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Negotiable Instruments Law EH 401 WWW Finals
October 11, 2019
NEGOTIATION vs ASSIGNMENT
Both are transfers from one person to another but in negotiation, it constitutes the
transferee the holder of the instrument.
CONCEPT OF HOLDER
Section 191.” Holder” means the payee or indorsee of a bill or note who is in possession of
it, or the bearer thereof;
If it’s payable to bearer, it is either the payee or the bearer of the instrument taking
possession. If it’s payable to order, it has to be the payee or the indorsee taking possession
of the instrument.
IF A HOLDER IS A THIEF. Although it may be true in a bearer instrument that a thief can
be a holder, there is still a need for the instrument to be negotiated. There was no delivery
for someone who just stole it, hence, regardless of the instrument, a thief cannot be a
holder.
1. Payable to Order – negotiated by indorsement completed by delivery
2. Payable to Bearer- mere delivery can complete the negotiation
CONCEPT OF DELIVERY
Section 191. “Delivery” means the transfer of possession, actual or constructive, from one
person to another;
a. Actual Delivery
b. Constructive Delivery – the transferor did not physically handed the instrument to
the intended holder
NOTE : Immaterial because both have the same effect.
CONCEPT OF INDORSEMENT
Indorsement – the act of writing a signature, other than the signature of the drawer, maker,
or acceptor, on the instrument.
It came from the word “indorsa” which means signing at the back but lthough it is a practice
that it is placed in the back, placement of the signature is actually not essential for as long
as it is not the signature of the maker, drawer, or acceptor.
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TRIVIA : Indorsement and Endorsement are actually the same. Indorsement is practiced
by the Americans while Endorsement is practice by the English and Europeans.
Section 31. Indorsement; how made. – The indorsement must be written on the instrument
itself or upon a paper attached thereto. The signature of the indorsement, without additional
words, is sufficient indorsement.
Concept of Allonge
Q: Can an endorsement be written on a separate sheet of paper?
A: Yes. Section 31, NIL provides, the indorsement must be written on the instrument itself
or on a paper attached thereto. The signature of the indorser, without additional words, is
sufficient indorsement.
Q: Why must it be attached?
It must be attached so it may form part of the instrument. Because an indorsement must be
on the instrument itself. This is so that parties will know such endorsement is part of the
instrument itself.
Several Payees or Indorsees in the Indorsement
I promise to pay P5000 to X or order.
Sgd. Y
Negotiable? Negotiable.
Dorsal portion
1. Pay to A or B
Sgd. C
2. Pay to A and B
Sgd. C
Q: Is there a valid indorsement?
A: The 1st example is NOT a valid indorsement. The 2nd example is a VALID indorsement.
The reason is that in the first example, there is likelihood that when it’s negotiated by one
of them, the other may not agree as to whom it should be negotiated. It is unlikely to
happen in the second example because both of them have to agree before there can be
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further negotiation. Under Sec. 41, if the indorsees are not partners, all of them must
indorse.
Sec. 41. Indorsement where payable to two or more persons. - Where an instrument is
payable to the order of two or more payees or indorsees who are not partners, all must
indorse unless the one indorsing has authority to indorse for the others.
I promise to pay P10,000 to the order of X or Y.
Sgd. Z
Q: How come the example above is a negotiable instrument? How will it be indorsed? Why
is this valid?
A: It complies with the requisites of a negotiable instrument. It can be indorsed by either of

them. There really is no answer as to why this is valid because De Leon and other authors
did not provide for any explanation but what we can probably infer is that there is still less
parties involved at that point. There are only three parties involved but if subsequently,
there are added parties then there could be multiplicity of suits.
I promise to pay P10,000 to the order of X.
Sgd. C
Pay to A P5,000 and B P5,000.
Sgd. X
Q: Is there a valid indorsement?
A: No. First, because there is now material alteration. The obligation in the instrument
is indivisible but when it was negotiated, it changed the obligation of the parties by making
it a divisible, therefore, there is material alteration. Second, this will encourage
subsequent partial negotiation of the instrument. In the example, it is not yet a partial
indorsement but if it is allowed, A can subsequently negotiate the instrument to D and E for
P2,500 each and B will negotiate it to F and G for P2,500 each.
----After break ---
Instrument:
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Indorsement1:
Indorsement 2:
Indorsement2:
Q: Are the indorsements valid or not?
A: Indorsement 1 - Not valid. It is still PARTIAL INDORSEMENT. It’s only P4,000 even if
the first amount due on 1/2/2020. The fact that it is not for the full amount, renders the
instrument as partially indorsed.
On the other hand, Indorsement 2 becomes valid depending on WHEN the instrument was
indorsed. If it was indorsed after the first instrument has been paid-the first installment,
then the negotiation for the P6,000 will already be considered as a valid indorsement as
provided in the last sentence in Section 32.
You can then have partial indorsement only in relation to instrument that can be partially
paid as in the case of an instrument with stated installments.
KINDS OF INDORSEMENT
1. Special
2. Blank
3. Restrictive
4. Qualified
5. Conditional
Sec. 33. Kinds of Indorsement. - An indorsement may be either special or in blank; and
it may also be either restrictive or qualified or conditional.
Blank Indorsement vs. Special Indorsement
Blank Indorsement - specifies no indorsee, instrument so indorsed is payable to bearer

and may be negotiated by delivery.
Special Indorsement - specifies the person to whom/ to whose order the instrument is to
be payable.
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Main Difference: There is an indicated indorsee in a special indorsement whereas there is

none in a blank indorsement.
Q: Can you convert a Blank Indorsement into a Special Indorsement?
A: Yes. It’s not only allowed to instances where the instrument was initially indorsed with
special indorsement. It can be that for as long as there is blank indorsement, it can be
converted into a special indorsement.
Q: How would you convert this instrument into a Special Indorsement?
A: By inserting the name of the indorsee and it is the holder who will insert the name of the
indorsee in the instrument. Otherwise, if it would still be X who has to write it then that
would be a special indorsement already and the instrument would have never been indorsed
in blank.
Q: But the question is: Why would A even convert a blank indorsement to a special
indorsement? If you were A, would you convert the blank indorsement to a special
indorsement? Why?
A: It’s really to protect the holder in case the instrument gets lost because of his or her
negligence. So that the instrument cannot be negotiated by delivery, it would be in your
best interest if you convert the blank instrument to a special indorsement.
So this may just be relevant in case the instrument is originally an order instrument.
Although that may be said, it can still be done in relation to a bearer instrument. No one
can stop you if you want to convert a blank indorsement to a special indorsement but it’s
most relevant in an order instrument because once the order instrument contains a blank
indorsement, there’s a possibility that it can be converted as a bearer instrument and can
continue to be so unless it is again specially indorsed. So there is less security if it remains
to be a blank indorsement then.
Restrictive Indorsement
Q: What is a restrictive indorsement?
A: An indorsement which limits the rights of the indorsee.
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Section 36. When indorsement restrictive. – An indorsement is restrictive which either–
(a) Prohibits the further negotiation of the instrument; or

(b) Constitutes the indorsee the agent of the indorser; or
(c) Vests the title in the indorsee in trust for or to the use of some other person.
But the mere absence of words implying power to negotiate does not make an indorsement
restrictive.
Q: What do you mean you can restrict as to the persons to whom the instrument
can be indorsed?
A: In Section 36 (a), there really is no question that this prohibits the further negotiation of
the instrument as stated therein. No need to actually construe that. That’s how it is stated.
In fact, this is further supported by Section 47.
Section 47. Continuation of negotiable character. – An instrument negotiable in its

origin continues to be negotiable until it has been restrictively indorsed or discharged by
payment or otherwise.
TN: One instance when an instrument ceases to be negotiable is when it is restrictively

indorsed, but this is not applicable to all types of restrictive indorsements. It’s only
applicable to paragraph (a) of Section 36. The two other types of restrictive indorsements
can still be negotiated.
Q: What is the legal basis for saying that restrictive indorsements under Section
36 (b) & (c) can still be further negotiated?
A: Section 37 paragraph (c). This provision tells us that even if an instrument has been
restrictively indorsed, there is still a way to further negotiate such instrument, but only if it
allows you to do so.
Section 37. Effect of restrictive indorsement; rights of indorsee. – A restrictive

indorsement confers upon the indorsee the right –
(a) To receive payment of the instrument;
(b) To bring any action thereon that the indorser could bring;
(c) To transfer his rights as such indorsee, where the form of the indorsement authorizes
him to do so.
But all subsequent indorsees acquire only the title of the first indorser under the restrictive
indorsement.
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TN: While Section 37 (c) cannot be applied to Section 36 (a) since it prohibits further
negotiation of the instrument, Section 36 (b) & (c) did not say that you cannot further
negotiate the instrument.
Q: When the instrument has already been restrictively indorsed, will subsequent
parties be bound by restrictive indorsements?
A: Yes. The last paragraph of Section 37 says that all subsequent indorsees acquire only the
title of the first indorser under the restrictive indorsement. Therefore, subsequent indorsees
are bound by the restrictive indorsement, and what they can acquire are only the rights
placed under that restrictive indorsement.
Illustrations:
1. Section 36 (a)
Pay to A only.
Sgd. X
Q: What happens if it is subsequently indorsed to B?
Pay to B only.
Sgd. A
A: Under Section 36 (a), the instrument ceases to be negotiable at the point where it is
restrictively indorsed. So if there is already a restrictive indorsement under Section 36 (a)
and it is further negotiated, it is not actually a valid negotiation. At best, it is only
considered an assignment, because the instrument is already considered non-negotiable. A
non-negotiable instrument cannot be validly negotiated; it can only be transferred or
assigned. Therefore, B cannot be considered a holder of the instrument, but a mere
assignee.
2. Section 36 (b)
To A, for collection.
Sgd. Q
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Q: What is the consequence of the subsequent indorsement by A of the

