TDR Nego Post MT Final

NEGOTIABLE INSTRUMENTS LAW
Atty. Maribeth Lipardo

NEGOTIABLE INSTRUMENTS LAW REMEMBER: The fact that a purchaser after maturity is not a
POST MIDTERM REVIEWER holder in due course should not be misunderstood to mean that
the instrument is void in his hands. The instrument remains
RIGHTS OF THE HOLDER negotiable until it is paid, discharged or restrictively indorsed -
Sec. 51 Right of holder to sue; payment – The holder of a only that the purchaser after maturity takes the instrument
negotiable instrument may to sue thereon in his own name; subject to all defenses and equities with which it was
and payment to him in due course discharges the instrument encumbered in the hands of his transferee.
Sec. 52 What constitutes a holder in due course – A holder in Sec. 54 Notice before full amount is paid – where the
due course is a holder who has taken the instrument under transferee receives notice of any infirmity in the instrument or
the following conditions: defect in the title of the person negotiating the same before
a. That it is complete and regular upon its face he has paid the full amount agreed to be paid therefor, he will
b. That he has become the holder of it before it was be deemed a holder in due course only to the extent of the
overdue, and without notice that it has been amount therefor paid by him.
previously dishonored, if such was the fact
c. That he took it in good faith and for value PURCHASER WILL NOT BE A HOLDER IN DUE COURSE
d. That at the time it was negotiated to him, he had no WHEN NOTICE OF DEFENSES IS GIVEN
notice of any infirmity in the instrument or defect in the - Before he has acquired title
title of the person negotiating it - Before he has paid any portion of the purchase price
Sec. 53 When person not deemed holder in due course – NOTICE AFTER PARTIAL PAYMENT HAS BEEN MADE:
where an instrument payable on demand is negotiated on an - Holder in due course as to the amount paid by him
unreasonable length of time after its issue, the holder is not - If he paid the remainder, despite notice, he cannot
deemed a holder in due course recover such amount.
WHAT CONSTITUTES “REASONABLE TIME” Sec. 55 When title defective – The title of a person who
Section 193 provides that “regard is to be had to the nature of negotiates an instrument is defective within the meaning of
the instrument, the usage of trade or business with respect to this Act when he obtained the instrument, or any signature
such instrument and the facts of the particular case.” thereto, by fraud, duress, or force and fear, or other lawful
means, or for an illegal consideration, or when he negotiates
With respect to instruments with a fixed maturity but subject to it in breach of faith, or under such circumstances as amount
acceleration, the ultimate date of maturity is the date of maturity to a fraud
for the purpose of determining whether a purchaser is a holder
in due course. Enumerates when the circumstances which renders a holder’s
title defective and implies the right of the real owner of the
instrument who was deprived of his possession through any
Talisa Mari D. Dela Rosa | 2E 2022 1

such circumstance, to get the instrument back from the guilty there was something wrong about his assignor’s acquisition of
holder or a holder NOT in due course. title. Knowledge of particular details is not required.
IF it comes to a holder in due course, the latter is free from any

defect of title from any prior party and the owner will not have Sec. 57 Rights of holder in due course – A holder in due
the right to recover it from him.   course holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior parties
Real Defenses: Forgery, incapacity, fraud in the execution, among themselves, and may enforce payment of the
some types of duress, and lack of delivery of an incomplete instrument for the full amount thereof against all parties liable
instrument.   thereon.
Personal Defenses: Sec. 55, want of consideration, Sec. 58 When subject to original defense – In the hands of
incompleteness of the instrument, and lack of delivery of a any holder other than a holder in due course, a negotiable
completed instrument.   instrument is subject to the same defenses as if it were non-
negotiable. But a holder who derives his title through a holder
Sec. 56 What constitutes notice of defect – To constitute in due course, and who is not himself a party to any fraud or
notice of an infirmity in the instrument or defect in the title of illegality affecting the instrument, has all the rights of such
the person negotiating the same, the person to whom it is former holder in respect of all parties prior to the latter.
negotiated must have had actual knowledge of the infirmity or
defect, or knowledge of such facts that his action in taking the Holder in due course Holder NOT in due course
instrument amounted to bad faith. Can acquire a better title than Subject to ALL defenses
In order to constitute notice, the holder must have actual and his predecessors because he because he is treated as a
takes the instrument free transferee of a non-
not merely constructive knowledge of the defect, or he must
negotiable paper
have acted in bad faith. from any defect of title of prior
parties.
Gross negligence in itself would not constitute notice since it is
not the equivalent of bad faith nor of actual knowledge. Free from defenses available Does not affect the
to prior parties among negotiability of the instrument
Anything short of either actual knowledge or bad faith will not themselves except real but only the rights of such
constitute notice. holder.
defenses
Does not necessarily prevent
“KNOWLEDGE OF SUCH FACTS THAT HIS ACTION IN
subsequent holders from
TAKING THE INSTRUMENT AMOUNTED TO BAD FAITH” 
acquiring the status of due
It is not necessary to prove that the defendant knew the exact course holders
fraud. It is sufficient to show that the defendant had notice that

Sec. 59 Who is deemed a holder in due course – Every holder fictitious, he does not warrant the capacity of the
is deemed prima facie to be a holder in due course; but when swindler to indorse the names of the fictitious payee.
it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove Sec. 62 Liability of Acceptor. — The acceptor by accepting
that he or some person under whom he claims acquired the the instrument engages that he will pay it according to the
title as holder in due course. But the last-mentioned rule does tenor of his acceptance; and admits —
not apply in favor of a party who became bound on the (a)The existence of the drawer, the genuineness of his
instrument prior to the acquisition of such defective title. signature, and his capacity and authority to draw the
instrument; and
LIABILITIES OF PARTIES
Sec. 60 Liability of Maker. — The maker of a negotiable (b)The existence of the payee and his then capacity to
instrument by making it engages that he will pay it according indorse.
to its tenor, and admits the existence of the payee and his
then capacity to indorse. Sec. 63 When Person Deemed Indorser. — A person placing
his signature upon an instrument otherwise than as maker,
The term “maker” applies only to a promissory note. By drawer, or acceptor is deemed to be an indorser, unless he
executing a note, the maker warrants that the payee is existing clearly indicates by appropriate words his intention to be
and that the payee is capacitated. bound in some other capacity.
Sec. 61 Liability of Drawer. — The drawer by drawing the Sec. 64 Liability of Irregular Indorser. — Where a person, not
instrument admits the existence of the payee and his then otherwise a party to an instrument, places thereon his
capacity to indorse; and engages that on due presentment signature in blank before delivery, he is liable as indorser, in
the instrument will be accepted or paid, or both, according to accordance with the following rules:
its tenor, and that if it be dishonored, and the necessary (a)If the instrument is payable to the order of a third person,
proceedings on dishonor be duly taken, he will pay the he is liable to the payee and to all subsequent parties.
amount thereof to the holder, or to any subsequent indorser (b)If the instrument is payable to the order of the maker or
who may be compelled to pay it. But the drawer may insert in drawer, or is payable to bearer, he is liable to all parties
the instrument an express stipulation negativing or limiting his subsequent to the maker or drawer.
own liability to the holder. (c)If he signs for the accommodation of the payee, he is liable
to all parties subsequent to the payee.
The drawer warrants the existence of the payee and the latter’s
capacity to indorse at issuance Sec. 65 Warranty Where Negotiation by Delivery and So
• Drawer cannot avail the defenses of: lack of corporate Forth. —
personality and minority of payee
• BUT where at swindler’s request, the drawer makes Every person negotiating an instrument by delivery or by a
drafts payable to persons not known by him to be qualified indorsement warrants —

Qualified indorserment Negotiation by delivery
(a) That the instrument is genuine and in all respects what it Liability extends to all Liability extends in favor
purports to be; subsequent holders (HIDC only of his immediate
(b) That he has a good title to it;  or not) transferee
(c) That all prior parties had capacity to contract; Exception: Transferee who
(d)That he has no knowledge of any fact which would impair had knowledge of the facts
the validity of the instrument or render it valueless. constituting the breach of
warranty at time of transfer
But when the negotiation is by delivery only, the warranty (hence, he should be
extends in favor of no holder other than the immediate deemed to have taken the
transferee. instrument with the defects
he knew to be present)
The provisions of subdivision (c) of this section do not apply
to persons negotiating public or corporation securities, other
than bills and notes. Sec. 65(A)
• Material alteration - instrument is both not genuine and
BOTH QUALIFIED INDORSEMENT & NEGOTIATION BY not in all respects what it purports to be
DELIVERY • Instrument is forged – breach of warranty that the
• No undertaking to pay in the event of dishonor instrument is in all respects what it purports to be
• Purpose of negotiator: pass title to the instrument
without incurring liability for its payment GENERAL RULE: Sec.65 (a) could cover (means that these
• Like an assignor, the transferor gives no assurance that defenses cannot be pleaded because they are covered by the
the primary parties will/can pay the instrument warranties implied from the sale of negotiable instrument) most
• Transferor is merely assigning his credit and is not a real and personal defenses as would fall within the meaning of
party secondarily liable genuine and in all respects what it purports to be.
• His liability is like that of a seller. Although the transferor
does not engage to pay the instrument, he makes ONE OF THE EXCEPTIONS: Sec. 65 (b) covers the real
certain implied warranties pertaining to the instrument defense of non-delivery of an incomplete instrument.
under Sec. 65
• Breach of any of the warranties à transferor will be Sec. 65(D)
absolutely liable for any loss suffered by the holder • Unclear distinction between this and Sec.65 (a). But if
the defect of the instrument has nothing to do with the
Qualified indorserment Negotiation by delivery warranty that it is genuine and in all respects what it
Breach of any of the warranties under Sec. 65 purports to be, then knowledge of such defect would be
necessary to charge the transferor 

