Negotiable Instruments Memory Aid 2.

Bill of Exchange: OSRM

UM - Summer Class 2011 i. unconditional order in writing addressed by one
Outlined By NCM person to another,
(Excerpts from H.S.De Leon, Dean Abad and Atty. Roland Pondoc) ii. signed by the person giving it,
iii. requiring the person to whom it is addressed to
Negotiable Instruments: WSPH pay on demand or at a fixed or determinable
i. written contracts for the payment of money; future time
ii. by its form, intended as a substitute for money iv. a sum certain in money to order or to bearer.
iii. intended to pass from hand to hand, (Sec. 126 NIL)
iv. to give the holder in due course the right to hold
the same and collect the sum due. 3. Check - bill of exchange drawn on a bank and
payable on demand. (Sec. 185 NIL)
Functions and importance of NI: SEC • special kind of a bill of exchange.
1. operates as a substitute for money – allows it to go Other examples of NI: CBDB/DTB
from hand to hand in the commercial markets and to 1. Certificate of deposit;
take the part of money in commercial transactions. 2. Bank Notes;
2. the media of exchange for most commercial
transactions (Checks) – they are a safe and
3. Due Bills;
convenient means of doing business that eliminate the 4. Bonds;
risk of dealing in cash. 5. Drafts;
3. serves as a medium for credit transaction – men 6. Trade Acceptances; and
without cash in hand are enabled by means of credit to 7. Banker’s Acceptances.
conduct and carry to completion business and
commercial enterprises. Non-negotiable Instruments: WTPC/LBD
1. Warehouse Receipts;
Note: Checks are primarily used for immediate payment 2. Treasury Warrants;
such as a substitute for money, while the ordinary bill of 3. Postal Money Order;
exchange and the promissory note are intended for the
4. Certificate of Stocks;
circulation of credits such as a credit instrument.
5. Letter of Credits;
Characteristics/Features of NI: 6. Bill of Lading; and
7. Dock Warrants.
1. Negotiability – it may pass from one person to
another similar to money. Note: it cannot be negotiated but can be transferred by
2. Accumulation of secondary contracts – negotiated assignment.
from one person to another, hence, additional parties
can become involved. Every negotiation is a contract in Life cycle of NI: INPAD/PDNPD
itself, there will be more parties to whom the holder can 1. Issuance
demand payment. 2. Negotiation
3. Presentment for acceptance in some NI
Note: If it cannot be transferred, then it is non- 4. Acceptance itself
negotiable. 5. Dishonored by non-acceptance
6. Presentment for payment
Common forms of NI:
7. Dishonored by non-payment
1. Promissory Note: PSM 8. Notice of dishonor
i. unconditional promise to pay in writing made by 9. Protest in some cases
one person to another, 10. Discharge
ii. signed by the maker, engaging to pay on
demand or a fixed determinable future time Promissory Note vs. Bill of Exchange:
iii. a sum certain in money to order or bearer.
Promissory Note: “Promise Paper”
When the note is drawn to maker’s own order, it is not i. unconditional promise;
complete until indorse by him. (Sec. 184 NIL) ii. involves 2 parties;
iii. Maker is primarily liable; and
iv. only 1 presentment – for payment.

Bill of Exchange: “Order Paper”

i. unconditional order;
ii. involves 3 parties;
iii. Drawer is only secondarily liable; and
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 iv. generally 2 presentments - for acceptance and
for payment.
Form of NI: An instrument to be negotiable must
conform to the ff. requirements: (Sec. 1 NIL)
PN: SUDO / BofE: SUDOC
1. IT MUST BE IN WRITING AND SIGNED BY THE
MAKER OR DRAWER.
Notes:
• The instrument must be in writing; otherwise,
nothing could be negotiated or passed from
hand to hand.
• The writing may be in ink, print or pencil. It may
be upon parchment, cloth, leather or any other
substitute of paper.
• There is no such thing as an oral negotiable
instrument.
• It must be signed by the maker or drawer. It
may consist of mere initials, numbers or thumb
marks, but the holder must prove that what is
written is intended as a signature of the person
sought to be charged.
• His signature is prima facie evidence of his
intention to be bound as either maker or drawer.
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2. IT MUST CONTAIN AN UNCONDITIONAL
PROMISE OR ORDER TO PAY A SUM CERTAIN IN
MONEY.
Notes:
• The promise or order must be unconditional; it
must not be a subject to any condition or
contingency. It must be payable absolutely.
• The sum payable must be certain; hence, it must
be definite and specific, to assure clarity in
determining the value of the instrument.
If the instrument calls for an act, other than the
payment of money, it is not negotiable.
Exceptions:
• sale of collateral securities
• confession of judgment
• waives benefit of law
• gives option to the holder to require something
to be done in lieu of money
(Sec. 5 NIL)
Elaborated by Sec. 2 NIL:
Sum is certain even if it is to be paid with:
The instrument is still negotiable even if one of the ff. is
stated:
a. Interest – at fixed rate, or at increased/reduced rate.
b. In installments – must be stated in the instrument:
a. interest of each installment; and
b. due date of each installment.
c. In installments with acceleration clause – a
promise that if any installment or interest is not paid as
agreed, the whole shall become due.
d. With exchange – refers to instruments that are
payable in foreign currency.
• The exchange rate must be stated, otherwise
the latest exchange rate will be the basis.
e. Costs of collection or attorney’s fees – in case
payment shall not be made at maturity, there shall be
added to the amount due on the note costs of collection
or an attorney’s fee.
Elaborated by Sec. 3 NIL:
a. Indication of particular fund from which the
acceptor disburses himself after payment.
• The particular fund indicated fund should only be
the source of reimbursement and should not be
the direct source of payment; else it becomes
conditional and therefore non-negotiable.
• An instrument which contains a direction to
debit a particular account is negotiable.
b. Statement of the transaction which gives rise to
the instrument.
• The statement of the consideration for which the
instrument has been issued does not make it
conditional; thus, it has no adverse legal effect
on the negotiability of the instrument.
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3. IT MUST BE PAYABLE ON DEMAND, OR AT A
FIXED OR DETERMINABLE FUTURE TIME.
Elaborated by Sec. 7 NIL:
Instrument is payable upon DEMAND if:
a. It is expressed to be so payable on sight or upon
presentation
• an instrument payable on demand is due and
payable immediately after its delivery. It is a
present debt due at once.
Ex. Other words equivalent to “on demand” (PN)
- “at sight” (BofE)
- “on presentation”
- “on call”
- “at anytime called for”
“At sight” means that the instrument is payable
as soon as it is seen by the party primarily liable.
b. No period of payment is stipulated – when no time
is expressed.
c. Issued, accepted, or endorsed after maturity –
when the maturity date has already lapsed (overdue)
and the drawee is willing to pay, then it is payable on
demand.
Elaborated by Sec. 4 NIL:
Instrument is payable upon a DETERMINABLE
FUTURE TIME if:
a. There is a fixed period after sight/date.
• Fixed period/time:
“I promise to pay P or order the sum of P10,000
on October 29, 2009.”
• Fixed period after sight:
“Sixty days after sight, pay to the order of P the
sum of P10,000.”
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• Fixed period after date:
“Sixty days after date, I promise to pay P or
order the sum of P10,000.”
b. On or before a specified date/fixed determinable
future time.
• On or before a fixed time:
“On or before October 10, 2009, I promise to
pay P or order P10,000.”
The maker has the option to pay in advance or
on the fixed date.
• On or before a fixed determinable time:
“On or before the start of the next school
semester, I promise to pay P or order P10,000.”
Determinable future time means a time that
can be determined with certainty after the
execution of the instrument.
c. On or at a fixed date after the occurrence of an
event certain to happen though the exact date is not
certain.
• On the occurrence of a specified event:
“I promise to pay P or order the sum of P10,000
upon the death of his father.”
• After the occurrence of a specified event:
“Thirty days after the death of his father, I
promise to pay P or order the sum of P10,000.”
If the instrument is payable upon a contingency, the
happening of the event does not cure the defect (still
non-negotiable).
Contingency – an uncertain future event or an event
which may or may not happen.
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4. IT MUST BE PAYABLE TO ORDER OR TO
BEARER.
Notes:
• If payable to order – indorsement plus delivery.
• If payable to bearer – delivery only.
• An instrument payable to a specified person only
is not an order instrument, thus, non-negotiable
as the promise or order is limited to paying one
person only.
• The payee must be named or otherwise
indicated therein with reasonable certainty.
• If there is no payee, there would be no one to
indorse the instrument payable to order.
Therefore useless to be considered negotiable.
Elaborated by Sec. 8 NIL:
Instrument is payable to ORDER:
a. Where it is drawn payable to the order of a
specified person – “Pay to the order of P
P10,000.”
b. To a specified person or his order – “Pay to P
or order P10,000.”
It may be drawn payable to the order of:
a. A payee who is not a maker, drawer, or drawee; or
b. the drawer or maker; or
c. the drawee; or
d. two or more payees jointly; or
e. one or some of several payees ; or
f. the holder of an office for the time being.
