NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y.
2016-2017
NEGOTIATION
WHAT CONSTITUTES NEGOTIATION
Section 30. What constitutes negotiation 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 payable to order, it is
negotiated by indorsement of the holder completed by delivery.
Mode of transfer of bill or note, in general
Transfer the process by which property is delivered by one person to
another.
A BOE or PN may be transferred from one person to another in several
different ways, and for different purposes, and with different types of
indorsement which result or may result in the acquisition of different
rights or interests.
Meaning of negotiation
The transfer of a negotiable instrument from one person to another
made in such manner as to constitute the transferee the holder thereof.
Important: The term expresses the mode and effect of the transfer of
a NI. Thus, there is no negotiation of the transfer does not make the
transferee the holder of the instrument.
METHODS OF TRANSFERRING A NI
THREE METHODS OF TRANSFERRING A NI
1. Issue the first delivery of the instrument, complete in form, to a
person who takes it as holder. It is the first transfer of an
instrument to a payee, where a NIs legal life begins.
2. Negotiation ordinarily involves indorsement, so both terms are
often used interchangeable. Negotiation makes it possible for the
transferee to acquire a better right to a NI that the transferor had.
3. Assignment the less usual method, which may or may not
involve an indorsement. Here, the assignee acquires the
instrument subject to the rules applicable to non-negotiable paper.
METHODS OF NEGOTIATION
METHODS OF NEGOTIATION
For purposes of negotiable instruments law, valid negotiation depends
on the type of negotiable instruments, the promissory notes and bill of
exchange and further subdivided into bearer or order instruments.
A. Instrument payable to order two steps are required for its
negotiation:
(1) Indorsement by the present holder
(2) Delivery to the next holder
Important: Under Section 74, the instrument must be exhibited
when presented for payment to the person from whom payment
is demanded. The party paying may thus judge the genuineness
of the indorsements and of the right of the holder to receive
payment.
B. Instrument payable to bearer negotiated by mere delivery
without need of indorsement.
Bearer the person in possession of a bill or note which is payable
to bearer.
1|U N I V E R S I T Y O F S A N C A R L O S
Type of instrument Method of negotiation
Bearer Instrument Mere delivery
Order Instrument Indorsement + delivery
Important: While a thief or finder cannot acquire title to the
instrument, by virtue of the theft, he can transfer title to a subsequent
innocent purchaser.
Example: Tanya issues a note payable to bearer. The note was stolen
from Tanyas home by Feds who delivered the note to Bads. Feds
acquisition of the note does not constitute delivery. There is no
negotiation to Feds, because delivery must be voluntary. However, the
delivery to Bads who acted in good faith, constitutes negotiation.
Payment of instrument by drawee is not negotiation
The payment of a check or other bill by the drawee bank is not a
negotiation and does not make the bank a holder within Section 30.
Payment effects a discharge of the instrument, not a transfer of title
thereto.
Here, the bank is neither the payee nor the indorsee. The check is thus
extinguished and cannot be put in circulation again so as to bind the
drawer or indorser.
Important: The writing of the name of the holder on the back of the
check before surrendering the same for payment to the drawee bank is
not an indorsement. It merely serves as a receipt for the money.
Effect of delivery of order instrument without indorsement
There is no negotiation, thus, the transferee would not be the holder of
the instrument. The transfer operates merely as an ordinary assignment
and the assignee is merely placed in the position of the assignor, subject
to all defenses, real and personal, available against the assignor.
What is the remedy of the assignee?
To have the indorsement of the assignor. (Section 49) When such
indorsement is subsequently obtained, the transfer operates as a
negotiation only as of the time the indorsement is made.
Relevant provision
Section 49. Transfer without indorsement; effect of Where the holder
of an instrument payable to his order transfers it for value without
indorsing it, the transfer vests in the transferee 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 to the time when the indorsement is actually
made.
Important: The lack of any indorsement does not preclude the
assignees right to enforce the note. It merely prevents him from
obtaining the status of the holder, but he can still seek to collect from
the maker as an assignee and owner of the note.
ASSIGNMENT
ASSIGNMENT
Meaning of assignment
A transfer of the title to the instrument, with the assignee generally
taking only such title as his assignor has, subject to all defenses available
against his assignor.
Assignment of instrument
A bill or note, whether negotiable or non-negotiable, may be transferred
by assignment.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017

Sesbreno v. Court of Appeals 2. Delivery to payee does not constitute as negotiation

Absent an express prohibition against assignment or transfer written on
the face of a non-negotiable instrument, the same may be assigned or This is because the delivery to payee forms part of the creation
transferred. Thus, a PN marked non-negotiable but not at the same of the negotiable instrument. Negotiation, on the other hand, is
time stamped non-transferable or non-assignable may be assigned believed to be involving an already existing negotiable instrument.
or transferred.
At the point when the instrument is still being delivered to the
Negotiation and assignment distinguished payee, there is no negotiable instrument to speak of. It will only
Negotiation is strictly the transfer of a NI to a holder. While a NI may become a negotiable instrument the moment it is already
be either negotiated or assigned, a non-negotiable instrument can only delivered to the payee.
be assigned, not negotiated.
Reconciliation of the two views
The other distinctions include:
GR: Delivery to payee is not negotiation.
Negotiation Assignment XPNs: Delivery to payee is negotiation in two instances:
Refers only to negotiable Refers generally to an ordinary
instruments contract 1. If the maker or drawer does not directly transfer the instrument to
The transferee is a holder Transferee is an assignee the payee but to a third person, like an agent.
HDC is subject only to real Assignee is subject to both real
defenses and personal defenses If the maker or drawer has an agent, A, and said agent delivers
HDC may acquire a better title the instrument to P, only then will the delivery to the payee be
or greater right under the considered negotiation because there is already one delivery to the
An assignee merely steps into agent.
instrument than those
the shoes of the assignor
possessed by the transferor or
prior party Atty. Amago: This does not make sense since an agent is the
General indorser warrants the Assignor does not warrant the representation of the principal, who is the maker or drawer. So,
solvency of prior parties solvency of prior parties, unless delivery to the payee would still be like delivery made by the maker
expressly stipulated or the or drawer. But there are authors who think that this could already
insolvency is known to him constitute negotiation.
Indorser is not liable unless
Assignor is liable even without 2. When payee who is a prior party becomes a holder again after a
there be presentment and
notice of dishonor series of negotiations.
notice of dishonor
Governed by the Civil Code
Governed by the NIL (Arts 1624-1635) Example:

Important: The distinction is not material if there is no defense to the
obligation and only the maker is sought to be held. But whether the
transfer of a bill or note is by negotiation or assignment, the transfer
may constitute a sale, exchange, pledge or gift.
Payment by means of instrument merely conditional
Whether the act involved is negotiation or assignment, payment by
means of PNs or BOEs and other negotiable instruments is merely
conditional subject to the condition that they be converted into cash
at maturity.
Take note: The rule is different in insurance, because acceptance of a
PN or check in payment of the premium by the insurer renders the policy
immediately operative, where the policy is silent as to the mode of
payment.
NEGOTIATION TO A PAYEE
CAN THERE BE NEGOTIATION TO A PAYEE?
There are two views:
1. Delivery to payee constitutes negotiation.
An instrument, to be negotiable, has to be delivered first to the
payee; otherwise, there is no negotiable instrument. After all, for
an instrument to become negotiable, it requires that it must form
part of a transaction first. The only way you can say it forms part
of a transaction is when it is delivered to the payee, which is the
main contract of the instrument - to pay a sum certain in money
to the payee.
MPABCDP
In this case, delivery by D to P is considered as negotiation.
Important: Because the only way a person, other than the maker,
drawer and payee, can become a party to the instrument is through
negotiation. Note that the maker, drawer and payee are already parties
to the instrument.
DELIVERY OF A NEGOTIABLE INSTRUMENT
KINDS OF DELIVERY
Delivery is the transfer of possession, actual or constructive.
A. Actual delivery
B. Constructive delivery where A, without Bs knowledge, indorses
an instrument to B and puts it into an envelope containing other
papers of B.
Atty. Amago: It can be actual or constructive. However, since it is a
negotiable instrument, there can be no constitutum possessorium
(delivery whereby a possessor of a thing as an owner retains possession
no longer as an owner but in some other capacity, like from owner to
tenant). There could possibly be longa manu (delivery by pointing out
the object) but the person still has to get the instrument which is actual
delivery. But it is accepted that there could be constructive delivery of a
negotiable instrument.
Necessity of delivery
Delivery is an essential part of every negotiation, whether the
instrument be bearer or order. Indorsement means an indorsement
completed by delivery.

2|U N I V E R S I T Y O F S A N C A R L O S
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
Important: Intent to be bound is necessary to the creation of an
obligation, and delivery of the NI is the operative fact that evidences the
intention of the maker or drawer to become bound by it.
Presumption
Delivery is presumed from possession. However, such is only prima facie
and can thus be rebutted by evidence to the contrary.
XPN: Possession by a holder in due course presumption of delivery is
conclusive.
CONDITIONAL DELIVERY
Delivery may be conditional.
A. Condition precedent
Parol evidence is admissible to show that the instrument was to
become operative as a contract only upon the happening of a
future, contingent event.
Example: M delivers his PN to P stating orally that the note is not
to take effect until P delivers to M a deed to certain property. P
fails to deliver the deed. Here, evidence of the oral agreement is
admissible to show that the note which purports to be a contract
is in fact no contract at all.
B. Condition subsequent
Where an instrument is unconditionally delivered as an operative
contract, parol evidence is not admissible to show a parol condition
(not expressed in writing) attached to the obligation of the
contract.
Example: M is sued by P on a PN given by M in part payment of his
tuition fee. M testifies that P promised orally that M would be
released on the note if M should decide to discontinue with his
course, which he did. Here, the testimony of M is not admissible as
it is in direct contradiction of the written contract. Its admission
would violate the parol evidence rule.
HOW INDORSEMENT IS MADE
INDORSEMENT, HOW MADE
Section 31. Indorsement; how made The indorsement must be
written on the instrument itself or upon a paper attached thereto. The
signature of the indorser, without additional words, is a sufficient
indorsement.
MEANING AND NATURE OF INDORSEMENT
Indorsement
The act of writing the signature of the indorser at the back of the
instrument (Generally at the back of the instrument but can be
anywhere).
TN: Only requirement is signature of indorser. That is why there are
indorsements classified as blank and classified as special, because, at
the very least, a signature of an indorser is needed.
Parties
1. Indorser the payee by signing or indorsing the instrument and
delivering it to another becomes an indorser.
2. Indorsee the person who receives the indorsement instrument.
He can indorse the instrument to someone else and thus become
an indorser as well.
3|U N I V E R S I T Y O F S A N C A R L O S
Important: Indorsement alone without delivery conveys no title and
creates no holder. It must be indorsement completed by delivery. It
applies to both bills and notes.
Where there is no signature of indorser but name of indorsee is
placed
There is no valid indorsement because what is required is the signature
of the indorser as provided under Sec. 31.
An indorsement is not only a mode of transfer
It involves also a new contract and an obligation on the part of the
indorser an implied guaranty that the instrument will be duly paid
according to the terms thereof.
Effect to the indorser: By his indorsement, the indorser becomes a party
to the instrument and may be held liable for its payment even without
receiving any consideration therefor.
Important: Each indorsement generates an additional contract
between the indorser and all subsequent holders.
An indorsement involves the certainty of two things:
1. The identity of the indorser (as being the payee or true owner)
2. The genuineness of his signature
TN: It is the duty of a person cashing or paying on an instrument to
ascertain both before paying.
Important: But the acceptor does not admit the genuineness of the
indorsers signature.
Indorsement and assignment distinguished
The two terms are to be distinguished in that the latter is broader, and
sometimes to include the former. It is however a common practice to
speak of the indorsement of negotiable and the assignment of non-
negotiable, instrument in blank.
NECESSITY OF INDORSEMENT
It is necessary to:
1. Execution of an instrument payable to the order of the maker or
drawer,
2. Negotiation of an order instrument
It is not necessary to:
1. A mere assignment of a negotiable or non-negotiable instrument.
Thus, one may not acquire title to such instrument without
indorsement.
Important: But without indorsement of an order instrument, he cannot
be a holder in due course thereof, even though he is entitled to have
the indorsement made.
FORM OF INDORSEMENT
No particular form required
The only minimum requirement is that it must be written or in writing.
As writing includes print, the indorsement may be made by rubber stamp
or typewritten.
Effect of the use of the word assign
It does not make a negotiation a mere assignment.
Example: I assign all my rights and interests in this note. Sgd. P. It
cannot be said that P intends to limit the rights of the person to whom
he transfers the instrument.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
PLACE OF INDORSEMENT
The indorsement may be written:
1. On the instrument itself
Indorsement is derived from the Latin word indorsa which literally
means writing on the back. However, it may also be written on
the face thereof. The place is not essential.
2. Upon a paper attached thereto
Where indorsement is on a slip of paper physically attached to the
instrument so as to become part of it the paper is known as
ALLONGE.
Important: When it is not clear in what capacity a person intended to
sign, he shall be deemed an indorser.
Use of allonge for indorsement
Q: Whether an allonge can be used whether or not there is still room in
the instrument?
A: It is immaterial whether there is still room or not. Why should a space
be material when some indorsements are on an attached piece of paper?
INDORSEMENT MUST BE OF ENTIRE INSTRUMENT
Section 32. Indorsement must be of entire instrument The
indorsement must be an indorsement of the entire instrument. An
indorsement which purports to transfer to the indorsee a part only of
the amount payable, or which purports to transfer the instrument to
two or more indorsees severally, does not operate as a negotiation of
the instrument. But where the instrument has been paid in part, it may
be indorsed as to the residue.
GENERAL RULE, EXCEPTION
General rule: Indorsement must be of the entire instrument. It cannot
be partial. This is because the instrument must be delivered to the
indorsee and there cannot be partial delivery of one instrument. This is
to avoid multiplicity of suits. A bill or note divided into different parts
divides the cause of action.
Example: If the instrument is for the amount of P1 million, you cannot
indorse it for the amount of P400k, P500k or P600k. It has to be for the
full P1 million.
Important: The transferee of an instrument with a partial indorsement
is merely an assignee. He would not be considered a holder but merely
an assignee. Consequently, he would be subject to all defenses available
between the original parties.
Exception: Indorsement can be partial when the instrument is partially
paid. This happens when the instrument is payable by installment.
Example: An instrument is payable in 12 months time. During the
second month, 20% has already been paid. The remaining 80% can just
be endorsed. It will not require the indorsement of the full amount since
a part of it has already been paid for.
INDORSEMENT TO MULTIPLE PAYEES OR INDORSEES
Can you have an indorsement made to two or more indorsees?
A: No. There cannot be joint or several indorsees, only joint or several
payees. You can only have joint indorsement if the instrument is payable
to two or more payees severally or jointly. You cannot have any other
indorsement to two or more persons.
Important: There can only be joint payees, but not joint indorsees.
4|U N I V E R S I T Y O F S A N C A R L O S
Reasons:
1. To avoid multiplicity of suits, and
2. To discourage indorsement for partial amounts
Example: An instrument with an amount of P1,000 is indorsed to two or
more payees jointly. So, there are joint indorsees. There is no stopping
these indorsees from indorsing only a part of what they owe.
If one indorsee is the owner of 50% of the value of the instrument, he
has the legal right to indorse the instrument to the extent of P500. If
the other indorsee does not want to indorse the instrument just yet,
then there will be a conflict between them. So the framers of the law,
other than to avoid multiplicity of suits, intend to discourage partial
indorsements of the instrument by not allowing joint or several
indorsees.
Important: You can only have joint indorsement if it refers to payees,
but not to succeeding indorsers. Indorsees referred in Sec. 41 would
also be the same as payees. There will never be joint indorsees in a
different sense because it would run counter to Sec. 32. Only when there
are joint or several payees where joint indorsement is allowed.
INDORSEMENT OF INSTRUMENT PAYABLE TO BEARER
Section 40. Indorsement of 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.
Effect of indorsement where instrument originally payable to
bearer
An instrument payable to bearer is not converted into an order
instrument by being indorsed specially. Thus, the indorsee may further
negotiate the instrument by mere delivery.
Important: Section 40 is only applicable to instrument which is
originally a bearer instrument. This cannot apply to an instrument which
WAS originally an order instrument that became a bearer instrument.
Liability of the indorser
A. His liability is that of a general indorser.
B. Liable only to those holders who can trace their title to the
instrument by a series of unbroken indorsements from such special
indorser.
Atty. Amago: The person who specially indorses a bearer instrument
is liable just like any other indorser. Usually, in a bearer instrument, a
transferor will not be liable to all parties but only to parties of immediate
transferee because the transferors warranty only extends to his
immediate transferee. But if the bearer instrument is indorsed, the
person making the indorsement will be liable like any other indorser but
only to parties who can trace their title to the indorsement that was
made.
How will you know that you are a party that can trace title to
the indorsement?
There must be a series of unbroken indorsement.
Example:
Originally a bearer instrument
D SI BI BI D D
M P A B C D E F
Legend:
D Delivery
SI Special Indorsement
BI Blank Indorsement
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017

In this case, if M, the person primarily liable, will not pay, F can go after
E only because there is no series of unbroken indorsements. The series P = liable to A
was broken when D merely delivered the instrument to E. Title can only and B as a
be traced if there is series of unbroken indorsements in the sense that A indorses the general indorser
there is continuous indorsement. note to B who Pay to A (Sgd. P)
negotiates the A = liable to B
Important: This rule will only apply where the instrument is originally same to C by Pay to B (Sgd. A)
a bearer instrument but not where the instrument is originally an order mere delivery. B = liable to C
instrument and becomes a bearer instrument. Under Section
65 (warranties)
Another example:

Originally an order instrument Effect of a blank indorsement in an order instrument

SI SI BI SI D SI D A blank indorsement converts an order instrument into a bearer
M P A B C D E F
Can F go after C and D despite the break of the delivery?
A: Yes, F can still go after C and D because this is originally an order
instrument. The fact alone that there was blank indorsement would have
caused the instrument to be a bearer intrument but it was still further
negotiated. On the other hand, if it was originally a bearer intrument F
cannot go after C and D because there was a break in the instrument.
If an order instrument was indorsed by a blank indorsement and
thereafter it was specially indorsed, it will still be converted into an order
intrument.
TN: The conversion of an order instrument to a bearer instrument will
only hold true if the last indorsement is a blank indorsement.
Another example:
instrument. It will only be true if it is the last indorsement. If there are
still subsequent indorsements (of any kind), it will not be considered as
such. But the holder has the right to strike out those subsequent
indorsements.
JOINT INDORSEMENT
Section 41. Indorsement where payable to two or more persons.
Where an instrument is payable to the order of two or more payees or
indorsees who are not partners, all must indorse unless the one
indorsing has authority to indorse for the others.
Two or more payees or indorsees jointly
An instrument may be payable to the order of:
1. Two or more payees jointly (and)
2. One or some of several payees
TN: All must indorse to effect negotiation.

Originally an order instrument Important: Section 41 does not apply to instruments payable to two
SI SI BI D D (2) or more payees severally, like Pay to the order of P or A for they
M P A B C D are governed by Section 8 (3) and may be negotiated by any of such
alternative payees irrespective of the share corresponding to each in the
instrument.
Discuss the rights of D.
A: D can go after M, the party primarily liable. He can also go to C Joint indorsement by all payees or indorsees
because he is the immediate transferor. He can also go after A and B All must indorse in order for the transaction to operate as a negotiation.
despite the break of the indorsement because this instrument is If only one indorses, his indorsee would have no right of action for said
originally an order instrument. D can also go after P and A. instrument.