• Knowledge of insolvency of prior parties = liable under On due All prior parties
Sec.65 (d), even if the transferor does not warrant that presentment: had capacity to
the instrument will be paid or that prior parties are instrument will be contract
solvent. Why? Transferor knows that the instrument is accepted/paid/both
valueless. according to its
• Knowledge that the note is invalid for want of tenor 
consideration = liable under Sec.65 (d)
If dishonored & Instrument is at
Sec. 66 Liability of General Indorser. — Every indorser who necessary the time of his
indorses without qualification, warrants, to all subsequent proceedings on indorsement valid
holders in due course — dishonor be duly and subsisting
taken: drawer will [whether or not
(a)The matters and things mentioned in subdivisions (a), (b), pay the amount to ignorant of the
and (c) of the next preceding section; and holder/subsequent cause]
(b)That the instrument is at the time of his indorsement valid indorser- payor
and subsisting.
Allowed: drawer’s
And, in addition, he engages that on due presentment, it shall express stipulation
be accepted or paid, or both, as the case may be, according negativing/limiting
to its tenor, and that if it be dishonored, and the necessary liability to holder
proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder, or to any subsequent indorser PARTIES IN WHOSE FAVOR THESE WARRANTIES ARE
who may be compelled to pay it. MADE
Qualified indorser One who General indorser
COMPARATIVE TABLE ON WARRANTIES negotiates by
DRAWER (Sec. Qualified General indorser delivery
61) indorser/one who (Sec. 66) All subsequent Immediate Sec.66: All
negotiates by holders (HDC/not) transferee subsequent HIDC
delivery (Sec. 65) Exception:
Payee’s existence Instrument is Exactly the same Transferee who *It has been
genuine & in all as Sec. 65 had knowledge of suggested that
respect what it the facts HIDC should be
purports to be constituting the interpreted to
Payee’s then He has good title breach of warranty mean merely that
capacity to indorse to it @ time of transfer indorsee has no
knowledge of the

warranty breach payment, and not an indorsement within the meaning of
@ time of NIL.
indorsement (no
need to fulfill all LIABILITY OF A RESTRICTIVE INDORSER
requirements of RESTRICTIVE INDORSEMENT THAT PROHIBITS FURTHER
Sec.52)*** NEGOTIATION
• Restrictive indorser is liable to his immediate indorsee
as an unqualified indorser, unless he otherwise
*** Maker à Fraudulent Payee à Indorsee (took the instrument indicates. 
for value in good faith but after maturity) = cannot recover from • Instrument ceases to be negotiable, so the rights of a
maker (because defense of fraud is available against him). subsequent transferee will be merely those of an
ordinary assignee and not of a holder.
EFFECTS WHEN A MAKER ISSUES A NOTE PAYABLE TO
HIS OWN ORDER RESTRICTIVE INDORSEMENT THAT MAKES THE
• Maker’s subsequent indorsement is not an indorsement INDORSEE AN AGENT OF THE INDORSER
in its legal sense, but is merely a step which completes • The instrument may further be negotiated. 
the issuance of the instrument (so the 1st transferee • Restrictive indorser cannot be liable to all subsequent
may become its holder and who in effect is the payee). indorsees either under Sec.65 or Sec.66
Maker is thus still liable as a maker, and not as an • Any indorsee subsequent to restrictive indorsee-agent
indorser.  acquires only the latter’s rights. 
• Maker is not liable as a seller-warrantor. He still has the • The restrictive indorsee and all subsequent indorsees
defenses he may have as a maker. cannot acquire rights antagonistic to the restrictive
• There is no special contract of indorsement to pay in indorser.
case of dishonor (after due presentment and notice) as
this is absorbed in his liability as maker. RESTRICTIVE INDORSEMENT FOR THE BENEFIT OF A
3RD PARTY
LIABILITY OF A COLLECTING BANK WITH WHOM A CHECK • Indorser remains liable as a general indorser unless he
WITH A FORGED INDORSEMENT WAS DEPOSITED otherwise indicates.
• Collecting bank forwards the check for clearing with its • His liability extends to the restrictive indorsee and all
usual undertaking stamped on the back of the check that subsequent parties.
“all prior and/or lack of indorsement guaranteed” 
• Its liability as a result of forged indorsement: arises from Sec. 67 Liability of Indorser Where Paper Negotiable by
such express warranty, and not from Sec. 66. Delivery. — Where a person places his indorsement on an
• Why not Sec.66? Collecting bank’s act of forwarding the instrument negotiable by delivery he incurs all the liabilities of
check for clearing is a presentment to drawee bank for an indorser.

Sec. 68 Order in Which Indorsers are Liable. — As respects • It is necessary as a general rule to charge the drawer
one another, indorsers are liable prima facie in the order in and indorsers. 
which they indorse; but evidence is admissible to show that • It is NOT necessary to charge primary party. Why? The
as between or among themselves they have agreed maker & acceptor are obliged to pay the instrument even
otherwise. Joint payees or joint indorsees who indorse are if no demand is made on due date & even when it is
deemed to indorse jointly and severally. already overdue. This is true even if the instrument is
payable at a special place, in which case:
Among themselves, indorsers are liable prima facie in the order o The ability & willingness of the primary party to
they indorse Sec.68 does not bind the holder who may sue any pay at such special place on the date of maturity
of the indorsers, regardless of the order of their indorsement. = Tender of Payment (TOP). Hence:
§ Primary party’s liability becomes limited
Ex: nstrument payable to the order of A, bearing the ff. to the amount due at maturity (NOT liable
indorsements on its back: A,B,C,D,E,F. Present holder is X. In for costs in case of suit & interest
case of dishonor, X may go against any of the indorsers. accruing after maturity) 
§ TOP may result in the discharge of
Sec. 69 Liability of an Agent or Broker. — Where a broker or secondary parties.
other agent negotiates an instrument without indorsement, he
incurs all the liabilities prescribed by section sixty-five of this SECONDARY PARTIES
Act, unless he discloses the name of his principal and the fact • Parties are secondarily liable are the drawe and
that he is acting only as agent. indorsers
• They will be liable only after certain conditions are
Sec. 70 Effect of Want of Demand on Principal Debtor. — complied with
Presentment for payment is not necessary in order to charge
the person primarily liable on the instrument; but if the LIABILITY OF SECONDARY PARTIES ARE CONTINGENT
instrument is, by its terms, payable at a special place, and he ON:
is able and willing to pay it there at maturity, such ability and 1. Presentment (of the instrument at maturity to the party
willingness are equivalent to a tender of payment upon his primarily liable for the purpose of obtaining payment
part. But, except as herein otherwise provided, presentment thereof)
for payment is necessary in order to charge the drawer and 2. Dishonor
indorsers. 3. Notice of dishonor (and protest if it is a foreign bill)
PRESENTMENT FOR PAYMENT Sec. 71 Presentment Where Instrument is Not Payable on

• It is the presentation of the note/bill to the person Demand and Where Payable on Demand. — Where the
primarily liable for the purpose of demanding and instrument is not payable on demand, presentment must be
obtaining payment thereof.  made on the day it falls due. Where it is payable on demand,
presentment must be made within a reasonable time after its

issue, except that in the case of a bill of exchange, (d)To the person primarily liable on the instrument, or if he is
presentment for payment will be su cient if made within a absent or inaccessible, to any person found at the place
reasonable time after the last negotiation thereof. where the presentment is made.
Check with Sec. 85 GENERAL RULE: Presentment must be made to person

PRESENTMENT MUST BE MADE ON THE DAY THE primarily liable on the instrument (i.e, the maker of a promissory
INSTRUMENT FALLS DUE. note, the acceptor of an accepted bill)
• Presentment before maturity (ex. Notice to makers
before maturity reminding them of the date when the In case of a bill of exchange or check payable on demand,
note would fall due) – ineffective to charge secondary presentment will be made to the drawee, although he is not
parties liable on the bill
• Presentment after maturity* – too late. Secondary
parties are discharged unless law excuses delay. EXCEPTIONS:
• If due falls on: (1) If he is absent or inaccessible, to any person of sufficient
o Sunday or holiday – should present on the next discretion found at the proper place of presentment 
business day (2) If he is dead and
o Saturday: a. place of payment is specified in the instrument,
§ Time instrument - should present on presentment must be made at such place to any
Monday or if it’s a holiday, the next person found therein 
business day (presentment on Saturday b. no place of payment is specified, to his personal
is ineffective) representative if there is one and if he can be
§ Demand instrument - Saturday before 12 found with the exercise of reasonable diligence.
noon (holder’s option), provided it’s not a (3) If primary parties are liable as partners and 
holiday a. place of payment is specified in the instrument,
Ex: presentment must be made at such place 
Maturity date of time instrument: FRIDAY (holiday) à Saturday b. no place of payment is specified, presentment
à Monday (Holiday) à Presentment: TUESDAY may be made to any one of them, even though
there has been a dissolution of the firm
Sec. 72 What Constitutes a Sufficient Presentment. — (4) If primary parties are joint debtors and 
Presentment for payment, to be sufficient, must be made — a. place of payment is specified in the instrument,
(a)By the holder, or by some person authorized to receive presentment must be made at such place
payment on his behalf;
b. no place of payment is specified, presentment
(b)At a reasonable hour on a business day; made to all primary parties
(c)At a proper place as herein defined;
Sec. 73 Place of Presentment. — Presentment for payment
is made at the proper place —

(a)Where a place of payment is specified in the instrument b. Exhibition unnecessary when the maker
and it is there presented; expressly waives “demand, presentment, protest
(b)Where no place of payment is specified, but the address and  notice of protest and non-payment”
of the person to make payment is given in the instrument and c. Example of inoperative presentment: demand by
it is there presented; telephone  
(c)Where no place of payment is specified and no address is d. When the holder does not have the instrument
given and the instrument is presented at the usual place of with him when demand was made, presentment
business or residence of the person to make payment;  is inoperative except if instrument is refused on
(d)In any other case if presented to the person to make some other grounds (waiver of payor’s right to an
payment wherever he can be found, or if presented at his last
exhibition)  
known place of business or residence.
e. When the instrument is lost/destroyed, holder is
excused from exhibiting it, but he may recover
THIS SECTION IS MANDATORY only if he executes a sufficient bond.
• Presentment at a place not authorized by Sec.73 is not (2) Surrender of instrument to Payor – purpose: to guard
due presentment because of Sec.72 (c) Examples of
against lawsuit by a subsequent holder  
improper presentment:
o note payable at a specified place (payee’s
Sec. 75 Presentment Where Instrument Payable at Bank. —
residence) – presentment made at a different
Where the instrument is payable at a bank, presentment for
place (maker’s domicile & place of business) 
payment must be made during banking hours, unless the
o note payable at a designated branch of a trust person to make payment has no funds there to meet it at any
company – presentment made at its principal time during the day, in which case presentment at any hour
office before the bank is closed on that day is sufficient.
• Example of sufficient presentment: instrument payable
at a bank – its presence in the bank awaiting payment
Sec. 76 resentment Where Principal Debtor is Dead. —
on maturity date until after banking hours
Where the person primarily liable on the instrument is dead,
and no place of payment is specified, presentment for
Sec. 74 Instrument Must Be Exhibited. — The instrument payment must be made to his personal representative, if such
must be exhibited to the person from whom payment is there be, and if, with the exercise of reasonable diligence, he
demanded, and when it is paid must be delivered up to the can be found.
party paying it.
Sec. 77 Presentment to Persons Liable as Partners. —
2 REQUIREMENTS OF PRESENTMENT (BENEFIT PRIMARY
Where the persons primarily liable on the instrument are
& SECONDARY PARTIES)
liable as partners, and no place of payment is specified,
(1) Exhibition – purpose: to be certain that the one
presentment for payment may be made to any one of them,
demanding is the holder
even though there has been a dissolution of the firm.
a. Without exhibition, presentment is ineffective.  