Elaborated by Sec. 9 NIL:
Instrument is payable to BEARER:
a. When it is expressed to be so payable – “I promise
to pay bearer P10,000.”
b. When payable to the person named or bearer –
“Pay to P or bearer P10,000.” Or “Pay to P or holder
P10,000.”
c. Payable to order of fictitious or non-existent
person and this fact was known to drawer – “Pay to
Superman or order P10,000.”
d. Name of payee not name of any person – “Pay to
cash.”, “Pay to money.”, “Pay to cash or order.”
e. Only and last indorsement is an indorsement in
blank – Blank indorsement is payable to bearer and may
be negotiated by delivery. (Sec. 34 NIL)
Notes:
• Once a bearer instrument, always a bearer
instrument – despite an indorsement, it can be
negotiated further by mere delivery.
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5. WHERE THE INSTRUMENT IS ADDRESSED TO A
DRAWEE, HE MUST BE NAMED OR OTHERWISE
INDICATED THEREIN WITH REASONABLE
CERTAINTY.
Notes:
• This provision applies only to bills and checks.
• The reason for this last element is to enable the
payee or holder to know upon who he is to call
for acceptance or payment.
• Where a bill is addressed to the “treasurer” of a
corporation, the drawee is sufficiently indicated.
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The validity and negotiability of an instrument is not
affected by the fact that: (Sec. 6 NIL)
a. It is not dated; or
b. does not specify the value given or that any had been
given; or
c. does not specify the place where it is drawn or
payable; or
d. bears a seal; or
e. designates the kind of current money in which
payment is to be made.
Notes:
• The instrument need not to follow the language
of the law, any terms are sufficient which clearly
indicate an intention to conform to the
requirements hereof. (Sec. 10 NIL)
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 • If the instrument bears a date, it is presumed
that said date is the date when it was made by
the maker, drawn by the drawer, accepted by
the drawee, or indorsed by the payee or holder.
(Sec. 11 NIL)
• Ante-dating or post-dating an instrument does
not render it invalid or non-negotiable provided
this is not done for an illegal purpose or to
commit fraud. (Sec. 12 NIL)
The date may be inserted in an instrument when:
(Sec. 13 NIL)
a. an instrument expressed to be payable at a fixed
period after date is issued undated.
b. where acceptance of an instrument payable at a fixed
period after sight is undated.
Effects:
• Any holder may insert the true date of issuance
or acceptance.
• The insertion of a wrong date does not avoid
the instrument in the hands of a subsequent
holder in due course.
• As to the holder in due course, the date inserted
(even if it be the wrong date) is regarded as the
true date.
Steps in issuance of NI:
1. The mechanical act of writing the instrument
completely and in accordance with the requirements of
Sec.1 NIL.
2. The delivery of the complete instrument by the
maker or drawer to the payee or holder with the intention
of giving effects to it.
Requisites for a Holder in Due Course (HIDC): COVI
(Sec. 52 NIL) Four requisites must be complied,
otherwise, he is not qualified to be a HIDC.
a. Receives the instrument complete and regular on
its face.
• An instrument is considered complete and
regular on its face if:
a. the omission is immaterial; and
b. the alteration on the instrument was not
apparent on its face.
b. Became a holder before it was overdue and had
no notice that it had been previously dishonored if
such was the fact.
• An instrument is overdue after the date of
maturity.
• On the date of maturity, the instrument is not yet
overdue and the holder is still a HIDC.
c. Takes the instrument for value and in good faith.
Chapter II – CONSIDERATION
Sec. 24 NIL. Presumption of consideration.
• Every NI is deemed prima facie to have been
issued for a valuable consideration, and every
person whose signature appears thereon to
have becomes a party thereto for value.
• The presumption is only prima facie. It may be
rebutted or disproved by evidence to the
contrary.
Sec. 25 NIL. What constitutes value.
• Value is any consideration sufficient to support a
simple contract. Such as: PILSB
a. Pre-existing debts;
b. Interests;
c. Labor rendered services;
d. Support; and
e. Benefits.
• If without for value, the holder is not a HIDC.
Not Value:
a. Gift;
b. Donation;
c. Fear;
d. Love;
e. Gratitude.
Good faith means lack of knowledge or notice of defect
or infirmity.
d. At time he took the instrument, no notice of
infirmity in instrument or defect in the title of the
person negotiating it. (He is in good faith, so to speak).
Notes:
• Every holder is presumed to be a HIDC (Sec.
59). He who claims otherwise has the burden of
proof.
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Abnormal Instruments:
1. INCOMPLETE but DELIVERED (Sec. 14 NIL).
Two (2) kinds:
a. Incomplete instrument but delivered.
b. A signature and a blank piece of paper signed
by the person for the purpose of converting it
into a negotiable instrument.  A must.
Two (2) requisites to bind the person who signed the
instrument before delivery:
i. It must be filled-up strictly with the authority
given; and
ii. Within a reasonable time.
Effects to a HIDC:
• If the instrument falls on the hands of a HIDC, it
is valid and effectual for all purpose as
though it was filled up strictly in accordance with
the authority given and within reasonable time.
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Rules where instrument is incomplete but delivered:
1. Authority to fill-up the blanks – the holder or the
person in possession has prima facie authority to
complete an incomplete instrument by filling up the
blanks therein.
2. Authority to put up any amount – a signature on a
blank paper delivered in order that may be converted
into a NI operates as a prima facie authority to fill it up as
such for any amount.
3. Right against party prior to completion – the
instrument may be enforced only against a party prior to
completion if filled up strictly in accordance with the
authority given and within reasonable time.
Notes:
iii. In both cases (a & b), the presumption is that the
blank was filled up in accordance with the
authority given and within reasonable time.
iv. The defense that the instrument had not been
filled up in accordance with the authority given
and within reasonable time is not available as
against a holder in due course.
v. Sec. 14 raises a Personal Defense – if the last
holder is a HIDC, Maker is liable to pay.
2. INCOMPLETE and UNDELIVERED (Sec. 15 NIL).
Before delivery:
• Before delivery, an incomplete and undelivered
instrument which is completed and negotiated
without authority is not a valid contract in the
hands of ANY holder as against the person who
signed the instrument.
After delivery:
• However, after delivery, persons who signed the
instrument can be held liable to HIDC.
Persons liable:
• General Indorsers are liable because they
warrant that the instrument is genuine and valid;
thus, they are estopped to deny the validity of
the instrument.
Notes:
• Where an incomplete instrument has not been
delivered, it will not, if completed and
negotiated without authority, be a valid
contract in the hands of any holder against any
person who signed before delivery.
• The invalidity of the instrument is only with
reference to the parties whose signatures
appear before and not after delivery.
• Sec. 15 raises a Real Defense – even if the last
holder is a HIDC, Maker is not liable to pay.
(Indorsers are liable because they warrant that
the instrument is genuine and in all respects
what it purports to be. As their signatures appear
on the instrument after delivery, the instrument
is valid as to them.)
3. COMPLETE BUT UNDELIVERED (Sec. 16 NIL).
Effects of a Complete but Undelivered instrument:
• If a complete instrument is undelivered, then it is
inoperative because delivery is a requisite to
liability. It is considered incomplete; thus,
revocable.
• In the absence of delivery, the instrument
though complete in all its particulars, there is no
contract.
In possession of an immediate party or a remote
party:
• Immediate party – a party having been held to
know of the conditions or limitations placed upon
the delivery of the instrument.
• Remote party – a party who is not in direct
contractual relation to each other. They can be
transformed into “immediate party.”
• If a complete instrument is found in their
possession, there is a prima facie presumption
of delivery (but subject to rebuttal).
Notes:
• If the instrument is no longer in the possession
of the person who signed it and it is complete in
its terms, “a valid and intentional delivery by him
is presumed until the contrary is proved.”
Delivered conditionally or for a special purpose
• If delivery was conditional or for a special
purpose only, then it is not for the purpose of
transferring title to the instrument. However, it is
presumed to be made with the intention to
transfer title – this can be rebutted.
Effects to a HIDC:
• If a complete instrument is in the hands of a
HIDC, a valid delivery thereof by all parties prior
to him is CONCLUSIVELY presumed.
Notes:
• Sec. 16 raises a Personal Defense – if the last
holder is a HIDC, Maker is liable to pay.
4. FORGERY (see Sec.23 NIL notes)
Notes on delivery of NI:
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1. Delivery is essential to the validity of any negotiable
instrument.
2. As between immediate parties or those is like cases,
delivery must be with intention of passing title.
3. An instrument signed but not completed by the drawer
or maker and retained by him is invalid as to him for
want of delivery even in the hands of a holder in due
course.
4. But there is prima facie presumption of delivery of an
instrument signed but not completed by the drawer or
maker and retained by him if it is in the hands of a holder
in due course. This may be rebutted by proof of non-
delivery.
5. An instrument entrusted to another who wrongfully
completes it and negotiates it to a holder in due course,
delivery to the agent or custodian is sufficient delivery to
bind the maker or drawer.
6. If an instrument is completed and is found in the
possession of another, there is prima facie evidence of
delivery and if it be a holder in due course, there is
conclusive presumption of delivery.
7. Delivery may be conditional or for a special purpose
but such do not affect the rights of a holder in due
course.
Rules of construction in case of ambiguity or
omission: (Sec. 17 NIL)
1. Sums expressed in words and in figures are
different.
• When there is a discrepancy between the sum
expressed in words and the sum expressed in
figures, the words control.
• However, when the words are ambiguous,
reference may be had to the figures to
determine the true amount.
2. Date when stipulated interest to run not specified
– if the date when the stipulated interest is to run is not
specified, the interest runs from the date of the
instrument or if undated from the date of its issue.