Reason: When you made the instrument, you didnt have any
qualifications as to whom you can pay. It is an indorsement to all
subsequent parties.
Example in the book:
MPABC
P and A = indorsers
Situation Effect
M issues a PN To negotiate the note to A, P
payable to P or needs only to deliver the
bearer and same to A. Indorsement is
delivers it to P. not necessary.
A may nevertheless
negotiate to B by mere
If P indorses delivery. However, B will
the instrument have no rights against P
to A since B did not obtain his
title through Ps
indorsement.
XPNs:
1. Where the payees or indorsees are partners
2. Where the payee or indorsee indorsing has authority to indorse for
the others
Section 41 should be interpreted in light of Partnership law
Under Partnership Law, a partnership has a separate and distinct
personality from the partners composing it. Thus, an indorsement of an
instrument payable to P and A as partners doing business under a firm
Who is liable name must be in the name of such firm, and not in the name of both P
and A. But of course, the partner indorsing must have authority, express
or implied, to sign for the partnership.
M
Payment of an instrument over a missing indorsement
It is equivalent to:
A. Payment on a forged instrument
B. Unauthorized indorsement in the case of joint payees
Important: One who credits the proceeds of a check to the account of
M = maker the indorsing payee is liable in conversion to the non-indorsing payee
A = indorser for the entire amount of the check.
Indorsement to a co-payee
Indorsement and delivery of the instrument by one of the two joint
payees to his co-payee may transfer full title to the latter.
\

5|U N I V E R S I T Y O F S A N C A R L O S
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017

A, B, C, D are called intervening indorsers. The prior parties cannot

RIGHT OF PRIOR PARTY TO NEGOTIATE
go after them because P is reverted to his original position. Whatever
Section 50. When prior party many negotiate instrument Where an may be his status at the time he received the instrument will also be his
instrument is negotiated back to a prior party, such party may, subject status the next time he reacquired the instrument.
to the provisions of this Act, reissue and further negotiate the same.
But he is not entitled to enforce payment thereof against any A prior party can continue to negotiate the instrument for as long as the
intervening party to whom he was personally liable. intrument constinues to be negotiable, and as long as the instrument
has not been discharged by payment or otherwise. In the example, P
still has the right to negotiate the instrument. P can go to F and G. G
REACQUIRER
now has the right to strike out the indorsements made by those parties
Section 50 refers to a reacquirer or a holder who negotiates an
who are not necessary to his title. G may strike out the indorsements
instrument and then subsequently reacquires it.
made by A, B, C, D as they are not necessary to his title. Its as if P gave
it to F. Its as if F got its title from M-P-F.
Effect if a prior party reacquires an instrument before maturity
He may negotiate the same further. But after paying the holder, he may
not claim payment from any of the intervening parties. The law, to avoid
Another example:
multiplicity of suits, denies an action to a party thus situated.
MPABPC
XPNs:
1. If the instrument passed through his hands without indorsement
2. It had been indorsed by him without recourse If C strikes out A and Bs indorsement, it is as if the flow of the
instrument will be M-P-C. The effect however is that A and B will be
Important: In these two cases, there could be no objection founded discharged from liabilities. He cannot go after any of them anymore.
on his prior holding or indorsement, to the maintenance of an action by
him against the parties liable on the instrument. KINDS OF INDORSEMENT

Example: M makes a note payable to the order of P. It is indorsed Section 33. Kinds of indorsement An indorsement may be either
successively as follows: special or in blank; and it may also be either restrictive or qualified, or
conditional.
1. Pay to A (Sgd. P)
2. Pay to B (Sgd. A)
CLASSIFICATIONS OF INDORSEMENT
3. Pay to C (Sgd. B)
4. Pay to D (Sgd. C)
1. As to the methods of negotiation
5. Pay to B (Sgd. D)
6. Pay to E (Sgd. B) (a) Special Blank

Rights of B: 2. As to the kind of title transferred

In this case, B, a prior party, reacquires the note. He may further (a) Restrictive
negotiate the same to any subsequent holder (E). However, B may not (b) Non-restrictive
sue C and D to whom he was personally liable before his reacquisition.
Otherwise, C and D should also be able to hold B, a prior indorser, liable 3. As to scope of liability of indorser
to them. This would result in multiplicity of suits. Thus, Bs rights would
be limited to M, P, and A. (a) Qualified
(b) Unqualified or general
Rights of E:
E, the present holder, could have a right of recourse not only against M, 4. As to presence or absence of limitations
P, A, and B, but also against C and D. (a) Conditional
(b) Unconditional
Limitations on renegotiation
GR: A prior party who reacquires the instrument may further negotiate 5. Other kinds of indorsements
the same. (a) Joint
(b) Successive
XPNs: A prior party cannot further negotiate the instrument: (c) Irregular or anomalous
1. Where it is payable to the order of a third person, and has been (d) Facultative
paid by the drawer.
2. Where it was made or accepted for accommodation and has been SPECIAL INDORSEMENT AND INDORSEMENT IN BLANK
paid by the party accommodated.
3. In other cases, where the instrument is discharged when acquired Section 34. Special indorsement; indorsement in blank A special
by a prior party. indorsement specifies the person to whom, or to whose order, the
instrument is to be payable; and the indorsement of such indorsee is
INTERVENING INDORSERS necessary to the further negotiation of the instrument. An indorsement
in blank specifies no indorsee, and an instrument so indorsed is payable
These are the parties in between the prior party and the party who again to bearer, and may be negotiated by delivery.
became the holder of the instrument.
SPECIAL INDORSEMENT
Example:
Definition
M P A B C D P F G One where the name of the payee is specified. It is also known as
specific indorsement or indorsement in full. Special and blank
indorsements are unqualified indorsements.

6|U N I V E R S I T Y O F S A N C A R L O S
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
Two forms
1. One that specifies the person to whom the instrument is payable
(Pay to A)
2. One that specifies the person to whose order the instrument is to
be payable. (Pay to the order of A)
TN: In either case, the indorsement must be followed by the signature
of the indorser.
No need for words of negotiability
It is not necessary to use the words of negotiability (i.e. or order or
to the order of and their omission does not affect the negotiability of
an instrument which is negotiable on its face.
Important: Once an instrument has become negotiable because it has
complied with Sec. 1, it will continue to be negotiable unless:
1. Restrictively indorsed or
2. Discharged by payment or otherwise
TN: In fact, any indorsement cannot affect the negotiability of the
instrument (except restrictive indorsement which prohibits further
negotiation of instrument)
Atty. Amago: It is wrong to simply say paid or payment because
an instrument can still be negotiable even if paid. It has to be discharged
by payment or otherwise. So, for example, a person who is not primarily
liable paid for the instrument, it does not result to a discharge of the
instrument.
Negotiation of order or bearer instrument
A. If instrument is originally payable to order if it is negotiated by
the payee by special indorsement, the indorsement of the indorsee
is necessary to the further negotiation of the instrument.
B. If instrument is originally payable to bearer may be negotiated
by mere delivery even if the original bearer indorsed it specially.
However, the indorser is liable only to such holders as may make
title through his indorsement.
Important: An instrument originally payable to bearer is not converted
into an order instrument by being indorsed specially. Thus, the indorsee
may further negotiate the instrument by mere delivery.
BLANK INDORSEMENT
Definition
One which specifies no particular indorsee. Such generally consists only
of the signature of the payee or indorser.
Effect of a blank indorsement
An instrument indorsed in blank becomes payable to bearer. Thus, it
may be negotiated by mere delivery regardless of whether the
instrument is originally payable to bearer or not.
BLANK INDORSEMENT; HOW CHANGED TO SPECIAL
Section 35. Blank indorsement; how changed to special indorsement
The holder may convert a blank indorsement into a special
indorsement by writing over the signature of the indorser in blank any
contract consistent with the character of the indorsement.
Conversion of blank indorsement to special indorsement
As a rule, an instrument made payable to order becomes payable to
bearer if the only or last indorsement is in blank. However the holder
may protect himself from liability by changing the blank indorsement to
a special indorsement.
7|U N I V E R S I T Y O F S A N C A R L O S
How a blank indorsement is converted to blank indorsement
By writing above the signature of the indorser a contract consistent with
the intention of the indorser.
Example:
Signed A
To convert this to special indorsement, simply place the contract
intended by the indorser by writing name of indorsee above the
signature of indorser if it was the intention of the indorser to transfer
the instrument to indorsee. So,
Pay to B
Signed A
You would know who the indorsee is because the person who will
convert the blank indorsement to a special indorsement is the current
holder.
Bearer instrument converted to order instrument
An instrument payable to bearer by an indorsement in blank may be
converted into an order instrument by writing over the signature of the
indorser in blank any contract not inconsistent with the character of the
indorsement.
Example: M makes a note payable to P or order (order instrument). If P
indorses it especially to A, then A indorses it to B in blank, the instrument
is converted into a bearer instrument.
Pay to A (Sgd. P)
----- (Sgd. A)
B, as the holder of the instrument with the blank indorsement, may
protect himself against the possibility of loss of title through subsequent
negotiation, i.e by a thief, by converting it into a special indorsement
by writing over the signature of A the words Pay to B, thereby
indorsing it to himself.
Pay to A (Sgd. P)
Pay to B (Sgd. A)
Can you place a qualification as to the indorsement?
A: No, because the fact that it is a blank indorsement means that the
intention of the parties is really not to put any condition or qualification
as to the indorsement.
The contract consistent with the intention of the indorser is an
unqualified or unconditional indorsement. You cannot add any other
words in the indorsement. You can just place your name as indorsee
and nothing else.
Holder cannot write any contract inconsistent with the
character of the indorsement
It means that it must not change the contract of the blank indorser, like:
1. Adding protest waived or demand and notice waived or
without recourse
2. Adding the words I guaranty payment
Important: All these constitute material alteration which would avoid
the instrument. The second example would in effect deprive A of the
right of notice in case of dishonor.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017

Atty. Amago: There is restriction in this type of indorsement in

RESTRICTIVE INDORSEMENT
Section 36. When indorsement restrictive An indorsement is
restrictive which either:
(a) Prohibits the further negotiation of the instrument
(b) Constitutes the indorsee the agent of the indorser
(c) Vests the title in the indorsee in trust for or to the use of some
other person
But the mere absence of words implying power to negotiate does not
make an indorsement restrictive.
Restrictive indorsement
It is true that the signature of the indorser without additional words is a
sufficient indorsement (blank indorsement). However, appropriate
words may be added which prohibit or limit the further negotiation of
an instrument.
Thus, a restrictive indorsement is one so worded that it either:
3. Vests title in indorsee for the benefit of the indorser or a
1. Prohibits entirely the further negotiation of an instrument
2. Restricts its further negotiation to a particular person or for a
particular purpose
3. Modifies the rights of the holders or the liabilities of the indorser
the sense that it is not the full rights on the instrument which are
transferred. It is only the rights of the indorsee, who received the
restrictive indorsement, which can be transferred to the person to
whom the instrument is further negotiated.
Example: X is holder of instrument. If X transfers it to A so A will
act as his agent, what A can transfer to subsequent parties is his
right as an agent of X. The instrument does not cease to be
negotiable; it only restricts the rights to be transferred.
Atty. Amago: Thats why in Section 37(c), it provides that one of
the effects of restrictive indorsement is conferring to the indorsee
the right to transfer his rights as such indorsee, where the
indorsement authorizes him to do so. This means that there can be
a restrictive indorsement which allows indorsee to transfer the
instrument to another. It is only Sec. 36 (a) which can cause the
instrument to be non-negotiable.
third party
Example:

Limits rights of indorsee Pay to Danrey in trust for Atty. Amago

A restrictive indorsement notifies all prospective holders that the
indorsee has only the authority to deal with the instrument as thereby Sgd. Atty. Amago
directed and that the indorsee has only a restrictive title thereto.
The indorsement is in trust for the indorser. Whatever is the right
THREE CLASSES OF RESTRICTIVE INDORSEMENT
of Danrey that is the only right which can be transferred to
succeeding indorsees, just like in the case of an agent. His right is
1. Prohibits further negotiation
merely a trustee of the trustor. The rights that may be acquired by
all the parties after Danrey are merely that of a trustee and no
This is only the restrictive indorsement which causes the
other rights because the effect of restrictive indorsement is just to
instrument to be non-negotiable for all purposes because of the
transfer the rights of the indorsee.
fact that this prohibits the further negotiation of the instrument.
Other examples:
Examples:
(a) Pay to A as trustee for P
(b) Pay to A as agent of P
(a) Pay to Danrey only (c) Pay to A for my use
(b) Pay to Danrey and to no other person
(c) Pay to Danrey exclusively. Here, the indorsement transfer the legal title to the instrument to
(d) Pay to Danrey solely A as trustee for B or P, the beneficial owner. This gives notice that
the paper cannot be negotiated by A for his own debt or for his
Important: All other types of restrictive indorsement do not have
own benefit.
the same result of causing the instrument to cease from being
negotiable. The other types of restrictive indorsement restrict the
Important: The only kind of indorsement which stops the further
negotiation of the instrument but only to the limited extent.
negotiation of an instrument is a restrictive indorsement which prohibits
the further negotiation thereof.
TN: The prohibition to transfer or negotiate must be written in
express words at the back of the instrument, so that any
Effect of absence of words of negotiability
subsequent party may be forewarned that it ceases to be
Mere absence of words implying power to negotiate does not make an
negotiable.
indorsement restrictive. Thus, Pay to A is the same as Pay to order of
A or Pay to A or order.
2. Constitutes indorsee as agent of the indorser
Important: However, if a restrictive word such as only is employed
This does not cause the instrument to be non-negotiable. Its effect
so as to prevent further negotiation, the instrument is not only
is transferring only the rights of the last restricted indorser.
restrictively indorsed but it also ceases to be negotiable.
Example: Indorsement says, Pay to A for collection. Then, A
transfers the instrument to B. While A does not state any
qualification as to his indorsement, what can be transferred to B is
only the right to collect for the instrument in behalf of whoever
indorsed the instrument to A.

There is restriction in the sense that it is not the full rights on the
instrument which are transferred. What can be transferred by the
indorsee of a restrictive indorsement is only his rights as provided
in the restrictive indorsement.