Sec. 78 Presentment to Joint Debtors. — Where there are a. place of payment is specified in the instrument,
several persons, not partners, primarily liable on the presentment must be made at such place
instrument, and no place of payment is specified, b. no place of payment is specified, presentment
presentment must be made to them all. made to all primary parties
Sec. 79 When Presentment Not Required to Charge the Sec. 80 When Presentment Not Required to Charge the
Drawer. — Indorser. — Presentment for payment is not required in order
Presentment for payment is not required in order to charge to charge an indorser where the instrument was made or
the drawer where he has no right to expect or require that the accepted for his accommodation and he has no reason to
drawee or acceptor will pay the instrument. expect that the instrument will be paid if presented.
GENERAL RULE: Presentment must be made to person Accommodated Indorser has NO reason to expect payment
primarily liable on the instrument (i.e, the maker of a promissory from Accommodation maker/acceptor
note, the acceptor of an accepted bill). • Principal debtor here is the indorser, not the
maker/acceptor
In case of a bill of exchange or check payable on demand, • 2 requisites must concur to excuse presentment
presentment will be made to the drawee, although he is not o Instrument was made/accepted for indorser’s
liable on the bill. accommodation
o Indorser has no reason to expect payment (ex:
EXCEPTIONS: indorser’s knowledge that the primary party is
(1) If he is absent or inaccessible, to any person of sufficient insolvent at maturity)
discretion found at the proper place of presentment  • Law does not refer to an indorser for whom the bill is
(2) If he is dead and drawn (accommodation drawer), in which case
a. place of payment is specified in the instrument, presentment to drawee/acceptor is still necessary. 
presentment must be made at such place to any • It is not necessary that a loan for which a note was given
person found therein  should have been made for the sole accommodation of
b. no place of payment is specified, to his personal the indorser. It’s enough if it was only partly for his
representative if there is one and if he can be benefit.
found with the exercise of reasonable diligence.
(3) If primary parties are liable as partners and Sec. 81 When Delay in Making Presentment is Excused. —
a. place of payment is specified in the instrument, Delay in making presentment for payment is excused when
presentment must be made at such place the delay is caused by circumstances beyond the control of
b. no place of payment is specified, presentment the holder, and not imputable to his default, misconduct, or
may be made to any one of them, even though negligence. When the cause of delay ceases to operate,
there has been a dissolution of the firm presentment must be made with reasonable diligence.
(4) If primary parties are joint debtors and 

Sec. 82 When presentment for payment is excused. - negative. Why? They are 2 distinct conditions precedent to
Presentment for payment is excused:  the liability of secondary parties. Lack of one will discharge
(a) Where, after the exercise of reasonable diligence, them. Hence, their intention to dispense with either/both
presentment, as required by this Act, cannot be made;  must be clearly shown.
(b) Where the drawee is a fictitious person; 
(c) By waiver of presentment, express or implied. Sec. 83 When Instrument Dishonored by Non-payment. —
The instrument is dishonored by non-payment when —
82(b): Presentment to fictitious drawee is impossible & 130 (a)It is duly presented for payment and payment is refused or
allows holder to treat drawer as maker (primary party not can not be obtained; or
(b)Presentment is excused and the instrument is overdue and
entitled to presentment).
unpaid.
82(c) Express/Implied Waiver
An instrument is dishonored when not paid on presentment,
• Knowledge of facts which release the secondary party is
irrespective of how non-payment results. (e.g. a promise to pay
necessary for a binding waiver. If he pays in ignorance
5 days after presentment is a dishonor)
of lack of demand and notice, he can recover back the
money so paid.
Sec. 84 Liability of Person Secondarily Liable, When
• However, ignorance as to their legal effect (in the
Instrument Dishonored. — Subject to the provisions of this
absence of fraud) will not relieve him from liability.
Act, when the instrument is dishonored by non- payment, an
Examples:
immediate right of recourse to all parties secondarily liable
o Implied waiver of drawer: Knowing that the bill
thereon accrues to the holder.
was not presented to the drawee, the drawer
promises from time to time to pay the bill, or
makes part payment Dishonor is a condition precedent to the enforcement of the
o Implied waiver of indorser: he consents to the liability of secondary parties. In order to have immediate right of
holder before maturity that the time of payment recourse, there must be dishonor after presentment and the
may be extended to the maker giving of due notice of dishonor.
o Implied waiver of presentment of original note: As to the holder, an indorser whose liability has become fixed
by demand and notice is a principal debtor under this section.
tender of a renewal note by an indorser 
• The fact that the drawee bank was closed by the NOTICE OF DISHONOR
government dispenses with presentment. Insolvency of Notice of dishonor is bringing either verbally or in writing, to the
the party upon whom presentment should be made, knowledge of the drawer or the indorser of the instrument, the
does not. fact that a specified negotiable instrument, upon proper
proceedings taken, has not been accepted, or has not been
Does a waiver of presentment include a waiver of notice of paid, and that the party notified is expected to pay it.
dishonor, and vice versa? Cases are in conflict but it is
submitted that the question must be answered in the

EFFECT OF FAILURE TO GIVE NOTICE: no secondary party Sec. 87 Rule Where Instrument Payable at Bank. — Where
may be held liable, except in cases where law provides the instrument is made payable at a bank it is equivalent to
otherwise an order to the bank to pay the same for the account of the
principal debtor thereon.
Sec. 85 Time of Maturity. — Every negotiable instrument is
payable at the time xed therein without grace. When the day Although this is very similar to a check, the liability of the maker
of maturity falls upon Sunday, or a holiday, the instrument is or an acceptor of such an instrument is primary.
payable on the next succeeding business day. Instruments
falling due or becoming payable on Saturday are to be Presentment for payment would not be necessary to charge
presented for payment on the next succeeding business day, such maker or acceptor. The weight of authority is that Sec. 186,
except that instruments payable on demand may, at the which provides that a check should be presented within a
option of the holder, be presented for payment before twelve reasonable time after its issue or the drawer will be discharged
o'clock noon on Saturday when that entire day is not a to the extent of the loss caused by the delay, does not apply to
holiday. instruments payable at bank.
See Sec. 71
Sec. 88 What constitutes payment in due course. - Payment
Sec. 86 Time; How Computed. — When the instrument is is made in due course when it is made at or after the maturity
payable at a fixed period after date, after sight, or after that of the instrument to the holder thereof in good faith and
happening of a specified event, the time of payment is without notice that his title is defective.
determined by excluding the day from which the time is to
begin to run, and by including the date of payment. (1) Medium of payment – in money
EXCLUDE THE DAY FROM WHICH THE TIME TO BEGIN TO Payment is the most usual way of discharging the bill or note.
RUN & INCLUDE THE DATE OF PAYMENT It should be in money in order to effect discharge.
Example: note payable 12 mos. from date (Nov.8, 2012) =
present on Nov.8, 2013 (not Nov.9) (2) By whom made – by the principal debtor
FIXED PERIOD AFTER THE HAPPENING OF A SPECIFIED   
EVENT Payment must be made by or on behalf of the principal debtor,
Refers to any kind of event which under Sec.4 (certain to otherwise it would constitute a purchase or negotiation, and the
happen though the time of happening be uncertain) will not instrument would remain outstanding.
destroy negotiability
o Principal debtor – includes the maker and the acceptor.
Is a suit instituted on the day of maturity timely? No, it is o Payment by the accommodated party if the instrument is
premature because the party upon whom presentment is made made for his accommodation is payment by the debtor.
has the whole of that day within which to pay. o Payment by an indorser at maturity, not on behalf of the
principal debtor but in discharge of his own liability, does not

discharge the instrument but constitutes the indorsee a holder stolen bearer instrument that was paid without knowledge of
of the instrument, which remains a continuing obligation against such loss is a payment in due course; there is discharge and
the primary party. the remedy of the original holder is to go against the thief.  
(3) When check deemed paid If the party demanding payment is a HIDC and the defect in the
instrument or in the title does not give rise to a real defense,
The check is paid or discharged as soon as the holder receives
payment by the maker/acceptor is payment in due course and
the cash. If the bank credits the amount of the check to the
he will be discharged thereby. Any party prejudiced by such
depositor’s account, it is equivalent to paying the money to the payment will have a remedy against the guilty party.  
depositor and the check will be deemed as discharged.
The maker or acceptor must make sure that the holder traces
(4) To whom made – to holder
his title through genuine indorsements If there is a forged
Payment must be made in due course. It must be made to the indorsement, no right can pass by it and the transferee is not
holder, whether he is the beneficial owner or merely a non- even a holder such that any payment by the maker/acceptor will
beneficial owner under a restrictive indorsement. Payment to not effect a discharge of the instrument.  
one of the several payees or indorsees in the alternative
discharges the instrument. But payment to one of the several Sec. 89 To Whom Notice of Dishonor Must Be Given. —
joint payees or joint indorsers, is not a discharge unless the Except as herein otherwise provided, when a negotiable
party receiving it had authority from the others to receive instrument has been dishonored by non- acceptance or non-
payment on their behalf. payment, notice of dishonor must be given to the drawer and
to each indorser, and any drawer or indorser to whom such
(5) At or after maturity notice is not given is discharged.
Payment must be made to the holder at or after maturity.   In order to charge the indorser, the complaint must allege and
If payment is made before maturity and then the instrument is prove presentment to the maker and notice of dishonor or that
negotiated to a HIDC, the HIDC may recover on the instrument. the same are dispensed with under Sec. 82 (When presentment
for payment is excused) and 109 (Waiver of notice) or is not
(6) In good faith and without notice required under Sec. 118 (When protest need not be made;
when must be made).
When the payor pays with knowledge that the holder’s title is
defective, such payment will not operate as a discharge. The • The burden of proving due notice or that notice was
payor can still be made liable by the true owner of the waived or excused is on the holder. 
instrument. If the payor pays without notice or knowledge of the • The indorser’s knowledge that the maker was in default
defective title, such payment will operate as a discharge. A on a note does NOT dispense with notice of dishonor,

and failure to notify the indorser discharges his Note: A holder in due course cannot be prejudiced by the failure
obligation. or neglgect of previous holder to give a notice of dishonor by
non-acceptance. Thus, the drawer who was not notified by the
Accommodation indorsers are entitled to notice of dishonor. A previous holder of the drawee’s non-acceptance can be held
joint maker is not an indorser and is primarily liable, therefore liable at maturity by a subsequent holder in due course who did
he is not entitled to a notice of dishonor. not know of the previous dishonor.
FOR INSTALLMENTS Sec. 90 By Whom Given. — The notice may be given by or

• If there is no acceleration clause, failure to notify an on behalf of the holder, or by or on behalf of any party to the
indorser of an installment note of the non-payment of instrument who might be compelled to pay it to the holder,
previous installments does NOT affect his liability for and who, upon taking it up, would have a right to
later installments of the non-payment of which he has reimbursement from the party to whom the notice is given.
been duly notified. Each installment is considered a
separate note.  Sec. 91 Notice Given by Agent. — Notice of dishonor may be
• If there is an acceleration clause and it is optional on given by an agent either in his own name or in the name of
the holder, he has a reasonable time for the exercise of any party entitled to give notice, whether that party be his
the option, and the bringing of the action against his principal or not
maker and indorsers constitutes a valid exercise of the
option and at the same time a notice of dishonor A holder, whether he is the owner of the instrument or not, may
• If there is an acceleration clause and it is automatic, give notice of dishonor. It may also be given by one duly
notice of dishonor must be given at once and it is not authorized by the holder to collect though he himself is not a
sufficient to give it upon commencement of the action. holder (i.e. notaries, attorneys)
- a notice given by the maker is not binding unless he has been
authorized, expressly or impliedly to give such notice.
EFFECTS OF NOT SENDING NOTICES OF DISHONOR TO
SECONDARY PARTIES A prior indorser may give notice to parties prior him because he
• Secondary parties are discharged as to the holder who is a party who might be compelled to pay the instrument to the
failed to send notices holder and upon so paying would have a right of reimbursement
• Rights of a subsequent holder in due course are not from the party notified.
prejudiced. He may still send notices to prior parties and
such will benefit all subsequent parties. Sec. 92 Effect of Notice Given on Behalf of Holder. — Where
o This rule is in consonance with Sec. 52(b) notice is given by or on behalf of the holder, it inures for the
allowing the holder of a dishonored instrument to bene t of all subsequent holders and all prior parties who have
be a holder in due course if he had no knowledge a right of recourse against the party to whom it is given.
of such previous dishonor

