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UNIVERSITY OF MANILA COLLEGE OF LAW

NEGOTIABLE INSTRUMENT LAW


ACT 2031
1.

What is a negotiable instrument?


Written contract for the payment of money, by its form intended as substitute for money and
intended to pass from hand to hand to give the holder in due course the right to hold the
instrument free from any defect of title of prior parties and free from defenses available to prior
parties among themselves and enforce payment of the instrument for the full amount thereof
against all parties liable thereon.1

2.

Would payment of negotiable instruments such as checks extinguish an obligation?


NO. Negotiable instruments shall produce the effect of payment only when they have been
encashed or when through the fault of the creditor they have been impaired. 2 But a check which
has been cleared and credited to the account of the creditor shall be equivalent to a delivery to
the creditor of cash. Although considered as medium for payment of obligations, negotiable
instruments are not legal tender.3
Delivery of a check does not operate as payment and does not discharge the obligation under a
judgment. The delivery of a bill of exchange only produces the fact of payment when the bill has
been encashed. The following passage from Bank of Philippine Islands v. Royeca, G.R. No. 176664,
July 21, 2008, is enlightening: Settled is the rule that payment must be made in legal tender. A
check is not legal tender and, therefore, cannot constitute a valid tender of payment. Since a
negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and remains
suspended until the payment by commercial document is actually realized. The party
claiming therefore had to present proof, not only that he delivered the checks, but also that
the checks were encashed.4

Rivera v. Spouses Chua, G. R. No. 184458, January 14, 2015, 746 SCRA 1
> We agree that the subject promissory note is not a negotiable instrument and the provisions of the
NIL do not apply to this case. Section 1 of the NIL requires the concurrence of the following elements
to be a negotiable instrument: (a) It must be in writing and signed by the maker or drawer; (b) Must
contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on
demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e)
Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty. On the other hand, Section 184 of the NIL defines what negotiable promissory
note is: SECTION 184. Promissory Note, Defined. A negotiable promissory note within the meaning of
this Act is an unconditional promise in writing made by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order
or to bearer. Where a note is drawn to the makers own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses
Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.
> There are four instances when demand is not necessary to constitute the debtor in default: (1) when
there is an express stipulation to that effect; (2) where the law so provides; (3) when the period is the
controlling motive or the principal inducement for the creation of the obligation; and (4) where
Sec. 57, Negotiable Instruments Law (ACT 2031).
Art. 1249, New Civil Code.
3
Sec. 60, Central Bank Act, R.A. 7653.
4
Donnina C. Halley v. Printwell, Inc., G.R. No. 157549, May 30, 2011.
5
Section 1, ibid.
6
Metropolitan Bank and Trust Company vs. Cabilzo, G.R. No. 154469, December 6, 2006.
1
2

Atty. Precy C. de Jesus

What are the requisites of a Negotiable Instrument?


An instrument to be considered a negotiable instrument must comply with the following
requisites:
1. It must be in Writing and signed by the maker or drawer;
2. Must contain an Unconditional promise or order to pay a sum certain in money;
3. Must be Payable on demand, or at a fixed or determinable future time;
4. Must be payable to Order or to bearer; and,
5. Where the instrument is Addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.5
Note: Requirements first to fourth are necessary in order that a promissory note may be
negotiable, while all the requirements are necessary in order that a bill of exchange may be
negotiable.6

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3.

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demand would be useless. In the first two paragraphs, it is not sufficient that the law or obligation fixes
a date for performance; it must further state expressly that after the period lapses, default will
commence.
> The penal clause is generally undertaken to insure performance and works as either, or both,
punishment and reparation. It is an exception to the general rules on recovery of losses and damages.
As an exception to the general rule, a penal clause must be specifically set forth in the obligation. In
high relief, the stipulation in the Promissory Note is designated as payment of interest, not as a penal
clause, and is simply an indemnity for damages incurred by the Spouses Chua because Rivera
defaulted in the payment of the amount of P120,000.00. The measure of damages for the Riveras
delay is limited to the interest stipulated in the Promissory Note. In apt instances, in default of
stipulation, the interest is that provided by law.
> The 12% per annumrate of legal interest is only applicable until 30 June 2013, before the
advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013
reducing the rate of legal interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery
Frames,30 BSP Circular No. 799 is prospectively applied from 1 July 2013. In short, the
applicable rate of legal interest from 1 January 1996, the date when Rivera defaulted, to date
when this Decision becomes final and executor is divided into two periods reflecting two rates
of legal interest: (1) 12% per annum from 1 January 1996 to 30 June 2013; and (2) 6% per
annum FROM 1 July 2013 to date when this Decision becomes final and executory.
> As for the legal interest accruing from 11 June 1999, when judicial demand was made, to the date
when this Decision becomes final and executory, such is likewise divided into two periods: (1) 12% per
annum from 11 June 1999, the date of judicial demand to 30 June 2013; and (2) 6% per annum from 1
July 2013 to date when this Decision becomes final and executor.31 We base this imposition of interest
on interest due earning legal interest on Article 2212 of the Civil Code which provides that "interest
due shall earn legal interest from the time it is judicially demanded, although the obligation may be
silent on this point."
4.

What are the common forms of Negotiable Instruments?


a. Promissory Note is an unconditional promise in writing made by one person to another,
signed by the maker, engaging to pay on demand, or at a fixed determinable future time, a
sum certain in money to order or bearer. Where a note is drawn to the makers own order, it
is not complete until indorsed by him.7
Sinamban v. China Banking Corp., G. R. No. 193890, March 11, 2015, 752 SCRA 621
> A promissory note is a solemn acknowledgment of a debt and a formal commitment to
repay it on the date and under the conditions agreed upon by the borrower and the lender. A
person who signs such an instrument is bound to honor it as a legitimate obligation duly
assumed by him through the signature he affixes thereto as a token of his good faith. If he
reneges on his promise without cause, he forfeits the sympathy and assistance of this Court
and deserves instead its sharp repudiation.
b.

c.

Bill of Exchange is 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.8
Check is a bill of exchange drawn on a bank and payable on demand.9

Sec. 184, ibid; Special Types of Promissory Note


a. Certificate of Deposit a written acknowledgement by a bank of the receipt of money or deposit which
the bank promises to pay to the depositor, bearer, or to some other person or order;
b. Bond an evidence of indebtedness issued by public or private corporation, promising to pay a sum at a
specified time in the future;
c. Bank Note an instrument issued by a bank for circulation as money payable to bearer on demand; and,
d. Due Bill an instrument which shows on its face an acknowledgement by a person of his indebtedness to
another.
8
Sec. 126, ibid; Types of Bill of Exchange:
1. Draft - a bill of exchange payable on demand or at some future determinable time. If drawn by a bank
against its branch or another bank, it is called a bank draft;
2. Trade acceptance - a BOE drawn by the seller on the purchaser of goods and accepted by the latter; if
the instrument is drawn against a bank instead of the purchaser, it is called bankers acceptance;
3. Documentary bill of exchange - bill to which are attached the documents of title to be surrendered to
the drawee when he accepts or pays the bill; and,
4. Clean bill of exchange bill to which such documents or title are not attached
9
Sec. 185, ibid; Different Kinds of Checks
Aside from the personal check which is the most widely used, they are:
1.
Memorandum check - a check upon the face of which the word memorandum, mem, or memo,
signifying that the drawer engages to pay the bona fide holder absolutely, without the necessity of
presentment at maturity and notice of dishonor;

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Wesleyan University-Philippines v. Nowella Reyes, G.R. No. 208321, July 30, 2014,
731 SCRA 516
> Jurisprudence has pronounced that the crossing of a check means that the check may not
be encashed but only deposited in the bank.29 As Treasurer, respondent knew or is at least
expected to be aware of and abide by this basic banking practice and commercial custom.
Clearly, the issuance of a crossed check reflects managements intention to safeguard the
funds covered thereby, its special instruction to have the same deposited to another account
and its restriction on its encashment.
Metropolitan Bank and Trust Company v. Chiok, G. R. No. 172652, November 26, 2014,
742 SCRA 435
> The legal effects of a managers check and a cashiers check are the same. A managers
check, like a cashiers check, is an order of the bank to pay, drawn upon itself, committing in
effect its total resources, integrity, and honor behind its issuance. By its peculiar character and
general use in commerce, a managers check or a cashiers check is regarded substantially to
be as good as the money it represents.32 Thus, the succeeding discussions and jurisprudence
on managers checks, unless stated otherwise, are applicable to cashiers checks, and vice
versa.
While indeed, it cannot be said that managers and cashiers checks are pre-cleared, clearing
should not be confused with acceptance. Managers and cashiers checks are still the subject
of clearing to ensure that the same have not been materially altered or otherwise completely
counterfeited. However, managers and cashiers checks are pre-accepted by the mere
issuance thereof by the bank, which is both its drawer and drawee. Thus, while managers and
cashiers checks are still subject to clearing, they cannot be countermanded for being drawn
against a closed account, for being drawn against insufficient funds, or for similar reasons such
as a condition not appearing on the face of the check. Long standing and accepted banking
practices do not countenance the countermanding of managers and cashiers checks on the
basis of a mere allegation of failure of the payee to comply with its obligations towards the
purchaser. On the contrary, the accepted banking practice is that such checks are as good as
cash.
5.

When is a sum payable a sum certain?


The sum payable is a sum certain when it is stated in terms of a fixed amount of money although
the sum payable is to be paid with interest; by stated installments; or by stated installments, with a
provision that, upon default in payment of any installment or of interest, the whole shall become
due; the sum is to be paid with exchange, whether at a fixed rate or at the current rate; or, when
the sum payable is to be paid with costs of collection or an attorneys fee, in case the instrument is
not paid at maturity.10

6.