8|U N I V E R S I T Y O F S A N C A R L O S
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
EFFECTS OF RESTRICTIVE INDORSEMENT
Relevant provision
Section 37. Effect of restrictive indorsement; rights of indorsee A
restrictive indorsement confers upon the indorsee the right
(a) Too receive payment of the instrument
(b) To bring any action thereon that the indorser could bring
(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.
Rights of indorsee in restrictive indorsement
1. Receive payment on the instrument
2. Sue thereon in his name
3. Negotiate the instrument, except when it is prohibited in the
indorsement
Important: However, the rights of the indorsees subsequent to the
first indorsee are subject to the terms of the restrictive indorsement.
Example: P A B
Pay to A for collection (Sgd. P). Here, A is merely an agent of P and
any action he may file on the instrument is thus subject to defenses
available against P, his indorser.
If A negotiates the instrument to B, a subsequent indorsee, B acquires
only the title of A, whose right is merely to collect. If P has already been
paid, A and B cannot enforce the instrument anymore.
QUALIFIED INDORSEMENT
Section 38. Qualified indorsement A qualified indorsement
constitutes the indorser a mere assignor of the title to the instrument.
It may be made by adding to the indorsers signature the words
without recourse or any words of similar import. Such an indorsement
does not impair the negotiable character of the instrument.
Qualified indorsement
One which constitutes the indorser a mere assignor of the title of the
instruments.
Atty. Amago: Indorser is merely an assignor because in this type of
indorsement, he does not engage to pay the instrument in case the
person primarily liable does not pay. In other words, he does not
guarantee the solvency of the person primarily liable.
An indorsement may be qualified by adding to the indorsers signature
the words like:
1. Without recourse
2. Sans recourse
3. At indorsees own risk
4. Indorser not holder
Examples:
1. Pay to the order of A without recourse on me. (Sgd. P)
2. Pay to A, indorser not holder. (Sgd. P)
Important: Parties subsequent to the qualified indorsee would know
that the indorser does not intend to pay the instrument in case the
person primarily liable does not pay him
Recourse
A resort to a person who is secondarily liable after the default of the
person who is primarily liable.
9|U N I V E R S I T Y O F S A N C A R L O S
Important: An indorsement without recourse does not affect the
negotiable quality of an instrument. It merely shows unwillingness to be
answerable for the solvency of prior parties a prudent precaution,
particularly where the note has a long time to run before it matures.
Q: Do the words I hereby transfer and assign all my right, title and
interest appearing above the signature of the indorser constitute an
indorsement without recourse?
A: There is a conflict of opinion. Some say that they constitute a
negotiation and render the writer liable as an indorser and not as an
assignor to an innocent holder. However, some courts hold that the
same is a qualified indorsement as they are of similar import as without
recourse. They limit the right acquired by the transferee to those which
the transferor had and thus constitute him as a mere assignor.
Important: An indorsement to be qualified, must use words as to
clearly express such intention.
Qualified indorsers liability
Qualified indorser may still be required to pay but only if the reason is
breach of his warranties as qualified indorser and not because of
insolvency of the person primarily liable.
EFFECT OF QUALIFIED INDORSEMENT
1. It makes the indorser a mere assignor to the instrument
The purpose of a qualified indorsement without recourse is to
transfer title without guaranteeing payment by the primary party.
Thus, the indorser is merely an assignor.
Important: M P A. If M cannot pay because of insolvency
and such insolvency was not known to P, the qualified indorser, A
cannot make P pay. The effect of qualified indorsement is to
exempt P from paying the instrument in case of default of M. So A
cannot recover the amount of the note from P.
2. Limits the liability of the indorser
It does not mean that the qualified indorser incurs no liability at all.
He is secondarily liable for breach of his warranties as an indorser
under Section 65.
Important: Warranty liability is still present even if the
indorsement is qualified, unless such indorsement specifically
excludes warranties.
Thus, he is liable if the instrument is dishonored by non-acceptance
or non-payment due to:
(a) Forgery
(b) Lack of good title to the indorsed instrument
(c) Lack of capacity to contract of prior parties
(d) Fact that the instrument was valueless or not valid at the time
of the indorsement which fact was known to him.
Important: The qualified indorser however is not liable to the
indorsee if the instrument is dishonored for some other reason like
insolvency of the person primarily liable.
3. Does not impair the negotiable character of the instrument
Qualified indorsement is a god precaution where the instrument
has a long period of maturity such that there is danger that the
principal debtor might become insolvent. But it does not in any way
affect the negotiability of the instrument.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
CONDITIONAL INDORSEMENT
Section 39. Conditional indorsement Where an indorsement is
conditional, a 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.
Absolute indorsement
One which the indorser binds himself to pay, upon no other condition
than the failure of prior parties to do so, and of due notice to him of
such failure.
Conditional indorsement
One by which the indorser imposes some other conditions to his liability
or on the indorsees right to collect the proceeds of the instrument.
Important: This will not affect the negotiability of the instrument.
However, the condition must be on the indorsement and not on the
instrument itself. Condition placed on the instrument will affect
negotiability since Sec. 1 requires an unconditional promise or order to
pay.
Effect of conditional indorsement
It has no effect on the further negotiation of the instrument. The party
required to pay, if he chooses, may make payment, disregarding the
condition without incurring any liability because he is expressly
authorized to do so under Section 39. However, the person who received
payment will hold the proceeds subject to the right of the conditional
indorser.
Atty. Amago: In other words, if the party required to pay the
instrument decided to pay the holder despite the non-fulfillment of the
condition, the holder will have to hold the proceeds of the payment in
trust of the conditional indorser until the condition is fulfilled. Therefore,
the parties may disregard the condition placed on the indorsement.
Example: M P A. Here, M makes a note for P50k payable to P or
order who indorses as follows: Pay to A on completion of the
construction by him of my house. (Sgd. P)
A. If A has not finished the construction of Ps house, M may refuse
to pay A on the ground that the condition has not been fulfilled yet.
B. M may disregard the condition and pay A. However, A holds the
proceeds in trust for P and does not become the owner thereof
until the condition is fulfilled.
C. If condition is not complied with, he must turn over the P50k to P,
the person indorsing conditionally.
Another example:
Pay to A if he passes the bar exam.
Sgd. B
If the person primarily liable makes payment to A before the bar exam,
A holds the proceeds in trust of B until the condition is fulfilled.
Different combinations of indorsements
Special and restrictive Pay to A only (Sgd. P)
Special and qualified Pay to A without recourse (Sgd. P)
Pay to A if he marries before he
Special and conditional
reaches the age of 25 (Sgd. P)
10 | U N I V E R S I T Y O F S A N C A R L O S
Blank and restrictive For collective only (Sgd. A)
Blank and qualified Without recourse (Sgd. A)
Blank and conditional Payable upon completion of my house
in Pateros, Metro Manila (Sgd. A)
Special, unrestrictive,
Pay to B (Sgd. A)
unqualified
OTHER RULES
INDORSEMENT TO A PERSON AS CASHIER
Section 42. Effect of instrument drawn or indorsed to a person as
cashier Where an instrument is drawn or indorsed to a person as
cashier or other fiscal officer of a bank or corporation, it is deemed
prima facie to be payable to the bank of corporation, of which he is
such officer; and may be negotiated by either the indorsement of the
bank or corporation, or the indorsement of the officer.
Indorsement where instrument drawn or indorsed to a person
as cashier
The cashier of a bank, president of a corporation, or any other
administrative officer, as secretary or treasurer, may be:
A. Expressly authorized to issue negotiable paper for the corporation
B. May have such power from implication by reason of having
previously exercised the power.
Johnson v. Buffalo Bank
Where S was cashier of C bank, a certificate of deposit issued by C bank
to order of S cashier was indorsed S cashier and came to the plaintiff,
a holder in due course, it was held that the indorsement was that of the
bank, and it was not competent for the bank to show that S acted in his
own interest and in violation of his duty to the bank.
Cashier of the University of the Philippines
Deemed prima facie payable to said university and may be negotiated
by the university through the indorsement of any of its duly authorized
officers.
Corporation
Not to include cities and towns, so that no authority is conferred upon a
town treasurer to impose upon his town the liability of an indorser.
Important: The presumption in this section may be disproved by
sufficient evidence to the contrary. It may be shown that the instrument
really belongs to the cashier personally as the real creditor of the maker
or drawer.
INDORSEMENT WHERE NAME IS MISPELLED
Section 43. Indorsement where name is misspelled, and so forth.
Where the name of a payee or indorsee is wrongly designated or
misspelled, he may indorse the instrument as therein described,
adding, if he thinks fit, his proper signature.
Indorsement where name misspelled, etc.
Where the name of the payee or indorsee is Luz M. Villamayor when
the surname should spell Villamor, the instrument may be indorsed as
therein described, thus:
(Sgd.) Luz M. Villamayor
(Sgd.) Luz M. Villamor
Important: A person may correct a spelling error only if the intention
of the maker or drawer was that the instrument should be payable to
the person making the correction. Any variance should be ignored if the
payee and the indorser are the same person.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
INDORSEMENT PER PROCURATION AND REP CAPACITY
Section 21. Signature by procuration; effect of A signature
by"procuration" operates as notice that the agent has but a 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.
Section 20. Liability of person signing as agent, and so forth Where
the instrument contains or a person adds to his signature words
indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was
duly authorized; but the mere addition of words describing him as an
agent, or as filling a representative character, without disclosing his
principal, does not exempt him from personal liability.
Section 44. Indorsement in representative capacity Where any
person is under obligation to indorse in a representative capacity, he
may indorse in a representative capacity, he may indorse such terms
as to negative personal liability.
Indorsement per procuration
The indorsement is subject to a limited authority. The other party
dealing with this type of indorsement must inquire as to the scope of
authority of the indorser.
It may be expressed as per pro. per proc. P.P. or PP.
Atty. Amago: If the authority is for the full indorsement, it is well and
good. But if the authority is only limited as when it is only for half of the
amount to be indorsed, the other party should not accept it because
there cant be partial negotiation or indorsement of the instrument. If
he does, he is estopped from claiming otherwise and the principal
cannot be held liable for the full amount.
What must the agent do to not be bound principally
If an agent of a party does not want to be bound principally to the
indorsement, he must specify:
1. The name of the principal and
2. The capacity of the agent must be indicated.
Otherwise, he will be held personally liable.
Example: If Sir Amago is an agent of Dean Largo and he signs above
her name without specifying his capacity for acting as an agent, he will
be personally liable.
How do you negate your personal liability?
Section 20. The person must add to his signature words indicating that
he signs in behalf of the principal or that he is acting in a representative
capacity.
PRESUMPTION AS TO PLACE AND TIME OF INDORSEMENT
Section 45. Time of indorsement; presumption Except where an
indorsement bears date after the maturity of the instrument, every
negotiation is deemed prima facie to have been effected before the
instrument was overdue.
Section 46. Time of indorsement; presumption Except where an
indorsement bears date after the maturity of the instrument, every
negotiation is deemed prima facie to have been made at the place
where the instrument is dated.
Presumption as to time of indorsement
There is a presumption that the instrument is negotiated before it
became overdue.
11 | U N I V E R S I T Y O F S A N C A R L O S
Reason: To be consistent with the presumption that every holder is a
holder in due course. Otherwise, the parties after negotiation cannot
become holder in due course.
Presumption as to place of indorsement
Indorsement is presumed to have been made at the place where the
instrument is dated. However, said presumption is rebuttable.
Important: The place of indorsement becomes important where the
law in different countries varies. In such a case, an indorsement is
governed by the law of the state where it is made although the
instrument is executed in a different state.
Example: Suppose a note is dated as follows: Manila, December 10,
2013.
If it is subsequently indorsed by the payee without indicating the place
of indorsement, the presumption is that, the indorsement was made in
Manila. He who alleges otherwise has the burden of proof.
CONTINUATION OF NEGOTIABLE CHARACTER
Section 47. Continuation of negotiable character An instrument
negotiable in its origin continues to be negotiable until it has been
restrictively indorsed or discharged by payment or otherwise.
Continuation of negotiable character of originally negotiable
instrument
GR: An instrument negotiable in origin is always negotiable until paid.
Important: This is true although the negotiable instrument has been
dishonored, or is already overdue, but any holder who acquires the
instrument can no longer be a HDC. An instrument indorsed after it
becomes overdue is considered payable on demand.
XPNs:
1. When the instrument has been restrictively indorsed, or
2. When it has been discharged by payment or otherwise
Important: Not every restrictive indorsement prohibits the further
negotiation of the instrument. Thus, the words restrictively indorsed
in this section should be construed to refer only to such restrictive
indorsement as prohibits further negotiation of the instrument.
How instrument is 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.
TN: Mutilation of the instrument if intentional, is a form of discharge.
Example: You have a check and you tore it out of anger. The person
can be discharged from the instrument. The parties primarily liable
cannot anymore go after the person because the check is already
mutilated. But if it was unintentional, say, you let your child hold the
check and the child cut it into pieces, it cannot discharge the instrument.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
STRIKING OUT INDORSEMENT
Section 48. Striking out indorsement The holder may at any time
strike out any indorsement which is not necessary to his title. The
indorser whose indorsement is struck out and all indorsers subsequent
to him, are thereby relieved from liability on the instrument.
WHEN HOLDER MAY STRIKE OUT INDORSEMENT
A. An instrument payable to bearer on its face
May be negotiated by mere delivery without indorsement.
Nothwithstanding a special indorsement, it remains a bearer
instrument and may be further negotiated by mere delivery.
Important: The holder may strike out all intervening
indorsements or any of them for none of them is necessary to his
title. The persons whose indorsements were struck out, will be
freed from liability.
B. An instrument originally payable to order
May be negotiated only by the indorsement of the payee completed
by delivery.
(a) When indorsement is special the indorsement of the
special indorsee is necessary to the further negotiation of
the instrument.
(b) When the indorsement is in blank the instrument becomes
payable to bearer and may be negotiated by mere delivery.
Important: An instrument originally payable to order becomes
payable to bearer when the only or last indorsement is in blank.
Hence, when a blank indorsement is followed by special
indorsements, and the holder strikes out all indorsements
subsequent to the blank indorsement the instrument would
become payable to bearer.
The special indorsements are not necessary to the holders title
as even without them, he could have acquired title to the
instrument by mere delivery.
Examples:
Originally an order instrument
SI SI BI SI D SI D Time for determining whether holder in due course
M P A B C D E F As of the time of actual indorsement. Thus, if by that time, the holder
F can strike out the indorsement of B to C as well as C to D because
they are not necessary to convert it into a bearer intrument. There will
still be the same effect even if they will be stricken out.
Originally an order instrument
SI SI BI SI D
M P A B C D
Here, only Bs indorsement can be stricken out.
Important: You can only strike the indorsements which are not
necessary to your title. However, the parties stricken out will be
discharged of their liabilities.
12 | U N I V E R S I T Y O F S A N C A R L O S
EFFECT OF TRANSFER WITHOUT INDORSEMENT
Section 49. Transfer without indorsement; effect of Where the
holder of an instrument payable to his order transfers it for value
without indorsing it, the transfer vests in the transferee 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 to the time when the indorsement is actually
made.
Important: This section is applicable only to an instrument payable to
order, as the indorsement of the payee is necessary to its negotiation.
What this section contemplates
Where the payee or indorsee delivers said instrument for value without
however indorsing it.
Effect: Equitable assignment and the transferee acquires the instrument
subject to defenses and equities available among prior parties. He
cannot negotiate the same.
Important: The special indorsee should likewise indorse it if he wants
to negotiate it further.
Rights of the transferee
1. If the transferor had legal title, transferee acquires such title
2. He has the right to have the indorsement of the transferor
3. Right to maintain legal action against the maker or acceptor or
other party liable to the transferor.
Before indorsement is made, transferee is not a holder of the
instrument
He is neither a holder because he is not a payee or indorsee, nor a
bearer because the instrument is not payable to bearer. The negotiation
takes effect as of the time the indorsement is actually made.
Important: Section 49 speaks of transfer without indorsement of an
instrument for value. Thus, if the transfer is gratuitous, the donee-
transferee has no right to compel the donor-transferor to make the
indorsement, although as legal owner, he has the right to sue thereon.
Effect of indorsement after transfer
The indorsement converts the transfer into a negotiation and makes
the assignee a holder, the indorsee of the instrument.
already had notice of the absence of consideration, he cannot be a
holder in due course.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017

RIGHTS OF A HOLDER PAYMENT IN DUE COURSE

RIGHT TO PAYMENT AND SUE FOR PAYMENT Relevant provision

Section 88. What constitutes payment in due course.- Payment is
Section 51. Right of holder to sue; payment The holder of a made in due course when it is made at or after the maturity of the
negotiable instrument may sue thereon in his own name; and payment instrument to the holder thereof in good faith and without notice that
to him in due course discharges the instrument. his title is defective.

Holder, payee, indorsee defined What payment can discharge an instrument?

Payment in due course
Holder Payee Indorsee
How will it discharge an instrument?
The payee or The person to Payment is made in due course when it is made at or after the maturity
indorsee of a bill or The person to whom the of the instrument to the holder thereof in good faith and without notice
note who is in whom the instrument was that his title is defective.
possession of it, or instrument was negotiated by
the bearer thereof, originally issued by indorsement and/or RIGHTS OF A HOLDER IN GENERAL
entitled to receive the maker or drawer delivery
the sum for which it RIGHTS OF A HOLDER IN GENERAL
calls.
1. To sue using his name

Important: The term holders include not only persons possessing A holder may sue on the instrument in his name.
bearer instruments but also payees but also order instruments.
Under Sec. 51, a holder even though he be a holder only for
Rights of a holder: collection may sue in his own name.
1. Sue using his name
2. To receive payment for the instrument The indorsee (pledgee) of a note, as a collateral security, may
sue as he is a holder within this section.
CLASSES OF HOLDERS
A person who is neither the payee nor a holder of a bad check
CLASSES OF HOLDERS: has neither the personality to sue nor a cause of action
1. Holder simply against the drawer.
2. Holder not in due course
3. Holder in due course Where a negotiable instrument has been in circulation, and
there is no defense between the antecedent parties, a
Ordinary holder or mere holder purchaser of such instrument as collateral security is entitled
A person who qualifies as a holder but does not meet all the conditions to recover thereon against the maker, the whole amount
to qualify as a holder in due course. regardless of what he may have paid therefor.

The rights of a holder 2. To receive payment for the instrument

The holders have the same rights in the sense that they can sue using
their names and also receive payment for the instrument. If the payment
is in due course, it can discharge the instrument.
Important: But some parties have more rights as in the case of a
holder in due course. A holder in due course holds the instrument:
1. Free from any defect of title of prior parties. A holder of a
negotiable instrument has more rights than the prior parties, even
the immediate transferor.
2. Free from defenses available to prior parties (only personal
defenses).
3. He may enforce payment of the instrument for the full amount
thereof against all parties liable thereon.
TN: These rights are not available to a holder not in due course, nor to
holders simply. Holders simply are the holders who are currently holding
it without any right to the instrument.
If the payment is in due course, the instrument is discharged.
Payment in due course payment made:
(a) At or after the maturity of the instrument
(b) Holder thereof
(c) In good faith and without notice that his title is defective
Payment must be made at or after maturity to discharge the
instrument for if the instrument is paid before maturity, the prior
party who reacquires the same, may reissue and further negotiate
it under Sec. 50.
Rights of a transferee of unindorsed instrument to sue
A transferee of unindorsed instrument is certainly not a holder as
defined by Sec. 191, and, therefore, cannot be a holder in due course
under Sec. 52.

Relevant provision It is believed, nevertheless, that he may do so. If the transfer vests in
the transferee such title as the transferor had (Sec. 49) and if the
Section 59. Rights of a holder in due course. A holder in due course transferor had legal title, this must pass by the transfer although subject
holds the instrument free from any defect of title of prior parties, and to defences.
free from defenses available to prior parties among themselves, and
may enforce payment of the instrument for the full amount thereof
against all parties liable thereon.

