NEGOTIABLE

INSTRUMENTS LAW &

BOUNCING CHECKS LAW
Good Morning and Welcome!
NOTICE OF DISHONOR
(Sections 89-118)
 An instrument is considered
dishonored:

■ If it is not accepted when

presented for acceptance
■ If it is not paid when
presented for payment at
maturity
 Purpose

To inform the person secondarily

liable that they are liable on the
instrument.

In other words, they are now

required to make payment on the
instrument which was dishonored by
non-payment or non-acceptance.
 Form
1. Writing or oral

2. The following must be sufficiently shown:

1. Identify the instrument
2. Show fact that it has been dishonored
by non-acceptance or non-payment
3. A statement that the party giving
notice intends to look to the party
addressed for payment

1. Notice must be given by personal delivery or

by mail
 Defects in the notice,
effects
1. The fact that the notice lacks signature or
insufficient in from would not invalidate it
2. Misdescription of the contents of the
instrument would not invalidate the notice
3. A notice is still sufficient even the notice
lacks a statement of recourse to the
indorser
Effect of failure to give
notice of dishonor

■ It will discharge the

persons secondarily liable
 To whom notice of
dishonor is given
General rule:
Drawer and each indorsers
Exceptions:
1. Where party is dead
2. Where parties are partners
3. Where parties are solidarily liable
4. Where parties are jointly liable
5. Where party is adjudged bankrupt or
insolvent or has made an assignment for
the benefit of his creditors
 Who gives a notice of
dishonor
1. Holder or his agent
Agent may give notice when the instrument
is dishonored in his hands
Either by:
a. Giving notice to the parties liable thereon
b. Giving notice to the principal

2. Person who may be compelled to pay the

holder
3. Person who, upon taking it up, will have a right
of reimbursement from the party to whom the
notice is given
 To whom notice may
be given

1. Party himself

2. To his agent in that behalf

NOTICE GIVEN BY AN
AGENT
VS
NOTICE RECEIVED BY
AN AGENT
 Notice Given By An Notice Received By
Agent An Agent

As to the 1. Drawer
Holder or his agent
Principal 2. Indorser

As to Effect Benefits the holder Creates liability

As to Formality None Must be in writing

 When notice may be given
General Rule:
May be given as soon as the instrument is
dishonored, and within the time fixed by the
law
Exception: When delay is excused
1. Circumstances beyond the control of the
holder; and
2. Not imputable to his default, misconduct,
or negligence
Exception to the exception:
When circumstance ceases, notice must be
given with reasonable diligence.
 Specific Rules

Where parties reside in same place:

1. Given at the place of business of

the person to receive notice

2. Given at his residence

3. If sent by mail
 Specific Rules

Where parties reside in different

places

1. Sent by mail
2. Given other than through
post office
When sender deemed
to have given notice

When notice of dishonor is

duly addressed and
deposited in the post office
notwithstanding any
miscarriage in the mails
Notice to subsequent party
Where a party receives notice of
dishonor, he has after the receipt
of such notice, the same time for
giving notice to antecedent
(prior) parties that the holder has
after the dishonor.

This is equivalent to 24 hours.

 Where notice of
dishonor is sent

Rule # 1:

Party has added an address to

his signature - sent to that
address.
 Where notice of
dishonor is sent
Rule #2 :
But if he has not given such address:
■ To the post office nearest to his place of
residence or to the post office where he is
accustomed to receive letters; or
■ If he lives in one place, and have his place of
business in another, notice may be sent to
either place; or
■ If he is sojourning in another place, notice
may be sent to the place where he is so
sojourning
WAIVER OF PROTEST

Deemed a waiver of
presentment and notice of
dishonor
 When notice is
dispensed with
1. Cannot be given or does not
reach the parties sought to be
charged; and

2. After exercise of reasonable

diligence
When notice need not
be given to drawer
1. Drawer and drawee are the same person
2. Drawee is a fictitious person or a person not
having capacity to contract
3. Drawer is the person to whom the instrument
is presented for payment
4. Drawer has no right to expect or require that
the drawee or acceptor will honor the
instrument
5. Drawer has countermanded payment
When notice need not be
given to the indorser
1. Drawee is a fictitious person or one
not having capacity to contract and
the indorser was aware of such at the
time of indorsement
2. Indorser is the person to whom the
instrument is presented for payment
3. Instrument was made or accepted
for his accommodation
When notice of dishonor by non-
payment not required

When a bill is dishonored by non-

acceptance:
An immediate right of recourse against all
secondary parties accrues to the holder and
no presentment for payment is necessary.
If nevertheless the holder presents the bill for
payment on maturity and it is dishonored, he
need not notify again the secondary parties.
When notice of dishonor by non-
payment not required

If the instrument is accepted after it has

been dishonored by non-acceptance:
It is necessary for the holder to present
the instrument for payment upon
maturity
In case of non-payment, the holder
must give the corresponding notice of
dishonor.
Effect of omission to give
notice of dishonor by non-
acceptance

It cannot prejudice a holder in

due course who may still present
the instrument to the drawee for
acceptance and notify the
drawer and indorsers if
acceptance is refused.
When protest need not be
made
Protest is necessary only in the case of foreign
bills of exchange which have been dishonored
by non-acceptance or non-payment.
OTHER NEGOTIABLE INSTRUMENTS
General Rule:
Protest is optional
Exception:
1. Protest for better security;
2. Acceptance for honor; and
3. Payment for honor
DISCHARGE OF
NEGOTIABLE
INSTRUMENT
Sections 119 to 125
Outline for today's discussion
a. Sec. 119 - How Instruments are
Discharged
b. Sec 120 - When person secondarily
liable are discharged
c. Sec 121 - Right of party who discharges
instrument
d. Sec 122 - Renunciation by holder
e. Sec. 123 - Cancellation
Source Used :
1. Negotiable Instruments Law by De leon
How instrument is
discharged (Sec. 119)
Meaning & Effect
■ It is the release of all parties whether primary or
secondary, from all the obligations arising under
the instrument rendering it without force and
effect, and, consequently, no longer negotiable.

