COURSE OUTLINE

A. NEGOTIABLE INSTRUMENTS IN GENERAL

a-1. Definition is a written contract

for the payment of money which by
its form and on its face is intended as
a substitute for money and passes
from hand to hand as money, so as
to give the holder in due course the
right to hold the instrument and
collect the sum for himself. [Bar,
1946;Bar, 1949]
a-2. Essential Features [Bar, 1967]
1.Negotiability
2.Accumulated of contracts
3.Provisional payment for
obligation
a-3. Functions of negotiable
instruments [Bar, 1951]
1.Substitute for money
2.Increases purchasing power in
circulation
3.Increases credit circulation
4.Monetary equivalent
a-4. Requisites for negotiability
[Section 1 )

1. In writing signed by maker or

drawer
2. Contains an unconditional
promise or order to pay a sum
certain in money
2-a. Unconditional Promise or Order
[Section 3]
1. An indication of a particular fund
out of which reimbursement is to be
made
2. An indication of a particular
account to be debited with the
amount
3. A statement of the transaction
giving rise to the instrument
2-b. Sum Certain in Money [Section
2]
1.With interest
2.By stated installment
3.By stated installment with
escalation clause
4.With exchange, whether at a
fixed rate or at the current rate
a. see Ponce vs. Court of Appeals, 90
SCRA 533

b. see Kalalo vs. Luz, 34 SCRA 337

1 With costs of collection or an
attorneys fees in case of nonpayment at maturity
2-c. Test of Negotiability: Whether or
not the promise or order would give
rise to a separate cause of action for
breach of contract if the additional
act is not performed or done
2-d. Provisions Not Affecting
Negotiability [Section 5]
1. Authorizes sale of collateral
securities in case instrument is not
paid at maturity
2. Authorizes confession of judgment
if instrument is not paid at maturity
[see however Traders Insurance vs.
Dy Eng Biok, 104 Phil. 806]
3. Waives benefit of any law intended
for the advantage or protection of
the obligor; or
4. Gives the holder an election to
require something to be done in lieu
of money

1 Payable on demand, or at a fixed,

or determinable future time
[Section 1]
3-a. Payable on Demand [Section 7]
1.Expressed to be payable on
demand, at sight or presentation
2.No time for payment is expressed
3.Instrument is issued, accepted or
indorsed when overdue with
regards to the person issuing,
accepting or indorsing
3-b. Payable at a Determinable
Future Time [Section 4]
1.Fixed period after date or sight
2.On or before a fixed or
determinable future time
3.On or at a fixed period after
occurrence of a specified event
certain to happen
1 Payable to order or bearer
4-a. Payable to Order [Section 8]
1. To a Payee who is not the maker,
drawer or drawee

2. The Maker or Drawer [To be

complete, must be indorsed by
maker or drawer, Section 184]
3. The drawee
4. Two or more payees jointly
5. One or some of several payees
6. Holder of an office for the time
being
4-b. Payable to Bearer [Section 9]
1.Expressed to be payable to
bearer
2.Payable to named person or
bearer
3.Payable to fictitious person and
such fact is known to the person
making it so payable
4.Name of payee does not purport
to be a name of any person
5.Last indorsement is an
indorsement in blank
1 Where instrument is addressed to
a drawee, he must be named or
otherwise indicated therein with
reasonable certainty

5-a. May be addressed to two or

more drawees jointly
5-b. But not to two or more drawees
in the alternative or in succession
[Section 128; Bar, 1997]
a-5. Forms
1.Promissory note [Bar, 1953; Bar,
1965]
1-a. Definition an unconditional
promise in writing made by one
person to another, signed by maker,
engaging to pay on demand, or at a
fixed or determinable future time, a
sum certain in money to order or to
bearer [Section 184]
1-b. Option of the Holder
1. Bills of exchange where the drawer
and the drawee are the same person
2. Bills of exchange where the
drawee is a fictitious person
3. Bills of exchange where the
drawee is a person not having
capacity to contract [Section 130]
1 Bill of exchange [Bar, 1947; Bar,
1953; Bar, 1965]

2-a. Definition an 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 pay on
demand, or at a fixed or
determinable future time a sum
certain in money to order or to
bearer [Section 126]
2-b. Kinds
1. Inland bill of exchange one
drawn and payable within the
Philippines [Section 129]
2. Foreign bill of exchange one
drawn within the Philippines but
payable outside, or one drawn
outside but payable within the
Philippines [Ibid]
3. If instrument is ambiguous that
there is doubt whether it is a bill of
exchange or a promissory note, the
holder may treat it either at his
election [Section 17(e); Bar, 1998]
a-6. Parties
1.Promissory note