13 | U N I V E R S I T Y O F S A N C A R L O S
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
HOLDER IN DUE COURSE
WHAT CONSTITUTES A HOLDER IN DUE COURSE
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:
(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 had been previously dishonoured, 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.
HOLDER IN DUE COURSE
A holder who took the instrument under the conditions enumerated in
Sec. 52. He takes the instrument free of most defences, or adverse
claims to it by other parties.
Only negotiation can operate as a valid transfer to make the
transferee a holder in due course.
1. Presence of all the conditions
All the four conditions must concur in order to qualify a person
as a holder in due course. Absent of any, the holder cannot
be considered a holder in due course.
By the term holder the law refers to the payee or indorsee
of a bill or note, who is in possession of it, or the bearer
thereof.
2. Status as a mere assignee
A holder of a non-negotiable instrument cannot attain the
status of a holder in due course. He is a mere assignee subject
to defences.
A transferee who receives an instrument other than by issue
or negotiation cannot acquire the status of a holder in due
course.
3. Presumption
Every holder is generally deemed prima facie a holder in due
course.
Burden of proving otherwise lies in the person who disputes
the presumption.
4. Rights of the holder in due course/not a holder in due course
The only disadvantage of a HNDC is that the instrument is
subject to defences as if it were non-negotiable.
A HDC on the other hand, takes the instrument free of many
defences that exist between the original parties.
14 | U N I V E R S I T Y O F S A N C A R L O S
WHAT CONSTITUTES A HOLDER IN DUE COURSE
That it is complete and regular upon its face
A. Complete when it complied with all the formalities under Sec 1.
B. Regular when the face of the instrument does not give any
doubts as to its authenticity, i.e. erasures, superimpositions and
even blanks.
TN: In writing and signed by the maker the maker does not need to
be the one to write the instrument; the maker only needs to sign.
That he became the holder of it before it was overdue, and
without notice that it had previously dishonoured, if such was
the fact
Q: What is the reason why these 2 conditions are lumped into one?
A: Because an instrument that is overdue is most likely dishonored.
It renders the instrument non-negotiable. All the more reason if the
instrument was previously dishonoured. If it was not overdue but is still
rendered dishonoured, as when the drawee did not accept the
instrument, the holder cannot become a holder in due course.
When is an instrument overdue?
1. If the time provided already lapsed
(If payable on demand, date of maturity is date of presentment)
2. If an instrument is a promissory note, after the lapse of reasonable
time from its date of issuance
Without notice that it had previously dishonored
It is possible that an instrument is dishonoured even before it becomes
overdue, as when there is non-acceptance by a drawee.
Example: A BoE which is supposed to be presented for acceptance but
the drawee does not accept it, even before it reaches the maturity date.
The person who ought to be primarily liable on the instrument will not
pay on the instrument. So there is no person from whom you can
demand. It is deemed dishonored in this case.
That he took in good faith and for value
A. In good faith simply absence of bad faith.
B. For value when there is a consideration sufficient to support a
simple contract.
Ex. I have an obligation to you worth 10M, it has been 5 years since I
took the loan. I never paid. All of a sudden I issued a negotiable
instrument, a check worth 1M and you gave me 1 peso. Is that for value?
Ans 1 peso is not sufficient to support a simple contract compared to
the 1M check. Then, it is a case to case basis.
TN: In negotiable instruments law, love is not a sufficient consideration.
Q: Why are they lumped in one condition?
A: Because person who takes the instrument for value is most likely in
good faith. Why would you part with your money if you are not fair in
your dealing?
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.
Infirmity
An instrument worth 100k on its face, but it was written by your friend
whom you know would issue an instrument worth 10k. There was an
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
alteration made in the instrument. Alterations can be considered as an
infirmity.
Defect
1. The instrument was negotiated to a person on account of murder.
(This is a defect in the title)
2. When you pay for an instrument worth 1M but you paid for it at
1,000pesos. (This is also a defect in your title)
3. When you stole the instrument. (This is the most common case)
Q: When notice of infirmity or defect makes one a holder not in due
course
A: Notice of any defect in the instrument will only affect the status as
the holder in due course if it is acquired at the time the instrument was
negotiated. If it is after that, then it will already be irrelevant.
PAYEE AS A HOLDER IN DUE COURSE
Entitled to the same protection under Sec. 52?
1. Contrary view
Sec. 52(4), the holder in due course must have acquired the
instrument through negotiation and an instrument is issued and
not negotiated to the payee.
2. Affirmative view
There can be no doubt that a proper interpretation of the Act as
whole leads to the conclusion that a payee may be a holder in due
course under any of the circumstances in which he meets the
requirements of Sec.52. With reference to the definition of a
holder in Sec. 191.
Yang v. Court of Appeals
The weight of authority sustains the view that a payee may be a holder
in due course.
DRAWEE AS A HOLDER IN DUE COURSE
While a payee may be a HDC, a drawee does not, by paying a bill,
become a HDC under Sec. 52.
A holder refers to one who has taken the instrument as it passes along
in the course of negotiation towards the drawee and not the drawee
who, on the acceptance and payment of the instrument, thereby strips
it of all the negotiability and reduces it to a mere voucher or proof of
payment.
HOLDER NOT IN DUE COURSE
Relevant provision
Section 53. When person not deemed holder in due course. - 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.
Holder in due course on instrument payable on demand.
If the negotiation of a demand instrument is made outside of the
reasonable time after its issue, the holder cannot be deemed a holder
in due course.
Reasonable time It depends upon the facts of the case. Regard is to
be had to the nature of the instrument, the usage of trade or business
(if any) with respect to such instruments, and the facts of the particular
case.
15 | U N I V E R S I T Y O F S A N C A R L O S
RIGHTS OF HOLDER IN DUE COURSE
Section 57. Rights of holder in due course A holder in due course
holds the instrument free from defect of title of prior parties, and free
from defenses available to prior parties among themselves, and may
enforce payment of the instrument for the full amount thereof against
all parties liable thereon.
Rights of a holder in due course
1. Holds the instrument free from defect of title of prior parties
2. Holds the instrument free from defenses available to prior parties
among themselves
3. Enforce payment of the instrument for the full amount thereof
against all parties liable thereon
PRESUMPTION OF HOLDER IN DUE COURSE
Section 59. Who is deemed holder in due course. - Every holder is
deemed prima facie to be a holder in due course; but when it is shown
that the title of any person who has negotiated the instrument was
defective, the burden is on the holder to prove that he or some person
under whom he claims acquired the title as holder in due course. But
the last-mentioned rule does not apply in favor of a party who became
bound on the instrument prior to the acquisition of such defective title.
PRESUMPTION OF A HOLDER
GR: There is a presumption that all holders are a holder in due course.
So it is incumbent upon that party primarily liable to prove that the
holder is not a holder in due course.
XPNs:
1. If the party primarily liable is able to prove that there is a defect in
the title of any persons who became a party to the instrument.
2. If the party became bound on the instrument prior to the
acquisition of such defective title.
Important: In these two instances, it is incumbent upon the holder to
prove that at the very least that he acquired the title from a holder in
due course and that he is not a party to the fraud or illegality affecting
the instrument.
Example:
MPABC
If in the instrument made by M, it was transferred to P and P fraudulently
acquired it (there is defect in the title of P), C, a holder in due course
cannot go to M and prove that he is a holder in due course under the
presumption in Sec. 59 because M is a party prior to the defect. Between
P and M, M is a prior party.
If, however, the defect happens between P and A, C cannot go after P
because P is a party prior to the defect. The presumption in Sec. 59 does
not apply.
Important: You look at the party if he is a party prior to the defect or
not. If he is a party prior to the defect, you cannot expect the
presumption of being a holder in due course to apply. Therefore, you
have to prove that you are a holder in due course.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
NOTICE OF DEFECT
Section 56. What constitutes notice of defect To constitutes notice
of an infirmity in the instrument or defect in the title of the person
negotiating the same, the person to whom it is negotiated must have
had actual knowledge of the infirmity or defect, or knowledge of such
facts that his action in taking the instrument amounted to bad faith.
Two kinds of knowledge
1. Actual knowledge The person knows the circumstances which
can cause a defect in the instrument. It is personal knowledge that
a particular act happened.
2. Chargeable knowledge There are circumstances which could
have placed you in inquiry but you failed to inquire.
Ocampo v. Gatchalian
Facts: Mrs. Gatchalian wanted to buy a car for her husband. Mr.
Gonzales, represented himself as an agent of Dr. Ocampo who owns a
clinic. She went with Mr. Gonzales to check the car because she was
interested. She wanted to see the documents representing the title or
ownership of the car but Gonzales represented that the owner required
the potential buyer to show good intention in buying. So she issued a
check. It was issued with two parallel lines on the right corner of the
check named in favour of the payee, Dr. Ocampo at 600 pesos. It was
taken by Gonzales but he used it to pay for his wifes medical bill.
The check was not intended to be paid for any obligation but the clinic
accepted it. In fact, it gave the change to Mr. Gonzales because the bill
was only around 500 pesos. After knowing such fact, Mrs. Gatchalian
made a Stop Payment Order to her bank.
Dr. Ocampo now wants to recover the payment of the check. He is
claiming that he is a holder in due course.
Issue: Whether Dr. Ocampo is a holder in due course.
Held: No, because she ought to have inquired into the circumstances
surrounding the issuance of the check. First and foremost, the check is
crossed.
If its a crossed check, the consequence is that:
1. It cannot be encashed
2. It can only be deposited in the account of the payee who must
have a bank account
3. The check is intended to be used for a definite purpose
Dr. Ocampo did not inquire as to the purpose of such check. The check
should not have been payable to the clinic because it is a personal check
and it bears the name of Mrs. Gatchalian and the clinic does not have
any dealings with her.
Moreover, the amount was not exactly equal to the hospital bill of Mr.
Gonzales wife. In fact it required Mr. Ocampo to give a change.
These circumstances ought to have let him inquire about the issuance
of the check but he did not bother to do so. Hence, the SC attributed
bad faith to him under Section 56 which says that knowledge of such
fact amounted to bad faith. Therefore, Dr. Ocampo is not considered a
holder in due course because he has notice of the infirmity.
16 | U N I V E R S I T Y O F S A N C A R L O S
EFFECT OF NOTICE BEFORE FULL PAYMENT
Section 54. Notice before full amount is paid. Where the transferee
receives notice of any infirmity in the instrument or defect in the title
of the person negotiating the same before he has paid the full amount
agreed to be paid therefor, he will be deemed a holder in due course
only to the extent of the amount theretofore paid by him.
Effect of notice before full payment
1. If no amount has yet been paid he is relieved from the obligation
to pay. If he does so, he is still not considered a holder in due
course.
2. An amount has been paid he is under no legal obligation to pay
the balance upon discovery of the infirmity or defect. If he does,
he can be considered a holder in due course only to the extent of
the amount thereto.
Examples:
1. PN issued by M worth P20, 000 in payment of goods sold to P.
There was failure of consideration because P did not deliver. P
indorsed PN to A who paid P12, 000, and the balance in a month.
Before the end of the month, he received notice of the defect. A is
a holder in due course to the extent of P12, 000.
2. A note for P10, 000 obtained by P, payee, by means of fraud was
negotiated by P for P9,000 to A who paid P5, 000 and P4, 000 in a
month. Before a month, A discovered the fraud. He can only
recover P5, 000, thereby depriving A of the benefit of the bargain.
Had the P9,000 been paid before receiving notice, A, under Sec.
57, can recover P10, 000.
Applicability of Sec. 54
1. It is applicable only where the obligation by the holder is such that
upon discovering the infirmity in the instrument, he is relieved from
all further legal obligations to make further payments, as, for
example, where the note has been transferred to him in
consideration of his promise to make future payments to his
transferor.
2. It does not apply where the holder has given for the paper his
promise which he must perform, as, for instance, when he has
incurred liability to a third person.
Pennoyer v. Dubois State Bank
Indorsee (bank) of a promissory note had no notice of the fraud at the
time it issued its certificate of deposit but did have notice at the time it
paid the certificate. Indorsee is a holder in due course because it gave
the certificate of deposit for valueand if it was under legal obligation
to pay the certificate of deposit when it became due, its right to
protection as a holder in due course was the same as if it had paid
money for the notes when it acquired them.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017

CLASSIFICATION OF PARTIES ACCORDING TO LIABILITY

WHEN TITLE IS DEFECTIVE
Section 55. When title defective The title of a person who negotiates A. Primarily liable
an instrument is defective within the meaning of this Act when he
obtained the instrument, or any signature thereto, by fraud, duress, or (1) The maker of a promissory note
force and fear, or other unlawful means, or for an illegal consideration, (2) The acceptor of a bill of exchange
or when he negotiates it in breach of faith, or under such circumstances (3) The certifier of a check
as amount to a fraud.
B. Secondarily (conditionally) liable
Defects vs. Infirmities
(1) The drawer of a bill
A. Defects covers all those situations which are known as personal (2) The indorser of a note or bill
or equitable defenses and also those equities of ownership where
there is breach of faith in negotiation. C. Not liable

B. Infirmities things that are wrong with the instrument itself as (1) The drawee until he accepts the instrument in which case he
distinguished from those things that are lacking in the contracts on becomes an acceptor
the instruments.
PRIMARY V. SECONDARY PARTY
When title of a person defective
Two ways: Person primarily liable Person secondarily liable
The person who by the terms of
1. In the acquisition if the instrument or any signature thereto was the instrument is absolutely All other parties
obtained by fraud, duress, or force and fear or other unlawful required to pay the same.
means, or for an illegal consideration; or Conditionally bound. Undertakes
to pay only after certain
2. In the negotiation when he negotiates the instrument in breach Unconditionally bound. Thus, conditions have been fulfilled
of faith, or under such circumstance as amount to a fraud. Duress absolutely required to pay the (i.e. due presentment for
or force and fear include all acts which overcome the signers will. instrument upon maturity payment or acceptance to
primary party, dishonor,
Important: In fact, the case of Gatchalian would fall under defect in dishonor proceedings)
the title of the person negotiating at the point of negotiated. It was Liability ends when the primary
negotiated in breach of faith. There is also chargeable knowledge, party pays the full amount
hence, notice to Dr. Ocampo.
LIABLITY OF MAKER
TN: If you are a holder in due course, you are free from personal
defenses of prior parties. PRIMARILY LIABLE
Holder through a holder in due course Section 60. Liability of maker The maker of a negotiable instrument,
Even if you are not a holder in due course, you can still acquire the rights by making it, engages that he will pay it according to its tenor, and
of a holder in due course. You receive it as if it is assigned to you. Thus, admits the existence of the payee and his then capacity to indorse.
you acquire the rights of your transferor. If the transferor is a holder in
due course, then you acquire the rights of a holder in due course but Maker is primarily liable
only if you are not a party to the illegality in holding the instrument. You The maker is primarily liable because Sec. 60 provides that he engages
become a holder through a holder in due course. to pay the instrument according to its tenor. In addition, he warrants
existence of the payee and his then capacity to indorse.
Good faith of taker and negotiator
The objective of this provision is to prevent one from becoming a holder Atty. Amago: The law requires for such warranty because you want to
in due course who takes an instrument with notice that his transferor is deal with a negotiable instrument. The instrument can only become a
not acting honestly. negotiable instrument if it is indorsed to a payee. There can be no
negotiable instrument if the payee is fictitious.
LIABILITIES OF PARTIES
You cannot have a negotiable instrument if the person to whom you first
PARTIES TO AN INSTRUMENT delivered the instrument cannot deliver it to other persons.

A. Promissory Note
(1) Maker LIABLITY OF DRAWER
(2) Drawer
(3) Payee SECONDARILY LIABLE

Section 61. Liability of drawer The drawer by drawing the

B. Bill of Exchange
instrument admits the existence of the payee and his then capacity to
(1) Drawer indorse; and engages that, on due presentment, the instrument will be
(2) Drawee
accepted or paid, or both, according to its tenor, and that if it be
(3) Payee dishonored and the necessary proceedings on dishonor be duly taken,
(4) Intervening indorsers
he will pay the amount thereof to the holder or to any subsequent
indorser who may be compelled to pay it. But the drawer may insert in
the instrument an express stipulation negativing or limiting his own
liability to the holder.

17 | U N I V E R S I T Y O F S A N C A R L O S
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
Drawer is secondarily liable
He is secondarily liable because he only engages to pay the instrument
subject to the condition that the instrument be duly presented to the
drawee and only when the drawee dishonors it will he pay on the
instrument granted that the necessary proceedings on dishonor is duly
taken.
Conditions before a drawer pays the instrument:
1. Instrument is presented for acceptance or payment
2. Drawee dishonors the instrument either for non-acceptance or
non-payment
3. Necessary proceedings on dishonor are duly taken
Other warranties:
1. Payee is existing and
2. Payee has capacity to indorse
Atty. Amago: Such are required because it is the drawer who drafted
the instrument and it would be very convenient for any party to draft an
instrument without the warranty that the payee exists and that the
payee has capacity to indorse. It would be very easy to limit their
liability.
A drawer can limit his own liability to the holder by limiting the instance
when he may be required to pay as in the case when he breaches his
warranty. A drawer cannot negate altogether his liability.
Example: Drawer will not warrant the solvency of the drawee. (without
recourse, sans recourse)
LIABLITY OF ACCEPTOR
PRIMARILY LIABLE
Section 62. Liability of acceptor The acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his
acceptance and admits:
(a) The existence of the drawer, the genuineness of his signature, and
his capacity and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
LIABILITY OF DRAWEE
A. Before acceptance drawee of a bill is not liable before
acceptance. Unless he accepts, he owes no duty to either the payee
or any other holder.
B. After acceptance once he accepts, the drawee becomes an
acceptor. Thus, he is virtually in the same position as the maker.
Warranties of the acceptor
The acceptor, by signing the bill as such, warrants the following:
1. That he will pay the instrument according to the tenor of his
acceptance
2. Existence of the payee
3. Payees capacity to indorse
4. The existence of the drawer
5. The genuineness of the drawers signature
6. The capacity and authority of the drawer to draw the bill.
18 | U N I V E R S I T Y O F S A N C A R L O S
WARRANTIES OF THE ACCEPTOR
WARRANTIES
1. Engages to pay according to the tenor of his acceptance
subject to no condition.
Difference between maker and acceptor:
Maker Acceptor
Engages to pay Engages to pay according to
according to the tenor the tenor of his acceptance
of the instrument
Atty. Amago: The difference between the two is that in
acceptance, you can qualify (qualified acceptance).
Example: Tenor of instrument is 1M but acceptor just puts 600K,
or 700K.
(BUT, holder may treat it is as dishonored as it is not the amount
you paid for the instrument. He may opt to accept the tenor of
700K but he must give notice to parties secondarily liable because
they may be discharged of their liability if they wont accept the
qualified acceptance)
Important: Only when there is no qualification as to acceptance
of the instrument can there be no difference between an acceptor
and a maker.
2. Admits the existence of the payee and his capacity to
indorse.
3. Admits the existence of the drawer and the genuineness of
his signature
Forgery in the signature of the drawer
GR: Acceptor is liable in case there is forgery in the signature of
the drawer because he already warranted the genuineness of the
signature of the drawer and his existence.
Forgery in the signature of the indorser
GR: Acceptor is not liable because he does not warrant the
genuineness of the indorsers signature.
XPNs:
1. Acceptor is negligent
2. Estoppel. When he has knowledge of such fact, then he is
estopped from claiming that there is forgery.
Defenses precluded
The acceptor is consequently precluded from asserting as a defense that
the drawer is fictitious or non-existent, or that the drawers signature is
a forgery, or that he has no funds in his hands belonging to the drawer
with which to pay the bill, etc. By accepting unconditionally a bill, the
drawee becomes liable to a holder, and he cannot allege want or failure
of consideration between him and the drawer.
PAYMENT WITHOUT ACCEPTANCE
PAYMENT WITHOUT ACCEPTANCE
Strictly speaking, payment by the drawee may not be considered as
equivalent of acceptance. There is a distinction between payment and
acceptance.
A. Acceptance a promise to perform an act
B. Payment the actual performance thereof
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
Important: However, the truth is, the payment of the amount of a bill
check by the drawee implies not only acceptance but also compliance
with the drawees obligation. Payment amounts to more than an
acceptance, for the latter is an obligation to pay, and the former is a
discharge of indebtedness. In other words, there is implied acceptance
in payment.
Reason: The rule holding such payment has all the efficacy of an
acceptance is founded upon the principle that the greater includes the
less.
LIABLITY OF INDORSER
WHEN DEEMED AN INDORSER
Section 63. When a person deemed indorser A person placing his
signature upon an instrument otherwise than as maker, drawer, or
acceptor, is deemed to be indorser unless he clearly indicates by
appropriate words his intention to be bound in some other capacity.
Indorser
A person signing his name on the back of an instrument is nothing else
appearing, a general indorser, and liable as such. Being an indorser, he
is chargeable only after presentment and notice of dishonor.
Important: The law absolutely fixes the status of the indorser and does
not merely raise a presumption that he is such. Thus, parol evidence
may not be admitted to show the intention that a person signed the
instrument in some other capacity.
Presumption of indorser
If someone signs on the instrument without indicating in what capacity
they are signing, they are deemed as indorsers.
Atty. Amago: That is why an agent has to disclose his principal and his
capacity for signing otherwise he will be considered as any other
indorser. But then, an indorser may be classified into regular or irregular.
IRREGULAR INDORSER
Section 64. Liability of irregular indorser. - Where a person, not
otherwise a party to an instrument, places thereon his signature in
blank before delivery, he is liable as indorser, in accordance with the
following rules:
(a) If the instrument is payable to the order of a third person, he is
liable to the payee and to all subsequent parties.
(b) If the instrument is payable to the order of the maker or drawer,
or is payable to bearer, he is liable to all parties subsequent to
the maker or drawer.
(c) If he signs for the accommodation of the payee, he is liable to all
parties subsequent to the payee.
CLASSIFICATIONS OF AN INDORSER
1. Regular indorser When you sign an instrument by becoming a
party to it. You will only indorse once you acquired the instrument,
paid for it and now you hold it and want to transfer it, that is when
you sign.
2. Irregular A person who places his signature in blank before
delivery and who is not a party to the instrument. He is the
accommodation indorser.
Important: An irregular indorser is liable to all parties subsequent to
his indorsement. Items under Sec. 64 paragraphs a-c can simply be
19 | U N I V E R S I T Y O F S A N C A R L O S
summarized by saying that the irregular indorser is liable to all parties
subsequent to his indorsement.
Irregular or anomalous indorsement
This denotes an indorsement:
A. For some purpose other than to transfer the instrument
B. An indorsement by a stranger to the instrument
C. An indorsement by one not in the actual or apparent chain of title,
especially an indorsement made prior to the delivery of the
instrument to the payee.
Purpose: The purpose of the indorsement not for transfer is usually to
add the signers credit to the instrument.
Who is an irregular or anomalous indorser?
A person who:
1. Not otherwise a party to an instrument (This means that the
irregular indorser is not a maker, drawer, acceptor or irregular
indorser thereon)
2. Places thereon his signature in blank
3. Before delivery
Important: Usually, an irregular indorser is an accommodation
indorser. He is not necessarily so where he participates in the
consideration for the instrument.
Warranties of Irregular Indorser
Sec 64 provides only for the parties to whom an irregular indorser is
liable. His warranties are the same as those of a general indorser under
Sec 66 inasmuch as his indorsement is in blank, which, in itself, is an
indorsement is without qualification.
LIABILITY OF AN IRREGULAR INDORSER
A. If the instrument is payable to the order of a third person,
he is liable to the payee and to all subsequent parties
This third person refers to the payee. The irregular indorser
signed before the instrument was delivered to the third person.
That is why he is liable to the payee and to all subsequent parties.
Example: M makes a note payable to P or order. P, however, does
not have faith in the financial ability of M and is willing to take the
note only if Xs financial ability is back of it. M then secures Xs
indorsement in blank before the note is delivered to P. P
negotiates the note to A for some obligation. When A takes the
instrument, Xs name appears as the first indorser followed by Ps
name. X is liable to P, payee, and A, a subsequent party, but not
to M.
B. If the instrument is payable to the order of the maker or
drawer, or is payable to bearer, he is liable to all parties
subsequent to the maker or drawer
He is liable because he must have signed this in behalf or in
accommodation of the maker or the drawer.
Example: Suppose M makes a note payable to the order of M (the
payee and the maker are the same person). M cannot circulate
the instrument without Xs indorsement thereon. X then signs his
name and M indorsers and delivers the instrument to A.
C. If he signs for the accommodation of the payee, he is
liable to all parties subsequent to the payee.
The terms all parties subsequent to the payee does not include
the payee himself because it him who is being accommodated.
Between the irregular indorser and the payee, the payee must be
liable.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017

Example: Suppose in the first illustration, P wants to discount the

note with A, a bank, but the bank is not willing to rely on the For Sec. 66 (a), the items are In Sec. 65, it requires
financial ability of M and P alone. P then secures X to the same with Sec. 65 except knowledge and notice before it
accommodate him. X without receiving any valuable on the 4th warranty-- That he can breach the liability. You will
consideration therefor, but only for the purpose of lending his has no knowledge of any fact only be liable if you knew the
name and credit to P, indorses the note in blank. which would impair the validity invalidity.
of the instrument or render it
X is liable to all parties subsequent to P, the payee. P is, in effect, valueless.
the first indorser, and X, the second indorser.
Sec. 66(b) also states that the
instrument is, at the time of his
WARRANTIES OF GENERAL V. QUALIFIED INDORSER indorsement, valid and
subsisting;
QUALIFIED INDORSER
You already accepted that the
Section 65. Warranty where negotiation by delivery and so forth instrument is valid and
Every person negotiating an instrument by delivery or by a qualified subsisting. Whether the
indorsement warrants: instrument is invalid and you do
not know that, you can already
(a) That the instrument is genuine and in all respects what it purports breach your warranty and you
to be will still be liable.
(b) That he has a good title to it
(c) That all prior parties had capacity to contract
(d) That he has no knowledge of any fact which would impair the
Does not warrant the solvency Warrants the solvency of the
validity of the instrument or render it valueless.
of the party primarily liable party primarily liable
But when the negotiation is by delivery only, the warranty extends in
favor of no holder other than the immediate transferee.
Example:
The provisions of subdivision (c) of this section do not apply to a person
Liability of a qualified indorser in a forged instrument
negotiating public or corporation securities other than bills and notes.