■ Causes an end to the life of a negotiobale

instrument

31
Sec. 119. Instrument; how discharged. - A
negotiable instrument is discharged:

a) By payment in due course by or on behalf of the principal debtor

b) By payment in due course by the party accommodated, where the

instrument is made or accepted for his accommodation

c) By the intentional cancellation thereof by the holder

d) By any other act which will discharge a simple contract for the
payment of money

e) When the principal debtor becomes the holder of the instrument at

or after maturity in his own right.

32
Payment in Due Course
by or on behalf of the
Principal Debtor

33
Sec. 88. What constitutes
payment in due course.

■ Payment is made in due course when it is

made at or after the maturity of the payment
to the holder thereof in good faith and without
notice that his title is defective.

34
Payment in Due Course

■ By Who: By or on behalf of the person primarily liable

■ When: at or after the maturity of the instrument

■ To Whom : to the holder

■ How: in Good faith and without notice that his title is

defective

35
Payment in Due Course by
an Accommodated Party
Effect:
Example:
Discharges the instrument
I promise to pay P or order 5M on May
25, 2016.
(Sgd) Tess
---------------------
Reason: Legend
the accommodated party is the 1. Tess – accommodating party
true person primarily liable as
2. P – accommodated party
between him and the
accommodated party

36
By the intentional
cancellation thereof
by the holder

37
 Intentional Cancellation
by the Holder
when the instrument is no longer there, when it is mutilated, obliterated or torn

Requisites: Forms: Effect if unintentional

1. intentionally made 1. Marking the 1. Will not discharge
instrument as the instrument
2. by the holder thereof
cancelled
Burden of Proof 2. Tearing, TN: but there is
presumption that
-that instrument HAS mutilation, or
cancellation is
NOT been cancelled other over acts
intentional
> HOLDER that destroy the
(See sec. 123)
instrument

38
Sec. 123. Cancellation;
unintentional; burden of proof.

■ “A cancellation made unintentionally or under a mistake

or without the authority of the holder, is inoperative but
where an instrument or any signature thereon appears to
have been cancelled, the burden of proof lies on the party
who alleges that the cancellation was made
unintentionally or under a mistake or without authority.”

39
Other Acts that Discharge
Simple Contracts
Art. 1231. Obligations are extinguished:
1) By payment or performance;
2) By the loss of the thing due;
3) By the condonation or remission of the debt;
4) By the confusion or merger of the rights of creditor and
debtor;
5) By compensation;
6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition,
and prescription, are governed elsewhere in this Code.
40
Other Acts that Discharge
Simple Contracts
Grounds (PaLoReMeCoNo)
1. Pa-yment or performance
(ARFP)
Lo-ss of the thing due
1. A-nnulment
2.

Re-mission / Condonation
2. R-escission
3.

Me-rger / Confusion
3. F-ulfillment of a resolutory
4.

5. Co-mpensation condition
4. P-rescription
6. No-vation

TN: Whatever extinguishes an

obligation will also discharge a
negotiable instrument.
41
When Principal debtor
becomes the holder of the
instrument at or after
maturity in his own right.
1. Principal debtor becomes the holder of the instrument in
his own right

- the ones has paid order to take hold of that instrument

2. There must be merger or confusion at or after the

maturity date of the instrument

- if before = does not discharge the instrument

42
When person
Secondarily Liable
are discharged
(Sec. 120)

43
Sec. 120. When persons secondarily liable
on the instrument are discharged. - A
person secondarily liable on the instrument
is discharged:
a) By any act which discharges the instrument.
b) By the intentional cancellation of his signature by the holder.
c) By the discharge of a prior party.
d) By a valid tender or payment made by a prior party.
e) By a release of the principal debtor unless the holder’s right of recourse
against the party secondarily liable is expressly reserved.
f) By any agreement binding upon the holder to extend the time of
payment or to postpone the holder’s right to enforce the instrument
unless made with the assent of the party secondarily liable or unless the
right of recourse against such party is expressly reserved.

44
Sec. 120. When persons secondarily liable
on the instrument are discharged. - A
person secondarily liable on the instrument
is discharged:

Scope : This article pertains to a

discharge of parties secondarily liable
on the instrument.

45
(a) By any act which
discharges the instrument.

1. Discharge of the instrument

necessarily discharges all parties,
whether primary or secondary, to
the instrument. Go back to Sec. 119.

46
(b) By the intentional
cancellation of his signature
by the holder.
This pertains to intentional I promise to pay P or bearer P10,000.
cancellation of the signatures of
the parties who are not (Sgd) M
necessary to the title of the ----------------------------------------------------
holder. However, this does not -
prevent the holder from Chain of Negotiation
cancelling everyone all together.
(D) (I) (I) (I)
Ex. Bearer Instrument M -> P -> A -> B -> C -> D

The cancellation of indorsement of A

will cause the discharge of A’s liability
at least for purposes of Section 120 (b).

47
(c) By the discharge of a
prior party.
The discharge of a party as by intentional cancellation of his signature by the
holder also operates as a discharge of parties subsequent to the party
discharged.

