NEGOTIABLE INSTRUMENT

(NARRATIVE REPORT)

SUBMITTED TO:
ATTY. MYKEDOX KNOEL CUCHAPIN

SUBMITTED BY:
MICHAELA EVAN R. DOMINGO
 NEGOTIABLE INSTRUMENTS

ENFORCEMENT OF LIABILITY

1. PARTIES PRIMARILY LIABLE AND SECONDARILY LIABLE

2. GENERAL STEPS IN ENFORCING LIABILITY

A. Promissory Notes

I. Presentment for payment (Sec. 70)

II. Notice of dishonor (Sec. 89)

B. Bills of Exchange

I. Presentment for Acceptance

a. Time / Place / Manner of Presentment (Sec. 143-148)

b. Time / Place / Manner of Acceptance (Sec. 132-137)
c. Rule when incomplete bill is accepted (Sec. 138)
d. Kinds of Acceptance (Sec. 139-142)

II. If dishonored by non-acceptance

a. Notice of Dishonor (sec. 89)

III. If accepted

a. Presentment for payment to acceptor

b. Rule if dishonored upon presentment for payment
 1. PARTIES PRIMARILY LIABLE AND SECONDARILY LIABLE

PRIMARILY LIABLE SECONDARILY LIABLE

The maker of a promissory note The drawer of a bill

The acceptor of a bill of exchange The indorser of a note or a bill

The certifier of a check

Note: Primarily liable is unconditionally Note: Secondarily liable is conditionally

bound. bound.

Liabilities refers to the obligation of a party to a negotiable instrument to pay the same
according to its terms.
The parties to a negotiable instrument may be classified according to their liability as
follows:
(1) Primarily Liable
 The maker of a promissory note
 The acceptor of a bill of exchange
 The certifier of a check
(2) Secondarily Liable
 The drawer of a bill
 The indorser of a note or a bill
(3) Not liable:
 The drawee until he accepts the instruments in which case he becomes an
acceptor

A person becomes a party to an instrument by signing his name thereon. The general
rule is that no person is liable on an instrument unless his signature appears thereon.
Primary party and secondary party distinguished
The person primarily liable on the instrument is the person who, by the
terms of the instrument is absolutely required to pay the same.
The principal distinction between a primarily liable and a secondarily liable
party is that, while the former is unconditionally bound, the latter is conditionally
bound. Being unconditionally bound, the primary party is absolutely required to
pay the instrument upon its maturity.
On the other hand, the secondary party undertakes to pay the instrument
only after certain conditions have been fulfilled. The liability of all secondary parties
to an instrument ends when the primary party pays the full amount of the
instrument to the proper party.
 2. GENERAL STEPS IN ENFORCING LIABILITY

A. PROMISSORY NOTES

I. PRESENTMENT FOR PAYMENT (SEC. 70)

 Presentment for payment to persons primarily liable not

necessary
 Liability absolute on date of payment

 Presentment and demand for payment are not necessary in order to

charge the person primarily liable, that is, the maker or the acceptor
since his liability is absolute. In other words, the holder can sue the
maker or the acceptor, although no demand has been made on him,
as soon as the date for payment has passed without the instrument
being paid
 Where instrument payable at a special place

 This is true even if the instrument is payable at a special place (e.g.

at a bank). However, in this case, the ability and willingness on the
part of the primary party to pay there at maturity are equivalent to a
tender or offer of payment on his part so that if the instrument is not
paid and is overdue, he cannot be considered in delay and therefore,
not being at fault, he is not liable for costs and interests subsequently
accruing although he is not relieved from making payment of the
amount due.
 Where presentment required by terms of instruments

 Neither is presentment for payment necessary to charge the maker

of the acceptor even if it is required according to its terms of the
instrument. Worse, the failure to make the presentment would not
put him in default notwithstanding that the instrument is overdue and
unpaid.
 Presentment for payment to persons secondarily liable
necessary
 Presentment first to primary party required

 The persons secondarily liable, that is, the drawer and the indorsers,
stand on a different footing. Since they undertake to pay only if the
instrument is dishonored, it is obvious that a demand for payment
must first be made upon the person primarily liable and this demand
is affected by presenting the instrument to him for payment
 Effect where presentment not made

 If the instrument is not presented to the person primarily liable, the

drawer and the indorsers are discharged from their secondary
liability unless such presentment is excused.
 2. GENERAL STEPS IN ENFORCING LIABILITY

A. PROMISSORY NOTES

II. NOTICE OF DISHONOR (SEC. 89)

Notice of dishonor is 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 has not been paid and that the party notified is expected to pay
it. (Martin v. Brown)
A negotiable instrument is considered to be dishonored

 If it is not accepted when presented for acceptance; or

 If it is not paid when presented for payment at maturity; or
 If presentment is excused or waived and the instrument is past due and unpaid

Object of Notice of Dishonor

 To inform the parties secondarily liable that the maker or acceptor, as the case
may be, has failed to meet the engagement, and
 To advise such parties that they will be required to make payment.
Effect of failure to give notice of dishonor