Sec. 93 Effect Where Notice is Given by Party Entitled dishonored by non-acceptance or non-payment. It may in all
Thereto. — Where notice is given by or on behalf of a party cases be given by delivering it personally or through the
entitled to give notice, it inures for the benefit of the holder mails.
and all parties subsequent to the party to whom notice is
given. Notice may be given by telephone provided it be clearly shown
that the party to be notified is fully identified as the party at the
The benefit referred to in these provisions (92 and 93) is that end of the receiving line.
there is no need to give a notice of dishonor to the party to whom The notice must:
the notice was given in order to recover from such party. (1) identify the instrument and
(2) make known the fact that it has been dishonored either
Sec. 94 When Agent May Give Notice. — Where the by non-acceptance or non-payment
instrument has been dishonored in the hands of an agent, he
may either himself give notice to the parties liable thereon, or A mere recital in the notice that the instrument was not paid
he may give notice to his principal. If he give notice to his would not be sufficient to constitute a statement that it was
principal, he must do so within the same time as if he were dishonored.  
the holder, and the principal upon the receipt of such notice - To comply with the rule, it must be accompanied by a language
has himself the same time for giving notice as if the agent had which will inform the party addressed that the instrument had
been an independent holder. been duly presented.  
Example of the above would be the bank with whom a check Failure to state the date of making and the maturity of a note
has been deposited by the holder for collection. - Assuming the and the name of the payee does not invalidate the notice.  
check is dishonored by the drawee, the collecting bank should
notify either the drawer directly or his principal of such dishonor No misdescription of the amount, date, name of the parties, or
within the time specified in Secs. 103 (Where parties reside in the time the paper falls due, or other defect will vitiate the notice
same place) and 104 (Where parties reside in different place) of dishonor, UNLESS it misleads the party to whom it is sent.
Sec. 95 When Notice Sufficient. — A written notice need not If personal service of notice relied upon, evidence must show
be signed, and an insufficient written notice may be either actual or personal service or an ordinary, diligent effort to
supplemented and validated by verbal communication. A make personal service upon the indorser either at his place of
misdescription of the instrument does not vitiate the notice business or residence if he has no place of business.
unless the party to whom the notice is given is in fact misled - if he is absent, there is no need to call a second time, and the
thereby. notice may be left with anyone found in charge. 
- if there is no one in charge or no one there, giving of notice is
Sec. 96 Form of Notice. — The notice may be in writing or deemed to be waived.
merely oral and may be given in any terms which sufficiently
identify the instrument and indicate that it has been

Sec. 97 To Whom Notice May Be Given. — Notice of dishonor Sec. 99 Notice to Partners. — When the parties to be notified
may be given either to the party himself or to his agent in that are partners, notice to any one partner is notice to the firm
behalf. even though there has been a dissolution.
Not all agents of the party would be a proper agent. It is clear Notice to one partner is notice to firm although it was
that in order for an agent to be competent to receive notice of fraudulently suppressed by the partner who received it.
dishonor, he must be an agent “in that behalf”
Sec. 100 Notice to Persons Jointly Liable. — Notice to joint
Leaving the notice at the window of the cashier of a hotel parties who are not partners must be given to each of them,
corporation is not sufficient, when it does not appear that unless one of them has authority to receive such notice for
anyone’s attention was drawn to the notice. An oral notice by the others.
telephone to a clerk of a corporation is not notice to the
corporation when it doesn’t appear that the clear had If joint payees or joint indorsees indorsed jointly and severally
communicated the notice to anyone connected with the (presumed in Sec. 68), a notice to only one of them is sufficient
management of the business of the corporation. to charge the notified indorser and the failure to notify the
others, although it will discharge the latter, will not discharge the
Sec. 98 Notice Where Party is Dead. — When any party is former.
dead, and his death is known to the party giving notice, the
notice must be given to a personal representative, if there be If joint payees are not jointly and severally liable, such as joint
one, and if with reasonable diligence he can be found. If there drawers, this rule applies and notice to each of them is
be no personal representative, notice may be sent to the last necessary to charge any of them. EXCEPTION: When the one
residence or last place of business of the deceased. notified was given authority to receive for the others
If the holder neglects to make inquiry and the personal Sec. 101 Notice to Bankrupt. — Where a party has been
representative could have been found with reasonable adjudged a bankrupt or an insolvent, or has made an
diligence, notice to the last residence or place of business of the assignment for the bene t of creditors, notice may be given
deceased would be ineffective to charge the estate. either to the party himself or to his trustee or assignee.
If the fact of death is not known to the holder, although he could Sec. 102 Time Within Which Notice Must Be Given. — Notice
have discovered such fact with the exercise of reasonable may be given as soon as the instrument is dishonored; and
diligence, this provision does not impose on him the duty to unless delay is excused as hereinafter provided, must be
notify the personal representative. A notice sent in accordance given within the times fixed by this Act.
with Sec. 108 (Where notice must be sent) would be sufficient.
Sec. 103 Where Parties Reside in Same Place. — Where the
person giving and the person to receive notice reside in the
same place, notice must be given within the following times:

of the party to whom notice is to be sent and the designation of
(a)If given at the place of business of the person to receive the proper place.
notice, it must be given before the close of business hours on
the day following. Sec. 106 Deposit in Post-Office; What Constitutes. — Notice
(b)If given at his residence, it must be given before the usual is deemed to have been deposited in the post-office when
hours of rest of the day following. deposited in any branch post-office or in any letter box under
(c)If sent by mail, it must be deposited in the post-office in the control of the post-office department.
time to reach him in usual course on the day following.
Sec. 107 Notice of Subsequent Party; Time of. — Where a
Sec. 104 Where Parties Reside in Different Places. — Where party receives notice of dishonor, he has, after the receipt of
the person giving and the person to receive notice reside in such notice, the same time for giving notice to antecedent
different places, the notice must be given within the following parties that the holder has after the dishonor.
times:
Sec. 108 Where Notice Must Be Sent. — Where a party has
(a)If sent by mail, it must be deposited in the post-office in added an address to his signature, notice of dishonor must
time to go by mail the day following the day of dishonor, or if be sent to that address; but if he has not given such address,
there be no mail at a convenient hour on that day, by the next then the notice must be sent as follows:
mail thereafter.
(b)If given otherwise than through the post-office, then within (a)Either to the post-office nearest to his place of residence
the time that notice would have been received in due course or to the post- office where he is accustomed to receive his
of mail, if it had been deposited in the post-office within the letters; or
time specified in the last subdivision (b)If he lives in one place, and has his place of business in
another, notice may be sent to either place; or
Sec. 104(A) convenient to the sender. This depends on the (c)If he is sojourning in another place, notice may be sent to
usual hours of opening of business houses and the post office the place where he is so sojourning.
and the usual time required for the postman to pick up mail and But where the notice is actually received by the party within
to get it to the central office. the time specified in this Act, it will be sufficient, though not
sent in accordance with the requirement of this section
Sec. 105 When Sender Deemed to Have Given Due Notice.
— Where notice of dishonor is duly addressed and deposited
in the post-office, the sender is deemed to have given due Sending notice to an address designated by the indorser will be
notice, notwithstanding any miscarriage in the mails. sufficient even though the address is incorrect. If notice is sent
to an address other than the one designated, the notice may be
Duly addressed - when a letter or post card has been written by binding upon proof by the sender of its actual receipt. The
the sender and properly stamped, containing the information burden of proof of actual receipt of notice will rest upon the party
required by Sec. 96 (Form of notice), and which bears the name who gave it.

instrument, is deemed to be a waiver not only of a formal
Sec. 109 Waiver of Notice. — Notice of dishonor may be protest, but also of presentment and notice of dishonor.
waived, either before the time of giving notice has arrived or
after the omission to give due notice, and the waiver may be Sec. 112 When Notice is Dispensed With. — Notice of
express or implied. dishonor is dispensed with when, after the exercise of
reasonable diligence, it cannot be given to or does not reach
Sec. 110 Whom Affected by Waiver. — Where the waiver is the parties sought to be charged
embodied in the instrument itself, it is binding upon all parties;
but, where it is written above the signature of an indorser, it Reasonable diligence depends upon the circumstances of the
binds him only. case.
Waiver may be made before or after maturity of the instrument Sec. 113 Delay in Giving Notice; How Excused. — Delay in
and it may be either be express or implied. giving notice of dishonor is excused when the delay is caused
by circumstances beyond the control of the holder, and not
The burden of proof is on the holder to show waiver of notice, imputable to his default, misconduct, or negligence. When the
and it will not be inferred from doubtful acts or language of the cause of delay ceases to operate, notice must be given with
indorser, but must be proved by clear and unequivocal reasonable diligence.
evidence.
Note: Sec. 102 – 107 and 113 apply to all cases of dishonor,
Where the waiver is written will determine who will be affected whether by non-payment or non-acceptance
by an express waiver: 
• Where the words appear in the body or face of the Sec. 114 When Notice Need Not Be Given to Drawer. —
instrument, it is “embodied in the instrument” under this Notice of dishonor is not required to be given to the drawer in
rule and binds all parties. BUT, waiver may be so either of the following cases:
worded as to render it inapplicable to certain parties (e.g.
“The drawer waives notice and presentment” does not (a)Where the drawer and drawee are the same person.
apply to an indorser)  (b)When the drawee is a fictitious person or a person not
• Where waiver appears above the signature of an having capacity to contract.
indorser, it binds him only  (c)When the drawer is the person to whom the instrument is
presented for payment.
• Where waiver appears across the back of the
(d)Where the drawer has no right to expect or require that the
instrument, and under such waiver appears the names
drawee or acceptor will honor the instrument.
of several indorsers, there is conflict of opinion as to
(e)Where the drawer has countermanded payment.
whether all of the latter are bound by such waiver.
REASONS FOR NOT REQUIRING NOTICE
Sec. 111 Waiver of Protest. — A waiver of protest, whether in
the case of a foreign bill of exchange or other negotiable

• Under pars (a) and (b): because the holder is given the (c)Where the instrument was made or accepted for his
option under Sec. 130 (When bill may be treated as a accommodation.
promissory note), thus considering the drawer a maker
and a primary party. Par. (a) is similar to Par. (b) of Sec. 114, except for the fact that
• Under par. (c): such demand for payment, of itself, the indorser must have knowledge of the fact therein stated
constitutes notice of dishonor of the bill. Case must be Under Par. (b), the presentment to the indorser must be after
one where presentment has been made upon the dishonor by the maker, drawee or acceptor and within the time
drawee who dishonors the bill, or a case where for some that the holder is entitled to give notice to such indorser.
reason presentment is not required or is dispensed with,
and the holder demands payment from the drawer within The reason behind par. (c) is that the indorser is in fact the
such time that he shold give notice of dishonor to the principal debtor.
drawer.
• Under par. (d): where there is no antecedent Under this section, the insolvency of the maker will not excuse
contractual relation between the drawer and drawee notice to the indorser even if the indorser knew of such fact. The
under which the drawee is bound to accept or pay, intention of the holder to make him liable must be expressed by
notice of dishonor is not required because drawee has a notice of dishonor.
no right to “require that the drawee accept or pay.” Thus,
where the drawer of a check has no account or sufficient Sec. 116 Notice of Non-payment Where Acceptance
funds with the drawee bank, he is not entitled to notice Refused. — Where due notice of dishonor by non-acceptance
of dishonor. has been given, notice of a subsequent dishonor by non-
• Under par. (e): notice not required because it is his own payment is not necessary, unless in the meantime the
act which causes dishonor of the instrument. instrument has been accepted.
Countermanding is the same as “stop order” and means
ordering the drawee bank not to pay the check issued REASON FOR THE RULE: Dishonor by non-acceptance
by the drawer. confers upon the holder an immediate right against all
secondary parties. Failure of the holder to give notice of
Sec. 115 When Notice Need Not Be Given to Indorser. — dishonor by non-acceptance would mean that his rights against
Notice of dishonor is not required to be given to an indorser secondary parties are lost and such rights will not be revived by
in either of the following cases: a subsequent presentment for payment.
(a)Where the drawee is a fictitious person or a person not Sec. 117 Effect of Omission to Give Notice of Non-
having capacity to contract, and the indorser was aware of acceptance. — An omission to give notice of dishonor by non-
the fact at the time he indorsed the instrument; acceptance does not prejudice the rights of a holder in due
(b)Where the indorser is the person to whom the instrument course subsequent to the omission.
is presented for payment;

