to charge persons primarily liable
NEGOTIABLE INSTRUMENTS
Reviewer (Finals Topics)
Reference: The Law on Negotiable Instruments
by De Leon
CHAPTER 6
PRESENTMENT FOR PAYMENT
The presentation of the instrument to the
persons primarily liable for the purpose of
demanding and receiving payment [Sec 70]
WHEN NECESSARY:
To charge persons secondarily
liable (drawer/indorsers)
BUT: presentment first to persons
primarily liable
EFFECT IF NOT PRESENTED:
Gen rule: drawer/indorsers are DISCHARGED
from their secondary liability.
Exceptions:
(1) drawer has no right to expect or require that
the drawee/acceptor will pay the instrument (ex.
He has no fund/account with the drawee/acceptor
or he is the same person as with the drawee) [Sec.
79];
(2) instrument was made or accepted for the
indorser’s accommodation (indorser is the
accommodated party and at the same time the
principal debtor) [Sec 80];
(3) after exercise of reasonable diligence
presentment as required by this Act cannot be
made [Sec 82(a)];
(4) drawee is a fictitious person [Sec 82(b)];
(5) Express or implied Waiver of presentment
[Sec 82(c)]
(6) Bill is dishonored by non-acceptance [Sec
151]
Note:
• Sec 79, 80: presentment excused
• Sec 82, 151: presentment dispensed
with
WHEN SHALL BE MADE: [Sec 71]
1. If instrument NOT payable on demand:
presentment on the day it falls due;
2. If instrument payable on demand:
a. (Promissory Note): presentment
within a reasonable time after its issue;
b. (Bills of Exchange): presentment
within reasonable time after the last
negotiation of the instrument.
WHEN NOT NECESSARY:
(maker/acceptor)
(1) Liability is absolute on date for
payment; therefore, the holder can sue the maker
as soon as the date for payment has passed
without the instrument being paid.
(2) Instrument payable at a special place
and he is able and willing to pay it there;
equivalent to a tender and offer of payment;
effect: he is not considered in delay (in case the
instrument is unpaid and overdue), therefore he is
not liable for costs and interests subsequently
accruing.
(3) Even if it is required by terms of the
instrument.
WHAT CONSTITUTES SUFFICIENT
PAYMENT (ALL ELEMENTS MUST
CONCUR): [Sec 72]
1. Made by the holder/person authorized to
RECEIVE payment;
2. At a reasonable hour within a business day;
3. At a proper place as herein defined; AND
4. To the person primarily liable/if absent or
inaccessible, to any person found at the place
where presentment is made.
WHAT CONSTITUTES PROPER
PLACE (IN ORDER) [Sec 73]
1. Place specified in the instrument, and it is
there presented; or if none
2. Address of the person to make payment; or
if none;
3. Usual place of business or residence of the
person to make payment; or if none
4. Wherever he can be found, or at his last
known address.
[Sec 74]
Valid presentment requires personal or face-to-
face demand, at the proper place, exhibiting the
instrument to the maker/acceptor from whom
payment is demanded.
When paid, the instrument must be delivered up
to the party paying it.
WHEN DELAY OF PRESENTMENT
EXCUSED (ALSO FOR ACCEPTANCE
FOR HONOR) [Sec 81]
• When caused by circumstances beyond
the control of the holder; AND
• Without his default, misconduct, or
negligence
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Note: When reason for delay ceases to operate,
presentment must be made within a reasonable
time.
Summary of Rules as to Presentment for
Payment
1. Not necessary-PPL; necessary-PSL [Sec 70]
2. Not necessary-PSL:
a. as to drawer under Sec 79;
b. as to indorser under 80;
c. sec 82 (presentment is dispensed with);
d. sec. 151 (bill dishonored for non-
acceptance)
WHEN INSTRUMENT IS DISHONORED
BY NON-PAYMENT [Sec 83]
a. Duly presented but REFUSED or
PAYMENT CANNOT BE OBTAINED
b. Presentment (1) EXCUSED and instrument
is (2) OVERDUE and (3) UNPAID (all 3 must
concur)
Note: if the presentment is not made and it is not
excused, there is no dishonor even though the
instrument is overdue and unpaid.
WHAT CONSTITUTE PAYMENT IN DUE
COURSE? (ALL 3 MUST CONCUR)
1. Made at maturity, or after maturity to the
holder thereof;
2. In good faith (of the maker/acceptor); AND
3. Without notice that his title is defective
Problems
1. W, maker, X, payee, Y, 1st indorsee and Z,
2nd indorsee and present holder. A demand by
Z for payment of the promissory note
presented to W was refused by W. May Z
immediately sue X and Y to recover the
amount of the note? Decide
- It depends as to whether notice of
dishonor has been given to the parties. Under Sec,
84 if the NIL, an immediate right of recourse to
all parties secondarily liable if an instrument
accrues to the holder if the instrument is
dishonored by non-payment. Hence, in this case,