REASON
The subsequent parties are deprived of their right of recourse against the
party discharged by the holder. Thus, they should also be discharged.

TN: This does not apply to discharges caused by Operation of law, such as:
1. Discharge by bankruptcy
2. Discharge by the statute of limitations
3. Discharge of a party for failure of the holder to give him notice of dishonor
In these 3 cases, there was no intention by the holder to discharge the party.
48
(d) By a valid tender of
payment made by a prior
party.
Definition (Tender of
Payment)
- the act by which one
produces and offers to a
person holding a claim or
demand against him the
amount of money which he
considers and admits to be
due, in satisfaction of such
claim
Effect
-even if not accepted is enough to
discharge parties secondarily liable.
-It would discharge a party
secondarily liable because had it
been accepted by the holder, the
parties secondarily liable would
have been discharged. But because
the holder refused to accept
payment it is just to release the
subsequent parties.
49
 (d) By a valid tender of
payment made by a prior
party.
Requisites for valid tender of payment
1. There must be a dishonor made by
the person primarily liable
2. The holder gives notices to parties
secondarily liable (though
this is not a requirement anymore)
3. One of the parties tenders payment to
the holder
Important:
If all the requisites are met and
a party secondarily liable
tenders payment, yet the
holder refuses such payment,
the party secondarily liable as
well as all the other subsequent
parties will be discharged from
their obligation.
50
(e) By a release of the principal debtor
unless the holder’s right of recourse
against the party secondarily liable is
expressly reserved.

GR: Release of a principal debtor would release persons secondarily

liable because it would tantamount to an intentional cancellation on
the part of the holder of the liability of the principal debtor.

Exception: When there is an express reservation made by the holder

against the subsequent parties to the principal debtor.
-----------------------------------------------------------------------
Important: Since the holder reserved his or her rights of recourse
against the party or parties secondarily liable, the latter may go
after the person primarily liable.

51
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 52
Extension of time of
Payment
This happens when the holder GR: The parties secondarily liable are
gives an extension to the
discharged due to such extension of
person primarily liable. In
time
effect, the persons secondarily
liable will be discharged
because they did not consent to EXC:
such extension. 1. Where the extension of time is
consented to by such party , and
2. Where the holder expressly reserves
his right of recourse against such party.

53
Right of party who
discharges
instrument (Sec. 121)

54
Sec. 121. Right of party who
discharges instrument.
Where the instrument is paid by a party secondarily liable thereon, it
is not discharged; but the party so paying it is remitted to his former
rights as regard all prior parties, and he may strike out his own and
all subsequent indorsements and again negotiate the instrument,
except:

(a) Where it is payable to the order of a third person and has been
paid by the drawer; and
(b) Where it was made or accepted for accommodation and has been
paid by the party accommodated.

55
Sec. 121. Right of party who
discharges instrument.
GR: If the instrument is paid by the party secondarily liable,
he has the option either to strike out his own and all
subsequent parties’ indorsements and again negotiate the
instrument

Exceptions:
1. Where it is payable to the order of a third person, and has
been paid by the drawer; and

2. Where it was made or accepted for accommodation, and

has been paid by the party accommodated.

56
Exception:
1. Where it is payable to
the order of a third person,
and has been paid by the
drawer; and
-When he reverts back to being a drawer, he can only give it back to
the payee to whom the drawer has once give the instrument. THAT
SHOULD NOT HAPPEN

-Therefore, the drawer simply has to wait for the instrument to

mature and go after the drawee. The drawer now cannot negotiate
the instrument, causing a discharge.

57
Exception:
2. Where it was made or
accepted for accommodation
and has been paid by the party
accommodated.
-This exception presupposes that the instrument was paid prior to
maturity because it is already stated in Sec. 119, that if the payment is
done by an accommodation party, it causes the discharge of the
negotiable instrument.
Important:

Important: The title of the section, “Right of a party who discharges

instrument” is a misnomer because the instrument is not even
discharged as can be seen by the very first line, “Where the
instrument is paid by a party secondarily liable, it is not discharged”.
58
Renunciation by
Holder (Sec. 122)

59
Sec. 122. Renunciation
by holder.
“The holder may expressly renounce his rights
against any party to the instrument, before, at, or
after maturity. An absolute and unconditional
renunciation of his rights against the principal
debtor made at or after the maturity of the
instrument discharges the instrument. But a
renunciation does not affect the rights of a holder in
due course without notice. A renunciation must be
in writing, unless the instrument is delivered up to
the person primarily liable thereon.”

60
Sec. 122. Renunciation
by holder.
Definition:
GR: The renunciation must be made in
the act of surrendering a right a written declaration to that effect.
or claim with or without
authority.
Exception: If there is surrender of the
instrument to the person primarily
liable, renunciation may be made
orally.

61
Cancellation (Sec. 123)

62
Sec. 123. Cancellation;
unintentional; burden of proof.
“A cancellation made unintentionally, or under a
mistake or without the authority of the holder, is
inoperative; but where an instrument or any
signature thereon appears to have been cancelled
the burden of proof lies on the party who alleges
that the cancellation was made unintentionally or
under a mistake or without authority.”

63
Sec. 123. Cancellation;
unintentional; burden of proof.
Cancellation - Definition Presumption

- any act by which the intention to There is a presumption that cancellation

cancel the instrument may be is intentional.
evidenced

In cancellation, there is a change in

the physical condition of the
instrument by placing ‘cancelled’ on
the instrument, tearing, mutilating
and burning unlike in renunciation
where there is no change in physical
condition.

