DISCUSSIONS ON NOTICE OF DISHONOR

Sec. 89. To whom notice of dishonor must be given. - Except

as herein otherwise provided, when a negotiable instrument
has been dishonored by non-acceptance or non-payment,
notice of dishonor must be given to the drawer and to each
indorser, and any drawer or indorser to whom such notice is
not given is discharged.

What is the purpose of a Notice of dishonor?

The purpose of a Notice of dishonor is to (1) inform the parties secondarily

liable that the maker or acceptor has failed to meet his engagement; and
(2) To advise such parties (secondarily liable) that they will be required to
pay.

Thus, a notice of dishonor is defined as the bringing into the knowledge of

the drawer or indorser of an instrument the fact that a negotiable
instrument has not been paid or has not been accepted and that the party
notified is expected to pay it.

To whom notice of dishonor may be given?

1. Drawer

2. Each indorser

In addition, Section 97 says,

Sec. 97. To whom notice may be given. - Notice of dishonor

may be given either to the party himself or to his agent in that
behalf.

What is the form or manner of giving a notice of dishonor?

Sec. 95. When notice sufficient. - A written notice need not be

signed and an insufficient written notice may be supplemented
and validated by verbal communication. A misdescription of the
instrument does not vitiate the notice unless the party to whom
the notice is given is in fact misled thereby.
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 Sec. 96. Form of notice. - The notice may be in writing or
merely oral and may be given in any terms which sufficiently
identify the instrument, and indicate that it has been
dishonored by non-acceptance or non-payment. It may in all
cases be given by delivering it personally or through the mails.

A notice of dishonor may be given verbally or in writing. However, it is

necessary to show that the party notified was really communicated with,
that is, fully identified as the party at the receiving end of the line.

A misdescription in the amount, date, names of the parties or date of

maturity does not vitiate the notice, unless it misleads the party to whom
the notice of dishonor was sent.

However, under Section 112 of the NIL, a notice of dishonor may be

dispensed with if after the exercise of reasonable diligence, it cannot be
given to or does not reach the parties sought to be charged.

What if the party to whom a notice of dishonor should be given is dead?

Sec. 98. Notice where party is dead. - When any party is dead
and his death is known to the party giving notice, the notice
must be given to a personal representative, if there be one,
and if with reasonable diligence, he can be found. If there be
no personal representative, notice may be sent to the last
residence or last place of business of the deceased.

Sec 98 says, when the death of the party to be charged is known to

the party who will give a notice of dishonor, then the latter must
exert reasonable diligence to determine whether or not the decedent
has a personal representative.

Such notice must be given to the personal representative of the

decedent provided the following requirements are complied with.

1. death is known to the party giving notice;

2. there is a personal representative; and

3. if with reasonable diligence the said personal representative

could be found.

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 What if the parties to whom a notice of dishonor should be given are
partners?

Sec. 99. Notice to partners. - Where the parties to be notified

are partners, notice to any one partner is notice to the firm,
even though there has been a dissolution.

Sec 99 says, notice to one partner is notice to the partnership,

because each partner is an agent of the partnership.

What if the parties to whom a notice of dishonor should be given are joint
payess or joint indorsees?

Sec. 100. Notice to persons jointly liable. - Notice to joint

persons who are not partners must be given to each of them
unless one of them has authority to receive such notice for the
others.

The liability of joint payees or joint indorsees who indorse an

instrument jointly and severally is solidary and not joint. Solidary
liability means each of them is liable for the entire amount of the
instrument. Consequently, none of them can escape liability just
because proper notice of dishonor was not given to the other. But
one who pays may demand reimbursement from others. Thus, notice
of dishonor must be given to each of them.

What if the party to whom a notice of dishonor should be given has been
adjudged as bankrupt or an insolvent?

Sec. 101. Notice to bankrupt. - Where a party has been

adjudged a bankrupt or an insolvent, or has made an
assignment for the benefit of creditors, notice may be given
either to the party himself or to his trustee or assignee.

When a party who is secondarily liable has been declared as bankrupt or

insolvent, or has made an assignment of his properties for the benefit of
his creditors, notice of dishonor must be given to the following persons:

1. Party himself; or

2. His trustee; or

3. His assignee
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 Who must give a notice of dishonor?

Sec. 90. By whom given. - The notice may be given by or on

behalf of the holder, or by or on behalf of any party to the
instrument who might be compelled to pay it to the holder, and
who, upon taking it up, would have a right to reimbursement
from the party to whom the notice is given.