3. An undated instrument is considered dated as of
the date of its issue.
4. Written and printed words in conflict – in case of
conflict between the written and printed provisions, the
written provisions prevail. Written words are deemed to
express the true intention of the maker or drawer
because they are placed there by him.
5. Whether instrument bill or note in doubt – in case
of doubt as to whether the instrument is a bill or note, the
holder may treat either at his election.
6. Capacity in which the person signed in doubt – in
case of doubt due to the ambiguous location of the
signature, the party who signed is deemed to be an
indorser, who assumes the least liability, and not as a
maker or drawer.
7. Instrument signed by two or more persons – their
liability may either be solidary or joint.
• “I promise to pay” signed by two or more
persons gives rise to solidary liability.
• “We promise to pay” signed by two or more
persons gives rise to joint liability.
Sec. 18 NIL. Liability of person signing in trade.
General rule: A person whose signature does not
appear on the instrument is NOT liable.
Exceptions:
a. One who signs in a trade or assumed name. (Sec. 18)
b. A duly authorized agent. (Sec. 19)
c. A forger.(Sec. 23)
Sec. 20 NIL. Liability of a person signing as agent.
General rule: An agent is not liable on the instrument if
he were duly authorized to sign for or on behalf of a
principal.
Requisites:
a. He must be duly authorized;
b. He must add words to his signature indicating that he
signs as an agent; and
c. He must disclose his principal.
• If an agent does not disclose his principal, the
agent is personally liable on the instrument.
Sec. 21 NIL. Per Procuration - operates as notice that
the agent has a limited authority to sign.
Effects:
• The principal is only bound if the agent acted
within the limits of the authority given.
• The person who takes the instrument is bound
to inquire into the extent and nature of the
authority given.
Sec. 22 NIL. Effect of indorsement by infant/corporation.
General rule: Infants and corporations incur no liability
by their indorsement or assignment of an instrument.
Effects:
• No liability attached to the infant or the
corporation.
• The instrument is still valid and the indorsee
acquires title.
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FORGERY (Sec. 23 NIL)
Two (2) kinds:
a. Forged signature; and
b. Signature made without authority.
Effects:
a. no right to retain;
b. no right to give a discharge; and
c. no right to enforce payment can be acquired.
It is only the forged signature or unauthorized
signature that is declared to be inoperative.
• The instrument or other signatures which are
genuine may still exist and be enforced.
Exceptions: Forged or unauthorized signatures may
produce rights or title, IF:
a. The party against whom it is sought to enforce such
right is precluded (prevented) from setting up the forgery
or want of authority.
Persons precluded from setting up the defense of
forgery:
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 • The forger himself. • Partial failure of consideration is a defense pro
• Those who warrant or admit the genuineness of tanto.
the signature in question (indorsers, persons
negotiating by delivery, and acceptors of BofE). Pro tanto defense is a defendant's counterclaim against
• Those who, by their acts, silence or negligence, the plaintiff for one-half the requested damages.
are estopped from setting up the defense of • To the extent of the failure.
forgery  Estoppel.
Absence of consideration means a total lack of any
b. Where the forged signature is not necessary to the valid consideration on the contract, in consequence of
holder’s title, in which case the forgery may be which the alleged contract must fail.
disregarded.
Failure of consideration means the failure or refusal of
Rights of parties in cases of forged indorsements: one party to do, perform or comply with the
1. Payable to order (PN) – the party whose signature consideration agreed upon.
was forged is not liable to any holder, even to a HIDC.
The indorsement, being forged is inoperative. • The defense of want of consideration is
ineffective against a HIDC.
2. Payable to bearer (PN) – the party whose signature • A drawee who accepts the bill cannot allege
is forged is liable to a HIDC, but not to the one who is want of consideration against the drawer.
not a HIDC. The reason is that the instrument being
originally payable to bearer, it can be negotiated by mere Sec. 29 NIL. Liability of an accommodation party.
delivery. Hence, even if the indorsement is forged, the Accommodation party - is one who signs the
forgery may be disregarded. instrument as maker, drawer, acceptor, or indorser
3. Payable to order (BofE) – the party whose signature without receiving value therefor and for the purpose of
was forged is not liable to any holder, even to a HIDC. lending his name to some other person.
The indorsement, being forged is inoperative. Effects:
• An accommodation party is liable to the holder
4. Payable to bearer (BofE) – when the bill is originally for value notwithstanding that such holder knew
payable to bearer, the drawee may debit the drawer’s that of the accommodation.
account in spite of the forged indorsement. The reason • Want of consideration cannot be interposed by
is that the forged indorsement is not necessary to the the accommodation party
title of the holder. • An accommodation maker may seek
reimbursement from a co-maker even in the
Notes: absence of any provision in the NIL; the
• Section 23 applies only to forged signatures or deficiency is supplied by the New Civil Code.
signatures made without authority. • He may do this even without first proceeding
• Alterations such as to amounts or like fall under against the debtor provided:
Section 124. a. He paid by virtue of judicial
• Drawee bank is conclusively presumed to know demand.
the signature of its drawer. b. Principal debtor is insolvent.
• Forgery is a Real Defense.
--------------------------------------------------------------------------- Accommodation Party vs. Regular Party:
Sec. 26 NIL. What constitutes holder for value.
Holder for value – is one who has given a valuable Accommodation Party:
consideration for the instrument issued or negotiated to • Signs an instrument without receiving value
him. therefore.
• A holder of a NI is presumed to be a holder for • Signs an instrument for the purpose of lending
value until the contrary is shown by any party his name to some other person.
who claims otherwise. • May always show by parol evidence that he is
only such an accommodation party.
Sec. 27 NIL. When lien on instrument constitutes holder • Cannot avail of the defense of absence or failure
for value – where the holder has a lien on the instrument of consideration against a HIDC.
arising either from contract or by implication of law, he is • After paying the holder, may sue for
deemed a holder for value to the extent of his lien. reimbursement the accommodated party.
• One who has taken a NI as collateral security for
a debt has lien on the instrument.

Regular Party:
Sec. 28 NIL. Effect of want of consideration. • Signs the instrument for value.
• Absence or failure of consideration may be set • Does not sign for the purpose of lending his
up against a holder not a HIDC. name to other person.
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 • Cannot disclaim or limit his personal liability as
appearing on the instrument by parol evidence.
• May avail the defense of absence or failure of
consideration against a HIDC.
• May not sue any subsequent party for
reimbursement.
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Chapter III - NEGOTIATION
Sec. 30 NIL. What constitutes negotiation.
Negotiation – is the transfer of a NI from one person to
another made in such a manner as to constitute the
transferee the holder thereof.
• There is no negotiation if the transfer does not
make the transferee the holder of the
instrument.
• For a bearer instrument - by delivery.
• For an order instrument - by indorsement and
delivery.
Delivery – means the transfer of possession, actual or
constructive, from one person to another. (Sec. 191, [6])
Negotiation vs. Assignment:
• As to application:
• Negotiation only applies to NI, but is not
applicable to non-negotiable
instruments.
• Assignment applies to both NI and non-
negotiable instruments.
• As for the transferee:
• In negotiation, the transferee is a holder.
• In assignment, the transferee is an
assignee.
• HIDC/Assignee:
• In negotiation, a HIDC is subject only to
real defenses and may acquire better
title or greater rights under the
instrument than those possessed by the
transferor or a prior party.
• In assignment, an assignee subject to
both real and personal defenses and
merely steps into the shoes of the
assignor.
• Indorser/Assignor:
• In negotiation, a general indorser
warrants the solvency of prior parties.
• In assignment, an assignor does not
warrant the solvency of prior parties
unless expressly stipulated or the
solvency is known to him.
• As to liability:
• In negotiation, an indorser is not liable
unless there be presentment and notice
of dishonor.
• In assignment, an assignor is liable
even without notice of dishonor.
• As to governing articles:
• Negotiation is governed by the NIL.
• Assignment is governed by Articles
1624 – 1635 of the Civil Code
(Assignment of Credits).
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INDORSEMENT
Indorsement is the writing of the name of the payee on
the instrument with the intent to:
• to transfer the title to the same; or
• guarantee the instrument; or
• acknowledge payment.
Sec. 31 NIL. Indorsement. How made.
Indorsement to be must be:
i. written
ii. on the instrument itself or upon a piece of paper
attached.
Notes:
• The paper attached with the indorsement is an
allonge.
• An allonge must be attached so that it becomes
a part of the instrument, it cannot be simply
pinned or clipped to it.
Necessity of indorsement:
1. It is essential to the execution of an instrument
payable to the order of the maker or drawer.
2. Essential to the negotiation of an order instrument, not
a bearer instrument.
3. Without an indorsement of an order instrument, one
cannot be a HIDC thereof even though he is entitled to
have the indorsement made.
Sec. 31 NIL. 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.
Kinds of Indorsements:
1. Special Indorsement: (Sec. 34 NIL)
8
 • Also known as specific indorsement.
• It is one where the indorser identifies the
person to whom the instrument is
transferred as a holder thereof.
2. Blank Indorsement: (Sec. 34 NIL)
• It is one where the indorser merely signs
his name without identifying the person
to whom the instrument is transferred as
a holder thereof.
• Specifies no indorsee, and an
instrument so indorsed is payable to
bearer, and may be negotiated by
delivery.
Conversion of a Bank Indorsement to a 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.