instrument?
To B
Sgd. A
A: B will now hold the instrument for collection.
Q: Is B considered a holder of this instrument?
A: Yes, but only for collection as the agent of A.
Q: What will be the effect if B further negotiates the instrument to C?
To C
Sgd. B
A: C will also hold the instrument for collection.
Q: In this case, the principal is Q. The agents are A, B, and C. Their right is to
collect for and in behalf of Q. But does that mean that if C being the last holder of
the instrument, having received payment from the maker, is he required to give
the money back to Q?
A: No. That would be double compensation because when Q negotiated the instrument to A,
A was required to give Q value/consideration for the instrument. Therefore, C will no longer
be required to give the money he collects to Q.
Q: When payment is made to C, does that cause the discharge of the instrument?
A: Yes. As a holder in due course, C has the right to receive payment. It’s just that when he
exercises his rights, his rights are always in representation of the principal, Q. Since Q has
already received value for the instrument, therefore, when C receives payment from the
person primarily liable, it can cause the discharge of the instrument.
Q: Subsequent indorsees become agents of the principal, and thus have the right
to collect payment, which is the entire point of a negotiable instrument. So in a
way, that’s not to supposed to restrict. But why is this an example of a restrictive
indorsement? What other right can subsequent indorsees not exercise?
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A: They cannot sue under their own name. Since there are merely agents of the principal,
they can only sue in representation of the principal.
3. Section 36 (c)
Pay to A in trust for B
Sgd. Q
Q: What is the effect if the instrument is further negotiated?
Pay to C
Sgd. A
A: C only acquires the right of the first indorsee, A. Therefore, C will also receive payment
in trust for B.
Q: If C receives payment from the person primarily liable, can he be required to

return the amount to B?
A: Yes. Since C is merely holding the amount in trust for B. Therefore, upon receiving
payment, his obligation is to give it to B.
Q: What happens to the value that C gave when the value was indorsed to him by
A?
A: Even if C already gave value for the instrument when A indorsed it to him, C will still
have to give B the amount he will collect. Since he only acquired the title of A over the
instrument, he is also restricted to hold the instrument in trust for B. Therefore, whatever
he receives for the instrument, he has the obligation to turn it over to B.
Q: Does payment to C discharge the instrument?
A: Yes. When C receives payment from the person primarily liable at the time the
instrument is already mature, it will discharge the instrument. But it does not negate C’s
liability to give the payment back to B.
(For C to accept the instrument despite the instrument saying that it is only “in trust for B”,
there must have been an internal arrangement between B and him, or perhaps Q and A. But
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as a general rule, even if C gave value for the instrument when it was indorsed to him, he
will still have to give to B the payment that he will receive for the instrument.)
Qualified Indorsement
Q: What is a Qualified Indorsement?
A: It limits the liability of the indorser.
Section 38. Qualified indorsement. - A qualified indorsement constitutes the indorser a

mere assignor of the title to the instrument. It may be made by adding to the indorser’s
signature the words “without recourse” or any words of similar import. Such an indorsement
does not impair the negotiable character of the instrument.
Q: How does it limit the liability of the indorser?
A: The indorser will not be liable for the insolvency of the person primarily liable.
Q: How do we qualify an indorsement?
A: Add words like “without recourse”.
Illustration:
Pay to X without recourse.
Signed B.
Q: What does “without recourse” mean?
A: You cannot go back to whoever made that qualifying indorsement in case the instrument
is not paid, unless it constitutes a breach of his warranties. That is how it should be
understood.
It does not mean automatically that he is not liable in case of insolvency. That’s just the
shortcut of it. Most likely if you compare the warranties of a general indorser and that of a
qualified indorser, what you cannot find there is the warranty of solvency, as well as the fact
of knowledge or notice. The qualified indorser can only be said to be in breach of his
warranty if he happens to have knowledge. It is not limited to insolvency. There could be
other instances, as long as there is a breach then you can go after the qualified indorser.
Q: In case the instrument has a forgery, can you go after the qualifying indorser?
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A: Yes. Because it is a breach of his warranty that the instrument is genuine in all respects
what it purports to be and that he has a good title to it.
Q: If X further negotiated the instrument to Y, will Y be bound by the qualified

indorser?
A: Y is bound by the qualified indorsement, in the sense that he still cannot go after C in
case the reason is not in breach of the warranty.
Every time there is a special (restricted, qualified, or conditional) kind of indorsement, all
parties subsequent to it will be bound by such kind of indorsement.
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OCTOBER 12,2019
QUALIFIED INDORSEMENT
Warranties of a Qualified Indorser
Section 65.Warranty where negotiation by delivery and so forth. – Every person negotiating
the instrument by delivery or by a qualified indorsement warrants :
a. The instrument is genuine and in all respects what it purports to be;
b. That he has good title to it;
c. That all prior parties had the capacity to contract;
d. That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder
other than the immediate transferee.
If there is any circumstance to the negotiation of an instrument where there is qualified

indorsement and there is a breach in any of that warranty, that means that the qualified
indorser can be required to pay but in any other circumstances where the instrument is not
paid but there appears to be no breach of warranty, the qualified indorser can never be
required to pay.
Effects of a Qualified Indorsement
In an order instrument, instrument was issued by M to P. P did not indorse the instrument
but in came into the hands of A who forged that it was indorsed by P. A negotiated the
instrument to B who made a qualified indorsement. B then negotiated the instrument to C.
C to D. D went to M. M refused to make payment because of the purported forgery.
a. Can D pursue B in this case?
Yes, D can go after B because B breach his warranty that the instrument is genuine and in
all respect what it purports to be and that he has good title to it.
b. Supposing M refused to pay because he is insolvent, D cannot go after B

because as a qualified indorser, he did not warrant the solvency of M. B did not breach his
warranty.
Remember : the last paragraph of Section 66 warrants solvency for general indorsers. Since
B is a qualified indorser, he cannot be held liable under such provision.
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Section 66 – Liability of general endorser – Every indorser who indorses without

qualification warrants to all subsequent holder in due course :
xxx
And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both,
as the case may be, according to its tenor, and that if it be dishonoured and the necessary
proceedings on dishonour be duly taken, he will pay the amount thereof of the holder, or to
any subsequent indorser who maybe compelled to pay it.
c. If B knows that M is insolvent, B would be liable because Section 65 (d) provides

“that he has no knowledge of any fact which would impair the validity of the instrument or
render it valueless.” The instrument is rendered valueless by the fact of M’s warranty.
d. In case B doesn’t know but the insolvency of M is public knowledge, D can still
go after B because B cannot feign ignorance. It’s still a breach of his warranty under
Section 65(d).
CONDITIONAL INDORSEMENT
Section 39. Conditional Indorsement - Where an indorsement is conditional, the party

required to pay the instrument may disregard the condition and make payment to the
indorsee or transferee whether the condition has been fulfilled or not. But any person to
whom the instrument so indorsed is negotiated will hold the same, or the proceeds thereof,
subject to the rights of the person indorsing conditionally.
This does not render the instrument non-negotiable because the condition imposed is on the
indorsement, not in the order or the promise. In the case of Caltex, the negotiability of an
instrument is to be determined on the face of the instrument. Section 47 never mentions
that a conditional indorsement ceases the negotiable character of the instrument.
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C and D are bound by the condition given to A. In case D collects payment, D will hold the
proceeds in trust of B. Although B paid A, A did not acquire title to it because it’s subject to
a condition.
In case condition is not complied with, A is supposed to return the payment. A can however
negotiate it because it is not prohibited. Whoever is the last holder of the instrument which
is the person who will receive the proceeds from the person primarily liable will hold the
proceeds subject to the fulfilment of the condition.
INDORSEMENT OF INSTRUMENT PAYABLE TO BEARER
Section 40. Instrument of Instrument Payable to Bearer – Where an instrument, payable to

bearer is indorsed specially, it may nevertheless be further negotiated by delivery; but the
person indorsing specially is liable as indorser to only such holders as make title through his
indorsement.
Section 40 applies to instrument originally payable to bearer. This is an exception to the

general rule that in a bearer instrument, the holder can only go after the immediate
transferor or the person who delivered the instrument to him. The general rule only applies
if the instrument was merely delivered.
One can still deliver the instrument by indorsement but this is subject to legal effect. The
person who indorsed will be liable as a general indorser but only as to person who can trace
their title to the indorser’s indorsement.
“trace their title through an indorsement “ – it is a series of unbroken indorsement
Illustration : A bearer instrument was issued by X to P and then indorsed it to A. A

indorsed it to B. B indorsed the instrument to C. C delivered the instrument to D.
a. Can D go after X?
D can go after X because he is the person primarily liable.
b. In case X doesn’t pay, Can D go after A or B?
No, he cannot go after A or B because it was broken by the mere delivery of C to D.
c. If C was compelled to pay D, from whom can he demand payment?
C can demand payment from A,B, or P because he can trace his title.
Let’s complicate!
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G can only claim up to D because there is now a series of unbroken indorsement. From D to
E, all of them indorsed.
An order instrument is easier to understand because it doesn’t matter whether it was

indorsed or delivered. Whoever made an instrument, will always be liable to the subsequent
parties. The indorsement will be extended to all parties whether they receive the instrument
by delivery or by indorsement. The transferor who delivered it by mere delivery cannot be
held liable because he only extended warranty to his immediate transferee.
OCTOBER 12, 2019
QUALIFIED INDORSEMENT
Warranties of a Qualified Indorser
Section 65.Warranty where negotiation by delivery and so forth. – Every person negotiating
the instrument by delivery or by a qualified indorsement warrants :
a. The instrument is genuine and in all respects what it purports to be;

b. That he has good title to it;
c. That all prior parties had the capacity to contract;
But when the negotiation is by delivery only, the warranty extends in favor of no
holder other than the immediate transferee.
If there is any circumstance to the negotiation of an instrument where there is qualified