1-a. Maker
1.b. Payee/indorser
1-c. Subsequent indorser
1-d. Holder
1 Bill of Exchange
2-a. Drawer
2-b. Drawee/Acceptor
1. Drawee is not liable on the bill
unless and until he accepts the same
[Section 127; Bar, 1979; Bar 1999]
2. The moment he accepts the bill of
exchange, he becomes an acceptor
2-c. Payee/indorser
2-d. Subsequent indorser
2-e. Referee in case of need [Section
131]
2-f. Holder
B. ISSUANCE OF NEGOTIABLE
INSTRUMENT
b-1. Definition the first delivery of
the instrument complete in form to a
person who takes it as a holder
[Section 191]
b-2. Requisites of Issuance
1.Delivery of the instrument

2.To a person who takes it as a

holder
b-3. Delivery
1. Definition transfer of possession
with intent to transfer title thereto,
thus making the transferee
a HOLDER of the instrument
2. Instances 2-a. Complete delivered instrument
2-b. Incomplete delivered instrument
[Section 14]
1. Possessor is deemed to have
prima facie authority to fill-up blanks
2. Personal defense to a holder for
value
3. Holder in due course can enforce
full payment
2-c. Complete undelivered
instrument [Section 16]
1. Holder in due course, delivery
conclusively presumed
2. Holder for value, personal defense
2-d. Incomplete undelivered
instrument [Section 15; Bar 2000]
1. Real defense by maker/drawer

2. Binding to persons who became

parties after its unauthorized
completion and delivery
b-4. Consideration
1. Definition any consideration
sufficient to support a simple
contract
1 Presumptions
2-a. Every negotiable instrument is
deemed issued for a valuable
consideration [Section 24]
2-b. Every person whose signature
appears thereon is deemed a party
for value [Section 24]
3. Effect of Want of consideration
3-a. What constitutes
1.Absence
2.Failure
a. Total
b. Partial, a defense pro tanto
[Section 28]
3-b. Effect : Personal defense
3-c. Exception: Accommodation party
[Section 29]

1. Nature of Accommodation [Bar,

1952]
a. Lends name to others without any
consideration
b. Liability is either primary or
secondary. He is a surety of the party
accommodated
2. Instances
a. Maker [Bar, 1964; Bar, 1971; Bar,
1993; Bar, 1996; Bar, 1998]
b. Drawer [Bar, 1975; Bar, 1991]
a Indorser [Bar, 1964; Bar,
1976; Bar, 1985; Bar, 1990]
1 Cases
a. see Town Savings & Loan Bank,
Inc. vs. Court of Appeals, G.R.
106011, 17 June 1993]
b. see Ang Tiong vs. Ting, 22 SCRA
713
c. see Travel-On, Inc. vs. Court of
Appeals, 210 SCRA 351
b-5. Holders of negotiable
instruments
1. Holder in due course [Bar,
1946; Bar, 1952; Bar, 1996]

1-a. Presumption: Every holder is

presumed to be a holder in due
course [Section 59]
1-b. Requisites [Section 52]
1. Complete and regular upon its face
2. He became the holder of it before
it was overdue and without notice
that it had been previously
dishonored if such was the fact
3. He took it in good faith and for
value
1 At the time it was negotiated to
him he had no notice of any
infirmity in the instrument or
defect in the title of the person
negotiating it.
1-c. Rights [Bar, 1946]
1. Hold instrument free from any
defect of title of prior parties [Section
57]
2. Hold instrument free from personal
defenses of prior parties among
themselves [Ibid]

1 Right to enforce payment for the

full amount against all parties
[Ibid]
2 Right to enforce payment for the
original tenor in case of material
alteration [Section 58]
3 Right to sue on the instrument in
his own name [Section 51]
4 Right to receive payment in due
course [Ibid]
1-d. Cases
1. see Atlantico vs. Auditor General,
81 SCRA 335
2. see De Ocampo vs. Gatchalian,
113 SCRA 574
2. Holder for Value [Bar, 1962; Bar,
1977]
2-a. Definition one who gives
valuable consideration for the
instrument
2-b. Rights [Bar, 1946]
1. Right to sue on the instrument in
his own name
2. Right to receive payment in due
course [Section 51]

b-6. Defenses
1. Real Defenses
1-a. Incomplete undelivered
instrument [Section 15; Bar,
1972; Bar, 1978; Bar, 1985]
1-b. Forgery [Section 23; Bar,
1976; Bar, 1977; Bar, 1982; Bar,
1983; Bar, 1984; Bar, 1987; Bar,
1989; Bar, 1990; Bar, 1992; Bar,
1995]
1.Effects
a. Signature is wholly inoperative
a No right to retain instrument
b No right to enforce payment
1 Not Applicable
a. Forgery of a bearer instrument
[Section 23; Bar, 1980; Bar, 1997]
a Forgery of drawers signature
insofar as the acceptor is
concerned [Section 62]
1 Cases
a. see PNB vs. National City Bank, 63
Phil. 711
a see PNB vs. Quimpo, 158
SCRA 582

