrument will be paid if
presented (Sec. 80 NIL)
– Acts needed to charge persons secondarily liable in other cases:
a) Protest for non-payment by the drawee b) protest for non-payment
by the acceptor for honor
61. General rule: Presentment for payment necessary to charge
persons secondarily liable otherwise they are discharged:
58. Proper presentment:
1. by the holder or an authorized person
Exception:
2. at a reasonable hour on a business day
3. at a proper place
– Section 79 and 80
4. to the person primarily liable or if absent to any person found at the
place where presentment is made (sec. 72 NIL) Notes on Section 79 and 80
Notes on Section 72
– only the drawer or indorser are not discharged. All other parties
– only the holder or one authorized by him has the right to make secondarily liable are discharged.
presentment for payment
62. Presentment for payment excused if:
– presentment cannot be made on a Sunday or holiday
a. after due diligence, presentment cannot be made
– presentment for payment is made to the maker, or acceptor.
Not to the person secondarily liable. b. presentment is waived

c. the drawee is a fictitious person (Sec 82 NIL)

 Notes on Section 82 – an immediate right of recourse to all parties secondarily liable
accrues to the holder. (Sec. 84 NIL)
– what is excused is the failure to make presentment. There is no
need to make any presentment versus under section 81 (delay in Notes on Section 84
presentment) presentment for payment is still required after the cause
of delay has ceased. – parties cease to be secondarily liable and become principal
debtors.

– Liability becomes the same as that of the original obligors.

63. Summary of rules as to presentment for payment:
66. Requisites for payment in due course:
1. presentment not necessary to charge persons primarily liable 1. made at or after the maturity of the instrument
2. necessary to charge persons secondarily liable except: 2. to the holder
3. in good faith
– the drawer under Sec. 79 4. without notice of any defect in the holder’s title (sec. 88 NIL)
Notes on Section 88
– the indorser under Sec. 80
– payment must be made to the possessor of the instrument
– when excused under Sec. 82
– possession of the note by the maker is presumptive evidence
– when the instrument has been dishonored by non-acceptance
that it has been paid
under Sec. 83
67. Notice of Dishonor may be given:
1. by or on behalf or the holder
2. by or on behalf of any party who:
64. How dishonored by non-acceptance:
– is a party to the instrument and might be compelled to pay the
– the instrument was duly presented but payment is refused or
instrument
cannot be obtained
– to a holder who having taken it up would have a right of
– presentment is excused and the instrument is overdue and
reimbursement from the party to whom notice is given. (Sec. 90 NIL)
unpaid (Sec. 83 NIL)
68. Notice:
1. may be written or oral (Sec. 96)
2. written notice need not be signed or may be supplemented by verbal
65. Effects of dishonor by non-payment:
communication (Sec. 95)
3. may be by personal delivery or by mail (Sec. 96)
69. Notice may be waived either expressly or implied: b. drawee is a fictitious/incapacitated person
1. before the time of giving notice has arrived
2. after the omission to give due notice (Sec. 109 NIL) c. drawer is the person to whom presentment for payment is made
70. Protest may be waived:
d. drawer has no right to expect that the drawee will accept/pay
Effects: the instrument (Sec. 114 NIL)

– deemed a waiver of presentment and notice of dishonor as well 73. Instances when Notice Not Required to Indorser
(Sec. 111 NIL)
a. drawee was a fictitious/incapacitated person and the indorser
Notes on Section 111 was aware of such at the time of indorsement

– Where notice is waived, presentment is not waived b. indorser is the person to whom instrument was presented for
payment
– Where presentment is waived, notice is also waived
c. instrument made/accepted for his accommodation (Sec. 115 NIL)
– Where protest is waived, notice and presentment is waived
74. Omission to give notice of dishonor by non-acceptance doe not
71. Notice of Dishonor – given by the holder to the parties secondarily prejudice a HDC (Sec. 117 NIL)
liable, drawer and each indorser, that the instrument was dishonored
by non-acceptance or non-payment by the drawee/maker 75. Protest only necessary for a foreign bill of exchange. Protest for
other negotiable instruments is optional. (Sec. 118 NIL)
General rule: Any drawer or indorser to whom such notice is not given is
discharged. 76. Causes of Discharge of the Instrument

Exceptions: a. payment by the debtor

1. Waiver (Sec. 109) b. payment by accommodated party

2. Notice is dispensed (Sec. 112)
3. Not necessary to Drawer (Sec. 114) c. intentional cancellation by holder of instrument
4. Not necessary to Indorser (Sec. 115)
d. any other act discharging a simple monetary obligation
– if notice is delayed, delay may be excused (Sec. 113)
e. debtor becomes holder of the instrument at/after maturity in his
72. Instances when Notice of Dishonor Not Necessary to Drawer own right ( Sec 119 NIL)

a. drawer and drawee same person Notes on Section 119

– discharge of the instrument discharges all the parties thereto – the party may negotiate the instrument again