Is an instrument which contains an order or promise to do any act in addition to the


payment of money still be considered negotiable?
As a general rule, an instrument which contains an order or promise to do any act in addition to
the payment of money is not negotiable except in the following cases, to wit:
a. The instrument authorizes the sale of collateral securities in case the instrument is not
paid at maturity;

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Cashiers Check one drawn by the cashier of a bank upon the bank itself and deemed accepted by the
act of issuance;
3. Managers check one drawn by the banks manager upon the bank itself. It is similar to the cashiers
check both as to effect and use;
4. Travellers check one upon which the holders signature must appear twice, one to be affixed by him at
the time it is issued and the second or counter-signature, to be affixed by him before it is paid; otherwise,
it is incomplete;
5. Stale check one which has not been presented for payment within a reasonable time after its issue. It
is valueless ad therefore, should not be paid (see sec. 186);
6. Certified check - one which bears upon its face an agreement by the drawee bank that the check will be
paid on presentation; and
7. Crossed Check one which bears across its face two parallel lines drawn diagonally, usually on the
upper left side. A check may be crossed either specially or generally.
a. If crossed specially, the name of a particular bank or company is written or appears between the
parallel lines in which case the drawee bank must pay the check only upon presentment by such
bank or company; and
b. If crossed generally, when only the words and Co. Are written between parallel lines or when
nothing is written at all between said lines.
The purpose of crossing a check is to ensure payment to the right party. In actual practice, the
holder of a crossed check merely deposits it with the bank for collection.
10
Section 2, ibid.

2.

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The instrument authorizes the confession of judgment if the instrument is not paid at
maturity;
c. The instrument waives the benefit of any law intended for the protection or advantage of
the obligor; and,
d. The instrument gives the holder an election to require something to be done in lieu of the
payment of money.11
When is an instrument payable on demand?
1. When it is expressed to be payable on demand, or at sight or presentation;
2. In which no time for payment is expressed; or,
3. Where instrument is issued, accepted, or indorsed when overdue it, is, as regards the person
so issuing, accepting, or indorsing it, payable on demand.12
b.

7.

8.

When is an instrument payable at a determinable future time?


When it is expressed to be payable
1. At a fixed period after date or sight;
2. On or before a fixed or determinable future time specified in the instrument; or,
3. On or at a fixed period after the occurrence of a specified event which is certain to happen
though the time of happening be uncertain. 13

9.

When is instrument payable to order


The instrument is payable to order where it is drawn payable to the order of a specified person
or to him or his order. It may be drawn payable to the order of:
1. A payee who is not maker, drawer, or drawee
2. The drawer or maker
3. The drawee
4. Two or more payees jointly
5. One or more of several payees
6. The holder of an office for the time being
Note: where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty. (Sec. 8)

10. When is an instrument payable to bearer?


1. When it is expressed to be so payable
2. When it is payable to a person named therein or bearer
3. When it is payable to the order of a fictitious or non-existing person, and such fact known to
the person making it so payable.
4. When the name of the payee does not purport to be the name of any person
5. When the only or last endorsement is an endorsement in blank(Sec. 9)
PHILIPPINE NATIONAL BANK VS. RODRIGUEZ, G.R. NO. 170325, SEPTEMBER 26, 2008
An actual, existing or living payee may also be fictitious if such payee was not intended by the
maker or drawer to receive the proceeds of the instrument. This usually occurs when the maker or
drawer places a name of an existing payee on the check for convenience or to cover up an illegal
activity. As a general rule, in case of controversy, the drawer is liable and the drawee bank is
absolved from liability in a fictitious-payee situation. The exception is when there is commercial
bad faith whereby the drawee bank acts dishonestly and is a party to the fraudulent scheme. The
check is deemed payable to order, and consequently, the drawee bank bears the loss.

An instrument payable to the order of bearer is considered an order instrument. [American


National Bank v. Joe Kerley, 105 Or. 155, 32 ALR 262]

Section 5, ibid.
Section 5, ibid.
13
Section 5, ibid.
11
12

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12. Instances when date is necessary in a negotiable instrument


a. When the date is material to determine the maturity of the instrument (in the case of
instruments payable at a fixed period after date or after sight or presentation);

11. Is date necessary to make an instrument negotiable?


No, in the case of instruments which are payable (1) At a fixed future date and which do not
stipulate for the payment of interest; and, (2) On demand, since they are demandable at any
time. [Sec. 6 (a)]

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b.
c.

When interest is stipulated for the purpose of determining when the interest is to run;
and
In the case of the promissory note, the date of the last negotiation thereof, for the
purpose of determining whether a party acted within a reasonable time in making
presentment for payment (Secs. 70, 71, 144)

13. What is the effect of ante-dating or post-dating a negotiable instrument?


It does not render the instrument invalid or non-negotiable by the fact alone unless it is done
for illegal or fraudulent purposes. The person to whom an instrument so dated is delivered
acquires the title thereto as of the date of delivery (Sec. 12)
SAN MIGUEL CORPORATION VS. BARTOLOME PUZON, JR., G.R. NO. 167567, SEPTEMBER
22, 2010
x x x Considering that the second element is that the thing taken belongs to another, it is
relevant to determine whether ownership of the subject check was transferred to petitioner.
On this point the Negotiable Instruments Law provides:
Sec. 12. Antedated and postdated The instrument is not invalid for the reason only that it
is antedated or postdated, provided this is not done for an illegal or fraudulent purpose. The
person to whom an instrument so dated is delivered acquires the title thereto as of the date of
delivery. (Underscoring supplied.)
Note however that delivery as the term is used in the aforementioned provision means
that the party delivering did so for the purpose of giving effect thereto. Otherwise, it cannot
be said that there has been delivery of the negotiable instrument. Once there is delivery, the
person to whom the instrument is delivered gets the title to the instrument completely and
irrevocably.
14. When may a holder insert the date in an instrument?
Where the instrument is payable at fixed period after date but is issued undated
When the instrument is payable at a fixed period after sight but the acceptance is undated
Note: (1) The insertion of the true date of issue or acceptance, as the case may be is
necessary to determine the date of maturity (2) The date of acceptance is the date when
the bill was presented to the drawee (Secs. 136, 138)

18. State the rules where an instrument is incomplete and undelivered.


1. The fact that an incomplete instrument , completed without authority, had not been delivered
(as when an incomplete instrument is stolen), is a defense even against a holder in due course;
and,
2. The invalidity of the above instrument is only with reference to the parties whose signatures
appear on the instrument before and not after delivery. (Sec. 15)
19. Rules that govern an instrument which is mechanically complete but undelivered:

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17. State the rules where an instrument is incomplete but delivered.


1. The holder or person in possession has prima facie authority to complete an instrument
wanting in any material particular to complete it filling up the blanks (e.g., blanks for date,
due date, name of payee, amount, or rate of interest) therein;
2. A signature in blank may be converted into a negotiable instrument only if such intention
of the person making the signature in effecting delivery thereof;
3. The instrument may be enforced only against a party prior to completion if filled up
strictly in accordance with the authority given and within a reasonable time; and
4. The defense that the instrument had not been filled in accordance with the authority
given and within a reasonable time is not available against a holder in due course. (Sec.
14) (Ching vs. Nicdao, et al., G.R. No. 141181, April 27, 2007)

15. What is the effect of the insertion of a wrong date by the holder in a negotiable instrument?
1. It will avoid the instrument as to him if he had knowledge of the true date of issue or
acceptance; and,
2. It is not avoided as to a holder in due course; as to him the date inserted is deemed to be
the true date (Sec.13)
16. What are the steps in the issuance of a negotiable instrument?
1. The mechanical act of writing the instrument completely and in accordance with the
requirements of Section 1; and,
2. The delivery of the complete instrument with the intention of giving effect to it.

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1.
2.
3.

4.

The contract on such a negotiable instrument is incomplete and revocable until its delivery for
the purpose of giving effect thereto;
There is a prima facie presumption of valid and intentional delivery if the instrument is found
in the possession of an immediate party, or a remote party who is not holder in due course;
If delivery was made or authorized , it may be shown to have been conditional (e.g., the
instrument shall not be binding until a co-maker has been procured) or for special purposes
only (e.g., safe keeping, or collection and not for the purpose of transferring the title to the
instrument); and
If the complete instrument is in the hands of a holder in due course, a valid delivery thereof by
all parties prior to him is conclusive when it admits of no evidence to the contrary.

RIZAL COMMERCIAL BANKING CORPORATION VS. HI-TRI DEVELOPMENT CORP. AND LUZ
BAKUNAWA. G.R. NO. 192413, JUNE 13, 2012
An ordinarycheck refers to a bill of exchange drawn by a depositor (drawer) on a bank
(drawee), requesting the latter to pay a person named therein (payee) or to the order of the
payee or to the bearer, a named sum of money. The issuance of the check does not of itself
operate as an assignment of any part of the funds in the bank to the credit of the drawer.
Here, the bank becomes liable only after it accepts or certifies the check. After the check is
accepted for payment, the bank would then debit the amount to be paid to the holder of the
check from the account of the depositor-drawer.
There are checks of a special type called managers or cashiers checks. These are bills of
exchange drawn by the banks manager or cashier, in the name of the bank, against the bank
itself. Typically, a managers or a cashiers check is procured from the bank by allocating a
particular amount of funds to be debited from the depositors account or by directly paying or
depositing to the bank the value of the check to be drawn. Since the bank issues the check in
its name, with itself as the drawee, the check is deemed accepted in advance. Ordinarily, the
check becomes the primary obligation of the issuing bank and constitutes its written promise
to pay upon demand.
Nevertheless, the mere issuance of a managers check does not ipso facto work as an
automatic transfer of funds to the account of the payee. In case the procurer of the managers
or cashiers check retains custody of the instrument, does not tender it to the intended payee,
or fails to make an effective delivery, we find the following provision on undelivered
instruments under the Negotiable Instruments Law applicable:

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Petitioner acknowledges that the Managers Check was procured by respondents, and
that the amount to be paid for the check would be sourced from the deposit account of HiTri.When Rosmil did not accept the Managers Check offered by respondents, the latter
retained custody of the instrument instead of cancelling it. As the Managers Check neither
went to the hands of Rosmil nor was it further negotiated to other persons, the instrument
remained undelivered. Petitioner does not dispute the fact that respondents retained custody
of the instrument.
Since there was no delivery, presentment of the check to the bank for payment did
not occur. An order to debit the account of respondents was never made. In fact, petitioner
confirms that the Managers Check was never negotiated or presented for payment to its
Ermita Branch, and that the allocated fund is still held by the bank. As a result, the assigned
fund is deemed to remain part of the account of Hi-Tri, which procured the Managers Check.
The doctrine that the deposit represented by a managers check automatically passes to the

Sec. 16. Delivery; when effectual; when presumed. Every contract on a


negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As between immediate
parties and as regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or under the
authority of the party making, drawing, accepting, or indorsing, as the case
may be; and, in such case, the delivery may be shown to have been conditional,
or for a special purpose only, and not for the purpose of transferring the property
in the instrument. But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to make them
liable to him is conclusively presumed. And where the instrument is no longer in
the possession of a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary is proved. (Emphasis
supplied)

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payee is inapplicable, because the instrument although accepted in advance remains


undelivered. Hence, respondents should have been informed that the deposit had been left
inactive for more than 10 years, and that it may be subjected to escheat proceedings if left
unclaimed.

