NEGOTIABLE INSTRUMENTS NOTES
BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Under the NIL, persons who write their names on the face of promissory
notes are makers, promising that they will pay to the order of the payee or
any holder according to its tenor.
At the study of the instrument, the allegations of Roxas are bereft of any
merit—that is, the words “in his personal capacity” were added after he
signed the instrument.
43 SOLIDBANK CORPORATION V. MINDANAO FERROALLOY
CORPORATION
GR 153535, JULY 28, 2005
FACTS:
Mindanao Ferroalloy corporation is the fruit of a joint venture agreement
between a Filipino corporation and Korean Corporation. In its operations,
its liabilities ballooned over its assets that it had to secure loans from
petitioner Solidbank. The loans were later consolidated and restructured,
evinced by a promissory note. The promissory note was signed by Cu and
Hong, both officers of the corporation. The corporation, through the same
officers also executed a deed of assignment. Thereafter, the corporation
stopped its operations and the loan was left unpaid. The bank was
prompted to file a complaint against the corporation, and with it,
impleading the officers who signed the agreement and promissory notes.
The trial court held in favor of the bank but didn't adjudge liability of the
officers. Both the trial court and CA held that there was no solidary liability
on the part of the officers impleaded by the bank.
HELD:
Though Hong and Cu signed above the “maker/borrower” and the printed
name of the corporation, without the word “by” preceding their signatures,
the fact that they signed in their personal capacities is negated by the facts
that name and address of the corporation also appeared on the space
provided for in the “maker/borrower” and their signatures only appeared
once when it should be twice if indeed it was in their personal capacities.
Further, they didn't sign on the portion allocated for the co-maker, and
there was also indicia of it being signed as authorized representatives.
Sec. 21. Signature by procuration; effect of. - A signature by
"procuration" operates as notice that the agent has but a limited
authority to sign, and the principal is bound only in case the agent
in so signing acted within the actual limits of his authority.
HOW SIGNATURE PER PROCURATION IS MADE
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
Page 32 of 190
 “Luis Martin Tan, Per Procuration: Ryan Teehankee” on which Luis Tan
is the principal while Ryan Teehankee is the agent
EFFECT OF SIGNATURE PER PROCURATION
 Constitutes a warning that an agent has a limited authority
 A person who takes the instrument so signed is bound at his peril to
inquire into the extent and nature of the agent’s authority, and this
applies to every person
Sec. 22. Effect of indorsement by infant or corporation. - The
indorsement or assignment of the instrument by a corporation or
by an infant passes the property therein, notwithstanding that from
want of capacity, the corporation or infant may incur no liability
thereon.//
INDORSEMENT OF MINOR OR CORPORATION
 If a minor or corporation indorses an instrument, the indorsee acquires
title to it and can enforce it against the maker or acceptor or other
parties prior to the minor
 Such prior parties cannot escape liability by setting a defense the
incapacity of the indorser
 Also applies to other incapacitated persons
A (INCOMPLETE, UNDELIVERED)  B  C  D  E (MINOR)  F
*F cannot enforce against A the instrument, following Section 15 of the NIL
*General rule in an indorsement by an infant or corporation: it shall be
enforceable against the maker, acceptor, or other parties prior to the minor
NOTES FOR WEEK #4:
July 2, 2007 - July 7, 2007
Sec. 23. Forged signature; effect of. - When a signature is forged or
made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or
under such signature, unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want
of authority.
 NEGOTIABLE INSTRUMENTS NOTES
BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Page 33 of 190

FORGERY, DEFINED AND EXPLAINED Sgd. A

 Counterfeit making or fraudulent alteration of any writing, and may To X Bank Alabang (drawee)
consist in the signing of another’s name, or the alteration of an
instrument, in the name, amount, description of the person and the Additional fact: B has account with RCBC Makati.
like, with the intent to defraud
 Section 23 only applies to forged signatures or signatures made *Process is that RCBC will send the check to X Bank for clearing and X
without the authority of the person whose signature purports it to be Bank would consequently debit the account of A.
*What if the signature of A is forged? What is the recourse of A? The
FRAUD AMOUNTING TO FORGERY recourse is for A to approach X Bank and demand to credit the his
 Fraud in factum or fraud in esse contractus account. X Bank was the proximate cause of the loss of A and it should
 There is no intention to issue an instrument know the drawer’s signature. Generally, X Bank is liable when the drawer’s
signature is forged and his account was debited.
FRAUD IN FACTUM FRAUD IN INDUCEMENT
FRAUDULENT IMPERSONATION
Does amount to forgery Doesn’t amount to forgery
• Suppose X represents himself as Juan Cruz when he is not to Y. Due
Real defense Personal defense
to such misrepresentation, he obtained from Y a note payable to the
A sells to B what he represents as a
order of Juan Cruz. If Y intends that the proceeds of the note will go
diamond ring, when it is actually
to the real Juan Cruz and not X, but to whom Y issued the note on the
made of glass. B issues a check.
belief that X was Juan Cruz, would be a forgery.
The fraud is in inducing B to issue
DOUBLE INTENT IN FRAUDULENT IMPERSONATION
the check.
1. He intends to make the instrument payable to the person before him
or to the person writing at the other end of the line, in case the
negotiation is by correspondence
Promissory notemaker 2. He intends to make the instrument payable to the person whom he
indorser believes the stranger to be

Bill of Exchangedrawer GENERAL RULE IN FRAUDULENT IMPERSONATION

indorser • The first one is the controlling intent except where the name of the
payee was already known to the maker or drawer or was particularly
identified in some manner
I promise to pay B or order P100,000
REASON FOR RULE: THEORY OF ACTUAL INTENT
Sgd. A • Throws the loss on the drawer
• In the absence of anything to show that the drawer had any doubt as
*Suppose that B forged A’s signature. Is the instrument valid? It is totally to the identity of the person to whom he delivered the paper as
inoperative. payee—the drawee, in paying the paper, or the holder, in taking it
*If ABCDE, and B’s signature was forged, it is totally inoperative upon the indorsement of the impostor in the name of which the payee
and ineffectual against A and B. C and D are precluded to set up the was described, carries out the intention that the drawer entertained at
defense of forgery since as indorsers, they warrant the validity of the the time of delivery of the paper to the impostor, although that
instrument. intention was conceived in consequence of the fraud of the impostor as
to his identity and ownership of the property which represented the
Pay to the order of B P100,000 consideration

BY: MA. ANGELA LEONOR C. AGUINALDO

ATENEO LAW 2D BATCH 2010

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
ANOTHER REASON FOR THE RULE: THEORY OF ESTOPPEL
• As between two innocent persons, the one whose act was the cause of
the loss should bear the consequences
• It was the drawer’s duty to use diligence to ascertain the identity of
the party with whom he has dealt. Failing to make this discovery, he
became the victim of the fraud. The impostor having succeeded in this
first and essential step in the practice of the fraud, the next was
comparatively an easy one.
RULE IS QUALIFIED WHERE IMPOSTOR REPRESENTS HIMSELF AS AGENT
OF PAYEE
• There is a distinction between cases where the paper is delivered to
the impostor as payee, in the belief that he is the person to whom the
instrument it would be paid, and cases where the paper is delivered to
the impostor upon his representation, in the belief that he is agent of
the person named as payee
• The loss falls on the drawee or purchaser, as the case may be, rather
than on the drawer where the impostor upon whose indorsement the
paper was purchased or paid, represented himself to be the agent of
the payee and not the payee himself
ADMISSION OF GENUINENESS AND DUE EXECUTION
• When an action or defense is founded upon a written instrument such
as a negotiable instrument, copied in or attached to the corresponding
pleading, the genuineness and due execution of the instrument shall
be deemed admitted unless specifically denied under oath by the
adverse party
• Consequently, the genuineness and due execution of the written
instrument or document copied in or attached to the opponent’s
pleading as the basis of his claim or defense, should be denied
specifically under oath, otherwise they are deemed admitted.
MEANING OF ADMISSION OF GENUINENESS AND DUE EXECUTION
1. That he signed it or that it was signed by another for him and with his
authority
2. That at the time it was signed, it was in words and figures exactly as
set out in the pleading of the party relying upon it,
3. That any formal requisites required by law, such as swearing and
acknowledgment, or revenue stamp which it requires, are waived by
him
DEFENSES CUT OFF BY ADMISSION OF GENUINENESS, ETC.
1. The defense that the signature is a forgery
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 34 of 190
2. That it was unauthorized, as in the case of an agent signing for his
principal, or one signing on behalf of a partnership or corporation or
that in case of the latter, that the corporation was not authorized
under its charter to sign the instrument
3. That the party charged signed the instrument in some other capacity
than that alleged in the pleading setting it out
FAILURE TO IDENTIFY PROMISSORY NOTE WILL NOT NECESSARILY
DEFEAT CLAIM
EFFECT OF FORGERY IN GENERAL
1. That the signature forged or made without authority is wholly
inoperative
2. That no right to retain the instrument, or to give discharge thereof, or
to enforce payment thereof against any party thereto, can be acquired
through or under such a signature forged or made without authority
3. That nevertheless, as against a party precluded from setting up the
forgery or want of authority, the signature forged or made without
authority is operative, and rights to retain the instrument, to give
discharge therefore, or to enforce payment thereof, can be acquired
through or under the signature forged or made without authority
EXTENT OF THE EFFECT OF THE FORGERY
1. Only the signature forged or made without authority is stated by the
law to be inoperative but neither the instrument itself is, nor the
genuine signatures are, rendered inoperative
2. The instrument can be enforced by holders to whose title over the
instrument the forged signature is not necessary, such as, the
indorsement of an instrument which on its face is payable to bearer
3. The instrument can be enforced against those who are precluded from
setting up the defense of forgery, even against those whose signatures
have been forged
PERSONS PRECLUDED FROM SETTING UP DEFENSE OF FORGERY
1. Those who warrant or admit to the genuineness of the signature in
question—indorsers, persons negotiating by delivery, and acceptors
2. Those who, by their acts, silence or negligence, are estopped from
setting up the defense of forgery
INDORSERS AS WARRANTORS
• Whether general or qualified
• Warrant that the instrument indorsed by them is genuine in all
respects what it purports it to be

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
PERSONS NEGOTIATING BY DELIVERY AS WARRANTORS
• Persons negotiating by mere delivery also warrant that the instrument
negotiated by them is genuine and in all respects what it purports to
be
• They are consequently precluded from setting up the defense of
forgery
ACCEPTORS AS WARRANTORS
• A drawee, by accepting the bill, admits the genuineness off the
signature of the drawer
PRECLUDED
• Includes those cases where they are estoppels against the party
desiring to set up the forgery
ESTOPPEL AS TO FORGERY OF INSTRUMENTS
• Whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe that his or
another’s signature in an instrument is genuine, and to act upon such
belief, he cannot, in any litigation arising out of such declaration, act,
or omission, be permitted to set up the forgery of such signature/s
• Estoppel may arise from a declaration, act or omission/negligence
UNREASONABLE DELAY
• Unreasonable delay, after his discovery of the forgery, on the part of
one having the opportunity and duty to speak, in disclosing the forgery
upon commercial paper to the one who ought to be apprised thereof,
estops the former from thereafter asserting the forgery as against the
latter where the latter is prejudiced by such delay or failure
• Requisites:
o That the delay be unreasonable
o That the one who ought to be apprised of the forgery has
been prejudiced
REASONABLY PROMPT NOTICE
• Depends upon the circumstances of the case, and the situation of the
parties with reference to the remedies against any party is a proper
element to enter into the estimate of the reasonableness of the notice
WHEN PREJUDICED AND WHEN NOT PREJUDICED
• A bank is prejudiced—at the time one discovered that his attorney
forged his indorsement to a draft in his favor, it had assets of the
attorney in its possession to protect itself but at the time it was
notified of the forgery, it has parted with such assets
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 35 of 190
• It is not prejudiced by the delay where at no time after the discovery
of the forgery did the cashier have any property with which to
indemnify the bank
ESTOPPEL BY NEGLIGENCE IN DELIVERY
• A drawer may be precluded from defense of forgery of the payee’s
indorsement if delivery by him to the payee is negligent
CASES OF FORGERY IN GENERAL
1. Forgery of promissory notes which may be further subdivided into—
forgery of indorsement in the note; forgery of the maker’s signature
2. Forgery of bills of exchange which may be further classified into—
forgery of an indorsement on the bill; forgery of the drawer’s
signature, either with acceptance by the drawee, or without such
acceptance but the bill is paid by the drawee
RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN NOT PAYABLE TO
ORDER
Where the indorsement is forged and the note is payable to order, the
party whose indorsement is forged and parties prior to him including the
maker cannot be held liable by the holder, whether that holder is a holder
in due course or not:
1. The reason is that, inasmuch as the indorsement is forged, it is
inoperative. But since the note is payable to order, it can be
negotiated only by indorsement completed by delivery, and therefore,
the forged instrument is the only means one could acquire any rights
to it or its proceeds
2. The law further provides that no right to retain the note, give
discharge thereof, or enforce payment thereof, could be acquired
through and under the forged signature. Hence the holder didn’t
acquire at least those rights as against the party whose signature is
forged and parties prior to him, including the maker
3. The forger usually obtains possession of the note by fraudulent or
other unlawful means and therefore, he has no right whatsoever in the
note
RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN A NOTE PAYABLE
TO BEARER
• May be held liable by a holder in due course but not by the one who is
not a holder in due course
• Provided that the note was mechanically complete before the forgery
• Forged instrument is not necessary to the title of a holder since
instruments payable by bearer can be negotiated by mere delivery

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
RIGHTS OF PARTIES IN FORGERY OF MAKER’S SIGNATURE
• Where the maker’s signature is forged, he cannot be held liable by any
holder, whether the holder is in due course or not
• Purported maker is not a party to the instrument as his forged
signature is inoperative and no right to retain, enforce, or discharge
the note, may be acquired against him
DRAWEE CANNOT CHARGE ACCOUNT OF DRAWER
• In an action by the drawee against the drawer for the amount charged
by the drawee against the account of the drawer where the drawee
paid a check on a forged indorsement, the drawee has no defense
against the drawer and the drawer may recover from the drawee for
an instrument paid on a forged indorsement
• Depository owes to the depositor an absolute and contractual duty to
pay the check only to the person to whom it is made payable or upon
his genuine indorsement
DRAWER CANNOT RECOVER FROM THE COLLECTING BANK
• Drawer has no right to recover the amount paid from the collecting
bank as the duty of the collecting to exercise care in collection is due
only to the payee, and as the drawer suffers no loss since it can
recover the amount paid from the drawee bank which has no right to
charge the drawer’s account
DRAWEE CAN RECOVER FROM COLLECTING BANK
• The drawee may recover from the recipient of payment, such as the
collecting bank, under a forged indorsement
• Rule allowing the payee to recover from the recipient of the payment
under a forged indorsement
PAYEE CAN RECOVER FROM RECEIPT OF PAYMENT
• According to the general rule, a bank or other corporation or an
individual, who has obtained possession of a check, upon an
unauthorized or forged indorsement of the payee’s signature and who
collects the amount of the check from the drawee, is liable for the
proceeds thereof to the payee or other owner, notwithstanding that
they have been paid to the person whom the check was obtained
• The possession of the check on the forged indorsement is wrongful and
when the money had been collected on the check, the bank or other
person or corporation, can be held as far as moneys had and received
and the proceeds are held for the rightful owners of the payment and
may be recovered by them
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 36 of 190
COLLECTING BANK BOUND TO SCRUTINIZE CHECKS DEPOSITED WITH IT
TO DETERMINE GENUINENESS AND REGULARITY
CONVERSION
• An unauthorized assumption and exercise of the right of ownership
over goods or personal chattels belonging to another, to the alteration
of their condition or exclusion of the owner’s right
AS AFFECTED BY QUESTION OF DELIVERY TO PAYEE
• The checks didn’t reach the hands of the payee. The bearing of such
absence of delivery is considered in some cases and held not to be
material
• Where there is no delivery to the payee and no title vests upon him,
he ought not to be allowed to recover on the ground that he lost
nothing because he never became owner of the check and still retained
his claim against the drawer
PAYEE CANNOT RECOVER FROM THE DRAWEE
• An action cannot be maintained by a payee of a check against the
bank on which it is drawn unless the check has been certified or
accepted by the bank on which it is drawn, without acceptance or
certification, as provided by the statute, there is no privity of contract
between the drawee bank and the payee, or holder of the check
RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN BILL PAYABLE TO
BEARER
• Holder may recover if he is a holder in due course
RIGHTS OF PARTIES IN FORGERY OF DRAWER’S SIGNATURE WHERE
DRAWEE HASN’T ACCEPTED BILL BUT PAID IT
• In the case of the payment of a forged check even without former
acceptance, the drawee cannot recover from a holder in due course
not chargeable with any act or negligence or disregard of duty
• As between equally innocent parties, the drawee who pays money on a
check the signature to which is forged, cannot recover the money from
the one who received it
BUT PAYMENT NOT EQUIVALENT TO ACCEPTANCE OR CERTIFICATION
• The payment of a forged check doesn’t include or imply its acceptance
in the sense that this word is used in Section 62 of NIL
• Basis of the general rule is not that the drawee is precluded from
setting up forgery because, by paying the check, it has accepted the
check and therefore admitted the genuineness of the drawer’s
signature

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
• By paying the check the drawer is presumed negligent or deemed
constructively negligent
NEGLIGENCE IN FORGERY OF INDORSEMENTS IN BILL
• It presupposes that the drawer himself wasn’t negligent or guilty of
such conduct as would estop him from asserting the forged character
of the indorsement as against the depository and that if he was
negligent or guilty of such conduct, the loss must fall on him
WHERE A DEPOSITOR IS USING ITS OWN PERSONALIZED CHECKS, ITS
FAILURE TO PROVIDE ADEQUATE SECURITY MEASURES TO PREVENT
FORGERIES OF ITS CHECKS CONSTITUTES GROSS NEGLIGENCE AND
BARS IT FROM SETTING UP THE DEFENSE OF FORGERY
BUT FAILURE OF DEPOSITOR TO MAKE PROMPT RECONCILIATION OF THE
MONTHLY BANK STATEMENTS FURNISHED BY THE BANK CONSTITUTES
NEGLIGENCE FOR WHICH THE BANK CANNOT BE BLAMED IN CASE
DEPOSITOR’S CASE ARE FORGED
BUT DRAWER NOT GENERALLY NEGLIGENT WHERE HIS CHECK IS STOLEN
PAYEE’S NEGLIGENCE IN FORGERY OF DRAWER’S SIGNATURE
• The payee in a check may be supposed to have knowledge of the
circumstances under which it is drawn and generally, of the person
drawing it, and is in a better position to judge the genuineness of the
paper than are indorsees.
• And there is a tendency to place greater responsibility upon him and
he is much more likely to be required to return the proceeds of the
paper than are the indorsees
INDORSER’S NEGLIGENCE
• After a draft or check has once been negotiated so that it is in
circulation, there is little opportunity for negligence on the part of
those through whose hands it passes; but as to them, in most cases,
the rule will apply that, as between innocent parties, the loss must fall
on the drawee
DUTY OF PURCHASER OF CHECK OR BILL
• One who purchases a bill or check is bound to satisfy himself that the
paper is genuine; and that by indorsing or presenting it for payment or
putting it in circulation before presentation, he impliedly asserts that
he has performed his duty and the drawee who has without actual
negligence on his part, paid the forged demand, may recover the
money paid from such negligent purchaser
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 37 of 190
PAPER FORWARDED FOR COLLECTION
• The fact that the paper wasn’t cashed and indorsed with unrestricted
indorsement but was taken for collection and forwarded for that
purpose under an indrosement giving notice of that fact, may place a
greater burden upon the drawee than it would otherwise bear
FORGERY OF SIGNATURE IN INSTRUMENT IS FALSIFACTION OF PRIVATE
DOCUMENT
FORGER NEED NOT IMITATE GENUINE SIGNATURE
• One who signs in the name of another without the latter’s authority, as
drawer in a check, and thereby makes it appear falsely that the
alleged drawer of the check was a real party thereto, when as a matter
of fact he didn’t participate in the transaction, is guilty of falsification
COMMERCIAL DOCUMENTS
• Documents or instruments which are used by businessmen or
merchants to promote or facilitate trade or credit transactions
CASE DIGESTS: SECTION 23
(FORGED SIGNATURE OF DRAWER)
44 SAN CARLOS MINING V. BPI
59 PHIL 59
FACTS:
Wilson, a principal employee of petitioner, together with Wilson, a
messenger-clerk, conspired to withdraw cash from the petitioner’s account
through forgery of a check, in the name of the agent authorized to sign the
check.
While the authorized agent of petitioner was on vacation, Wilson and
Dolores sent a cablegram to China Banking for the transfer of $100,000.
On the contract, the name of Baldwin was forged and it was indicated
therein that a certified check be issued. Thereafter, this was received and
deposited with the BPI. Upon deposit, an indorsement in the name of
Baldwin was placed. The bank account was credited. Later, a letter was
sent to the bank, purporting to be signed by Baldwin asking that it be
withdrawn. This was done in supervision of Dolores. Dolores and Wilson
then was able to get the money. This eventually came to the knowledge of
plaintiff who filed an action against China Banking and BPI. The trial court
dismissed the case.