(Sec. 35 NIL)
3. Restrictive Indorsement: (Sec. 36 NIL)
• It is one where the transferee of the
instrument does not acquire full rights of
the owner of the instrument as a holder
thereof.
• It is one that restricts or prohibits entirely
the further negotiation of an instrument,
or modifies the rights of the holder or the
liabilities of the indorser.
Three (3) types of Restrictive Indorsements:
i. Prohibits the further negotiation of the
instrument; or
ii. Agency type - Constitutes the indorsee the
agent of the indorser; or
iii. Trust type - Vest the title in the indorsee in trust
for or to the use of some other persons.
But the mere absence of words implying power to
negotiate does not make an indorsement restrictive.
Rights of a Restrictive Indorsee: (Sec. 37 NIL)
1. To receive payment of the instrument;
2. To bring any action thereon that the indorser
could bring;
3. 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.
4. Qualified Indorsement: (Sec. 38 NIL)
• The indorsement merely makes the
indorser an assignor of his title to the
instrument.
• It may be made by adding to the
indorser's signature the words "without
recourse" or “sans recourse” or any
words of similar import.
Notes I:
• As such assignor, he cannot be held liable
unless he violates his warranties under Sec. 65.
• Such an indorsement does not impair the
negotiable character of the instrument.
• The qualified indorser guarantees only the
genuineness of the instrument but does not
guarantee its payment. He will be liable only of
the signature of the maker turns out to be a
forgery.
• He will not be liable if the maker refuses to pay.
Without recourse – means without resort to a person
who is secondarily liable after the default of the person
who is primarily liable.
Limited liability of qualified indorser:
He is liable only if the instrument is dishonored by non-
acceptance or non-payment due to:
1. Forgery;
2. Lack of good title on the part of the indorser;
3. Lack of capacity to indorse on the part of the
prior parties;
4. The fact that at the time of the indorsement, the
instrument was valueless or not valid, and he
knew of that fact.
Qualified Indorsement warrants: (Sec. 65 NIL) GGCN
a. The instrument is genuine and in all respect
what it purports to be;
b. The indorser has good title to it;
c. All prior parties had the capacity to contract;
d. Indorser has no knowledge of any fact that
would impair the validity or the value of the
instrument. (More on p.14 of this memory aid)
Limitations of warranties:
• If by delivery – extends only to immediate
transferee.
• Warranty of capacity to contract does not apply
to persons negotiating public or corporate
securities.
Notes II:
• A qualified indorser cannot raise the defense of
a. forgery;
b. defect of his title or that it is void;
c. the incapacity of the maker, drawer or
previous indorsers.
• A qualified Indorsement makes the indorser
mere assignor of title of instrument, relieves him
of general obligation to pay if instrument is
dishonored, but he is still liable for the
warranties arising from instrument only up to
warranties of general indorser.
9
 • The warranty is to the capacity of prior parties at
the time the instrument was negotiated.
Subsequent incapacity does not breach the
warranty.
• Lack of knowledge of the indorser as to any fact
that would impair the validity or the value of the
instrument must be subsisting all throughout.
• A person Negotiating by Delivery warrants same
as those of qualified indorser and extends to
immediate transferees only.
5. Conditional Indorsement: (Sec. 39 NIL)
• It is one which is dependent upon a
contingent event that may or may not
happen.
• It is one by which the indorser imposes
some other condition to his liability, or
on the indorsee’s right to collect the
proceeds of the instrument.
Notes:
• A conditional indorsement does not prohibit the
further negotiation of the instrument, regardless,
of whatever the condition has been fulfilled or
not.
• It should be remembered that while a condition
in the indorsement does not destroy
negotiability.
Effects of indorsing an instrument originally
PAYABLE TO BEARER: (Sec. 40 NIL)
• It may further be negotiated by mere delivery.
• The person indorsing is liable as indorser to
such persons as to make title through his
indorsement.
This section only applies to instruments originally
payable to bearer. Therefore, it cannot apply where the
paper is originally made payable to order and indorsed in
blank.
• See example P. 124 – De Leon.
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.
(Sec. 41 NIL)
• This section refers to a joint indorsement.
Exceptions:
a. Where the payees or indorsees are partners;
b. Where the payee or indorsee indorsing has
authority to indorse for others.
“Pay to A and B” = valid, “Pay to A or B” = invalid
Effect of instrument drawn or indorsed to a person
as cashier: (Sec. 42 NIL)
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 or
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.
• The presumption established 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 misspelled, and so
forth: (Sec. 43 NIL) (Counter-sign)
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 in representative capacity: (Sec. 44 NIL)
Where any person is under obligation to indorse in a
representative capacity, he may indorse in such terms
as to negative personal liability.
• An instrument may be indorsed by a person
either personally or through an agent.
• The authority of the agent need not be in writing.
Time of indorsement; presumption: (Sec. 45 NIL)
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.
• This section is important because in order to
constitute one a HIDC, he must have taken the
instrument before it was due.
• If the indorsement is without a date, the
presumption is that it was negotiated before
maturity. The presumption, however, is
rebuttable.
Place of indorsement; presumption: (Sec. 46 NIL)
Except where the contrary appears, every indorsement
is presumed prima facie to have been made at the place
where the instrument is dated.
Continuation of negotiable character: (Sec. 47 NIL)
General Rule: An instrument negotiable in origin is
always negotiable. This is true even if the NI is already
overdue, but any holder who acquires the instrument can
no longer be a HIDC.
Exceptions: It will not continue to be negotiable when:
• It has been restrictively indorsed; and
• It has been discharged by payment or otherwise.
Elaborations of Sec. 119 NIL:
Causes of Discharge of the Instrument: DAC/DH
a. Payment by the debtor;
b. Payment by accommodated party;
c. Intentional cancellation by holder of instrument;
d. Any other act discharging a simple monetary
obligation; and
10
 e. Debtor becomes holder of the instrument at/after
maturity in his own right.
Notes:
• Discharge of the instrument discharges all the
parties thereto.
• Payment must be in due course, and by the
principal debtor or on his behalf.
• If payment is not made by the principal debtor,
payment only cancels the liability of the payor
and those obligated after him but does not
discharge the instrument.
• Payment by an accommodation party does not
discharge the instrument.
Striking out indorsement: (Sec. 48 NIL)
A holder may strike out any indorsement which is not
necessary to his title.
Effects:
• An indorser whose indorsement is struck out is
discharged.
• All indorsers subsequent to such indorser who
has been discharged are likewise relieved.
Effects of a transfer without endorsement: (Sec. 49)
• The transferee acquires such title as the
transferor had therein.
• The transferee acquires the right to have the
indorsement of the transferor.
• Negotiation takes effect as of the time the
indorsement is actually made.
When prior party may negotiate instrument: (Sec. 50)
This section refers to reacquirer or a holder who
negotiates an instrument and then subsequently
reacquires it.
• If a prior party reacquires an instrument before
maturity date, he may negotiate the same
further. But after paying the holder, he may not
claim payment from any of the intervening
parties.
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Chapter IV – RIGHTS OF THE HOLDER
Rights of the Holder (In General): (Sec. 51 NIL)
a. He may sue on the instrument in his name; and
b. He may receive payment – the instrument is
discharged if payment is in due course.
• Payment is made in due course when it
is made at or after the maturity of the
instrument to the holder thereof in good
faith and without notice that his title is
defective. (Sec. 88 NIL)
Classes of holders:
1. Holders simply (Sec. 51);
2. Holders for value (Sec. 26); and
3. Holders in due course (Sec. 52).
Holder – the payee or indorser of a bill or note, who is in
possession of it, the bearer thereof.
• A negotiable instrument is subject to any and
every defense or defect in the instrument,
whether real or personal, as if it were non-
negotiable.
• A holder who is not himself a HIDC but derives
his title from a HIDC is given the rights of such
prior holder.
• A holder even though he be a holder only for
collection may sue in his own name.
Not a holder in due course: (Sec. 53 NIL)
Where an instrument payable on demand is negotiated
an unreasonable length of time after its issue, the holder
is not deemed a HIDC.
• The above section inferentially requires that
such an instrument must be presented for
payment within a reasonable time from its
issue.
Notice BEFORE amount paid: (Sec. 54 NIL)
Rights of a transferee who receives NOTICE of any
infirmity or defect BEFORE he has PAID THE FULL
amount for the instrument:
• He will be deemed a HIDC only to the extent of
the amount therefore paid by him.
• Payments made after knowledge of such
infirmity or defect will render the transferee as
one who is not a HIDC with respect to the
payment of the balance.
When TITLE defective: (Sec. 55 NIL)
The title of a person who negotiates an instrument is
defective when:
a. By Acquisition: When he obtained the
instrument, or any signature thereto, by: 3FDUI
• fraud
• force
• fear
• duress
• other unlawful means
• for an illegal consideration
b. By Negotiation: When he negotiates it: BF
• in breach of faith
• any circumstances that amount to fraud.
What constitutes Notice of Defect: (Sec. 56 NIL)
To constitute notice, the Transferee must have actual
knowledge of the infirmity or defect of title of the
person negotiating the instrument. Mere suspicion is not
enough.
11
 • However, if the transferee has knowledge of
some facts that ought to put him in inquiry, and
he took the instrument without making such
inquiry, he is deemed to have taken the
instrument in bad faith.
“Infirmity in the instrument” means that something is
wrong with the instrument itself; like: forgery or material
alteration.