A holder In due course cannot be prejudiced by the failure or all parties, whether primary or secondary, from further liability
neglgect of previous holder to give a notice of dishonor by non- on the instrument.
acceptance. Thus, the drawer who was not notified by the
previous holder of the drawee’s non-acceptance can be held BY WHOM EFFECT
liable at maturity by a subsequent holder in due course who did Drawee Although he is not a party
not know of the previous dishonor. until he accepts and payment
- If the holder knew of such dishonor, he cannot be a holder in by him is literally not a
due course; and in such case, he cannot hold previous parties discharge under Sec. 119, he
who were not notified of the dishonor fulfills the representation
made by the drawer and by
A dishonor by non-payment necessarily presupposes that the the indorsers and therefore
instrument has matured, and therefore, no holder subsequent payment by him will also
thereto can be a holder in due course. Such dishonor by non- discharge the instrument.
payment will prejudice all subsequent holders.
Accommodated party if the instrument is made or
Sec. 118 When Protest Need Not Be Made; When Must Be accepted for his
Made. — Where any negotiable instrument has been accommodation – it is
dishonored it may be protested for non- acceptance or non- actually payment by the
payment, as the case may be; but protest is not required principal debtor, whether
except in the case of foreign bills of exchange. or not he appears to be a
party to the instrument.
Sec. 119 Instrument; How Discharged. — A negotiable Indorser (at maturity) Not on behalf of the principal
instrument is discharged — debtor but in discharge of his
(a)By payment in due course by or on behalf of the principal own liability, DOES NOT
debtor; discharge the instrument
(b)By payment in due course by the party accommodated, but constitutes the
where the instrument is made or accepted for indorsee a holder of the
accommodation; instrument, which remains
(c)By the intentional cancellation thereof by the holder; a continuing obligation
(d)By any other act which will discharge a simple contract for against the primary party.
the payment of money;
(e)When the principal debtor becomes the holder of the Drawer Does not discharge the
instrument at or after maturity in his own right. instrument
The discharge of a negotiable instrument effects the Sec. 119(c) By the intentional cancellation thereof by the holder;
extinguishment of the obligations arising thereunder. It relieves

Cancellation includes obliteration, erasure, or burning. It need (e)By a release of the principal debtor, unless the holder's
not be supported by consideration in order to operate as right of recourse against the party secondarily liable is
discharge of the instrument. It is effective without notice to the expressly reserved;
primary party. (f)By any agreement binding upon the holder to extend the
time of payment, or to postpone the holder's right to enforce
If the holder of a note tears it up and throws it in a waste basket, the instrument, unless made with the assent of the party
or stamps the instrument “paid”, it is considered as presumptive secondarily liable, or unless the right of recourse against such
evidence of discharge, which may be rebutted by contrary proof. party is expressly reserved
If cancellation is made without authority, or made unintentionally Sec. 120(A) in effect incorporates Secs. 119 (Instrument; how
or by mistake or through fraud, it is inoperative. The burden of discharged), 122(Renunciation by holder), 124 (Alteration of
proving this, however, lies on the person claiming its instrument; effect of.), 125(What constitutes a material
effectiveness because cancellation is presumed to be alteration), and 88 (What constitutes payment in due course).
intentional. Thus, discharge of secondary parties by discharge of the
instrument may be effected by any of the following:
Sec. 119(e) When the principal debtor becomes the holder of (1) payment in due course 
the instrument at or after maturity in his own right. (2) intentional cancellation of the instrument
Reacquisition must be at or after maturity, otherwise no (3) any act which will discharge a contract
discharge will be effected and the instrument may be further (4) reacquisition by the principal debtor
negotiated. (5) renunciation by holder 
(6) material alteration
If principal debtor reacquires it as an agent of another, he does
not do so in his own right. Nor is it so if he reacquires it as a Sec. 120(B) see Sec. 123
pledge from the holder.
Sec. 120(C) The reason for discharging parties subsequent to
Sec. 120 When Persons Secondarily Liable on, Discharged. the party discharged is that the act of discharge removes from
— A person secondarily liable on the instrument is discharged the former a possible source of reimbursement from the latter.
—
This applies only to discharge by act of the holder and not to
(a)By any act which discharges the instrument; discharge by operation of law. Thus, a discharge by bankruptcy
(b)By the intentional cancellation of his signature by the of a prior party or by running of the statute of limitations does
holder; not discharge other indorsers.
(c)By the discharge of a prior party; - But where an indorsers upon presentation of the note to
(d)By a valid tender of payment made by a prior party; him for payment, writes after his indorsement the words
“without recourse”, and the holder by silence acquiesced
thereto and takes back the note unpaid, the indorser is

discharged by an act of assent of the holder, and all - if the old note is retained and the renewal note is taken
subsequent indorsers are discharged. merely as collateral security for the old note, the indorser
is not discharged. 
Sec. 120(D) in order for this operate as a discharge, there must - If the old note is surrendered and the renewal note bears
be evidence not only of ability, but also of willingness to apply a future date of payment, there is in effect an extension
such deposit to the payment of the instrument. of time of payment and the indorsers will be discharged.
Sec. 120(E) This refers to a release of the debtor by the creditor The consent to an extension may be given either before or at
and not by operation of law. the time of the extension
Reservations of the right of recourse cannot be implied from the Sec. 121 Right of Party Who Discharges Instrument. —
acts and conduct of the holder but should be express, but Where the instrument is paid by a party secondarily liable
because a strictly legal interpretation of the law may result in thereon, it is not discharged; but the party so paying it is
inequity, courts refuse to adhere to a literal interpretation and remitted to his former rights as regard all prior parties, and he
hold that consent to a release preserves the liability of the party may strike out his own and all subsequent indorsements, and
giving it. again negotiate the instrument, except —
Sec. 120(F) The agreement referred to is one between the (a)Where it is payable to the order of a third person, and has
holder and the principal debtor. This is in harmony with the rule been paid by the drawer; and
that an extension granted to the debtor without the consent of (b)Where it was made or accepted for accommodation, and
the guarantor extinguishes the guaranty. The drawers and has been paid by the party accommodated.
indorsers are indeed guarantors of the maker and acceptor.
Sec. 121 refers to payment at or after maturity because if it is
The agreement to extend the time of payment must be binding made before maturity, it is not “payment” but negotiation, and is
on the holder in order to operate as a discharge of the governed by Sec. 50. In both cases, the instrument is not
secondary parties. Thus, if it is not supported by a discharged and the reacquirer may negotiate the instrument.
consideration, secondary parties remain liable.
- This requirement more properly applies to an extension When a regular indorser pays a note to the holder, the former
given before the due date of the instrument. If the may now sue the maker and prior parties, but he may not go
extension is given at or after maturity, there is a dishonor against parties to whom he was liable prior to his reacquisition
of the instrument, and unless notice is given to the because Sec. 121 provides that he is “remitted to his former
secondary parties within the time prescribed by law, they rights” and Sec. 50 expressly denies him that right.
will be discharged from all liability under the instrument. - However, unless their indorsements are cancelled, the
intervening parties are only discharged as to the
The use of renewal notes to effect an extension is common, but reacquirer but not the other parties.
its issuance does not always operate to discharge an indorser.

An exception recognized by Sec. 121 is where the payment is instrument. In either case, a holder in due course is protected in
made by a secondary party who is the principal debtor on the case he takes the instrument without notice of the renunciation.
instrument, the instrument is discharged. 
- Thus, the principal debtor has no right to sue the Renunciation need not be supported by a consideration.
accommodation maker or acceptor.
Renunciation, in order to discharge the secondary parties in
If the one who pays and reacquires the instrument is an whose favor it is made, may take place even before maturity,
accommodation indorser, the clause “remitted to his former unlike in case of the discharge of the instrument where
rights” should not apply to him. renunciation must take place at or after maturity.
- If he is remitted to his former rights, he would not have
a right to recover, except from the accommodated party, Sec. 123 Cancellation; Unintentional; Burden of Proof . — A
since he gave no value for the instrument. But if he gave cancellation made unintentionally, or under a mistake or
value at the time of his reacquisition, he should be without the authority of the holder, is inoperative, but where
allowed to recover, and the application of the clause an instrument or any signature thereon appears to have been
“remitted to his former rights” would obviously be unjust cancelled the burden of proof lies on the party who alleges
that the cancellation was made unintentionally, or under a
Sec. 122 Renunciation by Holder. — The holder may mistake or without authority.
expressly renounce his rights against any party to the
instrument before, at, or after its maturity. An absolute and Cancellation includes obliteration, erasure, or burning. It need
unconditional renunciation of his rights against the principal not be supported by consideration in order to operate as
debtor made at or after the maturity of the instrument discharge of the instrument. It is effective without notice to the
discharges the instrument. But a renunciation does not affect primary party.
the rights of a holder in due course without notice. A
renunciation must be in writing, unless the instrument is If the holder of a note tears it up and throws it in a waste basket,
delivered up to the person primarily liable thereon. or stamps the instrument “paid”, it is considered as presumptive
evidence of discharge, which may be rebutted by contrary proof.
TWO FORMS
(1) A written declaration to that effect; and  If cancellation is made without authority, or made unintentionally
(2) by surrender of the instrument to the primary party. or by mistake or through fraud, it is inoperative. The burden of
If renunciation is made at or after maturity in favor of the proving this, however, lies on the person claiming its
principal debtor, the instrument is discharged provided the effectiveness because cancellation is presumed to be
renunciation is absolute and unconditional. intentional.
If renunciation is made in favor of any party, it will discharge Sec. 124 Alteration of Instrument; Effect of. — Where a
only such party and parties subsequent to him, but not the negotiable instrument is materially altered without the assent
of all parties liable thereon, it is avoided, except as against a