64
BILLS OF EXCHANGE
– FORM AND
INTERPRETATION
Sections 126 to 131
Bill of exchange is an unconditional order in
writing addressed by one person to another,
signed by the person giving it, requiring the
person to whom it is addressed to pay on
demand or at a fixed or determinable future
time a sum certain in money to order or to
bearer.
Types of Bill of Exchange

1. Foreign Bill
2. Draft
Can either be:
Sight Draft – payable on demand at sight
Time Draft – payable upon a definite future time

3. Trade Acceptance
■ Mere issuance of a bill is not an assignment of
funds to the drawee Even if the drawee has
enough funds in the name of the drawer. Until the
drawee accepts the bill, he is not liable.

■ Effect if drawee refuses to accept: he may be

liable to the drawer.
A bill of exchange may be
addressed to two or more
drawees. But cannot be made in
alternative nor in succession.
Sec. 129. Inland and foreign bills of
exchange.- An inland bill of
exchange is a bill which is, or on its
face purports to be, both drawn
and payable within the Philippines.
Any other is a foreign bill. Unless the
contrary appears on the face of
the bill, the holder may treat it as
an inland bill.
Why distinguish?
When foreign bill may be
treated as inland bill

A bill which is in fact foreign

may be treated by the holder
as an inland bill unless the
contrary appears on its face.
A holder may treat an instrument at his
option, either as a bill of exchange or a
promissory note, when:
1. The drawer and the drawee are the same
person, like a draft drawn by a bank on
its branch, or by a corporation on its
treasurer, or by an agent on his principal
by authority of the latter
2. The drawee is a fictitious person
3. The drawee has no capacity to contract.
Referee in case of need is the person
named by the drawer or indorser as
the one to whom the holder may
resort in case of need, that is, in case
the bill is dishonored by non
acceptance or non-payment.
ACCEPTANCE
Sections 132 to 142
Acceptance is the signification
by the drawee of his assent to
the order of the drawer
 HOW
ACCEPTANCE
IS MADE
GENERAL RULE:
It has to be in writing and signed
by the drawee.

EXCEPTION:
In case of a constructive
acceptance.
 Requisites of a Valid Acceptance

1. Must be in writing
- XPN: Does not apply to constructive acceptance and
to a foreign bill payable in another state unless it is
shown that the law of said state requires a written
acceptance

2. Signed by the drawee

3. Must expressly state that the promise shall be
performed by payment in money only
4. Delivered to the holder
 Applicability

It only applies to bills

of exchange and NOT
to promissory notes.
What is the object and
effect of acceptance?
The holder may require that
acceptance may be made
on the face of the bill
If such request is refused,
he may treat the bill as
dishonored
It is not required to be in the face
of the instrument. It can be
written:

■ 1. At the face of instrument; or

■ 2. In a separate instrument
 KINDS OF
ACCEPTANCE
An acceptance is either
General or Qualified.
General acceptance
assents without
qualification to the order
of the drawer. It is general
if such is made without
qualified as to the manner
of acceptance.
Qualified acceptance varies
the effect of the bill as
drawn. It is qualified when
there are some restrictions
as to the manner of
acceptance.
QUALIFIED ACCEPTANCE
a) Conditional acceptance
b) Partial acceptance
c) Local acceptance
d) Qualified acceptance
e) Acceptance of some, one or more of
the drawees, but not all
 Rights of Parties as to
Qualified Acceptance
1. The holder may refuse a qualified acceptance and if
he does not obtain an unqualified acceptance, the bill
may be treated as dishonored by non-acceptance.
2. Where a qualified bill is taken, a drawer and
indorsers are discharged from liability UNLESS they
have expressly or impliedly authorized the holder to
take a qualified acceptance and subsequently assent
thereto.
3. When the drawer or an indorser receives notice of a
qualified acceptance, he must, within reasonable time
express his dissent to the holder or he will be deemed
to have assented thereto.
CERTIFICATION
OF CHECK
Certificate is an agreement by the bank
against whom a check is drawn that the
check will be paid when presented for
payment. When certified by a bank on
which it is drawn, the certification is
equivalent to an acceptance.

The certification must be in writing

either on the check itself or on a separate
paper
 EFFECTS OF
CERTIFICATION OF
CHECKS
1. It is equivalent to acceptance, making the
bank primarily liable on the instrument
2. It discharges the person secondarily liable
if procured by the holder
3. It operates as an assignment of funds of the
drawer in the hands of the drawee bank
and therefore the drawer cannot draw out
funds then in the bank necessary to meet
the certified check
4. Bank becomes the debtor and cannot refuse
to pay
5. Drawer cannot issue a stop payment order
Liability of Certifying Bank
The bank is estopped against a holder in due
course:

1. To dispute the genuineness of the drawer’s

signature
2. To set up the defense that the drawer’s funds is
insufficient or that the check is without funds
3. To allege that the drawer is indebted to the bank
for more than the amount of the check
When checks are to be
certified:
1. When it is payable
2. Must be made by the person
having the authority to certify
 Effect where the holder of
check procures it to be
certified
Indorsers subsequent to the certification are not
discharged from liability. Where certification is
obtained by someone else other than the holder,
then those secondarily liable are not discharged
from liability.
 The bank cannot be liable
to holder because the bank
is not yet a party prior to
acceptance.
The bank may refuse
payment when:
1. The bank is insolvent
2. Drawer’s deposit is insufficient
3. Drawer is insolvent and proper notice is received by
the bank
4. Drawer dies and proper notice is received by the bank
5. The drawer has countermanded payment
6. The holder refuses to identify himself
7. The bank has reason to believe that the check is a
forgery
8. The check is stale or postdated
ACCEPTANCE
BY SEPARATE
INSTRUMENT
General Rule : Where acceptance is
written on a paper other than the bill
itself, it does not bind the acceptor.