Y may immediately be made to pay. However,
Sec. 89 of the same law provides that notice of
dishonor must be given to each indorser
otherwise the person to whom such notice is not
given will be discharged. If no notice of dishonor
has been given, Y cannot be made to pay.
**liability of X?
2. Same problem as (1). The note which is
payable on a fixed date at a bank requires
presentment to charge W. Z made no
presentment on maturity after which the bank
became insolvent. Is W released from liability?
No because W’s liability, being a person
primarily liable, is absolute. Under Sec, 70 of the
NIL, presentment for payment is not necessary in
order to charge the person primarily liable on the
instrument. Neither is presentment for payment
necessary to charge the maker or the acceptor
even if it is required according to the terms of the
instrument. Worse, the failure to make the
presentment would not put him in default
notwithstanding that the instrument is overdue
and unpaid.
3. Same problem as (1). The note is payable to
order of X who indorsed it in blank to Y, but
was stolen by Z who presented it to W for
payment. Will payment by W produce the
effect of discharging the note?
-It depends as to whether the instrument
was made at or after the date of maturity. If the
payment was made before maturity, it will not
discharge the instrument but would constitute a
negotiation back to the primary party.
It will also depend as to whether the payment was
made in good faith or not. If W paid the
instrument without notice of the defect in Z’s
title, his payment would discharge the note. (Sec.
88, NIL)
4. W, drawer of a check payable on demand.
X, drawee bank, Y, payee and Z, indorsee and
present holder. The check was dishonored by
X when presented at 2pm for lack of funds. W
made a deposit of enough funds only before
close of banking house at 3pm when Z had
already left the bank. Has Z the right to
consider that the check has been dishonored?
-No because at the time when Z presented
the instrument, there wasn’t still enough funds to
pay for it since W had only deposited when Z had
already left the bank. Hence the demand earlier
made by Z is premature.
CHAPTER 7
NOTICE OF DISHONOR
TO WHOM MUST BE GIVEN? [Sec 89]
1. To the drawer; AND
2. To each indorser
EFFECT IF NOT GIVEN:
Discharges one of liability but he is still liable for
breach of warranties pertaining to the instrument
[Sec 65 and 66]
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WHEN INSTRUMENT IS CONSIDERED
DISHONORED
1. If it is not accepted when presented for
acceptance;
2. If it is not paid when presented for payment;
3. If presentment is excused or waived and the
instrument is past due and unpaid.
WHO MAY GIVE IT? [Sec 90,91,92]
Notice may be given by:
1. The holder;
2. On behalf of the holder;
Effect: it inures to the benefit of all subsequent
holders and all prior parties who have a right of
recourse against the party to whom notice is given
[Sec 92]
3. Any party to the instrument who might be
compelled to pay the holder, and upon taking it
up, would have a right to reimbursement from the
party to whom notice is given.
Effect: Inures to the benefit of the holder and all
parties subsequent to the party to whom notice is
given.
4. By an agent either in his own name or in the
name of the party entitled to give notice. [Sec 91]
Note: AGENT:
*authority to receive notice NECESSARY
*authority to give notice NOT NECESSARY
Notice to Partners- any one of them
Notice to Joint Parties- each of them
Notice to Bankrupt: party himself or his trustee or
assignee
TIME FIXED FOR GIVING NOTICE (ALSO
FOR PRESENTMENT FOR PAYMENT TO
ACCEPTOR FOR HONOR-103,104)
[Sec 103, 104, 107]
(Sec 103) When parties reside in the same place
and notice is given at the:
1. business place- before the close of
the business hour on the day following
2. residence: before the usual hours of
rest on the day;
3. mail: deposited in the post office in
time to reach him in the usual course on
the day following.
(Sec 104) Different place:
1. by mail: must be deposited in time to
go by mail the day following the day of
dishonor
if there be no mail at a convenient hour
on that day, by the next mail thereafter
2. otherwise than by mail (ex.personal
messenger): recipient shall receive the
notice not later than the time he would
receive it had it been mailed.
(Sec 107) Time of Notice to Subsequent Parties:
same time as that of antecedent parties
WHAT CONSTITUTE DUE NOTICE [SEC
106]
1. The notice of dishonor is DULY
ADDRESSED; AND
2. DEPOSITED IN THE POST OFFICE
* post office
* any branch of post office
* any letter box under the control of the
post office
PLACE WHERE NOTICE MUST BE GIVEN
1. Address added in his signature;