– payment must be in due course, and by the principal debtor or Exception:

on his behalf
– an instrument cannot be renegotiated where it is payable to
– if payment is not made by the principal debtor, payment only order of a 3rd person and has been paid by the drawer
cancels the liability of the payor and those obligated after him but does
not discharge the instrument. – and instrument cannot be renegotiated where is was made or
accepted for accommodation and it has been paid by the party
– payment by an accommodation party does not discharge the accommodated.
instrument.
78. Renunciation by a holder discharges an instrument when:
77. Discharge of Secondary Parties: 1. it is absolute and unconditional
2. made in favor of a person primarily liable
a. any act discharging the instrument 3. made at or after maturity of the instrument
4. in writing or the instrument is delivered up to the person primarily
b. cancellation of indorser’s signature by indorsers liable (Sec. 122 NIL)
Notes on Section 122
c. discharge of prior party
– if renounced in favor of a party secondarily liable, only he is
d. tender of payment by prior party
exonerated from liability and all parties subsequent to him

e. release of principal debtor

– discharge by novation is allowed

f. extension of payment by the holder/postponement of right to

79. General rule: When materially altered, without the consent of all
enforce without assent of secondary parties and without reservation of
parties liable, the instrument is avoided except as against:
right of recourse against secondary parties (Sec 120 NIL)
1. the party who has made the alteration
78. Rights of a party secondarily liable who pays: 2. the party who authorized or assented to the alteration.
3. subsequent indorsers
– the instrument is not discharge
Exception:
– the party is remitted to his former rights as to all prior parties
– if in the hands of a HDC, may be enforced according to its
– the party may strike out his own and all subsequent
original tenor
indorsements
Notes on Section 124
– there is no distinction between fraudulent and innocent – signed by the drawee
alteration
– must not express the drawee will perform his promise by any
80. Material Alteration – an alternation is said to be material if it other means than payment of money
alters the effect of the instrument.
– communicated or delivered to the holder
Under Section 125 the following changes are considered material
alterations: 7. A holder has the right:
1. require that acceptance be written on the bill and if refused, treat it
1. dates as if dishonored (Sec. 133)
2. the sum payable 2. refuse to accept a qualified acceptance and may treat it as
3. time and place of payment dishonored (Sec. 142)
4. number or relations of the parties 8. Constructive Acceptance:
5. medium or currency for payment 1. where the drawee to whom the bill has been delivered destroys it
6. adding a place of payment where no place is specified 2. the drawee refuses within 24 hrs after such delivery or within such
7. any other which alters the affect of the instrument time as is given, to return the bill accepted or not. (Sec. 137
81. Instances where a BOE may be treated as a PN: NIL)
1. where the drawer and the drawee are one and the same Notes on Section 137
2. where the drawee is a fictitious person
3. where the drawee has no capacity to contract (Sec. 130 NIL) – drawee becomes primarily liable as an acceptor.

The holder has the option to treat it as a BOE or a PN – mere retention is equivalent to acceptance

9. When presentment for acceptance is necessary:

1. if necessary to fix the maturity of the bill
82. Acceptance is the signification by the drawee of his assent to the 2. if it is expressly stipulated that it shall be presented for acceptance
order of the drawer. It is an act by which a person on whom the BOE is 3. if the bill is drawn payable elsewhere than the residence or place of
business of the drawee (Sec. 143 NIL)
drawn assents to the request of the drawer to pay it. (Sec. 132 NIL)
Notes on Section 143
Acceptance may be:
1. actual – Presentment is the production of a BOE to the drawee for his
2. constructive acceptance
3. general (Sec. 140)
4. qualified (Sec. 141) – in on order case is presentment necessary to make parties
Requisites of actual acceptance: liable.

– in writing 90. Summary on presentment for acceptance of Bills of Exchange:

a. to make the drawee primarily liable and for the accrual of – it must be made on the same date of dishonor, by a
secondary liability (Sec. 144) notary/respectable citizen of the place in the presence of 2 credible
witnesses so recourse to secondary parties
b. necessary to fix maturity date, where bill expressly stipulates
presentment, bill payable other than place of drawee (Sec. 143) 1. Acceptance for Honor (Sec. 161 NIL)– an acceptance of a bill made
by a stranger to it before maturirty, where the drawee of the bill
c. when presentment is excused: drawee is dead, hides, is has:
fictitious, incapacitated person, after due diligence presentment 1. refused to accept it
cannot be made, presentment is refused on another ground although 2. and the bill has been protested for non-acceptance
presentment is irregular (Sec. 148) 3. or where the bill has been protested for better security
Requisites for acceptance for honor:
1. General rule: Protest is required only for foreign bills
– the bill must have been previously protested a) for non-
Exception: acceptance b) or for better security