Exception: In favor of a person to

whom it is shown and who, on the
faith thereof, receives the bill for value
Where acceptance is written on a separate
paper other than the bill, in order to bind the
acceptor, it is necessary that:

1. Acceptance be show to the person to

whom it is negotiated
2. Such person must take the bill for value
on the faith of such acceptance
Promise to accept is
deemed an actual
acceptance
 One can accept an instrument
even before the same is drafted or
even before the instrument is
completed and that is already
tantamount to an acceptance.
 TIME ALLOWED TO
ACCEPT
1) Drawee is given 24 hours from
presentment to decide
whether or not he accepts the
instrument
2) The acceptance, if given, dates
as of the date of presentation
 LIABILITY OF DRAWEE
RETAINING OR DESTROYING BILL

Where a drawee to whom a bill is

delivered for acceptance destroys the
same, or refuses within twenty-four
hours after such delivery or within
such other period as the holder may
allow, to return the bill accepted or
non-accepted to the holder, he will be
deemed to have accepted the same.
Constructive Acceptance
There is constructive acceptance
where:

1. When the drawee fails to return

the instrument within 24 hours
2. Where the drawee destroys the
instrument
 ACCEPTANCE OF
INCOMPLETE BILLS
When acceptance may be made:

1. A bill not yet signed by the drawer or while otherwise

incomplete
Incomplete bill - When the bill lacks a material particular

2. Bill has been overdue or dishonored by non-acceptance or

non-payment
 Section 138 v. Section 136
Section 138 Section 136
Similar import that acceptance should be
dated as of the date when the bill was
Similarity presented (sec. 136) or first presented
(sec. 138) for acceptance

Applies only where Refers to a bill which

the bill has been has not been
previously previously
dishonored either by dishonored
Difference non-acceptance or
non-payment
PRESENTMENT
FOR
ACCEPTANCE
Sections 143 to 151
Section 143. When presentment
for acceptance must be made.
■ Definition of Presentment for
acceptance:

Production or exhibition of
a bill of exchange to the
drawee for his acceptance
or payment.
When presentment must
be made:
■ When it is essential to fix the maturity date of the
instrument;
■ To comply with the express stipulation of the parties;
and
■ To inform the drawee of the existence of the bill so
that he may make a arrangements for its payment on
the date of maturity at the place designated therein

Caveat: When presentment for acceptance is not

necessary, the holder can directly present the same for
payment.
 WHEN PRESENTMENT FOR
ACCEPTANCE NOT NECESSARY
■ Bills payable on demand or on sight and
time bills or bills payable at a day certain
or at a fixed time after its date or upon a
certain event.

■ However, presentment for payment should be

made to charge the drawer or indorsers.
Section 144. when failure to present
releases the drawer and indorser.

A holder of a bill that falls under Section 143

may either:
 Present the bill for acceptance; or
 Negotiate within reasonable time

Reason for the requirement: To charge the

drawer and all indorsers. Failure to present
releases the persons secondarily liable.
Section 145. presentment; how made.

1. Must be made by or on behalf of the holder;

2. At a reasonable hour;
3. On a business day;
4. Before the bill is overdue and within reasonable
time; and
5. To the drawee or some person authorized to
accept or refuse acceptance on his behalf.
Bill addressed to two or
more drawees

If partners, presentment to one is

sufficient. Otherwise, presentment
must be made to all of them
unless one has authority to accept
or refuse acceptance for a bill.
Drawee is dead

■ Must be made to personal

representatives.

However, presentment in this case is

merely permissive because if the
drawee is dead, presentment is excused
(Section 148 (a)).
Drawee adjudged bankrupt or
insolvent or has made an assignment
for the benefit of creditors.

■ May be made to him,

trustee, or assignee
Section 146. On what days
presentment may be made

■ On any day when a negotiable

instrument may be presented for
payment
■ If date of presentment falls on a
Saturday which is not a holiday-
must be made BEFORE 12 NOON.
Section 147. When time
is insufficient.
Section 147 excuses the delay in
making presentment for payment (or
acceptance) when such delay is
caused by the presenting the bill for
acceptance at a place other than the
place where the bill is drawn.
Section 148. When
presentment is excused.
1.Where the drawee is dead;
2.Where after exercise of due
diligence, presentment cannot be
made; and
3.Where acceptance is refused on
some other ground although
presentment was irregularly made.
Section 149. When dishonored
by non-acceptance.
■ When duly presented for acceptance and such
an acceptance as is prescribed by this Act is
refused or cannot be obtained; or
■ When presentment for acceptance is excused,
and the bill is not accepted.
■ Caveat: under the second instance, it is not
sufficient that presentment for acceptance is
excused. It is also necessary that the bill
remains not accepted.
Section 151. Duty of holder
where bill is not accepted

■ Treat the bill as dishonored by non-

acceptance and must take the
necessary proceedings against the
drawer and indorser, that is:

1. Have the bill protested in those cases when

required; and
2. Give notice of dishonor in other cases.
SECTION 151. RIGHTS OF A HOLDER
WHERE BILL NOT ACCEPTED.

After giving the notice of dishonor and protest

when required, the holder may immediately
proceed against the drawer or indorsers for
the value of the bill without waiting for the
date of maturity.