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
373 SCRA 212
FACTS:
Ong was supposed to be the payee of the checks issued by Island
Securities. Ong has a current account with petitioner bank. He opted to
sell his shares of stock through Island Securities. The company in turn
issued checks in favor of Ong but unfortunately, the latter wasn't able to
receive any. His signatures were forged by Tamlinco and the checks were
deposited in his own account with petitioner. Ong then sought to collect
the money from the family of Tamlinco first before filing a complaint with
the Central Bank. As his efforts were futile to recover his money, he filed
an action against the petitioner. The trial and appellate court decided in
favor of Ong.
HELD:
Since the signature of the payee was forged, such signature should be
deemed inoperative and ineffectual. Petitioner, as the collecting bank,
grossly erred in making payment by virtue of said forged signature. The
payee, herein respondent, should therefore be allowed to collect from the
collecting bank.
It should be liable for the loss because it is its legal duty to ascertain that
the payee’s endorsement was genuine before cashing the check. As a
general rule, a bank or corporation who has obtained possession of a check
with an unauthorized or forged indorsement of the payee’s signature and
who collects the amount of the check other from the drawee, is liable for
the proceeds thereof to the payee or the other owner, notwithstanding that
the amount has been paid to the person from whom the check was
obtained.
DOCTRINE OF DESIRABLE SHORT CUT—plaintiff uses one action to reach,
by desirable short cut, the person who ought to be ultimately liable as
among the innocent persons involved in the transaction. In other words,
the payee ought to be allowed to recover directly from the collecting bank,
regardless of whether the check was delivered to the payee or not.
On the issue of laches, Ong didn't sit on his rights. He immediately sought
the intervention of Tamlinco’s family to collect the sum of money, and later
the Central Bank. Only after exhausting all the measures to settle the
issue amicably did he file the action.
65 TRADERS ROYAL BANK V. RPN
390 SCRA 608
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 46 of 190
FACTS:
RPN, IBC and BBC were all assessed for tax by the BIR. To pay the
assessed taxes, they bought manager’s checks from petitioner bank. None
of these checks were paid to the BIR. They were found to have been
deposited in the account of a third person in Security Bank. As the taxes
remained unpaid, the BIR issued a levy, distraint and garnishment against
the three networks. An action was filed wherein it was decided that the
networks should be reimbursed for the amounts of the checks by petitioner
bank and the latter in turn, must be reimbursed by Security Bank. In the
appellate court, it was held that Traders Bank should be the only bank
liable.
HELD:
Petitioner ought to have known that where a check is drawn payable to the
order of one person and is presented for payment by another and purports
upon its face to have been duly indorsed by the payee of the check, it is
the primary duty of the petitioner to know that the check was duly
indorsed by the original payee, and it pays the amount of the check to the
third person, who has forged the signature of the payee, the loss falls upon
the petitioner who cashed the check. Its only remedy is against the person
to whom it paid the money.
It should be further noted that one of the checks was a crossed check. The
crossing of the check should have put petitioner on guard; it was duty-
bound to ascertain the indorser’s title to the check or the nature of his
possession.
Sec. 124. Alteration of instrument; effect of. - Where a negotiable
instrument is materially altered without the assent of all parties
liable thereon, it is avoided, except as against a party who has
himself made, authorized, or assented to the alteration and
subsequent indorsers.
But when an instrument has been materially altered and is in the
hands of a holder in due course not a party to the alteration, he
may enforce payment thereof according to its original tenor.
RIGHTS OF ONE NOT HOLDER IN DUE COURSE
• Where an instrument has been materially altered, it is avoided in the
hands of one who is not a holder in due course as against a prior party
who has not assented to the alteration
WHERE INSTRUMENT NOT AVOIDED AS TO HOLDER NOT IN DUE COURSE
1. A party who has made the material alteration
2. A party who has authorized the material alteration
 NEGOTIABLE INSTRUMENTS NOTES
BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Page 47 of 190

3. A party who has assented to the material alteration

4. Any subsequent indorsers (f) Or which adds a place of payment where no place of
payment is specified, or any other change or addition which alters
RIGHTS OF HOLDER IN DUE COURSE the effect of the instrument in any respect, is a material alteration.
• He may enforce the instrument in its original tenor
• He could recover the altered tenor to any party who has made, CASE DIGESTS: SECTIONS 124 AND 125
authorized or assented the alteration, or any subsequent indorser of
the instrument 66 HSBC V. PEOPLE’S BANK
35 SCRA 140
NO DISTINCTION BETWEEN FRAUDULENT AND INNOCENT ALTERATION
FACTS:
RIGHT TO COLLECT ORIGINAL CONSIDERATION People’s Bank is sought to be liable for the amount involved in checks
• When the alteration wasn't fraudulently done, the holder may recover subject of this case. This arose from the following facts:
the original consideration
PLDT drew a check on HSBC with the latter being the payee. The check
WHERE DRAWEE BANK PAYS ALTERED AMOUNT, DRAWER HAS THE RIGHT landed in the hands of a third person who successfully substituted his
TO HAVE HIS ACCOUNT DEBITED WITH CORRECT AMOUNT ONLY name as payee and deposited the check with the People’s Bank. Upon
knowledge of this, reimbursement was being sought from the People’s
BANKS ARE BOUND BY THE 24-HOUR CLEARING HOUSE RULE AND MUST Bank and it refused to do so. This prompted to an action against it.
NOTIFY THE COLLECTING BANKS WITHIN 24 HOURS OF ALTERATION OF
CHECKS HELD:
The entire case of HSBC relied on the indorsement that has been
SECTION 23 SECTION 124 AND 125 heretofore copied—namely, a guarantee of all prior indorsements made by
Forgery with regard the signature of Forgery on any other material in the People’s Bank and since such an indorsement carries with it a concomitant
the drawer or indorser instrument guarantee of genuineness, the People’s Bank is liable to HSBC for alteration
Real defense Personal defense—the instrument is of the name of the payee. On the other hand, the People’s Bank relied on
not avoided when it comes to a the 24-hour regulation of the Central Bank that required after a clearing,
holder in due course; the holder that all cleared items must be returned not later than 24 hours. It should
may enforce the original tenor still be noted that the checks were returned by HSBC 27 days later. Dismissal
of the instrument of its complaint was therefore called for.

67 REPUBLIC BANK V. CA
Sec. 125. What constitutes a material alteration. - Any alteration 196 SCRA 100
which changes:
FACTS:
(a) The date; SMC issued a dividend check in favor of Delgado and the check was drawn
against FBTC. Delgado was able to alter the check, increased the amount
(b) The sum payable, either for principal or interest; of the same and deposited it with his account in Republic Bank. RB
indorsed it with FBTC. The SMC notified FBTC of the alterations made and
(c) The time or place of payment: demanded for reimbursement. Republic Bank then didn't want to
reimburse. The trial court held it liable.
(d) The number or the relations of the parties;
HELD:
(e) The medium or currency in which payment is to be made;

BY: MA. ANGELA LEONOR C. AGUINALDO

ATENEO LAW 2D BATCH 2010

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
HELD:
The warranties for which Alviar and Gonzales are liable as general
indorsers in favor of subsequent indorsers extend only to the state of the
instrument at the time of their indorsements, specifically that the
instrument is genuine and in all respects what it purports to be; that they
have good title thereto; that all prior parties had capacity to contract; and
that the instrument, at the time of their endorsements, is valid and
subsisting. This however cannot be used by someone which introduced the
defect in the instrument, such as the bank in this case, which qualifiedly
indorsed the same, to hold prior parties liable on the instrument because it
results to an absurd situation whereby a subsequent party may render an
instrument useless and inutile and let innocent parties bear the loss while
he himself gets away scot-free. It cannot be overstressed that had it not
been for the qualified indorsement of Gomez, there would have been no
reason for the dishonor of the check.
Sec. 67. Liability of indorser where paper negotiable by delivery. —
Where a person places his indorsement on an instrument
negotiable by delivery, he incurs all the liability of an indorser.
CASE DIGESTS: SECTION 67
130 JAI ALAI V. BPI
66 SCRA 29
FACTS:
Checks were deposited by petitioner in its current account with the bank.
These checks were from a certain Ramirez, a consistent better in its
games, who was a sales agent from Inter-Island Gas. Inter-Island later
found out that of the forgeries committed in the checks and thus, it
informed all the parties concerned. Upon the demands on the bank as the
collecting bank, it debited the account of petitioner. Thereafter, petitioner
tried to issue a check for payment of shares of stock but such was
dishonored for insufficient funds. It filed a complaint against the bank.
HELD:
Considering that the petitioner indorsed the said checks when it deposited
them with the respondent, the petitioner as an indorser guaranteed the
genuineness of all prior indorsements thereon. The respondent which
relied upon the petitioner’s warranty should not be held liable for the
resulting loss.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 95 of 190
Furthermore, the provision in the deposit slip on the right of reservation by
the bank applies only when there is actual receipt of current funds or
solvent credits. But as earlier on indicated, the transfer on account of the
checks were ineffectual because it was made under the mistaken and valid
assumption that the indorsements of the payee thereon were genuine.
Sec. 68. Order in which indorsers are liable. - As respect one
another, indorsers are liable prima facie in the order in which they
indorse; but evidence is admissible to show that, as between or
among themselves, they have agreed otherwise. Joint payees or
joint indorsees who indorse are deemed to indorse jointly and
severally.
APPLICATION OF SECTION
• Applies only with respect to an indorser as against another but not as
against a holder in due course
• Every indorser is liable to all indorsers subsequent to him but not
those prior to him whom he in turn makes liable
JOINT AND SEVERAL LIABILITY OF JOINT PAYEES
• Joint payees or joint indorsees are deemed to indorse solidarily
EFFECT OF LACK OF NOTICE OF DISHONOR, ETC.
• One of the joint indorsers cannot escape liability because proper notice
of dishonor wasn’t given to his joint indorser
Sec. 69. Liability of an agent or broker. - Where a broker or other
agent negotiates an instrument without indorsement, he incurs all
the liabilities prescribed by Section Sixty-five of this Act, unless he
discloses the name of his principal and the fact that he is acting
only as agent.
APPLICATION OF SECTION 69
• Instruments payable to bearer
• To escape personal liability as a party negotiating by delivery, the
agent must disclose his principal and state that he is acting only as an
agent
VI. PRESENTATION FOR PAYMENT
Sec. 70. Effect of want of demand on principal debtor. -
Presentment for payment is not necessary in order to charge the
person primarily liable on the instrument; but if the instrument is,
by its terms, payable at a special place, and he is able and willing

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
to pay it there at maturity, such ability and willingness are
equivalent to a tender of payment upon his part. But except as
herein otherwise provided, presentment for payment is necessary
in order to charge the drawer and indorsers.
MEANING OF PRESENTMENT FOR PAYMENT
• Production of a bill of exchange to the drawee for his acceptance, or to
the drawee or acceptor for payment or the production of the
promissory note to the person liable for payment of the same
1. Personal demand for payment at the proper place
2. With the bill or note in readiness to exhibit it as required and
to receive payment and surrender it if the debtor is willing to
pay
PRESENTMENT FOR PAYMENT NOT NECESSARY TO CHARGE PERSONS
PRIMARILY LIABLE
• It cannot be validly claimed that it is presentment of the bill which is
the operative act that makes the acceptor liable under his acceptance
PAYABLE AT A SPECIAL PLACE
• If the bill is payable at the PNB, is it necessary to make presentment
for payment to X in order to charge him? No, the rule is the same.
The only effect is that if, X is able and willing to pay the bill at the PNB
at maturity, it is equivalent to a tender of payment on the part of
drawee X.
PRESENTMENT NECESSARY TO CHARGE PERSONS SECONDARILY LIABLE
NECESSARY STEPS TO CHARGE PERSONS SECONDARILY LIABLE IN BILLS
OF EXCHANGE
1. In the three steps required by law, presentment for acceptance to
the drawee or negotiation within reasonable time after acquisition
unless excused
2. If the bill is dishonored by non-acceptance, notice of dishonor by
non-acceptance must be given to persons secondarily liable
unless excused and in case of foreign bills, protest for dishonor
by non-acceptance must be made unless excused
3. But if the bill is accepted, or if the bill isn’t required to be
presented for acceptance, it must be presented for payment to
the persons primarily liable unless excused
4. If the bill is dishonored by non-payment, notice of dishonor by
non-payment must be also be given to person secondarily liable
unless excused, and in case of foreign bills, protest for dishonor
by non-pay7ment must be made unless excused
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 96 of 190
NECESSARY STEPS TO CHARGE PERSONS SECONDARILY LIABLE
• Presentment for payment must be made within the period required to
the person primarily liable unless excused
• If the note is dishonored by non-payment, notice of dishonor by non-
payment must be given to the person secondarily liable unless excused
CASE DIGESTS: SECTION 70
131 CLARK V. SELLNER
42 SCRA 384
FACTS:
Sellner with two other persons, signed a promissory note solidarily binding
themselves to pay to the order of R.N Clark. The note matured but the
amount wasn't paid. The defendant alleges that he didn't receive any
amount of the debt; that the instrument wasn't presented to him for
payment and being an accommodation party, he is not liable unless the
note is negotiated, which wasn't done.
HELD:
On the first issue, the liability of Sellner as one of the signers of the note,
is not dependent on whether he has or has not, received any part of the
debt. The defendant is really and expressly one of the joint and several
debtors of the note and as such he is liable under the provisions of Section
60 of the NIL.
As to the presentment for payment, such action is not necessary in order
to charge the person primarily liable, as is the defendant Sellner.
As to whether or not Sellner is an accommodation party, it should be taken
into account that by putting his signature to the note, he lent his name, not
to the creditor, but to those who signed with him placing him in the same
position and with the same liability as the said signers. It should be noted
that the phrase”without receiving value therefore” as used in section 29
means “without receiving value by virtue of the instrument” and not, as it
apparently is supposed to mean, “without receiving payment for lending his
name.” It is immaterial as far as the creditor is concerned, whether one of
the signers has or has not received anything in payment for the use of his
name. In this case, the legal situation of Sellner is that of a joint surety
who upon the maturity of the note, pay the debt, demand the collateral
security and dispose of it to his benefit. As to the plaintiff, he is a holder
for value.

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Sec. 71. Presentment where instrument is not payable on demand
and where payable on demand. - Where the instrument is not
payable on demand, presentment must be made on the day it falls
due. Where it is payable on demand, presentment must be made
within a reasonable time after its issue, except that in the case of a
bill of exchange, presentment for payment will be sufficient if made
within a reasonable time after the last negotiation thereof.
WHEN PAYABLE AT A FIXED OR DETERMINABLE FUTURE TIME
• The presentment must be made at the date of maturity
WHEN PAYABLE ON DEMAND IN CASE OF NOTES
• The time for presentment depends upon whether the instrument is a
bill or a note
• If it is a note, it must be presented for payment within reasonable time
for issue
• If it is a bill, it must be presented for payment within reasonable time
from last negotiation and not for issue, as in the case of notes
CASE DIGESTS: SECTION 71
132 FAR EAST REALTY INVESTMENT V. CA
166 SCRA 256
FACTS:
Private respondents approached petitioner and asked the latter to extend
to them an accommodation loan. They proposed to pay with interest.
They even gave a check, signed by Tat, drawn against Chinabank, and
signed at the back by the private respondents. They said that they will
change the check with cash after one month and if not, the check could be
presented for payment and it would be paid. The loan was actually
extended but when the check was presented for payment, it was
dishonored—the account on which it is drawn has long been closed. The
trial courts held in favor of petitioner but this was reversed by the appellate
court by ruling that the check has passed through other hands before
reaching the petitioner and the said check wasn’t presented within
reasonable time and after its issuance.
HELD:
Where the instrument is not payable on demand, presentment must be
made on the day it falls due. Where it is payable on demand, presentment
must be made within a reasonable time after issue, except that in case of a
bill of exchange, presentment for payment is sufficient if made within
reasonable time after the last negotiation thereof.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 97 of 190
Notice may be given as soon as instrument has been dishonored and
unless delay is excused must be given within the time fixed by law.
In this case, presentment and notice of dishonor were not made within
reasonable time.
September 1960—date when the check was drawn
March 1964—presented to drawee bank
April 1968—notice of dishonor
133 REPUBLIC V. PNB
3 SCRA 851
FACTS:
The government filed a complaint for escheat of certain unclaimed bank
deposits balances pursuant to a law, which provides that unclaimed
balances—credits, money, bullion, security or other evidence of
indebtedness of any kind, and interest with banks—shall be deposited with
the government if it remains to be unclaimed within a period of 10 years of
more.
One of the banks against the complaint has been filed is First National City
Bank. Although it concedes that the government had the right to claim the
unclaimed deposit balances, it seeks to exclude some which, according to
it, are not within the purview of credits and deposits as defined in law. the
trial court held in favor of the bank, excluding from the claim the
manager’s checks and other demand drafts.
HELD:
Credit is a sum credited on the books of a company to a person who
appears to be entitled to it. it presupposes a creditor-debtor relationship
and may be said to imply ability, by reason of property or estates, to make
a promised payment. It is correlative to indebtedness, and that which is
due to any person, as distinguished to that which he owes.
Do demand drafts and telegraphic orders come within the purview of
credits or deposits employed in the law?
Since the demand drafts herein involved have not been presented either
for acceptance or payment, the inevitable consequence is that the bank
never had the chance of accepting or receiving them. Verily, the bank
never became a debtor of the payee concerned and as such the aforesaid