2. If none, either to post office nearest his place
or that where he is accustomed to receive his
letters;
3. Either at his residence or business place(if
both are not in the same place);
4. Place where he is sojourning
Note: When protest is waived, presentment and
notice of dishonor are also deemed waived
WHEN DELAY OF GIVING NOTICE IS
EXCUSED [SAME AS SEC 81]
• When caused by circumstances beyond
the control of the holder; AND
• Without his default, misconduct, or
negligence
WHEN NOTICE TO DRAWER NOT
REQUIRED
1. Drawer and drawee are the same person;
2. Drawee is a fictitious person;
3. Drawee is a person not having capacity to
contract;
4. Drawer is the person to whom the instrument
is presented for payment;
5. Drawer has no right to expect or require that
the drawee or acceptor will honor the instrument;
6. Drawer has countermanded payment.
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WHEN NOTICE TO INDORSER NOT
REQUIRED
1. Indorser was aware of #2 and #3 above;
2. The indorser is the person to whom the
instrument was presented;
3. Indorser is the accommodated party (and the
principal debtor)
EFFECT WHERE NOTICE OF NON-
ACCEPTANCE ALREADY GIVEN
1. If subsequently accepted, holder must
present the instrument for payment upon
maturity;
2. If not paid, holder must give the subsequent
notice of dishonor.
EFFECT OF OMISSION TO GIVE NOTICE
OF NON-ACCEPTANCE BY THE
PREVIOUS HOLDER
A holder in due course (subsequent
holder) is not prejudiced. He may still present the
instrument to the drawee for acceptance and
notify the drawer and indorsers if acceptance is
refused.
WHEN PROTEST REQUIRED
1. Foreign bills of exchange
2. Other negotiable instruments (optional
except cases under Sec. 158, 161 and 171)
Summary of Rules as to Notice of Dishonor
1. Like presentment for payment, notice of
dishonor is not necessary to charge the persons
primarily liable but is necessary to charge persons
secondarily liable;
2. When notice of dishonor NOT necessary:
a. Notice is waived;
b. Protest is waived;
c. Notice is dispensed with;
d. As to drawer under Sec 114;
e. As to indorser under Sec 115;
f. Where due notice of dishonor by
non-acceptance has been given under
Sec 116; and
g. As to holder in due course, without
notice of dishonor by non-
acceptance, subsequent to the
omission to give notice under Sec
117.
Problems
1. W, maker of a promissory note payable to
order of X. The note was negotiated
successively to Y, Z, A, B, C and D in whose
hands the note was dishonored. Who can give
notice of dishonor?
-D or his agent may give notice of
dishonor to X, Y, A, B and C, the parties
secondarily liable. If D only notifies C, the latter,
who thereby can be compelled by D to pay, may,
in turn, notify X, Y, Z and B. (sec. 90)
2. Same problem as (1). Give the effect of
notice of dishonor given by D:
A. To Y only.
B. To Z only.
-A. The notice given by D to Y inures to
the benefit of Z, A, B and C, parties subsequent
to Y. (sec. 92)
-B. The notice given by D to Z also inures
to the benefit of A, B and C.
3. Same problem as (1). Show how X to whom
notice of dishonor was not given by D may still
be liable to the latter.
-X may still be liable to D even though
notice of dishonor was given to him if a person
entitled to give notice such as C gives due notice,
within the time fixed by law, to X. (sec. 93)
4. In the same problem, suppose the notice of
dishonor was given by R who was not
authorized by D, while the notice to B was
received by S who was not authorized by B.
Give the effect of the two (2) notices with
respect to D and B, as the case may be.
-Under Sec. 91, any person can be an
agent of any party entitled to give notice and the
agent need not be authorized by the principal to
do so. Hence, notwithstanding the fact that D has
not given R the authority to give the notice of
dishonor, such act is still valid.
Under Sec. 97, on the other hand, an agent, to be
competent to receive notice of dishonor, must be
authorized. As the receipt of such notice would
create a liability on the part of B who has not
authorized his agent, S, to do so, it is as if B has
not received the notice.
5. W, drawer and X, drawee of a bill of
exchange payable to Y or order. The bill was
dishonored by non-acceptance by X. Y failed
to give notice of dishonor to W within the
prescribed time. Before maturity, Y indorsed
the bill of Z, a holder in due course. State the
liability of W as to Y, and of W and Y as to Z.
- W is discharged form his liability as to
Y for failure of Y to give him due notice of
dishonor within the prescribed time. As to Z, he
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is not discharged because Z cannot be prejudiced case it is indorsed, it remains a