party who has himself made, authorized, or assented to the GENERAL RULE: A material alteration avoids the instrument.
alteration, and subsequent indorsers.
EXCEPTIONS:
But when an instrument has been materially altered and is in (1) If a claim is made against a party who authorized or
the hands of a holder in due course, not a party to the consented to the alteration 
alteration, he may enforce payment thereof according to its (2) If a claim is made against a subsequent indorser since,
original tenor. among other things, he warrants that the
instrument is in all respects what it purports to be and that is
If the alteration is apparent on its face, it renders the instrument valid at the time of his indorsement 
irregular, even if the change has been authorized or assented (3) If the instrument is in the hands of a holder in due course
to by all the parties concerned. This puts the purchaser on who may enforce payment according to its
inquiry as to all defenses and equities, whether or not connected original tenor.
with the alteration.
If the unauthorized alteration is both apparent and material, the Sec. 126 Bill of Exchange, Defined. — A bill of exchange is
instrument is entirely void. an unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person
IN RELATION TO THE GENERAL GOOD FAITH RULE A to whom it is addressed to pay on demand or at a fixed or
purchaser will be deemed not a holder in due course only if the determinable future time a sum certain in money to order or
instrument is so incomplete or irregular that the purchaser must to bearer.
have had actual knowledge of such facts that his action in taking
the instrument amounted to bad faith. Sec. 127 Bill Not an Assignment of Funds in Hands of
Drawee. — A bill of itself does not operate as an assignment
Sec. 125 What Constitutes a Material Alteration. — Any of the funds in the hands of the drawee available for the
alteration which changes — payment thereof, and the drawee is not liable on the bill
unless and until he accepts the same.
(a) The date; 
(b) The sum payable, either for principal or interest;  Although the drawee is not liable to the holder until he accepts
(c) The time or place of payment;  the instrument, the drawee may still be held liable to the drawer
(d) The number or the relations of the parties;  for breach of contract or tort for non-acceptance.
(e) The medium or currency in which payment is to be made;
Sec. 128 Bill Addressed to More Than One Drawee. — A bill
Or which adds a place of payment where no place of payment may be addressed to two or more drawees jointly, whether
is specified, or any other change or addition which alters the they are partners or not; but not to two or more drawees in
effect of the instrument in any respect, is a material alteration. the alternative or in succession.

The drawee must be named or otherwise indicated therein with payment. Such person is called the referee in case of need.
reasonable certainty. A bill may not be addressed to two or It is in the option of the holder to resort to the referee in case
more drawees alternatively, because there would be no of need or not, as he may see fit.
certainty as to the person to whom the bill should be presented Obsolete practice
for payment of acceptance. It may be addressed to two or more
drawees jointly. Sec. 132 Acceptance; How Made, and So Forth. — The
acceptance of a bill is the signification by the drawee of his
Sec. 129 Inland and Foreign Bills of Exchange. — An inland assent to the order of the drawer. The acceptance must be in
bill of exchange is a bill which is, or on its face purports to be, writing and signed by the drawee. It must not express that the
both drawn and payable within the Philippine Islands. Any drawee will perform his promise by any other means than the
other bill is a foreign bill. Unless the contrary appears on the payment of money.
face of the bill, the holder may treat it as an inland bill.
Acceptance applies only to bills of exchange and its object is to
Sec. 130 When Bill May Be Treated as Promissory Note. — bind the drawee.
Where in a bill drawer and drawee are the same person, or
where the drawee is a fictitious person, or a person not having REQUISITES FOR A VALID ACCEPTANCE UNDER SECTION
capacity to contract, the holder may treat the instrument, at 132 
his option, either as a bill of exchange or a promissory note. (1) It must be in writing; 
(2) It must be signed by the drawee; and 
Section 130 gives the option to treat the instrument as either a (3) It must not change the implied promise of the acceptor to
bill or promissory note, because otherwise, no one can ever be pay only money
made primarily liable on the bill.
There can be no oral acceptance 
If the bill names no drawee but is accepted by a third party, Acceptance may be made on the instrument or outside the
although the issuer of the bill cannot be held as drawer, the instrument
acceptor could be held as maker. In this, the instrument is
treated as a note instead of a bill. Sec. 133 Holder Entitled to Acceptance on Face of Bill. —
The holder of a bill presenting the same for acceptance may
Why is there no presentment required? Since the holder may require that the acceptance be written on the bill, and, if such
treat it as a note, drawer becomes the maker (primary party who request is refused, may treat the bill as dishonored.
is liable even without presentment).
Sec. 134 Acceptance by Separate Instrument. — Where an
Sec. 131 Referee in Case of Need. — The drawer of a bill acceptance is written on a paper other than the bill itself, it
and any indorser may insert thereon the name of a person to does not bind the acceptor except in favor of a person to
whom the holder may resort in case of need; that is to say, in whom it is shown and who, on the faith thereof, receives the
case the bill is dishonored by non-acceptance or non- bill for value.

payment. But when a bill payable after sight is dishonored by
Sec. 135 Promise to Accept; When Equivalent to Acceptance. non-acceptance and the drawee subsequently accepts it, the
— An unconditional promise in writing to accept a bill before holder, in the absence of any different agreement, is entitled
it is drawn is deemed an actual acceptance in favor of every to have the bill accepted as of the date of the first
person who, upon the faith thereof, receives the bill for value. presentment.
An acceptance on a separate paper of an existing bill is There can be no oral acceptance.

sometimes referred to as “extrinsic acceptance” Acceptance may be made on the instrument or outside the
An acceptance on a separate paper of a future bill is sometimes instrument Section 138 allows an incomplete instrument be
referred to as “virtual acceptance” accepted
An acceptance on a separate paper must identify the bill to Sec. 139 Kinds of Acceptance. — An acceptance is either
which the acceptance refers. The acceptance must be clear and general or qualified. A general acceptance assents without
unequivocal. Acceptance on a separate paper is not binding in qualification to the order of the drawer. A qualified acceptance
favor of one who never saw the separate paper. Section 134 in express terms varies the effect of the bill as drawn.
requires that the purchaser of a bill for value took the bill on the
faith of such acceptance. Sec. 140 What Constitutes a General Acceptance. — An
acceptance to pay at a particular place is a general
Sec. 136 Time Allowed Drawee to Accept. — The drawee is acceptance, unless it expressly states that the bill is to be paid
allowed twenty- four hours after presentment in which to there only and not elsewhere.
decide whether or not he will accept the bill; but the
acceptance, if given, dates as of the day of presentation. Sec. 141 Qualified Acceptance. — An acceptance is qualified
which is —
The 24-hour period is counted from delivery.
(a)Conditional; that is to say, which makes payment by the
Sec. 137 Liability of Drawee Retaining or Destroying Bill. — acceptor dependent on the fulfillment of a condition therein
Where a drawee to whom a bill is delivered for acceptance stated;
destroys the same, or refuses within twenty- four hours after (b)Partial; that is to say, an acceptance to pay part only of the
such delivery, or within such other period as the holder may amount for which the bill is drawn;
allow, to return the bill accepted or non-accepted to the (c)Local; that is to say, an acceptance to pay only at a
holder, he will be deemed to have accepted the same. particular place;
(d)Qualified as to time; 
Sec. 138 Acceptance of Incomplete Bill. — A bill may be (e)The acceptance of some one or more of the drawees, but
accepted before it has been signed by the drawer, or while not of all.
otherwise incomplete, or when it is overdue, or after it has
been dishonored by a previous refusal to accept, or by non-

THREE OPTIONS AVAILABLE TO THE HOLDER IN CASE OF GENERAL RULE: Presentment for acceptance is NOT required
QUALIFIED ACCEPTANCE (Sec.143, par.2)
(1) Accept the qualified acceptance  EXCEPTION: Instances under Sec.143, par. 1
(2) Treat the instrument as dishonored 
(3) To give notice to the drawer and endorsers to express his
dissent BILLS UNDER SEC. 143, PAR. 1
• Presentment for acceptance is the production/exhibition
Sec. 142 Rights of Parties as to Qualified Acceptance. — The of the bill to the drawee for the purpose of obtaining his
holder may refuse to take a qualified acceptance, and if he acceptance/assent to the drawer’s order. 
does not obtain an unqualified acceptance, he may treat the • Bills duly presented but not accepted will be deemed
bill as dishonored by non-acceptance. Where a qualified bills dishonored by non-acceptance. 
acceptance is taken, the drawer and indorsers are discharged • Holder must either present or negotiate the bill within a
from liability on the bill, unless they have expressly or reasonable time. Otherwise, drawers and indorsers will
impliedly authorized the holder to take a qualified acceptance, be discharged. Why? Firstly, they have an interest in
or subsequently assent thereto. When the drawer or an having the bills accepted immediately in order to shorten
indorser receives notice of a qualified acceptance, he must, the time of payment and thus put a limit to the period of
within a reasonable time, express his dissent to the holder, or their liability. Secondly, this enables them to protect
he will be deemed to have assented thereto. themselves by other means if the bill is not accepted and
paid within the time originally contemplated by them.
Sec. 143 When Presentment for Acceptance Must Be Made.
— Presentment for acceptance must be made — BILLS OUTSIDE IT
• Time bill (payable at a day certain / at a fixed time after
(a)Where the bill is payable after sight, or in any other case, its date) and bills not falling under Sec.143 (b) & (c) need
where presentment for acceptance is necessary in order to not be presented for acceptance. 
fix the maturity of the instrument; or • Holder may present it if so desired. If drawee refuses to
accept, the bill is dishonored by non- acceptance.
(b)Where the bill expressly stipulates that it shall be • VS. Checks (not meant to be presented for
presented for acceptance; or acceptance/certification) – NO dishonor if presented and
refused certification. Same rule applies to bills payable
(c)Where the bill is drawn payable elsewhere than at the on demand.
residence or place of business of the drawee.
Sec. 144 When Failure to Present Releases Drawer and
In no other case is presentment for acceptance necessary in Indorser. — Except as herein otherwise provided, the holder
order to render any party to the bill liable. of a bill which is required by the next preceding section to be
presented for acceptance must either present it for

acceptance or negotiate it within a reasonable time. If he fails whom bill is presented. Presentment cannot be
to do so, the drawer and all indorsers are discharged. omitted.
• When? Before bill is overdue; at a reasonable hour on a
Sec. 145 Presentment; How Made. — Presentment for business day (follow Secs. 72 & 85 on presentment for
acceptance must be made by or on behalf of the holder at a payment) 
reasonable hour, on a business day and before the bill is o When Saturday is not otherwise a holiday:
overdue, to the drawee or some person authorized to accept before 12nn 
or refuse acceptance on his behalf; and o Not on a Sunday or holiday
• Where? Law does not prescribe the place, unlike in
(a)Where a bill is addressed to two or more drawees who are presentment for payment
not partners, presentment must be made to them all, unless
one has authority to accept or refuse acceptance for all, in PRESENTMENT NOT MADE BY THE PROPER PARTY TO
which case presentment may be made to him only; THE PROPER PARTY AT THE TIME AND IN THE MANNER
(b)Where the drawee is dead, presentment may be made to PROVIDED
his personal representative; • Presentment would be irregular and ineffective
(c)Where the drawee has been adjudged a bankrupt or an • Drawee’s refusal to accept will NOT be a dishonor of a
insolvent, or has made an assignment for the benefit of bill
creditors, presentment may be made to him or to his trustee
or assignee. Sec. 146 On What Days Presentment May Be Made. — A bill
may be presented for acceptance on any day on which
• Who makes the presentment? Holder OR person on his negotiable instruments may be presented for payment under
behalf  the provisions of sections seventy-two and eighty-five of this
• To whom? Drawee OR some person authorized to Act. When Saturday is not otherwise a holiday, presentment
accept/refuse acceptance on his behalf: for acceptance may be made before twelve o'clock, noon, on
o All drawees (to whom a bill is addressed) who that day.
are not partners UNLESS one is authorized to
 refuse/accept for all of them – Sec.145(a) uses Sec. 147 Presentment Where Time is Insufficient. — Where
“must” the holder of a bill drawn payable elsewhere than at the place
o Personal representative (if drawee is dead) – of business or the residence of the drawee has no time with
merely permissive since Sec.148(a) excuses the exercise of reasonable diligence to present the bill for
 presentment.   acceptance before presenting it for payment on the day that
o Trustee, assignee or drawee himself (adjudged it falls due, the delay caused by presenting the bill for
a bankrupt/insolvent, or made an assignment for acceptance before presenting it for payment is excused, and
the benefit of creditors) – Sec.145(a) uses “may” does not discharge the drawers and indorsers.
and no section excuses presentment. Hence,
what’s permissive is the choice of person to