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
drafts cannot be considered as credits subject to escheat within the
meaning of the law.
Further, a demand draft is different from a cashier’s check for this is a
primary obligation of the bank which issues it and constitutes a written
promise to pay upon demand. It is an order to a third party purporting to
be drawn upon a deposit of funds.
If there is any consolation, the telegraphic orders can be escheated in favor
of the government. The agreement to remit creates a contractual
obligation and has been termed a purchase and sale transaction. The
purchaser of a telegraphic transfer upon making payment completes the
transaction insofar as he is concerned, though insofar as the remitting
bank is concerned the contract is executory until the credit is established.
The drawer bank has already been paid the value of the telegraphic order.
It appears in the books of the bank that the amounts represented by the
orders appear in the names of respective payees. If the latter choose to
demand payment, the bank had the obligation to pay them.
134 THE INTERNATIONAL CORPORATE BANK V. SPOUSES
GUECO
351 SCRA 516
FACTS:
Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a
car. In consideration thereof, the debtors executed PNs, and a chattel
mortgage was made over the car. As the usual story goes, the spouses
defaulted in payment of their obligations and despite the lowering of the
amount to be paid, they still failed to pay. Thereafter, they tendered a
manager’s check in favor of the bank. Nonetheless, the car was still
detained for the spouses refused to sign the joint motion to dismiss. The
bank averred that the joint motion to dismiss is part of standard office
procedure to preclude the filing of other claims. Because of this, the
spouses filed an action for damages against the bank. And by the time the
case was instituted, the check had become stale in the hands of the bank.
HELD:
The main issue though unrelated to NIL in this case was whether or not the
signing of the joint motion to dismiss a part of the compromise agreement
between the spouses and the bank. The answer is no, it is not a part of
the compromise agreement entered by the parties. And thus, the signing
is dispensible in releasing the car to the spouses.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 98 of 190
And on the ancillary issue of the case, which is the relevant issue for the
subject, whether or not the spouses should replace the check they paid to
the bank after it became stale, the answer is yes. It appeared that the
check has not been encashed. The delivery of the manager’s check did not
constitute payment. The original obligation to pay still exists. Indeed, the
circumstances that caused the non-presentment of the check should be
considered to determine who should bear the loss. In this case, ICB held
on the check and refused to encash the same because of the controversy
surrounding the signing of the joint motion to dismiss. There is no bad faith
or negligence on the part of ICB.
A stale check is one which has not been presented for payment within a
reasonable time after its issue. It is valueless and, therefore, should not be
paid. A check should be presented for payment within a reasonable time
after its issue. Here, what is involved is a manager’s check, which is
essentially a bank’s own check and may be treated as a PN with the bank
as a maker. Even assuming that presentment is needed, failure to present
for payment within a reasonable time will result to the discharge of the
drawer only to the extent of the loss caused by the delay—but here there is
no loss sustained. Still, such failure to present on time does not wipe out
liability.
Sec. 72. What constitutes a sufficient presentment. - Presentment
for payment, to be sufficient, must be made:
(a) By the holder, or by some person authorized to receive
payment on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument, or if he is
absent or inaccessible, to any person found at the place where the
presentment is made.
APPLICATION OF SECTION
• Establishes the requisites for a sufficient presentment for payment
WHO MAKES PRESENTMENT
• Presentment for payment must be made by the holder of the
instrument or by some person authorized to receive payment on his
behalf

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
TIME FOR MAKING PRESENTMENT
• At a reasonable hour on a business day
CASE DIGESTS: SECTION 72
135 STATE INVESTMENT HOUSE V. IAC
175 SCRA 310
FACTS:
New Sikatuna requested for a loan from Spouses Chua. Latter issued post-
dated crossed checks in favor of former. Thereafter, Sikatuna sold checks
to SIHI which upon deposit, checks were dishonored. The trial court
decided the case in favor of SIHI.
HELD:
Jurisprudence provides the following effects of crossing a check:
1. The check may not be encashed but only deposited in the bank
2. The check may be negotiated only once—to one who has an
account with a bank
3. The act of crossing the check serves the warning to the holder
that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
The checks in issue were crossed generally and issued payable to New
Sikatuna Wood which could only mean that the drawer has intended the
same for deposit only by the rightful person. Apparently, it was not the
payee who presented the same for payment and therefore, there was no
proper presentment and the liability didn't attach to the drawer. Thus, in
the absence of due presentment, the drawer didn't become liable.
Consequently, no right of recourse is available to petitioner against the
drawer of the subject checks considering that the petitioner is the proper
party authorized to make presentment of the checks in question.
Nonetheless, the holder could still collect from New Sikatuna if the latter
doesn't have a valid excuse from refusing payment.
Sec. 73. Place of presentment. - Presentment for payment is made
at the proper place:
(a) Where a place of payment is specified in the instrument and
it is there presented;
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 99 of 190
(b) Where no place of payment is specified but the address of
the person to make payment is given in the instrument and it is
there presented;
(c) Where no place of payment is specified and no address is
given and the instrument is presented at the usual place of
business or residence of the person to make payment;
(d) In any other case if presented to the person to make
payment wherever he can be found, or if presented at his last
known place of business or residence. (ORDER OF PREFERENCE)
Sec. 74. Instrument must be exhibited. - The instrument must be
exhibited to the person from whom payment is demanded, and
when it is paid, must be delivered up to the party paying it.
NECESSITY OF EXHIBITION OF INSTRUMENT
• Presentment includes not only demand for payment but also the
exhibition of the instrument
• Purpose is to enable the debtor to determine the genuineness of the
instrument and the right of the holder to receive payment and to
enable him to retain possession upon payment
A DEMAND BY TELEPHONE IS INSUFFICIENT
WHEN EXHIBITION EXCUSED
1. When the debtor doesn’t demand to see the instrument but
refuses payment on some other grounds
2. When the instrument is lost or destroyed
CASE DIGESTS: SECTION 74
136 ANSALDO V. CA
177 SCRA 8
FACTS:
TFC issued promissory notes in favor of PCIB. At about the same time,
TFC extended loans to Ansaldo and Reyes. These loans were evidenced by
promissory notes, each waiving demand, presentment, protest, and notice
of protest and non-payment. TFC then paid part of its obligation with
PCIB. To pay for its outstanding balance, it endorsed the notes issued by
Ansaldo and Reyes. Claiming that the notes have matured without
payment by Ansaldo and Reyes, the bank instituted actions against them.

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
HELD:
The contention of Ansaldo that the instrument should have been first
presented to him is bereft of merit.
First, it couldn’t be first raised on appeal.
Second, it is a petty issue for if according to him, such an exhibition was
needed to give him opportunity to determine the genuineness of the
instrument, this was rendered unnecessary not only by his omission to
contest it, but also by his admission of the authenticity of the note implicit
from his averment that he made substantial payments thereon and second,
he made a waiver of demand, presentment, etc.
Sec. 75. Presentment where instrument payable at bank. - Where
the instrument is payable at a bank, presentment for payment must
be made during banking hours, unless the person to make payment
has no funds there to meet it at any time during the day, in which
case presentment at any hour before the bank is closed on that day
is sufficient.
I PROMISE TO PAY B P1000 AT RCBC ROCKWELL.
SGD. A
• This gives rise to the presumption that A has an account with RCBC
Rockwell and the bank would pay on account of A.
NOTES FOR WEEK #11
AUG UST 27 - SEPTEM BER 1, 2007
Sec. 76. Presentment where principal debtor is dead. - Where the
person primarily liable on the instrument is dead and no place of
payment is specified, presentment for payment must be made to
his personal representative, if such there be, and if, with the
exercise of reasonable diligence, he can be found.
Sec. 77. Presentment to persons liable as partners. - Where the
persons primarily liable on the instrument are liable as partners
and no place of payment is specified, presentment for payment
may be made to any one of them, even though there has been a
dissolution of the firm.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 100 of 190
Sec. 78. Presentment to joint debtors. - Where there are several
persons, not partners, primarily liable on the instrument and no
place of payment is specified, presentment must be made to them
all.
SECTIONS 76 TO 78 NOT APPLICABLE WHERE PLACE SPECIFIED
• Applies only where there is no place specified
WHERE PERSON PRIMARILY LIABLE DEAD
• Presentment must be made to the executor or administrator if there is
one and if he can be found
• The holder must use diligence to find the personal representative if
there be one
• The person primarily liable is dead, there is a personal representative,
and no place of payment indicated in the instrument—if there is a
place indicated, then presentment should be done there
WHERE PERSONS PRIMARILY LIABLE ARE PARTNERS THE PRESENMENT
MUST BE MADE TO ANY ONE OF THEM
WHERE PERSONS PRIMARILY LIABLE ARE JOINT DEBTORS, PRESENTMENT
MUST BE MADE TO ALL OF THEM
Sec. 79. When presentment not required to charge the drawer. -
Presentment for payment is not required in order to charge the
drawer where he has no right to expect or require that the drawee
or acceptor will pay the instrument.
Sec. 80. When presentment not required to charge the indorser. -
Presentment is not required in order to charge an indorser where
the instrument was made or accepted for his accommodation and
he has no reason to expect that the instrument will be paid if
presented.
APPLICATION OF SECTION 79 AND 80
• These provisions give exceptions to the general rule that if no
presentment for payment is made, the persons primarily liable are
discharged
WHERE DRAWER NEED NOT BE GIVEN NOTICE
• Where A withdraws his funds from X, drawee bank, so that they are
not sufficient to pay the bill, he has no right to expect or require that
the drawee or acceptor would pay the instrument

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
• Accordingly, where F holder doesn’t make a presentment to X, A
drawer would not be discharged by such failure
PRESENTMENT IS NOT REQUIRED TO CHARGE THE DRAWER IN THE
FOLLOWING CASES
1. In case the check upon which payment has been stopped
2. Where the drawer’s balance is less than the amount of the check.
The mere fact however that the drawer has no funds with drawee
at the time he draws, doesn’t render presentment unnecessary if
he still has reasonable grounds to believe that the instrument will
be paid, particularly when provision has been made for payment
of any bill drawn by the drawer on the drawee
3. Where the drawer of a bill containing the words “Pay from
balance” had no money on deposit with the drawee but expected
to arrange with the broker to cover drafts
WHEN INDORSER NEED NOT BE GIVEN NOTICE
• A makes a note for the accommodation of B, payee.
I promise to pay B P1000.
Sgd. A
BC
CD
DE
EF
• F need not make presentment for payment to A in order to charge B
indorser
• B didn’t give any value to A
• B has no reason to expect that the note will be paid upon presentment
• B is considered to be the ultimately liable party since he is the
accommodated party
• With regard C and D, presentment for payment is still required
Sec. 81. When delay in making presentment is excused. - Delay in
making presentment for payment is excused when the delay is
caused by circumstances beyond the control of the holder and not
imputable to his default, misconduct, or negligence. When the
cause of delay ceases to operate, presentment must be made with
reasonable diligence.
EXCUSES FOR DELAY
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 101 of 190
• Overwhelming calamity, malignant diseases, interruption of trade
negotiations by political circumstances, etc.
Sec. 82. When presentment for payment is excused. - Presentment
for payment is excused:
(a) Where, after the exercise of reasonable diligence,
presentment, as required by this Act, cannot be made;
(b) Where the drawee is a fictitious person;
(c) By waiver of presentment, express or implied.
APPLICATION OF SECTION 82
• What is excused is failure to make presentment for payment and not
mere delay
WAIVER MAY BE EXPRESS OR IMPLIED
IMPLIED WAIVER
• Implied waiver of presentment may be manifested by any language or
conduct or any agreement between the parties reasonably calculated
to lead the holder to believe that presentment is waived or to mislead
or prevent him from treating the bill as he otherwise would
SUMMARY OF RULES AS TO PRESENTMENT FOR PAYMENT
1. Presentment for payment is not necessary to charge persons primarily
liable
2. But it is necessary to charge a person secondarily liable except
a. As to drawer, under Section 79
b. As to indorser, under Section 80
c. When dispensed with under Section 82
d. When the instrument has been dishonored by non-acceptance
Sec. 83. When instrument dishonored by non-payment. - The
instrument is dishonored by non-payment when:
(a) It is duly presented for payment and payment is refused or
cannot be obtained; or
(b) Presentment is excused and the instrument is overdue and
unpaid.
WHEN PAYMENT REFUSED, ETC.

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
• The instrument must be duly presented for payment and payment is
either refused or cannot be obtained
WHEN PRESENTMENT IS EXCUSED
• Presentment for payment is excused
• Instrument is overdue
• It is unpaid
Sec. 84. Liability of person secondarily liable, when instrument
dishonored. - Subject to the provisions of this Act, when the
instrument is dishonored by non-payment, an immediate right of
recourse to all parties secondarily liable thereon accrues to the
holder.
AFTER DISHONOR, INDORSERS, ETC. ARE PRIMARILY LIABLE
• As to holder, after an instrument is dishonored by non-payment , the
persons secondarily liable thereon ceases to be secondarily liable
• They become principal debtors and their liability becomes the same as
that of the principal obligors—provided a notice of dishonor has been
given to them
• If no notice is given, they are discharged
• If they are charged by dishonor and notice, while it is true that they
become principal debtors as to the holder, yet as among themselves,
persons secondarily liable are presumed liable in the order that they
become parties to the instrument
CASE DIGEST: SECTION 84
137 PNB V. SEETO
91 SCRA 757
FACTS:
Seeto called at a branch of bank and presented a check payable to cash or
bearer, and drawn by Kiao against PBC. After consultation with the
employees, Seeto made a general and qualified indorsement of the check.
He was then paid the amount of the check by bank. The check was
consequently dishonored, a letter was sent to Seeto and was asked to
refund the money given to him. A second letter was sent to him and he
averred that case against him be deferred while he inquired about why the
check was dishonored. Thereafter, he refused to pay, alleging that the
account against the check was drawn had sufficient funds when the check
was drawn and if the bank didn’t delay in clearing the check, there would
have been sufficient funds.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 102 of 190
The appellate court reversed the lower court in its decision. It ruled that
the bank was guilty of unreasonably retaining and withholding the check,
and that the delay in the presentment was inexcusable, so that respondent
thereby was discharged from liability.
HELD:
Section 84 is applicable, nonetheless, it should be read in correlation with
Section 186, which says that presentment should be within reasonable
time.
Sec. 85. Time of maturity. - Every negotiable instrument is payable
at the time fixed therein without grace. When the day of maturity
falls upon Sunday or a holiday, the instruments falling due or
becoming payable on Saturday are to be presented for payment on
the next succeeding business day except that instruments payable
on demand may, at the option of the holder, be presented for
payment before twelve o'clock noon on Saturday when that entire
day is not a holiday.
Sec. 86. Time; how computed. - When the instrument is payable at
a fixed period after date, after sight, or after that happening of a
specified event, the time of payment is determined by excluding
the day from which the time is to begin to run, and by including the
date of payment.
Sec. 87. Rule where instrument payable at bank. - Where the
instrument is made payable at a bank, it is equivalent to an order
to the bank to pay the same for the account of the principal debtor
thereon.
EFFECT OF FAILURE TO MAKE PRESENTMENT FOR PAYMENT—BUT
SUPPOSE THAT B OR ANY SUBSEQUENT HOLDER FAILS TO MAKE A
PRESENTMENT FOR PAYMENT AT THE PNB, IS A DRAWER DISCHARGED?
• There is a conflict of authorities
• Agbayani’s view: A is not discharged because he is primarily liable
Sec. 88. What constitutes payment in due course. - Payment is
made in due course when it is made at or after the maturity of the
payment to the holder thereof in good faith and without notice that
his title is defective.
REQUISITES FOR PAYMENT IN DUE COURSE
1. Payment must be made at or after the date of maturity
2. Payment must be to the holder

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
3. Payment must be made by the debtor in good faith and without
notice that his title is defective
• If payment is made before maturity, it would constitute a negotiation
back to the person primarily liable and he can renegotiate it. Payment
doesn’t discharge the instrument.
• Payment to indorsee who is not in possession of the instrument is not
payment to a person other than the holder is at the risk of the party so
paying if the person wasn’t authorized by the holder to receive
payment. So also, the payment to the original payee after the note
had been transferred by him to a holder in due course doesn’t
discharge the note
• Payment to a person by the debtor who knows that such person stole
it, is not payment in due course, as such payment is not in good faith.
The maker of a note or the acceptor of a bill must satisfy himself,
when it is presented for payment, that the holder traces his title
through genuine indorsements, and if there is a forged indorsement, it
is a nullity and no right passes by it
PAYMENT MUST BE MADE TO POSSESSOR OF INSTRUMENT
• The party making payment must insist on the presentment of the
paper by the party demanding payment in order to make sure that it is
at the time in his possession and not outstanding in another
• A receipt taken is no protection
• If at the time he makes payment, it is outstanding and in the hands of
a holder in due course, he must pay it again
• Possession of notes by the maker is presumptive evidence
VII. 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.
MEANING OF NOTICE
• By notice of dishonor is meant bringing either verbally or by writing, to
the knowledge of the drawer or indorser of an instrument, the fact that
a specified negotiable instrument, upon proper proceedings taken, has
not been accepted or hasn’t been paid, and that the party notified is
expected to paid it
NECESSITY AND PURPOSE OF NOTICE
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 103 of 190
• When an instrument is dishonored by NON-ACCEPTANCE or NON-
PAYMENT, notice of such dishonor must be given to persons
secondarily liable, as the case may be. Otherwise, such parties are
discharged
I PROMISE TO PAY F OR ORDER.
SGD. A
*BCDEF
*F makes presentment for payment to A, maker, on the date of maturity.
A refuses to pay.
*If F doesn’t give notice of dishonor to B, C, D and E and prove the same,
they are discharged and F cannot file an action against them.
BURDEN OF PROOF
• It is upon the plaintiff who seeks to enforce the defendant’s liability
upon a negotiable instrument as indorser to establish said liability by
proving that notice was given to the defendant within the time and in
the manner required by the law that the instrument in question had
been dishonored
• Where these facts are not proven, the plaintiff doesn’t sufficiently
establish the defendant’s liability
• Where there is no proof in record tending to show that the plaintiff
gave any notice whatsoever to the defendant that the instrument in
question had been dishonored, said plaintiff hasn’t established its
cause of action
PERSONS PRIMARILY LIABLE NEED NOT BE NOTIFIED
DOES FAILURE TO GIVE NOTICE OF DISHONOR OF A PREVIOUS
INSTALLMENT TO PERSONS SECONDARILY LIABLE ALSO DISCHARGE
THEM ON THE SUCCEEDING INSTALLMNETS?
• It depends on whether the instrument contains an acceleration clause
RULE WHERE THERE IS NO ACCELERATION CLAUSE
• Where the instrument contains no acceleration clause, failure to give
notice of dishonor on previous installment doesn’t discharge drawers
and indorsers as to the succeeding installments, and therefore, the
holder can file an action against them for such succeeding
installments, notice is given
• The reason is that each separate installment is equivalent to another
note

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
RULE WHERE THERE IS AN ACCELERATION CLAUSE
• It depends whether the clause is optional or automatic
• If it is automatic, failure to give notice of dishonor as to a previous
installment will discharge the persons secondarily liable as to the
succeeding installments
• If it is optional and it is not exercised, the rule would be the same as
where there is no acceleration clause
EXCEPTIONS TO REQUIREMENT OF NOTICE
• The law provides for exceptions on failure to give notice would
discharge drawer or indorsers
CASE DIGESTS: SECTION 89
139 ASIA BANKING CORPORATION V. JAVIER
44 PHIL 777
FACTS:
Chaves drew 2 checks on different occasions against PNB in favor La
Insular. These checks were indorsed by the limited partners of La Insular
and subsequently deposited by Chaves in his account with Asia Bank.
These were then presented for payment by Asia Bank but was dishonored
by PNB on reason that there was insufficient funds. This prompted Asia
Bank to file a case against one of the partners of La Insular for payment.
HELD:
When a negotiable instrument is dishonored by non-payment or non-
acceptance, notice thereof must be given to the drawer and each of the
inodrsers, and those who are not notified shall be discharged from liability,
except where this act provides otherwise. According to this, the indorsers
are not liable unless they are notified that the instrument is dishonored.
Then, under the general principle of law on procedure, it will be incumbent
upon plaintiff, who seeks to enforce the defendant’s liability upon these
checks as indorser, to establish said liability by proving that notice was
given within the time and in the manner required by law. if these facts are
not proven, the plaintiff has not sufficiently established the defendant’s
liability. There is no proof in record to show that plaintiff has indeed gave
any notice to defendant that the checks had been dishonored. Therefore
there is no cause of action established.
140 FIRESTONE V. CA
353 SCRA 601
FACTS:
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 104 of 190
Fojas Arca and Firestone Tire entered into a franchising agreement wherein
the former had the privilege to purchase on credit the latter’s products. In
paying for these products, the former could pay through special withdrawal
slips. In turn, Firestone would deposit these slips with Citibank. Citibank
would then honor and pay the slips. Citibank automatically credits the
account of Firestone then merely waited for the same to be honored and
paid by Luzon Development Bank. As this was the circumstances,
Firestone believed in the sufficient funding of the slips until there was a
time that Citibank informed it that one of the slips was dishonored. It
wrote then a demand letter to Fojas Arca for the payment and damages
but the latter refused to pay, prompting Firestone to file an action against
it.
HELD:
The withdrawal slips, at the outset, are non-negotiable. Hence, the rule on
immediate notice of dishonor is non-applicable to the case at hand. Thus,
the bank was under no obligation to give immediate notice that it wouldn't
make payment on the subject withdrawal slips. Citibank should have
known that withdrawal slips are not negotiable instruments. It couldn't
expect then the slips be treated like checks by other entities. Payment or
notice of dishonor from respondent bank couldn't be expected immediately
in contrast to the situation involving checks.
In the case at bar, Citibank relied on the fact that LDB honored and paid
the withdrawal slips which made it automatically credit the account of
Firestone with the amount of the subject withdrawal slips then merely
waited for LDB to honor and pay the same. It bears stressing though that
Citibank couldn't have missed the non-negotiable character of the slips.
The essence of negotiability which characterizes a negotiable paper as a
credit instrument lies in its freedom to be a substitute for money. The
withdrawal slips in question lacked this character.
The withdrawal slips deposited were not checks as Firestone admits and
Citibank generally was not bound to accept the withdrawal slips as a valid
mode of deposit. Nonetheless, Citibank erroneously accepted the same as
such and thus, must bear the risks attendant to the acceptance of the
instruments. Firestone and Citibank could not now shift the risk to LDB for
their committed mistake.
WHAT IF THE SLIPS WERE NEGOTIABLE?
• Citibank would be the holder, LDB the drawee, Fojas Arca the drawer
and Firestone would be indorser
• Applying the rules on notice of dishonor, Citibank as the “holder”
should have sent the notices of dishonor to Fojas Arca and Firestone,