The law merely requires that the instrument be in the possession of a person other than the
drawer or maker. From such possession, together with the fact that the instrument is wanting
in a material particular, the law presumes agency to fill up the blanks. Because of this, the
burden of proving want of authority or that the authority granted was exceeded is placed on
the person questioning such authority. (Dy vs. People, et al., G.R. No. 158312, November
14, 2008)

20. State the rules of construction apply in case of ambiguity or omission in an instrument:
1. When there is a discrepancy between the sum expressed in words and the sum expressed in
figures the former controls;
2. When the words are ambiguous or uncertain reference may be had to the figures to
determine the true amount;
3. If the date when the stipulated interest is to run is not specified, the interest runs from the
date of the instrument or from the date of its issue if undated;
4. An undated instrument is considered dated as of the date of issue;
5. In case of conflict between the written and printed provisions, the former prevail.
Reason: The written words are deemed to express the true intention of the maker or signer
because they are placed there by himself;
6. In case of doubt as to whether an instrument is a bill or note, the holder may treat either at his
election;
7. In case of doubt as to what capacity the person making the instrument intended to sign, he is
to be deemed an indorser;
8. An instrument with the words I promise to pay signed by two or more persons give rise to
solidary liability (Sec. 17)
9. An instrument with the words we promise to pay by two or more persons give rise to joint
liability.
21. State the liability of persons whose signature does not appear on a negotiable instrument.
A person whose signature does not appear on an instrument is not liable except in the following
cases:
1. Where a person signs under a trade or assumed name (Sec. 18);
2. The principal is liable if an agent signs on his own behalf (Sec. 19);
3. In case of forgery, the forger is liable even if his signature does not appear on the
instrument (Sec. 23);
4. A person who negotiates by delivery is liable to his immediate transferee (Sec. 65);
5. Where the acceptor makes his acceptance of a bill on a separate instrument (Sec. 134);
and,
6. Where a person makes a written promise to accept a bill before it is drawn (Sec 135)

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23. What are the requisites in order that an agent who signs a negotiable instrument may
escape personal liability?
1. He is duly authorized;
2. He adds words to his signature indicating that he signs as an agent, that is, for or on
behalf of a principal, or in a representative capacity; and,
3. He discloses his principal. (Sec. 20)
24. What is a signature by procuration?
A Signature by procuration operates as notice that the agent has but limited authority to sign, and,
the principal is bound only in case the agent in so signing acted within the actual limits of his authority.
(Sec. 21)
25. What is the effect of indorsement or assignment of infant (minor) or a corporation?
1. Indorsement or assignment by a minor (Sec. 22)

22. Instances where a persons signature appears on a negotiable instrument and yet he is not
liable thereon:
1. In case of undelivered and incomplete instrument;
2. In case of signature by an authorized agent (Sec. 20);
3. In case of an indorsement or assignment of an instrument by a minor or other; and,
incapacitated person although such indorsement or assignment passes title over the
instrument (Sec. 22).

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Title to the instrument passes. However, the minor does not incur any liability on
theinstrument even to the holder in due course because his lack of capacity is a
complete defense.
This rule is also applicable to those incapable of giving consent such as insane or
demented persons and deaf-mutes who do not know how to write.
2.

Indorsement by a corporation (Sec. 22)


Where the indorsement or assignment made by a corporation is ultra-vires, title to
the instrument likewise passes although the corporation may incur no liability
thereon.
26. State the rules on forgery?
Forgery is meant the counterfeit making or fraudulent alteration of any writing, and may consist in
the signing of anothers name, or the alteration of an instrument in the name, amount, description
of the person and the like, with intent to defraud. (Ogden, p. 338)
27. What are the effects of a forged signature or one made without the authority of the person
whose signature it purports to be?
1. In any such case, the signature is wholly inoperative, and, therefore, no right to retain the
instrument, or to give a discharge thereof, or to enforce payment through or under such
signature can be acquired. (Sec. 23)
2. But right may still exist and be enforced as to those whose signature thereto are genuine.
28. State the exceptions to the general rule that no right or title can be acquired to a negotiable
instrument through a forged or unauthorized signature.
1. If the party against whom it is sought to enforce such right is precluded from setting up
the forgery or want of authority (Sec. 23); and,
2. Where the forged signature is not necessary to the holders title in which case the forgery
may be disregarded. (Sec. 48)

Atty. Precy C. de Jesus

Page

BANK OF AMERICA NT & SA VS. ASSOCIATED CITIZENS BANK, G.R. NO. 141001, MAY
21, 2009
The drawee is liable to the drawer for the amount of the check that it charged to the
latters account. The drawee has the contractual duty to pay the check only to the person to
whom it was made payable or upon his genuine indorsement. Thus, the drawee has to credit
back the amount of the check to the account of the drawer. In this case, the Supreme Court
ruled that a drawee should charge to the drawers accounts only the payables authorized by
the latter; otherwise, the drawee will be violating the instructions of the drawer and shall be
liable for the amount charged to the drawers account.
However, the collecting bank is liable to the drawee. As indorser, he warranted that
the check was genuine and in all respects what it purports to be. (Sec. 65/66) As collecting
bank, it had the duty to know that the check was duly indorsed by the original payee. Having

29. Who are those who are precluded from setting up the defense of forgery?
1. Those who by their acts, silence or negligence, are stopped from setting up the defense of
forgery; and,
2. Those who warrant or admit the genuineness of the signature in question, namely:
a. indorsers;
b. acceptors; and,
c. persons negotiating by delivery (Sec. 65)
30. State the rights of the parties in case of forged indorsements.
1. Where note payable to bearer The party whose indorsement is forged and all parties
prior to him, are not liable to any holder. Reason: The instrument can be negotiated only
by indorsement (complete by delivery); and the indorsement, being forged, is wholly
inoperative;
2. Where note payable to bearer The party whose indorsement is forged and all parties
prior to him are liable to a holder in due course. Reason. The indorsement is not
necessary to the title of the holder. The instrument can be negotiated by mere delivery
(Sec. 30)
3. Where bill payable to order The party whose indorsement is forged and all parties prior
to him are not liable even to aholder in due course. Reason. The indorsement is wholly
inoperative. The drawer is not liable on the bill and the drawee who pays under the
forged endorsement may not debit the drawers account; and
4. Where bill payable to bearer The drawee may debit the drawers account. Reason. The
forged indorsement is both necessary to the title of the holder. Hence, it does not prevent
the transfer of title.

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cashed the check despite the forged indorsement, the loss must fall upon him. A collecting
bank where a check is deposited, and which endorses the check upon presentment with the
drawee bank, is an endorser x x x The collecting bank or last endorser, generally suffers the
loss because it has the duty to ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for payment to the drawee is an assertion
that the party making the presentment has done its duty to ascertain the genuineness of the
endorsements. (See same ruling in Allied Banking Corp. vs. Lim Sio Wan, G.R. No.
133179, March 27, 2008; Citibank vs. Sps. Cabamongan, G.R. No. 146918, May 2, 2006)
PNB VS. SPS. CHEAH CHEE CHONG, G.R. NO. 170865, APRIL 25, 2012
This Court already held that the payment of the amounts of checks without previously clearing
them with the drawee bank especially so where the drawee bank is a foreign bank and the amounts
involved were large is contrary to normal or ordinary banking practice. Also, in Associated Bank v. Tan,
wherein the bank allowed the withdrawal of the value of a check prior to its clearing, we said that
[b]efore the check shall have been cleared for deposit, the collecting bank can only assume at its own
risk x x x that the check would be cleared and paid out. The delay in the receipt by PNB Buendia Branch
of the November 13, 1992 SWIFT message notifying it of the dishonor of the subject check is of no
moment, because had PNB Buendia Branch waited for the expiration of the clearing period and had
never released during that time the proceeds of the check, it would have already been duly notified of its
dishonor. Clearly, PNBs disregard of its preventive and protective measure against the possibility of
being victimized by bad checks had brought upon itself the injury of losing a significant amount of
money.
It bears stressing that the diligence required of banks is more than that of a Roman pater
familias or a good father of a family. The highest degree of diligence is expected. PNB miserably failed
to do its duty of exercising extraordinary diligence and reasonable business prudence. The disregard of
its own banking policy amounts to gross negligence, which the law defines as negligence characterized
by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not
inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as
other persons may be affected. With regard to collection or encashment of checks, suffice it to say that
the law imposes on the collecting bank the duty to scrutinize diligently the checks deposited with it for
the purpose of determining their genuineness and regularity. The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to
a high standard of conduct. A bank is expected to be an expert in banking procedures and it has the
necessary means to ascertain whether a check, local or foreign, is sufficiently funded.
RAMON K. ILUSORIO,Petitioner, vs. HON. COURT OF APPEALS, and THE MANILA
BANKINGCORPORATION,Respondents, G.R. NO. 139130, NOVEMBER 27, 2002
Petitioner further contends that under Section 23 of the Negotiable Instruments Law
a forged check is inoperative, and that Manila Bank had no authority to pay the forged checks.
True, it is a rule that when a signature is forged or made without the authority of the person
whose signature it purports to be, the check is wholly inoperative. No right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any party,
can be acquired through or under such signature. However, the rule does provide for an
exception, namely: unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority. In the instant case, it is the
exception that applies. In our view, petitioner is precluded from setting up the forgery,
assuming there is forgery, due to his own negligence in entrusting to his secretary his credit
cards and checkbook including the verification of his statements of account.