by the omission of Y to give W notice of dishonor bearer instrument and may be
by non-acceptance. In case X refuses to accept it, further negotiated by
Z may notify W and Y and hold them on their DELIVERY.
secondary liability. (sec. 117) b. An order instrument may be
negotiated only by the
CHAPTER 8 indorsement of the payee
completed by delivery. Special
DISCHARGE OF NEGOTIABLE Indorsement is necessary for
INSTRUMENT further negotiation. Blank
Indorsement (the last
Negotiable Instruments are discharged by [Sec
indorsement) makes the order
119]:
instrument a bearer instrument
a. Payment in due course by or on behalf of
and may be negotiated by mere
the principal debtor;
delivery. Hence, the Special
Indorsements are not necessary
b. Payment in due course by the
to the holder’s title. He may
accommodated party;
therefore strike out the signature
of the special indorser. In effect,
c. Intentional cancellation thereof by the
the special indorser and all
holder;
indorsers subsequent to him are
** how cancellation is done:
relieved of their liabilities to the
1. By writing the word “Cancelled” or
instrument.
“Paid” on the face of the instrument
2. Instrument is torn up, burned, or
3. By the discharge of a prior party by act of
mutilated
holder (not by operation of law);
d. Any act which discharges the instrument
4. Valid tender of payment made by a prior
under Art. 1231 of the Civil Code:
party;
1. Payment or performance;
2. Loss of the thing due;
5. By release of the principal debtor by the act
3. Remission of the debt or condonation;
of the holder (not by operation of law).
4. Merger of the rights of the creditor and
REASON: With the release of the principal
debtor or confusion;
debtor, subsequent parties lose their right of
5. Compensation;
recourse against him.
6. Novation;
7. Others: annulment, rescission,
SUBSEQUENT PARTIES ARE
fulfillment of a resolutory condition
RELEASED UNLESS: Holder reserved his
and prescription
right of recourse against the said subsequent
parties. In effect, there is an implied reservation
e. The principal debtor reacquires the
by the subsequent parties of their right of recourse
instrument in his own right at or after the date
against the principal debtor.
of maturity
EFFECT OF REACQUISITION BY PRIOR
Note: If reacquisition is made before
PARTY
maturity, the instrument can be re-negotiated.
Therefore, the reacquisition of the principal
1. The reacquirer (who paid for the instrument),
debtor before maturity does not operate to
for the most part, is remitted to his former
discharge the instrument.
position, and consequently, he may strike out his
own and all subsequent indorsements as they are
METHODS OF DISCHARGE OF
not necessary to his title under Sec 48.
SECONDARY PARTIES
2. Payment at or after maturity by a party
1. Under Sec 119 above;
secondarily liable does not discharges the
instrument but only cancels his own liability and
2. Holder intentionally cancels the signature of
that of parties subsequent to him.
parties secondarily liable on the instrument as if
he has never been a party thereto under Sec.48
3. If the party so paying was formerly a HDC,
he may recover from prior parties as such a HDC
Sec.48-When holder may strike out
even though at that time he had already notice of
indorsement not necessary to his title and
defenses.
the indorser whose indorsement is struck
out, and all indorsers subsequent to him,
EFFECT OF RENUNCIATION
are thereby relieved from liability on the
1. Made before, at, or after maturity
instrument.
*In favor of secondary party
a. A bearer instrument may be
* made by the holder
negotiated by mere delivery. In
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effect: discharge of secondary party only, not the
instrument which will remain in force
2. Made at or after maturity
* in favor of the principal debtor
effect: discharge of PD and all parties prior
thereto
Provided: renunciation is absolute
unconditional.
WHEN CANCELLATION INOPERATIVE
1. Made unintentionally; or
2. By mistake or through fraud; or
3. Without authority
MATERIAL ALTERATION
refers to any change in the instrument
which affects the liability of the parties in any
way as specified in Sec 125, or changes the
contract of the parties in any respect.
Spoilation- material alteration made by
stranger
EFFECT OF ALTERATION IN THE
INSTRUMENT
1. Regardless if the instrument is innocently or
fraudulently altered, the instrument is
discharged/void but the innocent party can sue
upon the original debt for which it has been given;
BUT the instrument is not discharged/void as
against:
(1) the party who has made the alteration,
and;
(2) a party who authorized or assented to
the alteration, and
(3) indorsers who indorsed subsequent to
the alteration.
2. Spoilation has same effect as alteration, it has
no effect upon the instrument is the original
meaning can be ascertained.
3. If an altered instrument is negotiated to a
HDC, he may enforce payment thereof according
to its original tenor regardless if innocently or
fraudulently altered.
Problems
1. W, drawer and X, drawee of a check
payable to Y or order, accepted by X, and
successively negotiated to Z, A and B. Give
the effect if payment is made:
(a) by Z;
(b) by W
-a. The payment of Z, a party secondarily
liable, did not discharged the instrument. It only
cancelled his own liability and that of his
subsequent parties, A and B, to whom he is
personally liable. Under sec. 212 of the NIL, Z
would be remitted to his former rights as regards
the prior parties, W and Y and may strike out his
own and subsequent indorsements and
renegotiate the instrument.
-b. Payment by W, being the drawer,
discharges the bill pursuant to subsection a of sec.
212 and the instrument cannot be further
and negotiated.
2. In the same problem, give the effect of the
renunciation by B of his right:
(a) against Z;
(b) against W.
-a. The renunciation of B of his rights
against Z, a party secondarily liable, before at or
after maturity of the instrument, discharges only
Z and all parties subsequent to him, A in this case,
and the instrument itself remains in force. (Sec.
122c).
a -b. As against W, a principal debtor, B’s
renunciation effected at or after maturity,
discharges the instrument and all parties thereto,
provided the renunciation is made absolutely and
unconditionally.
Note: In either case, said renunciation does not
affect the rights of a holder in due course without
notice.
3. In the same problem, the amount of check
for P13,000.00 was altered to P18,000.00 by Z
in connivance with Y. Give the effect of the
alteration as to the liability of W, Y, Z and A
to B, if:
(a) B is a holder in due course;
(b) B is not a holder in due course.
-a. B may enforce the instrument against
X, the acceptor and party primarily liable, for
P13k, its original tenor. (par. 2, sec. 124).
However, had X dishonored the instrument, B
may recover from W, Y, Z and A the amount of
P18k, pursuant to Sec. 124.
-b. X would be discharged of his liability,
hence B cannot enforce it against him even for the
original tenor. Z, however would be liable for
P18k as he is the party who made the alteration
notwithstanding that B is not a holder in due
course. As indorser, A warrants that the
instrument is genuine and in all respects what it
purports to be, hence he may also be made to pay
the P18k. Y would also be liable for P18k as he
authorized or assented to the alteration, pursuant
to Sec. 124.
4. Suppose in the same problem, the
instrument is a promissory note with W as a
maker, and Y as the payee. B releases W. Give
the general rule and the exception with respect
to the liability of secondary parties.
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-The persons secondarily liable on the
instrument is discharged by a release of the
principal debtor, unless the holder’s right of
recourse against the party secondarily liable is
expressly reserved. (sec. 120 e)
a) The drawer and the drawee are the
same person, like a draft by a bank on its
branch
b) The drawee is a fictitious person; and