– inland bills and notes may also be protested if desired – the bill is not overdue at the time of the acceptance for honor

Protest is required: – the acceptor for honor must be a stranger to the bill
1. where the foreign bill is dishonored by non acceptance
2. where the foreign bill is dishonored by non-payment – the holder must give his consent
3. where the bill has been accepted for honor, it must be protested for
non-payment before it is presented for payment to the acceptor for Notes on Acceptance for Honor
honor
4. where the bill contains a referee in case of need, it must be – Purpose: to save the credit of the parties to the instrument or
protested for non payment before presentment for payment to the some party to it as the drawer, drawee, or indorser or somebody else.
referee in case of need (Sec. 152)
Notes on Section 152 – Acceptor for honor is liable to the holder and to all the parties
to the bill subsequent to the party for whose honor he has accepted
– Protest – formal statement in writing made by a notary under his (Sec. 164)
seal of office at the request of the holder, in which it is declare that
2. How acceptance for honor is made:
the some was presented for payment or acceptance (as the case may
1. in writing and indicated that it is an acceptance for honor
be) and such was refused.
2. signed by the person making the acceptance (Sec. 162 NIL)
– it means all steps or acts accompanying the dishonor of a bill or
note necessary to charge an indorser

– required when the instrument is a foreign bill of exchange.

 3. Payment for Honor – payment made through a notarial act of honor
Posted by Magz
of a party liable/stranger to the bill after bill has been dishonored
by non-payment by the acceptor and protested for non-payment by NEGOTIABLE INSTRUMENTS LAW
the holder
Memory Aid
Requisites: Based on the Outline of the 1994 Edition of
Campos & Campos
a. protest for non-payment
DISCHARGE
b. any person may pay supra protest 1. Of the Instrument
2. payment in due course by or on behalf of principal debtor
Form for payment of honor:  Payment in due course:
1. payment must be attested by notarial act appended to the protest, 1. made at or after maturity
or form an extension to it. 2. to the holder thereof
2. notarial act of honor must be based on a declaration by the payer for 3. in good faith and without notice that his title is defective
honor 4. payment in due course by party accommodated where party is
made/ accepted for accommodation
5. intentional cancellation by holder
 if unintentional or under mistake or without authority of holder,
4. Bills in Set – bill of exchange drawn in several parts, each part of the inoperative. Burden of proof on party which alleges it was
set being numbered and containing a reference to the other parts, unintentional, etc.
the whole of the parts just constituting one bill (Sec 178 NIL) 1. any other act which discharges a simple contract
2. principal debtor becomes holder of instrument at or after maturity
in his own right
3. renunciation of holder:
Source:
 holder may expressly renounce his rights vs. any party to the
Commercial Law Memory Aid
instrument, before or after its maturity
Negotiable Instruments Law
 absolute and unconditional renunciation of his rights vs. principal
Ateneo Central Bar Operations 2001 debtor made at or after maturity discharges the instrument
REPORT THIS AD

 renunciation does not affect rights of HDC w/o notice.

Posted in Commercial Law, Negotiable Instruments Law  Renunciation must be in writing unless instrument delivered up to
person primarily liable thereon
5 Comments
1. material alteration (sec. 124: material alteration w/o assent of all
Tags: commecial law, commlaw, negotiable instruments law
parties liable avoids instrument except as against party to alteration
Negotiable Instruments Law – Discharge and subsequent indorsers)