32. Who is a holder for value?

Atty. Precy C. de Jesus

Page

Value is any consideration sufficient to support a simple contract. An antecedent or preexisting debt constitutes value; and is deemed such whether the instrument is payable on
demand or at a future time. (Sec.25) Note: Consideration need not be adequate. It is
sufficient if it is a valuable one.

31. What is the presumption as to consideration when a negotiable instrument is issued?


Consideration is the cause of a contract; it is the essential reason why a party enters into a
contract. Every negotiable instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature appears thereon to have become a
party thereto for value. (Sec. 24)

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Value is any consideration sufficient to support a simple contract. An antecedent or preexisting debt constitutes value; and is deemed such whether the instrument is payable on
demand or at a future time.
Where the holder has a lien on the instrument arising either from contract or by implication of
law, he is deemed a holder for value to the extent of his lien. (Sec. 27)
Absence or failure of consideration is a matter of defense as against any person not a holder
in due course; and partial failure of consideration is a defense pro tanto, whether the failure is
an ascertained and liquidated amount or otherwise. (Sec. 28)
ENGR. JOSE E. CAYANAN VS. NORTHSTAR INTERNATIONAL TRAVEL, INC., G.R. NO.
172954, OCTOBER 5, 2011
Supreme Court have held that upon issuance of a check, in the absence of evidence to the
contrary, it is presumed that the same was issued for valuable consideration which may consist
either in some right, interest, profit or benefit accruing to the party who makes the contract, or
some forbearance, detriment, loss or some responsibility, to act, or labor, or service given,
suffered or undertaken by the other side.
Under the Negotiable Instruments Law, it is
presumed that every party to an instrument acquires the same for a consideration or for value.
As petitioner alleged that there was no consideration for the issuance of the subject checks, it
devolved upon him to present convincing evidence to overthrow the presumption and prove
that the checks were in fact issued without valuable consideration. (See Bayani vs. People, G.
R. No. 155619, August 14, 2007, 530 SCRA 84, 95) Sadly, however, petitioner has not
presented any credible evidence to rebut the presumption, as well as North Stars assertion,
that the checks were issued as payment for the US$85,000 petitioner owed.
33. Who is an Accomodation Party?
An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his name to some
other person. Such a person is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of taking the instrument, knew him to be only an accommodation
party. (Sec. 29)
Rights of the accommodation party:
a. An accommodation party is, in effect, a surety for the accommodated party. In case he
makes payment to the holder, he may sue the accommodated party for reimbursement.
b. He cannot avail of the defense of absence of consideration against a holder for value

Kinds of accommodation party:


a. Accommodation maker
b. Accommodation drawer
c. Accommodation acceptor
d. Accommodation indorser

The fact that the loans were undertaken by Gonzales when he signed as borrower or co-borrower for
the benefit of the spouses Panlilioas shown by the fact that the proceeds went to the spouses
Panlilio who were servicing or paying the monthly duesis beside the point. For signing as borrower
and co-borrower on the promissory notes with the proceeds of the loans going to the spouses Panlilio,
Gonzales has extended an accommodation to said spouses.
Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans.
In Ang v. Associated Bank, quoting the definition of an accommodation party under Section 29 of the

Atty. Precy C. de Jesus

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EUSEBIO GONZALES VS.PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA


OCAMPO, AND ROBERTO NOCEDA, G.R. NO. 180257, FEBRUARY 23, 2011

10

34. Who is an Accommodated Party?


An Accomodated Party is one whose favor a person, without receiving value thereof, signed an
instrument for the purpose of lending his credit and enabling said party to raise money upon
it. (Bautista vs. Auto Plus Traders, Inc., et al., G.R. No. 166405, August 6, 2008)
35. State the liability of the accommodation party.
a. He is not liable to the accommodated party because absence of consideration between
them is a defense against the accommodated party.
b. He is liable on the instrument to a holder for value notwithstanding such holder at the
time of taking the instrument knew him to be only an accommodation party. This means
that such absence of consideration is not a valid defense against a holder for value.
c. He is liable only to a holder for value who is a holder in due course.

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Negotiable Instruments Law, the Court cited that an accommodation party is a person who has signed
the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. The Court further explained:
[A]n accommodation party is one who meets all the three requisites, viz: (1) he must
be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he
must not receive value therefor; and (3) he must sign for the purpose of lending his
name or credit to some other person. An accommodation party lends his name to
enable the accommodated party to obtain credit or to raise money; he receives no
part of the consideration for the instrument but assumes liability to the other
party/ies thereto. The accommodation party is liable on the instrument to a holder
for value even though the holder, at the time of taking the instrument, knew him or
her to be merely an accommodation party, as if the contract was not for
accommodation.
As petitioner acknowledged it to be, the relation between an accommodation party
and the accommodated party is one of principal and suretythe accommodation
party being the surety. As such, he is deemed an original promisor and debtor from
the beginning; he is considered in law as the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter since their liabilities are
interwoven as to be inseparable. Although a contract of suretyship is in essence
accessory or collateral to a valid principal obligation, the suretys liability to the
creditor is immediate, primary and absolute; he is directly and equally bound with the
principal. As an equivalent of a regular party to the undertaking, a surety becomes
liable to the debt and duty of the principal obligor even without possessing a direct
or personal interest in the obligations nor does he receive any benefit therefrom.
Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation by Gonzales
in order to extend the credit or loan of PhP1,800,000 to the spouses Panlilio does not exonerate
Gonzales from liability on the three promissory notes.
GENEVIEVE LIM VS.FLORENCIO SABAN, G.R. NO. 163720, DECEMBER 16, 2004
As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party is
one who meets all these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor,
or indorser; (2) he did not receive value for the signature; and (3) he signed for the purpose of lending
his name to some other person. In the case at bar, while Lim signed as drawer of the checks she did
not satisfy the two other remaining requisites.
The absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued
the checks in question on account of her transaction, along with the other purchasers, with Ybaez
which was a sale and, therefore, a reciprocal contract. Specifically, she drew the checks in payment of
the balance of the purchase price of the lot subject of the transaction. And she had to pay the agreed
purchase price in consideration for the sale of the lot to her and her co-vendees. In other words, the
amounts covered by the checks form part of the cause or consideration from Ybaezs end, as vendor,
while the lot represented the cause or consideration on the side of Lim, as vendee.Ergo, Lim received
value for her signature on the checks.

36. Discuss negotiation and distinguish from an assignment.


An instrument is negotiated when it is transferred from one person to another in such manner as
to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if

Atty. Precy C. de Jesus

Page

ANG VS. ASSOCIATED BANK, G.R. NO. 146511, SEPTEMBER 5, 2007


An accommodation party is liable on the instrument to a holder for value, notwithstanding that such
holder, at the time of taking the instrument, knew him only to be an accommodation party (Sec. 29)
Since the liability of an accommodation party remains not only primary but also unconditional to a
holder for value, even if the accommodated party receives an extension of the period for payment
without the consent of the accommodation party, the latter is still liable for the whole obligation and
such extension does not release him because as far as a holder for value is concerned, he is a solidary
co-debtor.

11

Neither is there any indication that Lim issued the checks for the purpose of enabling Ybaez, or any
other person for that matter, to obtain credit or to raise money, thereby totally debunking the
presence of the third requisite of an accommodation party.

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payable to order, it is negotiated by the indorsement of the holder and completed by delivery.
(Sec. 30)
Negotiation
1. Applies only to negotiable instruments
2. Transferee is a holder
3. HDC is subject only to real defense
4.HDC may acquire a better title than that of the
prior party
5.Negotiation is covered by the NIL

Assignment
1. Applies
to contract in general including
negotiable instruments
2. Transferee is an assignee
3. Assignee is subject to both real and personal
defenses
4. Assignee merely steps into the shoes of the
assignor
5. Assignment is covered by Articles 1624 to 1635
of the Civil Code

Indorsement is the writing of the name of the indorser on the instrument itself or upon a
paper attached thereto in evidence of his transfer of the title to it, or of his assuring its
payment, or both. The signature of the indorser, without additional words, is a sufficient
indorsement. (Sec. 31)

37. State the requirements of a valid indorsement:


a. The indorsement must be written on the instrument itself or upon a paper attached
thereto;
b. It must be an indorsement of the entire instrument (Sec. 31); and,
c. It must be completed by delivery. (Sec. 191)

But the mere absence of words implying power to negotiate does not make an
indorsement restrictive. (Sec. 36)
4. Qualified indorsement - constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser's signature the words "without
recourse" or any words of similar import. Such an indorsement does not impair the
negotiable character of the instrument. (Sec. 38)
5. Absolute indorsement One by which the indorser binds himself to pay upon no other
condition than the failure of prior parties to do so, and due notice to him of such failure.
6. Conditional Indorsement - , the party required to pay the instrument may disregard the
condition and make payment to the indorsee or his transferee whether the condition has
been fulfilled or not. But any person to whom an instrument so indorsed is negotiated will
hold the same, or the proceeds thereof, subject to the rights of the person indorsing
conditionally.(Sec. 39)
7. Joint indorsement One which requires the indorsement of all the payees or indorsees to
whom the instrument is payable
8. Successive indorsement One which consists of two or more indorsements made in
succession
9. Irregular indorsement One made by a person not otherwise a party to an instrument,
who places thereon his signature in blank before delivery
10. Facultative indorsement One where the indorser enlarges his liability by waiving the
usual demand and notice of dishonor.

