Philippine Law Reviewers: Commercial Law - Negotiable Instruments Law

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P O STE D IN NE GOT IA BL E I NS TRU M EN TS L AW
Commercial Law – Negotiable Instruments Law
1. Negotiable Instruments – written contracts for the payment of money; by its form, intended as a
substitute for money and intended to pass from hand to hand, to give the holder in due course the right to
hold the same and collect the sum due.
2. Characteristics of Negotiable Instruments:
a. negotiability – right of transferee to hold the instrument and collect the sum due
b. accumulation of secondary contracts – instrument is negotiated from person to person
3. Difference between Negotiable Instruments from Non-Negotiable Instruments:
Negotiable Instruments Non-negotiable Instruments
Contains all the requisites of Sec. 1 of the NIL does not contain all the requisites of Sec. 1 of the
NIL
https://lawphilreviewer.wordpress.com/category/negotiable-instruments-law/ 12/03/2019, 8A26 PM

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Transferred by negotiation transferred by assignment
Holder in due course may have better rights than transferee acquires rights only of his transferor
transferor
Prior parties warrant payment prior parties merely warrant legality of title
Transferee has right of recourse against transferee has no right of recourse

intermediate parties
4. Difference between Negotiable Instruments and Negotiable Documents of Title
Negotiable Instruments Negotiable Documents of Title
Have requisites of Sec. 1 of the NIL does not contain requisites of Sec. 1 of NIL
Have right of recourse against intermediate parties no secondary liability of intermediate parties
who are secondarily liable
Holder in due course may have rights better than transferee merely steps into the shoes of the
transferor transferor
Subject is money subject is goods
Instrument itself is property of value instrument is merely evidence of title; thing of

value are the goods mentioned in the document
5. Promissory Note – unconditional promise to pay in writing made by one person to anther, signed by
the maker, engaging to pay on demand or a fixed determinable future time a sum certain in money to order
or bearer. When the note is drawn to maker’s own order, it is not complete until indorse by him. (Sec. 184
NIL)
Parties:
1. maker
2. payee
6. Bill of Exchange – unconditional order in writing addressed by one person to another, signed by the
person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer. (Sec. 126 NIL)

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Parties:
1. drawer
2. payee
3. drawee/ acceptor
7. Check – bill of exchange drawn on a bank and payable on demand. (Sec. 185 NIL)
8. Difference between Promissory Note and Bill of Exchange
Promissory Note Bill of Exchange
Unconditional promise unconditional order
Involves 2 parties involves 3 parties
Maker primarily liable drawer only secondarily liable
only 1 presentment – for payment generally 2 presentments – for acceptance and for
payment
9. Distinctions between a Check and Bill of Exchange
CHECK BOE
– always drawn upon a bank or banker – may or may not be drawn against a bank
– always payable on demand – may be payable on demand or at a fixed or

determinable future time
– not necessary that it be presented for – necessary that it be presented for acceptance
acceptance
– drawn on a deposit – not drawn on a deposit
– the death of a drawer of a check, with knowledge – the death of the drawer of the ordinary bill of
by the banks, revokes the authority of the banker exchange does not
pay
– must be presented for payment within a – may be presented for payment within a
reasonable time after its issue (6 months) reasonable time after its last negotiation.

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10. Distinctions between a Promissory Note and Check
PN CHECK
– there are two (2) parties, the maker and the – there are three (3) parties, the drawer, the drawee
payee bank and the payee
– may be drawn against any person, not – always drawn against a bank
necessarily a bank
– may be payable on demand or at a fixed or -always payable on demand

determinable future time
– a promise to pay – an order to pay
11. Other Forms of Negotiable Instruments:
a. certificates of deposits
b. trade acceptances
c. bonds in the nature of promissory notes
d. drafts which are bills of exchange drawn by 1 bank to another
e. letters of credit
12. Trust Receipt – a security transaction intended to aid in the financing of importers and retailers who
do not have sufficient funds to finance their transaction and acquire credit except to use as collateral the
merchandise imported
13. Requisites of a Negotiable Note (PN): (SUDO)
It must:
a. be in writing signed by the drawer
b. contains an unconditional promise or order to pay a sum certain in money
c. be payable on demand or at a fixed determinable future time
d. be payable to order or to bearer (Sec. 1 NIL)
14. Requisites of a Negotiable Bill (BOE): (SUDOC)
It must:

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1. be in writing signed by the drawer
2. contains an unconditional promise or order to pay a sum certain in money
3. be payable on demand or at a fixed determinable future time
4. be payable to order or to bearer
5. the drawee must be named or otherwise indicated with reasonable certainty (Sec. 1 NIL)
Notes on Section 1:
– In order to be negotiable, there must be a writing of some kind, else there would be nothing to be
negotiated or passed from hand to hand. The writing may be in ink, print or pencil. It may be upon
parchment, cloth, leather or any other substitute of paper.
– It must be signed by the maker or drawer. It may consist of mere initials or even numbers, but the
holder must prove that what is written is intended as a signature of the person sought to be charged.
– The Bill must contain an order, something more than the mere asking of a favor.
– Sum payable must be in money only. It cannot be made payable in goods, wares, or merchandise or
in property.
– A drawee’s name may be filled in under Section 14 of the NIL
15. Determination of negotiability
1. by the provisions of the Negotiable Instrument Law, particularly Section 1 thereof

2. by considering the whole instrument
3. by what appears on the face of the instrument and not elsewhere
*In determining is the instrument is negotiable, only the instrument itself and no other, must be examined
and compared with the requirements stated in Sec. 1. If it appears on the instrument that it lacks one of the
requirements, it is not negotiable and the provisions of the NIL do not govern the instrument. The
requirement lacking cannot be supplied by using a separate instrument in which that requirement which is
lacking appears.
16. Sum is certain even if it is to be paid with:
a. interest
b. in installments
c. in installments with acceleration clause
d. with exchange
e. costs of collection or attorney’s fees (Sec. 2 NIL)
17. General Rule: The promise or order should not depend on a contingent event. If it is conditional, it is

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non-negotiable.
Exceptions:
a. indication of particular fund from which the acceptor disburses himself after payment
b. statement of the transaction which gives rise to the instrument. (Sec. 3 NIL)
But an order or promise to pay out of a particular fund is not unconditional
Notes on Section 3
– The particular fund indicated should not be the direct source of payment, else it becomes
unconditional and therefore non-negotiable. The fund should only be the source of reimbursement.
– A statement of the transaction does not destroy the negotiability of the instrument. Exception:
Where the promise to pay or order is made subject to the terms and conditions of the transaction stated.
18. Instrument is payable upon a determinable future time if:
a. there is a fixed period after sight/date
b. on or before a specified date/fixed determinable future time
c. on or at a fixed date after the occurrence of an event certain to happen though the exact date is not
certain (Sec. 4 NIL)
Notes on Section 4
– If the instrument is payable upon a contingency, the happening of the event does not cure the defect
(still non-negotiable)
19. General Rule: If some other act is required other than the payment of money, it is non-
negotiable.
Exceptions:
a. sale of collateral securities
b. confession of judgment
c. waives benefit of law
d. gives option to the holder to require something to be done in lieu of money (Sec. 5 NIL)
Notes of Section 5
– Limitation on the provision, it cannot require something illegal.
– There are two kinds of judgements by confession: a) cognovit actionem b) relicta verificatione

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– Confessions of judgement in the Philippines are void as against public policy.
– If the choice lies with the debtor, the instrument is rendered non-negotiable.
20. The validity and negotiability of an instrument is not affected by the fact that:
1. it is not dated
2. does not specify the value given or that any had been given
3. does not specify the place where it is drawn or payable
4. bears a seal
5. designates the kind of current money in which payment is to be made (Sec. 6 NIL)
21. Instrument is payable upon demand if:
a. it is expressed to be so payable on sight or upon presentation
b. no period of payment is stipulated
c. issued, accepted, or endorsed after maturity (Sec. 7 NIL)
Where an instrument is issued, accepted or indorsed when overdue, it is, as regards to the person so
issuing, accepting, or indorsing it, payable on demand.
Notes on Section 7
– if the time for payment is left blank (as opposed to being omitted), it may properly be considered as an
incomplete instrument and fall under the provisions of Sec. 14, 15, or 16 depending on how the instrument
is delivered.
22. Instrument is payable to order:
– where it is drawn payable to the order of a specified person or
– to a specified person or his order
It may be drawn payable to the order of:
1. a payee who is not a maker, drawer, or drawee

2. the drawer or maker
3. the drawee
4. two or more payees jointly
5. one or some of several payees
6. the holder of an office for the time being (Sec. 8 NIL)
Notes on Section 8
– The payee must be named or otherwise indicated therein with reasonable certainty.