Sec. 91. Notice given by agent. - Notice of dishonor may be

given by any agent either in his own name or in the name of
any party entitled to given notice, whether that party be his
principal or not.

1. Holder
2. by another in behalf of the holder
3. by a party to the instrument who is compelled to pay it to the
holder and who, upon taking up, would have the right to
reimbursement from the party to whom notice is given;
4. by any person in behalf of such party.

Illustration:

Suppose M makes a PN to the order of P. The PN was successively

indorsed. However, the PN was dishonored in the hands of D.

D or his agent may give notice of dishonor to P, A, B and C (Parties

secondarily liable). D may select to hold only one, or some of the indorsers,
but any party to whom such notice is not given is discharged.

If D only notifies C, then C, who can be compelled by D to pay, may in turn

notify P, A, and B. B can give notice to A and P. Likewise, A may give
notice to P. But A cannot give notice to the parties subsequent to him and
to whom he is liable (B and C).

If D only notified B, then C is discharged because of lack of notice. B has

no right to notify C, a party subsequent to B and to whom he is liable. Sec
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89 says, “..and any drawer or indorser to whom such notice is not given is
discharged.”

If B, after having been given notice by d, does not notify P and A, then the
latter (P and A) would also be discharged from the instrument.

Sec. 92. Effect of notice on behalf of holder. - Where notice is

given by or on behalf of the holder, it inures to the benefit of all
subsequent holders and all prior parties who have a right of
recourse against the party to whom it is given.

M
P
A
Parties subsequent to P B
C
D - Holder
E – Subsequent holder

M makes a PN payable to the order of P. The PN was dishonored in the

hands of D. D notifies P, A, B and C.

What is now the effect of the notice of dishonor given by D to P?

The notice of dishonor given by D to P operates to the benefit of the

following parties:

1. Parties subsequent to P (A, B and C)

2. Parties subsequent to the holder who issued a notice of dishonor (E)

Thus, the notice of dishonor to A operates to the benefit of B, C and E; The

notice of dishonor given to B, operates to the benefit of C and E; and the
notice of dishonor given to C, operates to the benefit of E.

Thus, if B was compelled by C to pay the latter, B may now go against P

and A on the basis of the notice to P or A. But the notice given to A does
not operate in favor of P, because P has no right of recourse against A.

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 Sec. 93. Effect where notice is given by party entitled thereto. -
Where notice is given by or on behalf of a party entitled to give
notice, it inures to the benefit of the holder and all parties
subsequent to the party to whom notice is given.

Take note that under section 93, the Notice of dishonor was given by a
“party entitled to give notice.” Who is the party entitled to give notice?

A notice of dishonor given by a “party entitled to give notice” inures to the

benefit of the following:

1. Holder; and (D)

2. All parties subsequent to the party to whom notice is given, including

the parties subsequent to the holder who gave notice. (E)

Illustration:

M
P
A
Parties subsequent to P
B
C
D - Holder
E – Subsequent holder

If D only notifies C, then P, A and B are discharged from their liability for
lack of notice.

However, the notice of dishonor given to C by D, makes C a party entitled

to give notice. Why? The reason is simple, C may be compelled to pay the
instrument to the holder. If C pays the instrument, then C has the right to
seek for reimbursement from P, A and B.

If C gives due notice of dishonor to P, A and B, then such notice inures to

the benefit of D (holder) and E (a party subsequent to the party to whom
notice was given). C’s notice to P inures to the benefit of A, B, D and E
(Parties subsequent to P, although they themselves did not give notice of
dishonor to P.)

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 Sec. 94. When agent may give notice. - Where the instrument
has been dishonored in the hands of an agent, he may either
himself give notice to the parties liable thereon, or he may give
notice to his principal. If he gives notice to his principal, he
must do so within the same time as if he were the holder, and
the principal, upon the receipt of such notice, has himself the
same time for giving notice as if the agent had been an
independent holder.

Section 94 speaks about an instrument which is dishonored in the hands

of an agent. The agent should give notice either to:

1. His principal; or

2. Directly to the parties secondarily liable without notifying his

principal.