Rights acquired by the indorsee under a restrictive indorsement:


a. to receive payment of the instrument;
b. bring any action thereon that the indorser could bring;

Atty. Precy C. de Jesus

12

Allonge is a slip of paper where the indorsement is made, which is attached to the instrument
and considered a part thereof.
Kinds of Indorsement:
1. Special indorsement - specifies the person to whom, or to whose order, the instrument is
to be payable, and the indorsement of such indorsee is necessary to the further
negotiation of the instrument. (Sec. 34)
2. Indorsement in blank - specifies no indorsee, and an instrument so indorsed is payable to
bearer, and may be negotiated by delivery. (Sec. 34)
3. Restrictive indorsement - An indorsement is restrictive which either:
a. Prohibits the further negotiation of the instrument; or
b. Constitutes the indorsee the agent of the indorser; or
c. Vests the title in the indorsee in trust for or to the use of some other persons.

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c.

to transfer his rights as such indorsee, where the form of the indorsement authorizes him
to do so.
But all subsequent indorsees acquire only the title of the first indorsee under the restrictive
indorsement. (Sec. 37)
Where an instrument is negotiated back to a prior party, such party may, subject to the
provisions of this Act, reissue and further negotiable the same. But he is not entitled to
enforce payment thereof against any intervening party to whom he was personally liable. (Sec.
50)

38. State the effect of an indorsement of an instrument payable to bearer.


Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further
negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders
as make title through his indorsement. (Sec. 40)
39. What is the effect of delivery of an instrument payable to order?
Where the holder of an instrument payable to his order transfers it for value without indorsing it,
the transfer vests in the transferred such title as the transferor had therein, and the transferee
acquires in addition, the right to have the indorsement of the transferor. But for the purpose of
determining whether the transferee is a holder in due course, the negotiation takes effect as of
the time when the indorsement is actually made. (Sec. 49; BPI vs. CA, et al., G.R. No. 136202,
January 25, 2007)
40. What are the rights of a holder of a negotiable instrument? What are the different kinds of
holders?
1. He may sue on the instrument in his name; and,
2. He may receive payment and if the payment is in due course, the instrument is discharged.
Holder in due course - is a holder who has taken the instrument under the following conditions:
a. That it is complete and regular upon its face;
b. That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
c. That he took it in good faith and for value;
d. That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it. (Sec. 52)[Equitable PCI Bank
vs. Ong, G.R. No. 156207, September 15, 2006]
Where an instrument payable on demand is negotiated on an unreasonable length of time
after its issue, the holder is not deemed a holder in due course. (Sec. 53)
A holder in due course is always a holder for value while a holder for value may not be a
holder in due course as when the holder acquires the instrument after it was overdue.
41. State the rules where the holder receives notice of any infirmity in the instrument or defect
in the title of the person negotiating the same.
a. If he has not paid anything, he is relieved from the obligation to make payment;
b. If he still pays the transferor after receiving notice, he is not deemed a holder in due
course; and
c. If he has not yet paid the full amount agreed to be paid for the instrument, he is deemed
a holder in due course only to the extent of the amount theretofore paid by him. (Sec. 54)

SPS.PEDRO AND FLORENCIA VIOLAGO VS.BA FINANCE CORPORATION AND AVELINO VIOLAGO,
G.R. NO. 158262, JULY 21, 2008
The promissory note signed by petitioners reads:

Atty. Precy C. de Jesus

Page

43. What constitutes notice of defect?


The person to whom it is negotiated must have had:
a. actual knowledge of the infirmity or defect; and
b. knowledge of such facts that his action in taking the instrument amounted to bad faith. (Sec.
56)

13

42. When is title considered defective?


a. In the acquisition - when he obtained the instrument, or any signature thereto, by fraud,
duress, or force and fear, or other unlawful means, or for an illegal consideration (Sec. 55),
b. In the negotiation - when he negotiates it in breach of faith, or under such circumstances
as amount to a fraud. (Sec. 55)

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209,601.00

Makati, Metro Manila, Philippines, August 4, 1983

For value received, I/we, jointly and severally, promise to pay to the order of
VIOLAGO MOTOR SALES CORPORATION, its office, the principal sum of TWO
HUNDRED NINE THOUSAND SIX HUNDRED ONE ONLY Pesos (P209,601.00),
Philippines Currency, with interest at the rate stipulated herein below, in installments
as follows:
Thirty Six (36) successive monthly installments of P5,822.25, the first
installment to be paid on 9-16-83, and the succeeding monthly installments on the
16th day of each and every succeeding month thereafter until the account is fully
paid, provided that the penalty charge of three (3%) per cent per month or a fraction
thereof shall be added on each unpaid installment from maturity thereof until fully
paid.
x xxx
Notice of demand, presentment, dishonor and protest are hereby waived.
(Sgd.)
(Sgd.)
PEDRO F. VIOLAGO
FLORENCIA R. VIOLAGO
x xxx
The promissory note is clearly negotiable. The appellate court was correct in finding all the
requisites of a negotiable instrument present. The NIL provides:
Section 1.Form of Negotiable Instruments. An instrument to be negotiable must conform to
the following requirements:
1. It must be in writing and signed by the maker or drawer;
2. Must contain an unconditional promise or order to pay a sum certain in money;
3. Must be payable on demand, or at a fixed or determinable future time;
4. Must be payable to order or to bearer; and
5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
The promissory note clearly satisfies the requirements of a negotiable instrument under the NIL. It is in
writing; signed by the Violago spouses; has an unconditional promise to pay a certain amount, i.e., PhP
209,601, on specific dates in the future which could be determined from the terms of the note; made
payable to the order of VMSC; and names the drawees with certainty. The indorsement by VMSC to
BA Finance appears likewise to be valid and regular.
The more important issue now is whether or not BA Finance is a holder in due course. The resolution
of this issue will determine whether petitioners defense of fraud and nullity of the sale could validly be
raised against respondent corporation. Sec. 52 of the NIL provides:
Section 52.What constitutes a holder in due course.A holder in due course is a holder who
has taken the instrument under the following conditions:
That it is complete and regular upon its face;
That 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. That he took it in good faith and for value;
4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
The law presumes that a holder of a negotiable instrument is a holder thereof in due course. In this
case, the CA is correct in finding that BA Finance meets all the foregoing requisites:

Atty. Precy C. de Jesus

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In the present recourse, on its face, (a) the Promissory Note, Exhibit A, is complete and
regular; (b) the Promissory Note was endorsed by the VMSC in favor of the Appellee; (c) the
Appellee, when it accepted the Note, acted in good faith and for value; (d) the Appellee was never
informed, before and at the time the Promissory Note was endorsed to the Appellee, that the
vehicle sold to the Defendants-Appellants was not delivered to the latter and that VMSC had already
previously sold the vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to
Generoso Lopez, who assigned his rights to the BA Finance Corporation (Cebu Branch), the same
occurred only on May 8, 1987, much later than August 4, 1983, when VMSC assigned its rights over the
Chattel Mortgage by the Defendants-Appellants to the Appellee. Hence, Appellee was a holder in
due course.

14

1.
2.

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In the hands of one other than a holder in due course, a negotiable instrument is subject to
the same defenses as if it were non-negotiable. A holder in due course, however, holds the instrument
free from any defect of title of prior parties and from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full amount thereof. Since BA Finance
is a holder in due course, petitioners cannot raise the defense of non-delivery of the object and nullity
of the sale against the corporation. The NIL considers every negotiable instrument prima facie to have
been issued for a valuable consideration. In Salas,we held that a party holding an instrument may
enforce payment of the instrument for the full amount thereof. As such, the maker cannot set up the
defense of nullity of the contract of sale. Thus, petitioners are liable to respondent corporation for the
payment of the amount stated in the instrument.
44. What are the two kinds of defenses which may be interposed to an action upon a
negotiable instrument?
1. Real or absolute defenses Those that attach to the instrument itself and are available
against all persons including holders in due course. Examples;
a. Incapacity as far as the incapacitated person is concerned
b. Illegality of contract when declared by law except where the maker or drawer
is himself a party to its illegality; thus, a note issued for gambling debt is a
mere personal defense;
c. Want of delivery of incomplete instrument (Sec. 15)
d. Forgery (Sec. 23)
e. Want of authority, apparent and real
f. Duress amounting to forgery as where one takes the hands of another and
forces him to sign his name
g. Fraud in factum or fraud esse contractus (Sec. 14);
h. Fraudulent alteration by holder
i. Prescription
j. Other infirmities appearing on the face of the instrument (Sec. 52)
k. Discharge at or after maturity

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45. What are the rights of a holder not in due course?


a. He may sue on the instrument in his own name (Sec. 51);
b. He may receive payment and if payment is in due course, the instrument is discharged;
c. He is entitled to the instrument but holds it subject to the same defenses as if it were
non-negotiable (Sec. 58); and,
d. He has all the rights of the holder i due course from whom he drives his title in respect of
all parties prior to such holder, provided he is not himself a party to any fraud or illegality
affecting the instrument.

15

2. Personal or equitable defenses Those which grow out of agreement or conduct of a


particular person in regard to the instrument which renders it inequitable for him, though
holding the legal title, to enforce it against the party sought to be made liable but which are
not available against a holder in due course. Examples are:
a. Filling of wrong date (Sec. 13)
b. Filling up of blanks not in accordance with the authority given and within
reasonable time (Sec. 14)
c. Want of delivery of complete instrument (Sec. 16)
d. Absence or failure of consideration (Sec. 28)
e. Simple fraud or fraud in inducement (Sec. 55)
f. Acquisition of instrument by duress , or force and fear;
g. Acquisition of instrument by unlawful means;
h. Acquisition of an instrument for an illegal consideration;
i. Negotiation in breach of faith;
j. Negotiation under circumstances that amount to fraud;
k. Innocent alteration or spoliation. Spoliation is an alteration made by a
stranger to an instrument. If the original meaning can be ascertained, the
holder in due course may recover according to its original tenor;
l. Set-off between immediate parties(Sec. 58);
m. Discharge of party secondary liable by discharge of prior party (Sec. 20)
n. Discharge by payment or renunciation or release before maturity;
o. Usury, because the contract of loan itself is not void but only the agreed
interest;
p. Want of authority but agent has apparent authority.