“Defect in the title of the person” means that
something is wrong in the manner he obtained the
instrument; like: Want of consideration or acquisition by
means of fraud or duress.
Rights of a HIDC: (Sec. 57 NIL) SRFDE
i. To sue on the instrument in his own name;
ii. To receive payment on the instrument –
Payment to him in due course discharges the
instrument;
iii. To hold the instrument free of any defect of title
of prior parties;
iv. He is free from defenses available to prior
parties among themselves; and
v. He may enforce payment of instrument for full
amount, against all parties liable.
Defenses affecting NI:
1. Personal Defense: (or Equitable Defense)
• Are those which arise in the course of the life of
the instrument emanating from the conduct or
circumstances surrounding its acquisition by a
party thereto.
Effects to a HIDC:
• It is not a good defense against a HIDC.
• It is because a HIDC holds the instrument free
from any defect of title of prior parties or free
from the defenses available to prior parties
among themselves.
Effects to a holder not a HIDC:
• It is a good defense against a party not a HIDC.
• It is because a holder not a HIDC holds the
instrument subject to the defenses available to
prior parties among themselves.
Examples of Personal Defenses:
a. Complete but undelivered instrument;
b. Incomplete but delivered instrument;
c. Acquisition of the instrument by means of fraud
in inducement;
d. Acquisition of the instrument by means of fear,
force or duress;
e. Acquisition of the instrument for an illegal
consideration;
f. Acquisition of the instrument by unlawful means;
g. Absence of consideration in the acquisition of
the instrument;
h. Insertion of a wrong date where date is a
material particular;
i. Negotiation in breach of faith; and
j. Negotiation under circumstances amounting to
fraud.
2. Real Defense: (or Legal Defense)
• Are those that attach to the instrument itself
and, as such, are available as defense against
the whole world including a HIDC.
Examples of Real Defenses:
a. Incomplete and undelivered instruments;
b. Forgery;
c. Minority;
d. Material Alteration;
e. Cognovit actionem or confession of judgement
instrument; and
f. Fraud in factum or fraud in esse contractus.
When subject to original defenses: (Sec. 58 NIL)
In the hands of a holder not a HIDC, an instrument is
subject to defenses as if it were non-negotiable.
• However, a holder who derives his title from a
HIDC acquires the rights of a HIDC in respect
to all parties prior to the said HIDC from which
he acquired the instrument; provided that such
holder is not a party to any fraud or illegality
affecting the instrument.
Who is deemed HIDC: (Sec. 59 NIL)
Every holder is deemed prima facie to be a HIDC.
• The holder referred to in this section is the
Payee or Indorsee who is in possession of the
instrument, or the bearer thereof.
When it 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 HIDC.
• This rule, however, will not apply with respect to
parties who are already bound on the instrument
prior to the acquisition of the defective title.
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Chapter V – LIABILITIES OF PARTIES
IN GENERAL:
Parties primarily liable:
• Maker of promissory note.
• Acceptor of bill of exchange.
• Certifier of a check.
Liabilities:
• Unconditionally liable;
• Duty bound to pay the holder at date of maturity,
WON holder demands payment from him, and
he is not relieved from liability even if the
instrument should become overdue due to
failure of holder to make such demand.
• Person primarily liable: person who by the
terms of the instrument is absolutely required to
pay the same.
• Presentment for payment not necessary to
charge primary party.
Liability of the Maker: (Sec. 60 NIL)
12
Warranties of a Maker: TPC
i. He will pay the PN according to its tenor;
ii. He admits the existence of the payee;
iii. He admits that the payee has the capacity to
indorse.
Notes:
• He engages to pay the note according to its
terms, subject to no condition whatsoever.
• He promises to pay not only to the payee but to
any subsequent holder who is legally entitled to
the instrument at its maturity date even if the
holder does not demand payment at that time.
• Due presentment for payment and due notice of
dishonor are not necessary for the purpose of
charging the maker with liability.
• He cannot allege that the payee is a fictitious
person.
• He cannot allege that the payee is a minor,
insane or the corporation is acting ultra vires.
Exception:
• He remains fully liable even if the instrument is
presented for payment late unless prescription
has run.
Liability of the Acceptor: (Sec. 62 NIL)
Warranties of the Acceptor: ADGC/AC
i. He will pay the bill according to the tenor of his
acceptance;
ii. He admits the existence of the drawer;
iii. He admits that the signature of the drawer is
genuine;
iv. He admits the capacity of the drawer;
v. He admits that the drawer has the authority to
draw the instrument; and
vi. He admits the existence of the payee and his
capacity to indorse.
Notes:
• He is liable only if he accepts. If he accepts, the
drawee becomes known as the acceptor.
• An acceptance occurs when the drawee
signs his name somewhere on the face
of the instrument.
• He cannot deny that the drawer is a fictitious
person, or that his signature is not genuine.
• He cannot deny that the drawer is a minor, or
the drawer has no authority to sign the
instrument or that the corporation as drawer is
acting ultra vires.
• He cannot deny the existence of the payee and
his capacity to indorse.
Tenor of his ACCEPTANCE:
• He can vary the terms of the instrument such
that he can become liable only according to
his own terms.
• However, he is absolutely required to pay
according to the tenor of his acceptance.
• See example. P.91 – Abad.
Effects:
• Payee can either accede to the condition and
the bill will be paid accordingly.
• Payee can refuse the condition and treat the bill
as dishonored.
Tenor of GENERAL ACCAPTANCE:
• He can accept the bill without varying the terms
– this is called general acceptance.
• In case of GA, he is liable on the bill according
to the tenor of the instrument.
• See example. P.91 – Abad.
IN GENERAL:
Parties secondarily liable:
• Drawer of a bill.
• Indorsers both note and bill.
Liabilities:
• Conditionally liable.
• Not bound to pay unless the following has been
fulfilled: DDT
1. Due presentment or demand from
primary party for payment or
acceptance;
2. Dishonor by such party; and
3. Taking of proceedings required by law
after dishonor.
Liability of Drawer: (Sec. 61 NIL)
Warranties of the Drawer: CDP
i. He admits the existence of the payee and his
then capacity to indorse;
ii. He engages that, on due presentment, the bill
will be accepted or paid, or both, according to its
tenor.
iii. That if it is dishonored by non-acceptance or
non-payment, he will pay to the holder of the bill
or to any subsequent indorser who was
compelled to pay it, provided the necessary
proceedings on dishonor were duly taken.
Notes:
• He is only secondarily liable because he is not
absolutely required to pay the instrument.
Negativing or limiting his own liability to the holder:
• The drawer may negative or limits his liability to
the holder by inserting a provision to that effect
in the instrument.
• Ex. “In case of dishonor, I am not liable
for the amount of this instrument.”
To fix the liability of the Drawer, the ff. steps must be
taken: DDT
1. Due presentment or demand from
primary party for payment or
acceptance;
2. Dishonor by such party; and
13
 3. Taking of proceedings required by law
after dishonor.
• The steps must concur; otherwise the Drawer
will be discharged from liability.
When a person deemed Indorser: (Sec. 63 NIL)
• A person who signs an instrument not as maker,
drawer or acceptor is deemed to have signed as
an Indorser.
• If it is not clear in what capacity a person signed
the instrument, he is deemed to be an Indorser.
Notes:
• An indorser may vary the terms of his liability,
thus, he may indorse “san recourse” and limit his
liability on the instrument.
• The indorser may also sign as “surety”, in which
case he becomes jointly and severally liable with
the principal debtor without regard to appropriate
presentment for payment, notice of dishonor and
exhaustion of the assets of the principal debtor.
• If a person signs an instrument “For purpose of
identification only”, he incurs no liability thereon.
• Where a person places his indorsement on an
instrument negotiable by delivery, he incurs all
the liability of an indorser. (Sec. 67 NIL)
Liability of Irregular Indorser: (Sec. 64 NIL)
Requisites to be an Irregular Indorser: PSB
a. He is not otherwise a party to the instrument;
b. He signs the instrument in blank; and
c. He signs before delivery of the instrument;
otherwise, if after delivery, this section will not
apply.
Cases regarding the liability of an Irregular Indorser:
1. Instrument payable to the order of a third
person – he is liable to the payee and to all
subsequent parties.
2. Instrument payable to the order of maker or
drawer or is payable to bearer – he is liable to
all parties subsequent to the maker or drawer.
3. If he signs for the accommodation of payee –
he is liable to all parties subsequent to the
payee.
• See examples. P. 173 – De Leon.
Warranties of an Irregular Indorser are the same as
those of a General Indorser under Sec. 66 NIL.
Qualified Indorsement/Negotiation by delivery:
(Sec. 65 NIL)
Warranties of a Qualified Indorser/Negotiation by
delivery: GGCN
i. The instrument is genuine and in all respect
what it purports to be;
ii. The indorser has good title to it;
iii. All prior parties had the capacity to contract;
iv. Indorser has no knowledge of any fact that
would impair the validity or the value of the
instrument.
Applicability of this section:
This section applies in the ff. instances:
a. The instrument is payable to bearer and it is
negotiated by mere delivery;
b. The instrument is payable to order and it is
negotiated in qualified indorsement; and
c. The instrument is payable to order and the only
or last indorsement is in blank, and it is
negotiated further by mere delivery.
Notes:
• The person negotiating by mere delivery or by
qualified indorsement is only secondarily liable
on the instrument.