GENERAL INDORSER Order instrument

QI
Section 66. Liability of general indorser Every indorser who indorses MPA F BCD
without qualification, warrants to all subsequent holders in due course:

(a) The matters and things mentioned in subdivisions (a), (b), and
(c) of the next preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and
subsisting
And, in addition, he engages that, on due presentment, it shall be
accepted or paid, or both, as the case may be, 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.
What is the liability of the indorser?
He is only liable if the person primarily liable does not pay on the
instrument and only if there is breach of his warranty.
The warranty of an indorser would depend on what type of
indorser is he is:
1. Sec. 65 governs warranty by a person negotiating and instrument
by delivery or by a qualified indorser
2. Sec 66 governs warranty by a general indorser
QUALIFIED VS. UNQUALIFIED OR GENERAL INDORSER
This is an order instrument negotiated by indorsement. From A, the
instrument was stolen by F, who forged the signature of A and delivered
it to B. B then negotiated it to C, and C to D. C is a qualified indorser
who does not know about the forgery. Will he be liable?
A: A qualified indorser requires knowledge before he will be rendered
liable. Here, since he has no knowledge of any fact, he will not be liable.
Thus, he did not breach his warranty under (d).
Important: However, while he is not liable for breach of warranty
under (d), because he has no knowledge of the forgery, he will still be
liable because of his warranty under Sec. 65 (a), that the instrument is
genuine and in all respects what it purports to be.
Had this been an unqualified indorsement, will C be liable?
A: Yes. Not just because he warrants that the instrument is genuine and
in all respects what it purports to be, but also because he warrants that
the instrument is valid and subsisting at the time of his indorsement.
Warranty on the solvency of the party primarily liable
A. Qualified indorsers do not warrant the solvency of the party
primarily liable.
Sec. 66 which states:

Qualified indorser Unqualified or

(Section 65)
Knowledge of qualified indorser
required to constitute breach
And, in addition, he engages that, on due presentment, it shall be
general indorser
accepted or paid, or both, as the case may be, according to its
(Section 66)
tenor, and that if it be dishonored and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the
Knowledge of general indorser holder, or to any subsequent indorser who may be compelled to
NOT required to constitute pay it.
breach

20 | U N I V E R S I T Y O F S A N C A R L O S
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017

Important: This is not found in Sec. 65. This tells us that qualified
indorsers do not warrant solvency of the party primarily liable
because he does not engage to pay if ever it will be dishonoured.
GR: Qualified indorser will be liable if he breaches his warranty
XPN: If the reason for non-payment is merely the insolvency of the
person primarily liable
B. General indorsers warrants the solvency of the party primarily
liable.
Example: (d) That he has no knowledge of any fact which would
impair the validity of the instrument or render it valueless
Order instrument
QI
M PABCD
WHERE INSTRUMENT IS NEGOTIABLE BY DELIVERY
Section 67. Liability of indorser where paper negotiable by delivery.
Where a person places his indorsement on an instrument negotiable
by delivery, he incurs all the liability of an indorser.
Liability of indorser where paper is negotiable by delivery
Same warranties as those laid down in Section 65:
(a) That the instrument is genuine and in all respects what it purports
to be
(b) That he has a good title to it
(c) That all prior parties had capacity to contract
(d) That he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
Important: But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate transferee.

If ever M, maker, is insolvent and that fact is known by C, a Liability is only to the immediate transferee
qualified indorser, at the time he made the indorsement, will he be While it is true that they will be liable if there is breach of warranty, they
liable? will only be liable to the person immediately after them because of this
paragraph under Sec. 65.
A: Under Sec. 65, he does not warrant the solvency of the person
primarily liable. However, he has knowledge of the fact which Example:
would impair the validity of the instrument or render it valueless
which is also his warranty under (d) of Sec. 65. Thus, he will still
MPAFBCD
be liable.

Had C been an unqualified indorser, would it matter? It will not D is the current holder of a bearer instrument who went to M and
matter. He will still be liable. demanded payment. M said that he is insolvent. To whom can D go
after?
Important: If the reason for non-payment of a person primarily
liable is insolvency, you should not automatically conclude that he A: He can go after C because it is only C who warrants to him.
is not liable. First, look at if he has knowledge or not of such
insolvency. Because it can be a breach of Sec. 65 (d). Important: Problem is, did C breach his warranty? If C does not know
about the insolvency of M, then C may not be held liable to D because
Indorsers liability as warrantor distinct from his liability to pay he has no knowledge of any fact which would impair or render the
A qualified indorser who does not guarantee payment of the instrument instrument valueless. He did not breach his warranty. Thus, C cannot be
may nevertheless incur liability for breach of one or more of the implied held liable if he does not have knowledge of insolvency of M. Take not
warranties. The warranties are imposed in view of the fact that the that he does not warrant the solvency of M.
indorser is actually a seller of property. As warrantor, his liability is
unconditional. Atty. Amago: Because C did not breach his warranty being the
immediate transferor, D cannot go after anyone else after C. He may
Indorser vs. Drawer also wait until M becomes solvent so he can collect payment. This is the
risk that he has to take in getting the instrument or the credit of M.
Indorser Drawer Otherwise, it would also be unfair if you let C pay. C can also insure this
Party to either a note or bill Party only to a bill through a debtor-creditor relationship insurance up to the extent of the
Does not make any admission debt.
regarding the existence of
Drawer makes such admission Effect if C knew of the solvency
payee and his capacity to
indorse If C knew of the insolvency of M at the time he negotiated the
Makes no warranties but he instrument, then he will be liable. Not because he warrants the solvency,
Makes warranties engages to pay after certain but because he breached the warranty that he has no knowledge of any
conditions are complied with fact which would impair the validity of the instrument or render it
valueless.
General indorser vs. irregular indorser
ORDER OF LIABILITY AMONG INDORSERS
General indorser Irregular indorser
Makes either a blank or Always makes a blank Section 68. Order in which indorsers are liable. - As respect one
special indorsement indorsement another, indorsers are liable prima facie in the order in which they
Indorses before delivery to indorse; but evidence is admissible to show that, as between or among
Indorses after delivery to payee themselves, they have agreed otherwise. Joint payees or joint
payee
Liable to payee and subsequent indorsees who indorse are deemed to indorse jointly and severally.
Liable only to parties
parties unless he signs for the
subsequent to him ORDER OF LIABILITY OF INDORSERS
accommodation of payee

A. Among themselves liable prima facie in the order in which they

indorser. Every indorser is liable to all indorsers subsequent to him.