b see Metropolitan Waterworks

vs. Court of Appeals, 143
SCRA 20
c see Republic Bank vs. Court
of Appeals, 196 SCRA 100
1-c. Minority [Section 22; Bar,
1989; Bar, 1998]
1-d. Incapacity [Section 22]
1-e. Fraud in factum
2. Personal/Equitable Defenses
2-a. Want of consideration [Section
28; Bar, 1971; Bar, 1978; Bar, 1995]
2-b. Complete undelivered
instrument [Section 16; Bar, 1961]
2-c. Incomplete delivered instrument
[Section 14; Bar, 1972; Bar,
1993; Bar, 1997]
2-d. Fraud in inducement
2-e. Defective title
1. Definition - He obtained the
instrument or any signature thereto
by fraud, duress, force and fear, or
other unlawful means, or for an
illegal consideration, or when he
negotiates it in breach of faith, or

under such circumstances amount to

a fraud [Section 55; Bar, 1966]
2. Reasons for Defect
a. By acquisition
b. By negotiation
3. Notice of defect requires actual
knowledge of the infirmity [Section
56]
2-f. Material Alteration [Bar,
1983; Bar, 1995; Bar, 1996; Bar
1999]
1. What consists: Alteration that
changes
a. The date
b. Sum payable, either principal or
interest
a Time or place of payment
b Number or the relation of the
parties
c Medium or currency in which
payment is to be made
[Section 125]
2. Effects
a. Instrument is avoided

b. Except as to persons who made,

authorized or assented to the
alteration and subsequent indorsers
c. Holder in due course may enforce
payment according to the original
tenor [Section 124]
C. NEGOTIATION
c-1. Modes of Transfer of Instrument
1.By assignment
1-a. Definition a sale by the
assignor of his rights under the
contract in favor of the assignee
1-b. Instances
1. Transfer of an order instrument
without proper indorsement [Section
49]
2. But where the holder has lien on
the instrument, he is deemed a
holder for value to the extent of his
lien [Section 27]
3. see Caltex (Phil.) vs. Court of
Appeals, 212 SCRA 448
1 By operation of law
2-a. Death of the holder
2-b. Bankruptcy of the holder

1 By negotiation
3-a. Order instrument effected
through indorsement completed by
delivery
3-b. Bearer instrument effected
through delivery
c-2. Negotiation
1. Definition transfer of an
instrument in such form that the
transferee becomes a holder
2. Methods
2-a. Order instruments
1. Definition [see Section 8]
2. How Negotiated
a. In general, through indorsement
and completed by delivery
b. If indorsed in blank, it becomes a
bearer instrument [Section 9]
c. Blank indorsement may be
converted to a special indorsement
by writing contract consistent with
the character of the indorsement
[Section 35]
2-b. Bearer instruments
1. Definition [see Section 9]

2. How Negotiated
a. In general, by delivery [Bar,
1967; Bar, 1975]
b. If indorsed specially, person
indorsing is liable only as indorser to
such holders as to make title through
his indorsements [Section 40; Bar,
1975; Bar, 1979; Bar, 1988; ]
c. Holder may strike out indorsement
not necessary to his title. Indorser
whose signature is struck out and all
indorsers subsequent to him are
relieved from liability [Section 48]
3. When to Negotiate
3-a. Promissory Note reasonable
time after issuance
3-b. Bill of Exchange reasonable
time after its last negotiation
[see PNB vs. Seeto, 91 Phil. 756]
c-3. Indorsements
1. As to Person Indorsing
1-a. Regular indorsement
indorsement of a person who is a
party to the instrument

1-b. Irregular indorsement

indorsement by a person not party to
the instrument [Section 64; Bar,
1975]
2. As to Nature/Effect of Indorsement
[Bar, 1960; Bar, 1969]
2-a. Qualified Indorsement [Sections
38, 65; Bar, 1968]
a. Constitutes indorser as a mere
assignor of the title to the instrument
b. Does not impair negotiability of
the instrument
2-b. Unqualified/ General
Indorsement [Section 66]
a. Special indorsement [Section 34]
b. Blank indorsement [Section
35; Bar, 1948]
2-c. Conditional Indorsement
a. Party required to pay may
disregard condition. But person to
whom payment is made will hold
proceeds thereof subject to the rights
of the person indorsing conditionally
b. Party required to pay respect
condition and hold payment until

compliance or non-compliance
thereof [Section 39]
2-d. Restrictive Indorsement
a. Effects
1. Prohibits further negotiation of the
instrument
2. Constitutes indorsee as agent of
the indorser
3. Vests title in indorsee in trust for
or for the use of some other person
[Section 36]
b. Rights of Indorsee/Transferee
1. Receive payment of the
instrument
2. Bring any action thereon that
indorser could bring
3. Transfer rights as indorsee to other
persons [Section 37]
3. Striking Out Indorsements
3-a. When Applicable Bearer
instruments only
3-b. How Made Striking out
indorsements not necessary to the
title of the holder
3-c. Effects