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
being the drawer and indorser respectively. Another, Firestone may
have sent the notice to Fojas Arca.
141 GULLAS V. PNB
62 PHIL 519
FACTS:
The US government issued a warrant payable to the order of Bacos. Gullas
and Lopez appeared as indorsers of the warrant. It was then encashed by
the PNB. Subsequently, the warrant was dishonored by the Insular
Treasurer. Upon learning of the dishonor, notices were sent to Gullas by
the bank but it wasn’t receive by Gullas as he was currently not within the
vicinity. In the said notices served to Gullas and Lopez, it was indicated
therein that since there was dishonor of the warrant, their corresponding
accounts have been charged. It was only after the return of Gullas in Cebu
when he received the notices. This caused prior inconvenience to Gullas.
First, he wasn’t able to pay for his insurance due to the lack of credit in his
bank account and second, the incident was given prominence in Cebu to
the great mortification of Gullas.
HELD:
The general indorser of a negotiable instrument engages that if it be
dishonored and the necessary proceedings of dishonor be duly taken, he
will pay the amount thereof to the holder. In this connection, it has been
held by a long line of authorities that notice of dishonor is necessary in
order to charge an indorser and that the right of action against him doesn’t
accrue until the notice is given.
As a general rule, a bank has a right of setoff of the deposits in its hands
for payment of any indebtedness on the part of a depositor but this should
be enforced properly. It is undeniable in this case that PNB didn’t enforce
its right properly. It made used of the money in the account of Gullas prior
to its sending of 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.
NOTICE MAY BE GIVEN BY
1. The holder
2. Another in behalf of the holder
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 105 of 190
3. Any party to the instrument who may be compelled to pay it to
the holder—against any party whom he has a right of
reimbursement should such party giving notice pay the instrument
4. Another person in behalf of such party
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.
NOTICE OF AGENT
• Notice may be given by the agent and it is not necessary that the
agent be authorized by the principal
• He may give the notice in his name or in the name of his principal
• A collecting bank may give notice, and where it has done so, no notice
from the owner is necessary
• And where the cashier of the drawee bank which had refused to pay a
check gave the check to a notary to protest, which was done, it was
held that the possession of the check by the cashier was evidence of
his agency of the holder to present it for protest
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.
MEANING OF BENEFIT
• Benefit refers to the right to charge the person secondarily liable who
received notice
• The party to whom this benefit inures can charge the party receiving
notice of dishonor, even if himself didn’t give the notice
INURES TO THE BENEFIT OF THE FOLLOWING
1. All parties prior to the holder, who have a right of recourse
against the party to whom the notice is given
2. All holders subsequent to the holder giving notice
I PROMISE TO PAY B OR ORDER P1000.
SGD.A
*BCDEF
*F notifies B, C, D, E
1. The notice of F to B inures to the benefit of C, D and E, as they
are parties prior to F, who have a right of recourse against B

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
2. The notice of F to C inures to the benefit of D and E but not for
the benefit of B
3. The notice of F to D inures to the benefit of E but not to B and C
4. Suppose that after notice given by F, further negotiation was
made to G; GHI. The notice given by F inures to the benefit of
all of them. And they don’t need to give another notice of
dishonor to B, C, D, and E to make them liable.
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.
APPLICATION OF THIS SECTION
• Follows the same principle as the preceding section but this time, the
person giving notice is not the holder but a party to the instrument
who might be compelled to pay it to the holder, and who, upon taking
it up, would have a right of reimbursement from the party to whom
notice is given
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.
WHEN AGENT’S NOTICE MUST BE GIVEN
• When an instrument is dishonored in the hands of an agent, he can do
either of the following
o Directly give notice to the persons secondarily liable thereon
o Give notice to his principal
• If the agent decides to give notice to the principal, he must give notice
within the time allowed by law as if he were a holder
• The principal has also the same time to give notice to the persons
secondarily liable
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.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 106 of 190
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.
FORM AND CONTENTS OF NOTICE
• It may be oral or in writing
• Whether oral or in writing, it must contain
1. SUFFICIENT DESCRIPTION OF THE INSTRUMENT TO IDENTIFY IT,
and
2. A STATEMENT THAT IT HAS BEEN PRESENTED FOR PAYMENT AND
FOR ACCEPTANCE, AND THAT IT HAS BEEN DISHONORED, and
3. A STATEMENT THAT THE PARTY GIVING NOTICE INTENDS TO
LOOK FOR THE PARTY ADDRESSED FOR PAYMENT
EFFECTS OF DEFECTS IN NOTICE
• If the notice is not signed, it will not invalidate it
• If the notice is written and doesn’t contain #2 and #3, it can be
supplemented by oral communication stating the things lacking
• If there is misdescription, it would only vitiate the notice if the person
is misled thereby
NOTICE BY PHONE
• This could be done however it must be shown that the party to be
notified was really communicated with, that is, fully identified as to the
party at the receiving end of the line
MANNER OF GIVING NOTICE
• May be given by personal delivery or by mail
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.
NOTICE MAY BE GIVEN
1. To the party himself
2. To his agent in his behalf
• An accommodation indorser is entitled to notice
• An irregular indorser must also be given notice if he is to be charged
• And if notice is given to an agent, he must be duly authorized to
receive the notice of dishonor
AGENT DISTINGUISHED FROM PERSON PRESENT IN ABSENCE OF PARTY

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
• Notice to agent must be distinguished from notice attempted to be
given to party himself where he is absent at his place of business or
residence. In such a case, the notice may be left with anyone found in
charge therein
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.
REQUISITES FOR NOTICE TO REPRESENTATIVE
1. Death is known to the party giving notice
2. There is a personal representative
3. If with reasonable diligence he could be found
WHEN NOTICE MAY BE SENT TO THE LAST RESIDENCE OR PLACE OF
BUSINESS
1. If his death is not known to the party giving notice
2. Or although his death is known to the party giving notice but
there is no personal representative
3. If there be one but he cannot be found with reasonable diligence
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. 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.
PROVISION WOULD APPLY ONLY TO JOINT DRAWERS
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.
APPLICATION OF SECTION
1. Where the party secondarily liable has been declared a bankrupt
or an insolvent
2. Where he has made an assignment of his properties for the
benefits of creditors
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 107 of 190
• In such cases, notice be given to the party himself or his trustee or
assignee
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.
MAY NOTICE OF DISHONOR BE GIVEN BEFORE THE DATE OF MATURITY
• No, such notice would be insufficient because an instrument cannot be
said to be dishonored for non-payment unless presented and
presentment must be made on the date of maturity unless of course,
presentment is excused
• But even in such cases, the instrument cannot be said to be
dishonored by non-payment unless it is overdue and unpaid
• Notice of dishonor can be given only after the instrument has been
actually dishonored, and notice given before the paper due is
premature and insufficient, regardless of the indorser’s knowledge that
the maker was in default
MAY NOTICE OF DISHONOR BE GIVEN ON THE DATE OF MATURITY?
• Yes, provided that the instrument has been presented for payment and
is has been dishonored
• But if the instrument is payable at a bank, it is not dishonored if the
maker deposits the amount of the instrument before the close of
banking hours. Hence, notice of dishonor must be given after the
close of banking hours on the date of maturity
PURPOSE OF PROMPT NOTICE
• To give the persons secondarily liable every opportunity to secure
themselves such as to enable the party to be charged to preserve and
protect his rights against prior parties
CASE DIGESTS: SECTION 102
142 FAR EAST REALTY INVESTMENT V. CA
166 SCRA 256
FACTS:
Private respondents approached petitioner and asked the latter to extend
to them an accommodation loan. They proposed to pay with interest.
They even gave a check, signed by Tat, drawn against Chinabank, and
signed at the back by the private respondents. They said that they will
change the check with cash after one month and if not, the check could be

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
FACTS:
On several occasions, King discounted with Fernando several checks
amounting to P1,070,000 for the amount of P1,000,000. Upon
presentment for encashment however, these checks were dishonored for
being drawn on insufficient funds. Despite demands, King wasn’t able to
make good the checks. This prompted Fernando to file a case against King
for violation of BP22.
HELD:
The elements of the crime are as follows:
1. The accused makes, draws, issues any check to apply for account
or for value
2. The check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit, or it would have been dishonored
for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment
3. The accused knows at the time of the issuance that he doesn’t
have sufficient funds or credit with the drawee bank for the
payment of the check in full upon presentment
Among the elements, to show that there is prima facie presumption of
knowledge of insufficiency of funds, it should be shown that he received a
notice of dishonor and within 5 banking days thereafter, failed to satisfy
the amount of the check or make arrangement for its payment.
To prove the knowledge of King, it was shown that a letter was sent by
Fernando. Nonetheless, it wasn’t proven that indeed King received the
demand letter. The letter was even shown to have been returned to
sender.
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.
(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.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 109 of 190
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. (TO REACH HIM IN USUAL COURSE
THE DAY FOLLOWING)
TIME FOR GIVING NOTICE IN GENERAL
• The law provides for a different period for giving notice of dishonor
depending on whether—the party giving notice and the party to
receive notice reside in the same place; or the party giving notice and
the party to receive reside in different places
MEANING OF “THE SAME PLACE”
• Refers to the corporate limits of a town or city where the presentment
is made or where the holder resides
EFFECT OF NOTICE GIVEN OUT OF TIME
• Unless excused, notice given out of time would be considered not to
have been given
• Hence, the party to receive notice would be discharged
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.
APPLICATION OF SECTION 105
• A party giving notice is deemed to have given due notice where the
notice of dishonor is duly addressed and deposited in the post office,
even when there is miscarriage of mail
CONCLUSIVE PRESUMPTION

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Sec. 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.
DEPOSIT IN LETTER BOX
• The letter box must be under the control of the post office department
• Otherwise, notice wouldn’t deemed to have been deposited in the post
office
• Thus, a notice of protest properly addressed and left in a place in a
notary’s office where mail was usually collected by his postman was
held not a mailing of the notice as required by the statute
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.
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.
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.
WHEN WAIVER MAY BE MADE
1. Before the time of giving notice, such as express waiver in the
body of the instrument or added to the signature of the party
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 110 of 190
2. After omission to give due notice
IMPLIED WAIVER
• Waiver may be implied from acts, declarations, or silence
Sec. 110. Whom affected by waiver. - Where the waiver is
embodied in the instrument itself, it is binding upon all parties; but,
where it is written above the signature of an indorser, it binds him
only.
WHOM AFFECTED BY WAIVER IN GENERAL
• The persons affected by waiver depends upon whether the waiver is in
the instrument itself or is written above the signature of the indorser
• If the waiver is embodied in the instrument itself, it is binding upon all
parties
• If the waiver is written above the signature of an indorser, it binds him
only
Sec. 111. Waiver of protest. - A waiver of protest, whether in the
case of a foreign bill of exchange or other negotiable instrument, is
deemed to be a waiver not only of a formal protest but also of
presentment and notice of dishonor.
WHERE PROTEST IS WAIVED, THE FOLLOWING ARE INCLUDED AND ARE
DEEMED WAIVED ALSO
1. Presentment
2. Notice of dishonor
• Where presentment for payment is waived, notice of dishonor is also
waived
• But where notice of dishonor is waived, presentment for payment is
not waived
Sec. 112. When notice is dispensed with. - 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.
WHEN NOTICE EXCUSED
• When political disturbances interrupt and obstruct the ordinary
negotiations of trade, they constitute a sufficient excuse for want of
presentment or notice, upon the same principle that controls in cases
of military operations or interdictions of commerce
• Prevalence of a malignant, contagious, infectious disease…

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Sec. 113. Delay in giving notice; how excused. - Delay in giving
notice of dishonor is excused when the delay is caused by
circumstances beyond the control of the holder and not imputable
to his default, misconduct, or negligence. When the cause of delay
ceases to operate, notice must be given with reasonable diligence.
Sec. 114. When notice need not be given to drawer. - Notice of
dishonor is not required to be given to the drawer in either of the
following cases:
(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;
(c) When the drawer is the person to whom the instrument is
presented for payment;
(d) Where the drawer has no right to expect or require that the
drawee or acceptor will honor the instrument;
(e) Where the drawer has countermanded payment.
CASE DIGESTS: SECTION 114
145 STATE INVESTMENT HOUSE V. CA
217 SCRA 32
FACTS:
Moulic issued checks as security to Victoriano, for pieces of jewelry to be
sold on commission. Moulic failed to sell the pieces of jewelry, so she
returned them to Victoriano. The checks however could not be recovered
by Moulic as these have been discounted already in favor of petitioner.
Consequently, before the maturity dates, Moulic withdrew her funds from
her account. Thereafter, petitioner presented the checks for payment but
these were dishonored. This prompted the petitioner to initiate an action
against Moulic.
HELD:
A prima facie presumption exists that a holder of a negotiable instrument is
a holder in due course. The burden of proving that State is not a holder in
due course is upon Moulic. In this regard, she failed to do so.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 111 of 190
The evidence shows that the dated checks were complete and regular;
petitioner bought the checks from Victoriano before their due dates; it took
the checks in good faith and for value; and it was never informed nor made
aware that these checks were merely issued to payee as security.
Consequently, State is a holder in due course. Moulic cannot set up the
defense that there was failure or want of consideration. It can only invoke
the defense if State was a privy to the purpose for which they were issued
and therefore is not a holder in due course.
Furthermore, the mere fact that the checks were issued as security is not
sufficient ground to discharge the instrument as against a holder in due
course.
And also, Moulic was responsible for the dishonor of her checks. She
withdrew her funds from her account and could not have expected her
checks to be honored by then.
146 GREAT ASIAN SALES V. CA
381 SCRA 488
FACTS:
Great Asian Sales was a business engaged in the selling and buying of
merchandise. In 2 of its board resolutions, it first authorized Arsenio, its
treasurer, to secure a loan from Bancasia as well as to sign any pertinent
documents related to such. Second, it authorized Arsenio to obtain from
Bancasia a discounting line. Pursuant to these, deeds of assignments were
issued by Great Asian in favor of Bancasia for receivables—specifically
checks. Almost all the checks assigned by Great Asian were dishonored.
Notice of dishonor was sent by the bank and its lawyer to Tan Chong Lin.
Later, Great Asian filed for insolvency and in its petition, Bancasia was one
of those listed as its creditors. In the meanwhile, a complaint was filed
against Great Asian and Tan Chong Lin because of the surety agreement it
signed in favor of Bancasia.
HELD:
First, under the 2 board resolutions, indeed Arsenio was authorized to
obtain a loan and sign any document related to the securing of the loan.
The question is whether the deeds of assignment signed by Arsenio was
within the ambits of his authority.
The deeds of assignment enabled Great Asian to generate instant cash,
with checks which were not due and demandable then.

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
In the financing industry, a discounting line means a credit facility with a
financing bank or company, which allows a business entity to sell, on a
continuing basis, its accounts receivable at a discount. The term discount
means the sale of a receivable at less than its face value. The purpose of
discounting line is to enable a business entity to generate instate cash out
of its receivables which are still to mature at future debts. The financing
company or bank which buys the receivables makes its profits out of the
difference between the face value of the receivable and the discounted
price.
Clearly, the discounting arrangements entered into by Arsenio were the
same arrangements authorized under the board resolutions.
Second, on the issue of breach of contract, Bancasia alleged that Great
Asian committed a breach. In the deeds of assignment, it was stipulated
that there is a vital suspensive condition—in case the drawers fail to pay
the checks on maturity, Great Asian obligated itself to pay Bancasia the full
face value of the dishonored checks, including penalties and other costs.
Failure to pay would give rise to the obligation to pay Bancasia.
Great Asian and Bancasia agreed on this specific with recourse stipulation,
despite that the receivables were negotiable instruments. The contracting
parties are allowed such stipulation in addition to the warranties of an
indorser under the NIL. The explicit with recourse stipulation against Great
Asian enlarges the liability of Great Asian beyond that of a mere indorser of
a negotiable instrument. Thus, whether or not Bancasia gives notice of
dishonor to Great Asian, the latter remains liable because of the with
recourse stipulation.
The recourse of Bancasia to file an action for breach of contract doesn’t
leave Great Asian with an empty bag. It is then subrogated back as
creditor of the receivables. Great Asian can now proceed against the
drawers who issued the checks. Even if there was no timely notice of
dishonor, Great Asian is not prejudiced. A notice of dishonor is not
required if the drawer has no right to expect or require the bank to honor
the check, or if the drawer has countermanded payment.
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:
(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;
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 112 of 190
(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.
WHEN NOTICE RELATIVELY EXCUSED
1. Where he has knowledge of the dishonor by means other than
through a formal notice, as when he is both the drawee and
drawer or when presentment is made to him
2. Where he has no reason to expect that the instrument will be
honored, as when he has countermanded payment or where the
drawee is fictitious or without capacity to contract
NO RIGHT TO EXPECT OR REQUIRE PAYMENT AS TO DRAWER
1. Where the drawer of the check has no account with the drawee
bank
2. When the drawer of a check payable abroad has no funds with the
drawee bank to meet it
3. When the knowledge that previous drafts on the same consignee
had been dishonored.
• In the foregoing, the drawer has no right to receive notice of dishonor
DRAWER HAS COUNTERMANDED PAYMENT
• A drawer tells drawee B not to pay the bill. F holder need not give
notice to A drawer. An allegation that payment of a check had been
countermanded is sufficiently set out where the check was set forth
with the indorsement across the face “Payment stopped”
DRAWEE FICTITIOUS, ETC. MUST BE MADE KNOWN AS TO INDORSERS
• The indorser must be aware of the fact that the drawee is fictitious or
not having capacity to contract. Otherwise, notice of dishonor must be
given to such indorser to charge him. But the fact that that the
indorser knew the maker to be insolvent or that the instrument was
dishonored doesn’t dispense with the necessity of notice
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.
ILLUSTRATION
• Note is payable on December 31, 1950

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
• F the holder presents it for acceptance to X drawee on December 1,
1950
• X refuses to accept the bill
• F then gives notice of dishonor to drawer A and to the indorsers B, C,
D and E
• Under section 151, there is no necessity for presentment for payment
and under this section, need not give a notice of dishonor by non-
payment
• But suppose X drawee accepts the bill on December 15. F must then
present the bill for payment to X on December 31. If X refuses to pay,
F must give notice of dishonor to A, B, C, D, and E in order to charge
them, as in the meantime the instrument has been accepted.
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 B OR ORDER P1000.
SGD. A
TO: X
*BCDEFG (holder in due course)
*F, when the instrument was still in his hands, presented the bill for
acceptance to X and the latter refuses to accept the bill. F fails to give
notice to B, C, D, and E.
*B, C, D, E are not discharged with regard to G because omission to give
notice of dishonor by non-acceptance doesn’t prejudice the rights of a
holder in due due course subsequent to the omission.
SUMMARY AS TO NOTICE OF DISHONOR
1. Like presentment for payment, notice of dishonor need not be
given to persons primarily liable in order to charge them
2. But aside from presentment for payment to persons primarily
liable, notice of dishonor to persons secondarily liable is necessary
to charge the latter except—
a. When notice is waived
b. When dispensed with under Section 112
c. As to drawer, under Section 114
d. As to indorser, under Section 115
e. Where due notice of dishonor by non-acceptance has
been given
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 113 of 190
f. As to a holder in due course without notice
Sec. 118. When protest need not be made; when must be made. -
Where any negotiable instrument has been dishonored, it may be
protested for non-acceptance or non-payment, as the case may be;
but protest is not required except in the case of foreign bills of
exchange.
WHEN PROTEST NECESSARY
• Protest is necessary with regard foreign bills of exchange
• Mere fact of protest is not conclusive upon the dishonor of the
instrument and due notice to the indorser; other evidence is
competent on these questions
• While protest is not required in cases of promissory notes and inland
bills, it is usual to protest these instruments also when dishonored
since the notary’s certificate of protest is the most convenient and
certain mode of proving the facts
NOTES FOR WEEK #11
SEPTEMBER 3 - 7, 2007
VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS
Sec. 119. Instrument; how discharged. - A negotiable instrument is
discharged:
(a) By payment in due course by or on behalf of the principal
debtor;
(b) By payment in due course by the party accommodated,
where the instrument is made or accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for
the payment of money;
(e) When the principal debtor becomes the holder of the
instrument at or after maturity in his own right.
PAYMENT BY PRINCIPAL DEBTOR