1. Notice to the principal must be given by the agent within the same time
referred to as if he were a holder. Thus if the instrument was dishonored
on August 1, the agent must give notice to the principal not later than
August 2.

The principal has, in turn, until the next following day, or until August 3, to
notify the parties who are secondarily liable.

2. Notice to the parties secondarily liable must be given by the agent in

accordance with section 102, 103, 104 and 107 of the NIL; otherwise the
parties econdarily liable are discharged from their liabilities for lack of
notice,

Sec. 102. Time within which notice must be given. - Notice may
be given as soon as the instrument is dishonored and, unless
delay is excused as hereinafter provided, must be given within
the time fixed by this Act.

Sec. 103. Where parties reside in same place. - Where the

person giving and the person to receive notice reside in the
same place, notice must be given within the following times:

(a) If given at the place of business of the person to receive

notice, it must be given before the close of business hours on
the day following.

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 (b) If given at his residence, it must be given before the usual
hours of rest on the day following.

(c) If sent by mail, it must be deposited in the post office in

time to reach him in usual course on the day following.

Sec. 104. Where parties reside in different places. - Where the

person giving and the person to receive notice reside in
different places, the notice must be given within the following
times:

(a) If sent by mail, it must be deposited in the post office in

time to go by mail the day following the day of dishonor, or if
there be no mail at a convenient hour on last day, by the next
mail thereafter.

(b) If given otherwise than through the post office, then within
the time that notice would have been received in due course of
mail, if it had been deposited in the post office within the time
specified in the last subdivision.

Sec. 107. Notice to subsequent party; time of. - Where a party

receives notice of dishonor, he has, after the receipt of such
notice, the same time for giving notice to antecedent parties
that the holder has after the dishonor.

Section 102 says that notice of dishonor must be given as soon as the
instrument is dishonored. But when the delay in giving a notice of dishonor
was due to circumstances beyond the control of the holder, and not
imputable to his default, misconduct or negligence, then the delay is
excused. As soon as the cause of the delay ceases to operate, notice of
dishonor must be given within reasonable time. (Sec 113)

Notice of dishonor may be given personally or by mail.

If the parties reside in the same place, notice must be given within the
following periods: (Section 103)

1. Place of business of the person to receive it- before the close

of business hours on the day following.

2. If given at his residence- before the usual hours of rest on

the day following.

3. If sent by mail- must be deposited in the post office on the

day following.
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If the parties reside in different places, notice must be given within the
following periods: (section 104)

1. If sent by mail- the notice of dishonor must be deposited in

the post office in time to go by mail the day following the day
of dishonor.

If there be no mail at a convenient hour on last day, by the

next mail thereafter.

A bill of exchange was dishonored on August 1, 2018. The holder resides in

Manila, and the Drawer or Indorser resides in Olongapo City.

If the notice of dishonor was given by mail, it need not reach the drawer or
indorser on August 2, 2018, but the notice must be deposited in mails not
later than August 2, 2018 the day following the day of dishonor.

If there be no mail at a convenient hour on last day, by the next mail

thereafter.

2. Otherwise than by mail- The drawer or indorser should

receive the notice of dishnor not later than the time he would
have received the notice had it been mailed.

If the Holder fails to deposit on time through mail the notice of dishonor,
then his remedy is to send it by personal messenger. What is important is
that the drawer or indorser should receive the notice of dishonor not later
than the time he would have received it had it been mailed.

If the notice of dishonor would have been received by the drawer or

indorser on August 5, 2018 had it been mailed to him, and the holder failed
to deposit the notice on time, his remedy is to send the notice of dishonor
via personal messenger and the same should be received by the drawer or
indorser on or before August 5, 2018. If the notice sent through personal
messenger was received after August 5, 2018, then the notice of dishonor
is inoperative and the drawer or indorser is discharged.

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 When is notice of dishonor by mail deemed to have been properly made?

Sec. 105. When sender deemed to have given due notice. -

Where notice of dishonor is duly addressed and deposited in
the post office, the sender is deemed to have given due notice,
notwithstanding any miscarriage in the mails.