a. Indorser whose indorsement is

striken out is discharged from liability
on the instrument
b. All indorsers subsequent to him
are discharged from liability [Section
48]
c-4. Warranties and Liabilities
1.Maker [Section 60; Section
192; Bar, 1967; Bar,
1975; 1981;Bar, 1986]
1-a. Admits existence of payee and
his capacity to indorse
1-b. Warrants to pay instrument
according to its tenor
1 Drawer [Section 61; Bar,
1986; Bar, 1997]
2-a. Admits existence of payee and
his capacity to indorse
2-b. Warrants that instrument be paid
or accepted or both upon
presentment
2-c. Warrants to pay instrument if
dishonored
1 Drawee-Acceptor [Section 62;
Section 192; Bar, 1998]

3-a. Admits existence of payee and

his capacity to indorse
3-b. Admits existence of drawer,
genuiness of his signature and
capacity and authority to draw the
instrument
3-c. Warrants to pay instrument
according to the tenor of his
acceptance
1 Qualified Indorser/Person
Negotiating by Deliver [Section
65; Bar, 1946; Bar, 1979; Bar,
1981; Bar, 1988]
4-a. Instrument is genuine and in all
respects what it purports to be
4-b. He has good title to it
4-c. All prior parties had capacity to
contract
4-d. He has no knowledge of any fact
which would impair the validity of
instrument or render it valueless
4-e. Warranty of person negotiating
by delivery extends only to his
immediate transferee

1 General Indorser [Section

66; Bar, 1981; Bar, 1987; Bar,
1988; Bar, 1990; Bar, 1991]
5-a. Instrument is genuine and in all
respects what it purpots to be
5-b. He has good title to it
5-c. All prior parties had capacity to
contract
5-d. Instrument at the time of his
indorsement is valid and subsisting
5-e. Warrants to pay instrument if
dishonored
5-f. see Republic Bank vs. Ebrada, 65
SCRA 680
D. PRESENTMENT FOR ACCEPTANCE
d-1. When Required [Section 143]
1.Bill is payable after sight
2.Presentment is necessary to fix
maturity
3.Express stipulation
4.Bill is drawn in a particular place
but payable to a place other than
the residence or business of
drawee
d-2. Purpose

1.Fix maturity of instrument

2.Comply with stipulation
3.Willingness of the drawee
d-3. Effect of Non-Presentation
Drawer and all indorsers are
discharged [Section 144]
d-4. Manner of Presentment
1. By whom: Holder himself or
authorized agent
2. To whom
2-a. Drawee himself or authorized
agent
2-b. If two or more drawees, all of
them
2-c. If drawee is dead, personal
representative or excused
2-d. If drawee is insolvent, drawee
himself or trustee or assignee
3. When Presented: Within a
reasonable hour on a regular
business day and before the bill is
overdue
1 Where Presented
4-a. Place of business or residence of
drawee if known

4-b. If residence is different from

place of business, in either place
4-c. If place of payment is designated
and drawees residence or place of
business is unknown, at the place of
payment
4-d. Otherwise, excused
d-5. When presentment excused
[Section 148]
1.Effect: Instrument is treated as
dishonored
2.Grounds
2-a. Drawee is dead, absconded or a
fictitious person or person not having
capacity to contract
2-b. After exercise of reasonable
diligence, presentment cannot be
made
2-c. Presentment is irregular, but
refused on some other ground
d-6. When Dishonored by NonAcceptance [Section 149]
1.When duly presented but refused
or cannot be obtained

2.When presentment for

acceptance is excused
E. ACCEPTANCE
e-1. Definition It is the signification
by the drawee of his assent to the
order of the drawer
e-2. How acceptance made
1.Form
1-a. Must be in writing signed by the
drawee
1-b. Except: Constructive acceptance
1 Manner of Acceptance
2-a. Writing on face of bill Accepted
2-b. Separate paper [Section 134]
1. Does not bind acceptor
2. Except in favor of a person to
whom paper is shown and on faith
thereof receives bill for value
a Separately even before bill is
drawn [Section 135]
e-3. Kinds of acceptance
1.Actual acceptance [Section 132]
2.Constructive acceptance [Section
137]
2-a. Manner