5. In the preceeding problem, B agrees to c) The drawee has no capacity to

extend the time of payment by W. Give the contract
general rule and the exceptions with respect to
the liability of secondary parties. Bill of Exchange Promissory Note

-Gen rule: A person secondarily liable on

1. A bill of exchange 1. A promissory note
the instrument is discharged by any agreement
is an order to pay. is a promise to pay.
bunding upon the holder to extend the time of
payment, or to postpone the holder’s right to
enforce the instrument. 2. The creditor is the 2. The debtor is the
drawer in this case. drawer in this case.
Exceptions:
1) It is made with the assent of the party 3. There are 3 parties 3. There are 2 parties
secondarily liable, or involved in a bill of involved in a
2) The right of recourse against such party is exchange; Drawer, promissory note;
expressly reserved. (sec. 120 f) Drawee, and the Promisor and the
Payee. Payee.

4. Acceptance is 4. Acceptance is not

TITLE II – BILLS OF EXCHANGE mandatory by the mandatory by the
drawee. drawee.
CHAPTER 9

FORM AND INTERPRETATION 5. Liability of the 5. Promisor has the

drawer is only primary liability to
recognized when the make a payment.
BILL OF EXCHANGE acceptor fails to pay.
An unconditional order in writing
addressed by one person to another, signed by the 6. Noting of a bill of 6. Noting of a
person giving it, requiring the person to whom it exchange is promissory note is
is addressed o pay on demand or at a fixed or advisable in case of compulsory in case
determinable future time in a sum certain in non-payment. of non-payment.
money to order or to bearer. (Sec. 126)
7. Stamping is 7. Stamping is
TRADE ACCEPTANCE
necessary for a bill necessary for
A draft or bill of exchange drawn by the
of exchange except promissory notes
seller on the purchaser of goods and accepted by
for “bills payable on without any
the latter by signing it as drawee. It has a definite
demand”. exceptions.
date of maturity, unlike an ordinary bill of
exchange.
8. A single copy is 8. One copy is
REFEREE IN CASE OF NEED prepared, except in prepared in all cases.
The person named by the drawer or case of foreign bills.
indorser as the one to whom the holder may resort (3 copies are made)
in case of need, that is, in case the bill is
dishonored by non-acceptance or non-payment.
Problems
Note: Not obligatory upon the holder to apply to
the referee in case of dishonor. 1. W, drawer, X, drawee, Y, payee and Z,
Referee is not bound to pay but be made liable to indorsee and holder in due course. X refuses to
the party who named him accept. Is X liable to Z? to W?