DEC 19
 1. Of secondary parties Tags: Negotiable Instruments Law - Discharge
2. any act which discharges the instrument
3. intentional cancellation of signature by holder Negotiable Instruments Law – Liabilities
4. discharge of prior party of Parties
5. valid tender of payment made by prior party
6. release of principal debtor, unless holder’s right of recourse vs. DEC 19
2ndary party reserved
7. any agreement binding upon holder to extend time of payment, or to Posted by Magz
postpone holder’s right to enforce instrument, unless made with NEGOTIABLE INSTRUMENTS LAW
assent of party secondarily liable, or unless right of recourse
Memory Aid
reserved.
8. Failure to make due presentment (sec. 70, 144) Based on the Outline of the 1994 Edition of
9. failure to give notice of dishonor Campos & Campos
10. certification of check at instance of holder
LIABILITIES OF PARTIES
11. reacquisition by prior party
1. PRIMARY PARTIES
 where instrument negotiated back to a prior party, such party may
 Person primarily liable: person who by the terms of the instrument is
reissue and further negotiate, but not entitled to enforce payment
absolutely required to pay the same.
vs. any intervening party to whom he was personally liable
 Sec. 70 (effect of want of demand on principal debtor)
 where instrument is paid by party secondarily liable, it’s not
discharged, but
1. the party so paying it is remitted to his former rights as regard to all
prior parties
1. Liability of Maker
2. and he may strike out his own and all subsequent indorsements, and
2. Promises to pay it according to its tenor
again negotiate instrument, except
3. admits existence of payee and his then capacity to indorse
 where it’s payable to order of 3rd party and has been paid by drawer
 where it’s made/accepted for accommodation and has been paid by
party accommodated.
1. Status of drawee prior to acceptance or payment
 sec. 127 (bill not an assignment of funds in hands of drawee)
 sec. 189 (when check operates as assignment)
Reference: University of the Philippines
BarOps ’99 1. Liability of Acceptor
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel  Promises to pay inst according to its tenor
Ramos  Admits the following:
Posted in Negotiable Instruments Law 1. existence of drawer
2. genuineness of his signature
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 3. his capacity and authority to draw the instrument 4. Engages that on due presentment instrument will be accepted, or
4. existence of payee and his then capacity to endorse paid, or both, according to its tenor and that
 sec. 191, 132, 133, 138 — formal requisites of acceptance 5. If it be dishonored, and the necessary proceedings on dishonor be
 sec. 136, 137, 150 — constructive acceptance duly taken, he will pay the amount thereof to the holder or to an
 sec. 134, 135 — acceptance on a separate instrument subsequent indorser who may be compelled to pay it
 Kinds of Acceptance:
1. general
2. qualified
1. conditional  drawer may insert in the instrument an express stipulation
2. partial negativing / limiting his own liability to holder
3. local 1. Liability of Indorsers:
4. qualified as to time  Qualified Indorser and one Negotiating by Delivery
5. not all drawees 1. Instrument genuine, in all respects what it purports to be
2. good title
3. all prior parties had capacity to contract
4. he had no knowledge of any fact w/c would impair validity of
* sec. 142 (rights of parties as to qualified acceptance) instrument or render it valueless
 in case of negotiation by delivery only, warranty only extends in
 Certification: Principles favor of immediate transferee
1. when check certified by bank on which it’s drawn, equivalent to
acceptance
2. where holder of check procures it to be accepted/certified, drawer
and all indorsers discharged from al liability  Liability of a General or Unqualified Indorser
3. check not operate as assignment of any part of funds to credit of 1. instrument genuine, good title, capacity of prior parties
drawer with bank, and bank is not liable to holder, unless and until 2. instrument is at time of indorsement valid and subsisting
it accepts or certifies check 3. on due presentment, it shall be accepted or paid, or both, according
4. certification obtained at request of drawer: secondary parties not to tenor
released 4. if it be dishonored, and necessary proceedings on dishonor be duly
5. bank which certifies liable as an acceptor taken, he will pay the amt. To holder, or to any subsequent indorser
6. checks cannot be certified before payable who may be compelled to pay it

1. SECONDARY PARTIES  Order of Liability among Indorsers

2. Liability of Drawer 1. among themselves: liable prima facie in the order they indorse, but
3. Admits existence of payee and his then capacity to endorse proof of another agreement admissible
2. but holder may sue any of the indorsers, regardless of order of  Signature of any party may be made by duly authorized agent,
indorsement establish as in ordinary agency
3. joint payees/indorsees deemed to indorse jointly and severally  Where instrument contains or a person adds to his signature words
indicating that he signs for or on behalf of a principal, he is not
liable on the instrument if he was duly authorized, but the mere
addition of words describing him as an agent without disclosing his
1. Liability of Accomodation Party principal, does not exempt from personal liability.
 Definition: one who signed instrument as maker/drawer/acceptor/  Signature per procuration operates as notice that the agent has but
indorser w/o receiving value thereof, for the purpose of lending his a limited authority to sign, and the principal is bound on ly in case
name to some other person the agent in so signing acted within the actual limits of his authority
 AP liable on the instrument to holder for value even if holder, at  Where a broker or agent negotiates an instrument without
time of taking instrument, knew he was only an AP indorsement, he incurs all liabilities in Sec. 65, unless he discloses
 Liability of Irregular Indorser name of principal and fact that he’s only acting as agent
 Where a person not otherwise a party to an instrument,
places thereon his signature in blank before delivery, he’s I. Presentment For Acceptance
liable as an indorser, in accordance w/ these rules:
1. Instrument payable to order of 3rd person: liable to payee and to all When presentment for acceptance must be made
subsequent parties
2. Instrument payable to the order of maker/drawer, or payable to 1. bill payable after sight, or in other cases where presentment for
bearer: liable to all parties subsequent to maker/drawer acceptance necessary to fix maturity
3. Signs for accommodation of payee, liable to all parties subsequent to 2. where bill expressly stipulates that it shall be presented for
payee acceptance
 Sadaya v Sevilla Rules: 3. where bill is drawn payable elsewhere than at residence / place of
1. a joint and several accommodation maker of a negotiable promissory business of drawee
note may demand from the principal debtor reimbursement for the
amt. That he paid to the payee When failure to present releases drawer/indorser
2. a joint and several accommodation maker who pays on the said
promissory note may directly demand reimbursement from his co- Failure to present for acceptance of negotiate bill of exchange within
accommodation maker without first directing his action vs. the reasonable time
principal debtor provided:
1. he made the payment by virtue of a judicial demand
2. or the principal debtor is insolvent
Reasonable Time