1. Drawer destroys the bill

2. Refuses to return the bill within 24
hours or such other period allowed
by the holder after its delivery for
acceptance
2-b. Effect: Even if no actual
acceptance, bill is deemed to have
been accepted
1 General acceptance acceptance
without qualifications [Section
139]
2 Qualified acceptance [Section
141]
4-a. Instances [Section 141]
1. Conditional
2. Partial
3. Local
4. Qualified as to time
5. Acceptance of some, one or more
of the drawees but not all
4-b. Rights of Parties [Section 142]
1. May refuse qualified acceptance
and treat bill as dishonored by nonacceptance
2. May accept qualified acceptance

a. Holder to notify parties secondarily

liable, failure of which, such parties
are discharged from liability
b. Parties secondarily liable if notified
must express assent or dissent,
failure of which, they are deemed to
have given their assent
e-4. Effect of acceptance
1.Drawee assents to the order of
the drawer
2.Drawee becomes an acceptor
primarily liable to the instrument
F. DISHONOR BY NON-ACCEPTANCE
f-1. When Instrument Dishonored by
Non-Acceptance [Section 149]
1.When duly presented but refused
or cannot be obtained
2.When presentment for
acceptance is excused
f-2. Notice of Dishonor
1.By whom Given [Section 90]
1-a. Holder
1-b. Agent of the holder [Section 94]
1-c. Any party secondarily liable
notified by the holder

1-d. Agent of any party secondarily

liable notified by the holder [Section
91]
1 To Whom Given
2-a. General
1. Persons secondarily liable
2. Agents of persons secondarily
liable [Section 97]
2-b. Special Cases
1. Party who is dead [Section 98]
a. Personal representative
b. If none, last residence or last place
of business of decedent
2. Partners [Section 99]
a. Any one of the partners even if
there has been a dissolution
b. Any surviving partner if one is
dead
3. Persons Jointly Liable [Section 100]
a. Each of them
b. Except when one is authorized by
the other
4. Bankrupt [Section 101]
a. Insolvent party himself
b. His trustee or assignee

1 When Notice Must be Given

[Section 102]
3-a. On the following day after
instrument is dishonored [Section
103]
3-b. Unless notice is excused
4. Where Notice is Given
4-a. Parties reside in same place
[Section 103]
1. If given in place of business,
before close of business hours
2. If given in residence, before usual
hours of rest
3. If given by mail, post office
4-b. Parties resident in different
places [Section 104]
1 Form of Notice [Section 96]
5-a. Either oral or in writing
5-b. Either personally or by mail
f-3. When notice dispensed with
[Section 112]
1.It cannot be given to parties
secondarily liable
2.It does not reach the parties
sought to be charged

f-4. When notice excused [Section

114]
1.As to Drawer
1-a. Drawer and drawee are the
same person
1-b. Drawee is a fictitious person or
person not having the capacity to
contract
1-c. Drawer is a person to whom the
instrument is presented for payment
1-d. Drawer has no right to expect or
require that the drawee or acceptor
will honor the instrument
1-e. Drawer has countermanded
payment
2. As to Indorser [Section 115]
2-a. Drawee is a fictitious person or
person not having capacity to
contract, and the indorser was aware
of that fact at the time of his
indorsement
2-b. Indorser is the same person to
whom the instrument is presented for
payment

2-c. Instrument was made or

accepted for his accomodation
G. ACCEPTANCE FOR HONOR
g-1. Basic Considerations
1. Definition acceptance by a
stranger to a bill of exchange to pay,
totally or partially, for the honor of
the drawer or any indorser after the
bill has been protested for dishonor
by non-acceptance or for better
security and before the instrument is
overdue [Section 161]
2. Requisites
2-a. Instrument previously protested
for non-acceptance or for better
security
2-b. Instrument not yet overdue at
the time of acceptance for honor
2-c. Acceptor is a stranger to the bill
of exchange
2-d. Acceptance for honor must be in
writing, signed by the acceptor for
honor and indicates for whose honor
the acceptance is made

2-e. Holder must give consent to

acceptance
2-f. Acceptance may be total or
partial
3. Presumption Unless expressly
made, acceptance is deemed for the
honor of the drawer [Section 163]
g-2. Effects
1.Warranties of acceptor for honor
[Section 165]
1-a. Engages that will pay the bill
according to the terms of his
acceptance
1-b. Provided that necessary steps
were taken
1. Instrument was duly presented for
payment to the drawee
2. Drawee dishonored the instrument
and notice of dishonor given to
acceptor for honor
3. Instrument was duly protested for
non-payment [Section 167]
4. Presented for payment to the
acceptor for honor

a. In the place where protest for nonpayment is made not later than the
day following its maturity
b. In other place, see Section 104
1 Liability of acceptor for honor
[Section 164]
2-a. Acceptor for honor becomes
secondarily liable on the instrument
2-b. Acceptor for honor becomes
liable to all parties subsequent to the
party for whose honor he has
accepted
g-3. How made
1.Must be in writing
2.Indicating that it is an
acceptance for honor
3.Signed by the acceptor for honor
4.Appears before a Notary and
declare that the instrument was
accepted for honor [Section 162]
H. PROTEST
h-1. Basic considerations
1. Definition a formal statement of
the presentment and dishonor of the
bill, made under the hand and seal of