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46. State the liabilities of parties?


PRIMARILY LIABLE:
a. Maker - engages that he will pay it according to its tenor, and admits the existence of the
payee and his then capacity to indorse (Sec. 60);
b. Acceptor of a bill of exchange; and,
c. The certifier of a check.
SECONDARY LIABLE
a. The drawer of a bill; and,
b. The indorser of a note or a bill
NOT LIABLE
The drawee until he accepts the instruments in which case he becomes an acceptor
Person primary liable is the person who, by the terms of the instrument, is absolutely required to pay
the same. All other parties are "secondarily" liable.(Sec.192)
47. State the warranties of a drawer of a bill of exchange.
Drawer by drawing the instrument:
a. Admits the existence of the payee and his then capacity to indorse; and,
b. engages that, on due presentment, the instrument will be accepted or paid, or both, according
to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be
compelled to pay it.
48. State the warranties of an acceptor?
By accepting the instrument, engages that he will pay it according to the tenor of his acceptance;
a. Admits the existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument; and,
b. Admits the existence of the payee and his then capacity to indorse. (Far East Bank & Trust
Company vs. Gold Palace Jewellery Co., Et. al., G.R. No. 168274, August 20, 2008)
SINCERE Z. VILLANUEVA VS.MARLYN P. NITE, G.R. NO. 148211, JULY 25, 2006
If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder cannot, in
view of the cited sections, sue the bank. The payee should instead sue the drawer who might in turn
sue the bank. Section 189 is sound law based on logic and established legal principles: no privity of
contract exists between the drawee-bank and the payee. Indeed, in this case, there was no such privity
of contract between ABC and petitioner.
Petitioner should not have sued ABC. Contracts take effect only between the parties, their assigns and
heirs, except in cases where the rights and obligations arising from the contract are not transmissible
by their nature, or by stipulation or by provision of law. None of the foregoing exceptions to the
relativity of contracts applies in this case.

49. State the liability of indorser of an instrument negotiable by delivery.


When a person places his indorsement on an instrument negotiable by delivery (payable
to bearer), he incurs all the liabilities of indorser. (Sec. 67)
50. State the liability of joint payees or joint indorsees who indorse.

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General Indorser
Makes either a blank or special indorsement
Indorses the instrument before its delivery to the payee
Liable only to parties subsequent to him
Irregular Indorser
Always make a blank indorsement
Indorses after its delivery to the payee
Liable to the payee and subsequent parties unless he signs for the accommodation of the
payee in which case he is liable only to all parties subsequent to the payee.

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Indorser
Drawer
1.A party to either a note or a bill
1. A party to a bill only
2.Does not make any admission regarding the 2. Makes such admission
existence of a payee and his capacity then to
indorse
The warranties of an indorse are different from those of a drawer.

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They are deemed to indorse jointly and severally. Their liability, therefore, is solidary so
that so that none can escape liability just because proper notice of dishonour was not
given to the others. But the one who pays may demand reimbursement from the others.
51. State the liability of an agent or broker who negotiates an instrument:
He incurs the liabilities of a person negotiating an instrument by delivery or by a qualified
indorsement, or of a general indorser, as the case may be, unless he discloses the name of
his principal, and the fact that he is acting only as an agent.
52. State the rules on presentment for payment.
Is the presentation of an instrument to the person primarily liable for the purpose of
demanding and receiving payment. It is necessary to charge the persons secondary liable,
namely, the drawer and the indorser. (Sec. 70) Reason: They undertake to pay only if the
instrument is dishonored. Presentment for payment is not necessary:
a. To charge the persons primarily liable;
b. When presentment is dispensed with;
c. When the bill has been dishonored by non-acceptance;
d. To charge the drawer under Section 79 and the indorser under Section 80;
e. When presentment of payment be made; and,
f. Where the instrument is payable at a fixed or determinable future time It must be
made on the date it falls due without period of grace (Sec. 85).
53. When is the instrument to be presented for payment?
Where the instrument is payable on demand:
a. Promissory note It must be made to the maker within a reasonable time after issue.
(Sec.71)
b. Bill of exchange It must be made to the drawee or acceptor within a reasonable time
after the last negotiation thereof.
54. What is the effect if presentment of payment is not made in due time?
The drawer and indorsers will be discharged from their secondary liability unless such presentment
is excused or dispensed with. But this does not mean that the indorsers are also discharged from
liability for breach of warranties
55. What constitute sufficient presentment for payment?
To be sufficient, it must be made:
a. By the holder, or by some person authorized to receive payment on his behalf;
b. At a reasonable hour on a business day;
c. At a proper place; and,
d. To the person primarily liable on the instrument, or if he is absent or inaccessible, to any
person found at the place where the presentment is made. (Sec. 72)
56. State the rules on proper place for presentment of payment.
In the following order:
1. The place for payment specified in the instrument;
2. The address of the person to make payment given in the instrument;
3. The usual place of business or residence of the person to make payment;
4. In any other case, wherever he can be found, or his last known place of business or
residence. (Sec. 73)
Note: If No. 1 is applicable, presentment made in any other place under Nos. 2, 3, and 4 will
be improper.

59. When presentment for payment not required in order to charge the drawer?
It is not required where the drawer has no right to expect or require that the drawee or acceptor will
pay the instrument (Sec. 79.), as where the drawer has stopped payment thereof, or has no funds with
the drawee.

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58. State the rules where the instrument is payable at a bank.


Presentment of payment must be made during banking hours, unless the person to make payment has
no funds there to meet it any time during the day, in which case presentment at any hour before the
bank is closed on that day is sufficient. (Sec. 75) Reason: Even if presentment is made during banking
hours, the instrument cannot be paid just the same.

17

57. How should presentment for payment be made?


The instrument must be exhibited to the person from whom payment is demanded, and when
it is paid must be delivered up to the party paying it. (Sec. 74) The right to an exhibition of the
instrument may be waived.

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60. When is presentment for payment not required in order to charge the indorser?
It is not required 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. (Sec. 80) Reason: That accommodated
payee-indorser is the real debtor
61. When presentment of payment may be dispensed with:
a. Where after the exercise of reasonable diligence presentment as required by law cannot be
made;
b. Where the drawee is a fictitious person; and
c. By waiver of presentment, express or implied. (Sec. 82)
d. Where is an instrument dishonored by non-acceptance:
e. It is duly presented for payment and payment is refused or cannot be obtained; or
f. Presentment is excused and the instrument is overdue and unpaid. (Sec. 83)
62. What is the liability of persons secondary liable when the instrument is dishonored?
They become the principal debtors. An immediate right of recourse accrues to the holder (Sec. 84)
after the giving of notice of dishonor to them. They cannot interpose the defense that the suit has
been brought first against the maker or acceptor.
63. How to compute for the time of maturity of an instrument?
Any negotiable instrument is payable at the time fixed therein without grace. When the date of
maturity falls upon Sunday or a holiday It is payable on the next succeeding day.
When the instrument falls due or becomes payable on Saturday It is also to be presented on the next
succeeding business day.
When the instrument is payable on demand It may at the option of the holder be presented for
payment before 12:00 oclock noon on Saturday, or on Monday. (Sec. 85) Reason: The presumption is
that the party primarily liable has the money ready at any time for payment.
64. How is maturity of an instrument computed?
Where the instrument is payable at a fixed period after date, after sight, or after the happening of a
specified event, the time of payment is determined by excluding the day from which the time begin to
run, and by including the date of payment. (Sec. 86)
65. State the rules where the instrument is payable at a bank.
The instrument is equivalent to an order to the bank to pay the same for the account of the principal
debtor thereon (Sec. 87). The instrument must be payable to particular named bank.
Payment in due course is the payment in the usual course of business. The requisites are as follows:
a. Payment must be made at or after the date of maturity; otherwise, it would constitute a
negotiation back to the primary party;
b. It must be made to the holder; and,
c. It must be made by the maker or acceptor in good faith and without notice that the holders
title is defective. (Sec. 88)
66. When is an instrument considered to be dishonored?
A negotiable instrument is considered to be dishonored:
a. If it is not accepted when presented for acceptance; or
b. If it is not paid when presented for acceptance; or
c. If presentment is excused or waived and the instrument is past due and unpaid.
Notice of dishonor is bringing, either verbally or by writing, to the knowledge of the drawer or indorser
of an instrument, the fact that a specified negotiable instrument, upon proper proceedings taken, has
not been accepted or has not been paid ant that the party notified is expected to pay it.
Note: If such notice is given by a notary public, it is called protest. (see Sec. 13)
Protest is required as a rule in case of foreign bills.

Section 152 of the NIL is explicit:

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Petitioner was discharged from liability under the sight draft when respondent failed to protest it for
non-acceptance by the Bank of Seoul. A sight draft made payable outside the Philippines is a foreign
bill of exchange. When a foreign bill is dishonored by non-acceptance or non-payment, protest is
necessary to hold the drawer and indorsers liable. Verily, respondents failure to protest the nonacceptance of the sight draft resulted in the discharge of petitioner from liability under the instrument.