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– If there is no payee, there would be no one to indorse the instrument payable to order. Therefore
useless to be considered negotiable.
– Joint payees in indicated by the conjunction “and”. To negotiate, all must indorse.
– Being several payees is indicated by the conjunction “or”.
23. Instrument is payable to bearer :
a. when it is expressed to be so payable
b. when payable to the person named or bearer
c. payable to order of fictitious or non-existent person and this fact was known to drawer
d. name of payee not name of any person
e. only and last indorsement is an indorsement in blank (Sec. 9 NIL)
Notes on Section 9
– “fictitious person” is not limited to persons having no legal existence. An existing person may be
considered fictitious depending on the intention of the maker or the drawer.
– “fictitious person” means a person who has no right to the instrument because the maker or drawer
of it so intended. He was not intended to be the payee.
– where the instrument is drawn, made or prepared by an agent, the knowledge or intent of the signer
of the instrument is controlling.
– Where the agent has no authority to execute the instrument, the intent of the principal is controlling
24. The date may be inserted in an instrument when:
1. an instrument expressed to be payable at a fixed period after date is issued undated

2. where acceptance of an instrument payable at a fixed period after sight is undated (Sec. 13 NIL)
Effects:
– any holder may insert the true date of issuance or acceptance
– the insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in
due course
– as to the holder in due course, the date inserted (even if it be the wrong date) is regarded as the true
date.
25. Subsequent Holder in Due Course not affected by the following deficiencies:

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a. incomplete but delivered instrument (Sec. 14 NIL)
b. complete but undelivered (Sec. 16 NIL)
c. complete and delivered issued without consideration or a consideration consisting of a promise

which was not fulfilled (Sec 28 NIL)
26. Holder in Due Course Affected by Abnormality/Deficiency:
a. incomplete and undelivered instrument (Sec. 15 NIL)
b. maker/drawer’s signature forged (Sec. 23 NIL)
27. Incomplete but Delivered Instrument:
1. Where an instrument is wanting in any material particular:
a. Holder has prima facie authority to fill up the blanks therein.
b. It must be filled up strictly in accordance with the authority given and within a reasonable time.
c. If negotiated to a holder in due course, it is valid and effectual for all purpose as though it was filled
up strictly in accordance with the authority given and within reasonable time. (Sec. 14 NIL)
2. Where only a signature on a blank paper was delivered:
1. It was delivered by the person making it in order that it may be converted into a negotiable instrument
2. The holder has prima facie authority to fill it up as such for any amount. (Sec. 14 NIL)
Notes on Section 14
– if the instrument is wanting in material particular, mere possession of the instrument is enough to
presume prima facie authority to fill it up.
– material particular may be an omission which will render the instrument non-negotiable (e.g. name of
payee), an omission which will not render the instrument non-negotiable (e.g. date)
– in the case of the signature in blank, delivery with intent to convert it into a negotiable instrument is
required. Mere possession is not enough.
28. Incomplete and Undelivered Instrument:
General Rule: Where an incomplete instrument has not been delivered, it will not, if completed and
negotiated without authority, be a valid contract in the hands of any holder against any person who signed
before delivery. (Sec. 15 NIL)
Notes on Section 15
– it is a real defense. It can be interposed against a holder in due course.

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– delivery is not conclusively presumed where the instrument is incomplete
– defense of the maker is to prove non-delivery of the incomplete instrument.
29. Complete but Undelivered:
General Rule: Every contract on a negotiable instrument is incomplete and revocable until delivery for the
purpose of giving effect thereto.
a. If between immediate parties and remote parties not holder in due course, to be effectual there must
be authorized delivery by the party making, drawing, accepting or indorsing. Delivery may be shown to be
conditional or for a special purpose only
b. If the holder is a holder in due course, all prior deliveries conclusively presumed valid
c. If instrument not in hands of drawer/maker, valid and intentional delivery is presumed until the
contrary is proven (Sec. 16 NIL)
Rules on delivery of negotiable instruments:
1) delivery is essential to the validity of any negotiable instrument
2) as between immediate parties or those is like cases, delivery must be with intention of passing title
3) an instrument signed but not completed by the drawer or maker and retained by him is invalid as to
him for want of delivery even in the hands of a holder in due course
4) but there is prima facie presumption of delivery of an instrument signed but not completed by the
drawer or maker and retained by him if it is in the hands of a holder in due course. This may be rebutted by
proof of non-delivery.
5) an instrument entrusted to another who wrongfully completes it and negotiates it to a holder in due
course, delivery to the agent or custodian is sufficient delivery to bind the maker or drawer.
6) If an instrument is completed and is found in the possession of another, there is prima facie evidence of
delivery and if it be a holder in due course, there is conclusive presumption of delivery.
7) delivery may be conditional or for a special purpose but such do not affect the rights of a holder in due
course.
30. General rule: a person whose signature does not appear on the instrument in not liable.
Exception:
1. one who signs in a trade or assumed name (Sec. 18)