a Notary making it and contains facts

necessary to identify the bill and
show that it was duly presented but
dishonored
2. Purpose to hold persons
secondarily liable to the instrument
h-2. When Required/applicable
Applies only to foreign bills which
were
1.Dishonored by non-acceptance
[Section 152]
2.Dishonored by non-payment
[Ibid]. But if the foreign bill was
previously protested for nonacceptance, it no longer
necessary to have the same
protested for non-payment
[Section 157]
3.Before a bill is accepted for
honor, it must first be protested
for dishonor by non-acceptance
or protested for better security
[Section 161]
4.Acceptor has been adjudged
bankruptcy or insolvent or has

made an assignment for the

benefit of creditors, bill must be
protested for better security
[Section 158]
h-3. Manner of Making Protest
1.How Made
1-a. Protest annexed to the bill or
must contain a copy thereof [Section
153]. But where the bill is lost,
destroyed or wrongfully detained,
protest may be made on a copy or
written particulars thereof [Section
160]
1-b. Under hand and seal of a Notary
Public
1-c. Must specify the following:
1. Time and place of presentment
2. Fact that presentment was made
and the manner of presentation
3. Reason or cause for protesting the
bill
4. Demand made and the answer
given or the fact that drawee or
acceptor cannot be found [Section
153]

2. By Whom Made
2-a. A Notary Public
2-b. Respectable resident of the
place where the bill is dishonored in
the presence of two or more credible
witnesses [Section 154]
3. Place of Protest
3-a. Place of dishonor
3-b. Place where bill is payable where
1. Bill is drawn payable at the place
of business or residence of some
person other than the drawee
2. Bill is dishonored by nonacceptance [Section 156]
1 Time to Protest
4-a. If bill is not noted, protest be
made on the day of dishonor unless
excused
4-b. If bill is noted, protest may be
subsequently extended as the date
of noting [Section 155]
h-4. When Protest is Dispensed with
[Section 159]
1. It cannot be given to parties
secondarily liable or does not reach

the parties sought to be charged

[Section 112]
1 As to Drawer
2-a. Drawer and drawee are the
same person
2-b. Drawee is a fictitious person or
person not having the capacity to
contract
2-c. Drawer is a person to whom the
instrument is presented for payment
2-d. Drawer has no right to expect or
require that the drawee or acceptor
will honor the instrument
2-e. Drawer has countermanded
payment
3. As to Indorser [Section 115]
3-a. Drawee is a fictitious person or
person not having capacity to
contract, and the indorser was aware
of that fact at the time of his
indorsement
3-b. Indorser is the same person to
whom the instrument is presented for
payment

3-c. Instrument was made or

accepted for his accomodation
h-5. When Delay is Excused
1.Due to circumstances beyond the
control of the holder
2.Delay is not imputable to holders
default, misconduct or
negligence [Section 159]
I. PRESENTMENT FOR PAYMENT
i-1. Basic considerations
1. Definition is the formal demand
for the payment of the instrument
2. Purposes
2-a. To charge the persons
secondarily liable to the instrument,
that is, the drawer and indorsers
[Section 70]
2-b. Not to charge the person
primarily liable to the instrument
i-2. Manner of Presentment
1.By whom:
1-a. Holder himself
1-b. Holders authorized agent
[Section 72]
2. To whom

2-a. In general, to the person

primarily liable, that is, the maker in
case of promissory notes and the
acceptor in case of bills of exchange
[Ibid]
2-b. In case persons primarily liable
are partners, to anyone of them
[Section 77]
2-c. In case persons primarily liable
are not partners, to all of them
[Section 78]
1 When Presented [Section 71]
3-a. Generally, at the date of
maturity
3-b. If instrument is payable on
demand, presentment must be made
1. In case of promissory note, within
a reasonable time after issue
2. In case of bill of exchange, within a
reasonable time after the last
indorsement or negotiation
3-c. At a reasonable hour on a
business day [Section 72]

3-d. Where instrument is payable at a

bank, it must be presented during
banking hours [Section 75]
1 Where Presented [Section 73; Bar
2000]
4-a. Place of payment or address
given in the instrument
4-b. In the absence, at the usual
place of business or residence of the
party primarily liable
4-c. If party primarily liable
expressed his ability and willingness
to pay instrument at a special place
specified in the instrument, such is
deemed a tender of payment
[Section 70]
1 How Made [Section 74]
5-a. Presentation or exhibition of the
instrument to the person primarily
liable for verification purposes
5-b. If paid, instrument must be
delivered to party paying the same
i-3. When Presentment is Dispensed
with
1.In General [Section 82]