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
• In order to discharge the instrument, the payment must be a payment
in due course, and second, a payment made by the principal debtor
• If payment is made before the date of maturity, the instrument is not
discharged as the payment is not in due course
• Where payment is made by a party who is not a primary obligor or an
accommodation party, his payment only conceals his own liability and
those who are obligated after him. All prior parties primarily or
secondarily liable on the bill, are liable to such a payer, and the payer
may cancel indorsements subsequent to his own and reissue the
paper, and it will be valid as against the prior parties
PAYMENT BY THIRD PERSONS
• If payment is made by a third person, the instrument is not discharged
because payment is not made by the person principally liable
• Not any one who desires may pay the instrument and then recover of
the maker. He must be a person who has in some way made himself
liable for the payment of the instrument.
• Exception: where an instrument has been protested and someone
voluntarily makes payment supra protest or for honor. And if the
instrument was to give money in payment, the instrument is
discharged.
SUMMARY OF DISCHARGE BY PAYMENT
1. Payment by a person ultimately liable, whatever his position in the
paper, is a discharge of the instrument
2. Payment by an accommodation party isn’t a discharge of the
instrument, whatever his position thereon and whether the
indorsement be regular or anomalous
3. Payment by the drawer or indorser is not a discharge of the instrument
PRINCIPAL DEBTOR
• Person ultimately bound to pay the debt
PAYMENT BY CHECK OR OTHER NEGOTIABLE PAPER
1. When they actually have been cashed or
2. When, through the fault of the creditor, they have been impaired
• A creditor isn’t bound to accept a check in satisfaction of his demand
because a check, even if good when offered, doesn’t meet the
requirements of legal tender
WAIVER OF OBJECTION TO TENDER OF PAYMENT BY CHECK
• It is the general rule that an object to a tender must, to be available to
the creditor, be made in good time and that the grounds for objection
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 114 of 190
must be specified; and that an objection to tender on one ground is a
waiver of all other objections which could have been made at that time
• It is ordinarily required of one to whom payment is offered in the form
of a check, that he makes his objection at the time of the offer of by
check instead of an offer of payment in money
• Reason for the rule—to afford the debtor the opportunity to secure the
specific money which the law prescribes shall be accepted in payment
of debts
PAYMENT BY ACCOMMODATED PARTY
• The one ultimately liable on the accommodation instrument is the
latter
• Hence, his payment in due course discharges the instrument as if
payment was made by the principal debtor under paragraph (a)
INTENTIONAL CANCELLATION
• The cancellation must be intentional and made by the holder
• There must be an intention to cancel a negotiable instrument by the
holder thereof as such intention is an essential element of discharge
on a negotiable instrument and a negotiable note in a torn condition is
presumed cancelled by the holder thereof
WILL AN EXTENSION OF TIME GRANTED BY THE HOLDER TO THE DEBTOR
DISCHARGE THE INSTRUMENT?
• No, according to the majority view
• Because while it isn’t omitted in Section 120, it is omitted in Section
119
• Shows the legislative intent to that an extension of time by the holder
will not discharge the instrument
PRINCIPAL DEBTOR ACQUIRES INSTRUMENT
• Reacquisition must be by the principal debtor and in his own right at or
after the date of maturity
• In his own right—not in a representative capacity
WHEN INSTRUMENT REACQUIRED BEFORE MATURITY
• A reacquisition by the principal debtor in his own right but before
maturity will not discharge the instrument
• It will merely be a negotiation back to the principal debtor
DISCHARGE BY OPERATION OF LAW
CASE DIGESTS: SECTION 119

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
147 STATE INVESTMENT HOUSE V. CA
217 SCRA 32
FACTS:
Moulic issued checks as security to Victoriano, for pieces of jewelry to be
sold on commission. Moulic failed to sell the pieces of jewelry, so she
returned them to Victoriano. The checks however could not be recovered
by Moulic as these have been discounted already in favor of petitioner.
Consequently, before the maturity dates, Moulic withdrew her funds from
her account. Thereafter, petitioner presented the checks for payment but
these were dishonored. This prompted the petitioner to initiate an action
against Moulic.
HELD:
A prima facie presumption exists that a holder of a negotiable instrument is
a holder in due course. The burden of proving that State is not a holder in
due course is upon Moulic. In this regard, she failed to do so.
The evidence shows that the dated checks were complete and regular;
petitioner bought the checks from Victoriano before their due dates; it took
the checks in good faith and for value; and it was never informed nor made
aware that these checks were merely issued to payee as security.
Consequently, State is a holder in due course. Moulic cannot set up the
defense that there was failure or want of consideration. It can only invoke
the defense if State was a privy to the purpose for which they were issued
and therefore is not a holder in due course.
Furthermore, the mere fact that the checks were issued as security is not
sufficient ground to discharge the instrument as against a holder in due
course.
And also, Moulic was responsible for the dishonor of her checks. She
withdrew her funds from her account and could not have expected her
checks to be honored by then.
148 CEBU INTERNATIONAL V. CA
316 SCRA 488
FACTS:
Petitioner is a quasi-banking institution involved in money market
transactions. Alegre invested with petitioner P500,000. Petitioner issued
then a promissory note, which would mature approximately after a month.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 115 of 190
The note covered for Alegre’s placement plus interest. On the maturity of
the note, petitioner issued a check payable to Alegre, covering the whole
amount due. It was drawn from petitioner’s current account in BPI. When
the wife of Alegre tried to deposit the check, the bank dishonored the
check. Petitioner was notified of this matter and Alegre demanded the
immediate payment in cash. In turn, petitioner promised to replace the
check on the impossible premise that the first issued be returned to them.
This prompted Alegre to file a complaint against petitioner and petitioner in
turn, filed a case against BPI for allegedly unlawfully deducting from its
account counterfeit checks. The trial court decided in favor of Alegre.
ISSUE: W/N NIL is applicable to the money market transaction held
between petitioner and Alegre?
HELD:
Considering the nature of the money market transaction, Article 1249 of
the CC is the applicable provision should be applied. A money market has
been defined to be a market dealing in standardized short-term credit
instruments where lenders and borrowers don’t deal directly with each
other but through a middleman or dealer in the open market. In a money
market transaction, the investor is the lender who loans his money to a
borrower through a middleman or dealer.
In the case at bar, the transaction is in the nature of a loan. Petitioner
accepted the check but when he tried to encash it, it was dishonored. The
holder has an immediate recourse against the drawer, and consequently
could immediately file an action for the recovery of the value of the check.
Further, in a loan transaction, the obligation to pay a sum certain in money
may be paid in money, which is the legal tender or, by the use of a check.
A check is not legal tender, and therefore cannot constitute valid tender of
payment.
Sec. 120. When persons secondarily liable on the instrument are
discharged. - A person secondarily liable on the instrument is
discharged:
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the
holder;
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party;

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
(e) By a release of the principal debtor unless the holder's right
of recourse against the party secondarily liable is expressly
reserved;
(f) By any agreement binding upon the holder to extend the
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.
EFFECT OF SECTION 120 IS A SURETYSHIP
• Generally the courts regard this provision as exclusive, as a complete
codification of the law of discharge of secondary parties by the six
methods therein set forth
ACTS DISCHARGE INSTRUMENT
• Any of the acts that will discharge an instrument under Section 119
will discharge a party secondarily liable thereon, such as payment in
due course by the maker. This will discharge the indorsers in the note.
INTENTIONAL CANCELLATION
• A, maker B, payee
• BCDEF
• F then successively cancels the signature of D. D is discharged.
• No consideration is necessary to support a discharge by intentional
cancellation of an indorser’s signature by the holder.
DISCHARGE OF PRIOR PARTY
• The intentional cancellation of D’s signature also discharges E, as D is
a prior party to E
• And according to this paragraph, the discharge of a prior party
discharges parties subsequent thereto.
DISCHARGE BY OPERATION OF LAW IS NOT INCLUDED
1. Discharge by reason of bankruptcy
2. Discharge of a party not given due notice of dishonor
3. Discharge by the statute of limitations
VALID TENDER OF PAYMENT
• If D an indorser validly tenders payment and F unjustifiably
refuses to do accept, D is discharged
• Tender of payment: act by which one produces and offers to a
person holding a claim or demand against him the amount of
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 116 of 190
money which he considers and admits to be due, in satisfaction of
such claim or demand without any stipulation or condition
RELEASE OF PRINCIPAL DEBTOR
• If the holder F discharges A maker, the parties secondarily liable, B, C,
D, E are also discharged, as this discharges the instrument and two, it
deprives them of their right of recourse against A maker.
• But if on releasing A, F reserves his right of recourse against the
indorsers, then they are not discharged. The effect of such reservation
is the implied reservation of their right of recourse against A. In other
words, while the holder cannot hold A liable, he can hold B, C, D, and
E liable, but they in turn can hold A liable should any of them be made
to pay F. This reservation of the right of recourse cannot be implied
from acts and conduct but must be express.
RELEASE MUST BE ACT OF HOLDER
RELEASE MUST BE FOR VALUE
EFFECT OF RELEASE ON ACCOMMODATION MAKER OR ACCEPTOR
• General rule is that he is not discharged by the holder’s release of the
principal debtor even if the release be made with knowledge or true
relation of the parties and, conversely, the release of the
accommodation maker or acceptor doesn’t discharge the principal
debtor through the latter occupies the position of a party secondarily
liable on the instrument
EXTENSION OF TIME
• If the holder agrees to extend the time of payment, the indorsers are
discharged
• However, where the extension of time is consented to by the party
secondarily liable, he is not discharged. Also, where the holder
expressly reserves his right of recourse against the party secondarily
liable, the latter is not discharged.
REQUISITES OF AGREEMENT FOR EXTENSION OF TIME
1. It must be a binding contract, supported by valuable consideration
and for a definite period
2. It must be made with the principal debtor and not with a third
party
Sec. 121. Right of party who discharges instrument. - Where the
instrument is paid by a party secondarily liable thereon, it is not
discharged; but the party so paying it is remitted to his former

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
rights as regard all prior parties, and he may strike out his own and
all subsequent indorsements and against negotiate the instrument,
except:
(a) Where it is payable to the order of a third person and has
been paid by the drawer; and
(b) Where it was made or accepted for accommodation and has
been paid by the party accommodated.
ILLUSTRATION OF SECTION 121
• A is the drawer of the bill addressed to X, drawee, payable to the order
of B.
• BCDEF
• Suppose D pays the bill. What are the effects?
o The first effect: instrument is not discharged but it discharges
D.
o Second effect: D is remitted to his former rights against
parties prior to him, such as A, B and C. If D was formerly a
holder in due course, even if at the time of payment he had
already notice of defects of title, he can enforce his rights
against any of them free from defenses, as he is remitted to
his former rights. But it is a well-known rule of law that if the
original payee of a note unenforceable for lack of
consideration repurchases the instrument after transferring it
to a holder in due course, the paper again becomes subject in
the payee’s hands to the same defenses to which it would
have been subject if the paper had never passed through the
hands of a holder in due course.
o Third effect: D can strike out his indorsement and the
subsequent indorsements of E and F
o Fourth effect: D can renegotiate the instrument
EXCEPTIONS TO RIGHT TO RENEGOTIATE
1. If instead of D, it is A drawer who pays and as the bill is payable
to the order of a third person, B, A can no longer negotiate the
instrument
2. Or if B payee is an accommodated party, and B pays, he cannot
negotiate the bill, as B is the ultimate party to pay it, and he
doesn’t have a right of recourse against either X drawee or A
drawer
Sec. 122. Renunciation by holder. - The holder may expressly
renounce his rights against any party to the instrument before, at,
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 117 of 190
or after its maturity. An absolute and unconditional renunciation of
his rights against the principal debtor made at or after the maturity
of the instrument discharges the instrument. But a renunciation
does not affect the rights of a holder in due course without notice.
A renunciation must be in writing unless the instrument is
delivered up to the person primarily liable thereon.
APPLICATION OF SECTION 122
1. Applies only to renunciation by the unilateral act of the holder without
consideration and in cases where the instrument is not delivered up to
the person intended to be released
2. Renunciation—act of surrendering a right or claim without recompense
but it can be applied with equal propriety to the relinquishing of a
demand upon an agreement supported by a consideration
FORM OF RENUNCIATION
 It must be in writing and must be express
TIME FOR MAKING RENUNCIATION
1. Before maturity
2. At maturity
3. After maturity
WHEN RENUNCIATION DISCHARGES INSTRUMENT
1. Renunciation discharges the instrument when it is absolute and
unconditional
2. It is made in favor of the person primarily liable
3. It is made at or after maturity
Sec. 123. Cancellation; unintentional; burden of proof. - A
cancellation made unintentionally or under a mistake or without
the authority of the holder, is inoperative but where an instrument
or any signature thereon appears to have been cancelled, the
burden of proof lies on the party who alleges that the cancellation
was made unintentionally or under a mistake or without authority.
MEANING OF CANCELLATION
 Signifies not only the drawing of criss-cross lines but also tearing,
obliterations, erasures or burning
 It may be made by any other means by which the intention to cancel
the instrument may be evident
WHEN CANCELLATION IS INOPERATIVE
1. When made unintentionally
 NEGOTIABLE INSTRUMENTS NOTES
BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Page 118 of 190

2. When made under mistake  A draft drawn by the seller on the purchaser of goods sold and
3. When made without the authority of the holder accepted by such purchaser
 States upon its face that the obligation of the acceptor arises out of
BURDEN OF PROOF IS UPON THE PERSON WHO CLAIMS THAT THE purchase of goods from the drawer
CANCELLATION IS INOPERATIVE  Arises from credit obligations arising from the sale of goods and must
have a definite maturity
Sec. 126. Bill of exchange, defined.
A bill of exchange is an unconditional order in writing addressed by HOW TRADE ACCEPTANCE HANDLED
one person to another, signed by the person giving it, requiring the  The seller sends with the goods or the invoice a filled-in trade
person to whom it is addressed to pay on demand or at a fixed or acceptance form, often in duplicate to enable the buyer to retain a
determinable future time a sum certain in money to order or to copy for his files
bearer.  The buyer accepts the bill by signing his name across its face, with
date, designating the bank where it is payable
TYPES OF BILLS OF EXCHANGE  It is returned to the seller who may hold it at maturity or may discount
1. Draft it at the bank
2. Trade acceptance  At maturity, it is collected exactly as if it were a check
3. Banker’s acceptance  Usually, the buyer of goods is given a cash discount and other options
4. Treasury warrants beside the acceptance privilege
5. Money orders
6. Clean bills of exchange BANKER’S ACCEPTANCE
7. Documentary bill of exchange  Draft of which the acceptor is a bank or banker engaged generally in
8. D/A bills of exchange the business of granting banker’s acceptance credit
9. D/P bills of exchange  Similar to a trade acceptance
10. Time or usance bills  Drawn against the bank instead of the buyer
11. Bills in set
12. Inland bills ILLUSTRATIONS OF THE USE OF BANKER’S ACCEPTANCE
13. Foreign bills 1. B importer makes an application with PNB for the issuance to A
exporter of a letter of credit, if the PNB is satisfactory to A
DRAFT exporter. B the originator of the letter of credit is variously called
 Common term for all bills of exchange and they are used the accredited buyer, consignee, or the account of the importer.
synonymously The PNB is called the opening bank while A is termed the
beneficiary.
IN BANK DRAFTS, DRAWER AND DRAWEE BANK ARE LIABLE TO 2. If PNB is willing, it issues the letter either by mail or by cable. If
PURCHASER OF DRAFT FOR NOT COMPLYING WITH HIS INSTRUCTIONS by cable, PNB instructs its correspondent bank in NYC to notify A.
 The drawee bank acting as “payor” bank is solely liable for acts not Such respondent bank is called the notifying bank. If by mail,
done in accordance with the instructions of the drawer bank or of the PNB can send directly to A or B.
purchaser of the draft 3. A then draws a draft or bill of exchange against the PNB pursuant
 The drawee bank has the burden of proving that it didn’t violate to the letter of credit. When A ships the goods to B, A receives
the bill of lading from the shipping company. He attaches this
TRADE ACCEPTANCE document to the draft or bill of exchange. The draft with the
 A bill of exchange payable to order and at a certain maturity, drawn by document attached is called the documentary bill and so long as
a seller against the purchaser of goods as drawee, for a fixed sum of the document is attached to the bill, the holder of the bill has title
money, showing on its face the acceptance of the purchaser of goods to the goods and is protected to the value thereof.
and that it has arisen out of a purchase of goods by the acceptor

BY: MA. ANGELA LEONOR C. AGUINALDO

ATENEO LAW 2D BATCH 2010

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
TRUST RECEIPT
 The written or printed document signed by the entrustee in favor of
the entruster containing terms and conditions substantially complying
with the provisions of this decree
 The legal title to the matter entrusted remains in the entruster but the
entruster gives to the trustee a form of title which is good and legal
against everybody except the entruster
 Entrustee—the person having or taking possession of goods,
documents or instruments under a trust receipt transaction, and any
successor in interest of such person for the purpose or purposes
specified in the trust receipt agreement
 Entruster—person holding title over the goods, documents, or
instruments subject of a TRA and any successor-in-interest of such
person
TREASURY WARRANTS
 Bearing on its face the words payable from the appropriation for food
administration is actually an order for payment out of a particular fund
and is not unconditional and doesn’t fulfill one of the essential
requirements of a negotiable instrument
MONEY ORDER
 Species of draft drawn by the post office upon another for the amount
of money deposited at the first office by the person purchasing the
money order and payable at the second office to a payee named in the
order
 Being under the restrictions and limitation which postal laws and
regulations place on them and which are inconsistent with the
character of negotiable instruments, postal money orders are not
negotiable
CLEAN AND DOCUMENTARY BILLS OF EXCHANGE
 Clean bill of exchange is one to which are not attached documents of
title to be delivered to the person against whom the bill is drawn when
he either accepts or pays the bill
 Documentary bill of exchange is one to which are attached documents
of title to be delivered and surrendered to the drawee when he accepts
or pays the bill
D/A AND D/P BILLS OF EXCHANGE
 Documents against payment bill: is a sight or time bill to which are
attached documents to be delivered and surrendered to the drawee
when he has paid the corresponding bill
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 119 of 190
 Documents against acceptance bill: is a time bill to which are attached
documents to be delivered and surrendered to the drawee when he
accepts the bill
TIME OR USUANCE BILLS
 Sight bills are bills which are payable upon presentation or at sight or
demand
 Time or usuance bills are bills which are payable at a fixed furture time
or at a determinable future time
CASE DIGESTS: SECTION 126
149 CITYTRUST BANKING CORPORATION V. CA
196 SCRA 553
FACTS:
Samara purchased from Cititrust a bank draft, the payee being Thai
Airways and the corresponding bank in the US is Marine Midland. Later on,
Samara executed a stop payment order of the bank draft, instructing
Citytrust to inform Marine Midland about the order through telex. Cititrust
informed Marine Midland the next day and followed it up by cable, which
the latter bank acknowledged to have received the order and stopped
payment of the bank draft. Thereafter, the account of Samara was
credited but was debited again after knowing that Midland had debited its
account. This is despite that it admitted to not have paid the bank draft.
On the first appeal on a different issue, it was held that petitioner and
Midland were solidarily liable to Samara but it was Midland which was
ultimately liable to pay for damages—it had to reimburse petitioner for
whatever amount it would pay Samara.
HELD:
The defenses of petitioner and Marine Midland are distinct with each other.
They were not in privity with each other in a transaction involving payment
of a bank draft. A bank draft is a bill of exchange drawn by a bank upon
its corresponding bank issued at the solicitation of a stranger who
purchases and pays therefor. It is also defined as an order for payment of
money.
In the case at bar, petitioner from which Samara purchased the bank draft,
was the drawer of the draft through which it ordered Marine Midland, the
drawee bank to pay the amount of $40,000 in favor of Thai Airways. The
drawee bank acting as a payor bank is solely liable for acts not done in
accordance with the instructions of the drawer bank or of the purchaser of