Answer:

(1) when the notice of dishonor is duly addressed, stamped and

mailed; and

(2) when the notice of dishonor is deposited in the post-office. (See

Section 106: Deposit in post office; what constitutes. - Notice is deemed to have
been deposited in the post-office when deposited in any branch post office or in
any letter box under the control of the post-office department.)

Sec. 107. Notice to subsequent party; time of. - Where a party

receives notice of dishonor, he has, after the receipt of such
notice, the same time for giving notice to antecedent parties
that the holder has after the dishonor.

With regards to the holder, the instrument is dishonored at the time it was
not paid or not accepted by the party primarily liable. However, with
regards to the party secondarily liable, the instrument is considered
dishonored as of the time he receives a notice of dishonor from the holder
thereof.

M–P–A–B–C–D

M makes a PN to the order of P. The PN was successively indorsed to A, B,

C and D. All of them reside in the same place.

If the instrument was dishonored on 1 Aug 2018, D must give notice to any
of or all of the indorsers prior to him not later than the next day, 2 August
2018.

If D only notifies C on 02 August 2018, then C upon receipt of such notice

of dishonor, may, in turn, notify any of or all of the antecedent parties not
later than 03 August 2018.

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But if D notifies C on 01 August 2018 (day the instrument was dishonored
by the maker), then C should notify any of or all of the antecedent parties
not later than 02 August 2018.

If they reside in different places, then the notice must be given in

accordance with section 104.

Sec. 108. Where notice must be sent. - Where a party has

added an address to his signature, notice of dishonor must be
sent to that address; but if he has not given such address, then
the notice must be sent as follows:

(a) Either to the post-office nearest to his place of residence or

to the post-office where he is accustomed to receive his letters;
or

(b) If he lives in one place and has his place of business in

another, notice may be sent to either place; or

(c) If he is sojourning in another place, notice may be sent to

the place where he is so sojourning.

But where the notice is actually received by the party within the
time specified in this Act, it will be sufficient, though not sent in
accordance with the requirement of this section.

May a notice of dishonor be waived?

Sec. 109. Waiver of notice. - Notice of dishonor may be waived

either before the time of giving notice has arrived or after the
omission to give due notice, and the waiver may be expressed
or implied.

Yes, a notice of dishonor may be waived. A waiver maybe express or

implied. A notice of dishonor must be made before the time of giving
notice has arrived or after the omission to give due notice.

Under Section 110 a waiver maybe embodied:

1. In the instrument itself; (Binds all parties)

I promise to pay P or order P1,000 on or before August 6, 2018 waiving presentment for
payment and notice of dishonor.

(Sgd.) M
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The above PN was negotiated by P to A, A to B, and B to C.

The waiver in this example appears on the face of the instrument, thus it is
considered part of the contract. Therefore, the waiver binds not only M
(maker) but also the indorsers P, A, and B.

2. It is written above the signature of an indorser. (binds only the indorser)

Pay to the order of B. Notice of dishonor is waived.

(Sgd.) A

In this example, the waiver of the notice of dishonor appears only on the
signature or indorsement of an indorser. Thus, the said notice of dishonor
binds only A.

A notice of dishonor given by a notary public (Lawyer) is called a protest.

Also, in case of a foreign bill of exchange, a protest is required. Protest is
defined as a formal instrument executed by a notary public certifying that
the legal steps necessary to fix the liability of the drawee and the indorsers
have been taken.

Under section 111, a waiver of protest is also tantamount to waiver of

presentment and notice of dishonor.

Are there instances when a notice of dishonor need not be given to a

drawer or to an indorser?

Yes. Sec 114 provides for the grounds when a notice of dishonor need not
be given to a drawer, while section 115 refers to instances when a notice
of dishonor need not be given to an indorser.

Under Sec. 114, notice need not be given to drawer:

(a) Where the drawer and drawee are the same person;

(b) When the drawee is fictitious person or a person not having

capacity to contract;

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[Under subsections (a) drawer and drawee are the same person and (b)
drawee is fictitious person or a person not having capacity to contract, the
holder is given the option to treat the bill as a PN and the drawer will be
regarded as the maker and a primary party.]

(c) When the drawer is the person to whom the instrument is

presented for payment;

[Notice is no longer necessary since the drawer is the one who dishonored
the instrument. The presentment itself constitutes notice of dishonor.]