indorsement and there is a breach in any of that warranty, that means that the qualified
indorser can be required to pay but in any other circumstances where the instrument is not
paid but there appears to be no breach of warranty, the qualified indorser can never be
required to pay.
Effects of a Qualified Indorsement
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MPABCD
(F) (QI)
In an order instrument, instrument was issued by M to P. P did not indorse the instrument
but in came into the hands of A who forged that it was indorsed by P. A negotiated the
instrument to B who made a qualified indorsement. B then negotiated the instrument to C.
C to D. D went to M. M refused to make payment because of the purported forgery.
a. Can D pursue B in this case?
Yes, D can go after B because B breach his warranty that the instrument is genuine and
in all respects what it purports to be and that he has good title to it.
b. Supposing M refused to pay because he is insolvent, D cannot go after B

because as a qualified indorser, he did not warrant the solvency of M. B did not
breach his warranty.
Remember : the last paragraph of Section 66 warrants solvency for general
indorsers. Since B is a qualified indorser, he cannot be held liable under such
provision.
Section 66 – Liability of general endorser – Every indorser who indorses without qualification warrants
to all subsequent holder in due course :
xxx
And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as
the case may be, according to its tenor, and that if it be dishonoured and the necessary proceedings on
dishonour be duly taken, he will pay the amount thereof of the holder, or to any subsequent indorser who
maybe compelled to pay it.
c. If B knows that M is insolvent, B would be liable because Section 65 (d)
provides “that he has no knowledge of any fact which would impair the validity of
the instrument or render it valueless.” The instrument is rendered valueless by
the fact of M’s warranty.
d. In case B doesn’t know but the insolvency of M is public knowledge, D can
still go after B because B cannot feign non-knowledge. It’s still a breach of his
warranty under Section 65(d).
CONDITIONAL INDORSEMENT
Section 39. Condtional Indorsement - Where an indorsement is conditional, the party

required to pay the instrument may disregard the condition and make payment to the
indorsee or transferee whether the condition has been fulfilled or noty. But any person to
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whom the instrument so indorsed is negotiated will hold the same, or the proceeds thereof,
subject to the rights of the person indorsing conditionally.
This does not render the instrument non-negotiable because the condition imposed is
on the indorsement, not in the order or the promise. In the case of Caltex, the negotiability
of an instrument is to be determined on the face of the instrument. Section 47 never
mentions that a conditional indorsement ceases the negotiable character of the instrument.
Pay to A upon his passing of

the NIL.
Sgd. B
Pay to C.
Sgd. A
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Pay to D.
Sgd. C
C and D are bound by the condition given to A. In case D collects payment, D will
hold the proceeds in trust of B. Although B paid A, A did not acquire title to it because it’s
subject to a condition.
In case condition is not complied with, A is supposed to return the payment. A can
however negotiate it because it is not prohibited. Whoever is the last holder of the
instrument which is the person who will receive the proceeds from the person primarily
liable will hold the proceeds subject to the fulfilment of the condition.
INDORSEMENT OF INSTRUMENT PAYABLE TO BEARER
Section 40. Instrument of Instrument Payable to Bearer – Where an instrument, payable to

beaer is indorsed specially, it may nevertheless be further negotiated by delivery; but the
person indorsing specially is liable as indorser to only such holders as make title through his
indorsement.
Section 40 applies to instrument originally payable to bearer. This is an exception

to the general rule that in a bearer instrument, the holder can only go after the immediate
transferor or the person who delivered the instrument to him. The general rule only applies
if the instrument was merely delivered.
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One can still deliver the instrument by indorsement but this is subject to legal effect. The
person who indorsed will be liable as a general indorser but only as to person who can trace
their title to the indorser’s indorsement.
“trace their title through an indorsement “ – it is a series of unbroken indorsement
X P(I)A (I) B (I) CD
Illustration : A bearer instrument was issued by X to P and then indorsed it to A. A indorsed

it to B. B indorsed the instrument to C. C delivered the instrument to D.
a. Can D go after X?
D can go after X because he is the person primarily liable.
b. In case M doesn’t pay, Can D go after A or B?
No, he cannot go after A or B because it was broken by the mere delivery of C to D.
c. If C was compelled to pay D, from whom can he demand payment?
C can demand payment from A,B, or P because he can trace his title.
Let’s complicate!
X P(I)A (I) B (I) CD(I)E(I) F(I) G
G can only claim up to D because there is now a series of unbroken indorsement.

From D to E, all of them indorsed.
An order instrument is easier to understand because it doesn’t matter whether it was

indorsed or delivered. Whoever made an instrument, will always be liable to the subsequent
parties. The indorsement will be extended to all parties whether they receive the instrument
by delivery or by indorsement. The transferor who delivered it by mere delivery cannot be
held liable because he only extended warranty to his immediate transferee.
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October 18, 2019
AFTER BREAK ---
So who should indorse?

Any of them
In this case who should indorse? (sorry no copy of the illustration)
It is only the one who is given authority to indorse. It doesn’t mean that one is given the
authority to represent another then they can automatically indorse. It is only the only who
is given authority to indorse.
If the instrument is payable or indorsed to a corporation, how will it be further

negotiated?
It will be the one who is duly authorized by the corporation
How does the corporation authorize a person to negotiate or sign an instrument?
It is through a board resolution. It can be contained the board resolution itself or in the
secretary certificate.
The secretary certificate issued to who is the secretary authorized by the members of the
board. This is normally true in issuing a check. A check can be payable to the corporation, in
fact the transaction between the corporation with another person or another entity will
always have payment to that corporation otherwise there will be an issue to your
transaction later on.
So the endorsement will only be made by the person duly authorized by the corporation.
In actual practice, a bank requires a corporation to issue a secondary certificate in fact it

must be updated every year as a requirement.
What if misspelled?
If he wants to further negotiate the instrument then he will just then sign the instrument
and indicate the correct spelling. But it has to establish that intention really is to negotiate it
to you.
So only when it is established that you are the person referred to then there is misspelled in
the spelling then you can correct. After all, it doesn’t matter because what only matters is
that there is a signature. That’s what required in an endorsement. That’s why the law seems
to be lenient in terms of spelling.
How will you endorsed n a representative capacity so that you will not be held
personally liable?
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Under Section 20 if you want to get away liability in endorsing in representative capacity
you must indicate the name of your principal as well as your capacity for signing instead of
just signing your name and indicating the name of the principal you can write herefor, by
or simply put yourself as agent.
What if there is PP?
PP for procuration means that the person is negotiating in a representative capacity but
such authority to render is limited.
That requires then that every person dealing with the instrument has to inquire what the
capacity is or what is the limit granted to the person.
What is the assumption of the time of indorsement?

Endorsement is made before maturity of the instrument.
Why is it presumed that way?
Because the owner has to become the holder of the instrument before the instrument
become overdue. Endorsement after maturity of the instrument can never make a person a
holder in due course.
How about the presumption of where the instrument is dated?
It is where he instrument is endorsed. The reason for that is to establish which law govern
the party that’s why it is presumed where the place of endorsement made. It is specifically
true to a foreign instrument where different particular laws may be applied.
Example: an instrument issued in the United States that is payable here in Philippines so all
the endorsement there are said to be governed by the laws of the US if it is not indicated
where the issuance was made even if it is payable here in the PH
When you are legally allowed to strike out an endorsement?

It’s allowed to strike when the endorsement is not necessary to your title.
How do you know that the endorsement is not necessary to your title?
When you can still have the title without the endorsement
Illustration: (payable to bearer )
21
I D I I D I
M----P----A----B----C----D----E----F
Who can strike out an endorsement?
F, the holder
Which endorsements can F strike out?
All endorsement in a bearer instrument can be stricken out even if it is from your immediate
transferor.
What is the effect if you strike out an endorsement?
The endorser of such endorsement will be discharged and the holder cannot go after them.
Section 40 provides that the endorser whose endorsement is struck out and all endorsers
subsequent to him are relieved from liability on the instrument.
What is the reason why endorsers subsequent to parties whose endorsements are
stricken out are discharged from there liabilities?
It is because the subsequent parties can no longer go to the parties being struck out. Since
they no longer have the right to go after that person it is only just and right that they are
discharged from the liabilities.
When C is stricken out and discharged from his liabilities. What happen to the liability of D
then in case D is the one compelled to pay, what is his recourse? D will lose his recourse
22
over such prior party. That’s why it is only appropriate that they be discharged as well. So
when you are deprived of your remedy to go after prior party in case of stricken out then
you will also be discharged from your liability.
In bearer instrument the moment you strike out a particular endorsement that means you
are already discharged his liability.
Illustration: (order instrument)
SI BI D D SI BI D
M----P-----A-----B----C----D-----E-----F----G
Who can make the striking out?
G, the holder
Who’s endorsement can G strike out?
In an order instrument endorsement is necessary for instrument to be further negotiated

except when it is converted to a bearer instrument.
How will it be converted into a bearer instrument?
When the last endorsement is endorsed in blank.
Which one will be stricken out?
Only E-F because the right of F to deliver the instrument to G is not affected because there
is still a blank endorsement left in fact that will become the last endorsement which is
further negotiated through delivery.
Remember in an order instrument find the first blank instrument after the first blank
endorsement all other endorsement maybe stricken out.
23
What is the danger there?
The holder has lesser party to go after in case the instrument is dishonored. A party
secondarily liable is only a few.
What happen if the instrument is supposed to be negotiated but requires to be