Must consider
1. Liability of an Agent
1. nature of instrument
 2. usage of trade or business with respect to instrument  Check must be presented for payment within reasonable time after
3. facts of each case its issue or drawer will be discharged from liability thereon to extent
of loss caused by delay

How and When Made Sec. 145, 146, 147

Delay excused Sec. 81
When Excused Sec. 148
Manner Sec. 74, 72, 75

Place Sec. 73
Dishonor and Effects
 sec. 149 (when dishonored by non-acceptance) To Whom Sec. 72, 76, 77, 78
 sec. 150 (duty of holder where bill not accepted)
 sec. 151 (rights of holder where bill not accepted) Dishonor by nonpayment Sec. 83, 84
 sec. 89 (to whom notice of dishonor must be given)
 sec. 117 (effect of omission to give notice of non-acceptance)
II. For Payment
Notice of Dishonor
Where necessary Sec. 70
General rule: to drawer and to each indorser, and any drawer or
Where not necessary Sec. 79, 80, 82, 151, 111 indorser to whom such notice is not given is discharged

Date and time of presentment of instrument bearing fixed maturity Sec.

71, 85, 86, 194
Form, Contents, Time Sec. 95, 96, 102, 103, 104, 105, 106, 108, 113

Date of presentment
By Whom Given
 Where instrument not payable on demand: presentment must be
 By or on behalf of the holder or any party to the instrument who may
made on date it falls due
be compelled to pay it to the holder, and who, upon taking it up,
 Where payable on demand: presentment must be made within
would have a right to reimbursement from the party to whom the
reasonable time after issue, except that in case of a bill of
notice is given
exchange, presentment for payment will be sufficient if made within
 Notice of dishonor may be given by an agent either in his own name
a reasonable time after last negotiation (but note: though
or in the name of any party entitled to give notice, whether that
reasonable time from last negotiation, it may be unreasonable time
party be his principal or not
from issuance thus holder may not be HDC under sec. 71)
  Where instrument has been dishonored in hands of agent, he
may either himself give notice to the parties liable thereon,
or he may give notice to his principal (as if agent an Protest
independent holder) Definition: testimony of some proper person that the regular legal steps
to fix the liability of drawer and indorsers have been taken

In whose favor notice operates

1. when given by/on behalf of holder: insures to benefit of When necessary: sec. 152,
1. all subsequent holders and
2. all prior parties who have a right of recourse vs. the party to Form and contents: sec. 153
whom it’s given
2. where notice given by/on behalf of a party entitled to give notice: By whom made: sec. 154
insures for benefit of a. holder , and
Time and Place: sec. 155, 156
b. all parties subsequent to party to whom notice given
For better security: sec. 158

Excused: sec. 159

Waiver Sec. 109, 110
Waiver: sec. 111
Where not necessary to charge drawer
1. drawer/drawee same person
2. drawee fictitious, incapacitated
3. drawer is person to whom instrument is presented for payment Acceptance for Honor
4. drawer has no right to expect/require that drawee/acceptor will
Sec. 161, 131, 171
honor instrument
5. drawer countermanded payment

Bills in Set: 178-183

Where not necessary to charge indorser
1. drawee fictitious, incapacitated, and indorser aware of the fact at
time of indorsement
Reference: University of the Philippines
2. indorser is person to whom instrument presented for paymt
BarOps ’99
3. instrument made/accepted for his accommodation
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel
Ramos
Posted in Negotiable Instruments Law unless the party against whom it is sought to enforce such right is
precluded from setting up forgery/want of authority
2 Comments
Tags: Negotiable Instruments Law - Liabilities of Parties precluded:

Negotiable Instruments Law – Defenses 1. parties who make certain warranties, like a general indorser or
and Equities acceptor
2. estopped/negligent parties
DEC 19 * note rules on Acceptance/Payment Under Mistake as applied to:
1. 1. overdraft
Posted by Magz
2. 2. stop payment order
NEGOTIABLE INSTRUMENTS LAW 3. 3. forged indorsements
Memory Aid
1. MATERIAL ALTERATION
Based on the Outline of the 1994 Edition of  Where NI materially altered w/o assent of all parties liable thereon,
Campos & Campos avoided, except as vs. a
DEFENSES AND EQUITIES 1. party who has himself made, authorized or assented to alteration
KINDS OF DEFENSES 2. and subsequent indorsers.
1. real defense – attaches to instrument; on the principle that the right  But when an instrument has been materially altered and is in the
sought to be enforced never existed/there was no contract at all hands of a HDC not a party to the alteration, HDC may enforce
2. personal defense – growing out of agreement; renders it inequitable payment thereof according to orig. tenor
to be enforced vs. defendant  Material Alteration
1. change date
DEFENSES
2. sum payable, either for principal or interest
1. INCAPACITY: real; indorsement/assign by corp/infant: passes
3. time of payment
property but corp/infant no liability
4. number/relations of parties
1. ILLEGALITY: personal, even if no K because void under CC 1409
5. medium/currency of payment, adds place of payment where none
1. FORGERY: real (lack of consent):
specified, other change/addition altering effect of instrument in any
1. forged
respect.
2. made without authority of person whose signature it purports
to be.
*material alteration a personal defense when used to deny liability
General Rule: according to org. tenor of instrument, but real defense when relied on
1. wholly inoperative to deny liability according to altered terms.
2. no right to retain instrument, or give discharge, or enforce payment 1. FRAUD
vs. any party, can be acquired through or under such signature 2. fraud in execution: real defense (didn’t know it was NI)
(unless forged signature unnecessary to holder’s title) 3. fraud in inducement: personal defense (knows it’s NI but deceived as
Exception: to value/terms)
 1. DURESS Tags: Negotiable Instruments Law - Defenses and Equities
 Personal, unless so serious as to give rise to a real defense for lack
of contractual intent Negotiable Instruments Law – Holder in
1. COMPLETE, UNDELIVERED INSTRUMENT Due Course
 Personal defense (sec. 16)
 If instrument not in poss. Of party who signed, delivery prima facie DEC 19
presumed
 If holder is HDC, delivery conclusively presumed Posted by Magz
1. INCOMPLETE, UNDELIVERED INSTRUMENT NEGOTIABLE INSTRUMENTS LAW
 Real defense (sec. 15)
Memory Aid
 Instrument will not, if completed and negotiated without authority,
be a valid contract in the hands of any holder, as against any person Based on the Outline of the 1994 Edition of
whose signature was placed thereon before delivery Campos & Campos
10. INCOMPLETE, DELIVERED
HOLDER IN DUE COURSE
 Personal defense (sec. 14)
HOLDER
 2 Kinds of Writings:
1. Where instrument is wanting in any material particular: person in
Sec. 191
possession has prima facie authority to complete it by filing up
blanks therein
RIGHTS OF HOLDER
2. Signature on blank paper delivered by person making the signature in
1. sue thereon in his own name
order that the paper may be converted into a NI: prima facie
2. payment to him in due course discharges instrument
authority to fill up as such for any amount
 In order that any such instrument, when completed, ma be enforced
vs. any person who became a party thereto prior to its completion:
1. must be filled up strictly in accordance w/ authority given HOLDER IN DUE COURSE: REQUISITIES
2. within a reasonable time 1. complete and regular upon its face
 but if any such instrument after completion is negotiated to HDC,  sec. 124 (effect of alteration)
it’s valid for all purposes in his hands, he may enforce it as if it had  sec. 125 (what constitute material alterations)
been filled up properly. 1. holder became such before it was overdue, without notice of any
Reference: University of the Philippines previous dishonor
BarOps ’99  sec. 53 (demand inst. nego after unreasonable length of time: not
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel HDC)
Ramos  sec. 12 (effect antedating/postdating)
Posted in Negotiable Instruments Law 1. taken in good faith and for value
 sec. 24 (presumption of consideration)
Leave a comment  sec 25 (definition. of value)
  sec. 26 (definition. holder for value)  but when shown that title of any person who has negotiated
 sec. 27 (lien as value) instrument was defective (sec. 55—when title defective): burden
1. at time negotiated to him, he had no notice (sec. 56-def; 54-notice reversed (now with holder)
before full amt. paid) of —  but no reversal if party being made liable became bound prior to
1. infirmity in instrument acquisition of defective title (i.e., where defense is not his own)
2. defect in title of person negotiating
1. instrument/signature obtained through fraud, etc.,
illegal consideration/means, or
2. instrument negotiated in breach of faith, or fraudulent Reference: University of the Philippines
circumstances BarOps ’99
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel
Ramos
Posted in Negotiable Instruments Law
RIGHTS OF HOLDER IN DUE COURSE:
1. holds instrument free of any defect of title of prior parties Leave a comment
2. free from defenses available to prior parties among themselves Tags: Negotiable Instruments Law - Holder in Due Course
3. may enforce payment of instrument for full amount, against all
parties liable Negotiable Instruments Law – Transfer
DEC 19

Posted by Magz
* if in the hand of any holder (note definition of holder) other than a
HDC, vulnerable to same defenses as if non-negotiable NEGOTIABLE INSTRUMENTS LAW
Memory Aid