18

MARLOU L. VELASQUEZ VS.SOLIDBANK CORP., G.R. NO. 157309, MARCH 28, 2008

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Section 152.In what cases protest necessary. Where a foreign bill appearing on its face
to be such is dishonored by non-acceptance, it must be duly protested for nonacceptance, and where such a bill which has not been previously dishonored by nonacceptance, is dishonored by non-payment, it must be duly protested for nonpayment. If it is not so protested, the drawer and indorsers are discharged. Where a bill
does not appear on its face to be a foreign bill, protest thereof in case of dishonor is
unnecessary. (Emphasis added)
However, Section 152 of the Negotiable Instruments Law under which defendant claims
extinguishment of his liability to plaintiff is not a bar to the filing of other appropriate remedies which
the aggrieved party may pursue to vindicate his rights and in this instant case, plaintiff wants his right
vindicated by virtue of the letter of undertaking which defendant signed. By the letter of undertaking,
defendant bound himself to pay on demand all damages including attorneys fees which plaintiff may
suffer arising by reason of or on account of negotiating the above draft because of the following
discrepancies or any other discrepancy or reasons whatsoever and further to pay on demand full
amount of any unpaid balance with interest at the prevailing rate. He should be bound to the
fulfillment of what he expressly obligated himself to do and perform in the letter of undertaking without
which, plaintiff would not have advance (sic) and credited to him the amount in the draft. He should
not enrich himself at the expense of plaintiff. (Emphasis added)
The object of giving notice of dishonor is two-fold:
a. To inform the parties secondary liable that the maker or acceptor, as the case may be has
failed to meet his engagement; and,
b. To advise such parties that they will be required to make payment.
67. What is the effect of failure to give notice of dishonor?
When the instrument is dishonored by non-acceptance on presentment for acceptance (bill) or by nonpayment at its maturity (both bill and note), notice of such dishonor must be given to the persons
secondarily liable namely: the drawer, if it be a bill ad each indorser, whether it be a bill or note. Any
such person to whom such notice is not given is discharged.

71. What is the effect of notice of dishonor given by the holder or by a party entitled to give
notice?

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69. When notice of dishonor not necessary?


a. To charge the persons primarily liable because they (maker and acceptor) are the very ones
who dishonored the instrument;
b. When notice of dishonor is waived;
c. When protest is waived;
d. When notice of dishonor is dispensed with;
e. To charge the drawer under Section 114 and the indorser under section 115;
f. Where due notice to dishonor by non-acceptance of a bill has been given, in which case notice
of a subsequent dishonor by non-payment is not necessary, unless in the meantime the
instrument has been accepted (Sec. 116); and,
g. Where a bill has been dishonored by non-acceptance, notice of dishonor to persons
secondarily liable is not necessary in order to charge them as to the holder in due course,
without notice of dishonor by non-acceptance. Reason: The omission to give notice of nonacceptance does not prejudice the rights of a holder in due course subsequent to the
omission (sec. 117).
70. Who may give notice of dishonor?
It may be given:
a. By the holder or another on his behalf; or
b. By or on behalf of any party to the instrument1. Who may compelled to pay it to the holder; and
2. Who, upon taking it up, would have a right to reimbursement from the party to whom the
notice is given (Sec. 90) and is, therefore, entitled to give notice. (Sec. 93)
If the notice is given by an agent, the latter need not be authorized by the principal. (Sec.
91) Reason: the giving of notice benefits the principal.

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Note: The holder is not required to notify all the indorsers. Although the law says each indorser. He
may select to hold only one or some of the indorsers and any party to whom notice is not given is
discharged.
68. When notice of dishonor necessary?
It is necessary in order to charge the persons secondarily liable, namely, the drawer and the indorser;
otherwise, such parties are discharged from liability on the instrument. (Sec. 89)

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By the holder It inures to the benefit of (a) all subsequent holders and (b) all prior parties
who have right of recourse against the party to whom it is given. (Sec. 92)
b. By a party entitled to give notice It inures to the benefit of (a) the holder and (b) all parties
subsequent to the party to whom notice is given. (Sec. 93)
72. To whom notice of dishonor must be given?
It may be given either to the party himself or to his agent in that behalf. (Sec. 97). The agent must be
authorized. Reason: The receipt of notice creates liability.
a.

73. When must notice of dishonor be given?


It must be given as soon as the instrument is dishonored and within the times fixed by law unless delay
is excused.
74. When is notice of dishonor dispensed with?
a. When, after the exercise of a reasonable diligence, it cannot be given to or does not reach the
parties sought to be discharged (Sec. 112);
b. When it is waived, expressly or impliedly (Sec. 109); and,
c. When, in cases provided by law, it need not be given to the drawer or indorser
75. Who are affected by a (express) waiver of notice of dishonor?
a. Where the waiver is embodied in the instrument itself (i.e., it appears on the face of the
instrument itself), it is binding upon all parties.
b. Where it is written above the signature of an indorser, it binds him only
76. What are the cases when notice of dishonor is not required to be given to the drawer?
a. Where the drawer and drawee are the same person;
b. Where the drawee is a fictitious person or person not having capacity to contract;
c. Where the drawer is the person to whom the instrument is presented for payment;
d. Where the drawer has no right to expect or require that the drawee or acceptor will honor the
instrument; and,
e. Where the drawer has countermanded payment. (Sec. 114)[Lopez vs. People, G.R. No.
166810, June 26, 2008]
77. What are the cases when notice of dishonor is not required to be given to the indorser?

a. Where the drawee is a fictitious person or a person not having capacity to contract, and
the indorser was aware of the fact at the time he indorsed the instrument;
b. Where the indorser is the person to whom the instrument is presented for payment;
and,
c. Where the instrument was made or accepted for his accommodation. (Sec. 115)

79. What are the rights of a party secondarily liable who discharges a negotiable instrument?
a. He is remitted to his former rights as regards all prior parties; and
b. He may strike out his own and all subsequent indorsements and again negotiate the
instrument except where
1. The instrument is payable to the order of a third person and has been paid by the drawer;
and,

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Ways by which persons secondarily liable on the instrument may be discharged.


a. By an act which discharges the instrument;
b. By the intentional cancellation of his signature by the holder;
c. By the discharge of a prior party;
d. By a valid tender of payment made by a prior party
e. By a release of the principal debtor, unless the holders right of recourse against the party
secondarily liable is expressly reserved; and
f. By any agreement binding upon the holder to extend the time payment, or to postpone the
holders right to enforce the instrument unless made with the assent of the party secondarily
liable, or unless the right of recourse against such party is expressly reserved. (Sec. 120)

20

78. Discuss discharge of instrument and its effect.


Discharge of instrument means a release of all parties, whether primary or secondary, from the
obligation arising thereunder. It renders the instrument without force and effect, and
consequently, it can no longer be negotiated.
Ways by which a negotiable instrument may be discharged:
a. By payment in due course by or on behalf of the principal debtor;
b. By payment in due course by the party accommodated, where the instrument is made or
accepted for accommodation;
c. By the intentional cancellation thereof by the holder;
d. By any other act which will discharge a simple contract for the payment of money; and
e. When the principal debtor becomes the holder of the instrument at or after maturity in his
own right

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2.

The instrument was made or accepted for accommodation and has been paid by the party
accommodated.
80. When will renunciation discharge a negotiable instrument
When it is
a. Made before, at, or after its maturity
b. Made in favor of the principal debtor or person primarily liable;
c. Absolute and unconditional; and
d. In writing or the instrument is delivered up to the person primarily liable. (Sec. 122)
Note: But a renunciation does not affect the rights of a holder in due course without notice.
81. When is cancellation of a negotiable instrument inoperative?
When made
a. Unintentionally;
b. By mistake; or
c. Without authority of the holder (Sec. 123
Note: Cancellation, however is presumed to be intentional
ANAMER SALAZAR VS.J.Y. BROTHERS MARKETING CORP., G.R. NO. 171998, OCTOBER 20, 2010
Section 119 of the Negotiable Instrument Law provides, thus:
SECTION 119. Instrument; how discharged. A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is made or accepted
for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own
right. (Emphasis ours)

And, under Article 1231 of the Civil Code, obligations are extinguished:
x xxx
(6) By novation.
Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the
dishonored Prudential bank check resulted to novation which discharged the latter check is
unmeritorious. In this case, respondents acceptance of the Solid Bank check, which replaced the
dishonored Prudential Bank check, did not result to novation as there was no express agreement to
establish that petitioner was already discharged from his liability to pay respondent the amount of
P214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed, there must
be an express intention to novate. In fact, when the Solid Bank check was delivered to respondent, the
same was also indorsed by petitioner which shows petitioners recognition of the existing obligation to
respondent to pay P214,000.00 subject of the replaced Prudential Bank check.

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Considering that when the Solid Bank check, which replaced the Prudential Bank check, was
presented for payment, the same was again dishonored; thus, the obligation which was secured by the
Prudential Bank check was not extinguished and the Prudential Bank check was not discharged. Thus,
we found no reversible error committed by the CA in holding petitioner liable as an accommodation
indorser for the payment of the dishonored Prudential Bank check.
Material Alteration is any change in the instrument which affects or changes the liability of the parties
in any way. So, putting the correct figures to make them conform to the sum written in words is not
material alteration.
Legal effects where a negotiable instrument is materially altered without the assent of all parties
liable thereon:

21

Moreover, respondents acceptance of the Solid Bank check did not result to any
incompatibility, since the two checks Prudential and Solid Bank checks were precisely for the
purpose of paying the amount of P214,000.00, i.e., the credit obtained from the purchase of the 300
bags of rice from respondent. Indeed, there was no substantial change in the object or principal
condition of the obligation of petitioner as the indorser of the check to pay the amount of P214,000.00.
It would appear that respondent accepted the Solid Bank check to give petitioner the chance to pay
her obligation.

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1. In such case the instrument is avoided except as against


a. A party who has made the alteration;
b. A party who has authorized or assented to the alteration; and
c. Subsequent indorsers; and
2. A holder in due course, not a party to the alteration of the instrument, may
thereof according to its original tenor. (Sec. 124)

enforce payment

82. What constitutes material alteration of a negotiable instrument


An alteration is material if it changes
a. The date;
b. The sum payable, either for principal or interest;
c. The time or place of payment;
d. The number or the relation of the parties; or,
e. The medium or currency in which payment is to be made, or which adds a place of payment
where no place of payment is specified, or any other change or addition which alters the effect
of the instrument in any respect (Sec. 125)
83. What is Acceptance and the requisites thereof?
Acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. (Sec.
132)
Requisites in order that acceptance shall be binding on the drawee:
a. It must be in writing;
b. It must be signed by the drawee;
c. It must not express that the drawee perform his promise by any other means than the
payment of money; and,
d. The bill must be delivered back to the holder. Before delivery or notification, the acceptor may
revoke or cancel his acceptance.