Excuses delay in making presentment à drawers and indorsers • Refers to unqualified acceptance written on the bill itself
are not discharged to which the holder is entitled 
• Delay of mails is sufficient excuse for omission to • However, the holder may agree to a:
immediately present a bill for acceptance, and a o qualified acceptance – drawer & indorsers must
presentment immediately after its reception is in time to consent to such acceptance, otherwise they’re
charge indorsers. discharged from liability. 
o acceptance on a separate instrument – acceptor
Sec. 148 Where Presentment is Excused. — Presentment for is liable only to one who takes the bill for value
acceptance is excused, and a bill may be treated as on the faith of such acceptance. 
dishonored by non-acceptance, in either of the following
• Acceptance should be given within 24 hours from
cases:
presentment, otherwise there’s dishonor and notice
must be sent to secondary parties
(a)Where the drawee is dead, or has absconded, or is a
fictitious person or a person not having capacity to contract
Sec. 150 Duty of Holder Where Bill Not Accepted. — Where
by bill.
a bill is duly presented for acceptance and is not accepted
(b)Where, after the exercise of reasonable diligence,
within the prescribed time, the person presenting it must treat
presentment can not be made.
the bill as dishonored by non-acceptance or he loses the right
(c)Where, although presentment has been irregular,
of recourse against the drawer and indorsers.
acceptance has been refused on some other ground.
Sec. 151 Right of Holder Where Bill Not Accepted. — When
Excuses non-presentment for acceptance à treated as
a bill is dishonored by non-acceptance, an immediate right of
dishonored by non-acceptance
recourse against the drawer and indorsers accrues to the
• Example of Sec.148(c): bill is presented after business
holder and no presentment for payment is necessary.
hours or on a holiday (irregular), and drawee refuses to
accept because the drawer has no funds with him
EFFECTS IF DISHONOR BY NON-ACCEPTANCE
• Holder acquires immediate right of recourse against
Sec. 149 When Dishonored by Non-acceptance. — A bill is
secondary parties provided notices of dishonor are
dishonored by non-acceptance —
given. 
(a)When it is duly presented for acceptance and such an • No need for presentment for payment
acceptance as is prescribed by this Act is refused or cannot
be obtained; or Sec. 152 In What Cases Protest Necessary. — Where a
(b)When presentment for acceptance is excused, and the bill foreign bill appearing on its face to be such is dishonored by
is not accepted. non-acceptance, it must be duly protested for non-
acceptance, and where such bill which has not previously
“ACCEPTANCE AS IS PRESCRIBED BY THIS ACT” been dishonored by non- acceptance is dishonored by non-

payment, it must be duly protested for non-payment. If it is not The protest referred to here is the certificate of the notary or the
so protested, the drawer and indorsers are discharged. person attesting to the acts constituting protest.
Where a bill does not appear on its face to be a foreign bill,
protest thereof in case of dishonor is unnecessary. The main purpose of a certificate of protest is to furnish to the
holder the legal testimony of presentment, demand and notice
Protest is the testimony of some proper person, usually a notary of dishonor to be used in actions against the drawer and
and usually in the form of an affidavit, that the regular legal steps indorsers.
to fix the liability of the drawer and indorsers have been taken. - It is admissible as evidence of the facts set forth in its terms
and its production does away with the necessity of proving these
METHOD OF PROTEST facts by witnesses in court 
(1) The notary presents the instrument and demand its - However, it merely prima facie evidence and all facts stated
acceptance or payment.   therein may be disproved by competent evidence showing the
(2) If these are refused, he makes a minute thereof on the statements to be false.
instrument or on his official record; the minute
 consisting of his initials, the year, the month, the day of Sec. 154 Protest; By Whom Made. — Protest may be made
dishonor, and his charges. This is done on the  day of by —
dishonor.  
(3) On the same day or afterwards, the notary extends the (a)A notary public; or
(b)By any respectable resident of the place where the bill is
protest thus noted by embodying in a certificate  the
dishonored, in the presence of two or more credible
facts of the protest, and his acts in making presentment,
witnesses.
demand and In giving notice of dishonor. To this he
appends his official seal.   In making a protest, the notary public acts in a different capacity
from that in which he acts when making an acknowledgment. In
Sec. 153 Protest; How Made. — The protest must be making a protest, he is making a written statement of facts
annexed to the bill, or must contain a copy thereof, and must which are within his knowledge. He is stating that he himself
be under the hand and seal of the notary making it, and must presented the instrument for acceptance or payment.
specify — - Since he is making such attestation, he must have made the
presentment personally. Presentment by his clerk will be
(a)The time and place of presentment; ineffective to make the protest valid.
(b)The fact that presentment was made and the manner
thereof; Sec. 155 Protest; When to Be Made. — When a bill is
(c)The cause or reason for protesting the bill; protested, such protest must be made on the day of its
(d)The demand made and the answer given, if any, or the fact dishonor, unless delay is excused as herein provided. When
that the drawee or acceptor could not be found. a bill has been duly noted, the protest may be subsequently
extended as of the date of the noting.

In the second sentence, “protest” refers to the certificate of For dishonored foreign bills, the conditions precedent to the
protest. The notation is for the purpose of requiring the holder’s right of recovery from secondary parties are: 
commitment of the facts to writing while they are fresh in the (1) due presentment 
mind of the notary. (2) dishonor
- He doesn’t have to make the formal certificate of protest on (3) due notice of dishonor
the same day the instrument is protested by him, if he makes a (4) formal protest
notation on the bill to show that the instrument was dishonored
and in what date. In such case, the formal certificate may be Protest is not necessary in foreign promissory notes because
made at any time before bringing the action against secondary the maker is unconditionally liable.
parties, and its effect will be to retroact to the date of noting. 
- But the notice of dishonor must be given within the prescribed Sec. 158 Protest Before Maturity Where Acceptor Insolvent.
time or else the secondary parties will be discharged. — Where the acceptor has been adjudged a bankrupt or an
insolvent, or has made an assignment for the bene t of
Sec. 156 Protest; Where Made. — A bill must be protested at creditors before the bill matures, the holder may cause the bill
the place where it is dishonored, except that when a bill drawn to be protested for better security against the drawer and
payable at the place of business or residence of some person indorsers.
other than the drawee has been dishonored by non-
acceptance, it must be protested for non-payment at the This practice seems to be OBSOLETE. The purpose of this
place where it is expressed to be payable, and no further must be to inform the drawer of the failure of the acceptor to
presentment for payment to, or demand on, the drawee is enable the former to arrange for the payment of the bill at
necessary. maturity.
Sec. 157 Protest Both for Non-acceptance and Non-payment. Sec. 159 When Protest Dispensed With. — Protest is
— A bill which has been protested for non-acceptance may dispensed with by any circumstances which would dispense
be subsequently protested for non- payment. with notice of dishonor. Delay in noting or protesting is
excused when delay is caused by circumstances beyond the
The necessity of protest is confined to foreign bills of exchange control of the holder and not imputable to his default,
which under Sec. 185 include foreign checks misconduct, or negligence. When the cause of delay ceases
to operate, the bill must be noted or protested with reasonable
A bill to be considered foreign under Sec. 152 must be one diligence.
which on its face purports to be drawn in the Philippines and
payable in another country, or drawn in another country and The excuses for delay in making protest and the circumstances
payable in the Phils. Although the requirement of protest is which dispense with it are the same as those in notice of
confined to foreign bills, it may be made in case of other kinds dishonor.
of bills if the holder so wishes.

It is believed that Sec. 159 incorporates not only Sec. 112, but expressly state for whose honor it is made, it is deemed to be
also Secs. 114 (When notice need not be given to drawer) and an acceptance for the honor of the drawer.
115 (When notice need not be given to indorser)
Sec. 164 Liability of the Acceptor for Honor. — The acceptor
Sec. 160 Protest Where Bill is Lost, and So Forth. — When a for honor is liable to the holder and to all parties to the bill
bill is lost or destroyed or is wrongly detained from the person subsequent to the party for whose honor he has accepted.
entitled to hold it, protest may be made on a copy or written
particulars thereof. Sec. 165 Agreement of Acceptor for Honor. — The acceptor
for honor, by such acceptance engages that he will on due
This is in consonance with the general principle that the loss of presentment pay the bill according to the terms of his
an instrument does not affect the rights and liabilities of parties acceptance, provided it shall not have been paid by the
thereto, and the contents of the instrument may be proven as in drawee, and provided also that it shall have been duly
other cases of lost documents. presented for payment and protested for non- payment and
notice of dishonor given to him.
Sec. 161 When Bill May Be Accepted for Honor. — Where a
bill of exchange has been protested for dishonor by non- Sec. 166 Maturity of Bill Payable After Sight; Accepted for
acceptance or protested for better security, and is not Honor. — Where a bill payable after sight is accepted for
overdue, any person not being a party already liable thereon honor, its maturity is calculated from the date of the noting for
may, with the consent of the holder, intervene and accept the non-acceptance and not from the date of the acceptance for
bill supra protest for the honor of any party liable thereon, or honor.
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 Sec. 167 Protest of Bill Accepted for Honor, and So Forth. —
which the bill is drawn; and where there has been an Where a dishonored bill has been accepted for honor supra
acceptance for honor for one party, there may be a further protest or contains a reference in case of need, it must be
acceptance by a different person for the honor of another protested for non-payment before it is presented for payment
party. to the acceptor for honor or referee in case of need.
*This practice is practically obsolete Sec. 168 Presentment for Payment to Acceptor for Honor,
How Made. — Presentment for payment to the acceptor for
Sec. 162 Acceptance for Honor; How Made. — An honor must be made as follows:
acceptance for honor supra protest must be in writing, and
indicate that it is an acceptance for honor, and must be signed (a)If it is to be presented in the place where the protest for
by the acceptor for honor. non-payment was made, it must be presented not later than
the day following its maturity.
Sec. 163 When Deemed to Be an Acceptance for Honor of
the Drawer. — Where an acceptance for honor does not