However, if the bill is subsequently accepted,

presentment for payment is necessary.
PROTEST
Sections 152 to 160
Section 152. in what cases protest necessary.
OVERVIEW
■ Protest is a formal instrument executed by a
notary public (or other competent person)
certifying that the facts necessary to the dishonor
of the instrument by non- acceptance or non-
payment have taken place.
■ Protest is required only in case of dishonor by
non-acceptance or non-payment of foreign bills.
If not duly protested, the drawer and indorsers
are discharged.
■ Protest of inland bills, except in certain cases,
and promissory notes is not required although
they may be protested if desired.
CASES IN WHICH PROTEST
IS REQUIRED.
1. Upon dishonor by non- acceptance of a foreign bill
appearing on its face to be such;
2. Upon dishonor by non- payment of a foreign bill
appearing on its face to be such, it not having been
previously dishonored by non-acceptance;
3. Before a bill can be accepted for honor;
4. Before a bill can be presented for payment to the
acceptor for honor or the referee in case of need;
5. Upon dishonor of the bill by the acceptor for honor; and
6. Before a bill can be paid for honor.
 Section 153. Protest; how made.

PROCEDURE FOR PROTEST

■ After the instrument is dishonored by non-
acceptance or non-payment, the holder takes it
to a notary public;
■ The notary public himself presents the instrument
again to the party who previously dishonored it,
and demand it acceptance or payment;
■ If the acceptance or payment is refused, the
notary public on the day the makes a minute of
the dishonor on the instrument or on his notarial
register.
■ On the same day or afterwards, the
notary public extends the protest thus
noted by embodying in a certificate
the fact of the protest and his acts in
making presentment, demand and in
giving notice of dishonor; and
■ After the notary public protests the
instrument, he sends notice of
dishonor to all the parties of the
instrument.
CONTENTS OF CERTIFICATE
OF PROTEST:
a) Must be annexed to the bill or must contain a copy
thereof;
b) Must be under the hand and seal of the notary
making it;
c) Must specify the matters enumerated from
subsections (a) to (b) of section 153.

Without the authentication of the notary public, the

certificate of protest of a foreign bill is no proof of the
drawee’s refusal to accept or pay the bill.
Section 154. Protest; by whom made.

■ By a Notary public.

The second paragraph - that any

respectable resident of the place where
bill is dishonored- is not applicable
anymore.
Section 155. protest; when to be made.

■ Must be made on the day it was dishonored,

unless delay is excused.

The notary public need not make the formal

certificate of protest on the same day the
instrument is dishonored BUT the noting of the
matters required to be stated in Section 153
including the date of dishonor must be made in
the date of dishonor.

The Certificate of Protest should however be dated

as of the date of noting.
Section 156. protest; where made.

■ Place where it is dishonored.

However, a bill dishonored by non-

acceptance must be protested for non
payment at the place where it is
expressed to be payable if that place is
the place of the business or residence of
some person other than the drawee.
Section 157. protest both for non-
acceptance and non payment.

Where a bill has already been

protested for non-acceptance,
protest for non-payment is
discretionary on the part of the
holder.
Section 158. protest before maturity
where the acceptor is insolvent.

■ Protest for better security (before maturity) is

one made by the holder of a bill after it has
been accepted BUT before it matures, against
the drawer and indorsers where the acceptor
has been adjudged bankrupt or insolvent or
has made an assignment for the benefit of
creditors.
■ Purpose: to apprise the person secondarily
liable of the situation of the acceptor and thus
enable the former to arrange payment of the
bill at maturity.
Section 159. when protest dispensed
with.

■ In the same way that notice of

dishonor will be dispensed with.
(Secs. 109-118)
Section 160. where bill is lost, and so
forth

■ The contents of the instrument

may be proven as in other cases
of lost documents.
 PROTEST
Required only in case of
dishonor of a foreign bill;
Always written;
Includes presentment, notice
of dishonor, and all the steps
accompanying dishonor;
Made at the place where the
bill is dishonored; and
Made on the day of dishonor.
NOTICE OF
DISHONOR
Required in any negotiable
instrument other than a
foreign bill of exchange;
May be oral or written;
Limited only to such notice;
Place of dishonor is not
essential; and
Giving of notice is made
within the time prescribed.
ACCEPTANCE FOR
HONOR
Sections 161 to 170
 ACCEPTANCE FOR HONOR, DEFINED:

An undertaking by a stranger to a bill after protest for the benefit of

any party liable thereon or for the honor of the person for whose
account the bill is drawn.

Take note: It is otherwise known as acceptance supra protest

since previous protest for non-acceptance or for better security
is necessary.

Important: The acceptance inures to the benefit of all parties

subsequent to the person for whose honor it is accepted, and
conditioned to pay the bill when it becomes due if the original
drawee does not pay it.
WHEN LIABILITY MAY BE
ACCEPTED FOR HONOR
Acceptance for Honor (AFH)
There are instances where a person
would wish to pay the instrument even if
it was dishonored. That person would
want to preserve the credit of some
other person and to pay on the
instrument.
Who can make an acceptance for honor?
It can only be made by a stranger. This AFH gives
additional security because the acceptor for honor
undertakes the warranties and liabilities in case the
acceptor does not pay it.
Important: The AFH must be a stranger and
cannot be a party already liable on the bill like an
indorser because his acceptance would obviously
not give additional security to the holder.

But can it be partial acceptance?