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
accordance with the terms and conditions specified in the trusts receipt, or
for other purposes substantially equivalent to any one of the following"
It is alleged in the complaint that private respondents "not only have
presumably put said machinery to good use and have profited by its
operation and/or disposition but very recent information that (sic) reached
plaintiff bank that defendants already sold the machinery covered by the
trust receipt to Yupangco Cotton Mills," and that "as trustees of the
property covered by the trust receipt, . . . and therefore acting in fiduciary
(sic) capacity, defendants have willfully violated their duty to account for
the whereabouts of the machinery covered by the trust receipt or for the
proceeds of any lease, sale or other disposition of the same that they may
have made, notwithstanding demands therefor; defendants have
fraudulently misapplied or converted to their own use any money realized
from the lease, sale, and other disposition of said machinery." While there
is no specific prayer for the delivery to the petitioner by Philippine Rayon of
the proceeds of the sale of the machinery covered by the trust receipt,
such relief is covered by the general prayer for "such further and other
relief as may be just and equitable on the premises." And although it is
true that the petitioner commenced a criminal action for the violation of the
Trust Receipts Law, no legal obstacle prevented it from enforcing the civil
liability arising out of the trust, receipt in a separate civil action. Under
Section 13 of the Trust Receipts Law, the failure of an entrustee to turn
over the proceeds of the sale of goods, documents or instruments covered
by a trust receipt to the extent of the amount owing to the entruster or as
appear in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article 315, paragraph 1(b) of the Revised Penal
Code. Under Article 33 of the Civil Code, a civil action for damages, entirely
separate and distinct from the criminal action, may be brought by the
injured party in cases of defamation, fraud and physical injuries. Estafa
falls under fraud.
Sec. 127. Bill not an assignment of funds in hands of drawee. - A
bill of itself does not operate as an assignment of the funds in the
hands of the drawee available for the payment thereof, and the
drawee is not liable on the bill unless and until he accepts the
same.
CAN A PAYEE SUE A BANK FOR DISHONORING A CHECK FOR NON-
PAYMENT?
 No, since until the drawee bank pays or accepts the check, it will not
be liable for the instrument
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 154 of 190
 The recourse would be to go after the parties secondarily liable,
namely, the drawer
CAN DRAWER THEN SUE THE DRAWEE BASED ON THE ABOVEMENTIONED
CHECK WHEN THE LATTER DISHONORS THE CHECK?
 No, there is no right of recourse against drawee
 But is there any other right of recourse using another law than the
NIL? Yes. There could be an action for breach of contract. When
there are sufficient funds, the bank is bound to pay. But if the bank
refuses to pay, then there will be a breach of contract.
CASE DIGESTS: SECTION 127
165 REPUBLIC V. NATIONAL CITY BANK
3 SCRA 851
FACTS:
The government filed a complaint for escheat of certain unclaimed bank
deposits balances pursuant to a law, which provides that unclaimed
balances—credits, money, bullion, security or other evidence of
indebtedness of any kind, and interest with banks—shall be deposited with
the government if it remains to be unclaimed within a period of 10 years of
more.
One of the banks against the complaint has been filed is First National City
Bank. Although it concedes that the government had the right to claim the
unclaimed deposit balances, it seeks to exclude some which, according to
it, are not within the purview of credits and deposits as defined in law. the
trial court held in favor of the bank, excluding from the claim the
manager’s checks and other demand drafts.
HELD:
Credit is a sum credited on the books of a company to a person who
appears to be entitled to it. it presupposes a creditor-debtor relationship
and may be said to imply ability, by reason of property or estates, to make
a promised payment. It is correlative to indebtedness, and that which is
due to any person, as distinguished to that which he owes.
Do demand drafts and telegraphic orders come within the purview of
credits or deposits employed in the law?
Since the demand drafts herein involved have not been presented either
for acceptance or payment, the inevitable consequence is that the bank
never had the chance of accepting or receiving them. Verily, the bank

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
never became a debtor of the payee concerned and as such the aforesaid
drafts cannot be considered as credits subject to escheat within the
meaning of the law.
Further, a demand draft is different from a cashier’s check for this is a
primary obligation of the bank which issues it and constitutes a written
promise to pay upon demand. It is an order to a third party purporting to
be drawn upon a deposit of funds.
If there is any consolation, the telegraphic orders can be escheated in favor
of the government. The agreement to remit creates a contractual
obligation and has been termed a purchase and sale transaction. The
purchaser of a telegraphic transfer upon making payment completes the
transaction insofar as he is concerned, though insofar as the remitting
bank is concerned the contract is executory until the credit is established.
The drawer bank has already been paid the value of the telegraphic order.
It appears in the books of the bank that the amounts represented by the
orders appear in the names of respective payees. If the latter choose to
demand payment, the bank had the obligation to pay them.
Sec. 128. Bill addressed to more than one drawee. - 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.
BILL ADDRESSED TO MORE THAN ONE DRAWEE: VALID
Pay to X or order P1000.
Sgd. A
To: Y and Z
BILL ADDRESSED TO MORE THAN ONE DRAWEE: INVALID
Pay to X or order P1000.
Sgd. A
To: Y or Z
Pay to X or order P1000.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 155 of 190
Sgd. A
To: Y or in default of Y, Z
Sec. 129. Inland and foreign bills of exchange. - An inland bill of
exchange is a bill which is, or on its face purports to be, both
drawn and payable within the Philippines. Any other bill is a foreign
bill. Unless the contrary appears on the face of the bill, the holder
may treat it as an inland bill.
INLAND BILL
 Where the instrument is drawn and made payable in the Philippines
Pay to X or order P1000.
Sgd. A
To: Y, Manila, Philippines
FOREIGN BILL
1. Where the bill is not drawn and not payable in the Philippines
2. Where the bill is drawn in but not made payable in the Philippines
3. Where the bill is not drawn but made payable in the Philippines
Sec. 130. When bill may be treated as promissory note. - Where in
a bill the drawer and drawee are the same person or where the
drawee is a fictitious person or a person not having capacity to
contract, the holder may treat the instrument at his option either
as a bill of exchange or as a promissory note.
WHEN BILL MAY BE TREATED AS PROMISSORY NOTE
1. Where the drawer and drawee are the same person
2. Where the drawee is a fictitious person
3. Where the drawee is a person not having capacity to contract
 The holder may treat the instrument at his option either as a bill of
exchange or a promissory note
Sec. 131. Referee in case of need. - The drawer of a bill and any
indorser may insert thereon the name of a person to whom the
holder may resort in case of need; that is to say, in case the bill is
dishonored by non-acceptance or non-payment. Such person is
called a referee in case of need. It is in the option of the holder to
resort to the referee in case of need or not as he may see fit.
 NEGOTIABLE INSTRUMENTS NOTES
BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Page 156 of 190

 In general, acceptance in the sense in which the term is used in NIL

NOTES: WEEK #13 isn’t required for checks, for the same are payable on demand
SEPTEMBER 17 TO 21, 2007
THE DRAWEE MUST SIGN
 Without the signature of the drawee, he would not be bound pursuant
X. ACCEPTANCE to the principle enumerated in Section 18

Sec. 132. Acceptance; how made, by and so forth. - The acceptance
of a bill is the signification by the drawee of his assent to the order
of the drawer. The acceptance must be in writing and signed by the
drawee. It must not express that the drawee will perform his
promise by any other means than the payment of money.
ACCEPTANCE, DEFINED.
 The signification of the drawee of his assent to the order of the drawer
 Act by which a person on whome the bill of exchange is drawn assents
to the request of the drawer to pay it
 It may be actual, constructive, general or qualified
REQUISITES OF ACCEPTANCE
1. Must be in writing
2. Signed by the drawee
3. It must not express that the drawee will perform his promise by
any other means than payment of money
4. It must be communicated or delivered to the holder
ACCEPTANCE MUST BE IN WRITING
 The acceptance cannot be made orally
 Sound public policy requires substantial and tangible evidence of
contract, and more reliable in its nature than the statement or
recollection of witnesses
 An oral acceptance is not binding on the drawee
 Acceptance by phone is not acceptance
ACCEPTANCE, HOW MADE
 Usually done by writing across the face of the bill the word “accepted”
followed by the signature of the drawee
 But any words written by the drawee not negativing directly the order
of the drawer, would constitute sufficient acceptance, such as “holder”,
“presented” or “seen”, or “honored” or “I will pay the bill” or the
signature of the drawee, without more
 Acceptance by telegram has been held to be sufficient
WHEN ACCEPTANCE NOT REQUIRED
PAYMENT IN MONEY
 Acceptance must be expressed to be payable in money only
NECESSITY OF DELIVERY
 The acceptance is incomplete until delivery or notification
 And the acceptor or drawee who hasn’t communicated his acceptance
or transmitted the accepted bill to the holder, may revoke an
acceptance before delivery and cancel the written acceptance
EFFECT OF ACCEPTANCE
 Upon acceptance, the drawee becomes liable on the bill
 The bill becomes in effect a note, the acceptor standing in the place of
the maker, and the drawer, in the place of the first indorser
 But should the drawee refuse to accept, the payee or other holder has
no recourse against him but only against the drawer or indorsers, if
any
PAYMENT NOT ACCEPTANCE
 Payment of a check doesn’t include or imply its acceptance in the
sense that this word is used in Section 62 of the NIL
 Payment is the actual performance while acceptance is the promise to
perform an act
CASE DIGESTS: SECTION 132
166 SUMACAD V. PROVINCE OF SAMAR
100 PHIL 72
FACTS:
While the Province of Samar was still occupied by Japanese military forces,
it issued a check in favor of Santos. This check was then negotiated to
McGuire, an American citizen and resident of Borongan. After the
liberation, McGuire presented the check to the municipal treasurer of
Borongan for payment but the latter wasn’t able or didn’t choose to pay the
same. This prompted McGuire to write letters seeking payment of the
check. This matter was referred to PNB. The bank received photostatic
copies of the check to verify its authencity. The bank then instructed

BY: MA. ANGELA LEONOR C. AGUINALDO

ATENEO LAW 2D BATCH 2010

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
McGuire to present the check to the provincial treasurer as the province
still had funds with the bank. Again, McGuire requested to expedite the
actions taken on his check. Before the check was certified by the
authorities however, the province withdrew a substantial amount from its
account, leaving a balance insufficient to fund the check. This happened
when McGuire has transferred his rights to McGuire Sumacad. This led to a
complaint filed against the province and PNB.
The position of PNB is that it didn’t issue the check and was merely called
upon to pay the same upon being presented for encashment if and when
funds for the purpose were available. That it couldn’t have paid said check
because it was never presented to it with the required certification under
the circular of the Secretary of Finance. That the relationship between the
bank and the province is of debtor and creditor. That there is nothing in
the records to show that the holder of the check ever requested the bank
to withhold the amount of the check or ever filed with the proper
authorities any order to withhold the amount covered by the check. That
in any event, the bank cannot be held solidarily liable because the province
is the drawee of the check and therefore primarily liable to pay the same.
HELD:
Bank’s contentions are in the main correct.
But in view of the fact that upon its own request, it was furnished with
photostatic copies of the check in question and went to the trouble of
requiring to present the check to the provincial treasurer for necessary
certification, it voluntarily assumed the obligation of holding so much of the
deposit of the province as would be sufficient to cover the amount of the
check, or before allowing the withdrawal that exhausted said deposit, of
making the necessary inquiry on the matter.
There was implied acceptance of the check by the bank was thereby
created. The request by the bank from Bureau of Posts for photostatic
copies of the check and the subsequent requirement by it for its
presentation by McGuire to the provincial treasurer and the auditor for
certification, would be an empty gesture if the appellant didn’t thereby
mean to assume the obligation of paying the check and holding sufficient
deposit of the drawer for the purpose. Even so, appellant’s resulting
obligation is merely subsidiary, the province being primarily liable to pay
the check.
DISSENTING OPINION: there was no proper presentment for acceptance
and payment and thus, there couldn’t have been acceptance made by the
bank of the bill.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 157 of 190
167 PNB V. CA
25 SCRA 693
FACTS:
Lim deposited in his PCIB account a GSIS check drawn against PNB.
Following standard banking procedures, the check was sent to petitioner
for clearing. He didn’t return said check but paid the amount to PCIB as
well as debited it against the account of GSIS. Thereafter, a demand was
received from GSIS asking for the credit of the amount since the
signatures found in the check were forged. This was done by PNB and it
now comes after PCIB but the latter wouldn’t want to return the money.
HELD:
Acceptance is not required for checks, for the same are payable on
demand. Acceptance and payment are distinguished with each other. The
former pertains to a promise to perform an act while the latter is the actual
performance of the act.
PNB had also been negligent with the particularity that it had been guilty of
a greater degree of negligence because it had a previous and formal notice
from GSIS that the check had been lost, with the request that payment be
stopped. Just as important is that it is its acts, which are the proximate
cause of the loss.
Sec. 133. Holder entitled to acceptance on face of bill. - The holder
of a bill presenting the same for acceptance may require that the
acceptance be written on the bill, and, if such request is refused,
may treat the bill as dishonored.
Sec. 134. Acceptance by separate instrument. - Where an
acceptance is written on a paper other than the bill itself, it does
not bind the acceptor except in favor of a person to whom it is
shown and who, on the faith thereof, receives the bill for value.
Sec. 135. Promise to accept; when equivalent to acceptance. - An
unconditional promise in writing to accept a bill before it is drawn
is deemed an actual acceptance in favor of every person who, upon
the faith thereof, receives the bill for value.
WHERE ACCEPTANCE IS WRITTEN
Acceptance may be made
1. On the bill itself
2. On a separate paper

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
3. If on a separate paper,
a. It may be acceptance as to the existing bill
b. It may be acceptance as to a non-existing bill (virtual
acceptance). If the bill is non-existent, the acceptance
on a separate paper must comply with the following
requirements
i. That the contemplated drawee shall describe the
bill to be drawn, and promise to accept it
ii. That the bill shall be drawn within a reasonable
time after such promise is written
iii. That the holder shall take the bill upon the credit
of the promise
RIGHT TO REQUIRE ACCEPTANCE ON BILL
 The holder has the right to require that the acceptance must be
written on the bill itself
 If the drawee refuses, the holder may treat the bill as dishonored, and
he must therefore, give a notice of dishonor
 Otherwise, persons secondarily liable are discharged
 This section isn’t applicable to sight bills but to bills of exchange
ILLUSTRATION OF SECTION 134
 B the payee of the bill writes to X drawee, asking him whether he
would accept the bill
 X write back stating that he accepts the bill
 But a telegram that a draft is good in answer to a telegram asking a
bank if it would pay the draft isn’t acceptance nor an agreement to
accept
 Court says that “good” constitutes an acceptance if written on the bill
or check but not when written in a collateral document such as a
telegram
ILLUSTRATION OF SECTION 135
 Before the bill is drawn, B prospective payee, writes to X, prospective
drawee, if he would accept A’s bill for P1000 to cover cost of goods
purchased.
 X writes through telegram “yes”
 The promise to accept must be in writing
 But although the acceptance of a bill may be conditional, a collateral
written promise to accept a bill upon a condition isn’t an acceptance
EFFECT OF ACCEPTANCE ON SEPARATE PAPER
 Suppose that B payee, indorses the bill to C who neither saw nor knew
of the letter of acceptance.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 158 of 190
 C indorses the bill to D who saw the letter, and on faith thereof,
received the bill.
 Can C enforce the bill against A? No, because the acceptance binds X
only in favor of those whom it is shown and who, on faith thereof,
receive the bill for value, and C neither saw nor knew of the
acceptance
 But B and D can enforce the bill against X because they received the
bill for value on faith of the separate acceptance
Sec. 136. Time allowed drawee to accept. - The drawee is allowed
twenty-four hours after presentment in which to decide whether or
not he will accept the bill; the acceptance, if given, dates as of the
day of presentation.
ILLUSTRATION
 A bill is payable 30 days after sight
 B the payee presents it for acceptance on January 2, 1950 to X drawee
 X has 24 hours to accept the bill
 But even if he accepts the bill on the next day, the acceptance will
date back to January 2
 Hence the date of maturity of the bill would be February 1 and not
February 2
 The time allowed begins from the time of delivery and not after
demand for a return of the bill and the time for returning the bill to the
holder doesn’t begin to run from the demand for its return but from
the date of its delivery
SECTION 136 NOT APPLICABLE TO CHECKS
 But a drawee bank isn’t entitled to 24 hours to decide whether to pay
a check or not since a check is presented for payment, not acceptance
NEGLIGENCE OF DRAWEE
 The drawee bank contends that the collecting bank is guilty of
negligence in not discovering that the signatures of the drawer are
forged
 Assuming this to be true, the drawee bank is guilty of a greater degree
of negligence because it has a previous and formal notice from the
drawer that the check had been lost, with the request that payment
thereof be stopped.
 The collecting bank didn’t cash the check upon its presentation by the
last indorser and on the same day sent it for clearing through the
Central Bank

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
 The drawee bank didn’t return the check and said failure to return the
check implied that it did considered the check good and would honor
it, as it in fact did honor and pay
 The drawee bank may not recover from the collecting bank
Sec. 137. Liability of drawee returning or destroying bill. - Where a
drawee to whom a bill is delivered for acceptance destroys the
same, or refuses within twenty-four hours after such delivery or
within such other period as the holder may allow, to return the bill
accepted or non-accepted to the holder, he will be deemed to have
accepted the same.
CONSTRUCTIVE ACCEPTANCE
1. Where the drawee to whom the bill is delivered for acceptance
destroys it
2. Where the drawee refuses, within 24 hours after such delivery, or
within such time as is given him, to return the bill acceptected or
not accepted
 In any of these cases, the drawee will be deemed to have accepted the
bill even if there is no actual written acceptance by him
 Accordingly, the drawee will be primarily liable as an acceptor
DRAWEE NOT ENTITLED TO KEEP BILL
 The drawee isn’t entitled to keep the bill while he makes up his mind
 The bill is at all times the property of the holder and he is entitled to
have it when he wants it
 If the holder should demand its return before 24 hours, the drawee
would be required to comply on pain of being held as an acceptor; but
return within 24 hours unaccepted wouldn’t be a dishonor
 The drawee could still accept by notification within 24 hours
MERE RETENTION IS EQUIVALENT TO ACCEPTANCE
 Mere failure to return the bill within 24 hours is an acceptance
 The presentation for acceptance is a demand for acceptance which, if
the bill is retained by the drawee, implies a demand for its return if
acceptance is declined
SECTION 136 AND 137 COVER PRESENTMENT FOR ACCEPTANCE AND
PAYMENT
 It expressly mentions presentment for acceptance but not
presentment for payment
 The considerations for both are the same
 He must return the instrument or be liable for its face value as
acceptor
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 159 of 190
 Rule forces uniform treatment of instruments whether presented for
payment or acceptance and establishes certain and predictable results
where it is not clear for which purpose the instrument was presented
CASE DIGESTS: SECTION 137
168 CEBU INTERNATIONAL V. CA
316 SCRA 488
FACTS:
Petitioner is a quasi-banking institution involved in money market
transactions. Alegre invested with petitioner P500,000. Petitioner issued
then a promissory note, which would mature approximately after a month.
The note covered for Alegre’s placement plus interest. On the maturity of
the note, petitioner issued a check payable to Alegre, covering the whole
amount due. It was drawn from petitioner’s current account in BPI. When
the wife of Alegre tried to deposit the check, the bank dishonored the
check. Petitioner was notified of this matter and Alegre demanded the
immediate payment in cash. In turn, petitioner promised to replace the
check on the impossible premise that the first issued be returned to them.
This prompted Alegre to file a complaint against petitioner and petitioner in
turn, filed a case against BPI for allegedly unlawfully deducting from its
account counterfeit checks. The trial court decided in favor of Alegre.
ISSUE: W/N NIL is applicable to the money market transaction held
between petitioner and Alegre?
HELD:
Considering the nature of the money market transaction, Article 1249 of
the CC is the applicable provision should be applied. A money market has
been defined to be a market dealing in standardized short-term credit
instruments where lenders and borrowers don’t deal directly with each
other but through a middleman or dealer in the open market. In a money
market transaction, the investor is the lender who loans his money to a
borrower through a middleman or dealer.
In the case at bar, the transaction is in the nature of a loan. Petitioner
accepted the check but when he tried to encash it, it was dishonored. The
holder has an immediate recourse against the drawer, and consequently
could immediately file an action for the recovery of the value of the check.
Further, in a loan transaction, the obligation to pay a sum certain in money
may be paid in money, which is the legal tender or, by the use of a check.
A check is not legal tender, and therefore cannot constitute valid tender of
payment.
 NEGOTIABLE INSTRUMENTS NOTES
BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Page 160 of 190