endorsed and yet it is not endorsed by merely delivered?
The transfer operates only as an assignment such that the person who receives is only an
assignee and not considered a holder.
However, he has the right to compel the assignor to negotiate the instrument and only
when the instrument is endorse that he becomes a holder. There must be an intention to
negotiate the instrument.
Can prior party reacquire the instrument?
Yes as long as the instrument is not yet overdue. The instrument can be further negotiated
before maturity and be negotiated back to the prior party.
What is the effect if the prior party reacquires the instrument?
The prior party who reacquires the instrument becomes the holder and he cannot go after
the intervening parties.
Illustration:
M----P----A----B----C----A----D----E
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In the example the intervening parties are B and C. A cannot go after them in case A is
made to pay the instrument.
Supposed to be the rule is the prior parties can be pursued by the subsequent party. In
which case, here B and C, A turned out as subsequent party however A is originally a prior
party he just reacquire the instrument. A is reverted to his original position and B and C
cannot be compelled to pay A.
If this is stricken out, can the endorsement of A-B and B-C be stricken out?
Yes because they are no longer necessary to the title of C.
Actually A can go from B and C if A will not strike out the endorsement.
Can the endorsement of A-B be stricken out?
Yes because it is the endorsement of P to A that made A a party.
Can C-A endorsement be stricken out?
Yes because again only the endorsement of C to A is necessary for A to remain a party.
The proper determination would be, do not strike out the endorsement of A-B otherwise E
has no one to go after because striking out A-B will remove A from the parties. The
endorsement of A-B is actually necessary to the title of C but it is the endorsement of C-A
which is not necessary.
What are the rights of the holder?
General rights:
1. Right to sue
2. Right to receive payment
3. Right to the discharged of the instrument in case a holder in due course
What is the additional right granted to a holder in due course?
Right to enforce the instrument free from defenses of prior parties or free form the defect of
prior parties. Because of this additional right then it matters who is the holder in due course
and who is not a holder in due course.
(Review: When can one become a holder in due course? Section 52)
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Sec. 52 What constitutes a holder in due course- A holder in due course is a holder who has
taken the instrument under the following conditions:
a. That it is complete and regular upon its face;

b. That he became the holder of it before it was overdue, and without notice that it has
been previously dishonored, if such was the fact;
c. That he took it in good faith and for value;
d. That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
That it is complete and regular upon its face;
Complete- the instrument complied with all requirements under Sec.1 of the NIL
Regular- the instrument is authentic and there are no apparent alterations on the
instrument
That he became the holder of it before it was overdue, and without notice that it
has been previously dishonored, if such was the fact;
Q: When is an instrument overdue?
A: After maturity of the instrument, if there is a maturity date indicated. If there’s none,
within a reasonable time depending whether it is a promissory note or a bill of exchange.
With regard to promissory note, reasonable time is from the date of issuance. And for bill of
exchange, reasonable time is from the date of last negotiation.
Q: Can an instrument be dishonored even before maturity?
A: Yes, in the case of Bill of Exchange since it can be dishonored through non-acceptance by
the drawee.
That he took it in good faith and for value;
Q: When are you considered in good faith?
A: When you are honest in your dealings or nothing in your transaction would have required
you to inquire and you failed to inquire. Nothing would have caused you to put you into a
position to make an inquiry.
Q: How are you considered a holder for value?
A: When you have given consideration sufficient to support a simple contract.
That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
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Q: When is it necessary to determine whether you are a holder in due course or not?
A: At the time the instrument was negotiated to you. (Further supplemented by Sec.54)
Q: What is infirmity of an instrument?
A: When the defect relates to the instrument itself, that’s when you say, it’s an infirmity.
Q: What relates to the instrument itself?
A: The way the instrument is drafted or prepared. For example, if an instrument does not
contain all material particulars, there is Section 14. The instrument is supposed to be dated,
but was not dated, we have Section 13.
Q: What is defect of title?
A: Defect of title relates to the parties.
Q: When can you have defective title?
A: Section 55
ABA: It can actually happen in two instances:
1. At the point of acquisition (person receiving)

2. At the point of negotiation (person negotiating)
So you also look at it at the perspective of the person receiving and of the person
negotiating.
At the point of acquisition (person receiving)- he can have a defective title if he receives the
instrument under FRAUD. Take note that the one who committed the fraud in this case is
the person acquiring the instrument.
Example: You promise to give an authentic diamond ring (a fake one) in exchange of a
check. Then you are considered to have defective title because you acquired the check by
defrauding the person who gave you the instrument.
Duress
It is when you acquire the instrument by pointing a gun to a person.
Force and fear
A gun was pointed to a person, he felt pain, so he just gave it the instrument to the
perpetrator.
Other unlawful means
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When a person was shot to acquire the negotiable instrument
Illegal consideration
You were selling shabu and received the negotiable instrument as payment. That’s a
defective title then on your part.
Take note: That’s a defective title on the perspective of the person receiving, therefore - at
the point of acquisition.
How can you have a defective title if you were the one negotiating the instrument?
If a person negotiated the instrument under a breach of faith or under such circumstances
as to amount to fraud.
Breach of Faith
You know that you stole the instrument and further negotiated it to another person.
“Faith” - This actually contemplates a situation where a person primarily liable already
informed you that the instrument is actually stolen. The person actually had defective title
from the point of acquisition, not just because he further negotiated the instrument. It’s
really because he stole it.
So that’s the point of acquisition. You already have a defective title. But for there to be a
breach of faith, whoever gave you the instrument must have informed you not to negotiate
the instrument further but just to keep it. And then what you did was to negotiate it further
- so you breached the faith of the person who entrusted the instrument to you. That’s when
you have a defective title.
Such other circumstances that would amount to fraud
You knew that the person primarily liable is insolvent and then you indorsed the instrument
qualifiedly. You have a defective title because you negotiated with knowledge that the
instrument is already valueless.
Take note: It is not enough that you know when there is defective title. What is important is
for you to know when there is notice of defective title because that’s what makes you a
holder NOT in due course.
When do you know that there is notice of defective title or infirmity of the
instrument?
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Sec. 56. What constitutes notice of defect. - To constitute notice of an infirmity in the
instrument or defect in the title of the person negotiating the same, the person to whom it
is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of
such facts that his action in taking the instrument amounted to bad faith.
Two instances:
1) actual knowledge
- the person receiving the instrument; the holder
- at the point that the instrument is negotiated to him
- when you know that a person giving the instrument to you just stole
the instrument
2) chargeable knowledge
- when there is apparent defect that will put the holder in a position to
inquire and he fails to do so
- circumstances that would amount to bad faith
- De Ocampo v. Gatchalian - In this case, you cannot consider the
holder there as a holder in due course because there is already bad
faith. He has chargeable knowledge of certain circumstances which
already amounted to bad faith. He should have inquired.
1) In that case, it was a crossed check.
2) Also, the spouses Gatchalian do not have an obligation to the
clinic. So why would a check from the spouses be used to make
payment to the hospital? He should have inquired whether the
spouses have an obligation to this particular person.
3) The amount there had a discrepancy which required him to give
a change.
NOVEMBER 8,2019
Important Provisions in the NIL - ***
V. LIABILITES OF PARTIES
SECTION 60.Liability of Maker. — The maker of a negotiable instrument by making it

engages that he will pay it according to its tenor, and admits the existence of the payee and
his then capacity to indorse.
SECTION 61.Liability of Drawer. — The drawer by drawing the instrument admits the
existence of the payee and his then capacity to indorse; and engages that on due
presentment the instrument will be accepted or paid, or both, according to its tenor, and
that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent indorser who may be compelled
29
to pay it. But the drawer may insert in the instrument an express stipulation negativing or
limiting his own liability to the holder.
Section 62. Liability of Acceptor. – The acceptor, by accepting the instrument, engages that
he will pay it according to the tenor of his acceptance and admits :
a. The existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument; and
b. The existence of the payee and his then capacity to indorse.
The acceptor allowed an instrument to be negotiated along with his approval. People will
accept on the faith that this was already accepted by that particular person. He was
demanded or ordered to make payment based on what was written by the draw which
means that he personally knows the drawer. He cannot free himself say by simply saying
that he does not know the drawer, therefore, he admits the following mentioned in the
stipulation.
Section 63. When a person is deemed indorser. – A person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser unless
he clearly indicates by appropriate words his intention to be bound in some other capacity.
The signature is usually placed at the back but if the person signs it anywhere, he is
deemed an indorser unless he is the maker, drawer, or acceptor.
SECTION 64.Liability of Irregular Indorser. — Where a person, not otherwise a party to an

instrument, places thereon his signature in blank before delivery, he is liable as indorser, in
accordance with the following rules:
a. If the instrument is payable to the order of a third person, he is liable to the payee
and to all subsequent parties.
b. If the instrument is payable to the order of the maker or drawer, or is payable to

bearer, he is liable to all parties subsequent to the maker or drawer.
c. If he signs for the accommodation of the payee, he is liable to all parties subsequent
to the payee.
Irregular Indorser –In a negotiable instrument, there can only be the drawer or a maker
who can be a party to the instrument prior to it being delivered but such person signs the
instrument before it is delivered.
He places his signature in blank to give additional credits. Since such nature is that of an
accommodation party, the person is liable to the accommodating party and all persons
subsequent to the one accommodated.
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Paragraphs a, b, and c shows that the person is liable to all the parties subsequent to the
party accomodated. The difference between paragraph a is that the payee is a third person
while in paragraph b, the payee is the drawer of the maker himself.
***SECTION 65.Warranty Where Negotiation by Delivery and So Forth. — Every person

negotiating an instrument by delivery or by a qualified indorsement warrants —
a. That the instrument is genuine and in all respects what it purports to be;
b. That he has a good title to it;
c. That all prior parties had capacity to contract;
But when the negotiation is by delivery only, the warranty extends in favor of no holder
other than the immediate transferee. The provisions of subdivision (c) of this section do not
apply to persons negotiating public or corporation securities, other than bills and notes.
Section 65 talks of a bearer instrument or an order instrument which was converted

temporarily into a bearer instrument or a qualified indorsement. As such, when you are a
person negotiating an instrument by delivery or by qualified indorsement, you cannot incur
liability but that you can be pursued for breach of warranty. The reason being is that you
don’t engaged to pay the instrument.
If you are negotiating by mere delivery, you’re only liable to your immediate transferee. If
it’s a remote party, the party cannot run after the person who delivered the instrument.
Section 65(d) is important because unless the person has personal knowledge or that it is a
public knowledge which the person negotiating by delivery or by a qualified indorsement
ought to know, such person can never be liable for breach of warranty.
***SECTION 66.Liability of General Indorser. — Every indorser who indorses without