Yes.
Important: You need not accept for the honor of
the drawer only. You can accept the honor of the
indorser.
HOW ACCEPTANCE FOR HONOR IS MADE

Formal requisites of acceptance for honor

1. The AFH must be in writing
2. It must indicate that it is an AFH
3. It must be signed by the acceptor for honor
4. It must contain an express or implied promise to pay
money
5. The accepted bill for honor must be delivered to the
holder

Important: The acceptor for honor must appear before a

notary public and declare his intention to accept the
protested bill for the honor of some or one of the parties.
When deemed accepted for honor of the drawer
When an AFH is made without specifying the person
for whose honor it is made is deemed to be an
acceptance for the honor of the drawer.

Reason for the presumption: Only the drawer will

become liable to the acceptor for honor. This kind
of AFH will thus discharge the most parties to the
bill.

When is it deemed accepted

It is deemed accepted on the date of non-
acceptance. It is important to determine maturity
date of instrument
LIABILITY OF ACCEPTOR FOR HONOR

1. He is liable to all parties after the person in whose

honor he accepts the instrument.
Example: X is accepting honor of drawer. X is liable to A,
B, C and D who are parties subsequent to the drawer.

2. He is subrogated to the rights which the

subsequent parties may have as regards the latter
and all prior parties.
AGREEMENT OF ACCEPTOR FOR HONOR

Acceptor for honor is secondarily liable

His undertaking is not an absolute engagement to pay,
but only a collateral and conditional engagement to
pay, if the drawee does not. An acceptor for honor
engages to pay according to the terms of acceptance,
provided:
1. The bill has been duly presented for payment
2. It shall not have been paid by the drawee
3. The bill has been protested for non-payment
4. Notice of dishonor is given to him supra protest
MATURITY OF BILL PAYABLE
AFTER SIGHT

Maturity of bill payable after sight, accepted for honor

This provision applies only to a bill payable after sight
where it has been accepted for honor.

When date of maturity reckoned

The noting of non-acceptance must be dated as of
the date of the dishonor by non-acceptance.
Consequently, the date of maturity is calculated from
that date and not from the date of the AFH.
CONDITION WHEN
DISHONORED BILL IS ACCEPTED

Who is a referee?
Section 167 is just a repetition of 165 but there is
another person referred here—a referee in case of
need. He is a person to whom you can resort to in
case the instrument is not paid. He must be named.

Important: He’s like an acceptor for honor but he must

be referred to by the drawer or indorser. But it’s not
formal, unlike AFH.
How do you present payment to an AFH?
Just like an ordinary presentment for payment, and:
A. If it is to be presented to the place where protest for
non-payment was made – it must be protested on the
day not later than the day following its maturity.
B. If it is to be presented in some other place where it is
protested – it must be forwarded within the time
specified in Sec 104.

Take Note: This refers to mailing. If person is somewhere else

when you present for payment, just mail photocopy that it
has been dishonored. It must be mailed the day after, which
is usually in a post office. If you go to a post office now, they
will start mailing it the next day. It does not pertain to the
date the mail will be received.
WHEN DELAY IN MAKING
PRESENTMENT IS EXCUSED
When delay in making presentment excused
This refers to fortuitous events or circumstances beyond the
control of the holder.

Important:
A. Only the delay in making presentment is excused
and not the presentment itself
B. As soon as the cause of the delay is removed,
presentment must be made with reasonable
diligence
DISHONOR OF BILL BY
ACCEPTOR FOR HONOR

If ever it has been accepted for honor and it is

dishonored, it is required that there be protest for non-
payment. While AFH is not required originally, but
because there is acceptance for honor, it becomes
mandatory to make a protest.

Phrase “by him”

Such a phrase at the end of the provision modifies
“non-payment”. Thus, if the acceptor for honor himself
does not pay the bill – the holder must protest the bill
for non-payment by the acceptor for honor.
Protests required :
1. Protest for dishonor by non-acceptance
or for better security
2. Protest for non-payment by the drawee
3. Protest for non-payment by the
acceptor for honor

Important: Here, the protest is necessary in

order to hold the drawer and the indorsers
whose liabilities have not yet become fixed
because of the acceptance for honor.
 Acceptance for honor v.
Ordinary acceptance
ACCEPTANCE FOR HONOR ORDINARY ACCEPTANCE

There must be a previous protest Not required

Acceptor must be a stranger to the

The acceptor is the drawee
bill

Consent of the holder is required Not required

Acceptor is secondarily liable Acceptor is primarily liable

There may be several acceptors for There can be no acceptors in the

honor for different parties in the bill alternative or in succession

Bill is not discharged upon payment Bill is discharged upon payment by

by the acceptor for honor the acceptor
 PAYMENT
FOR HONOR
Sections 171 to 177
 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.
NOTES:
■ Involves a bill of exchange
■ Requires prior protest for non-payment
■ Payer may be a party to the bill or a stranger. It may even be the
drawer or the drawee.
Procedure for Payment 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.
 Procedure for Payment
for Honor
1. After the bill has been protested for non-payment, the payer for
honor goes to the notary public and declares his intention to pay
the bill for honor, and the party/parties for whose honor he pays.
2. The declaration is recorded by the notary public either in the
protest itself or in a separate paper attached thereto.
3. The payer for honor notifies within a reasonable time the party
for whose honor he pays that he will make payment.
4. If these are not followed, the payment operates as a mere
voluntary payment. The payer will have no right to full
reimbursement against the party for whise honor he pays.
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.
NOTES
■ All persons subsequent to the person for whose
honor the instrument has been paid will be
discharged.
■ In general, prefer prior payer.
Drawer Z → A → B → C → D → Holder E

QUESTION: If B, C, D, and E each have a different person

offering to pay for their honor, which payer if preferred?