2. a duly authorized agent (Sec. 19)
3. a forger (Sec. 23)

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31. General rule: an agent is not liable on the instrument if he were duly authorized to sign for or on behalf
of a principal.
Requisites:
1. he must be duly authorized

2. he must add words to his signature indicating that he signs as an agent
3. he must disclose his principal (Sec. 20 NIL)
Notes on Section 20
– if an agent does not disclose his principal, the agent is personally liable on the instrument.
32. Per Procuration – operates as notice that the agent has a limited authority to sign.
Effects:
– the principal in only bound if the agent acted within the limits of the authority given
– the person who takes the instrument is bound to inquire into the extent and nature of the authority
given. (Sec. 21 NIL)
33. General rule: Infants and corporations incur no liability by their indorsement or assignment of an
instrument. (Sec. 22 NIL)
Effects:
– no liability attached to the infant or the corporation
– the instrument is still valid and the indorsee acquires title
34. General rule: a signature which is forged or made without authority is wholly inoperative.
Effects:
1. no right to retain
2. no right to give a discharge
3. no right to enforce payment can be acquired. (Sec. 23 NIL)
Exception:
– the party against whom it is sought to be enforced is precluded from setting up the forgery or want

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of authority.
Notes on Section 23
– Section 23 applies only to forged signatures or signatures made without authority
– Alterations such as to amounts or like fall under section 124
– Forms of forgery are a) fraud in factum b) duress amounting to fraud c) fraudulent impersonation
– Only the signature forged or made without authority is inoperative, the instrument or other
signatures which are genuine are affected
– The instrument can be enforced by holders to whose title the forged signature is not necessary
– Persons who are precluded from setting up the forgery are a) those who warrant or admit the
genuineness of the signature b) those who are estopped.
– Persons who are precluded by warranting are a) indorsers b) persons negotiating by delivery c)
acceptors.
– drawee bank is conclusively presumed to know the signature of its drawer
– if endorser’s signature is forged, loss will be borne by the forger and parties subsequent thereto
– drawee bank is not conclusively presumed to know the signature of the indorser. The responsibility
falls on the bank which last guaranteed the indorsement and not the drawee bank.
– Where the payee’s signature is forged, payments made by the drawee bank to collecting bank is
ineffective. No debtor/creditor relationship is created. An agency to collect is created between the person
depositing and the collecting bank. Drawee bank may recover from collecting bank who may in turn recover
from the person depositing.
Rules on liabilities of parties on a forged instrument
In a PN
– a party whose indorsement is forged on a note payable to order and all parties prior to him including
the maker cannot be held liable by any holder
– a party whose indorsement is forged on a note originally payable to bearer and all parties prior to
him including the maker may be held liable by a holder in due course provided that it was mechanically
complete before the forgery
– a maker whose signature was forged cannot be held liable by any holder
In a BOE

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– the drawer’s account cannot be charged by the drawee where the drawee paid
– the drawer has no right to recover from the collecting bank
– the drawee bank can recover from the collecting bank
– the payee can recover from the drawer
– the payee can recover from the recipient of the payment, such as the collecting bank
– the payee cannot collect from the drawee bank
– the collecting bank bears the loss but can recover from the person to whom it paid
– if payable to bearer, the rules are the same as in PN.
– if the drawee has accepted the bill, the drawee bears the loss and his remedy is to go after the
forger
– if the drawee has not accepted the bill but has paid it, the drawee cannot recover from the drawer or
the recipient of the proceeds, absence any act of negligence on their part.
35. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration.
(Sec. 24 NIL)
Effects:
– every person whose signature appears thereon is a party for value
– presumption is disputable
36. Where value has at any time been given for the instrument, the holder is deemed a holder for value in
respect to all parties who become such prior to that time. (Sec. 26 NIL)
37. Effect of want of consideration:
1. Absence or failure of consideration may be set up against a holder not a holder in due course
(personal defense)
2. Partial failure of consideration is a defense pro tanto (Sec 28 NIL)
Notes on Section 28