WHEN TO HOLD A PN LIKE A BOE X is not liable to Z as a drawee is not

A holder may treat an instrument, at his liable on the bill unless and until he accepts the
option, either as a bill of exchange or a same. (Sec. 127). However, X’s refusal to pay
promissory note when: notwithstanding the funds he holds for W, makes
him liable to W.

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NEGOTIABLE INSTRUMENTS
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2. Same problem. Y inserted the name of R as
the person to whom the holder may seek
payment in case of need. State the rights of R
and Z.
-Under Sec. 131, Z, the bill having been
dishonored, may apply to R for payment but
before doing so he must first have the bill
protested. (sec. 167). However, he is not obliged
to do so as he may look immediately to W, the
drawer after due proceedings on dishonor have
been taken by him (sec. 61, 66).
R is not obliged to pay but he may subject
himself to liability to Z depending on their
agreement. If R pays, he may recover the amount
from Y, the person who named him.
3. A bill of exchange drawn by W, is addressed
in the alternative thus: “to X or Y”. Is this
valid? Why?
No. Sec. 128 of the NIL provides that a
bill may be addressed to two or more drawees
jointly, whether they are partners or not; but not
to two or more drawees in the alternative or in
succession.
CHAPTER 10
ACCEPTANCE
Problems
1. W, drawer, X, drawee and Y, payee, of a bill
of exchange. X informed W by letter of his
acceptance. W, in turn, sent a telegram to Y
notifying him of the acceptance. X changed his
mind. Is X released from liability to Y?
- No. Requisites under sec. 134 has been
complied;
2. Same problem. The bill which is payable 30
days after date was negotiated by Y to Z, then
by Z to H. Upon the request of X, H consented
to the payment of the bill by X “60 days after
date.” Notice of such acceptance was given by
H to Y and Z. X dishonored the bill, are Y and
Z liable to H?
-It depends, See Sec. 142
CHAPTER 11
PRESENTMENT FOR ACCEPTANCE
Problems
1. W, drawer, X, drawee, Y, payee and
indorser and Z, indorsee and present holder of
a bill of exchange. The bill was dishonored by
non-acceptance by X before maturity. Has Z
the right to proceed immediately against W
and Y? Why?
-Yes. Sec. 151
2. Same problem. The bill was presented for
acceptance 1 day late. Is this a sufficient
ground to discharge W and Y?
-It depends: Yes – Sec. 145, 1st par.;
Holiday- Sec. 146
CHAPTER 12
PROTEST
Is the formal instrument executed usually by
(1) a notary public, or
(2) by any respectable resident of the place
where the bill was dishonored, in the
presence of two or more credible witness
* certifying that the legal steps necessary to fix
the liability of the drawee and the indorsers have
been taken;
* Made on the day of its dishonor, unless delay is
excused;
*At the place where the instrument is
dishonored, if not thereat, at the place where it is
expressed to be payable
PROTEST FOR BETTER SECURITY
Protest before maturity where acceptor
has been adjudged a bankrupt or insolvent, or has
made an assignment for the benefit of his
creditors
WHEN NECESSARY:
In case of a foreign bill of exchange;
REASONS FOR REQUIRING PROTEST IN
CASE OF A FOREIGN BILL OF
EXCHANGE
1. It makes for uniformity in international
transactions because most countries require it;
2. It furnishes authentic and satisfactory
evidence of dishonor to the drawer who, from his
residence abroad, would experience difficulty in
verifying the matter and thus be compelled to rely
on the presentation of the holder.
HOW MADE:
1. Must be annexed to the bill or must contain
a copy thereof;
2. Must be under the hand and seal of the
notary making it;
3. Must specify the matters enumerated as
follows:
a. Time and place of presentment;
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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 cannot be found.
WHEN PROTEST IS DISPENSED
WITH: same as that of presentment and notice of
dishonor
DULY NOTED- means written by the notary
public on his logbook or on the instrument
-The holder must protest the bill for non-
payment in Manila and no further presentment for
payment to, or demand on, the drawee is
necessary.
Sec. 156 of the NIL provides that 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.

Note: formal paper may subsequently be 2. Same problem. The bill was lost by Y
prepared after it has been duly noted as of the date without fault on his part. Is Y excused from
of noting. making a protest?