Based on the Outline of the 1994 Edition of

RIGHTS OF PURCHASER FROM HOLDER IN DUE COURSE: Campos & Campos
General Rule: in the hands of any holder other than a HDC, NI is subject
TRANSFER
to same defenses as if it were non-negotiable.
DELIVERY
Exception: holder who derives title through HDC and who is not himself  NI incomplete and revocable until delivery for the purpose of giving
a party to any fraud or illegality has all rights of such former holder in effect thereto
respect to all parties prior to the latter.  as between
1. immediate parties
2. a remote party other than holder in due course

WHO DEEMED HDC

 prima facie presumption in favor of holder
delivery, to be effectual, must be made by or under the authority of 3. Blank – specifies no indorsee, instrument so indorsed is payable to
the party making/drawing/accepting/indorsing bearer, and may be negotiated by delivery
 the holder may convert a blank indorsement into a special
 in such case delivery may be shown to have been conditional, or for indorsement by writing over the signature of the indorser in blank
a special purpose only, and not for the purpose of transferring the any contract consistent with the character of the indorsement
property in the instrument.
PRESUMPTION OF DELIVERY
Where the instrument is no longer in the possession of a party whose
1. as to kind of title transferred
signature appears thereon, a valid and intentional delivery by him is
2. restrictive
presumed until the contrary is proved (*if in the hands of a HDC,
 prohibits further negotiation of instrument,
presumption conclusive)
 constitutes indorsee as agent of indorser, or
NEGOTIATION  vests title in indorsee in trust for another
 When an instrument is transferred from one person to another as to  rights of indorsee in restrictive ind.:
constitute the transferee the holder thereof.  receive payment of inst.
 If payable to BEARER, negotiated by delivery; if payable to ORDER,  Bring any action thereon that indorser could bring
negotiated by indorsement of holder + delivery  Transfer his rights as such indorsee, but all subsequent
INDORSEMENT indorsees acquire only title of first indorsee under restrictive
 Indorser generally enters into two contracts: indorsement
1. sale or assignment of instrument 1. non-restrictive
2. to pay instrument in case of default of maker
 Sec. 31 (how indorsement made)
 Sec. 41 (where payable to two or more)
 Sec. 43 (indorsement where name misspelled) 1. as to kind of liability assumed by indorser
 Sec. 48 (cancellation of indorsement) 2. qualified-constitutes indorser as mere assignor of title (eg. “without
 Sec. 45, 46 (presumptions) recourse”)
 Indorsement must be of entire instrument. (can’t be indorsement of 3. unqualified
only part of amount payable, nor can it be to two or more indorsees
severally. But okay to indorse residue of partially paid instrument)
 Sec. 67 (liability of indorser where paper negotiable by delivery)
1. as to presence/absence of express limitations put by indorser upon
 Sec. 63 (when person deemed indorser)
primary obligor’s privileges of paying the holder
KINDS OF INDORSEMENT
2. conditional – additional condition annexed to indorser’s liability.
1. as to manner of future method of negotiation
 Where an indorsement is conditional, a party required to pay the
2. special – specifies the person to whom/to whose order the
instrument may disregard the condition, and make payment to the
instrument is to be payable; indorsement of such indorsee is
indorsee or his transferee, whether condition has been fulfilled or
necessary to further negotiation.
not
  Any person to whom an instrument so indorsed is negotiated will
Posted by Magz
hold the same/proceeds subject to rights of person indorsing
conditionally NEGOTIABLE INSTRUMENTS LAW
1. unconditional
Memory Aid

Based on the Outline of the 1994 Edition of

Campos & Campos
INDORSEMENT OF BEARER INST.
 Where an instrument payable to bearer is indorsed specially, it may NEGOTIABILITY
nevertheless be further negotiated by delivery
REQUISITES
 Person indorsing specially liable as indorser to only such holders as
1. 1. in writing and signed by maker or drawer
make title through his indorsement
 no person liable on the instrument whose signature does not appear
UNINDORSED INSTRUMENTS
thereon ( subject to exceptions)
 Where holder of instrument payable to his order transfers it for
 one who signs in a trade or assumed name liable to the same extent
value without indorsing, transfer vests in transferee
as if he had signed in his own name
1. such title as transferor had therein
 signature of any party may be made by a duly authorized agent, no
2. right of tranferee to have indorsement of transferor
particular form of appt. necessary
 for purposes of determining HDC negotiation effective upon actual
indorsement
1. unconditional promise or order to pay
 unqualified order or promise to pay is unconditional though coupled
with
Reference: University of the Philippines 1. an indication of a particular fund out of which reimbursement to be
BarOps ’99 made, or a particular account to be debited with amount, or
1. a statement of the transaction which gives rise to the
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel
instrument
Ramos
 an order or promise to pay out of a particular fund is not
unconditional
Posted in Negotiable Instruments Law
a sum certain in money
Leave a comment  even if stipulated to be paid—
Tags: Negotiable Instruments Law - Transfer 1. with interest, or
2. by stated installments, or
Negotiable Instruments Law 3. by stated installments with a provision that upon default in payment