qualification, warrants, to all subsequent holders in due course —
a. The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; and
b. That the instrument is at the time of his indorsement valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or both,
as the case may be, according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to
any subsequent indorser who maye compelled to pay it.
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Section 66, on the other hand, talks about liability. This is because of the second paragraph
of the provision mentioned above. There is the same warranty as that of a drawer which is
why they are considered as parties secondarily liable.
The conditions set forth in Section 65(d) does not apply for general indorsers. Whether
there is knowledge or not, because the person warranted that the instrument is valid and
subsisting,knowledge or notice is immaterial. One will always be liable for breach of
warranty aside from the liability. BUT OFCOURSE, there is no double compensation.
SECTION 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 liabilities
of an indorser.
Repitition of Section 40 of the NIRC.
SECTION 68. Order in Which Indorsers are Liable. — As respects 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.
“in the order by which they indorse” meant in the REVERSE order by which they indorse
because one can only hold the person prior to him liable and not the other way around.
“they have agreed otherwise” mean that there would be an agreement that if there is a
holder, the one agreed upon by the parties to be the first one liable should be run after.
This may not bind the holder though because this agreement cannot be seen in the face of
the instrument.
SECTION 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.
In order for the agent not to be personally liable, the agent must disclose the name of the
principal he is representing and that he is only acting in behalf of such principal.
14:00 - 28:00
JUJU...
28:00 - 42:00
(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.
The drawee is not able to make payment because he’s bankrupt (adjudged by a court order)
or insolvent (liabilities are more than the assets), or he’s not able to manage his affairs
32
because it’s assigned to a group of creditors. Whoever is authorized to manage, you can
present it to the drawee’s trustee, assignee or receiver.
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.
If the presentment is on a reasonable hour on a business day, business day does not
include weekends. The law contemplates the government business days which is Monday to
Friday. If the maturity date falls on a Saturday, you only have until Saturday to present the
instrument for acceptance (on or before the maturity date). It has to be before 12 noon
(11:59 AM) on a Saturday.
This is not the same with presentment for payment. Under Sec. 85, if it falls on a Saturday,
it is already on the next business day if the instrument is not payable on demand. If payable
on demand, it has to be presented on a Saturday before 12 noon (11:59 AM).
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.
If the holder is already pressed for time to present the instrument for acceptance and later
on for presentment for payment, that delay in the presentment for acceptance is excused.
This is only true if the instrument is payable elsewhere that at the place of business or
residence of the drawee and he has no time to present the bill for acceptance before
presenting it for payment.
Ex. You just got the instrument today and the instrument is already due today. Today
happens to be a Saturday, you only have until 11:59 AM. You received the instrument at 10
AM and the residence of the acceptor is in Talamban, the instrument is payable in
Lapu-Lapu. You will be able to present it for acceptance but most likely not for payment. In
that case, the delay for presentment for payment is excused. Because if you’re not able to
present the instrument for payment in time, parties secondarily liable will be discharged. In
this case, the presentment for payment can be done on the next business day.
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.
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Presentment for acceptance is excused. The drawee is dead, or has absconded (pasabot di
na jud na pakita nimu), or a fictitious person or does not have the capacity to contract
(even if you present it for acceptance, it will not bind the parties)
b. Where, after the exercise of reasonable diligence, presentment can not be made.
Wala siya ni abscond, didto gihapon siya nagpuyo sa ilang balay, di lang jud mo mag-abot
(Naruto joke: imung balay naa sa tunga sa field and you have to go to the house but naa
bodyguard, si Naruto. Magkage bunshin si Naruto, di jud ka kasulod. 😊
) After exercise of
reasonable diligence, di jud nimu ma present for acceptance ang instrument because Naruto
is there. You just have to prove that you tried to go there but Naruto was always there to
stop you.
c. Where, although presentment has been irregular, acceptance has been refused on
some other ground.
Acceptance was refused on some other grounds. In presentment for acceptance, there is no
place required unlike in presentment for payment because in payment you have to secure
the money. You have to make arrangements for that money to be delivered but for
acceptance, it’s easy to just write “Accepted”
Ex. You present it on a Sunday. Wala siya nireklamo ngano gipresent nimu on a Sunday but
nireklamo siya ngano ikaw ang nipresent. You did present the instrument but it was
irregular but the reason why it was refused was not because it was irregular but because he
☹
just doesn’t like you.
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
The instrument was dishonored because it was refused or you cannot secure the acceptance
(wala nirefuse but wala sad siya nipirma).
b. When presentment for acceptance is excused and the bill is not accepted.
The presentment was excused under Sec. 148 (a, b and c) and the instrument is still not
accepted.
In both instances (Sec. 149 (a and b), the instrument is deemed dishonored by
non-acceptance. This is important because there is an obligation to give notice of dishonor.
When you give notice, the right to immediately go after the parties that are secondarily
liable now accrues. There is an immediate right of recourse to go after parties secondarily
liable the moment the instrument is dishonored by non-acceptance.
34
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.
The instrument is presented for acceptance and the acceptance was not made within the
prescribed time, within 24 hours from the time it was presented for acceptance. If it was not
accepted within 24 hours, then the instrument is treated as dishonored by non-acceptance
or he loses the right of recourse against the drawer and indorsers.
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.
ABA: I suggest you let it lapse beyond 24 hours because the law implies that it is already
deemed accepted. (See discussion on Sec. 137)
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.
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November 23, 2019
First Half
16:00 - 48:00
When can the giving of a notice of dishonor be excused?
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.
ABA: Just remember Naruto. If you encountered him and you cannot reach the person then
that could be considered as an excuse to give notice of dishonor in the exercise of
reasonable diligence.
When is not necessary to give notice of dishonor and yet parties secondarily liable
will not be discharged?
In the case of the drawer:
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;
There's no need to inform them because they are one and the same.
b. When the drawee is fictitious person or a person not having capacity to contract;
They cannot be compelled to pay anyway and the drawer would know that a person
is fictitious and has no capacity to contract since he was the one who put the name
of the drawee in the instrument.
c. When the drawer is the person to whom the instrument is presented for payment;
When the drawer is the person that was accommodated by the acceptor because he
will be the one ultimately liable in the instrument.
d. Where the drawer has no right to expect or require that the drawee or acceptor will
honor the instrument;
When there is no funds with the drawee or he doesn't even know the drawee.
Remember Jayme de Zobel de Ayala, do you think it will be accepted by him? He is
36
not fictitious and he has capacity to contract but still you know that it would be
dishonored because you don't have funds with him nor any arrangement with him.
e. Where the drawer has countermanded payment.
When the drawer issued a stop payment order. They drawee would not accept it
because the drawer said that it should not be paid. This is true in case of a check.
In case of indorser:
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;
If the drawee is a fictitious person or not having the capacity to contract, the drawer
will not be discharged (Sec. 114.b). But if the indorser is aware of that fact, no need
to also give a notice of dishonor because he will still be liable on the instrument.
b. Where the indorser is the person to whom the instrument is presented for payment;
When the indorser is also the drawee. He happens to be the payee and the acceptor
and he decided to negotiate the instrument then he could also be an indorser.
c. Where the instrument was made or accepted for his accommodation.
The indorser is the accommodated party. If there's no notice of dishonor because the
accommdation party failed to pay, you are still required to pay because you are the
one supposed to be liable.
PROTEST
What is a protest?
Instead of giving a notice of dishonor, sometimes, you want it to be formal and you
undertake a protest. It can be a verb or a noun but for purposes of NIL, it is actually
considered as a noun. It is a formal instrument executed by a notary public or other
competent person certifying that the facts necessary to the dishonor have taken
place. In other words, it is just a notarized notice of dishonor. Although it is more than that
because it is executed by a notary public or a respectable person in the community in the
presence of 2 or more witnesses (but they are a rare breed). But it is for foreign bills only.
It is only required for foreign bills but no one would stop you if you want to do protest for
domestic bills. You can also do that in promissory note but a foreign promissory note is
NOT required to be protested. Because the law says foreign bills only.
ABA: For me, it has be required because after all the purpose is to have a uniform
international practice. That's the reason why a protest is required because there could be
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certain laws that may be different accross different countries. To make it uniform in relation
to negotatiable instruments, they require a protest because the procedures will be the
same.
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.
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.
How do you make a protest?
1. Find a notary public.

2. Presentment of the instrument. The notary public is required to do again the
presentation. It is as if he is the holder who will have to go to the person primarily
liable and present the instrument. This is the reason why you should do the protest
in the place where the bill was dishonored. The jurisdiction of the notary public will
be limited to the place where his office is.
3. Noting. After the presentation, the notary public will do a noting. He did not make
the formal certificate of protest but he will just make a note. No prescribed format.
The purpose is that he will not forget (the dullest pen is better than the sharpest
memory).
4. Certificate of protest. It must be signed by him and must bear his seal.
There's still a requirement to give notice of dishonor to all parties by the notary public. But
since notice of dishonor is required 24 hours after, it may be better that the certificate of
protest will also come out the next day or the day following the dishonor so that the parties
secondarily liable will not be discharged from their liability. The requirement is that they be
notified within 24 hours. But it is possible that the notice of dishonor already reached the
parties secondarily liable and yet the certificate of protest is not yet done. This is okay
because what is required is only the notice within 24 hours.
What must the certificate of protest contain?
It must be annexed/attached to the bill. It must have the signature and seal of the notary
public and must contain the following information:
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:
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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.
Where do you protest the bill?
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.
Where the bill was dishonored except where the place of payment is different from the place
of business or residence of the drawee and the instrument is dishonored by non-acceptance.
If it is dishonored by non-acceptance, you make a protest for non-acceptance. If it is