• They are liable only if the person primarily liable
will not pay and the four warranties above
enumerated have been violated by them.
Difference:
• Negotiation is by delivery only – the warranty
extends only to his immediate transferee.
• Qualified Indorsement – the warranty extends
to all parties who derived the title through his
indorsement.
Liability of a General/Unqualified Indorser:
(Sec. 66 NIL)
Warranties of a General Indorser: GGCV
i. That the instrument is genuine and in all
respects what it purports to be;
ii. That he has a good title to it;
iii. That all prior parties had the capacity to
contract; and
iv. That is valid and subsisting.
In addition: DP
• Engages that the instrument will be accepted or
paid or both according to its tenor on due
presentment.
• Engages to pay the amount thereof if it be
dishonored and the necessary proceedings on
dishonor are taken.
Notes:
• A General Indorser or Unqualified Indorser
guarantees that the instrument is valid and
subsisting, whether or not he has no knowledge
of that fact.
• So, if the instrument indorsed turns out to be
invalid, the Unqualified Indorser is liable
because of the fourth warranty.
To fix the liability of a General Indorser, the ff. steps
must be taken: DDT
14
 1. Due presentment or demand from
primary party for payment or
acceptance;
2. Dishonor by such party; and
3. Taking of proceedings required by law
after dishonor.
Order of liability AMONG Indorsers: (Sec. 68 NIL)
The presumption is that Indorsers are liable in the order
in which they indorse; unless it is shown otherwise by
parol evidence.
Among themselves:
• Every indorser is liable to all subsequent
indorsers.
• An indorser cannot be held liable to a prior
indorser. Exception:
• Irregular Indorser will not be liable to the
accommodated party although from the
order in which he indorsed, the latter
appears subsequent to the former.
To the holder:
• As far as the holder is concerned, he can go
against any indorser in any order.
Notes:
• Joint indorsers are liable joint and severally.
Their liability being solidary, a notice of dishonor
given to one of them will suffice to hold all the
joint indorsers liable on the instrument.
Liability of an Agent or Broker: (Sec. 69 NIL)
This section refers to an instrument payable to bearer
and negotiated by mere delivery by an agent or
broker.
• He is personally liable in the manner of an
indorser who negotiated the instrument by mere
delivery if he did not disclosed the name of the
principal and the fact that he is only an agent.
Liabilities of an Accommodation Party: (Sec. 29 NIL)
See P.7 of this Memory Aid.
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Chapter VI – PRESENTMENT FOR PAYMENT
Presentment for payment – is the presentation of the
instrument to the person primarily liable for the purpose
of demanding and receiving payment.
• The instrument must be exhibited to the person
whom payment is demanded, and when it is
paid, the instrument must be delivered to the
party paying it. (Sec. 74 NIL)
Effect of want of demand on principal debtor:
(Sec. 70 NIL)
Presentment for payment NOT NECESSARY:
• It is not necessary in order to charge the person
primarily liable (Maker or Acceptor) on the
instrument.
• In other words, the holder can sue the maker or
the acceptor, although no demand has been
made on him, as soon as the date for payment
has passed without the instrument being paid.
Presentment for payment NECESSARY:
• It is necessary in order to charge the Drawer
and Indorser.
Instrument payable at a special place:
• The ability and willingness on the part of the
primary party to pay at a special place (ex. At a
bank, office or at a residence) at maturity are
equivalent to a tender and offer of payment
on his part so that if the instrument is not paid
and is overdue, he cannot be considered in
delay.
• Therefore, not being fault, he is not liable for the
costs and interests subsequently accrued by
such delay. (He is still liable for the amount due
though)
Where presentment required by terms of the
instrument:
• Presentment for Payment is still not necessary
to charge the Maker or Drawer even if the terms
of the instrument require it.
• The failure to make the presentment would not
put him in default notwithstanding that the
instrument is overdue and unpaid.
Effects where presentment NOT made:
• If the instrument is not presented to the person
primarily liable, the Drawer and the Indorsers
are discharged from their secondary liability
unless such presentment is excused or
discharged with.
Presentment where instrument is not payable on
demand; and where payable on demand:
(Sec. 71 NIL)
Instrument is not payable on demand. (Payable at a
fixed or at a determinable future time) – Presentment
must be made on the day it falls due; otherwise, the
Drawer and Indorsers will be discharged from liability.
• Presentment made before maturity is not
effective.
Instrument payable on demand:
• PN – presentment for payment must be made to
the Maker within a reasonable time after its
issue.
• BofE – presentment for payment to the Drawee
or Acceptor must be made within a reasonable
time after the last negotiation thereof.
• Last negotiation means the last transfer for
value.
What constitutes SUFFICIENT presentment:
(Sec. 72 NIL)
Presentment for payment, to be sufficient, must be
made:
15
 • By WHO – by the Holder, or by some person
authorized to receive payment on his behalf;
• When – at a reasonable hour on a business
day;
• Where – at a proper place as herein defined;
• To Whom – to the person primarily liable on the
instrument, or if he is absent or inaccessible, to
any person found at the place where
presentment is made.
Notes:
• If the presentment for payment does not comply
with any of the requisites provided in this
section, the effect is the same as if no
presentment is made.
• Consequently, the persons secondarily liable are
discharged.
Place of presentment: (Sec. 73 NIL)
Place of presentment is made at a proper place:
a. The place for payment is specified – it is there
presented as stated.
b. If no place is specified – the given address of
the person to make payment in the instrument.
c. If no given address of the person to make
payment – the usual place of business of the
person to make payment.
d. If presentment cannot be made at any other
place – his last known place of business or
residence, or a place wherever he can be found.
Notes:
• The proper place of presentment should be
applied in the order of the enumeration from (a)
to (d).
Presentment where instrument payable at BANK:
(Sec. 75 NIL)
Must be made during Banking hours:
• Banks does not make payment outside of
banking hours – persons who are secondary
liable will be discharged.
Any time during the day:
• Presentment at any hour before the bank is
closed is sufficient to hold persons secondary
liable.
Before close of Banking hours:
• The person to make payment has until the close
of banking hours of the bank where the
instrument is made payable in which to pay it.
No place of payment is specified, and:
1. Principal debtor is dead – presentment for
payment must be made to his personal
representative (if he can be found with the
exercise of reasonable diligence). (Sec. 76 NIL)
2. Partners – presentment for payment may be
made to any one of them, even though there has
been dissolution of the firm. (Sec. 77 NIL)
3. Joint Debtors – presentment must be made to
them all. (Sec. 78 NIL)
Notes:
• If there is a place specified in the instrument,
presentment should be made at such place.
Presentment NOT required to charge the ff:
Instances where in spite lack of presentment, a party
secondarily liable is still not discharged from liability.
Drawer: (Sec. 79 NIL)
• Thus, presentment is not required to charged
the Drawer if:
• He has no right to expect – he has no
funds with the drawee.
• Drawer and Drawee is same person.
Indorser: (Sec. 80 NIL)
• Thus, presentment is not required to charged
the Indorser if:
• He is an indorser for whose
accommodation an instrument is made
or accepted – the accommodated
payee-indorser is the real debtor and
not the maker or acceptor.
When delay in making presentment is EXCUSED:
(Sec. 81 NIL)
Delay in MAKING presentment for payment is
excused when: CI
i. The delay is caused by circumstances beyond
the control of the holder;
ii. The delay is not imputable to his default,
misconduct or negligence.
Notes:
• Only the delay in making presentment is
excused and not the making of the presentment
itself.
• Circumstances beyond the control of the holder
– are events which could not be foreseen, or
which, though foreseen are inevitable.
• When the cause of delay ceases to operate,
presentment must be made with reasonable
diligence.
When presentment for payment is EXCUSED:
(Sec. 82 NIL)
Presentment for payment is excused where: EFW
i. After the exercise of reasonable diligence,
presentment cannot be made;
ii. The drawee is a fictitious person;
iii. By waiver of presentment; expressed or implied.
Notes:
• Reasonable diligence implies active search.
Dishonored by non-payment: (Sec. 83 NIL)
16
The instrument is dishonored by non-payment
when:
a. It is duly presented for payment but payment is
refused or cannot be obtained.
b. Presentment is excused and the instrument is
overdue and unpaid.
Notes:
• An instrument is dishonored by non-payment a
long as it is not paid even if the primary party
may be willing to pay.
Effect of dishonor by non-payment: (Sec. 84 NIL)
• An immediate right of recourse to all parties
secondarily liable thereon accrues to the holder.
Notes:
• The immediate right of recourse against
secondary parties will accrue only after the
giving of due notice of dishonor to them.
Time of Maturity: (Sec. 83 NIL)
When the day of maturity falls upon:
Timed Instrument:
i. Sunday or Holiday – the instrument is payable
on the next succeeding day.
ii. Saturday – the instrument is payable on the
next succeeding day, that is Monday. If Monday
is a holiday, then it is Tuesday.
On Demand:
• It may be presented before 12:00 o’clock noon
on Saturday or on Monday, at the option of the
holder.
Notes:
• The instrument is payable at the time fixed
herein without grace.
• If grace is provided in the instrument, the
instrument is payable on the last date of
grace.
• See example. P. 199 and 200 – De Leon.
Computation of time of Maturity: (Sec. 86 NIL)
Where the instrument is payable at a fixed period
after date, after sight, or after the happening of a
specified event:
• The time of payment is determined by excluding
the day from which time is to begin to run, and
by including the date of payment.