21 | U N I V E R S I T Y O F S A N C A R L O S
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
B. To the holder indorsers are liable in any order and none of them
can interpose as defense against him any agreement among
themselves regarding their order of liability.
Atty. Amago: The holder can go after any of the indorsers. But as to
whom the indorsers can go after is dependent on the order of their
indorsement. Sec. 68 serves as guide to intervening indorsers as to
whom they can go after in case they will be required to pay.
Important: Section 68 governs only the liability of the indorsers among
themselves but not their liability to the holder.
Example:
MPABCD
D may recover from any of said indorsers. So if D sues A, the latter
cannot allege that he and B have agreed that B should be liable first.
If A is made to pay D, A can go against P, a prior indorser, but not
against B and C, subsequent indorsers, to whom he is, in turn, liable.
However, if after paying D, A can prove that their agreement is that B
should be liable first, A can ask reimbursement from A.
LIABILITY OF AN AGENT OR BROKER
Section 69. Liability of an agent or broker. - Where a broker or other
agent negotiates an instrument without indorsement, he incurs all the
liabilities prescribed by Section Sixty-five of this Act, unless he discloses
the name of his principal and the fact that he is acting only as agent.
Liability of an agent or broker
GR: An agent or broker who negotiates a bearer instrument incurs
personal liability.
Except: When he discloses his principal and the fact that he is acting
only as agent.
If the agent or broker does not want to be liable on the
instrument, what should he do?
1. He should disclose the name of the principal
2. The fact that he is acting only as an agent
Atty. Amago: In a bearer instrument, the agent is acting as indorser
by doing these two things. Otherwise, he will be personally liable in the
instrument. Sec. 69 applies only to instrument payable to bearer.
If it is payable to order, you would know that you have to indorse. By
indorsing it, you provide the name of your principal plus the capacity for
acting but if it is a bearer instrument where delivery is only the
requirement, it is incumbent upon him to comply with Sec. 69.
ACCEPTANCE AND PAYMENT
LIFE OF A NEGOTIABLE INSTRUMENT
LIFE OF A NEGOTIABLE INSTRUMENT
The life of the negotiable instrument starts with a maker or drawer. They
will write an instrument based on Sec. 1. Then, they are supposed to
deliver it to the payee. Then, you will have a negotiable instrument.
If it is a PN or a BoE, supposedly it can be indorsed. But a BoE, if you
want to have another party liable on that instrument, you need to
present it for acceptance to the drawee. Otherwise, the drawee will not
become a party to the instrument. If ever it will be accepted by the
drawee, drawee-acceptor will be primarily liable on the instrument. It
continues to be negotiated until the maturity date.
22 | U N I V E R S I T Y O F S A N C A R L O S
Once it happens, both PN and BoE have to be presented to the
respective persons primarily liable for payment. If it is paid in due
course, it will be discharged.
Summary:
1. Maker or drawer writes an instrument following the requirements
under Section 1
2. Delivery to the payee life of negotiable instrument begins
3. In case of a BOE present for acceptance to the drawee
4. Instrument is negotiable under the maturity date
5. Instrument is presented to the respective persons primarily liable
for payment
6. Once paid in due course, the instrument is discharged.
ACCEPTANCE
HOW ACCEPTANCE IS MADE
Section 69. Acceptance; how made, by and so forth The acceptance
of a bill is the signification by the drawee of his assent to the order of
the drawer. The acceptance must be in writing and signed by the
drawee. It must not express that the drawee will perform his promise
by any other means than the payment of money.
Section 33. Holder entitled to acceptance on face of bill. - The holder
of a bill presenting the same for acceptance may require that the
acceptance be written on the bill, and, if such request is refused, may
treat the bill as dishonored.
Section 134. Acceptance by separate instrument. - Where 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.
ACCEPTANCE
Acceptance is the signification by the drawee of his assent to the order
of the drawer
Requisites of a valid acceptance
1. Must be in writing
XPN: Does not apply to constructive acceptance and to a foreign
bill payable in another state unless it is shown that the law of said
state requires a written acceptance
2. Signed by the drawee
3. Must expressly state that the promise shall be performed by
payment in money only (and not goods)
4. Delivered to the holder (TN: Before delivery, acceptance may be
revoked)
Applicability
It only applies to bills of exchange and NOT to promissory notes
Object and effect of acceptance
The drawee is not a party until and unless it has made its acceptance.
Until the acceptance, it is the drawer primarily liable. After acceptance,
the drawee assumes responsibility.
Important: By accepting the bill, the drawee admits everything
essential to its validity
HOLDER ENTITLED TO ACCEPTANCE ON THE FACE OF BILL
1. The holder may require that acceptance may be made on the face
of the bill
2. If such request is refused, he may treat the bill as dishonored
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
Where acceptance may be made
It is not required to be in the face of the instrument. It can be written:
1. At the face of instrument; or
2. In a separate instrument
Important: However, the holder has the right to demand that
acceptance be made on the face of the bill, otherwise he can treat the
bill as dishonored and then may go after those secondarily liable.
Reason: To avoid the risk that the drawees liability may not be extended
to parties who did not see that piece of paper where the acceptance is
made. The instrument can be dishonored if the acceptor refused.
KINDS OF ACCEPTANCE
Section 39. Kinds of acceptance An acceptance is either general or
qualified. A general acceptance assents without qualification to the
order of the drawer. A qualified acceptance in express terms varies the
effect of the bill as drawn.
Section 140. What constitutes a general acceptance An acceptance
to pay at a particular place is a general acceptance unless it expressly
states that the bill is to be paid there only and not elsewhere.
Section 141. Qualified acceptance An acceptance is qualified which
is:
(a) Conditional; that is to say, which makes payment by the acceptor
dependent on the fulfillment of a condition therein stated
(b) Partial; that is to say, an acceptance to pay part only of the
amount for which the bill is drawn
(c) Local; that is to say, an acceptance to pay only at a particular
place
(d) Qualified as to time
(e) The acceptance of some, one or more of the drawees but not of
all.
KINDS OF ACCEPTANCE
1. General acceptance
2. Qualified acceptance
(a) Conditional
(b) Partial
(c) Local
(d) Qualified as to time
(e) Acceptance of some, one or more of the drawees but not of
all
General acceptance
Assents without qualification to the order of the drawer. It is general if
such is made without qualified as to the manner of acceptance.
Qualified acceptance
Varies the effect of the bill as drawn. It is qualified when there are some
restrictions as to the manner of acceptance. It could be in the form of:
(a) Conditional acceptance makes the payment by the acceptor
dependent in the fulfillment of a condition.
Ex: I accept the instrument should you pass the bar exam.
(b) Partial acceptance where the acceptor shall only pay a part of
the amount for which the bill is drawn.
23 | U N I V E R S I T Y O F S A N C A R L O S
(c) Local acceptance where there is a limitation or restriction as to
the place of payment (locational limitation). If it involves
locational limitation, it has to be exclusive.
Ex: I promise to accept the instrument and pay it only in Cebu.
(d) Qualified acceptance as to the time or time limitation.
Ex: I accept and will pay 30 days after sight.
(e) Acceptance of some, one or more of the drawees, but not all
If it is a qualified acceptance, does that render the instrument
dishonored?
GR: No.
XPN: If the holder refuses to take a qualified acceptance, and if he does
not obtain an unqualified acceptance (Sec. 142)
RIGHTS OF PARTIES AS TO QUALIFIED ACCEPTANCE
Relevant provision
Section 142. Rights of parties as to qualified acceptance The holder
may refuse to take a qualified acceptance and if he does not obtain an
unqualified acceptance, he may treat the bill as dishonored by non-
acceptance. Where a qualified acceptance is taken, the drawer and
indorsers are discharged from liability on the bill unless they have
expressly or impliedly authorized the holder to take a qualified
acceptance, or subsequently assent thereto. When the drawer or an
indorser receives notice of a qualified acceptance, he must, within a
reasonable time, express his dissent to the holder or he will be deemed
to have assented thereto.
Rights of parties as to qualified acceptance
1. The holder may refuse a qualified acceptance and if he does not
obtain an unqualified acceptance, the bill may be treated as
dishonored by non-acceptance.
2. Where a qualified bill is taken, a drawer and indorsers are
discharged from liability UNLESS they have expressly or impliedly
authorized the holder to take a qualified acceptance and
subsequently assent thereto.
TN: Implied authorization happens when even if there is a notice
of the qualified acceptance from the holder, the drawer does not
express his dissent within a reasonable time.
3. When the drawer or an indorser receives notice of a qualified
acceptance, he must, within reasonable time express his dissent
to the holder or he will be deemed to have assented thereto.
CERTIFICATION OF CHECK
Relevant provision
Section 187. Certification of check; effect of Where a check is
certified by the bank on which it is drawn, the certification is equivalent
to an acceptance.
Certificate
Agreement by the bank against whom a check is drawn that the check
will be paid when presented for payment
When certificate equivalent to acceptance
When certified by a bank on which it is drawn, the certification is
equivalent to an acceptance.
Form
It must be in writing either on the check itself or on a separate paper
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
Effects of certification of checks
1. It is equivalent to acceptance, making the bank primarily liable on
the instrument
2. It discharges the person secondarily liable if procured by the holder
3. It operates as an assignment of funds of the drawer in the hands
of the drawee bank and therefore the drawer cannot draw out
funds then in the bank necessary to meet the certified check
4. Bank becomes the debtor and cannot refuse to pay
5. Drawer cannot issue a stop payment order
Liability of Certifying Bank
The bank is estopped against a holder in due course:
1. To dispute the genuineness of the drawers signature
2. To set up the defense that the drawers funds is insufficient or that
the check is without funds
3. To allege that the drawer is indebted to the bank for more than the
amount of the check
TN: A bank certifying the check shall not be liable for material alterations
to it after certification.
Important: If a check was certified for P500 and thereafter there was
a material alteration to P5000, the bank shall only be liable for P500.
When checks are to be certified
1. When it is payable
2. Must be made by the person having the authority to certify
EFFECT WHERE THE HOLDER OF CHECK PROCURES IT TO BE
CERTIFIED
Relevant provision
Section 188. Effect where the holder of check procures it to be certified
Where the holder of a check procures it to be accepted or certified,
the drawer and all indorsers are discharged from liability thereon.
Effect
The drawer and indorsers shall be released from liability.
Important: Indorsers subsequent to the certification are NOT
discharged from liability. Where certification is obtained by someone
else other than the holder, then those secondarily liable are not
discharged from liability
WHEN CHECK OPERATES AS AN ASSIGNMENT
Relevant provision
Section 189. When check operates as an assignment A check of itself
does not operate as an assignment of any part of the funds to the credit
of the drawer with the bank, and the bank is not liable to the holder
unless and until it accepts or certifies the check.
When checks operate as an assignment
1. A check itself does not operate as an assignment of the credit of
the drawer with the bank
2. The bank is not liable to the holder UNLESS and until it accepts or
certifies the check
Before acceptance
The bank cannot be held liable because a check itself does not constitute
a transfer from the drawer to the bank. Thus prior to acceptance, the
bank cannot be sued because it is NOT a privy to the contract.
Liability of drawer to holder
The bank cannot be liable to holder because the bank is not yet a party
prior to acceptance
24 | U N I V E R S I T Y O F S A N C A R L O S
The recourse of the holder is to go after the drawer and then the drawer
sues the bank if non-acceptance is not appropriate
When the check operates as an assignment of drawers funds
The moment the check is certified, the amount ceases to be owned by
the drawer and the latter no longer has control over the said amount
When bank may refuse payment
1. The bank is insolvent
2. Drawers deposit is insufficient
3. Drawer is insolvent and proper notice is received by the bank
4. Drawer dies and proper notice is received by the bank
5. The drawer has countermanded payment
6. The holder refuses to identify himself
7. The bank has reason to believe that the check is a forgery
8. The check is stale or postdated
ACCEPTANCE BY SEPARATE INSTRUMENT
Section 134. Acceptance by separate instrument Where 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.
Acceptance by separate instrument
GR: Where acceptance is written on a paper other than the bill itself, it
does not bind the acceptor.
XPN: In favor of a person to whom it is shown and who, on the faith
thereof, receives the bill for value
What must be shown
Where acceptance is written on a separate paper other than the bill, in
order to bind the acceptor, it is necessary that:
1. Acceptance be show to the person to whom it is negotiated
2. Such person must take the bill for value on the faith of such
acceptance
PROMISE TO ACCEPT
Section 135. Promise to accept; when 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.
Promise to accept is deemed an actual 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 instrument for value.
Can you accept an instrument even before it is completed?
You can accept an instrument even before the same is drafted or even
before the instrument is completed and that is already tantamount to
an acceptance.
Just like an acceptance on a separate paper, the drawees liability may
only extend to those parties who were shown the instrument conveying
the acceptance of the drawee. Consequently, if you were not shown that
instrument, the drawee will not be liable to you.
TIME ALLOWED TO ACCEPT
Section 136. Time allowed drawee to accept The drawee is allowed
twenty-four hours after presentment in which to decide whether or not
he will accept the bill; the acceptance, if given, dates as of the day of
presentation.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
Time allowed to accept
1. Drawee is given 24 hours from presentment to decide whether or
not he accepts the instrument
2. The acceptance, if given, dates as of the date of presentation
LIABILITY OF DRAWEE RETAINING/DESTROYING THE BILL
Section. 137. Liability of drawee returning or destroying bill Where
a drawee to whom a bill is delivered for acceptance destroys the same,
or refuses within twenty-four 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.
Constructive acceptance
The drawee is allowed 24hrs after presentment to decide whether or not
he will accept the bill. If the drawee will not accept, the drawee has to
return the instrument to the drawer. Otherwise, there is already
constructive acceptance by the drawee.
TN: The drawee is required to return the instrument within 24 hours
after presentment. Meaning, the period to return the instrument is the
same as to the period to accept an instrument, unless the holder gives
a longer period.
There is constructive acceptance where:
1. When the drawee fails to return the instrument within 24 hours
2. Where the drawee destroys the instrument
Important: Sec. 137 only applies where it is done for presentment for
acceptance and NOT presentment for payment.
ACCEPTANCE OF INCOMPLETE BILL
Section 138. Acceptance of incomplete bill A bill may be accepted
before it has been signed by the drawer, or while otherwise incomplete,
or when it is overdue, or after it has been dishonored by a previous
refusal to accept, or by non-payment. But when a bill payable after
sight is dishonored by non-acceptance and the drawee subsequently
accepts it, the holder, in the absence of any different agreement, is
entitled to have the bill accepted as of the date of the first
presentment.
Bill may be accepted:
1. Before it has been signed by the drawer
2. If it is incomplete
3. If it is overdue
4. After it has been dishonored by a previous refusal to accept
5. Non-payment
Important: But when a bill payable after sight is dishonored by non-
acceptance and drawee subsequently accepts it, the holder, in the
absence of any different agreement, is entitled to have the bill accepted
as of the date of the first presentment.
It does not mean that the person to whom the incomplete bill is
transferred becomes a holder in due course.
Acceptance of an incomplete bill
The effect of accepting an incomplete bill is it will only bind persons who
has knowledge of such acceptance.
Atty. Amago: So, it can happen that acceptance is given even before
the instrument exists. If the instrument will eventually exist, only those
parties who knew about the acceptance before the instrument was
accepted will be bound.
25 | U N I V E R S I T Y O F S A N C A R L O S
Is it required that this type of acceptance be written in some
form?
Yes. It must be in writing and it must be an unconditional promise to
accept. We go back to section 135. The instrument will have to be
accepted on a separate paper and only those persons to whom that
paper showing an acceptance was written on will be bound by said
acceptance of the drawee.
But the drawee can also accept it on the bill itself, as when the bill is
already there but its just that it is not yet complete (like the drawer did
put his signature on it and yet the drawee already accepted it). (see
Sec. 138)
TN: There is really no limitation as to when you are supposed to accept
an instrument as long as it is accepted by the person holding such an
instrument.
Can the instrument be dishonored for non-acceptance and later
be accepted?
Yes. An instrument can still be accepted even if it has been previously
dishonored. The effect is still like that of any other acceptance. The
acceptor is liable to pay the instrument to whoever is the holder of the
instrument.
PRESENTMENT FOR ACCEPTANCE
WHEN PRESENTMENT FOR ACCEPTANCE MUST BE MADE
Section 143. When presentment for acceptance must be made
Presentment for acceptance must be made:
(a) 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; or
(b) Where the bill expressly stipulates that it shall be presented for
acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence
or place of business of the drawee.
In no other case is presentment for acceptance necessary in order to
render any party to the bill liable.
Presentment for acceptance
The production or the exhibition of a bill of exchange to the drawee for
his acceptance or payment
Present for acceptance, when required
Not all bills of exchange are required to be presented for acceptance.
Presentment is required only when:
1. Where 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.
Ex. To F:
Pay G or order 10,000, 10 days after sight.
Here, it requires acceptance because it is necessary to determine
when the 10-day period will start to run.
2. Where the bill expressly stipulates that it shall be presented for
acceptance.
Ex: To D:
Pay F or order P1,000. Presentment for acceptance is required.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
3. Where the bill is drawn payable elsewhere than at the place or
business or residence of the drawee.
It is necessary that this be accepted to make arrangements for the
payment to be made wherever is stated the place of payment
should be. In other words, so that the person primarily liable can
make arrangements once the instrument is already presented.
Additional notes:
Payment is not acceptance.
Bearer instrument need not be presented for acceptance.
If the drawee does not write or sign the instrument, he will not be
liable for payment.
The drawee is not liable to the instrument unless he accepts the
instrument.
If the instrument is not presented for acceptance under the three
circumstances required by law, all parties secondarily liable will be
discharged from liability (Sec. 144).
Important: Presentment for acceptance is not necessary to hold a
party liable.
When presentment for acceptance not necessary
1. Payable on demand or on sight
2. Time bills or bills payable at a day certain or at a fixed time after
date
3. Other certain event which does not fall under subsections (b) and
(c) need not be presented for acceptance but only for payment in
order to charge drawer and indorsers.
EFFECTS OF FAILURE TO PRESENT FOR ACCEPTANCE
Section 144. When failure to present releases drawer and indorser
Except as herein otherwise provided, the holder of a bill which is
required by the next preceding section 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.
When failure to present releases drawer and indorser
The holder of a bill which required presentment for acceptance must
either:
1. Present it for acceptance or
2. Negotiate it within reasonable time
Important: Hence, the failure to do either will discharge the drawer
and all indorsers from liability. So, if there is failure to present for
acceptance and such acceptance is required, the person secondarily
liable will be discharged.
HOW PRESENTMENT FOR ACCEPTANCE IS MADE
Section 145. Presentment; how made. - Presentment for acceptance
must be made by or on behalf of the holder at a reasonable hour, on
a business day and before the bill is overdue, to the drawee or some
person authorized to accept or refuse acceptance on his behalf; and
(a) Where a bill is addressed to two or more drawees who are not
partners, presentment must be made to them all unless one has
authority to accept or refuse acceptance for all, in which case
presentment may be made to him only.
(b) Where the drawee is dead, presentment may be made to his
personal representative
(c) Where the drawee has been adjudged a bankrupt or an insolvent
or has made an assignment for the benefit of creditors,
presentment may be made to him or to his trustee or assignee.
26 | U N I V E R S I T Y O F S A N C A R L O S
Requisites
1. Made by or on behalf of the holder (authorization need not be in
writing)
2. At a reasonable hour
3. On a business day
4. Before the bill is overdue
5. To the drawee or some authorized to accept or refuse acceptance
on his behalf
a) If addressed to two or more drawees who are not partners,
presentment made to all of them UNLESS one has authority
to accept for both
b) If dead presentment to his personal representatives.
Important: If the drawee is dead, presentment is excused.
Hence, this provision in only applicable in case the holder
opted to present the instrument, in which case, he would have
to do it with the representative of the deceased drawee.
c) If bankrupt or insolvent or has made assignment for the
benefit of the creditors may be made to him, trustee or
assignee
Important: Place of presentment for payment is IMMATERIAL.
How do you secure acceptance?
You have to present the instrument to the drawee for acceptance.
DAY PRESENTMENT FOR ACCEPTANCE MAY BE MADE
Section 146. On what days presentment may be made. - A bill may
be presented for acceptance on any day on which negotiable
instruments may be presented for payment under the provisions of
Sections seventy-two and eighty-five of this Act. When Saturday is not
otherwise a holiday, presentment for acceptance may be made before
twelve o'clock noon on that day.
May be presented:
1. On any day when a negotiable instrument may be presented for
payment
2. If date of presentment falls on a Saturday which is not a holiday
must be made before 12 noon
Important: It should be on or before the maturity date, granting that
said date should be a business date and on a reasonable hour.
Effect if there is failure to present for acceptance on a Saturday
It releases the person secondarily liable from their liabilities.
Whether instrument is payable on demand is immaterial
There is no need to make a distinction if the instrument is payable on
demand or not. Thus, when payment is to be made on a Saturday, it
must be before 12 noon regardless if the instrument is payable on
demand or not.
Important: Do not be confused. The rule is different in case of
presentment for payment because if the maturity date falls on a
Saturday, presentment should be done on the next business day, except
when the instrument is payable on demand, In which case, it may be
presented for payment before 12 noon at the holders option.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
PRESENTMENT WHERE TIME IS INSUFFICIENT
Section 147. Presentment where time is insufficient. - Where the
holder of a bill drawn payable elsewhere than at the place of business
or the residence of the drawee has no time, with the exercise of
reasonable diligence, to present the bill for acceptance before
presenting it for payment on the day that it falls due, the delay caused
by presenting the bill for acceptance before presenting it for payment
is excused and does not discharge the drawers and indorsers.
When delay in presentment for acceptance excusable
When the delay is caused by insufficiency of time in presenting the bill
for acceptance before presenting it for payment.
However, the instrument must still be presented after the reason of the
delay has cease to exist or where there is already a reasonable
opportunity to present the instrument for acceptance.
Important: Such delay does not discharge the persons secondarily
liable of their liability.
WHERE PRESENTMENT FOR ACCEPTANCE IS EXCUSED
Section 148. Where presentment is excused. - Presentment for
acceptance is excused and a bill may be treated as dishonored by non-
acceptance in either of the following cases:
(a) Where the drawee is dead, or has absconded, or is a fictitious
person or a person not having capacity to contract by bill.
(b) Where, after the exercise of reasonable diligence, presentment
cannot be made.
(c) Where, although presentment has been irregular, acceptance has
been refused on some other ground.
Where presentment is excused
Presentment for acceptance is excused and a bill may be treated as
dishonored by non-acceptance in either of the following cases:
1. Where the drawee is dead or has absconded, or is a fictitious
person or a person not having capacity to contract by bill.
2. Where, after the exercise of reasonable diligence, presentment
cannot be made.
3. Where, although presentment has been irregular, acceptance has
been refused on some other ground.
Ex: I presented the instrument for acceptance on a Sunday (which
is irregular) and the acceptance is refused by the drawee on the
ground that they do not have any agreement with the drawer.
When presentment is excused, differentiated
Section 147 Section 148
Only the delay is excused and There is no need of
yet if there is reasonable time to presentment already because
present it, the instrument must the presentment itself is
be presented. excused.
27 | U N I V E R S I T Y O F S A N C A R L O S
WHEN DISHONORED BY NON-ACCEPTANCE
Section 149. When dishonored by non-acceptance A bill is
dishonored by non-acceptance:
(a) When it is duly presented for acceptance and such an acceptance
is prescribed by this Act is refused or cannot be obtained
(b) When presentment for acceptance is excused and the bill is not
accepted.
Bill is dishonored by non-acceptance when:
1. When it is duly presented for acceptance and such an acceptance
as is prescribed by this act is refused or cannot be obtained.
Ex: The holder presented the instrument for acceptance to the legal
representative of the deceased drawee (death of drawee excuses
presentment) but the legal representative refused to accept the
same.
2. When presentment for acceptance is excused and the bill is not
accepted
Most likely applicable when there is insufficiency of time to present
and still the holder tried to present it after the time has elapsed
and the instrument is not accepted. Like in the case of section 147.
DUTY OF HOLDER WHERE BILL NOT ACCEPTED
Section 150. Duty of holder where bill not accepted. - Where a bill is
duly presented for acceptance and is not accepted within the
prescribed time, the person presenting it must treat the bill as
dishonored by non-acceptance or he loses the right of recourse against
the drawer and indorsers.
Duty of holder where bill is not accepted
Where bill is duly presented for acceptance and is not accepted within
the prescribed time, the person presenting it must treat the bill as
dishonored by non-acceptance.
Important: The holder must take the necessary proceedings against
the drawer or indorsers and give notice of dishonor. Otherwise, he loses
his right of recourse against the drawer and indorser.
RIGHTS OF HOLDER WHERE BILL NOT ACCEPTED
Section 151. Rights of holder where bill not accepted. - When a bill
is dishonored by non-acceptance, an immediate right of recourse
against the drawer and indorsers accrues to the holder and no
presentment for payment is necessary.
Rights of holder where bill not accepted
When bill is dishonored by non-acceptance, the holder, after giving
notice of dishonor and protesting when required, may immediately
proceed against the drawer and indorsers for the value of the bill without
waiting for the date of maturity.
Important: No presentment for payment is necessary in cases where
bill is not accepted. However, if the bill is subsequently accepted,
presentment for payment is necessary.
Why date of maturity immaterial
Since payment cannot be expected after acceptance has been refused,
there is not point waiting for the date of maturity to present the bill for
payment.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
PRESENTMENT FOR PAYMENT
TIME OF MATURITY
Section 85. Time of maturity. - Every negotiable instrument is payable
at the time fixed therein without grace. When the day of maturity falls
upon Sunday or a holiday, the instruments falling due or becoming
payable on Saturday are to be presented for payment on the next
succeeding business day except that instruments payable on demand
may, at the option of the holder, be presented for payment before
twelve o'clock noon on Saturday when that entire day is not a holiday.
Section 86. Time; how computed. - When the instrument is payable
at a fixed period after date, after sight, or after that happening of a
specified event, the time of payment is determined by excluding the
day from which the time is to begin to run, and by including the date
of payment.
Time of maturity
Rules:
A. Every negotiable instrument must be paid at the time fixed therein
without maturity
B. If the time of maturity falls on a Sunday or a holiday, the
instrument is payable on the next business day
C. If on a Saturday, it is to be paid on the next business day
EXCEPT: An instrument payable on demand may, at the option of
the holder, be presented for payment before 12 oclock noon on
Saturday when the entire day is not a holiday.
Important: If a grace period is given on the instrument, then the
instrument is payable on the last date of grace.
What happens if it is an instrument payable upon demand and
you fail to present it?
All persons secondarily liable will be discharged of their liability.
Time, how computed
Like computation of time under the Civil Code, you exclude the first,
include the last.
EFFECT OF WANT OF DEMAND ON THE PRINCIPAL DEBTOR
Section. 70. Effect of want of demand on principal debtor
Presentment for payment is not necessary in order to charge the
person primarily liable on the instrument; but if the instrument is, by
its terms, payable at a special place, and he is able and willing to pay
it there at maturity, such ability and willingness are equivalent to a
tender of payment upon his part. But except as herein otherwise
provided, presentment for payment is necessary in order to charge the
drawer and indorsers.
Section 71. Presentment where instrument is not payable on demand
and where payable on demand. - Where the instrument is not payable
on demand, presentment must be made on the day it falls due. Where
it is payable on demand, presentment must be made within a
reasonable time after its issue, except that in the case of a bill of
exchange, presentment for payment will be sufficient if made within a
reasonable time after the last negotiation thereof.
PFP TO PERSONS PRIMARILY LIABLE
Presentment for payment (PFP)
The presentment of an instrument to the person primarily liable for the
purpose of demanding and receiving payment.
28 | U N I V E R S I T Y O F S A N C A R L O S
Presentment to person primarily liable is not necessary
Presentment and demand for payment are not necessary in order to
charge the person primarily liable since his liability is absolute. The
holder may sue the acceptor and the maker as soon as the date for
payment has passed, without need of demand.
GR: It is not necessary that the instrument be presented to persons
primarily liable because even if you dont present it, they will still have
to pay.
XPNs: However, if you have to present it for payment, it depends:
1. If it is not payable on demand - presentment must be made on the
day it falls due or on the maturity date.
2. If it is payable on demand - presentment must be made within a
reasonable time after its issue.
EXCEPT that in a case of a bill of exchange, presentment for
payment will be sufficient if made within a reasonable time after
the last negotiation thereof.
Important: Presentment for payment to persons secondarily liable is
necessary. Thus, for the indorsers and the drawer to be liable, there
must be presentment for payment. Notice of dishonor must be given to
the persons secondarily liable, otherwise, the party to whom notice is
not given shall be free from all liabilities.
Applicable where payable at a specific place
It is also applicable where the instrument is payable at a specific place,
but not an unspecified place
Important: However, if the person primarily liable has the ability and
willingness to pay at the specified time and place, the same is considered
as a tender of payment. He cannot be considered in delay and will not
be liable for interests subsequently accruing.
Neither is presentment for payment required to charge the person
primarily liable even if the same is in their written agreement.
Instruments payable on demand
There is no need for presentment for payment to charge the person
primarily liable. Thus, a suit may be maintained even without demand.
Risk assumed in case presentment not made
Non-presentment does not discharge person of his debt. The risk a
person assumes is the insolvency of the debtor.
PFP TO PERSONS SECONDARILY LIABLE
Since the drawer and indorsers undertake to pay only if the instrument
is dishonored, a demand for payment must first be made upon the
person primarily liable to trigger the liability of the persons secondarily
liable.
Important: If the instrument is not presented to the person primarily
liable, the drawer and indorsers are discharged from their liability.
WHAT CONSTITUTES SUFFICIENT PRESENTMENT
Section 72. What constitutes a sufficient presentment Presentment
for payment, to be sufficient, 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 as herein defined
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
(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.
Section 74. Instrument must be exhibited. - 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.
Requisites for a valid presentment for payment:
Presentment for payment, to be sufficient, must be made:
1. By the holder, or by some person authorized to receive payment
on his behalf
2. At a reasonable hour on a business day
3. At a proper place as herein defined