dishonored by nonpayment, you make a protest for nonpayment. But in this case (the
place of payment is different from the place of business or residence of the
drawee), the instrument was dishonored by non-acceptance, you make a protest
for nonpayment and it must be protested in the place where it is to be paid.
Ex.
The place where it is supposed to be paid is in Manila but the drawee is in Cebu, you
presented it in Cebu where it was dishonored for non-acceptance. The requirement is you
go to Manila, look for a notary public there and protest the instrument for nonpayment.
Is it possible for the instrument to be protested and yet it is not dishonored?
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.
Yes. When before the maturity of the instrument, the drawee, supposedly the acceptor, was
adjudged bankrupt, insolvent or has made an assignment for the benefit of creditors. The
instrument has already been accepted for the protest for better security to apply.
Protest for better security - before the instrument is dishonored, you already informed
the parties secondarily liable that they will most likely be required to pay at the time of
maturity because the drawee/acceptor will not be able to make payment.
Can protest be excused?
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Yes. In the same way that the notice of dishonor can be excused when after the exercise of
reasonable diligence, the notice cannot be made or reach the person sought to be charged.
Can the delay in the protest be excused?
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.
Yes. If it is caused by circumstances beyond the control of the holder and must not be
imputable to his default, misconduct or negligence.
ACCEPTANCE FOR HONOR
Is it possible for an instrument once dishonored to be paid?
Yes. It can be paid by parties secondarily liable or even those not parties to the instrument.
Acceptance for honor/acceptance supra protest
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.
1. There has to be protest. Either protest for non-acceptance or protest for better
security.
2. The instrument must not be overdue. If it is overdue, then it is already protest for
nonpayment.
3. Consent of holder required.
Who can be an acceptor for honor?
He must be a stranger. He cannot be a party to the instrument because you want additional
security.
How do you become an acceptor for honor?
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.
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By writing on the instrument or a separate paper that you are accepting the instrument in
the honor of this particular person or it can just be silent and then you sign.
Is it required to be notarized?
No. The law did not require that it be notarized.
ABA: This acceptor for honor may be more than one. You can make an analogy that you
have many suitors but you will only accept one. There can be many acceptors for honor but
there can only be one payor for honor. You can say that this acceptor for honor is someone
you do not trust just yet because he just engages to pay the instrument but subject to
several conditions. He can even dishonor the instrument.
If the acceptance for honor is silent, in whose honor will it be accepted?
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.
It is the drawer. Because the acceptance for honor is really for the benefit of the drawer
since you want to preserve the good reputation of the drawer. It is the reputation of the
drawer that gets tainted when the instrument is dishonored because it is his name and
signature that was in the instrument.
What is the extent of the liability of the acceptor for honor?
He is only liable, first and foremost, to the holder and to the persons subsequent to the
party in whose honor he is accepting the instrument.
ABA: Please don't use the phrase "party being honored". It should be "the party in whose
honor the instrument was accepted".
Ex.
De → Dr → A →B→C→ D
1 2 3 4 (acceptors for honor)
You have 1, 2, 3 and 4 who want to be acceptors for honor. All of them can be acceptors for
honor because there can more than one acceptor for honor.
If 1 presents himself as an acceptor for honor of the drawer, to whom will he be

liable?
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First to the holder (D) and to all parties subsequent to the drawer (A, B, C).
If 2 accepts the instrument for the honor of A, to whom will he be liable?
He will be liable to the holder (D) and to all parties subsequent to A (B and C).
If it's 3?
He will be liable to the holder and C.
If it's 4?
Only to the holder.
ABA: The engagement to pay the holder according to the tenor of the acceptance of the
acceptor for honor will only happen after compliance of the following conditions:
1. Nonpayment of the drawee has to happen which will proceed after the presentment
for payment to the drawee.
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.
2. Protest for nonpayment required. You already made protest for non-acceptance, you
still need to make protest for nonpayment.
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.
3. Notice of dishonor should be given.

4. Present the instrument for payment.
How do you present the instrument for payment to the acceptor for honor?
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.
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If you are living in the same place, make sure that it will happen the day following the day
of maturity of the instrument. But if you're living in a different place, the mail will go
following the dishonor of the instrument. If you present it by personal service, make sure
that it will reach him at the same time that it is mailed.
If he will not pay the instrument (paasa lagi)?
You will have to do the protest for nonpayment. You have to do all the following protest:
a. Protest for non-acceptance by the original drawee

b. Protest for nonpayment by the original drawee
c. Protest for nonpayment by the acceptor for honor
***Second Hour***
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.
There can also be payment for honor. The instrument, even if it’s accepted, it’s possible that
it can also be dishonored by non-payment- and if it’s a foreign bill, it’s required to be
protested. Even if it was already protested, there could still be a possibility that it may be
paid, by a stranger, or even by another party to the instrument but you have to do it after a
protest. So they have this so called payment for honor or otherwise known as payment
supra protest, which means it’s still after protest.
Q: So what’s the prerequisite then?

A: There has to be protest for non-payment.
Q: Must the instrument be not overdue?

A: Of course not. Dili siya na pay dba? Because it’s due for payment. So it must already be
overdue.
Q: Is there a requirement on the consent of the holder?

A: No, there’s no requirement for consent. If there is no consent, the party who would be
discharged by the supposed payment, will also be discharged from their liability.
Illustration:
Drawer A B C D
1
Q: If the holder D, will not accept the payment of 1, who is the payor for honor of
the Drawer, who will be discharged?
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A: The one who will be discharged are the parties who would have been discharged by the
payment made by 1.
Q: So who will be discharged by the payment of 1?

A: A, B and C will be discharged from their liability if D will not accept the payment in honor
of the drawer.
While consent is not necessary, that will be the effect if consent is not acquired.
Q: Who can be a payor for honor?

A: It could be a party to the instrument or a stranger.
In the same example, A could pay in the honor of the drawer. Dili sad pwede “I will pay in
my honor”. Dili man na payor for honor kay imoha ra man na honor ang imo gibayran. So it
could be that A will pay for the honor of the drawer. A could also represented by B, who will
pay for the honor of A. That’s possible. But if B will make the payment for the honor of A,
nganong dili naman lang siya mubayad? Although there are certain formalities man sad if
you make the payment. But nonetheless, that is not prohibited.
But say for example, the parties who would like to make payment are:
Drawer A B C D
1 2 3 4
1, 2, 3, and 4 are all wanna-be payors for honor because there can only be one.
Q: And who must it be?

A: 1 ra gyud.
Q: Why?
A: Because the priority would be the party who could cause the most discharge.
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 parties, the person whose payment
will discharge most parties to the bill is to be given the preference.
You must choose one party and that party must be the one who could cause the most
discharge.
Q: And who can cause the most discharge of liabilities?

A: 1
Q: Why? Who will be discharged if 1 will be the payor for honor?

A: A, B, and C
Q: Whereas, if you accept 2?
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A: B and C only
Q: If you accept 3?
A: C only
Q: And 4?
A: Walay ma discharge.
That’s why only the party who can cause the most discharge of liabilities will be the payor
for honor. So imo jud iaccept katong mka cause daghan na discharge.
Q: So how would you know that he could cause the most discharge?
A: Tanawon nimo ang mga parties, specifically those parties whose honor he paid the
instrument.
It has to be a notarial act of honor, which is another point of difference from acceptance for
honor.
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.
So if you were to distinguish between payment for honor and acceptance for honor,
PAYMENT FOR HONOR ACCEPTANCE FOR HONOR
It must be protested for non-payment. protested for non-acceptance

protested for better security
no consent required consent required
must be overdue must NOT be overdue
payor for honor can either be a party or a acceptor for honor can only be a stranger
stranger
can only be one payor for honor there can be more than one acceptor for
honor
requires a notarial act no notarial act required
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So far, what we have been discussing are instruments which are dishonored. But it’s really
possible that the instrument is paid.
Q: If it is paid, what will be the effect?

A: Discharge of the instrument
If you notice, in the discussions of the authors, there is no discharge of party primarily
liable. But there is a discharge of a party secondarily liable.
Q: Why is that?
A: Because the moment the party primarily liable is discharged, then that goes without
saying that the instrument is discharged as well. There can only be discharge of an
instrument.
The provisions of the NIL are very clear on what are the grounds for the discharge of the
instrument. (See the case of State Investment, which discusses what can be the cause for
the discharge of an instrument)
It’s also laid down in Sec 119 and Sec 120 is on the discharge of parties secondarily liable.
Sec. 119. Instrument; how discharged. Sec. 120. When persons secondarily
- A negotiable instrument is discharged: liable on the instrument are
discharged. - A person secondarily liable
on the instrument is discharged:
(a) By payment in due course by or on (a) By any act which discharges the
behalf of the principal debtor; instrument;
(b) By payment in due course by the party (b) By the intentional cancellation of his
accommodated, where the instrument is signature by the holder;
made or accepted for his accommodation;
(c) By the discharge of a prior party;
(c) By the intentional cancellation thereof
by the holder; (d) By a valid tender or payment made by a
prior party;
(d) By any other act which will discharge a
simple contract for the payment of money; (e) By a release of the principal debtor
unless the holder's right of recourse against
(e) When the principal debtor becomes the the party secondarily liable is expressly
holder of the instrument at or after reserved;
maturity in his own right.
(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.
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Sec 119 (a) by payment in due course by or on behalf of the principal debtor;
Q: When must it happen for it to be considred as payment in due course?

A: At or after maturity, to the holder in due course, in good faith by th person making the
payment and without notice of the defect of title of the person to whom he is paying. But
then that goes without saying that if he is a payor in due course, there must really be no
defect in his title.
Q: But for it to cause a discharge of the instrument, who must make the payment
in due course?
A: The party primarily liable. Only the payment in due course by a party primarily liable can
cause the discharge of the instrument. Because there can be payment made by a prior
party, but that will not cause a discharge of the instrument if he is not the person primarily
liable.
Sec 119 (b) By payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation;
It can also be made by the accomodated party. This accomodated party must be the party
accomodated by the person primarily liable. There can be a lot of accomodated parties - an
indorser in between a lot of indorsers, pwede sad.
BUT, it must be the party accomodated by the person primarily liable because between
them (the accomodation party and the accomodated party), who is made liable?
A: The accomodated party. So that if he makes payment, the instrument must be
discharged.
Sec 119 (c) By the intentional cancellation thereof by the holder;
Q: Take note, what type of cancellation?