Examples:
• Instrument dated April 5, 2009, payable after
three months after date – due date is July 5,
2009.
• Instrument dated Nov. 8, 2008, payable after
twelve months – due date is Nov. 8, 2009 and
not Nov. 9, 2009.
• Instrument payable ten days after Oct. 11, 2009
– due date is Oct. 21, 2009. By counting or
adding ten days from Oct. 11, 2009, the last of
the ten days is Oct. 21, 2009.
Rule where instrument payable at bank: (Sec 87 NIL)
Where the instrument is 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.
Notes:
• This section applies only where the instrument is
payable at a particular named bank. (ex. PNB)
• A note made payable at “any bank in Manila” will
not suffice authority to pay the note even if the
maker has a deposit on any banks in Manila.
Payment in due course: (Sec. 88 NIL)
Payment is made in due course when it is made at or
after the maturity of the instrument to the holder thereof
in good faith and without notice that his title is defective.
• See example. P. 202 – De Leon.
• PIDC discharges the instrument.
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Chapter VII – NOTICE OF DISHONOR
To WHOM notice of dishonor be given: (Sec. 89 NIL)
When a NI has been dishonored by non-acceptance or
non-payment, the notice of dishonor must be given to
the:
• Drawer; and
• To each Indorser
Any Drawer or Indorser to whom such notice is not
given is discharged.
When instrument considered to be dishonored:
a. If it is not accepted when presented for
acceptance;
b. If it is not paid when presented for payment at
maturity; or
c. If presentment is excused or waived and the
instrument is past due and unpaid.
Object of notice of dishonor:
i. To inform the parties secondarily liable that the
maker or acceptor has failed to meet his
engagement; and
ii. To advise such parties that they will be required
to make payment.
Notes:
• Although the indorser to whom notice is not
given is discharged, he is still liable for breach
of warranties pertaining to the instrument.
As a general rule, failure to give a notice of dishonor to
the Drawer or Indorsers will discharge them from any
liability on the instrument.
Exceptions:
1. When there is a waiver of notice of dishonor
under Sec. 109.
17
 • Notice of dishonor may be waived
either:
 Before the time of notice has
arrived; or
 After the omission to give due
notice.
Waiver may be expressed or implied.
2. When notice of dishonor is dispensed with under
Sec. 112.
• Notice of dishonor is dispensed with
when:
 After the exercise of reasonable
diligence, it cannot be given to
or does not reach the parties
sought to be charged.
3. When notice of dishonor need not be given to
the Drawer under Sec. 114. (SF/PRC)
• Notice of dishonor is not required to be
given to the Drawer in either of the ff.
cases:
i. Drawer and drawee are the
same person;
ii. Drawee is a fictitious person or
a person not having capacity to
contract;
iii. Drawer is the person to whom
the instrument is presented for
payment;
iv. Drawer has no right to expect or
require that the drawee or
acceptor will honor the
instrument;
v. Drawer has countermanded
payment.
4. When notice of dishonor need not be given to
the Indorsers under Sec. 115. (FPA)
• Notice of dishonor is not required to be
given to the Indorser in either of the ff.
cases:
i. Drawee is a fictitious person or
not having the capacity to
contract, and the Indorser was
aware of that fact at the time he
indorsed the instrument;
ii. Indorser is the person to whom
the instrument is presented for
payment;
iii. The instrument was made or
accepted for his
accommodation.
5. When the due notice of dishonor by non-
acceptance has previously been given, a
subsequent notice of dishonor by non-payment
need not be given under Sec. 116.
• See example. P. 124 – Abad.
6. When omission to give a notice of dishonor by
non-acceptance does not prejudice the rights of
a HIDC subsequent to the omission under Sec.
117.
• See example. P. 125 – Abad.
By WHOM notice of dishonor be given: (Sec. 90 NIL)
Under this section, the notice may be given:
1. By the holder;
2. By a party to the instrument who might be
compelled to pay it and who has a right of
reimbursement from the party to whom notice is
given; and
3. By an agent in behalf of (1) or (2).
See example. P. 110 – Abad.
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Chapter VIII – DISCHARGE OF N.I.
Instrument; How discharged: (Sec. 119 NIL) DAC/DH
i. Payment in due course by or on behalf of
principal Debtor.
• Payment must be made by the Principal
Debtor at or after the maturity of the
instrument.
• Payment by a party secondarily liable
will not discharge the instrument
because he will just step into the shoes
of the holder and acquire the right to
demand payment from the principal
debtor.
• Payment before its maturity will not
discharge the instrument because the
instrument can be re-negotiated.
ii. Payment in due course by the party
Accommodated where party is
made/accepted for accommodation.
• The accommodated party is actually the
principal debtor; hence, payment by the
accommodated party will discharge the
instrument.
iii. Intentional Cancellation by holder.
• It must be intentional and not made by
mistake.
• The holder in so doing clearly
renounces his rights as creditor in the
instrument.
• In the same manner, renunciation by the
holder pursuant to Sec. 122 NIL may
discharge an instrument.
• Cancellation may be done by writing the
word “cancelled” or “paid” on the face of
the instrument.
• There is also cancellation when the
instrument is torn up, burned or
mutilated.
iv. Any other act which Discharges a simple
contract for payment of money.
• Obligations are extinguished by:
PLCC/CN
• Payment or performance;
18
 • Loss of the thing due;
• Condonation or remission of
debt;
• Confusion or merger of the
rights of creditor and debtor;
• Compensation; and
• Novation.
• Other causes of extinguishment of
obligations: ARP
• Annulment;
• Rescission;
• Prescription.
v. Principal debtor becomes the Holder of the
instrument at or after the maturity in his own
right.
• When the principal debtor becomes the
holder of the instrument in his own right,
the instrument is discharged because of
the merger in his person of the
characters of creditor and debtor.
• “In his own right” means not in a
representative capacity.
• The reacquisition must be “at or after
maturity date” otherwise no discharge
will be effected because the debtor on
reacquiring the instrument can re-
negotiate the same.
Effects of Sec. 119:
• Primarily liable persons and the instrument are
discharged.
• Discharge – is the release of all parties,
whether primary or secondary, from the
obligations of the instrument; renders the
instrument non-negotiable.
When persons secondarily liable on the instrument
are discharged: (Sec. 120 NIL) ACD/VRA
i. Any Act which discharges the instrument.
• Any acts which discharges an
instrument under Sec. 119 NIL also
discharges the primarily and secondarily
liable parties.
• But a discharge of a secondary party
does not effect a discharge of the
instrument itself.
ii. Intentional Cancellation of signature by the
holder.
• If the holder intentionally strikes out the
signature of a person secondarily liable,
the effect is to discharge him from
liability on the instrument as if he has
never been a party to the same.
iii. Discharge of prior party.
• The reason for the rule is that the
discharge deprives a subsequent party
of a right of recourse against the party
discharged by the holder.
• This subsection applies only to
discharge by the act of the holder and
not to discharges by operation of law.
iv. Valid tender of payment made by prior party.
• A valid tender of payment made by a
prior party, if accepted, would result in
the discharge of said party and of all
parties subsequent to him.
v. Release of Principal Debtor, unless holder’s
right of recourse against the party
secondarily liable is expressly reserved.
• The release of the Principal Debtor
discharges the instrument and all
secondary parties.
• However, it would not be the case if the
holder reserved his right of recourse
against secondary parties.
• This reservation of the right of recourse
must be express.
vi. Any Agreement binding upon holder to
extend time of payment, or to postpone the
holder’s right to enforce the instrument,
unless made with the assent of the party
secondarily liable, or unless the right of
recourse against such party is expressly
reserved.
• The agreement to extend the time of
payment does not discharge the a party
secondarily liable:
a. Where the extension of time is
consented to by such party; and
b. Where the holder expressly
reserves his right of recourse
against such party.
Right of party who discharges instrument:
(Sec. 121 NIL)
Payment made by a party secondarily liable will not
discharge the instrument. The party so paying will have
the following status and rights:
a. He will be remitted to his former rights as regard
all prior parties;
b. He may strike out his own and all subsequent
indorsements; and
c. He may again negotiate the instrument.
Exceptions to the right to negotiate:
a. Where a BofE payable to the order of a third
person is paid by the drawer upon maturity of
the instrument.
b. Where the instrument is paid on due date by the
accommodated party. Having been paid by the
Principal Debtor, the instrument is discharged.
See examples. P. 132 – Abad.
Renunciation by holder: (Sec. 122 NIL)
The holder may expressly renounce his rights against
any party to the instrument before, at, or after its
maturity.
19
 • The express renunciation by the holder
must be absolute and unconditional.
• The renunciation in favor of the Principal
Debtor at or after the maturity of the
instrument discharges the instrument.
• Persons secondarily liable are likewise
discharged from liability.
• A renunciation must be in writing
unless delivered personally to the
person primarily liable thereon.
However, renunciation cannot affect the rights of a HIDC
without notice.
When cancellation INOPERATIVE: (Sec. 123 NIL)
Cancellation is inoperative if made: UMW
a. Unintentionally;
b. By mistake or through fraud; and
c. Without authority of the holder.
Cancellation is presumed to be intentional; hence, the
burden is on the holder claiming its ineffectiveness to
overcome the presumption by contrary evidence.