4. To the person primarily liable on the instrument, or if he is absent
or inaccessible, to any person found at a place where presentment
is made
Effect of non-compliance
If the requirements are not complied with, then it is as if no presentment
has been done and the indorsers and drawers will be discharged from
liability.
By whom
The holder or his authorized representative
When
During business hours.
What constitutes business hours depends upon the general custom of
the place where transaction took place.
a) Bank banking hours
b) In the place of business during the usual business hours in that
place
c) Residence Made between the usual hours of rising and retiring
Important: At a reasonable hour on a business day depends on the
business hours of the establishment where presentment for payment
will be made.
To whom
To the party primarily liable
a) Maker Promissory note
b) Acceptor accepted bill
c) Drawee if bill of exchange is payable on demand
d) Any person at the place of presentment with sufficient discretion
if person primarily liable is absent or inaccessible
If the presentment is due to a particular place and the person
primarily liable cannot be found or is absent, to whom should
you make presentment?
It could be to any person found at the place where presentment should
be made. But this any person does not refer to all persons. You cannot
present it to a minor, because he is incapable of entering into a contact.
It has to be a person of legal age and as much as possible he should be
authorized.
However it is not necessary that he is authorized because the law does
not specify. After all this is just presentment for payment and not the
presentment itself.
Why presentment for payment made
This is not to make the person primarily liable, liable, but in order not to
discharge the persons secondarily liable. But regardless, if you are a
holder of an instrument, you would really want to present it for payment
so that you can receive payment for the instrument.
29 | U N I V E R S I T Y O F S A N C A R L O S
Atty. Amago: Presentment in this case is like a demand in obligations
and contract. If you do not demand, then the person cannot be
considered in delay and you can never get the fulfillment of the
obligation.
INSTRUMENT MUST BE EXHIBITED
Exhibition
The act of showing the bill to the drawee and requesting its acceptance
or payment. It is a personal or face to face demand at the proper place,
exhibiting the instrument to the maker or acceptor from whom payment
is demanded.
Exhibition needs to be demanded; waiver
The instrument need not actually be exhibited, unless such is demanded.
Thus, the makers right to an exhibition of a note is waived when he
does not demand to see the note and he refuses payment on some other
grounds.
Purpose of exhibition
To enable the debtor to:
1. Determine the genuineness of the instrument and the
indorsements and the right of the holder to receive payment.
2. Enable him, upon payment, to take possession of it to guard
against a lawsuit by a subsequent holder.
Atty. Amago: The instrument should be exhibited so that the holder
can see the instrument and check whether the instrument is genuine or
not. It is also necessary so that he can take possession of the instrument
to serve as evidence to other parties who will subsequently hold the
instrument in case they demand for payment. It is also to secure proof
of validity of the instrument.
Presentment without exhibition
Presentment would be ineffectual as the debtor is entitled to see the
instrument and demand it surrender upon payment.
WHEN CHECK MUST BE PRESENTED
Section 186. Within what time a check must be presented. - A check
must be presented for payment within a reasonable time after its issue
or the drawer will be discharged from liability thereon to the extent of
the loss caused by the delay.
When check must be presented for payment
Within a reasonable time after its issue
Effect of delay
The drawer will be discharged from liability thereon to the extent of the
loss caused by the delay.
WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED
Section 81. When delay in making presentment is excused. - Delay in
making presentment for payment is excused when the delay is caused
by circumstances beyond the control of the holder and not imputable
to his default, misconduct, or negligence. When the cause of delay
ceases to operate, presentment must be made with reasonable
diligence.
When delay for making presentment for payment is excused
When the delay is caused by circumstances beyond the control of the
holder and not imputable to his default, misconduct or negligence.
TN: When the cause of the delay ceases to operate, presentment must
be made with reasonable diligence.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
Important: What is excused is the delay in making of presentment and
not making of the presentment itself.
PLACE OF PRESENTMENT
Section 73. Place of presentment. - Presentment for payment is made
at the proper place:
(a) Where a place of payment is specified in the instrument and it is
there presented;
(b) Where no place of payment is specified but the address of the
person to make payment is given in the instrument and it is there
presented;
(c) Where no place of payment is specified and no address is given and
the instrument is presented at the usual place of business or residence
of the person to make payment;
(d) In any other case if presented to the person to make payment
wherever he can be found, or if presented at his last known place of
business or residence.
Place of presentment
1. Where a place of payment is specified in the instrument and it is
there presented.
Ex. To A: Pay to B or order P5,000 at USC Main Room 404. Sgd X
2. Where no place of payment is specified but the address of the
person to make payment is given in the instrument and it is there
presented.
3. Where no place of payment is specified and no address is given
and the instrument is presented at the usual place of business or
residence of the person to make payment.
4. In any other case if presented to the person to make payment
wherever he can be found, or if presented at his last known place
of business or residence.
TN: So what you should do is stalk the person who is primarily
liable. Lol.
The order of enumeration must be followed
Otherwise, presentment is improperly done
Important: If no definite address is given and only the name of town
or city is stated, then subsection (b) or (c) applies.
PRESENTMENT WHERE PAYABLE AT BANK
Section 87. Rule where instrument payable at bank. - Where the
instrument is made payable at a bank, it is equivalent to an order to
the bank to pay the same for the account of the principal debtor
thereon.
Section 75. Presentment where instrument payable at bank. - Where
the instrument is payable at a bank, presentment for payment must be
made during banking hours, unless the person to make payment has
no funds there to meet it at any time during the day, in which case
presentment at any hour before the bank is closed on that day is
sufficient.
Rule where 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.
30 | U N I V E R S I T Y O F S A N C A R L O S
TN: Only applicable where the instrument is addressed at a particular
named bank.
Important: The bank may charge the amount of the instrument out of
the deposit of the maker or drawer without necessity of getting
additional authority from the latter.
When to present for payment for instrument is payable to bank
GENERAL RULE: Where the person to make payment has sufficient
funds in the bank, presentment for payment must be made during the
usual banking hours (usually 9:00 am 4:00 pm)
Important: Presentment made outside banking hours operates to
discharge the persons secondarily liable.
EXCEPTION: If the person has no funds in the bank, presentment at any
hour before the bank is closed on that day is sufficient.
Reason: Even if presentment was made during banking hours, the
instrument could not have been paid just the same.
Atty. Amago: Just because the usual banking hours is from 9-4, it does
not mean that the bank closes at 4 pm. They also work for 8 hours a
day or even more. So when there is reasonable knowledge to believe
that the instrument will not be paid then you can present it at any time
before the bank closes.
When can you say that there is a reasonable knowledge to
believe that the instrument will not be paid?
1. When the person has no funds in the bank
2. When there was an account but it is already closed
3. When his fund in the bank is insufficient to pay the instrument
Effect of depositing insufficient funds
If before the closing of the banking hours he deposits funds to the banks
there enough to pay the instrument, a demand earlier in the day is
premature. Hence, the instrument is not considered dishonored though
payment has been refused earlier in the day.
Important: The maker, unlike the indorser is not discharged in any
way by the fact that the note is presented for payment after maturity
date UNLESS prescription has run.
PRESENTMENT WHERE PRINCIPAL DEBTOR IS DEAD
Section 76. Presentment where principal debtor is dead. - Where the
person primarily liable on the instrument is dead and no place of
payment is specified, presentment for payment must be made to his
personal representative, if such there be, and if, with the exercise of
reasonable diligence, he can be found.
Rule in case principal debtor is dead
If person primarily liable is dead and no place of payment is specified,
presentment for payment must be made to his personal representative
executor, administrator or the judicially declared representative of the
decedent if there be and he can be found with the exercise of
reasonable diligence.
Important: Applicable only if no place of payment is found.
When presentment for payment may be dispensed with
Presentment for payment may be dispensed with if with the exercise of
reasonable diligence, no personal representative can be found.
However, the holder should still give the indorser a notice of dishonor.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
PRESENTMENT TO PERSONS LIABLE AS PARTNER
Section 77. Presentment to persons liable as partners. - Where the
persons primarily liable on the instrument are liable as partners and no
place of payment is specified, presentment for payment may be made
to any one of them, even though there has been a dissolution of the
firm.
PRESENTMENT TO JOINT DEBTORS
Section 78. Presentment to joint debtors. - Where there are several
persons, not partners, primarily liable on the instrument and no place
of payment is specified, presentment must be made to them all.
Presentment to joint debtors
Ex: To: A, B and C, Pay to Richard or bearer P 5,000
Sgd. Bessy
This will be presented to A, B, and C
Rule when there are several persons who are primarily liable
GR: Presentment must be made to all of them
XPNs:
1. They are partners
2. One is authorized to receive it in behalf of the others.
WHEN PRESENTMENT NOT REQUIRED TO CHARGE DRAWER
Section 79. When presentment not required to charge the drawer. -
Presentment for payment is not required in order to charge the drawer
where he has no right to expect or require that the drawee or acceptor
will pay the instrument.
Rule
Presentment is not required to charge the drawer where he has no right
to expect or require that the drawee or acceptor will pay the instrument.
Examples:
1. Where the drawer has no funds with the drawee
2. Where the drawer of a check has stopped payment thereof
3. Where the drawer of a check has withdrawn funds from the
drawee-bank leaving nothing with which to pay the check
Important: Section 79 is an instance where a party secondarily liable
is not discharged in spite of lack of presentment.
Example:
To: Jaime Zobel de Ayala
Pay Mr. X or order P1,000,000 (Sgd. Richard)
Here, presentment is not necessary for you to be liable on the
instrument. In the first place, you dont know Jaime so there is no reason
to believe that the instrument will be paid.
Atty. Amago: Presentment is necessary in order to hold the persons
secondarily liable, liable. The drawer is a person secondarily liable. So
there is no need for the presentation because he made a
misrepresentation that the instrument will be paid by a particular
drawee. You only make such instrument when you have previous
arrangements with regard to the payment of a particular instrument.
In this case, the instrument will not be paid thus there is no need to
present the instrument to charge the drawer. But there is a need to
present the instrument to ascertain if the instrument will be paid or not.
31 | U N I V E R S I T Y O F S A N C A R L O S
WHEN PRESENTMENT NOT REQD TO CHARGE INDORSER
Section 80. When presentment not required to charge the indorser. -
Presentment is not required in order to charge an indorser 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.
When presentment not required to charge the indorser
There is no need to go to the drawee if the instrument drawn was done
for accommodation. Whether or not the instrument is paid by the
drawee, X (indorser) will still pay the instrument and not Y
(accommodating drawer).
WHEN PRESENTMENT MAY BE DISPENDED WITH
Section 82. When presentment for payment is excused. -
Presentment for payment is excused:
(a) Where, after the exercise of reasonable diligence, presentment, as
required by this Act, cannot be made;
(b) Where the drawee is a fictitious person;
(c) By waiver of presentment, express or implied.
When presentment for payment is excused:
1. Where presentment cannot be made after the exercise of
reasonable diligence
TN: There must be an active search.
2. Where drawee is a fictitious person
3. By waiver of presentment, express or implied
Important: The facts excusing the presentment must be especially
pleaded. What is excused is the delay of presentment and not the
presentment itself.
Summary of rules as to presentment for payment
1. Presentment for payment is not necessary to charge persons
primarily liable but is necessary to change persons secondarily
liable.
2. In the following cases, presentment for payment is not necessary
to charge persons primarily liable:
(a) As to drawer, under Section 79
(b) As to indorser, under Section 80
(c) When presentment is dispensed with under Section 82
(d) When the bill has been dishonored by non-acceptance as
provided in Section 151
WHEN INSTRUMENT IS DISHONORED BY NON-PAYMENT
Section 83. When instrument dishonored by non-payment. - The
instrument is dishonored by non-payment when:
(a) It is duly presented for payment and payment is refused or cannot
be obtained; or
(b) Presentment is excused and the instrument is overdue and unpaid.
The instrument is dishonored by non-payment when:
1. It is duly presented for payment and payment is refused or cannot
be obtained
Requirements:
(a) Due presentment
(b) Payment is not obtained
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
2. Presentment is excused and the instrument is overdue and unpaid
Requirements:
(a) Present is excused
(b) Instrument is overdue
(c) Instrument is unpaid
Example: I promise to pay X or order P 1,000. Sgd. Bessy.
If part of the instrument states that presentment for payment is excused
or waived, there is no need to present payment to the person primarily
liable.
If you still tried to present it but she did not pay even though the
instrument is already overdue, this is considered dishonored by non-
payment under the second instance.
TN: An instrument is deemed dishonored only when it is overdue.
Why is it necessary to know when it is considered as dishonored
by non-payment or dishonored by non-acceptance?
A: So we would know when to commence the compliance of procedure
for dishonor. If there is dishonor by non-acceptance or dishonor by non-
payment, you have to comply with certain requirements of the
procedure for dishonor to make the persons secondarily liable, liable.
LIABILITY OF PERSONS SECONDARILY LIABLE
Section 84. Liability of person secondarily liable, when instrument
dishonored. - Subject to the provisions of this Act, when the instrument
is dishonored by non-payment, an immediate right of recourse to all
parties secondarily liable thereon accrues to the holder.
Rule
When instrument is dishonored by non-payment, an immediate right of
recourse to all parties secondarily liable accrues to the holder.
Liability of persons secondarily liable
They will have to pay the instrument unless that is not a part of their
warranty.
Ex: When you do not warrant the solvency of the debtor as in the case
of a qualified indorser, although you are not discharged from your
liability, you may not be compelled to pay.
Important: Such right will only accrue after giving due notice and
dishonor to those secondarily liable.
Three things must be proven to hold secondary party liable
1. Presentment was properly made
2. Primary party dishonored the instrument
3. Notice of dishonor was properly given to the secondary party
Needs notice of dishonor to parties secondarily liable
It is incumbent upon the holder whenever there is dishonor for non-
payment that the persons secondarily liable be notified of the dishonor
so that their liability will commence.
Is it required that all of them be presented with the notice of
dishonor?
No, it is not required.
32 | U N I V E R S I T Y O F S A N C A R L O S
WHAT CONSTITUTE PAYMENT IN DUE COURSE
Section 88. What constitutes payment in due course. - Payment is
made in due course when it is made at or after the maturity of the
payment to the holder thereof in good faith and without notice that his
title is defective.
What constitutes payment in due course?
It is payment at or after maturity of the instrument by the person
primarily liable or his duly authorized representative to the holder or a
duly authorized person to receive payment on his behalf, granting that
person paying does not know of any defect in title of the holder or the
person the latter authorizes.
Requisites of payment in due course
1. Payment must be made at or after date of maturity
2. Payment must be made to the holder
3. Payment must be made in good faith and without notice that the
holders title is defective
PROTEST
WHEN PROTEST IS NECESSARY
Sec. 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 non-acceptance, by non-acceptance is
dishonored and where such a bill which has not previously been
dishonored by non-payment, it must be duly protested for non-
payment. 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.
Sec. 158. Protest before maturity where acceptor insolvent. - Where
the acceptor has been adjudged a bankrupt or an insolvent or has
made an assignment for the benefit of creditors before the bill matures,
the holder may cause the bill to be protested for better security against
the drawer and indorsers.
IN WHAT CASES PROTEST NECESSARY
Protest
Formal instrument executed by a notary public or other competent
person certifying that the facts necessary to the dishonor of the
instrument by non-acceptance or non-payment have taken place.
Atty. Amago: Protest is just a formal way of notifying the person that
the instrument has been dishonored. Formal in the sense that it requires
a notary public to do it. It then becomes a public instrument. At best,
there is due execution and authenticity.
Necessity of protest
Protest is required only in cases of dishonor of foreign bills due to non-
payment and non-acceptance.
Reasons:
1. It makes for uniformity in international transactions because most
countries require it
2. Furnishes authentic and satisfactory evidence of the dishonor to
the drawer who, from his residence abroad, would experience
difficulty in verifying the matter
When dishonored
The moment the instrument is overdue and no payment is made, it is
already considered dishonored. So, you have to notify all parties
secondarily liable. Otherwise, they will be discharged of their liability.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
Important: If you went to a person primarily liable and he still accepted
it even though it was already dishonored, then hes the only person you
can resort to.
Effect if not protested discharge
If not duly protested, the drawer and the indorsers are discharged from
liability.
Important: The discharge only refers to the liability in the instrument,
but not with respect to liability under a separate contract or undertaking
which gave rise to the instrument.
Cases in which protest is required
1. Upon dishonor by non-acceptance of a foreign bill appearing on its
face to be such
2. Upon dishonor by non-payment of a foreign bill appearing on its
face to be such, it not having been previously dishonored by non-
acceptance
3. Before a bill can be presented for payment to the acceptor for
honor or the referee in case of need, it must be protested by the
holder for non-payment by any party liable thereon
4. Before a bill can be accepted for honor, it must be protested for
dishonor by non-acceptance or protested for better security
5. Upon dishonor of the bill by the acceptor for honor, it must be
protested by the holder for non-payment by any party liable
thereon
6. Before a bill can be paid for honor, it must be protested by the
holder for non-payment by any party liable thereon.
PROTEST FOR BETTER SECURITY
When acceptor is bankrupt or insolvent
A protest for better security is one made by the holder of the bill after it
has been accepted but before it matures, against the drawer and
indorsers, where the acceptor:
1. Adjudged as bankrupt
2. Insolvent
3. Has made an assignment for the benefit of creditors
Purpose
Merely to apprise the persons secondarily liable of the situation of the
acceptor.
Important: The protest is thus purely optional and its omission will not
affect the holders remedy against the drawer and indorsers.
HOW PROTEST IS MADE
Sec. 153. Protest; how made. - The protest must be annexed to the
bill or must contain a copy thereof, and must be under the hand and
seal of the notary making it and must specify:
(a) The time and place of presentment
(b) The fact that presentment was made and the manner thereof
(c) The cause or reason for protesting the bill
(d) The demand made and the answer given, if any, or the fact that
the drawee or acceptor could not be found.
Sec. 160. Protest where bill is lost and so forth. - When a bill is lost
or destroyed or is wrongly detained from the person entitled to hold it,
protest may be made on a copy or written particulars thereof.
PROCEDURE FOR PROTEST
1. After the instrument is dishonored by non-acceptance or non-
payment, the holder takes it to a notary public.
2. Notary public presents the instrument again to the party who
previously dishonored it and demands it acceptance for payment
33 | U N I V E R S I T Y O F S A N C A R L O S
3. If refused, the notary public, on the same day, makes a minute of
the dishonor on the instrument or on his notarial register, the
following (noting):
(a) Minute consisting his initials
(b) Year, month and day of dishonor
(c) Charges
4. On the same day or afterwards, the notary public extends the
protest note in a certificate where he affixes his notarial seal.
Purpose of certificate of protest: To do away with the necessity of
proving the fact of presentment, demand, non-payment and notice
of dishonor by witnesses in court. However, it is merely prima facie
evidence.
Important: Without the authentication of the notary public, the
certificate of protest of a foreign bill is no proof of the drawees
refusal to accept or pay the bill.
5. Notary public then sends a notice of dishonor to all the parties to
the instrument
Atty. Amago: Once it has been dishonored, go to the notary public
who will again present the instrument. He will go to the drawee who will
not accept the instrument. If he is now convinced that it has been
dishonored by non-acceptance, he will start making notation of the
instrument of the time and place of presentment, the manner thereof,
the cause or reason for protesting the bill, etc.
PROTEST WHERE BILL IS LOST, ETC.
Loss or destruction of a bill will not excuse protest
This is true whether the bill has already been accepted or not. The
reason is that any of the cases does not affect the contract of the parties.
Important: The contents of the instrument may be proven as in the
other cases of lost documents.
You can still protest a bill which is lost if you can make a copy. But if
theres no copy, just make material particulars, as if you will redraft the
instrument itself.
Why is it important that there be protest?
This is important if you want to have an acceptance for honor (AFH)
which requires that the instrument must be previously protested.
Important: Only foreign bills are required to be protested. But no one
can stop you if you want to still protest even if its not a foreign bill of
exchange.
WHO MUST PROTEST
Sec. 154. Protest, by whom made. - Protest may be made by: (a) A
notary public; or (b) By any respectable resident of the place where
the bill is dishonored, in the presence of two or more credible
witnesses.
Protest, by whom made
Even if it is stated in the law that it can be made by any person, in
reality, it is only the notary public who can make a protest because there
are already a lot of lawyers all over the country.
Important: The second paragraphthat any respectable resident of
the place where bill is dishonoredis not applicable anymore.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
WHEN MUST PROTEST BE MADE
Sec. 155. Protest; when to be made. - When a bill is protested, such
protest must be made on the day of its dishonor unless delay is excused
as herein provided. When a bill has been duly noted, the protest may
be subsequently extended as of the date of the noting.
Protest, when made
When the bill is dishonored, such protest must be made on the day it
was dishonored, unless delay is excused.
A. The noting of the matters required by Section 153 must be made
on the date of dishonor.
B. However, the notary public need not make the formal certificate
of protest on the same day the instrument is dishonored, but the
certificate must be dated as of the date of noting.
When extended
If the bill is duly noted, the protest may be extended as to the day of
the noting.
Important: Once you made a notation, the certification that he will
make need not be completed on the same day. It may be completed
the next day but the date of the certification will still be the day when
the protest was originally commenced.
Example: Today was the date when the instrument was dishonored. So,
the notary public will start noting because he has done all exercises to
be done. The formal certificate need not be on the same date, it may
be made the following day, but then, the date of certification will still be
today. That is meant by extension.
WHERE PROTEST IS MADE
Sec. 156. Protest; where made. - A bill must be protested at the place
where it is dishonored, except that when a bill drawn payable at the
place of business or residence of some person other than the drawee
has been dishonored by non-acceptance, it must be protested for non-
payment at the place where it is expressed to be payable, and no
further presentment for payment to, or demand on, the drawee is
necessary.
Protest, where made
GR: A bill must be protested where it is dishonored.
XPN: When the bill is drawn payable in the place of business or residence
of some other person other than the drawee and has been dishonored
by non-acceptance, it must be protested for non-payment at the place
where it is expressed to be payable, and no further presentment for
payment to, or demand on, the drawee is necessary.
Illustration:
Theres a specific place for the payment of instrument but it was
dishonored by non-acceptance at the place of the drawee. Say, it is
ought to be payable in Cebu City. The drawee is in Metro Manila so you
make presentment for acceptance in Metro Manila. It was dishonored
by non-acceptance. Where can you make the protest?
A: If you use the GR, in Metro Manila, but it is allowed that protest be
made here in Cebu because the protest is ought to be paid here.
34 | U N I V E R S I T Y O F S A N C A R L O S
PROTEST BEFORE MATURITY
Sec. 158. Protest before maturity where acceptor insolvent. - Where
the acceptor has been adjudged a bankrupt or an insolvent or has
made an assignment for the benefit of creditors before the bill matures,
the holder may cause the bill to be protested for better security against
the drawer and indorsers.
Protest before maturity where acceptor insolvent
If acceptor is adjudged bankrupt or insolvent, you need not wait for the
instrument to mature before you protest because if hes already
bankrupt, he will not be able to pay on the day of payment nonetheless.
So you can start the process of protesting.
PROTEST FOR BOTH NON-ACCEPTANCE AND NON-PAYMENT
Sec. 157. Protest both for non-acceptance and non-payment. - A bill
which has been protested for non-acceptance may be subsequently
protested for non-payment.
Protest for both non-acceptance and non-payment
Where a bill has already been protested for non-acceptance, protest for
non-payment is discretionary on the part of the holder. Under Section
151, presentment for payment is not necessary after the bill has been
dishonored by non-acceptance.
Atty. Amago: Actually, once its protested for non-acceptance, you
dont resort to protest for non-payment because most likely, that
instrument will also not be accepted. So just resort to all other persons
secondarily liable.
WHEN PROTEST MAY BE DISPENSED WITH
Sec. 159. When protest dispensed with. - Protest is dispensed with by
any circumstances which would dispense with notice of dishonor. Delay
in noting or protesting is excused when delay is caused by
circumstances beyond the control of the holder and not imputable to
his default, misconduct, or negligence. When the cause of delay ceases
to operate, the bill must be noted or protested with reasonable
diligence.
Sec. 118. When protest need not be made; when must be made. -
Where any negotiable instrument has been dishonored, it may be
protested for non-acceptance or non-payment, as the case may be;
but protest is not required except in the case of foreign bills of
exchange.
When protest dispensed with
In the same way that notice of dishonor will be dispensed with. A protest
can become a substitute for notice of dishonor.
Important: But delay in noting or protesting is excused only when
there is a fortuitous event, just like presentment for payment.
Only foreign bills are required to be protested
But no one can stop you if you want to still protest even if its not a
foreign bill of exchange.
Protest and notice of dishonor distinguished
Protest Notice of dishonor
Required in any negotiable
Required only in case of
instrument other than
dishonor of a foreign bill
a foreign bill
Always written May be oral or written
Includes presentment, notice of
dishonor and all steps Limited only to such notice
accompanying dishonor
Made either by a notary public Made by a party or his agent
Made on the date of dishonor Made within the time prescribed
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
ACCEPTANCE FOR HONOR
CONCEPT
Acceptance for honor, defined
An undertaking by a stranger to a bill after protest for the benefit of any
party liable thereon or for the honor of the person for whose account
the bill is drawn.
TN: It is otherwise known as acceptance supra protest since previous
protest for non-acceptance or for better security is necessary.
Important: The acceptance inures to the benefit of all parties
subsequent to the person for whose honor it is accepted, and
conditioned to pay the bill when it becomes due if the original drawee
does not pay it.
WHEN LIABILITY MAY BE ACCEPTED FOR HONOR
Sec. 161. When bill may be accepted for honor. - When a bill of
exchange has been protested for dishonor by non-acceptance or
protested for better security and is not overdue, any person not being
a party already liable thereon may, with the consent of the holder,
intervene and accept the bill supra protest for the honor of any party
liable thereon or for the honor of the person for whose account the bill
is drawn. The acceptance for honor may be for part only of the sum
for which the bill is drawn; and where there has been an acceptance
for honor for one party, there may be a further acceptance by a
different person for the honor of another party.
Acceptance for honor (AFH)
There are instances where a person would wish to pay the instrument
even if it was dishonored. That person would want to preserve the credit
of some other person and to pay on the instrument.
TN: It is the practice of writing on the instrument Accepted for honor
of P. (Sgd. X)
Requisites of acceptance for honor
1. The instrument must have been protested for dishonor by non-
acceptance or for better security
2. The acceptor for honor must be a stranger to the bill
3. The bill must not be overdue at the time of the acceptance for
honor
4. The acceptance for honor must be with the consent of the holder
of the instrument
Who can make an acceptance for honor?
It can only be made by a stranger. This AFH gives additional security
because the acceptor for honor undertakes the warranties and liabilities
in case the acceptor does not pay it.
Important: The AFH must be a stranger and cannot be a party already
liable on the bill like an indorser because his acceptance would obviously
not give additional security to the holder.
What happens if instrument is dishonored?
The drawers reputation will be tarnished. Its as if the instrument is
accepted. In that case, the drawer undertakes to pay in case it will not
paid.
But can it be partial acceptance?
Yes. If ever there is partial acceptance, you look for another one.
Important: You need not accept for the honor of the drawer only. You
can accept the honor of the indorser. If instrument will not be accepted,
an indorser is one of the persons secondarily liable.
35 | U N I V E R S I T Y O F S A N C A R L O S
HOW ACCEPTANCE FOR HONOR IS MADE
Sec. 162. Acceptance for honor; how made. - An acceptance for honor
supra protest must be in writing and indicate that it is an acceptance
for honor and must be signed by the acceptor for honor.
Sec. 163. When deemed to be an acceptance for honor of the drawer.
- Where an acceptance for honor does not expressly state for whose
honor it is made, it is deemed to be an acceptance for the honor of the
drawer.
Formal requisites of acceptance for honor
1. The AFH must be in writing
2. It must indicate that it is an AFH
3. It must be signed by the acceptor for honor
4. It must contain an express or implied promise to pay money
5. The accepted bill for honor must be delivered to the holder
Important: The acceptor for honor must appear before a notary public
and declare his intention to accept the protested bill for the honor of
some or one of the parties.
When deemed accepted for honor of the drawer
When an AFH is made with specifying the person for whose honor it is
made is deemed to be an acceptance for the honor of the drawer.
Reason for the presumption: Only the drawer will become liable to the
acceptor for honor. This kind of AFH will thus discharge the most parties
to the bill.
When is it deemed accepted
It is deemed accepted on the date of non-acceptance. It is important to
determine maturity date of instrument.
Example: Payment is due 10 days after sight. If you present instrument
on Jan.1, 2016, when is the date for payment?
A: January 11, 2016.
Atty. Amago: If it was dishonored on Jan.1 and AFH on Jan.2, for the
benefit of the holder, the law provides that it is on the day of the first
dishonor. If it is not stated as to who the acceptance is for, it is deemed
to be for the drawer.
LIABILITY OF ACCEPTOR FOR HONOR
Sec. 164. Liability of the acceptor for honor. - The acceptor for honor
is liable to the holder and to all parties to the bill subsequent to the
party for whose honor he has accepted.
Liability of the acceptor for honor
1. He is liable to all parties after the person in whose honor he accepts
the instrument.
Example: X is accepting honor of drawer. X is liable to A, B, C and
D who are parties subsequent to the drawer.
2. He is subrogated to the rights which the subsequent parties may
have as regards the latter and all prior parties.
AGREEMENT OF ACCEPTOR FOR HONOR
Sec. 165. Agreement of acceptor for honor. - The acceptor for honor,
by such acceptance, engages that he will, on due presentment, pay
the bill according to the terms of his acceptance provided it shall not
have been paid by the drawee and provided also that is shall have been
duly presented for payment and protested for non-payment and notice
of dishonor given to him.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017