(b)If it is to be presented in some other place than the place different parties, the person whose payment will discharge
where it was protested, then it must be forwarded within the most parties to the bill is to be given the preference
time specified in section one hundred and four.
Sec. 175 Effect on Subsequent Parties Where Bill is Paid for
Sec. 169 When Delay in Making Presentment is Excused. — Honor. — Where a bill has been paid for honor, all parties
The provisions of section eighty-one apply where there is subsequent to the party for whose honor it is paid are
delay in making presentment to the acceptor for honor or discharged, but the payer for honor is subrogated for, and
referee in case of need. succeeds to, both the rights and duties of the holder as
regards the party for whose honor he pays and all parties
Sec. 170 Dishonor of Bill by Acceptor for Honor. — When the liable to the latter.
bill is dishonored by the acceptor for honor it must be
protested for non-payment by him. Sec. 176 Where Holder Refuses to Receive Payment Supra
Protest. — Where the holder of a bill refuses to receive
Sec. 171 Who May Make Payment for Honor. — Where a bill payment supra protest, he loses his right of recourse against
has been protested for non-payment, any person may any party who would have been discharged by such payment.
intervene and pay it supra protest for the honor of any person
liable thereon or for the honor of the person for whose Sec. 177 Rights of Payer for Honor. — The payer for honor,
account it was drawn. on paying to the holder the amount of the bill and the notarial
expenses incidental to its dishonor, is entitled to receive both
Campos book: this practice has been rendered obsolete the bill itself and the protest.
Sec. 172 Payment for Honor; How Made. — The payment for Sec. 178 Bills in Sets Constitute One Bill. — Where a bill is
honor supra protest in order to operate as such and not as a drawn in a set, each part of the set being numbered and
mere voluntary payment must be attested by a notarial act of containing a reference to the other parts, the whole of the
honor which may be appended to the protest or form an parts constitutes one bill.
extension to it.
Sec. 179 Rights of Holders Where Different Parts are
Sec. 173 Declaration Before Payment for Honor. — The Negotiated. — Where two or more parts of a set are
notarial act of honor must be founded on a declaration made negotiated to different holders in due course, the holder
by the payer for honor or by his agent in that behalf declaring whose title first accrues is as between such holders the true
his intention to pay the bill for honor and for whose honor he owner of the bill. But nothing in this section affects the rights
pays. of a person who in due course accepts or pays the part first
presented to him.
Sec. 174 Preference of Parties Offering to Pay for Honor. —
Where two or more persons offer to pay a bill for the honor of Sec. 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 another, signed by the maker, engaging to pay on demand,
every such part, and every indorser subsequent to him is or at a fixed or determinable future time, a sum certain in
liable on the part he has himself indorsed, as if such parts money to order or to bearer. Where a note is drawn to the
were separate bills. maker's own order, it is not complete until indorsed by him.
Sec. 181 Acceptance of Bills Drawn in Sets. — The

acceptance may be written on any part and it must be written Sec. 185 Check, Defined. — A check is a bill of exchange
on one part only. If the drawee accepts more than one part, drawn on a bank payable on demand. Except as herein
and such accepted parts are negotiated to different holders in otherwise provided, the provisions of this Act applicable to a
due course, he is liable on every such part as if it were a bill of exchange payable on demand apply to a check.
separate bill.
A check is an instrument which is in the form and nature of a bill
Sec. 182 Payment by Acceptor of Bills Drawn in Sets. — of exchange Unlike an ordinary bill, it is always payable on
When the acceptor of a bill drawn in a set pays it without demand and always drawn on a bank
requiring the part bearing his acceptance to be delivered up
to him, and that part at maturity is outstanding in the hands of KINDS OF CHECKS
a holder in due course, he is liable to the holder thereon. (1) Personal – ordinary check  
(2) Cashier’s or manager’s check – bank is both the drawer
Sec. 183 Effect of Discharging One of a Set. — Except as and the drawee. The holder may treat it either  as a bill
herein otherwise provided, where any one part of a bill drawn of exchange or as a promissory note  
in a set is discharged by payment or otherwise the whole bill (3) Memorandum check - drawer will pay the holder
is discharged. absolutely, without need of presentment; drawn on a
 bank and thus has the same effect as an ordinary
A bill in set is merely a bill with several different copies. All of check  
the parts of the set form only one bill.
(4) Traveler’s check - holder’s signature must appear twice,
first when issued and again when cashed  
The reason for drawing bills in a set was to obviate difficulties
which would arise in case of miscarriage of the bill, since the
means of communication and transportation then were irregular Sec. 186 Within What Time a Check Must Be Presented. —
and not very dependable. It was thought that if drawn in set and A check must be presented for payment within a reasonable
each part sent by different means, chances that one of the set time after its issue or the drawer will be discharged from
would reach the payee or its destination would be greater. liability thereon to the extent of the loss caused by the delay.
Sec. 184 Promissory Note, Defined. — A negotiable PRESENT CHECK WITHIN A REASONABLE TIME AFTER
promissory note within the meaning of this Act is an ITS ISSUE
unconditional promise in writing made by one person to

• Why is the rule different from that in demand BOE? • Check outstanding for more than 6 mos. = stale. Bank
Checks are intended for immediate use. would usually require the holder to get a new check from
• Result of Non-compliance: Discharge drawer from the drawer OR will pay it only after consulting the
liability to the extent of the loss caused by the delay (loss drawer.
that could have been prevented by prompt presentment)
o Rule is in harmony with Art.1249 of the Civil Sec. 187 Certification of Check; Effect of. — Where a check
Code: payment by negotiable instrument is is certified by the bank on which it is drawn, the certification
 conditioned on its being cashed except where is equivalent to an acceptance.
through the fault of the creditor (payee of the
 check), the NI is impaired.   Sec. 188 Effect where the holder of check procures it to be
o If non-payment is caused by payee’s negligence, certified. - Where the holder of a check procures it to be
payment will be deemed effected and the accepted or certified, the drawer and all indorsers are
 obligation for which the check was given as a discharged from liability thereon.
conditional payment will be discharged. 
Sec. 189 When Check Operates as an Assignment. — A
• If such loss is not shown by the drawer: he is not
check of itself does not operate as an assignment of any part
discharged despite unreasonable delay. 
of the funds to the credit of the drawer with the bank, and the
• Example of loss incurred by drawer: subsequent bank is not liable to the holder, unless and until it accepts or
insolvency of drawee bank at the time when the drawer certifies the check.
had sufficient funds on deposit to pay the check  
Sec. 186 refers to drawer, not indorser. It does not dispense

with presentment. PRIOR TO CERTIFICATION, THE BANK IS NOT:
Non-presentment à drawer cannot be held liable irrespective • Liable to the holder of the check with whom he has no
of loss, unless presentment is otherwise excused. Dismiss privity
action by holder against secondary parties instituted before • Obligated to the depositor-drawer to certify the checks
presentment. (its agreement is to pay the check)
REASONABLE TIME CERTIFICATION

• When the drawer, drawee and payee are located in the • Agreement by which a bank promises to pay the check
same city: present check on the business day next at any time it is presented for payment
succeeding that on which it is issued. Circumstances of • Must be in writing (on the check or another instrument);
the case and the usage of the place may warrant a sufficient: “certified” followed by date and bank officer’s
longer period of time.  signature; no particular words necessary
• After the end of the next business day: check is still
negotiable and can be cashed.

• Equivalent to acceptance so bank has the same CERTIFACTION AT CERTIFICATION AT
liabilities and makes the same warranties as an acceptor DRAWER’S REQUEST HOLDER’S REQUEST
under Sec. 62 bank against holders not in
o Bank can no longer question the genuineness of due course
the drawer’s signature. If it discovers forgery
after certification but before payment, it cannot Subsequent to certification, Subsequent to certification,
refuse to pay on such ground. If it’s discovered drawer’s stop order is NOT drawer’s stop order is
after payment, bank cannot recover on the operative effective to prevent the bank
ground of mistaken payment unless holder is from paying the check
guilty of fraud or negligence. Bank’s payment is
an act admitting the genuineness of the drawer’s In case of the acceptance of an ordinary bill, the drawer &
signature. indorsers remain liable should acceptor fail to pay.
o However, it cannot charge drawer’s account
because he did not give an order to pay DISTINCTION BETWEEN SURRENDER OF CHECK UPON
• SC: payment of judgment obligation by certified check PATYMENT AND NEGOTIATION
prevents sale at auction of defendant’s property
Surrender of check upon Negotiation (holder deposits
REFUSAL TO CERTIFY payment (holder surrenders the check in a bank other
• Not dishonor (unlike refusal to accept bill) check to drawee bank upon than the drawee bank)
• Holder cannot exercise right of recourse against drawer its payment)
and indorsers Holder is merely demanding Holder is merely demanding
that the bank discharge its that the bank discharge its
When then can he exercise such right? When the bank refuses contractual obligation to the contractual obligation to the
to pay the check on demand to the holder holder holder
Drawee bank’s payment Drawee bank’s payment
CERTIFACTION AT CERTIFICATION AT extinguishes check as a extinguishes check as a
DRAWER’S REQUEST HOLDER’S REQUEST negotiable instrument and negotiable instrument and
Drawer & indorsers at the Drawers and indorsers are converts it into a mere converts it into a mere
time of certification are NOT released voucher voucher
discharged (subsequent Holder’s signature is required Holder’s signature required
indorsers are still liable) by the bank – mere by the bank is a mere
acknowledgment of receipt of acknowledgement of receipt
Drawer’s personal defense Drawer’s personal defense payment of payment
against the payee is NOT against the payee is available
available to the certifying to the certifying bank against CLEARING OF CHECKS
all holders not in due course

CHECKS FOR DEPOSIT DRAWN AGAINST THE DEFECTS IN A CHECK DISCOVERED ONLY AFTER THE
DEPOSITARY BANK DRAWEE BANK HAS RETURNED THE CANCELLED CHECK
• If these are supported by sufficient funds, they will just TO THE DRAWER WHO LATER INFORMS IT OF THE
be credited to the creditor’s account DEFECT:
CHECKS FOR DEPOSIT DRAWN AGAINST ANOTHER BANK Forgery of drawer’s Forged Material
• These are placed in different envelopes labeled with the signature indorsement alteration
name of the drawee bank Can the drawee bank charge the amount against the drawer’s
• These are then brought by the bank representative to account?
the clearing house of the Central Bank, bank reps meet No (Sec. 23) No No (Sec. 124)
every afternoon of every business day.  Can the drawee bank recover from the collecting bank?
• The envelopes are given to the respective reps of No (Sec. 62) Yes. Subject to Majority view:
drawee banks clearing house Yes, provided it
• Drawee bank reps bring back these checks to their rules acts within the
banks for examination and clearance period
• If the drawers have sufficient funds to cover the checks prescribed by the
and these are not defective, they are cleared. Otherwise, clearing house
they are returned to the collecting bank’s rep the next rule
clearing day
• While the check has not been cleared, the depositor
cannot withdraw from his bank (collecting bank) the
check proceeds. 
• Central Bank gives a definite period within which to
return defective checks. Checks not so returned will be
considered cleared. At this point, checks can be referred
to as paid. 
• The collecting bank charges the amount of cleared
check against the drawee bank’s account. The collecting
bank then credits it to the depositor’s account.

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NEGOTIABLE INSTRUMENTS LAW

Atty. Maribeth Lipardo

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IF it comes to a holder in due course, the latter is free from any

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PRESENTMENT FOR PAYMENT Sec. 71 Presentment Where Instrument is Not Payable on

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Check with Sec. 85 GENERAL RULE: Presentment must be made to person

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FOR INSTALLMENTS Sec. 90 By Whom Given. — The notice may be given by or

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An acceptance on a separate paper of an existing bill is There can be no oral acceptance.

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Sec. 181 Acceptance of Bills Drawn in Sets. — The

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Sec. 186 refers to drawer, not indorser. It does not dispense

REASONABLE TIME CERTIFICATION

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