1-a. Where after the exercise of

reasonable diligence, presentment
cannot be made
1-b. Where the drawee is a fictitious
person
1-c. Waiver of presentment, express
or implied
1 As to Drawer [Section 79]
2-a. He has no right to expect or
require that the drawee or acceptor
will pay the instrument
2-b. Examples:
1. Drawer stops payment of the
check
2. Drawers bank balance is less than
amount of the check he issued
3. Drawer committed fraud by issuing
check knowing that he has no funds
to meet it
2-c. Effect: Drawer becomes liable to
the instrument without need of
presentment for payment
3. As to Indorser [Section 80]
3-a. Instance: Where the instrument
was made or accepted for his

accommodation and he has no

reason to expect that the instrument
will be paid if presented
3-b. Effect: Indorser becomes liable
to the instrument without need of
presentment for payment
i-4. When Delay is Excused
1. Due to circumstances beyond the
control of the holder
2. Delay is not imputable to holders
default, misconduct or negligence
[Section 81]
J. DISHONOR BY NON-PAYMENT
j-1. Basic Considerations
1. When Instrument Dishonored by
Non-Payment [Section 83]
1-a. When duly presented for
payment but refused or cannot be
obtained
a. When a party primarily liable
refuses to pay
b. When party primarily liable
expresses willingness to pay but has
no available money or funds

1-b. Presentment is excused and the

instrument is overdue and unpaid
2. Effect An immediate right of
recourse to all parties secondarily
liable on the instrument accrues to
the holder [Section 84]
j-2. Notice of Dishonor [Bar,
1952; Bar, 1984; Bar, 1994; Bar,
1996]
1. By whom Given [Section 90]
1-a. Holder
1-b. Agent of the holder [Section 94]
1-c. Any party secondarily liable
notified by the holder
1-d. Agent of any party secondarily
liable notified by the holder [Section
91]
2. To Whom Given
2-a. General
1. Persons secondarily liable
2. Agents of persons secondarily
liable [Section 97]
2-b. Special Cases
1. Party who is dead [Section 98]
a. Personal representative

b. If none, last residence or last place

of business of decedent
2. Partners [Section 99]
a. Any one of the partners even if
there has been a dissolution
b. Any surviving partner if one is
dead
3. Persons Jointly Liable [Section 100]
a. Each of them
b. Except when one is authorized by
the other
4. Bankrupt [Section 101]
a. Insolvent party himself
b. His trustee or assignee
1 When Notice Must be Given
[Section 102]
3-a. On the following day after
instrument is dishonored [Section
103]
3-b. Unless notice is excused
4. Where Notice is Given
4-a. Parties reside in same place
[Section 103]
1. If given in place of business,
before close of business hours

2. If given in residence, before usual

hours of rest
3. If given by mail, post office
4-b. Parties resident in different
places [Section 104]
5. Form of Notice [Section 96]
5-a. Either oral or in writing
5-b. Either personally or by mail
j-3. When notice dispensed with
[Section 112]
1. It cannot be given to parties
secondarily liable
2. It does not reach the parties
sought to be charged
j-4. When notice excused
1. As to Drawer [Section 114]
1-a. Drawer and drawee are the
same person
1-b. Drawee is a fictitious person or
person not having the capacity to
contract
1-c. Drawer is a person to whom the
instrument is presented for payment

1-d. Drawer has no right to expect or

require that the drawee or acceptor
will honor the instrument
1-e. Drawer has countermanded
payment
2. As to Indorser [Section 115]
2-a. Drawee is a fictitious person or
person not having capacity to
contract, and the indorser was aware
of that fact at the time of his
indorsement
2-b. Indorser is the same person to
whom the instrument is presented for
payment
2-c. Instrument was made or
accepted for his accomodation
K. PAYMENT FOR HONOR
k-1. Basic Considerations
1. Definition It is the payment of a
bill of exchange which has been
previously dishonored for nonpayment and protested for nonpayment by any person for the honor
of the drawer or any indorser
[Section 171]

2. Requisites
2-a. Bills has been previously
protested for non-payment
2-b. Notice of dishonor has been
given to parties secondarily liable
2-c. Payment for honor must be
attested by a Notarial Act appended
to the protest or form an extension to
it [Section 172]
3. Preference If two or more
persons offer to pay a bill for the
honor of different parties, the person
whose payment will discharge most
parties to the bill shall be given
preference [Section 174]
k-2. Procedures
1. After bill has been protested for
non-pament, any person who desires
to pay the instrument must go to a
Notary Public and declare that he is
paying for honor
2. Declaration must state that payor
is paying for honor and indicates
name of the party for whose honor is
he paying [Section 173]

