NEGOTIABLE INSTRUMENTS NOTES

BASED ON AGBAYANIS BOOK AND ATTY. MERCADOS LECTURES

Page 103 of 190


BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
3. Payment must be made by the debtor in good faith and without
notice that his title is defective
If payment is made before maturity, it would constitute a negotiation
back to the person primarily liable and he can renegotiate it. Payment
doesnt discharge the instrument.
Payment to indorsee who is not in possession of the instrument is not
payment to a person other than the holder is at the risk of the party so
paying if the person wasnt authorized by the holder to receive
payment. So also, the payment to the original payee after the note
had been transferred by him to a holder in due course doesnt
discharge the note
Payment to a person by the debtor who knows that such person stole
it, is not payment in due course, as such payment is not in good faith.
The maker of a note or the acceptor of a bill must satisfy himself,
when it is presented for payment, that the holder traces his title
through genuine indorsements, and if there is a forged indorsement, it
is a nullity and no right passes by it

PAYMENT MUST BE MADE TO POSSESSOR OF INSTRUMENT
The party making payment must insist on the presentment of the
paper by the party demanding payment in order to make sure that it is
at the time in his possession and not outstanding in another
A receipt taken is no protection
If at the time he makes payment, it is outstanding and in the hands of
a holder in due course, he must pay it again
Possession of notes by the maker is presumptive evidence

VII. NOTICE OF DISHONOR

Sec. 89. To whom notice of dishonor must be given. - Except as
herein otherwise provided, when a negotiable instrument has been
dishonored by non-acceptance or non-payment, notice of dishonor
must be given to the drawer and to each indorser, and any drawer
or indorser to whom such notice is not given is discharged.

MEANING OF NOTICE
By notice of dishonor is meant bringing either verbally or by writing, to
the knowledge of the drawer or indorser of an instrument, the fact that
a specified negotiable instrument, upon proper proceedings taken, has
not been accepted or hasnt been paid, and that the party notified is
expected to paid it

NECESSITY AND PURPOSE OF NOTICE
When an instrument is dishonored by NON-ACCEPTANCE or NON-
PAYMENT, notice of such dishonor must be given to persons
secondarily liable, as the case may be. Otherwise, such parties are
discharged

I PROMISE TO PAY F OR ORDER.

SGD. A
*B!C!D!E!F
*F makes presentment for payment to A, maker, on the date of maturity.
A refuses to pay.
*If F doesnt give notice of dishonor to B, C, D and E and prove the same,
they are discharged and F cannot file an action against them.

BURDEN OF PROOF
It is upon the plaintiff who seeks to enforce the defendants liability
upon a negotiable instrument as indorser to establish said liability by
proving that notice was given to the defendant within the time and in
the manner required by the law that the instrument in question had
been dishonored
Where these facts are not proven, the plaintiff doesnt sufficiently
establish the defendants liability
Where there is no proof in record tending to show that the plaintiff
gave any notice whatsoever to the defendant that the instrument in
question had been dishonored, said plaintiff hasnt established its
cause of action

PERSONS PRIMARILY LIABLE NEED NOT BE NOTIFIED

DOES FAILURE TO GIVE NOTICE OF DISHONOR OF A PREVIOUS
INSTALLMENT TO PERSONS SECONDARILY LIABLE ALSO DISCHARGE
THEM ON THE SUCCEEDING INSTALLMNETS?
It depends on whether the instrument contains an acceleration clause

RULE WHERE THERE IS NO ACCELERATION CLAUSE
Where the instrument contains no acceleration clause, failure to give
notice of dishonor on previous installment doesnt discharge drawers
and indorsers as to the succeeding installments, and therefore, the
holder can file an action against them for such succeeding
installments, notice is given
The reason is that each separate installment is equivalent to another
note