Acceptor for honor is secondarily liable
His undertaking is not an absolute engagement to pay, but only a
collateral and conditional engagement to pay, if the drawee does not.
An acceptor for honor engages to pay according to the terms of
acceptance, provided:
1. The bill has been duly presented for payment
2. It shall not have been paid by the drawer
Important: In addition to the fact that hes willing to accept, to
make him liable, it must be that theres no payment by the drawee
because his liability starts only when the person primarily liable
does not pay.
3. The bill has been protested for non-payment
4. Notice of dishonor is given to him supra protest
MATURITY OF BILL PAYABLE AFTER SIGHT
B. If it is to be presented in some other place where it is protested
it must be forwarded within the time specified in Sec 104.
TN: This refers to mailing. If person is somewhere else when you
present for payment, just mail photocopy that it has been dishonored.
It must be mailed the day after, which is usually in a post office. If you
go to a post office now, they will start mailing it the next day. It does
not pertain to the date the mail will be received.
WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED
Sec. 169. When delay in making presentment is excused. - The
provisions of Section eighty-one apply where there is delay in making
presentment to the acceptor for honor or referee in case of need.
When delay in making presentment excused
This refers to fortuitous events or circumstances beyond the control of
the holder.

Sec. 166. Maturity of bill payable after sight; accepted for honor. -
Where a bill payable after sight is accepted for honor, its maturity is
calculated from the date of the noting for non-acceptance and not from
the date of the acceptance for honor.
Maturity of bill payable after signed, accepted for honor
This provision applies only to a bill payable after sight where it has
been accepted for honor.
When date of maturity reckoned
The noting of non-acceptance must be dated as of the date of the
dishonor by non-acceptance. Consequently, the date of maturity is
calculated from that date and not from the date of the AFH.
CONDITION WHEN DISHONORED BILL IS ACCPTED
Sec. 167. Protest of bill accepted for honor, and so forth. - Where a
dishonored bill has been accepted for honor supra protest or contains
a referee in case of need, it must be protested for non-payment before
it is presented for payment to the acceptor for honor or referee in case
of need.
Who is a referee?
Section 167 is just a repetition of 165 but there is another person
referred herea referee in case of need. He is a person to whom you
can resort to in case the instrument is not paid. He must be named.
Important: Hes like an acceptor for honor but he must be referred to
by the drawer or indorser. But its not formal, unlike AFH.
HOW PRESENTMENT FOR PAYMENT IS MADE
Important:
A. Only the delay in making presentment is excused and not the
presentment itself
B. As soon as the cause of the delay is removed, presentment must
be made with reasonable diligence
DISHONOR OF BILL BY ACCEPTOR FOR HONOR
Sec. 170. Dishonor of bill by acceptor for honor. - When the bill is
dishonored by the acceptor for honor, it must be protested for non-
payment by him.
Dishonor of bill by acceptor for honor
If ever it has been accepted for honor and it is dishonored, it is required
that there be protest for non-payment. While AFH is not required
originally, but because there is acceptance for honor, it becomes
mandatory to make a protest.
Phrase by him
Such a phrase at the end of the provision modifies non-payment. Thus,
if the acceptor for honor himself does not pay the bill the holder must
protest the bill for non-payment by the acceptor for honor.
Protests required
1. Protest for dishonor by non-acceptance or for better security
2. Protest for non-payment by the drawee
3. Protest for non-payment by the acceptor for honor
Important: Here, the protest is necessary in order to hold the drawer
and the indorsers whose liabilities have not yet become fixed because
of the acceptance for honor.

Sec. 168. Presentment for payment to acceptor for honor, how made. Acceptance for honor v. ordinary acceptance
- Presentment for payment to the acceptor for honor must be made as
follows: Acceptance for honor Ordinary acceptance
There must be a Not required
(a) If it is to be presented in the place where the protest for non- previous protest
payment was made, it must be presented not later than the day Acceptor must be a The acceptor is the drawee
following its maturity. stranger to the bill
Consent of the Not required
(b) If it is to be presented in some other place than the place where it holder is required
was protested, then it must be forwarded within the time specified in Acceptor is secondarily liable Acceptor is primarily liable
Section one hundred and four. There may be several acceptors There can be no acceptors in
for honor for different parties in the alternative or in succession
How do you present payment to an AFH? the bill
Just like an ordinary presentment for payment, and: Bill is not discharged upon Bill is discharged upon
payment by the acceptor for payment by the acceptor
A. If it is to be presented to the place where protest for non-payment honor
was made it must be protested on the day not later than the day
following its maturity.

36 | U N I V E R S I T Y O F S A N C A R L O S
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017
PAYMENT FOR HONOR
CONCEPT
Payment for honor, defined
Made by a person, whether a party to the bill or not, after it has been
protested for non-payment for the benefit of any party liable thereon or
for the benefit of the person for whose account it was drawn.
TN: It is otherwise called as payment supra protest because prior protest
for non-payment is required.
Important: This is not applicable to Promissory Notes. Thus, a person
who, not being a regular party to a note, pays it for the honor or credit
of the maker or indorsers, does not acquire any right of recourse against
prior parties.
WHO MAY MAKE PAYMENT FOR HONOR
Sec. 171. Who may make payment for honor. - Where a bill has been
protested for non-payment, any person may intervene and pay it supra
protest for the honor of any person liable thereon or for the honor of
the person for whose account it was drawn.
Who may make payment of honor
1. A party of the bill, or
2. By a stranger
Important: Thus, it may be made by the drawee after he has refused
to accept the bill. Also, the drawer of a check which has been dishonored
and protested has a right to intervene and pay it to protect his honor.
When payment for honor will happen
If the instrument is protested for reason of non-payment
Purpose and function of payment for honor
Payment for honor may be availed of when the holder, knowing that the
bill has already been dishonored for non-payment, does not want to
indorse the bill and thereby incurs the liabilities of an indorser specified
under Sec 66 or of one negotiating by mere deliver under Sec 65.
HOW PAYMENT FOR HONOR IS MADE
Sec. 172. Payment for honor; how made. - The payment for honor
supra protest, in order to operate as such and not as a mere voluntary
payment, must be attested by a notarial act of honor which may be
appended to the protest or form an extension to it.
Sec. 173. Declaration before payment for honor. - The notarial act of
honor must be founded on a declaration made by the payer for honor
or by his agent in that behalf declaring his intention to pay the bill for
honor and for whose honor he pays.
Payment for honor, how made
It must be attested by notarial act of honor. Supposedly, under protest,
the notary public makes a notification and certification that this is what
happened, signed by him.
Atty. Amago: You can make another piece of paper stating the
payment for honor, or place it in the same instrument. If there is an
acceptance for honor, the payment for honor could be added there.
Requisites of valid payment of honor
1. The bill has been dishonored by non-payment
2. It has been protested for non-payment
3. Payment supra protest is made by any person, even a party thereto
4. Payment is attested by a notarial act of honor which must be
appended to the protest or form an extension of it
37 | U N I V E R S I T Y O F S A N C A R L O S
5. The notarial act must be based on the declaration made by the
payer for honor or his agent of his intention to pay the bill for honor
and for whose honor he pays
Important: If the formalities are not followed, the payment will operate
as mere voluntary payment. Thus, the payer has no right to full
reimbursement against the party for whose honor he pays.
Procedure for payment for honor
1. The payer for honor goes to the notary public after the bill has
been noted or protested for non-payment and declares his
intention to pay the bill for honor and for whose honor he pays.
Atty. Amago: The payer for honor or his agent must declare that
he is willing to pay and for whose honor he is going to pay.
2. The declaration is recorded by the notary public either in the
protest itself or in a separate paper attached thereto.
3. The payer for honor notifies within a reasonable time the party for
whose honor he pays that he will make payment.
PREFERENCE OF PARTIES OFFERING TO PAY FOR HONOR
Sec. 174. Preference of parties offering to pay for honor. - Where two
or more persons offer to pay a bill for the honor of different parties,
the person whose payment will discharge most parties to the bill is to
be given the preference.
Preference of parties offering to pay for honor
Those who will cause more discharge of liability is given preference.
Most likely, it is the person nearest to the person primarily liable.
Important: Note that the rule is difference in acceptance for honor.
Illustration:
R draws a bill payable to P or order with W, as the drawee, and A, B,
and C, and D, as successive indorsers, and E, as holder. W does not pay
and E has duly protested non-payment.
If T offers to pay supra protest for honor of C while S, for A, S is to be
preferred as his payment will discharge B, C, and D, whereas payment
by T will discharge only D.
EFFECT ON SUBSEQUENT PARTIES
Sec. 175. Effect on subsequent parties where bill is paid for honor. -
Where a bill has been paid for honor, all parties subsequent to the
party for whose honor it is paid are discharged but the payer for honor
is subrogated for, and succeeds to, both the rights and duties of the
holder as regards the party for whose honor he pays and all parties
liable to the latter.
Effect on subsequent parties where bill is paid for honor
1. All persons subsequent to the person for whose honor the
instrument has been paid will be discharged.
2. The payer for honor is subrogated for, and succeeds to both the
rights and duties of the holder as regards the party for whose the
honor he pays and all parties liable to the latter.
Illustration: (Refer to the preceding example)
The payment supra protest by S for the honor of A will discharge B, C,
and D. S is subrogated to the rights of the holder E, with respect to W,
R, P, and A. However, the right of S against W, R, and P will depend on
whether or not they are liable to A.
NEGOTIABLE INSTRUMENTS LAW l Atty. Bernardino Amago l For the exclusive use of EH 404 A.Y. 2016-2017

If S pays for the honor of all parties to the bill, W, R, P, A, B, C, and D,

then he may recover against all of them.

WHERE HOLDER REFUSES TOR ECEIVE PAYMENT

Sec. 176. Where holder refuses to receive payment supra protest. -

Where the holder of a bill refuses to receive payment supra protest, he
loses his right of recourse against any party who would have been
discharged by such payment.

Effect of holders refusal to receive payment

He cannot recover from the parties who would have been discharged
had he accepted the same.

Example: (Refer to the examples under 174 and 175)

If E refuses to receive payment supra protest from S for the honor of A,

he loses his right of recourse against B, C, and D who would have been
discharged by such payment.

RIGHTS OF PAYER FOR HONOR

Sec. 177. Rights of payer for honor. - The payer for honor, on paying
to the holder the amount of the bill and the notarial expenses incidental
to its dishonor, is entitled to receive both the bill itself and the protest.

Rights of payer for honor

The payer for honor is entitled to receive the bill itself and the protest
so he can ask for reimbursement from the person in whose favor he has
paid.

Acceptance for Honor v. Payment for Honor

Acceptance for honor Payment for honor

Payer for acceptance can only Payer for honor can be a stranger
be a stranger or a party of the instrument

There can be more than one

person offering to pay a bill for There is preference
the honor of different parties.

Protest must be for non-

acceptance or for better security
The bill must not be overdue
Consent of the holder
is required
Notarial act of acceptance
is not necessary
There may be several
acceptors for honor
Protest must be for non-payment
The bill is overdue
Consent of the holder is not
required nor can the holder refuse
Notarial act of honor is necessary
There can be only one
payer for honor

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