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– absence of consideration is where no consideration was intended to pass.
– failure of consideration implies that consideration was intended by that it failed to pass
– the defense of want of consideration is ineffective against a holder in due course
– a drawee who accepts the bill cannot allege want of consideration against the drawer
38. An accommodation party is one who signs the instrument as maker, drawer, acceptor, or indorser
without receiving value therefor and for the purpose of lending his name to some other person.
Effects:
– an accommodation party is liable to the holder for value notwithstanding that such holder knew that
of the accommodation. (Sec. 28 NIL)
Notes on Section 28
– the accommodated party cannot recover from the accommodation party
– want of consideration cannot be interposed by the accommodation party
– an accommodation maker may seek reimbursement from a co-maker even in the absence of any
provision in the NIL; the deficiency is supplied by the New Civil Code.
– he may do this even without first proceeding against the debtor provided:
a. he paid by virtue of judicial demand
b. principal debtor is insolvent
39. An instrument is negotiated when:
1. it is transferred from one person to another

2. that the transfer must be in a manner as to constitute the transferee a holder
For a bearer instrument – by delivery
For payable to order – by indorsement and delivery (Sec. 30 NIL)

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40. Indorsement to be must be:
1. written
2. on the instrument itself or upon a piece of paper attached (Sec. 31 NIL)
Notes on Section 31
– the paper attached with the indorsement is an allonge
– an allonge must be attached so that it becomes a part of the instrument, it cannot be simply pinned
or clipped to it.
41. Kinds of Indorsements:
1. Special (Sec. 34)

2. Blank (Sec. 35)
3. Restrictive (Sec. 36)
4. Qualified (Sec. 38)
5. Conditional (Sec. 39 NIL)
42. Effects of indorsing an instrument originally payable to bearer:
– it may further be negotiated by delivery
– the person indorsing is liable as indorser to such persons as to make title through his indorsement
(Sec. 40 NIL)
Notes on Section 40
– Section 40 applies only to instruments originally payable to bearer
– It cannot apply where the instrument is payable to bearer because the only or last indorsement is in
blank.
43. A holder may strike out any indorsement which is not necessary to his title.
Effects:
– An indorser whose indorsement is struck out is discharged
– All indorsers subsequent to such indorser who has been discharged are likewise relieved. (Sec. 48
NIL)
44. Effects of a transfer without endorsement:
– the transferee acquires such title as the transferor had
– the transferee acquires the right to have the indorsement of the transferor

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– negotiation takes effect as of the time the indorsement is actually made (Sec. 49 NIL)
45. Rights of a holder:
– a holder may sue in his own name
– a holder may receive payment.
Effects:
– if in due course it discharges the instrument (Sec. 51 NIL)
46. Requisites for a Holder in Due Course (HDC):
a. receives the instrument complete and regular on its face
b. became a holder before it was overdue and had no notice that it had been previously dishonored if
such was the fact
c. takes the instrument for value and in good faith
d. at time he took the instrument, no notice of infirmity in instrument or defect in the title of the person
negotiating it (Sec. 52 NIL)
Notes on Section 52
– every holder is presumed to be a HDC (Sec. 59)
– the person who questions such has the burden of proof to prove otherwise
– if one of the requisites are lacking, the holder is not HDC
– an instrument is considered complete and regular on its face if a) the omission is immaterial b) the
alteration on the instrument was not apparent on its face
– an instrument is overdue after the date of maturity.
– on the date of maturity, the instrument is not overdue and the holder is a HDC
– acquisition of the transferee or indorsee must be in good faith
– good faith means lack of knowledge or notice of defect or infirmity
47. A holder is not a HDC where an instrument payable on demand is negotiated at an unreasonable
length of time after its issue (Sec. 53 NIL)
48. Rights of a HDC:

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– holds the instrument free from any defect of title of prior parties
– free from defenses available to prior parties among themselves (personal/ equitable defenses)
– may enforce payment of the instrument for the full amount against all parties liable(Sec. 57 NIL)
Notes on Section 57
– Personal or equitable defenses are those which grow out of the agreement or conduct of a particular
person in regard to the instrument which renders it inequitable for him through legal title to enforce it. Can
be set up against holders not HDC
– Legal or real defenses are those which attach to the instrument itself and can be set up against the
whole world, including a HDC.
Personal Defenses Real Defenses
1. absence or failure of consideration Alteration
2. want of delivery of complete instrument Want of delivery of incomplete instrument
3. insertion of wrong date where payable at a fixed Duress amounting to forgery

period after date and issued undated; or at a fixed
period after sight and acceptance is undated
4. filling up the blanks contrary to authority given Fraud in factum or in esse contractus
or not within reasonable time
5. fraud in inducement Minority
6. acquisition of the instrument by force, duress or Marriage in case of a wife

fear
7. acquisition of the instrument by unlawful means Insanity where the insane person has a guardian
appointed by the court
8. acquisition of the instrument for an illegal Ultra vires acts of a corporation where its charter
consideration or by statue, it is prohibited from issuing
commercial paper
9. negotiation in breach of faith Want of authority of agent
10. negotiation under circumstances amounting to Execution of instrument between public enemies
fraud

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1. Mistake Illegality of contract made by statue
12. intoxication Forgery
13. ultra vires acts of corporations
14. want of authority of the agent where he has

apparent authority
15. illegality of contract where form or

consideration is illegal
16. insanity where there is no notice of insanity
49. A instrument not in the hands of a HDC is subject to the same defenses as if it were non-negotiable.
Exception:
– a holder who derives his title through a HDC and is not a party to any fraud or illegality affecting the
instrument, has all the rights of such HDC in respect to all parties prior. (Sec. 58 NIL)
Rights of a holder not a HDC
– may sue in his own name
– may receive payment and if it is in due course, the instrument is discharged
– holds the instrument subject to the same defenses as if it were non-negotiable
– if he derives his title through a HDC and is not a party to any fraud or illegality thereto, has all the
rights of such HDC
50. General rule: every holder is deemed prima facie to be a holder in due course.
Exception:
– where it is shown that the title of any person who has negotiated the instrument is defective, the
burden is on the holder to prove that he is a HDC or that a person under whom he claims is a HDC (Sec. 59

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NIL)
51. A maker is primarily liable:
Effects of making the instrument, the maker:
a. engages to pay according to tenor of instrument
b. admits existence of payee and his capacity to indorse (Sec. 60 NIL)
Notes on Section 60
– a maker’s liability is primarily and unconditional
– one who has signed as such is presumed to have acted with care and to have signed with full
knowledge of its contents, unless fraud is proved
– the payee’s interest is only to see to it that the note is paid according to its terms
– when two or more makers sign jointly, each is individually liable for the full amount even if one did
not receive the value given
– the maker is precluded from setting up the defense of a) the payee is fictional, b) that the payee was
insane, a minor or a corporation acting ultra vires
52. A drawer is secondarily liable
Effects of drawing the instrument, the drawer:
1. admits the existence of the payee,

2. the capacity of such payee to indorse
3. engages that on due presentment, the instrument will be accepted or paid or both according to its
tenor.
If the instrument is dishonored, and the necessary proceedings on dishonor duly taken
1. the drawer will pay the amount thereof to the holder

2. will pay to any subsequent indorser who may be compelled to pay it. (Sec. 61 NIL)
Notes on Section 61
– a drawer may insert an express stipulation to negative or limit his liability
53. An acceptor is primarily liable

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By accepting the instrument, an acceptor:
– engages that he will pay according to the tenor of his acceptance
– admits the existence of the drawer, the genuineness of his signature and his capacity and authority
to draw the instrument
– the existence of the payee and his then capacity indorse
54. Irregular Indorser – a person not otherwise a party to an instrument places his signature in blank
before delivery is liable as an indorser in the following manner:
1. if payable to order of a third person – liable to the payee and to all subsequent parties
2. if payable to order of the maker or drawer – liable to all parties subsequent to the maker or drawer
3. if payable to bearer – liable to all parties subsequent to the maker or drawer
4. if signs for an accommodation party – liable to all parties subsequent to the payee (Sec. 64 NIL)
55. Warranties where negotiating by delivery or qualified endorsement:
1. the instrument is genuine and in all respect what it purports to be

2. the indorser has good title to it
3. all prior parties had the capacity to contract
4. indorser has no knowledge of any fact that would impair the validity or the value of the instrument.
Limitations of warranties:
-if by delivery – extends only to immediate transferee
-warranty of capacity to contract does not apply to persons negotiating public or corporate securities (Sec.
65 NIL)
Notes on Section 65
– a qualified indorser is one who indorses without recourse or sans recourse
– recourse – resort to a person secondarily liable after default of person primarily liable
– a qualified indorser cannot raise the defense of a) forgery b) defect of his title or that it is void c) the
incapacity of the maker, drawer or previous indorsers.
– a qualified Indorsement makes the indorser mere assignor of title of instrument, relieves him of
general obligation to pay if instrument is dishonored, but he is still liable for the warranties arising from
instrument only up to warranties of general indorser
– the warranty is to the capacity of prior parties at the time the instrument was negotiated.
Subsequent incapacity does not breach the warranty.