(d) Where the drawer has no right to expect or require that the
drawee or acceptor will honor the instrument;

[examples: drawer has no account with the drawee bank or has no funds
with the drawee bank, except when the drawee has agreed to advance the
amount for the drawer despite absence of account or funds.]

(e) Where the drawer has countermanded payment.

[When the drawer countermands payment, he orders the drawee not to

pay. Thus, the drawer knows that the instrument will be dishonored.]

Sec. 115. When notice need not be given to indorser. — Notice

of dishonor is not required to be given to an indorser in either
of the following cases:chanroblesvirtuallawlibrary

(a) When the drawee is a fictitious person or person not having

capacity to contract, and the indorser was aware of that fact at
the time he indorsed the instrument;

(b) Where the indorser is the person to whom the instrument is

presented for payment;

(c) Where the instrument was made or accepted for his

accommodation.

An accommodated party is in fact the principal debtor and therefore he is

not entitled to notice of dishonor.

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 Sec. 116. Notice of non-payment where acceptance refused. -
Where due notice of dishonor by non-acceptance has been
given, notice of a subsequent dishonor by non-payment is not
necessary unless in the meantime the instrument has been
accepted.

General Rule: When a bill is dishonored by non-acceptance, dishonor by

non-payment is to be expected. Thus, the holder has an immediate right of
recourse against all parties secondarily liable and no presentment for
payment is necessary.

Exception: When the bill was dishonored by non-acceptance, but was

accepted later, then it is necessary for the holder to present the instrument
for payment upon maturity. In case of non-payment, a notice of dishonor
must be given; otherwise the parties secondarily liable are discharged.

Illustration:

Pay to the order of P P1,000 on 30 August 2018.

(Sgd.) R

To W
Manila

The above bill was indorsed successively by P to A, A to B and B to C. Now,

C, the holder, presents the bill for acceptance on August 10, 2018 to W. W
refused to accept the bill. C gives a notice of dishonor to R (drawer) and to
P, A, and B (indorsers).

General Rule: Under Sec 116, C has an immediate right of recourse to

enforce the instrument against the parties secondarily liable even without
presentment for payment. If C presents the instrument to W upon maturity
and it was dishonored, C need not notify again the parties secondarily
liable.

Exception: If W changes his mind and accepts the instrument on 20 August

2018, C must present the bill for payment to W on 30 August 2018. If W
refuses to pay, C must give notice of dishonor by non-payment to the
drawer and the indorsers. Otherwise, they will be discharged from their
liability.

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 Sec. 117. Effect of omission to give notice of non-acceptance. -
An omission to give notice of dishonor by non-acceptance does
not prejudice the rights of a holder in due course subsequent to
the omission.

Illustration:

Pay to the order of P P1,000 on 30 August 2018.

(Sgd.) R

To W
Manila

When P presented the above bill to W for acceptance, the latter (W)
refused to accept. P failed to give notice of dishonor by non-acceptance to
R (drawer) within the time prescribed under Sec 103 (parties reside in the
same place) and 104 (parties reside in different places).

The failure to give notice to R (drawer) discharges R from his liability.

However, if before maturity P indorsed the instrument to A, a holder in due

course, then as to A (holder in due course) R (drawer) is not discharged
because section 117 says “omission to give notice of dishonor by non-
acceptance does not prejudice the rights of a holder in due course
subsequent to the omission.”
Thus, A (holder in due course) may now notify R (drawer) and P (indorser)
and hold them liable.

Sec. 118. When protest need not be made; when must be

made. - Where any negotiable instrument has been dishonored,
it may be protested for non-acceptance or non-payment, as the
case may be; but protest is not required except in the case of
foreign bills of exchange.

As discussed, a notice of dishonor given by a notary public (Lawyer) is

called a protest. Also, in case of a foreign bill of exchange, a protest is
required. Otherwise, the drawer and the indorsers are discharged.

Protest is defined as a formal instrument executed by a notary public

certifiying that the legal steps necessary to fix the liability of the drawee
and the indorsers have been taken.

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For other negotiable instrument, (inland bills of exchange, checks and PN)
protest is optional. However under section 158, when the acceptor is
declared insolvent or bankrupt, or has made an assignment in favor of his
creditors, protest for better security and before maturity is advised.

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