COMPARE: E (0), D (1), C (2), B (3)

ANSWER: B, since this will discharge the most parties.

Sec. 175. Effect on subsequent
parties where bill is paid for honor

■ Where a bill has been paid for honor, all parties subsequent
to the party for whose honor it is paid are discharged but
the payer for honor is subrogated for, and succeeds to, both
the rights and duties of the holder as regards the party for
whose honor he pays and all parties liable to the latter.

NOTES
■ The payer for honor is subrogated for and succeeds to both
the rights and duties of the holder. The payer may recover
payment from the party for whose honor he pays and all
parties liable to the latter.
Drawer Z → A → B → C → D → Holder E

Once the payer makes payment for the honor of B, the

following parties are discharged: C, D, E

Z, A, and B remain liable to the payer for honor.

Sec. 176. Where holder
refuses to receive payment
supra protest
■ Where the holder of a bill refuses to receive payment
supra protest, he loses his right of recourse against
any party who would have been discharged by such
payment.

NOTES
■ If the holder refuses, he loses his right of recourse against
any party who would have been discharged.
Drawer Z → A → B → C → D → Holder E

If E refuses to accept payment supra protest from B’s payer for

honor, then E loses his right to recourse against the parties
who would have been discharged: C and D.

However, E can still hold Z, A and B liable.

Sec. 177. Rights of payer
for honor
■ The payer for honor, on paying to the holder the
amount of the bill and the notarial expenses
incidental to its dishonor, is entitled to receive both
the bill itself and the protest.

NOTES
■ Possession of both the bill itself and the protest makes it
easier for the payer for honor to seek reimbursement.
ACCEPTANCE FOR HONOR PAYMENT FOR HONOR
Protest must be for non-acceptance, Protest must be for non-payment
or for better security
Bill may or may not be overdue Bill must be overdue

Only a stranger can be an acceptor A payer for honor can be a stranger

for honor or a party
The holder may refuse If the holder refuses, he shall lose
the right of recourse against parties
who would have been discharged.

Does not need a notarial act of Needs a notarial act of honor

honor
There can be several acceptors for There can only be one (1) payer for
honor honor
BILLS IN SET
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.
Where different parts are
negotiated
■ Rights 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.
Liability of holder who
indorsers parts to different
persons

■ Liability of a 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.
PROMISSORY
NOTES AND
CHECKS
Promissory note

■ A negotiable promissory note within the

meaning of this Act is an unconditional promise
in writing made by one person to another,
signed by the maker, engaging to pay on
demand, or at a fixed or determinable future
time, a sum certain in money to order or to
bearer. Where a note is drawn to the maker’s
own order, it is not complete until indorsed by
him. (Art. 184)
PROMISSORY NOTE
■ Promise of a person (Maker) – Kathryn Bernardo
■ In writing
■ To pay money to another person (Payee) – Liza
Soberano
■ Ex: For value received, I promise to pay Liza
Soberano the amount of 10,000 on 1 April 2019 in
Cebu City.
■ Sgd. Kathryn Bernardo
PROMISSORY NOTE
■ If it is drawn to maker’s own order – not
complete until indorsed by him (Sec. 184)
■ When presented for payment, if payable on
demand – within reasonable time after its
issue (Sec. 71)
■ When presented for payment, if not payable
on demand – on the day it falls due
PROMISSORY NOTE

■ When may be treated as a bill by its

holder
– If so ambiguous that there is double
whether it is a bill or a note (Sec. 17)
CHECK
■ 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. (Sec. 185)
CHECK
■ It is a written order on the bank, purporting to be
drawn against a deposit of funds for the payment of
all events, of a sum of money to a certain person
therein named or to his order or to cash and payable
on demand
■ A check is not a mere undertaking to pay an amount
of money. It is an order addressed to a ban and
partakes of a representation that the drawer has
funds on deposit against which the check is drawn,
sufficient to ensure payment upon its presentation
the bank.
■ Our confidence in checks made it become a widely
accepted medium of payment.
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. (Sec. 186)
Effect of Certification of
check
■ Where a check is certified by the bank on
which it is drawn, the certification is
equivalent to an acceptance
■ Bank promises to pay it anytime it is
presented to enable the holder to use it as
money
■ How? In writing on the check or on another
instrument. Usually rubber stamped
“Certified” and signed by the manager or
bank officer.
Effect of Certification of
check
Effects:
1. Equivalent to acceptance or operates to make drawee liable
2. Certifying drawee bank has same liabilities and warranties as
acceptor
3. Operates as assignment of drawer’s funds in the drawee’s
hands
4. If obtained by holder, discharges the drawer and indorsers at
the time of such certification (subsequent holders excluded)
WHEN CHECK OPERATES
AS ASSIGNMENT
■ A check of itself does not operate as
an assignment of any part of the
funds to the credit of a drawer with
the bank, and the bank is not liable
to the holder unless and until is
accepts or certifies the check. (Sec.
189)
BATAS PAMBANSA
BLG. 22
BP blg. 22
■ Section 1 Checks without sufficient funds –
– Any person who makes or draws or issues any check to apply on
account or for value
– Knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank for the payment of such
check in full upon its presentment
– Which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for
the same reason
– Had not the drawer, without any valid reason, ordered the bank
to stop payment
– Punishment: 1 year or by a fine of not less than but not more
than double the amount of the check which fine shall in no case
exceed 200,000, or both fine and imprisonment at the discretion
of the court.