Notes:
• Cancellation may be of the instrument itself or
a mere signature thereof.
• Cancellation may be made by crossing, tearing,
erasing, and burning or by any other means
which obliterates the signature or destroys the
instrument.
Effect of alteration of instrument: (Sec. 124 NIL)
Where a NI is materially altered without the assent of all
parties liable thereon, it is rendered void.
• However, it does not discharge the instrument
as against:
a. The party who made the alteration;
b. The party who authorized or assented
to the alteration; and
c. Indorsers who indorsed subsequent to
the alteration.
Effects to a HIDC not a party to the alteration:
• He may enforce payment according to its
original tenor.
What constitutes a MATERIAL ALTERATION:
(Sec. 125 NIL)
Any alteration which changes: DSTN/CAC
a. The date;
b. The sum payable, either for principal or interest;
c. The time or place of placement;
d. The number or the relations of the parties;
e. The medium or currency in which payment is to
be made; or which adds a place where no place
of payment is specified; or any other change or
addition which alters the effect of the instrument
in any respect.
See examples. P. 135 – Abad.
---------------------------------------------------------------------------
Chapter X – ACCEPTANCE
How is acceptance MADE: (Sec. 132 NIL)
Acceptance of a bill is the signification by the drawee of
his assent to the order of the drawer.
• Acceptance must be: WSP
a. In writing;
b. Signed by the Drawee; and
c. Must contain an express or implied
promise to pay money.
Any equivalent word or expression such as “honored,”
“seen,” “good,” “I would pay” or the signature of the
Drawee alone is valid as acceptance.
Holder entitled to acceptance on face of bill:
(Sec. 133 NIL)
Holder of a bill may require that the acceptance be
written on the bill, if request refused, may treat the bill as
dishonored.
Types of Acceptance:
1. Extrinsic acceptance: (Sec. 134 NIL)
• Acceptance on a separate instrument.
• Acceptance is written on a paper other than the
bill itself (Bill is existing).
In order to bind the Acceptor, it is required that:
a. The acceptance be shown to the person to
whom the instrument is negotiated; and
b. Such person must take the bill for value on the
faith of such acceptance.
2. Virtual acceptance: (Sec. 135 NIL)
• A promise to accept a future non-existing bill.
• The promise must be unconditional
and in writing.
• Deemed an actual acceptance in favor
of every person who, upon the faith
thereof, receives the bill for value.
See examples. P. 147 – Abad.
3. Constructive acceptance: (Sec. 137 NIL)
• There is Constructive acceptance where:
i. The drawee destroys the bill when it is
presented to him for acceptance;
20
 ii. After the bill is delivered to the drawee
for acceptance, he refuses to return
the same within 24 hours or within
such period of time as the holder may
have allowed.
In all of the above instances, the Drawee is deemed to
have accepted the bill.
• An accidental destruction would not constitute
acceptance. It must willfully done.
Time allowed Drawee to accept: (Sec. 136 NIL)
The drawee is allowed 24 hours after presentment to
decide whether or not he will accept the bill; the
acceptance, if given, dates as of the day of presentation.
See examples. P. 257 – De Leon.
Acceptance of Incomplete bill: (Sec. 138 NIL)
Acceptance may be made at any time as follows:
BWWA
a. Before the bill is signed by the drawer;
b. While the bill is still incomplete;
c. When the bill is already overdue; and
d. After the bill has been dishonored by non-
acceptance or non-payment.
If a bill payable after sight is dishonored by non-
acceptance but subsequently accepted by the Drawee,
the holder has the right to have the acceptance dated as
of the first time the bill was presented for acceptance.
See examples. P. 149 – Abad.
Kinds of Acceptance:
1. General Acceptance:
• A general acceptance assents without
qualification to the order of the Drawer.
• An acceptance to pay at a particular place is a
general acceptance. (Sec. 140 NIL)
• But if the acceptance expressly states
that it is payable there only and not
elsewhere, it is a qualified acceptance.
 Payable at PNB = General
 Payable only at PNB = Qualified
2. Qualified Acceptance:
• In express terms varies the effect of the bill as
drawn.
• Kinds of Qualified Acceptance: CPL/QA
i. Conditional. Payment by the acceptor
dependent on the fulfillment of a
condition therein stated;
ii. Partial. To pay part only of the amount
for which the bill is drawn;
iii. Local. To pay only at a particular place;
iv. Qualified as to time;
v. Acceptance of some, one or more of
the Drawees but not all.
See examples. P. 151 – Abad and P. 259 – De Leon.
Rights to parties as to Qualified acceptance:
(Sec. 142 NIL)
The holder may refuse to take a qualified acceptance, if
he cannot obtain a general acceptance; the holder may
treat the bill as dishonored by non-acceptance.
• The holder has the right to have a general
acceptance.
• If the holder takes a qualified acceptance, the
Drawer and the Indorsers are discharged from
liability on the bill, unless they have expressly or
impliedly consented to the qualified acceptance.
---------------------------------------------------------------------------
Chapter XI – PRESENTMENT FOR ACCEPTANCE
When presentment for acceptance must be made:
(Sec. 143 NIL)
Presentment for acceptance – is the production of the
BofE to the Drawee for his acceptance.
Presentment for acceptance is required by law in the
ff. instances: ASE
a. Bills payable after sight in order to fix the
maturity of the instrument;
b. Stipulation in the bill that it be presented for
acceptance because the parties are bound by it;
c. Bills payable elsewhere than at the residence or
place of business of the Drawee. (This is to
allow the Drawee to make arrangements for the
payment of the bill)
In no other case is presentment for acceptance
necessary in order to render any party to the bill liable.
Hence, presentment for acceptance is not required in the
ff:
a. Bills payable on demand;
b. Bills payable at sight;
c. Bills payable on a fixed date;
d. Bills payable several days after date;
e. Bills upon the occurrence of an event; and
f. Bills payable several days after the occurrence
of an event.
In all of the foregoing, what is necessary is merely a
presentment for payment on due date.
Failure to make a presentment for acceptance when
required will discharge parties secondarily liable on the
instrument.
When failure to present releases Drawer and
Indorser: (Sec. 144 NIL)
All bills required by law to be presented for acceptance
must be:
21
 a. Presented for acceptance; or
b. Negotiated within a reasonable time after its
acquisition.
Otherwise, the Drawer and the Indorsers will be
discharged from liability thereon.
Presentment; how made: (Sec. 145 NIL)
• By WHO – by the Holder, or any person dult
authorized by him;
• When – at a reasonable hour on a business day
and before the bill is overdue and within a
reasonable time;
• To Whom – to the Drawee or any person duly
authorized by him.
a. Where a bill is addressed to two or more Drawees
who are not partners:
• Presentment for acceptance must be made to all
of them unless one has the authority to accept
or refuse acceptance for all, in which case
presentment may be made to him only.
 The refusal by one of them to accept will
not constitute a dishonor of the
instrument until all of them shall have
refused. The acceptance by one or
more of them but not by all of them will
only constitute a qualified acceptance of
the instrument.
b. Where the Drawee is dead:
• Presentment is excused.
• Although not necessary, 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 is not excused.
• Presentment may be made either to the Drawee
himself or to his trustee or assignee.
On what days presentment may be made:
(Sec. 146 NIL)
Under Sec. 85, only bills payable on demand may be
presented for payment before 12 o’clock noon on a
working Saturday.
Under Sec. 146, in presentment for acceptance, all
kinds of bills without distinction may be presented
before 12 o’clock noon on a Saturday when such day is
not otherwise a holiday.
Presentment where time is insufficient:
(Sec. 147 NIL)
This section excuses delay in making presentment for
payment when such delay is caused by presenting the
bill for acceptance at a place other than the place where
the bill is drawn payable.
It is possible that the holder is situated at a place which
is very far from the residence or place of business of the
Drawee such that the distance between them would
make it impossible for him to make a presentment for
acceptance and a presentment for payment on due date
without delay.
In this case, the delay will not discharge the Drawer
and the Indorsers from liability on the instrument.
See examples P. 266 – De Leon and P. 157 – Abad.
Where presentment is EXCUSED: (Sec. 148 NIL)
Presentment for acceptance is excused in the ff. cases:
DFAC/RI
a. Where the Drawee is dead;
b. Where the Drawee is fictitious;
c. Where the Drawee has absconded;
d. Where a person has no capacity to contract;
e. Where, after the exercise of reasonable
diligence, presentment cannot be made; and
f. Where an improper presentment is made.
In all of the above cases, the holder may treat the bill as
dishonored by non-acceptance.
When dishonored by non-acceptance: (Sec. 149 NIL)
The holder may treat the bill as dishonored by non-
acceptance in the ff. cases: RPEQ/WO
a. When acceptance is refused by the Drawee;
b. When acceptance cannot be obtained by the
holder within the period prescribed by law;
c. When presentment is excused;
d. Where the Drawee makes a qualified
acceptance;
e. Where the Drawee refuses to write his
acceptance on the face of the bill; and
f. When the Drawee performs his promise by any
other means than the payment of money.
Duty of holder where bill not accepted:
(Sec. 150 NIL)
When acceptance is refused or cannot be obtained, it is
the duty of the holder to treat the bill as dishonored.
• He must within the time prescribed give a notice
of dishonor, or protest when required, to the
Drawer and Indorsers; otherwise, they will be
discharged from liability.
• 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.
(Sec. 151 NIL)
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