– Negotiability of any installment/interest, the whole shall become due, or

4. with exchange, whether at a fixed rate or at the current rate, or
DEC 19 5. with costs of collection or an attorney’s fee, in case payment not
made at maturity
  when expressed to be so payable
1. 3. payable on demand,  when payable to person named therein or bearer
 when expressed to be payable on demand, or at sight, or on  when payable to order or fictitious/non-existent person, and such
presentation; fact known to the person making it so payable, or
 when no time for payment expressed, or  when name of payee doesn’t purport to be the name of any person,
 where an instrument is issued, accepted or indorsed when overdue, or
it is, as regards the person so issuing, accepting, or indorsing it,  when the only/last indorsement is in blank
payable on demand 1. 5. where addressed to drawee: such drawee named/ indicated
therein with reasonable certainty
 bill may be addressed to two or more drawees jointly, whether
or at a fixed or determinable future time partners or not, but not to two or more drawees in the alternative or
in succession
 when it’s expressed to be payable at a fixed period after date or  bill may be treated as a PN, at option of holder, where
sight, or 1. drawer and drawee are same person
 on or before a fixed or determinable future time fixed therein, or 2. drawee is fictitious/incapacitated
 on or at a fixed period after the occurrence of a specified event EFFECT OF ADDITIONAL PROVISIONS
which is certain to happen, though the time of happening be
uncertain Gen. Rule: order/promise to do any act in addition to the payment of
 an instrument payable upon a contingency not negotiable, and money renders instrument non-negotiable.
happening of event doesn’t cure it
* relate to sec. 11 ( presumption as to date) and sec. 17 (construction Exception: negotiability not affected by provisions w/c
where instrument ambiguous)
* note effect of acceleration provisions, p. 30 Campos 1. authorize sale of collateral security if instrument not paid at
maturity
* note effect of provisions extending time of payment, p. 40 Campos
2. authorize confession of judgment…
3. waives benefit of any law intended for advantage/protection of
1. 4. payable to order
obligor
 where it is drawn payable to the order of a specified person or to
4. give holder election to require something to be done in lieu of
him or his order. May be drawn payable to order of —
money
 when the instrument is payable to order the payee must be named
CONTINUATION OF NEGOTIABLE CHARACTER
or otherwise indicated therein with reasonable certainty
1. a payee not the maker/drawer/drawee, or
Until
2. drawer or maker, or
3. drawee, or 1. restrictively indorsed
4. two or more payees jointly, or 2. discharged by payment or otherwise
5. holder of an office for time being
Reference: University of the Philippines
or bearer,
BarOps ’99
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel BILL OF EXCHANGE
Ramos  unconditional order in writing addressed by one person to
Posted in Negotiable Instruments Law another signed by the person giving it
 requiring the person to whom it’s addressed to pay on demand or at
5 Comments
a fixed or determinable future time a sum certain in money to order
Tags: Negotiable Instruments Law - Negotiation
or to bearer
Negotiable Instruments Law – Definitions  check: bill of exchange drawn on a bank payable on demand. Kinds
of checks:
DEC 19 1. personal check
2. manager’s/cashier’s check – drawn by a bank on itself. Issuance has
Posted by Magz the effect of acceptance
NEGOTIABLE INSTRUMENTS LAW 3. memorandum check – “memo” is written across its face, signifying
that drawer will pay holder absolutely without need of presentment
Memory Aid
4. crossed check –
Based on the Outline of the 1994 Edition of  effects:
Campos & Campos 1. check may not be encashed but only deposited in bank
2. may be negotiated only once, to one who has an acct. with a bank
DEFINITIONS 3. warning to holder that check has been issued for a definite purpose
NEGOTIABLE INSTRUMENT so that he must inquire if he received check pursuant to such
 Written contract for the payment of money, by its form intended as purpose, otherwise not HDC
substitute for money and intended to pass from hand to hand to give  kinds:
the holder in due course the right to hold the same and collect the 1. general (no word between lines, or “co” between lines)
sum due 2. special (name of bank appearing between parallel lines)

PROMISSORY NOTE BEARER

 unconditional promise in writing made by one person to another
Person in possession of a bill/note payable to bearer
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 HOLDER
until indorsed by him
Payee or indorsee of a bill or note who is in possession of it, or the
bearer thereof.
THE LIFE OF A NEGOTIABLE INSTRUMENT:
1. issue
2. negotiation
3. presentment for acceptance in certain bills
4. acceptance
5. dishonor by on acceptance
6. presentment for payment
7. dishonor by nonpayment
8. notice of dishonor
9. protest in certain cases
10. discharge

Reference: University of the Philippines

BarOps ’99
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel
Ramos