OTHER KINDS OF ACCEPTANCE

Sec. 138. Acceptance of incomplete bill. - A bill may be accepted 1. General acceptance—assents without qualification to the order of
before it has been signed by the drawer, or while otherwise the drawer
incomplete, or when it is overdue, or after it has been dishonored 2. Qualified acceptance—which in express terms varies the effect of
by a previous refusal to accept, or by non payment. But when a bill the bills as drawn
payable after sight is dishonored by non-acceptance and the a. Conditional
drawee subsequently accepts it, the holder, in the absence of any PAY TO B OR ORDER P1000 10 DAYS AFTER SIGHT.
different agreement, is entitled to have the bill accepted as of the
date of the first presentment. SGD. A
TO X BANK
WHEN ACCEPTANCE MAY BE MADE
1. Before the bill has been signed by the drawer X could accept the bill with the qualification he will pay upon
2. Even when the bill is otherwise incomplete the happening of a condition, let’s say when D would sell out
3. Even when the bill is overdue his shares in a company.
4. Even after it has been dishonored by non-acceptance or non-
payment b. Partial
PAY TO B OR ORDER P1000 10 DAYS AFTER SIGHT.
Sec. 139. Kinds of acceptance. - An acceptance is either general or
qualified. A general acceptance assents without qualification to the SGD.A
order of the drawer. A qualified acceptance in express terms varies
the effect of the bill as drawn. TO: X
X would accept but only accept to pay P500.
Sec. 140. What constitutes a general acceptance. - An acceptance
to pay at a particular place is a general acceptance unless it c. Local
expressly states that the bill is to be paid there only and not
elsewhere. PAY TO B OR ORDER P1000 10 DAYS AFTER SIGHT.

Sec. 141. Qualified acceptance. - An acceptance is qualified which SGD. A

is:
TO: X
(a) Conditional; that is to say, which makes payment by the X would accept but make a qualification that he would pay
acceptor dependent on the fulfillment of a condition therein stated; only in RCBC Rockwell.

(b) Partial; that is to say, an acceptance to pay part only of the d. Qualified as to time
amount for which the bill is drawn; PAY TO B OR ORDER P1000 10 DAYS AFTER SIGHT.

(c) Local; that is to say, an acceptance to pay only at a SGD. A

particular place;
TO: X
(d) Qualified as to time;
X accepts but will pay 20 days after sight.
(e) The acceptance of some, one or more of the drawees but
not of all. e. The acceptance of some, one or more of the drawees but
not all

BY: MA. ANGELA LEONOR C. AGUINALDO

ATENEO LAW 2D BATCH 2010

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
PAYMENT AT A PARTICULAR PLACE
 But the mere fact that the acceptance is to pay at a particular place
doesn’t make the acceptance qualified
Sec. 142. Rights of parties as to qualified acceptance. - The holder
may refuse to take a qualified acceptance and if he does not obtain
an unqualified acceptance, he may treat the bill as dishonored by
non-acceptance. Where a qualified acceptance is taken, the drawer
and indorsers are discharged from liability on the bill unless they
have expressly or impliedly authorized the holder to take a
qualified acceptance, or subsequently assent thereto. When the
drawer or an indorser receives notice of a qualified acceptance, he
must, within a reasonable time, express his dissent to the holder or
he will be deemed to have assented thereto.
RIGHTS OF HOLDER TO REQUIRE GENERAL ACCEPTANCE
 The holder has the right to require the drawee to accept the bill
without qualification
 If the drawee refuses, the holder can treat the bill as dishonored by
non-acceptance
 Accordingly, the holder must give notice of dishonor
EFFECT OF TAKING QUALIFIED ACCEPTANCE
 Where the holder takes a qualified acceptance, the drawer and
indorsers are discharged
 Reason? The drawer and indorsers warrant that the bill would be paid
as drawn, or as indorsed by them, and a qualified acceptance would
vary their contract without their consent
 If the drawer or indorsers give their consent to the qualified
acceptance, then they are not discharged. They will be considered to
have given consent when after receiving notice of the qualified
acceptance, he doesn’t express his dissent thereto within a reasonable
time
XI. PRESENTMENT FOR ACCEPTANCE
Sec. 143. When presentment for acceptance must be made. -
Presentment for acceptance must be made:
(a) Where the bill is payable after sight, or in any other case,
where presentment for acceptance is necessary in order to fix the
maturity of the instrument; or
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 161 of 190
(b) Where the bill expressly stipulates that it shall be presented
for acceptance; or
(c) Where the bill is drawn payable elsewhere than at the
residence or place of business of the drawee.
In no other case is presentment for acceptance necessary in order
to render any party to the bill liable.
CASE DIGESTS: SECTION 143
169 PRUDENTIAL BANK V. IAC
216 SCRA 257
FACTS:
PHIL RAYON IMPORTATION OF TEXTILE MACHINES NISSHO JAPAN
LETTER OF CREDIT
TRUST RECEIPT (SURETY SOLIDARILY LIABLE TO PB UPON FAILURE OF
PHIL RAYON TO PAY) (X)
PRUDENTIAL BANK
The trial court held Phil Rayon liable but not for the reimbursement of what
the bank paid for the machineries. This was appealed to the appellate
court.
HELD:
A letter of credit is defined as an engagement by a bank or other person
made at the request of a customer that the issuer will honor drafts or other
demands for payment upon compliance with the conditions specified in the
credit. Through a letter of credit, the bank merely substitutes its own
promise to pay for one of its customers who in return promises to pay the
bank the amount of funds mentioned in the letter of credit plus credit or
commitment fees mutually agreed upon. In the instant case then, the
drawee was necessarily the herein petitioner. It was to the latter that the
drafts were presented for payment. In fact, there was no need for
acceptance as the issued drafts are sight drafts. Presentment for
acceptance is necessary only in the cases expressly provided for in Section
143 of the Negotiable Instruments Law (NIL).

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment
at maturity of any accepted draft, bill of exchange or indebtedness shall
not be extinguished or modified" does not, contrary to the holding of the
public respondent, contemplate prior acceptance by Philippine Rayon, but
by the petitioner. Acceptance, however, was not even necessary in the first
place because the drafts which were eventually issued were sight drafts
And even if these were not sight drafts, thereby necessitating acceptance,
it would be the petitioner and not Philippine Rayon which had to accept the
same for the latter was not the drawee. Presentment for acceptance is
defined an the production of a bill of exchange to a drawee for acceptance.
THE TRIAL COURT AND THE PUBLIC RESPONDENT, THEREFORE, ERRED IN
RULING THAT PRESENTMENT FOR ACCEPTANCE WAS AN INDISPENSABLE
REQUISITE FOR PHILIPPINE RAYON'S LIABILITY ON THE DRAFTS TO
ATTACH. Contrary to both courts' pronouncements, Philippine Rayon
immediately became liable thereon upon petitioner's payment thereof.
Such is the essence of the letter of credit issued by the petitioner. A
different conclusion would violate the principle upon which commercial
letters of credit are founded because in such a case, both the beneficiary
and the issuer, Nissho Company Ltd. and the petitioner, respectively,
would be placed at the mercy of Philippine Rayon even if the latter had
already received the imported machinery and the petitioner had fully paid
for it.
170 PHIL. BANK OF COMMERCE V. ARUEGO
102 SCRA 530
FACTS:
Aruego, on behalf of World Current Events, entered into a Credit
Agreement with PBCom, for the publication of the company’s periodicals.
At every printing endeavor by the printing press, a bill of exchange is
drawn against PBCom. The instruments are signed by Aruego, without any
indication that he is an agent of World Current Events. When he was being
held liable by PBCom, he averred that he only signed the instrument in the
capacity of agent of the company.
HELD:
An inspection of the drafts accepted by the defendant would show nowhere
that he has disclosed that he was signing in representation of the Philippine
Education Foundation Company. He merely signed his name. For failure to
disclose his principal, Aruego was personally liable for the drafts he
accepted.
Sec. 144. When failure to present releases drawer and indorser. -
Except as herein otherwise provided, the holder of a bill which is
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 162 of 190
required by the next preceding section to be presented for
acceptance must either present it for acceptance or negotiate it
within a reasonable time. If he fails to do so, the drawer and all
indorsers are discharged.
PRESENTMENT FOR PAYMENT, DEFINED
 Production of a bill of exchange to the drawee for his acceptance
GENERAL RULE AS TO PRESENTMENT FOR ACCEPTANCE
 Presentment for acceptance is not necessary for cases aside from the
three enumerated above
 In those three cases, to charge persons secondarily liable it is
necessary
o To make presentment for acceptance
o To negotiate the bill within a reasonable time
ILLUSTRATION
1. Where the bill is payable after sight. A bill is payable 30 days
after sight. The law requires the bill to be presented for
acceptance. The date of maturity will not be fixed if the bill isn’t
presented.
2. Where there is express stipulation. The bill contains a stipulation
that it must be presented for acceptance. Such a bill must be
presented for acceptance.
3. Where bill is drawn elsewhere than at the residence of drawee.
The bill reads as follows
a. The bill must be presented for acceptance in order to
inform the drawee X of the existence of the bill so that he
can make arrangements for its payment at the PNB
Manila
Pay to B or order P1000 at the PNB, Manila.
Sgd. A
To X, Davao City
Sec. 145. Presentment; how made. - Presentment for acceptance
must be made by or on behalf of the holder at a reasonable hour,
on a business day and before the bill is overdue, to the drawee or
some person authorized to accept or refuse acceptance on his
behalf; and

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
(a) Where a bill is addressed to two or more drawees who are
not partners, presentment must be made to them all unless one has
authority to accept or refuse acceptance for all, in which case
presentment may be made to him only;
(b) Where the drawee is dead, presentment may be made to his
personal representative;
(c) Where the drawee has been adjudged a bankrupt or an
insolvent or has made an assignment for the benefit of creditors,
presentment may be made to him or to his trustee or assignee.
TIME FOR MAKING PRESENTMENT FOR ACCEPTANCE
1. Before the bill is overdue
2. And within reasonable time after acquisition thereof
TO WHOM PRESENTMENT MADE
1. Generally, presentment must be made to the drawee or some
person authorized to accept or refuse acceptance on his behalf
2. Where there are two or more drawees, presentment must be
made to both of them unless—
a. One is duly authorized to accept or refuse acceptance
b. They are partners, subject to the limitation set forth in
the partnership law
3. With regard to a drawee who is dead, paragraph b is merely
permissive since presentment is excused where the drawee is
dead
4. With regard to an insolvent or bankrupt drawee, it indicates
merely a permission to adopt either one of two alternative
methods of presentment stated—not permission to omit
presentment altogether
Sec. 146. On what days presentment may be made. - A bill may be
presented for acceptance on any day on which negotiable
instruments may be presented for payment under the provisions of
Sections seventy-two and eighty-five of this Act. When Saturday is
not otherwise a holiday, presentment for acceptance may be made
before twelve o'clock noon on that day.
SECTION 146 COMPARED WITH SECTIONS 72 AND 85
 The only difference between Sections 72 and 85 is that under Section
146, there is no distinction between instruments payable at a fixed or
determinable future time and instruments payable on demand
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 163 of 190
 Where presentment is for acceptance, it may be made for all kinds of
bills before 12 o’clock noon on Saturday provided that day isn’t a
holiday
Sec. 147. Presentment where time is insufficient. - Where the
holder of a bill drawn payable elsewhere than at the place of
business or the residence of the drawee has no time, with the
exercise of reasonable diligence, to present the bill for acceptance
before presenting it for payment on the day that it falls due, the
delay caused by presenting the bill for acceptance before
presenting it for payment is excused and does not discharge the
drawers and indorsers.
MANILA, PHILS.
September 17, 2007
PAY TO B OR ORDER AT THE PNB MANILA P1000 ON SEPTEMBER 20, 2007.
SGD. A
TO X, WASHINGTON, DC.
 Presentment where time is insufficient
 The delay for presentment for acceptance is excused
 Nonetheless, still, the payee must do everything in the process in
presenting to the drawee for acceptance the instrument
Sec. 148. Where presentment is excused. - Presentment for
acceptance is excused and a bill may be treated as dishonored by
non-acceptance in either of the following cases:
(a) Where the drawee is dead, or has absconded, or is a
fictitious person or a person not having capacity to contract by bill.
(b) Where, after the exercise of reasonable diligence,
presentment cannot be made.
(c) Where, although presentment has been irregular,
acceptance has been refused on some other ground.
APPLICATION OF SECTION 148
1. Where the drawee is dead, presentment for acceptance is not
necessary. Hence, it seems that under paragraph b of Section

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
145, the presentment to the representative is merely optional.
Presentment is excused in this case and in case the drawee has
absconded, or is fictitious or a person not having capacity to
contract because it would then be futile
2. Where presentment cannot be made notwithstanding the exercise
of due diligence, presentment is excused
3. An irregular indorsement in which acceptance is refused on some
other ground is where presentment is made on a Sunday, it is
irregular but the acceptance is refused on the ground that the
drawer has no funds in the hands of the drawee
Sec. 149. When dishonored by nonacceptance. - A bill is dishonored
by non-acceptance:
(a) When it is duly presented for acceptance and such an
acceptance as is prescribed by this Act is refused or can not be
obtained; or
(b) When presentment for acceptance is excused and the bill is
not accepted.
Sec. 150. Duty of holder where bill not accepted. - Where a bill is
duly presented for acceptance and is not accepted within the
prescribed time, the person presenting it must treat the bill as
dishonored by nonacceptance or he loses the right of recourse
against the drawer and indorsers.
DUTY OF HOLDER WHERE BILL IS DISHONORED BY NON-ACCEPTANCE
 Where the bill is dishonored by non-acceptance, the holder must give
notice of dishonor and protest, when required
 Otherwise, the drawer and indorsers will be discharged
Sec. 151. Rights of holder where bill not accepted. - When a bill is
dishonored by nonacceptance, an immediate right of recourse
against the drawer and indorsers accrues to the holder and no
presentment for payment is necessary.
RIGHTS OF HOLDER WHERE BILL DISHONORED BY NON-ACCEPTANCE
 When a bill is dishonored by non-acceptance, there is no necessity of
making a presentment of the bill for payment
 But of course, if after previous non-acceptance, the bill is subsequently
accepted, presentment for payment is necessary
 And when the bill has been accepted for honor, to charge the acceptor
for honor, presentment for payment is also necessary
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 164 of 190
 The holder, after giving notice of dishonor, and protesting when
required, can IMMEDIATELY file an action against the parties
secondarily liable on the bill. This is true even when the bill is payable
at a fixed or determinable future time and the date of maturity hasn’t
yet arrived. The holder need not wait for that day to arrive.
XII. PROTEST
Sec. 152. In what cases protest necessary. - Where a foreign bill
appearing on its face to be such is dishonored by nonacceptance, it
must be duly protested for nonacceptance, by nonacceptance is
dishonored and where such a bill which has not previously been
dishonored by nonpayment, it must be duly protested for
nonpayment. If it is not so protested, the drawer and indorsers are
discharged. Where a bill does not appear on its face to be a foreign
bill, protest thereof in case of dishonor is unnecessary.
NECESSITY OF PROTEST
 Protest is required only for foreign bills but not for inland bills or notes.
However, they may also be protested if desired.
 Omission of protest, where protest is required, will discharge the
drawer and the indorsers
 Protest is required—
1. Where the foreign bill is dishonored by non-acceptance
2. Where the foreign bill is dishonored by non-payment, it not having
been previously dishonored by non-acceptance
3. Where the bill has been accepted for honor, it must be protested
for non-payment before it is presented for payment to the
acceptor for honor
4. Where the bill contains a referee in case of need, it must be
protested for non-payment before it is presented for payment to
the referee in case of need
MEANING OF PROTEST
 A formal statement in writing made by a notary under his seal of office
at the request of the holder of a bill or note, in which it is declared that
the same was on a certain day presented for payment was refused,
whereupon the notary protests against all parties to such instrument
and declares that they will be held responsible for all loss or damage
arising from its dishonor
 All the steps or acts accompanying the dishonor of a bill or note
necessary to charge an indorser
CASE DIGESTS: SECTION 152

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
171 ALLIED BANKING CORPORATION V. CA
494 SCRA 467
FACTS:
ALLIEDDISCOUNTING AGREEMENT: EXPORT BILLGG SPORTSWEAR
GUARANTYGIDWANI; ALCRON
SURETYDE VILLA; GIDWANI
Allied purchased from GG Sportswear an export bill to which the latter is
the beneficiary. It was drawn under a letter of credit for the transit of
training suits to West Germany. It was issued by Chekiang First Bank of
Hong Kong. With the purchase, it credited the account of GG Sportswear.
On this same date, Gidwani and Alcron executed their respective letters of
guaranty for the export bill, holding themselves liable in case the bill is not
paid. Consequently, de Villa and Gidwani issued a letter of surety,
guaranteeing payment of the bill. Part of the stipulations of these two
guarantee arrangements is that any notice of protest is waived. The date
came when Allied presented the check for payment to Chekiang Bank but
such was dishonored for lacking material documents with regard the letter
of credit. This prompted Allied Bank to demand payment from the
respondents but the latter refused to do so. One of their averments is that
they couldn’t be made liable on the export bill absent any notice of protest
coming from petitioner. The trial court dismissed the case filed by
petitioner and this was modified by the appellate court by holding GGS
liable but exonerating the guarantors from any liability.
HELD:
What transpired in this case was a discounting arrangment. The
beneficiary, GGS, instead of proceeding to the issuing bank, negotiated the
draft with petitioner. Before petitioner agreed to purchase the export bill,
it required letters of guaranty and surety to cover the payment of the bill in
case it wouldn’t be paid.
In this case, it must be stressed that obligations from contracts have the
force of law between the parties and should be complied with in good faith.
Nothing can stop the parties from establishing stipulations and clauses as
they may deem convenient.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 165 of 190
Here, the provisions on guaranty is pertinent. The respondents undertook
and bound themselves as guarantors and sureties to pay the full amount of
the export bill.
Respondents claim that the petitioner failed to give a notice of protest and
given such, they are exonerated of their liabilities. Nonetheless, their
contention should fail. The provisions on indorsers is not applicable to this
case. The contract of indorsement is primarily of transfer and a guaranty
is a personal security. The liability of a guarantor is broader than that of
an indorser. Unless the bill is promptly presented for payment at maturity
and due notice of dishonor given to the indorser, he will be discharged
from liability thereon. On the other hand, except where required by the
provisions of the contract of suretyship, a demand or notice of default is
not required to fix the liability of the surety. Therefore, no notice of
protest is necessary to charge the respondents solidarily on the export bill.
Sec. 153. Protest; how made. - The protest must be annexed to the
bill or must contain a copy thereof, and must be under the hand
and seal of the notary making it and must specify:
(a) The time and place of presentment;
(b) The fact that presentment was made and the manner
thereof;
(c) The cause or reason for protesting the bill;
(d) The demand made and the answer given, if any, or the fact
that the drawee or acceptor could not be found.
PROCEDURE FOR PROTEST
 Where the instrument is presented for payment and payment is
refused, the instrument may be taken by the notary public to the party
and the party may state that he refuses to pay it; the notary makes a
statement to that effect and attaches his seal that it has been
dishonored, and he has protested it for non-payment.
 The notary keeps this or he may send his sworn statement, one copy
to one person and one to the other
 The above is the protest. It is not the notice of protest.
 The protest is a solemn declaration made by the notary public that the
paper has been dishonored
CERTIFICATE OF PROTEST AS EVIDENCE