PHILACOR CREDIT CORP. VS.CIR, G.R. NO. 169899, FEBRUARY 6, 2013


"Acceptance", however, is an act that is not even applicable to promissory notes, but only to bills
of exchange. Under Sec. 132 of the Negotiable Instruments Law (which provides for how
acceptance should be made), the act of acceptance refers solely to bills of exchange. Its object is to
bind the drawee of a bill and make him an actual and bound party to the instrument.
84. Where may acceptance be made?
Acceptance may be on the bill itself or a separate instrument such as in a letter or telegram.
Acceptance on a separate paper may be either an acceptance of an existing bill (Sec. 134) or an
acceptance of a future or non-existing bill. (Sec. 135)
In a constructive acceptance (Sec. 137), there is no actual written acceptance by the drawee. The holder
may require that the acceptance be written on the bill and if such request is refused, may treat the bill
as dishonored. (Sec. 133)
85. What is the effect if an acceptance is written on a paper other than the bill itself?
It does not bind the acceptor except in favor of a person to whom it is shown and who, on the faith
thereof, receives the bill for value. (Sec. 134)

88. What is the liability of a drawee who destroys or refuses to return a bill presented for
acceptance?
Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses
within 24 hours after such delivery, or within such other period as the holder may allow, to
return the bill accepted or non-accepted to the holder, he will be deemed to have accepted
the same. (Sec. 137) This is known as constructive acceptance.
89. When may acceptance be made?
It may be made

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87. What is the time allowed for the drawee within which to accept?
The drawee is allowed 24 hours after presentment within which to decide whether or not he will accept
the bill; but the acceptance, if given, dates as of the day of presentation (Sec. 136)

22

86. When is a promise to accept equivalent to acceptance?


An unconditional promise in writing to accept a bill before it is drawn is deemed an actual acceptance
in favor of every person who, upon the faith thereof, receives the bill for value. (Sec. 135)

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1.
2.
3.

Before the bill has been signed by the drawer or while otherwise incomplete;
Even after it is overdue; and,
Even after it has been dishonored by non-acceptance or non-payment. (Sec. 138)
Note: An instrument does not lose its negotiable character by the mere fact that it is already
overdue or it has been dishonored.

90. What are the kinds of acceptance?


a. Actual One made expressly in writing and signed by the drawee;
b. Constructive
c. General
d. Qualified
91. When is acceptance qualified?
An acceptance is qualified which is:
a. Conditional - makes payment by the acceptor dependent on the fulfillment of a condition
therein stated;
b. Partial an acceptance to pay part only of the amount for which the bill is drawn;
c. Local an acceptance to pay only at a particular place;
d. Qualified as to the time; or
e. The acceptance of some, one or more of the drawees but not of all
92. What is the effect of a qualified acceptance on the liability of the drawer and indorsers on

a bill?
They will be discharged, unless they authorized the holder to take a qualified acceptance or
subsequently assent thereto. Reason: They engage that the bill will be paid as drawn or indorsed by
them, and the effect of a qualified acceptance would be to make a contract for them without their
consent.
Presentment for acceptance is the production or exhibition of a bill of exchange to the drawee for his
acceptance. The words presentment for acceptance also include presentment for payment.
93. What are the cases wherein presentment for acceptance is necessary?
1. Where the bill is payable after sight, or in any other case, where presentment for acceptance is
necessary in order to fix the maturity of the instrument. Reason: It is essential to fix the
maturity date of the instrument which is computed from the date of its presentment; or
2. Where the bill expressly stipulates that it shall be presented for acceptance. Reason: To
comply with the express stipulation of the parties in the bill itself; or

3. Where the bill is drawn payable elsewhere than at the residence or place of business of the

2. Where the drawee has absconded;


3. Where the drawee is a fictitious person;

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96. Requisites in order that presentment for acceptance may be proper:


1. It must be made by or on behalf of the holder;
2. It must be made at a reasonable hour;
3. It must be made on a business day;
4. It must be made before the bill is overdue and within a reasonable time; and
5. It must be made to the drawee or some person authorized to accept or refuse acceptance on
his behalf.
6. Note; The place of presentment for acceptance is not material since the drawee need only
write his acceptance on the bill if he wishes to accept.
97. When is presentment for acceptance excused?
1. Where the drawee is dead;

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drawee. Reason: To inform the drawee of the existence of the bill so that he can make
arrangement for its payment at the place designated therein
94. Cases when a bill need not be presented for acceptance:
If it is
a. Payable on demand;
b. Payable at sight;
c. Payable on a fixed day;
d. Payable at a certain number of days after a fixed event; and
e. Payable at a certain number of days after date.
95. When will failure to present a bill for acceptance release the drawer and indorsers
The holder of a bill which is required to be presented for acceptance must either present it for
acceptance or negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers are
discharged. (Sec. 144)

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4. Where the drawee is a person not having capacity to contract by will;


5. Where, after the exercise of reasonable diligence, presentment cannot be made; or,
6. Where, although presentment has been irregular, acceptance has been refused on some other
ground.
98. When a bill is dishonored by non-acceptance?
1. When it is duly presented for acceptance, and acceptance is refused or cannot be obtained; or
2. When presentment for acceptance is excused and the bill is not accepted. (Sec. 148)
99. What is the duty of the holder in case the bill is not accepted?
The person presenting the bill must treat it as dishonoured by non-acceptance or he loses the
right of recourse against the drawer and indorsers. (Sec. 150)
100. What are the rights of a holder of a bill dishonored by non-acceptance?
After giving notice of dishonor and protesting when required, he may immediately proceed against the
drawer and indorsers without waiting for the date of maturity. Reason: Payment cannot be expected
after acceptance has been refused. Hence, presentment for payment is not necessary unless the bill is
subsequently accepted.
Promissory Note - unconditional promise in writing made by one person to another, signed by the
maker, engaging to pay on demand, or at a fixed determinable future time, a sum certain in money to
order or bearer. Where a note is drawn to the makers own order, it is not complete until indorsed by
him. (Sec. 184, NIL)
101. When is promissory note like a bill of exchange
When a note is indorsed by the payee it becomes just like a bill. The maker corresponds to the
acceptor, the indorser to the drawer, and the indorsee , to the payee.
Check - is a bill of exchange drawn on a bank payable on demand.(Sec. 185, NIL)
102. What time must a check be presented for payment?
A check must be presented for payment within a reasonable time after its issue; otherwise, the drawer
will be discharged from liability thereon to the extent of the loss caused by the delay (Sec. 186)
Note: The only loss which would be sustained by the drawer in case presentment was not made within
a reasonable time would be caused by the insolvency of the bank subsequent to the delivery and prior
to the presentment of the check.
103. What are the effects of certification of a check?
1. It is equivalent to acceptance (Sec. 187);
2. It discharges persons secondarily liable if procured by the holder (Sec. 188)
3. It operates as an assignment of the funds of the drawer in the hands of the drawee bank (Sec.
189)
4. The payee or holder, for all intents and purposes, becomes the depositor of the drawee bank;
5. The bank becomes the primary debtor and cannot thereafter refuse to pay it; and
6. The drawer may not issue a stop payment order on the certified check
104. How is the certification of a check made?
Certification must be in writing either on the check itself or on a separate instrument. The usual form is
by stamping or writing upon the check the word certified and underneath it is the signature of the
proper officer. It has been held that the certification by a bank of a check being good is sufficient.
Purpose of certifying a check
The certification of checks enables persons not well acquainted with each other to close promptly
business transactions since the holder knows that he can compel the drawee bank to cash it.

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105. What are the cases where a bank may rightfully refuse to pay checks drawn against it?
(a) The bank is insolvent;
(b) The drawers deposit is insufficient or he has no account with the bank or said account had
been closed or garnished;
(c) The drawer is insolvent and proper notice is received by the bank;
(d) The drawer dies and proper notice is received by the bank;
(e) The drawer has countermanded payment;
(f) The holder refuses to identify himself;
(g) The bank has reason to believe that the check is a forgery; or
(h) The check is a stale or post-dated.

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When does a check operate as an assignment of the funds of the drawer to the credit of the payee or
holder
The moment the check is accepted or certified by the bank on which it is drawn. (Sec. 187) The
represented by the check are no longer his.

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ROBERT DINO VS.MARIA LUISA JUDAL-LOOT, G.R. NO. 170912, APRIL 19, 2010
In the case of a crossed check, as in this case, the following principles must additionally be considered:
A crossed check (a) may not be encashed but only deposited in the bank; (b) may be negotiated only
once to one who has an account with a bank; and (c) warns the holder that it has been issued for a
definite purpose so that the holder thereof must inquire if he has received the check pursuant to that
purpose; otherwise, he is not a holder in due course.
Based on the foregoing, respondents had the duty to ascertain the indorsers, in this case Lobitanas,
title to the check or the nature of her possession. These respondents failed to do. Respondents
verification from Metrobank on the funding of the check does not amount to determination of
Lobitanas title to the check. Failing in this respect, respondents are guilty of gross negligence
amounting to legal absence of good faith, contrary to Section 52(c) of the Negotiable Instruments Law.
Hence, respondents are not deemed holders in due course of the subject check.

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However, the fact that respondents are not holders in due course does not automatically mean that
they cannot recover on the check. The Negotiable Instruments Law does not provide that a holder who
is not a holder in due course may not in any case recover on the instrument. The only disadvantage of
a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were
non-negotiable. Among such defenses is the absence or failure of consideration, 14 which petitioner
sufficiently established in this case. Petitioner issued the subject check supposedly for a loan in favor
of Consings group, who turned out to be a syndicate defrauding gullible individuals. Since there is in
fact no valid loan to speak of, there is no consideration for the issuance of the check. Consequently,
petitioner cannot be obliged to pay the face value of the check.

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