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– lack of knowledge of the indorser as to any fact that would impair the validity or the value of the
instrument must be subsisting all throughout.
– a person Negotiating by Delivery warrants same as those of qualified indorser and extends to
immediate transferees only
56. Warranties of a general indorser:
1. the instrument is genuine and in all respect what it purports to be

2. the he has good title to it
3. all prior parties had the capacity to contract
4. that the instrument at the time of his indorsement was valid and subsisting (Sec. 66 NIL)
In addition:
– engages that the instrument will be accepted or paid or both according to its tenor on due
presentment
– engages to pay the amount thereof if it be dishonored and the necessary proceedings on dishonor
are taken
Notes on Section 66
– the indorser under Section 66 warrants the solvency of a prior party
– the indorser warrants that the instrument is valid and subsisting regardless of whether he is ignorant
of that fact or not.
– warranties extend in favor of a) a HDC b) persons who derive their title from HDC c) immediate
transferees even if not HDC
– the indorser does not warrant the genuineness of the drawer’s signature
– general indorser is only secondarily liable
57. General rule: Presentment for payment is not necessary to charge persons primarily liable on the
instrument. Presentment for payment is necessary to charge the drawer and indorsers. (Sec 70 NIL)
Notes on Section 70
– presentation for payment – production of a BOE to the drawee for his acceptance, or to a drawee or
acceptor for payment. Also presentment of a PN to the party liable for payment of the same.
– consists of a) a personal demand for payment at a proper place b) the bill or note must be ready to
be exhibited if required and surrendered upon payment.
– parties primarily liable – persons by the terms of the instrument are absolutely required to pay the
same. E.g maker and acceptors. They can be sued directly.

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– if payable at the special place, and the person liable is willing to pay there at maturity, such
willingness and ability is equivalent to tender of payment.
– presentment is necessary to charge persons secondarily liable otherwise they are discharged
– Acts needed to charge persons secondarily liable: a) presentment for payment/acceptance b)

dishonor by non-payment/non-acceptance c) notice of dishonor to secondary parties
– Acts needed to charge persons secondarily liable in other cases: a) Protest for non-payment by the
drawee b) protest for non-payment by the acceptor for honor
58. Proper presentment:
1. by the holder or an authorized person

2. at a reasonable hour on a business day
3. at a proper place
4. to the person primarily liable or if absent to any person found at the place where presentment is made
(sec. 72 NIL)
Notes on Section 72
– only the holder or one authorized by him has the right to make presentment for payment
– presentment cannot be made on a Sunday or holiday
– presentment for payment is made to the maker, or acceptor. Not to the person secondarily liable.
– if the instrument is payable on demand – a) if it is a note – presentment must be made within

reasonable time after issue b) if it is a bill – presentment must be made within reasonable time after last
negotiation.
59. Presentment not required to charge the drawer:
1. he has no right to expect

2. he has no right to require
that the drawee or acceptor will pay (Sec 79 NIL)
60. Presentment not required to charge the indorser where:
1. the instrument was made or accepted for his accommodation

2. he has no reason to expect that the instrument will be paid if presented (Sec. 80 NIL)
61. General rule: Presentment for payment necessary to charge persons secondarily liable otherwise they
are discharged:

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Exception:
– Section 79 and 80
Notes on Section 79 and 80
– only the drawer or indorser are not discharged. All other parties secondarily liable are discharged.
62. Presentment for payment excused if:
a. after due diligence, presentment cannot be made
b. presentment is waived
c. the drawee is a fictitious person (Sec 82 NIL)
Notes on Section 82
– what is excused is the failure to make presentment. There is no need to make any presentment
versus under section 81 (delay in presentment) presentment for payment is still required after the cause of
delay has ceased.
63. Summary of rules as to presentment for payment:
1. presentment not necessary to charge persons primarily liable