A: Intentional. So that means, there can be two types of cancellation: a) intentional, and b)
unintentional.
Q: What’s the presumption?

A: Unintentional. Except if it’s a cancellation of the signature.
General Rule: Unintentional

Exception: Striking out the signature of the indorser is deemed intentional unless proven
otherwise.
Cause it’s possible that if you have a kid of infant age and you place the instrument on the
table and there happens to be a stamp which says cancelled. If the kid stamps the
instrument, is that cancellation?
Yes, but will it cause a discharge of the instrument?

No.
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It could also be that you didn’t know that the instrument was among the love letters sent by
your loved one -- who now wants to be a hated one. You decided to burn all the love letters
along with the instrument.
It’s unintentional. So ayaw gyud ikuyog ang mga cheque sa mga love letters kay ang mga
love letters pwede gyud sunugon. Ang cheque dili. So that can cause a discharge, only if it’s
intentional.
Sec 119 (d) By any other act which will discharge a simple contract for the payment of
money;
Q: What are the modes of extinguishing obligations?
A: Payment or performance of obligation, loss of the thing due, condonation or remission,

compensation, merger or confusion, novation, annulment, rescission, fulfillment of
resolutory condition, prescription (Article 1231; NCC)
Renunciation is akin to remission or condonation.
Q: Who can renounce?

A: Only the holder because he is the creditor in this case. He will renounce the liability of
the person primarily liable.
Q: When can he do that?

A: Before, at, or after maturity.
Q: If that happens, what will happen to the instrument?

A: It can cause the discharge of the instrument and along with it will be the discharge of the
parties secondarily liable as you find in Sec 120. First ground there is the discharge of an
instrument is also the discharge of parties secondarily liable.
Q: So how do you do that?

A: It must be in writing, or you can just deliver the instrument back to the person primarily
liable. That can also be considered renunciation. Because the presumption of the law is that
if the instrument in possession of the person primarily liable then the instrument must have
already been paid. If you deliver him or to her, then that becomes renunciation.
Sec 119 (e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right.
The last ground is actually just merger or consolidation. When the principal debtor becomes
the holder of the instrument at or after maturity in his own right but it has to be AT or
AFTER MATURITY. Because it can happen that the instrument goes back to the person
primarily liable but if it’s not yet the maturity date, he can always negotiate the instrument
to other parties. ONLY when it is at or after the maturity could it cause the discharge of the
instrument.
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Q: How about a party secondarily liable? When can he be discharged?
Sec 120 (a) By any act which discharges the instrument;
Because if the person primarily liable is discharged, then how can you be considered
secondarily liable if there’s no person primarily liable.
Sec 120 (b) By the intentional cancellation of his signature by the holder;
Although the presumption is always intentional. Take note: this is the SIGNATURE. A
signature that has been cancelled is intentional. Remember the effect of striking out as we
have discussed before.
Sec 120 (c) By the discharge of a prior party;
Q: What type of discharge must this be? Can it be by operation of law?

A: NO. It must not be by operation of law.
Q: What’s the contemplation there?

A: Remember when there is a failure to give notice of dishonor.
Drawer A B C D
For example, if D failed to give a notice of dishonor to B but gave notices to C and A?
Q: What would happen to B?

A: B would have been discharged in relation to D and that would have caused a discharge of
C. BUT NO. That will not cause a discharge, because that is by operation of law. Dili siya
pwede.
After all, C can still give a notice of dischonor to B. Wala prohibition. So B will continue to be
liable. B may be discharged in relation to D, but not in relation to the instrument.
So the discharge, of the prior party must be by voluntary act of the holder or must not be
really be by operation of law.
So unsa may example?
Drawer A B C D
Let’s say this is the intrument. All of a sudden, the instrument is dishonored an A made
payment to D.
B and C will be discharged from their liability because A was already discharged.
Sec 120 (d) By a valid tender or payment made by a prior party;
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Exactly what I mentioned. So if A will make payment to D. In effect, B and C will be

discharged from their liability.
Sec 120 (e) By a release of the principal debtor unless the holder's right of recourse against
the party secondarily liable is expressly reserved;
ABA: Di jud ko kasabot ani. Kanus-a na mahitabo na naay right of recourse against parties
secondarily liable if the holder will release the principle debtor and he will reserve his right
of recourse against parties secondarily liable. In effect, the principal debtor will not be
discharged from his liability.
Why?
The parties secondarily liable whose recourse is preserved would still go after him. But
supposedly, if the principal debtor is released, that goes without saying that the parties
secondarily liable will also be released. Exception na lang na ang iya gireserve ang right of
recourse but that’s unlikely to happen.
(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.
If the parties secondarily liable will accept the extension of time, then they will still be liable
to the instrument.
Why will that cause a discharge of parties secondarily liable?

Because that is novation. It’s novation of the contract. You change the terms of the
contract.
BILLS IN SET
Section. 178. Bills in set constitute one bill. — Where a bill is drawn in a set, each part
of the set being numbered and containing a reference to the other parts, the whole of the
parts constitute one bill.
Q: From the phrase itself, “bills in a set,” so how many bills are there in the set?
A: More than one.
Q: Are there promissory notes in set?
A: None. Only BILLS in a set.
Q: How would you know that they are part of a set?
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A: They will have to make reference to other parts of the bill. (Example: 1 of 4, 2 of 4, 3 of
4, 4 of 4)
Q: What’s the rule when it’s bills in set? How do you treat them, separately or as a
whole?
A: As a whole. There can be many copies, but they’re all referring only to one bill.
Q: What is the purpose of bills in set?
A: Before, there was no assurance that one boat will reach its destination. To ensure that
the bill will reach the person sought to receive the bill, people would send the bill using
different ships, in the hope that at least one ship will reach its destination.
Q: Now, because of the improvement in technology, it’s possible and even common
that all ships would reach their destination. And if the bill reaches the person
sought to be given the bills in set, and that person then negotiates it to different
parties (example: 1 of 4 will be given to A, 2 of 4 to B, 3 of 4 to C, 4 of 4 to D),
would it still be treated as one bill?
A: No. Because the bills were negotiated separately, they would now be treated as separate
instruments; in which case, the liability of the person who negotiated the bills to different
parties will be as if he negotiated as many number of bills as there are.
Section 180. Liability of holder who indorses two or more parts of a set to different
persons. — Where the holder of a set indorses two or more parts to different persons, he is
liable on every such part, and every indorser subsequent to him is liable on the part he has
himself indorsed, as if such parts were separate bills.
Q: There is no question as to the liability of the person who caused the

negotiation to different parties. But how about the person who is primarily liable,
would he then consider all of them holders in due course and cause payment to
each of them?
A: No. There is an order of priority in terms of rights.
Section 179. Right of holders where different parts are negotiated. — Where two or
more parts of a set are negotiated to different holders in due course, the holder whose title
first accrues is as between such holders the true owner of the bill. But nothing in this
section affects the rights of a person, who in due course accepts or pays the part first
presented to him.
Q: Who shall be prioritized?
A: The person whose right first accrues.
Q: How would know that he is the person whose right first accrued?
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A: Look at the date when the instrument was received by him or negotiated to him.
Q: If the bill was negotiated to A on January 1, to B on January 2, to C on January