 Any such person to whom such notice is not given is discharged

When an instrument is dishonored by non-acceptance on presentment for acceptance or

by non-payment at its maturity, notice of such dishonor must be given to the persons
secondarily liable, namely: the drawer, if it be a bill, and each indorser, whether it be a bill
or note.
 2. GENERAL STEPS IN ENFORCING LIABILITY

B. PROMISSORY NOTES

I. PRESENTMENT FOR ACCEPTANCE

KINDS OF ACCEPTANCE

General Acceptance (Sec. 140) Qualified Acceptance (Sec. 141)

An acceptance is qualified which are:

An acceptance to pay at a particular  Conditional
place is a general acceptance unless it
 Partial
expressly states that the bill is to be paid
 Local
there only and not elsewhere
 Qualified
 As to drawee

As to liability, an acceptance may be: general or qualified. Both kinds of acceptance are
defined in sec. 139.
“ACCEPTED” or “GOOD” without anything more except the signature of the acceptor is
a general acceptance as the acceptor binds himself to pay the bill according exactly to its
tenor. The acceptance is still general although it is to pay at a particular place. Thus, for
example, “accepted, payable at the BDO” is a general acceptance. But if it is reads,
“accepted, payable only at the BDO” is a qualified acceptance

Rights of parties as to qualified acceptance (Sec. 142)

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.

A holder has a right to require a general or unqualified acceptance and if a qualified

acceptance has been made, he may refuse it and treat the bill as dishonor by non-
acceptance if he does not obtain an unqualified acceptance. Accordingly, he must notify
the drawer and the indorser of the dishonor.
 a. TIME / PLACE / MANNER OF PRESENTMENT (SEC. 143-148)

When presentment for acceptance must be made (Sec. 143)

Presentment for acceptance is the production or exhibition of a bill of exchange to the
drawee for his acceptance or payment.

When presentment for acceptance necessary

 Bill payable after sight
o A bill payable 30 days after sight. Its date of maturity shall be computed 30
days from the date of its presentment. The same is true with a bill payable
so many days after demand
 Bill with express stipulation
 Bill payable elsewhere
o A bill payable to P at PNB manila, drawn against W residing and having his
place of business in QC
Bills payable on demand or on sight and time bills or bills payable at a day certain, or at
a fixed time after its date, or upon other certain event which does not fall under section
143, need not be presented for acceptance but only for payment in order to charge drawer
or indorser.
However, it is to the holder’s interest that the bill should be accepted, as only by accepting
it does the drawee become bound to pay it and until such acceptance, the holder has for
his debtor only the drawer.

When failure to present releases drawer and indorser (Sec. 144)

 Except as herein otherwise, provided, the holder of a bill which is required by
the next preceding section to be presented for acceptance must either present
it for acceptance or negotiate it within a reasonable time. If he fails to do so, the
drawer and all indorsers are discharged
The drawer and indorsers have a right in having the bills accepted immediately in order
to shorten the time of payment and thus put a limit to the period of their liability and
likewise to enable them to protect themselves by other means before it is too late, if the
bill is not accepted and paid within the time originally contemplated by them
Presentment; how made (Sec. 145)
 How presentment for acceptance made?
 When proper – in order that presentment for acceptance may be proper, it
is necessary that it: (1) must be made by or on behalf of the holder; (2) at a
reasonable hour; (3) on a business day; (4) before the bill is overdue and
within a reasonable time; and (5) to the drawee or some person authorized
to accept or refuse acceptance on his behalf.
 Bill addressed to two or more drawees.
 Drawee is dead – presentment in this case is merely permissive by Section
148 it is excuse where the drawee is dead.

On what days presentment may be made. (Sec. 146)

 A bill may be presented for acceptance on any day on which negotiable
instruments may be presented for payment under the provisions of Sections 72
ad 85 of this act. When Saturday is not otherwise a holiday, presentment for
acceptance may be made before twelve o’clock noon on that day.

Presentment where time is insufficient. (Sec. 147)
 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 that 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.

Where presentment is excused. (Sec. 148)

 Presentment for acceptance is excused and a bill may be treated as dishonored
by non-acceptance in either of the following cases:
 Where the drawee is dead, or has absconded, or is fictitious person
or a person not having capacity to contract by bill;
 Where after the exercise of reasonable diligence, presentment
cannot be made;
 Where, although presentment has been irregular, acceptance has
been refused on some other ground.
 b. TIME / PLACE / MANNER OF ACCEPTANCE (SEC. 132-137)

Acceptance of a bill is the signification by the drawee of his assent to the order of
the drawer (Sec. 132)
 It has also been defined as the act by which the drawee manifests his
consent to comply with the request contained in the bill of exchange directed
to him and it contemplates an engagement or promise to pay.

Formal requisites of acceptance

 Actual acceptance to be valid must be in writing, signed by the drawee, and
must contain an express or implied promise to pay money.
 It is necessary that the acceptance be delivered or made known to the
holder.

How acceptance is made?