1 Declaration is recorded by the

Notary Public under seal in the
protest itself or in a separate
instrument appended to the
protest
2 After such declaration, the payor
for honor will notify the party for
whose honor he is paying within
a reasonable time
3 Upon payment, payor for honor is
entitled both the bill itself and
the protest [Section 177]
k-3. Effects
1.If formalities are followed
1-a. All parties subsequent to the
party for whose honor it is paid are
discharged
1-b. Payor for honor is subrogated for
and succeeds both the rights and
duties of the holder as regards the
party for whose honor he pays and
all parties liable to the latter [Section
175]
1-c. If holder refuses to receive
payment, he loses his right of

recourse against any party who

would have been discharged by the
payment for honor [Section 176]
1 If fornalities are not strictly
followed, payment will not
operate as payment for honor,
but a mere voluntary payment.
Payor acquires only the rights
under Articles 1236 and 1237 of
the New Civil Code
L. DISCHARGE
l-1. Grounds for Discharge of
Instrument [Section 119]
1.Payment in due course
1-a. By Whom
1. By or on behalf of the principal
debtor
2. By the party accommodated,
where instrument is made or
accepted for accommodation
1-b. When: At or after the maturity of
the instrument
1-c. To Whom
1.Holder thereof

2.His authorized representative

[Section 88]
1-d. Conditions
1. In good faith
2. Person making the payment has
no notice of defect in his title [Ibid]
2. Intentional cancellation thereof by
the holder
1 Any other act which will
discharge a simple contract for
the payment of money
3-a. Condonation or remission such
as the voluntary surrender of
instrument by the holder to person
primarily liable without
3-b. Rescission of the contract for
which the negotiable instrument has
been issued
3-c. Renunciation [Section 122]
1. By the Holder
2. In favor of any party to the
instrument
a. Person primarily liable
1. Must be absolute and
unconditional

2. Made at or after maturity of the

instrument
3. Instrument is discharged
b. Person secondarily liable 1. Before, at or after maturity of the
instrument
2. Party renounced and all parties
subsequent to him are discharged
from liability
3. Must be in writing unless
instrument is delivered to person
primarily liable
3-d. Compensation
3-e. Novation
3-f. Prescription
1 Merger or confusion such as
when the principal debtor
becomes the holder of the
instrument at or after maturity in
his own right
l-2. Discharge of Persons Secondarily
Liable [Section 120]
1.Any act which discharges the
instrument

2.Intentional cancellation of drawer

or indorsers signature by the
holder [see Section 48]
2-a. Not applicable if cancellation is
unintentional, through mistake or
fraud or without the authority of the
holder
2-b. Burden of proof lies on the party
who alleges cancellation [Section
123]
1 Discharge of a prior party
2 Valid tender of payment made by
a prior party
3 Release of the principal debtor
unless holders right of recourse
against party secondarily liable is
expressly reserved
4 Any agreement binding upon the
holder to extend the time of
payment [Section 85] or
postpone holders right to
enforce the instrument, unless
made with the assent of the
party secondarily liable or right
of recourse is expressly reserved

l-3. Rights of Party Making the

Payment
1.If Person Primarily Liable
1-a. Right to receive the instrument
1-b. Instrument itself is discharged
1 If Person Secondarily Liable
[Section 121]
2-a. Right to collect from prior parties
2-b. Right to negotiate instrument to
new parties (but not subsequent
indorsers)
2-c. Right to strike out his own and
subsequent indorsements
1 Instrument is Discharged and
cannot be Re-negotiated:
3-a. Where instrument is payable to
the order of a third person and was
paid by the drawer
3-b. Where instrument was made or
accepted for accommodation and has
been paid by the party
accommodated
OUTLINE OF RULES ON DELIVERY OF
NEGOTIABLE INSTRUMENTS

1. Delivery is essential to the validity of any

negotiable instrument
2. As between immediate parties, or those
in like cases, delivery must have been with
the intention of passing title
3. An instrument signed by the drawer/maker
but not completed by him and retained in his
own custody, is invalid as to him for want
of delivery, even though stolen or negotiated to
a holder in due course
4. But when the instrument mentioned above
is in the hands of a holder of due course, there
is prima facie presumption of delivery which the
maker/drawer may rebut by proof of nondelivery
5. Where the custody of the incomplete
instrument has been entrusted to another, who
wrongfully completes and negotiates it to a
holder in due course, delivery to an agent or
custodian is sufficient delivery to bind the
drawer or maker
6. Where maker or drawer executes a
complete instrument which is found in the
possession of another other than a holder in due
course, there is a prima facie presumpton of
deliverybut subject to rebuttal
7. Where the instrument mentioned above is
in the hands of a holder in due course, there is a
conclusive presumption of delivery
8. Delivery of the instrument may be made on
a parol condition or for a special purpose not
inconsistent with its written terms, where
the validity of the instrument is to arise out

of the performance of the condition or

consummation of the purpose. But such
condition or specification or purpose doesn't
affect the rights of a holder in due course.
Such conditions is a condition precedent, and is
to be sharply distinguished from a condition

subsequent, the happening or nonhappening of which is to defeat or qualify

the instrument. Such condition subsequent
contradicts the written terms and may not be
set up by parol evidence.