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
 When suit is brought on the paper, it is absolutely necessary that proof
be shown
 So when one comes to prove his case as the holder of an instrument
he must prove that there has been a protest of the instrument, that it
has been presented for payment or acceptance to the person liable
and that it has been refused.
 At the trial, the statement of the protest by the notary is a part of his
case
NOTICE OF PROTEST
 After the notary protests the instrument, he sends notice to all the
parties on the instrument
 He can do this in several ways. He might send it to the person who
sent the paper for collection. Then the notary public would send the
notice of protest for the other parties on the instrument, to the last
person on the instrument, and he would say “Notices enclosed
herewith to be sent to the other parties”
 If the holder has sent notice to all parties he is entield to come in and
recover because he has performed the contract. He has sent notices
to all the parties on the instrument that he intends to recover against
them.
REASONS FOR REQUIRING PROTEST
1. For uniformity in international transactions because most
countries require it
2. In order to furnish authentic and satisfactory evidence of the
dishonor to the drawer who, from his residence abroad, may
experience difficulty in verifying the matter and may be forced to
rely on the representations of the holder
MEASURE OF DAMAGES
1. Face value of the bill
2. Interest thereon
3. Protest fees
4. Re-exchange, being the additional expense of procuring a new bill
for the same amolunt payable in the same place as day of
dishonor
Sec. 154. Protest, by whom made. - Protest may be made by:
(a) A notary public; or
(b) By any respectable resident of the place where the bill is
dishonored, in the presence of two or more credible witnesses.
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 166 of 190
Sec. 155. Protest; when to be made. - When a bill is protested, such
protest must be made on the day of its dishonor unless delay is
excused as herein provided. When a bill has been duly noted, the
protest may be subsequently extended as of the date of the noting.
MEANING OF “DULY NOTED”
 The notary public jots down a note on the bill, or a paper attached
thereto, or in his registry book, consisting of his initials or signature
and those matters required to be stated in Section 153
 The noting must be made on the day of dishonor but it may be
extended into a formal protest afterwards
 The protest may even be made in the trial
Sec. 156. Protest; where made. - A bill must be protested at the
place where it is dishonored, except that when a bill drawn payable
at the place of business or residence of some person other than the
drawee has been dishonored by nonacceptance, 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.
PLACE FOR MAKING PROTEST
 Generally, the protest must be made at the place where the
instrument is dishonored
 The exception is where the bill is payable at a place other than the
residence of the payee
Sec. 157. Protest both for non-acceptance and non-payment. - A
bill which has been protested for non-acceptance may be
subsequently protested for non-payment.
PROTEST FOR NON-PAYMENT OPTIONAL AFTER PROTEST FOR NON-
ACCEPTANCE
 Where a bill has already been protested for non-acceptance, protest
for non-payment is merely optional
 Under Section 151, after a bill has been dishonored by non-
acceptance, presentment for payment is not necessary
Sec. 158. Protest before maturity where acceptor insolvent. -
Where the acceptor has been adjudged a bankrupt or an insolvent
or has made an assignment for the benefit of creditors before the
bill matures, the holder may cause the bill to be protested for
better security against the drawer and indorsers.

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
PROTEST FOR BETTER SECURITY
 One made by the holder against the drawer and indorsers where the
acceptor has been adjudged bankrupt or an insolvent or has made an
assignment for the benefit of creditors before the bill matures
 Such a protest isn’t necessary to charge the drawer or indorsers
 It is optional on the part of the holder
WHEN PROTEST FOR BETTER SECURITY MADE
1. After acceptance
2. But before the date of maturity
3. When the acceptor has been adjudged bankrupt or insolvent or
has made an assignment for the benefit of creditors
PURPOSE OF PROTEST FOR BETTER SECURITY
 When the acceptor is declared bankrupt, he probably wouldn’t be able
to pay for the bill
 The protest for better security is to give notice to the drawer or
indorsers of this fact in order to enable them to make the necessary
arrangements so that they will not be held liable thereon and prevent
loss of re-exchange
Sec. 159. When protest dispensed with. - Protest is dispensed with
by any circumstances which would dispense with notice of
dishonor. Delay in noting or protesting is excused when delay is
caused by circumstances beyond the control of the holder and not
imputable to his default, misconduct, or negligence. When the
cause of delay ceases to operate, the bill must be noted or
protested with reasonable diligence.
Sec. 160. Protest where bill is lost and so forth. - When a bill is lost
or destroyed or is wrongly detained from the person entitled to
hold it, protest may be made on a copy or written particulars
thereof.
EFFECT OF LOSS OR DESTRUCTION OF BILL
 Loss or destruction of the bill doesn’t excuse the making of the protest
 In a case, checks indorsed without restriction and deposited in the
defendant bank which credited the amount to the depositor’s account
and mailed them to its correspondent for collection, were lost and not
found until after the drawer became bankrupt
 They were not dishonored due to the failure of defendant to attempt to
collect them as lost paper
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 167 of 190
 It was held that the bank must stand the loss and cannot charge the
amount of the checks to the depositor’s account
XIII. ACCEPTANCE FOR HONOR
Sec. 161. When bill may be accepted for honor. - When a bill of
exchange has been protested for dishonor by non-acceptance or
protested for better security and is not overdue, any person not
being a party already liable thereon may, with the consent of the
holder, intervene and accept the bill supra protest for the honor of
any party liable thereon or for the honor of the person for whose
account the bill is drawn. The acceptance for honor may be for part
only of the sum for which the bill is drawn; and where there has
been an acceptance for honor for one party, there may be a further
acceptance by a different person for the honor of another party.
ACCEPTANCE FOR HONOR
 An acceptance of bill made by a stranger to it before maturity, where
the drawee of the bill has refused to accept it, and the bill has been
protested for non-acceptance, or where the bill has been protested for
better security
 Such an acceptance is also called an acceptance supra protest
 This is a peculiar kind of acceptance. It most frequently happens when
the original drawee refuses to accept the bill in which case a stranger
may accept the bill for the honor of some one of the parties thereto,
which acceptance will inure to the benefit of all parties subsequent to
him for whose honor it was accepted
PURPOSE FOR ACCEPTANCE FOR HONOR
 To save the credit of the parties to the instrument or some party to it,
as the drawer, drawee, or indorser or somebody else
 Someone desires to save the credit of another on the bill and he does
so by writing accepted on the bill
 The court holds that the consideration is presumed and the
presumption is that he does have funds or money for the party for
whose honor he accepts
REQUISITES FOR ACCEPTANCE FOR HONOR
1. The bill must have been previously protested for non-acceptance
or for better security
2. The bill isn’t overdue at the time of the acceptance for honor
3. The acceptor for honor must be a stranger to the bill. If he is a
party, his acceptance for honor wouldn’t give any additional
security to the holder, as such a party is already liable thereon

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
4. The holder must give his consent
Sec. 162. Acceptance for honor; how made. - An acceptance for
honor supra protest must be in writing and indicate that it is an
acceptance for honor and must be signed by the acceptor for honor.
HOW ACCEPTANCE IS MADE
 Acceptance for honor must be in writing and indicate that it is an
acceptance for honor and signed by the person making the acceptance
ACCEPTOR FOR HONOR MUST APPEAR BEFORE NOTARY
 It is essential that the acceptor for honor appear before the notary and
declare that he accepts the protested bill in honor of the drawer or
indorser, as the case may be, and that he will pay it at the appointed
time
Sec. 163. When deemed to be an acceptance for honor of the
drawer. - Where an acceptance for honor does not expressly state
for whose honor it is made, it is deemed to be an acceptance for
the honor of the drawer.
Sec. 164. Liability of the acceptor for honor. - The acceptor for
honor is liable to the holder and to all parties to the bill subsequent
to the party for whose honor he has accepted.
Sec. 165. Agreement of acceptor for honor. - The acceptor for
honor, by such acceptance, engages that he will, on due
presentment, pay the bill according to the terms of his acceptance
provided it shall not have been paid by the drawee and provided
also that is shall have been duly presented for payment and
protested for non-payment and notice of dishonor given to him.
TO WHOM ACCEPTOR IS LIABLE
 Suppose A is the drawer of a bill with B as payee and X as drawee
 It is successively indorsed to C, D, E and F. X drawee at maturity
refuses to accept the bill and F protests it.
 Before the date of maturity, Y as a stranger accepts the bill for the
honor of C.
 Subject to 165, Y is liable to F holder, and to D and E, parties
subsequent to C, the party for whose honor Y accepted the bill
CONTRACT OF ACCEPTOR FOR HONOR
 The liability of an acceptor for honor is secondary and not primary or
absolute
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 168 of 190
 He agrees to pay if—presentment for payment has been made; the
drawee doesn’t pay; the bill is protested for non-payment; and notice
of dishonor is given to him
Sec. 166. Maturity of bill payable after sight; accepted for honor. -
Where a bill payable after sight is accepted for honor, its maturity
is calculated from the date of the noting for non-acceptance and
not from the date of the acceptance for honor.
Sec. 167. Protest of bill accepted for honor, and so forth. - Where a
dishonored bill has been accepted for honor supra protest or
contains a referee in case of need, it must be protested for non-
payment before it is presented for payment to the acceptor for
honor or referee in case of need.
Sec. 168. Presentment for payment to acceptor for honor, how
made. - Presentment for payment to the acceptor for honor must
be made as follows:
(a) If it is to be presented in the place where the protest for
non-payment was made, it must be presented not later than the
day following its maturity.
(b) If it is to be presented in some other place than the place
where it was protested, then it must be forwarded within the time
specified in Section one hundred and four.
Sec. 169. When delay in making presentment is excused. - The
provisions of Section eighty-one apply where there is delay in
making presentment to the acceptor for honor or referee in case of
need.
Sec. 170. Dishonor of bill by acceptor for honor. - When the bill is
dishonored by the acceptor for honor, it must be protested for non-
payment by him.
NECESSITY OF PROTEST
 The holder must protest for non-payment by the acceptor for honor in
order to fix the liabilities of the indorsers
NOTES: WEEK #14
SEPTEMBER 24 - 28, 2007

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
XIV. PAYMENT FOR HONOR
Sec. 171. Who may make payment for honor. - Where a bill has
been protested for non-payment, any person may intervene and
pay it supra protest for the honor of any person liable thereon or
for the honor of the person for whose account it was drawn.
Sec. 172. Payment for honor; how made. - The payment for honor
supra protest, in order to operate as such and not as a mere
voluntary payment, must be attested by a notarial act of honor
which may be appended to the protest or form an extension to it.
Sec. 173. Declaration before payment for honor. - The notarial act
of honor must be founded on a declaration made by the payer for
honor or by his agent in that behalf declaring his intention to pay
the bill for honor and for whose honor he pays.
REQUISITES FOR PAYMENT FOR HONOR
1. The bill has been protested for non-payment
2. And any person even a party thereto, may pay supra protest
FORM FOR PAYMENT FOR HONOR
1. The payment must be attested by notarial act appended to the
protest or form an extension of it
2. The notarial act must be based on a declaration by the payer for
honor
PROCEDURE FOR PAYMENT FOR HONOR
1. The payer or his agent goes to a notary public and declares his
intention to pay the bill and for whose honor he pays
2. The notary then records the declaration in the protest or in a
separate paper attached to it
3. The payer then notifies the person for whose honor he pays within
reasonable time
PURPOSE FOR PAYMENT FOR HONOR
 Instead of simple negotiation to the person desiring to pay, payment
for honor may be availed of when the holder doesn’t want to indorse
the bill and thereby incur the liabilities of an indorser or of one
negotiating by mere delivery
Sec. 174. Preference of parties offering to pay for honor. - Where
two or more persons offer to pay a bill for the honor of different
BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
NEGOTIABLE INSTRUMENTS NOTES
Page 169 of 190
parties, the person whose payment will discharge most parties to
the bill is to be given the preference.
Sec. 175. Effect on subsequent parties where bill is paid for honor.
- Where a bill has been paid for honor, all parties subsequent to the
party for whose honor it is paid are discharged but the payer for
honor is subrogated for, and succeeds to, both the rights and duties
of the holder as regards the party for whose honor he pays and all
parties liable to the latter.
ILLUSTRATION OF EFFECT OF PAYMENT FOR HONOR
PAY TO B OR ORDER P1000.
SGD.A
TO: X DRAWEE
BCDEF
X REFUSES TO PAY.
F HAS DULY PROTESTED FOR NON-PAYMENT
Y PAYS FOR THE HONOR OF C
 D and E, being subsequent to C, for whose honor the payment is
made, are discharged
 Y acquires the rights of F, as against C, A, B and X parties who are
liable to C but the payor for honor shall notify within reasonable time,
the party for whose honor he pays.
 Otherwise, the party is not bound to refund.
PREFERENCE OF PARTIES OFFERING TO PAY
 If Z offers to pay for the honor of B, he is to be preferred as Z’s
payment for the honor of B will discharge C, D, and E while Y’s
payment for C would only discharge D and E
Sec. 176. Where holder refuses to receive payment supra protest. -
Where the holder of a bill refuses to receive payment supra protest,
he loses his right of recourse against any party who would have
been discharged by such payment.
Sec. 177. Rights of payer for honor. - The payer for honor, on
paying to the holder the amount of the bill and the notarial
expenses incidental to its dishonor, is entitled to receive both the
bill itself and the protest.
RIGHTS OF PAYER FOR HONOR
 NEGOTIABLE INSTRUMENTS NOTES
BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Page 170 of 190

1. He acquires the rights of a holder under Section 175 and in To X

addition 48 Exchange Place
2. The payor for honor has also the right to receive both the bill and New York City
the protest. This is to enable him to enforce his rights against
those who are liable to him.
PURPOSE OF BILL IN SET
Wednesday: 185 and 186 plus cases  Bills in set are for the purpose of increasing the probability of the bill
reaching its destination
XV. BILLS IN SET  For this reason, each part is sent by different conveyances
 B, the payee, is supposed to negotiate only one part, or if he is paid on
Sec. 178. Bills in set constitute one bill. - Where a bill is drawn in a one, he cannot be paid on the second part
set, each part of the set being numbered and containing a
reference to the other parts, the whole of the parts constitutes one Sec. 179. Right of holders where different parts are negotiated. -
bill. Where two or more parts of a set are negotiated to different
holders in due course, the holder whose title first accrues is, as
BILL IN SET between such holders, the true owner of the bill. But nothing in
 One composed of various parts, each part being numbered, and this section affects the right of a person who, in due course,
containing a reference to the other parts, all of which parts constitute accepts or pays the parts first presented to him.
one bill
ILLUSTRATION OF SECTION 179
ILLUSTRATION OF A BILL IN SET CONSISTING OF TWO PARTS  B, payee, wants to raise P4000. In violation of his rights, he
negotiates the first part of the bill to C and the second part to D, both
First part of whom are holders in due course. Who is the true owner of the bill?
Exchange for P2000  If B negotiates to C on September 25 and to D on September 27, C is
First the true owner, as C’s title accrues first.
Manila, Philippines  But if D succeeds in presenting his part of the bill for acceptance for
September 24, 2007 payment and X the drawee, accepts or pays the second part in due
course, X is protected and X can refuse to accept C’s part of the bill.
30 days after sight of this First of Exchange (Second part unpaid), pay to
the order of B P2000. Sec. 180. Liability of holder who indorses two or more parts of a set
Sgd. A to different persons. - Where the holder of a set indorses two or
To X more parts to different persons he is liable on every such part, and
48 Exchange Place every indorser subsequent to him is liable on the part he has
New York City himself indorsed, as if such parts were separate bills.

Second part LIABILITY OF HOLDER WHO INDORSES TWO OR MORE PARTS

Exchange for P2000  B is liable on both parts as if there are two bills, on the first to C and
Second on the second to D
Manila, Philippines  In other words, as a result of his negotiation of the 2 parts, B is liable
September 24, 2007 for a total of P4000
 But A, the drawer, or X, the drawee, is liable only on one part or for
30 days after sight of this Second of Exchange (First part unpaid), pay to P2000 unless the drawee accepts both parts
the order of B, P2000.
Sgd. A

BY: MA. ANGELA LEONOR C. AGUINALDO

ATENEO LAW 2D BATCH 2010
 NEGOTIABLE INSTRUMENTS NOTES
BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES
Page 171 of 190

 Suppose that C and D respectively negotiate the parts they have to E,

the first part, and F, the second part. C is liable to E for the part he
endorsed to E and D is liable to F for the part he indorsed to F.
Sec. 181. Acceptance of bill drawn in sets. - The acceptance may be
written on any part and it must be written on one part only. If the
drawee accepts more than one part and such accepted parts
negotiated to different holders in due course, he is liable on every
such part as if it were a separate bill.
DRAWEE MUST ACCEPT ONLY ONE PART
 The drawee X must accept only one part
 But if he accepts both parts and they are negotiated to holders in due
course, he is liable on every such part as if it were a separate bill, that
is, for a total of P4000
 But he can ask for reimbursement from A, drawer, on only one part,
that is P2000, because the order of the drawer to him is to pay only
one part, not both parts
Sec. 184. Promissory note, defined.
A negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another,
signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to
bearer. Where a note is drawn to the maker's own order, it is not
complete until indorsed by him.
IS MAKER LIABLE AS INDORSER?
 The maker of a note payabloe to himself who indorses it is not liable
as indorser but only as maker.
 Since the indorsement by the maker-payee isn’t part of a sale of the
note, it should not give rise to any warranty.
 In the absence of such warranties, it is immaterial whether the
defendant is sued as an indorser or as maker since, in either event, he
may set up the defense of fraud against the plaintiff unless the plaintiff
is a holder in due course.

Sec. 182. Payment by acceptor of bills drawn in sets. - When the SPECIAL TYPES OF PROMISSORY NOTES
acceptor of a bill drawn in a set pays it without requiring the part 1. Certificate of deposit
bearing his acceptance to be delivered up to him, and the part at 2. Bonds
maturity is outstanding in the hands of a holder in due course, he is 3. Bank notes
liable to the holder thereon. 4. Due bills

ILLUSTRATION CERTIFICATE OF DEPOSIT

 Suppose that X accepts only the first part. Then he pays the second  Written acknowledgement by a bank of the receipt of money on
part without requiring the return of the first part. deposit which the bank promises to pay to the depositor, bearer, or to
 On the date of maturity, X would still be liable to the holder of the first some other person or order
part on which it appears his acceptance
BONDS
Sec. 183. Effect of discharging one of a set. - Except as herein  A promise, under seal to pay money
otherwise provided, where any one part of a bill drawn in a set is  More formal in character
discharged by payment or otherwise, the whole bill is discharged.  Runs for a longer period of time
 Issued under different legal circumstances
EFFECT OF DISCHARGE ON ONE PART
 Subject to the exceptions in Section 180, 181, and 182, if one part is CLASSES OF BONDS
discharged, the whole bill is discharged 1. Mortgage bonds
 The reason is that the bill constitutes only one bill 2. Equipment bonds
 Thus, suppose that in the illustration, X the acceptor pays the first part 3. Collateral trust bonds
which he accepted. 4. Guaranteed bonds
 The second and third parts are also discharged 5. Debentures
6. Income bonds
XVI. PROMISSORY NOTES AND CHECKS 7. Convertible

BY: MA. ANGELA LEONOR C. AGUINALDO

ATENEO LAW 2D BATCH 2010