PROTEST AND NOTICE OF DISHONOR -No. Loss will not excuse protest. Under
DISTINGUISHED Sec. 160 of the NIL, it is provided that when a bill
is lost or destroyed or is wrongly detained from
PROTEST NOTICE OF the person entitled to hold it, protest may be made
DISHONOR on a copy or written particulars thereof.
Where foreign bill any negotiable
required instrument CHAPTER 13
Form Written Verbal or
written ACCEPTANCE FOR HONOR
Scope Includes Limited to An undertaking by a stranger to a bill
presentment, notice of after protest for the benefit of any party liable
notice of dishonor only thereon, or for the honor of the person for whose
dishonor, and account the bill is drawn which acceptance inures
all the steps to the benefit of all the parties subsequent to the
accompanying person for whose honor it is accepted, and
dishonor conditioned to pay the bill when it becomes due
Made by Notary public By a party or if the original drawee does not pay.
or any his agent
respectable Purpose: to preserve the credit of the parties to
resident where the instrument or some party to it for whose honor
the instrument the acceptance is made.
was dishonored
in the presence REQUISITES:
of two or more 1. The bill must have been protested for
credible dishonor by non-acceptance or for better security;
witnesses
Where At the place of Not essential 2. The acceptor for honor must be a person not
made dishonor a party already liable thereon;
When On the day of Within the
made dishonor time 3. The bill must not be overdue at the time of
prescribed the acceptance for honor; and

4. The acceptance must be with the consent of

the holder of the instrument.

5. Must be in writing;
Problems
6. Must indicate that it is an acceptance for
1. W, drawer, X, drawee residing in New honor;
York and Y, payee of a bill of exchange. The
foreign bill is payable at Metro Bank in 7. Must be signed by the acceptor for honor;
Makati, Philippines. Acceptance is refused by and
X, and payment, by Metro Bank. What
protest must Y make and where? 8. Must contain an express or implied promise
to pay money.

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9. Must be delivered (the accepted bill) to the was accepted by H for honor of A. Give the
holder. liability of H and his right, if he pays C, in
relation to the other parties.
“Accepted for the honor of P”
(Signed) - Since the bill is accepted by H with the
X consent of C, H will be liable to the holder, C, and
indorser, B who is a party subsequent to A but not
AGREEMENT OF ACCEPTOR FOR to W, X, Y and Z who are parties prior to A. If,
HONOR after having been liable, H pays C, H will have a
Engages that he will, on due presentment, right of recourse against W, X, Y, A and B. But
pay the bill according to the terms of his H’s right to hold X will depend upon whether X
acceptance, provided that the (1) bill was not paid is liable to W.
by the drawer, (2) it shall have been duly
presented for payment and (3) protested for non- 2. Same problem. H accepted the bill for honor
payment, and (4) notice of dishonor was given to without specifying the person to whom it is
him. made. For whom is the acceptance for honor
made?
Bill payable after sight: the date of maturity is
calculated from the date of the noting of non- - Sec. 163 provides that where an
acceptance and not from the date of the acceptance for honor does nor expressly state for
acceptance for honor. whose honor it is made, it is deemed to be an
acceptance for the honor of the drawer, in this
PROTEST FOR NON-PAYMENT BY case, W.
ACCEPTOR FOR HONOR
1. Protest for dishonor by non-acceptance or for CHAPTER 14
better security
PAYMENT FOR HONOR
2. Protest for non-payment by the drawee in
Payment made by a person, whether a
order to hold the acceptor for honor liable
party to the bill or not, after it has been protested
for non-payment, for the benefit of any party
3. Protest for non-payment by the acceptor for
liable thereon or for the benefit of the person for
honor in order to hold the drawer and indorsers
whose account it was drawn.
whose liabilities have not yet become fixed
because of the acceptance for honor.
WHO MAY MAKE PAYMENT
1. By a party to the bill;
ACCEPTANCE FOR HONOR AND
ORDINARY ACCEPTANCE
2. By a stranger;
DISTINGUISHED
3. By the drawee after he has refused to accept
AFH OA
the bill
As to protest Previous Protest not
protest required 4. Drawee of a check which has been
required dishonored and protested has a right to intervene
Acceptor Stranger Drawee and pay it to protest his honor.
Consent of Required Not required
holder REQUISITES OF A VALID PAYMENT FOR
Liability Secondary Primary HONOR
No. of May be No acceptors 1. The bill has been dishonored by non-
acceptors several AFH in the payment;
for different alternative or
parties in the in succession 2. It has been protested for non-payment;
bill
When Not Discharged 3. Payment ‘supra protest’ is made by any
instruments is discharged upon person, even a party thereto;
discharged even upon payment by
payment by the acceptor 4. The payment is attested by a notarial act of
the AFH honor which must be appended to the protest or
form an extension of it;