3, to D on January 4, whose right first accrued?
A: A (the one to whom the bill was negotiated on January 1).
TN: Even if that is the case, it can be defeated if any of the parties, other than the one
whose right first accrues, is able to:
(1) present the instrument first to the person primarily liable; and
(2) secure the acceptance of the instrument.
The party who is first able to do so will have the payment of the person primarily liable.
Section 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 are negotiated to different holders in due course, he is liable on every
such part as if it were a separate bill.
Section 182. Payment by acceptor of bills drawn in sets. — When the acceptor of a bill
drawn in a set pays it without requiring the part bearing his acceptance to be delivered up
to him, and that part at maturity is outstanding in the hands of a holder in due course, he is
liable to the holder there on.
TN: The requirement also is that if you are the acceptor, you are supposed to accept only
one. Because if you accept each of the parts, that means you’ve accepted separate bills. So
you’re supposed to accept only one part, and then demand that it be presented to you upon
presentment for payment. You will not cause payment if you will not receive the part which
bears your acceptance. Why is that? Because there is a possibility that that part which
bore your acceptance will then be presented to you, and then you will have no choice but to
make the payment. So, you have to cause the surrender of the instrument before you
make the payment, and the instrument must be the part which bore your acceptance.
AGAIN: The person whose right first accrues will be defeated by the person who
first caused the presentation of the instrument and secured the acceptance.
Q: What if the bills in a set identically contain 1 million, and they were negotiated
to four different persons, will the person who negotiated them be liable to pay 1
million for each part of the bill?
A: Yes. He will be liable for a total amount of 4 million.
Q: Will it be the same with the acceptor who accepted more than one part of the
bill?
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A: Yes. The rule is that you should accept only one part. Otherwise, you will be liable for
each part you accepted.
Also, before making payment, you should always cause the presentation of the accepted
part to you.
Section 183. Effect of discharging one of a set. — Except as herein otherwise provided,
where any one part of a bill drawn in a set is discharged by payment or otherwise, the
whole bill is discharged.
General Rule: The discharge of one part of the bill, specifically the part which bore
the acceptance of the acceptor when he made the payment, will cause the
discharge of all the other parts.
Exception: When the instrument is negotiated to different parties, and each of the parties
accepted as well.
BUT, even if it is not accepted, the person who received the bill and then tried to present it
to the person primarily liable (who will most likely dishonor it because he already paid the
part which bore his acceptance), can always go after the party who negotiated the
instrument to him.
CHECKS
Section 185. Check defined. — A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill
of exchange payable on demand apply to a check.
Q: What is a check?
A: A bill of exchange drawn on a bank, payable on demand.
TN: There must always be a drawee, and the drawee must be a bank.
Q: Is a post-dated check a check?
A: Yes, but it is payable on demand on the date indicated therein.
Q: Is a check required to be presented?
A: Yes, but only for payment. It need not be presented for acceptance. You just present the
bill one time, and that is for payment.
Q: When must it be presented for payment?
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A: Within reasonable time.
Q: Reckoned from when?
A: From date of issue.
This is another point that makes a check special among the bills of exchange.
Promissory note: Must be presented within reasonable time from date of issue
Bill of exchange: Must be presented within reasonable time from last negotiation
But then here comes a check, a bill of exchange, which must be presented within
reasonable time from date of issue, just like a promissory note.
Q: What’s the effect if you fail to present it within reasonable time from the date
of issue?
A: Parties secondarily liable would be discharged from their liability.
This is the rule for any instrument. But the chapter on checks is very specific: EXCEPT if
it’s a drawer, because it is only discharged to the extent of the loss caused by the
delay.
Section 186. Within what time a check must be presented. — A check must be
presented for payment within a reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the loss caused by the delay.
Q: In the normal course of things (check is not counterfeit, no fraud etc.), when
can a bank not cause payment of a check?
A: When the bank goes bankrupt.
Q: If the holder fails to present the check within reasonable time and the bank
goes bankrupt, then the holder cannot go after parties secondarily liable. But can
he go after the drawer?
A: Yes, but only if there is loss that is not caused by the delay (percentage of recovery),
because the drawer is discharged to the extent of the loss caused by the delay.
Q: How would you know the extent of the loss caused by the delay?
Illustration:
The drawer’s total deposit in the bank is P1,500,000.00. The bank closed, and so the
deposited amount would be deemed a loss. And so, his bank account would be transferred
to the insurer of the bank (PDIC - Philippine Deposit Insurance Corporation), who will
become the receiver of the bank. The insurer will give the insurance to the extent of what?
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The law now is P500,000.00. (That is the maximum he can receive. Your insurable interest
is only to the extent of your bank account.)
Q: So in this case, if the drawer can only recover P500,000.00, how much then is
the loss caused by the delay?
A: It’s only P1,000,000.00.
Q: What is that percentage of your total loss, supposedly?
A: Two-thirds of the total loss. (1 million divided by 1.5 million)
Q: If the total check issued by the drawer amounts to P100,000.00, how much
would he still be liable for?
A: One-third of the amount (Percentage of Recovery)
P100,000.00 x ⅓ = P33,333.33
Q: To what extent is he discharged?
A: Two-thirds of the amount (Percentage of Loss)
P100,000.00 x ⅔ = P66,666.66
Q: Considering that the drawer was able to receive P500,000.00 from the insurance,
shouldn’t he be able to pay the full amount of the check he issued, which was only
P100,000.00?
A: No. The law provides that the drawer is discharged to the extent of the loss caused by
the delay. He should not pay more than that. (The holder is at fault for not presenting the
check for payment within reasonable time.)
Q: What is reasonable time under the law?
A: 6 months. Beyond that, the check will go stale.
Q: In BP 22, what is the period?
A: 90 days (3 months).
Section 187. Certification of check; effect of. — Where a check is certified by the bank
on which it is drawn, the certification is equivalent to an acceptance.
Manager’s Check or Cashier’s Check- these are examples of checks that are certified.
And if it is certified then it is deemed accepted. (Certification=Acceptance)
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Effect of Certification of a Check

General Rule: If one issues a check, that does not amount to an assignment of funds in the
hands of the bank so one cannot demand that it be paid. However, once it is certified that is
when the account is deemed assigned. (That is why banks don’t issue such checks if you
don’t have sufficient funds on the account of the issuer)
The moment there is certification of check, parties secondarily liable will be discharged from
their liability.
*2014 case involving cashier’s and manager’s check*

SC Held: The issuance by the bank of a check cannot be considered as a reciprocal
obligation. It becomes a personal liability of the bank separate from its obligation to the
depositor. Besides, a manager’s check is almost synonymous to “cash”.
B.P. Blg. 22- Bouncing Checks Law

The Bouncing Checks Law requires the maker of the check to make good the face value of
the check within 5 banking days from service of written notice of dishonor, provided the
check is presented for payment within 90 days or 3 months from its due date. The violation
of the Bouncing Checks Law is a criminal offense.
What is your liability if you issue a check and it does not have any sufficientfunds?
You can be liable for violation under B.P. 22 or the Bouncing Checks Law and even estafa
(Art.315 (b)) It can be both and it is not mutually exclusive such that if you file under B.P
22 you can’t be precluded from filing estafa. You can choose either.
Elements of the offense of B.P.22:
1.The making, drawing and issuance of any check to apply for account or for value
(How to prove: Present the check itself that was issued in your favor.)
2.The knowledge of the maker, drawer, or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of the check in full upon
its presentment; and (Difficult to prove that is why the law gave a presumption)
3.The subsequent dishonor of the check by the drawee bank for insufficiency of funds or
credit dishonor for the same reason had not the drawer, without any valid cause, ordered
the bank to stop payment. (How to prove: The check presented to the bank will bear a
stamp that it is dishonored)
TN: Elements 1&3 are easy to prove, but element no. 2 is difficult to prove since it involves
mere knowledge.
Presumption of knowledge of insufficiency of funds
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B.P. 22 creates a presumption juris tantum that the element of prima facie evidence of
knowledge of insufficient funds exists.
There is presumption of knowledge of insufficiency on the part of the drawer or maker

because knowledge is a state of mind. It would be very difficult to prove such person has
knowledge.
When does the presumption apply?
REQUISITES FOR THE PRESUMPTION TO APPLY:
1.The check is presented within 90 (calendar) days/ 3 months from the date of the check
2.The drawer or the maker of the check receives notice that such check has not been paid
by the drawee; and
TN: It is not enough that you had given the notice but it is also necessary that you prove
that it was actually received.
3.The drawer or the maker of the check fails to pay the holder of the check the amount due
thereon, or to make arrangements for payment in full within (5) banking days after
receiving notice that such check has not been paid by the drawee
TN: The 5 banking days will not begin to run until the notice has been received (Tan v.
People) involving violation of B.P. 22, failure to prove the notice so for presumption to
apply, notice must be given.
POSSIBLE DEFENSES
1.There was payment within 5 banking days. If there was payment before the case is filed,
it could be a possible defense as well as in an instance where there is no notice received.
(Cruz v. Cruz)
2.Novation or change in the underlying obligation of the parties before the filing of criminal
case in court (Vaca v. CA)
What then can be a stop payment order where there can be a valid reason?
When the check is a counterfeit or is materially altered and you knew about it that it was
altered, so you can issue a stop payment order in that case. A cashier’s or manager’s check
is not reuqired to be certified but is it required to be cleared?
Yes. Becasue then the bank would have to check if it is valid or not or if it is a counterfeit or
not so it is required to be cleared only for reason of material alteration can you make
stoppage of payment. Valid reason: fraud or material alteration
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Negotiable Instruments Law EH 401 WWW Finals

October 11, 2019

NOTE : Immaterial because both have the same effect.

Q: Can an endorsement be written on a separate sheet of paper?

Q: Why must it be attached?

Several Payees or Indorsees in the Indorsement

I promise to pay P5000 to X or order.

Q: Is there a valid indorsement?

I promise to pay P10,000 to the order of X or Y.

A: It complies with the requisites of a negotiable instrument. It can be indorsed by either of

I promise to pay P10,000 to the order of X.

Pay to A P5,000 and B P5,000.

Q: Is there a valid indorsement?

----After break ---

Q: Are the indorsements valid or not?

Blank Indorsement vs. Special Indorsement

Blank Indorsement - specifies no indorsee, instrument so indorsed is payable to bearer

Main Difference: There is an indicated indorsee in a special indorsement whereas there is

Q: Can you convert a Blank Indorsement into a Special Indorsement?

Q: How would you convert this instrument into a Special Indorsement?

Q: What is a restrictive indorsement?

A: An indorsement which limits the rights of the indorsee.

Section 36. When indorsement restrictive. – An indorsement is restrictive which either–

(a) Prohibits the further negotiation of the instrument; or

Section 47. Continuation of negotiable character. – An instrument negotiable in its

TN: One instance when an instrument ceases to be negotiable is when it is restrictively

Section 37. Effect of restrictive indorsement; rights of indorsee. – A restrictive

(a) To receive payment of the instrument;

Q: What happens if it is subsequently indorsed to B?

Q: What is the consequence of the subsequent indorsement by A of the

A: B will now hold the instrument for collection.

Q: Is B considered a holder of this instrument?

A: Yes, but only for collection as the agent of A.

Q: What will be the effect if B further negotiates the instrument to C?

A: C will also hold the instrument for collection.

Pay to A in trust for B

Q: What is the effect if the instrument is further negotiated?

Q: If C receives payment from the person primarily liable, can he be required to

Q: Does payment to C discharge the instrument?

Q: What is a Qualified Indorsement?

A: It limits the liability of the indorser.

Section 38. Qualified indorsement. - A qualified indorsement constitutes the indorser a

Q: How does it limit the liability of the indorser?

Q: How do we qualify an indorsement?

A: Add words like “without recourse”.

Pay to X without recourse.

Q: What does “without recourse” mean?

Q: If X further negotiated the instrument to Y, will Y be bound by the qualified

Warranties of a Qualified Indorser

a. The instrument is genuine and in all respects what it purports to be;

b. That he has good title to it;

c. That all prior parties had the capacity to contract;

If there is any circumstance to the negotiation of an instrument where there is qualified

Effects of a Qualified Indorsement

a. Can D pursue B in this case?

b. Supposing M refused to pay because he is insolvent, D cannot go after B

Section 66 – Liability of general endorser – Every indorser who indorses without

c. If B knows that M is insolvent, B would be liable because Section 65 (d) provides

Section 39. Conditional Indorsement - Where an indorsement is conditional, the party

INDORSEMENT OF INSTRUMENT PAYABLE TO BEARER

Section 40. Instrument of Instrument Payable to Bearer – Where an instrument, payable to

Section 40 applies to instrument originally payable to bearer. This is an exception to the

“trace their title through an indorsement “ – it is a series of unbroken indorsement