 Acceptance is usually made by writing across the face of the bill the word
“accepted” under which the drawee signs his name with the date also
written.
 The law does not require any particular form or word or words to constitute
acceptance. Any equivalent word or expression such as “honored”, “seen”,
“presented”, “good”, “I would pay” or the signature of the drawee without
more is valid as acceptance. What is important is that an intention to accept
may be inferred from the words used.

Holder entitled to acceptance on face of bill (Sec. 133)

Where acceptance may be made?

o Acceptance may be made on the bill itself or on a separate instrument such
as in a letter or telegram
Sec. 133 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.
Acceptance on a separate paper may either be an acceptance of an existing bill or an
acceptance of a future or non-existing bill. In a constructive acceptance, there is no actual
written acceptance by the drawee
Acceptance by separate instrument (Sec. 134)
Section 134 requires that:
 The acceptance be shown to the person to whom the instrument is
negotiated
 Such person must take the bill for value on the faith of such
acceptance
Where the acceptance is written on a paper other than the bill itself, in order to bind the
acceptor.
An example of the foregoing is acceptance by letter. Thus, a letter from the drawee to the
drawer accepting a draft is not binding in favor of one who never saw the letter or
advanced money on the faith thereof.

Promise to accept: when equivalent to acceptance (Sec. 135)

Section 135 provides that:
 A promise to accept is good to any person who “upon the faith thereof
receives the bill for value”
Section 134 provides that an extrinsic acceptance must be in writing and is good only to
persons to whom it is shown. On the other hand, section 135 provides that a promise to
accept is good to any person who upon faith thereof receives the bill for value.
The promise to accept a future non-existing bill must be unconditional and in writing.

Time allowed drawee to accept (Sec. 136)

 The drawee is allowed twenty-four hours after presentment in which to
decide whether or not he will accept the bill; but the acceptance, if given,
dates as of the day of presentation.
Since the drawee by accepting the instrument becomes liable on the bill as an acceptor,
the law gives him time to make up his mind whether to accept or reject the bill
Under this section, the drawee has 24 hours after presentment for acceptance within
which to act upon the bill. However, should he decide to accept the bill, the acceptance
shall be dated as of the day of presentation or the date when he first saw the bill
Liability of drawee retaining or destroying bill (Sec. 137)
 Section 137 treats of constructive acceptance by operation of law.

There is constructive acceptance

 Where the drawee to whom a bill is delivered for acceptance destroys it
 Constructive acceptance should not be confused with implied acceptance,
which is acceptance inferred from any act or conduct of the drawee
 An accidental destruction would not constitute acceptance.
 The word “refused” in Section 137 implies that a demand for the return of
the bill has been made but such demand was refused.
 c. RULE WHEN INCOMPLETE BILL IS ACCEPTED (SEC. 138)

Acceptance of incomplete bill (Sec. 138)

A bill may be accepted before it has been signed by the drawer, or while otherwise
incomplete, or when it is overdue, or after it has been dishonored by a previous refusal to
accept, or by non-payment. But when a bill payable after sight is dishonored by non-
acceptance and the drawee subsequently accepts it, the holder, in the absence of any
different agreement, is entitled to have the bill accepted as of the date of the first
presentment
 2. GENERAL STEPS IN ENFORCING LIABILITY

B. PROMISSORY NOTES

II. IF DISHONORED BY NON-ACCEPTANCE

Notice of dishonor is 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 has not been paid and that the party notified is expected to pay
it. (Martin v. Brown)
 2. GENERAL STEPS IN ENFORCING LIABILITY

B. PROMISSORY NOTES

III. IF ACCEPTED

When instrument dishonored by non-acceptance (Sec. 83)

 The instrument is dishonored by non-payment when;
 It is duly presented for payment and payment is refused or cannot be
obtained or
 Non-payment upon due presentation
o That the instrument is duly presented for payment to
the party primarily liable thereon; and
o That payment is either refused or cannot be obtained.
That payment is either refused or cannot be obtained. In other words, an instrument is
dishonored by non-payment as long as it is not paid although the primary party may be
willing to pay. Thus, there is already dishonor where, on presentment, the maker promises
to pay five days later.
 Presentment is excused and the instrument is overdue and unpaid
 Non-payment without presentation
 Presentment is excused
 The instrument is overdue and
 It is unpaid
Thus, if presentment is waived, the instrument is deemed dishonored if it is overdue and
unpaid even if the holder did not make presentment. But where there has been no
presentment for payment and presentment is not excused, the instrument is not
dishonored although it is already overdue and unpaid.

Liability of person secondarily when instrument is dishonored (Sec. 84)

As to the holder, after an instrument is dishonored by non-payment, the persons
secondarily liable become the principal debtors and he need not proceed against the
person primarily liable before suing them
Effect of dishonor by non-payment
o Accrual of right of recourse against secondary parties
The law says subject to the provisions of this act. This means
that the immediate right of recourse against secondary parties
will accrue only after the giving of due notice of dishonor to
them

o Right immediately available

The right of recourse to all parties secondarily liable means
the right of the holder to enforce the liabilities of said parties.
This right is immediate because the holder may immediately
bring suit against the secondary parties and the latter cannot
interpose the defense that the suit should have been brought
first against the maker or acceptor.