Problems 5. The notarial act must be based on the

declaration made by the payer for honor or his
1. W, drawer, X, drawee and Y, payee of a bill agent of his intention to pay the bill for honor and
of exchange successively indorsed to Z, A, B for whose honor he pays.
and C, dishonored in the hands of C, protested
by C for non-payment and with consent of C,
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EFFECT IF THE ABOVE FORMALITIES IS 2. Same problem. P also offers to pay supra
NOT FOLLOWED protest but for the honor of Y. Has Z the right
1. Payment will operate as a mere voluntary to object if D prefers A?
payment; AND
-Yes, since payment for the honor of Y
2. The payor has no right of full will discharge most parties to the bill, which must
reimbursement against the party for whose be given preference pursuant to sec. 174.
honor he pays.
CHAPTER 15
PREFERENCE OF PARTIES OFFERING
TO PAY FOR HONOR BILLS IN SET
To the person whose payment will
PARTIES: Payee (P)
discharge the greatest number of parties to the
Drawer (R)
bill.
Drawee (W)
Note: The rule is different in acceptance for
BILLS:
honor.
First Part---neg.by P to A on Sept 20—further
negotiated to D
EFFECT WHERE BILL IS PAID FOR
HONOR
Second Part---neg. by P to B on Sept 25---further
1. Discharge of subsequent parties
negotiated to E
(subsequent to the party for whose honor it is
paid); and
Third Part---neg. by P to C on Sept 30—further
negotiated to F
2. Subrogation of the payer for honor to
the rights of the holder
Note:
RIGHT OF PAYER FOR HONOR 1. Each part may be negotiated by P although
he’s not supposed to do that
right to receive the bill itself and the
protest
2. A is the true owner (the holder whose first title
accrued)
EFFECT OF HOLDER’S REFUSAL TO
RECEIVE PAYMENT FOR HONOR
3. If W pays B in due course, he can refuse to
he cannot recover from the parties who
accept and pay the true owner, A.
would have been discharged had he accepted the
same.
4. Where the bill is indorsed separately, the
holder is liable to that part, every indorser
Problems
subsequent to him is liable on that part that he
himself has indorsed.
1. W, drawer, X, drawee, Y, payee and Z, A, B
and C, successive indorsers, and D, present
5. W is required to accept only one part of a bill
holder of a bill of exchange. D protested non-
in set.
payment by X, but the bill was paid for honor
by H.
6. If he accepts two or more, and those were
a) Give the effects if the payment by H
negotiated to a HDC, W is liable to every holder
is for the honor of A.
as if the parts were separate bills.
b) Give the effect if D refuses to receive
payment
7. If P, before negotiating to A, B and C,
presented the 3 bills for acceptance to W, then
-a. payment by H for the honor of A
negotiates the parts to A,B and C(all HDCs),
discharges the subsequent parties of A, who are B
then…W is liable to A,B,C for each amount of the
and C and H is subrogated to the rights of the
part.
holder, D with respect to X, W, Y, Z and A. But
the right of H against X, W, Y and Z will depend
8. If P presented the 3 parts to W for acceptance
on whether or not they are liable to A. (sec. 175)
but after which does not negotiate them, W is
liable only the amount on one part to P.
-b. If D refuses to receive payment, he
loses his right of recourse against any party who
9. W must require the surrender of the bill upon
would have been discharged by such payment. In
his payment, otherwise, he will be liable to that
this case, B and C. (sec. 176)
part not surrendered and to subsequent holder
thereof.

10. If part of the bill is discharged by payment,

the whole bill is discharged, as far as R is

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concerned. This is because a bill in a set constitute

only one bill.

Problems

1. W, drawee of a bill in set consisting of 3

parts for P30k addressed to X in favor of Y.
The 3 sets were negotiated by Y to Z, then by
Y to A, and lastly by Y to B.
a) X paid B. Has Z the right to contest
the payment since a part was first negotiated
to him?
h) Supposes Z, A and B, at the same
time, ask for payment from X. Whom should
X pay and how much?

-a. Yes because Z is the true owner of the

bill as his title first accrues. Under Sec. 179,
where 2 or more parts of a set are negotiated to
different holders in due course, the holder shoes
title first accrues is, as between such holders, the
true owner of the bill.

b. It is Z’s part that should be paid by X

since it is his title that has first accrued. However,
if X paid in due course the part held by B who is
able to make presentment for acceptance or for
payment of his part ahead of A, X is not liable to
A.

2. Same problem. The 3 parts were accepted

by X before they were negotiated by Y.
a) Will X be liable for all the parts?
b) Suppose Z, A and B indorsed their
parts to C, D and E, respectively. State the
liability of X, Z, A, and B.

-a. Under sec. 181, the drawee is required

only to accept 1 part of a bill drawn in a set and
the acceptance may be written on any part. But if
he accepts more than 1 part and they are
negotiated to holders in due course, he is liable to
every holder of the different parts as if such parts
were separate bills.

b. Each would be liable to is respective

indorsee.

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