2. necessary to charge persons secondarily liable except:
– the drawer under Sec. 79
– the indorser under Sec. 80
– when excused under Sec. 82
– when the instrument has been dishonored by non-acceptance under Sec. 83
64. How dishonored by non-acceptance:
– the instrument was duly presented but payment is refused or cannot be obtained
– presentment is excused and the instrument is overdue and unpaid (Sec. 83 NIL)
65. Effects of dishonor by non-payment:
– an immediate right of recourse to all parties secondarily liable accrues to the holder. (Sec. 84 NIL)

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Notes on Section 84
– parties cease to be secondarily liable and become principal debtors.
– Liability becomes the same as that of the original obligors.
66. Requisites for payment in due course:
1. made at or after the maturity of the instrument

2. to the holder
3. in good faith
4. without notice of any defect in the holder’s title (sec. 88 NIL)
Notes on Section 88
– payment must be made to the possessor of the instrument
– possession of the note by the maker is presumptive evidence that it has been paid
67. Notice of Dishonor may be given:
1. by or on behalf or the holder

2. by or on behalf of any party who:
– is a party to the instrument and might be compelled to pay the instrument
– to a holder who having taken it up would have a right of reimbursement from the party to whom
notice is given. (Sec. 90 NIL)
68. Notice:
1. may be written or oral (Sec. 96)

2. written notice need not be signed or may be supplemented by verbal communication (Sec. 95)
3. may be by personal delivery or by mail (Sec. 96)
69. Notice may be waived either expressly or implied:
1. before the time of giving notice has arrived

2. after the omission to give due notice (Sec. 109 NIL)
70. Protest may be waived:
Effects:
– deemed a waiver of presentment and notice of dishonor as well (Sec. 111 NIL)
Notes on Section 111

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– Where notice is waived, presentment is not waived
– Where presentment is waived, notice is also waived
– Where protest is waived, notice and presentment is waived
71. Notice of Dishonor – given by the holder to the parties secondarily liable, drawer and each indorser,
that the instrument was dishonored by non-acceptance or non-payment by the drawee/maker
General rule: Any drawer or indorser to whom such notice is not given is discharged.
Exceptions:
1. Waiver (Sec. 109)

2. Notice is dispensed (Sec. 112)
3. Not necessary to Drawer (Sec. 114)
4. Not necessary to Indorser (Sec. 115)
– if notice is delayed, delay may be excused (Sec. 113)
72. Instances when Notice of Dishonor Not Necessary to Drawer
a. drawer and drawee same person
b. drawee is a fictitious/incapacitated person
c. drawer is the person to whom presentment for payment is made
d. drawer has no right to expect that the drawee will accept/pay the instrument (Sec. 114 NIL)
73. Instances when Notice Not Required to Indorser
a. drawee was a fictitious/incapacitated person and the indorser was aware of such at the time of
indorsement
b. indorser is the person to whom instrument was presented for payment
c. instrument made/accepted for his accommodation (Sec. 115 NIL)
74. Omission to give notice of dishonor by non-acceptance doe not prejudice a HDC (Sec. 117 NIL)
75. Protest only necessary for a foreign bill of exchange. Protest for other negotiable instruments is
optional. (Sec. 118 NIL)
76. Causes of Discharge of the Instrument
a. payment by the debtor
b. payment by accommodated party

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c. intentional cancellation by holder of instrument
d. any other act discharging a simple monetary obligation
e. debtor becomes holder of the instrument at/after maturity in his own right ( Sec 119 NIL)
– discharge of the instrument discharges all the parties thereto
– payment must be in due course, and by the principal debtor or on his behalf
– if payment is not made by the principal debtor, payment only cancels the liability of the payor and
those obligated after him but does not discharge the instrument.
– payment by an accommodation party does not discharge the instrument.
77. Discharge of Secondary Parties:
a. any act discharging the instrument
b. cancellation of indorser’s signature by indorsers
c. discharge of prior party
d. tender of payment by prior party
e. release of principal debtor
f. extension of payment by the holder/postponement of right to enforce without assent of secondary

parties and without reservation of right of recourse against secondary parties (Sec 120 NIL)
78. Rights of a party secondarily liable who pays:
– the instrument is not discharge
– the party is remitted to his former rights as to all prior parties
– the party may strike out his own and all subsequent indorsements
– the party may negotiate the instrument again
Exception:
– an instrument cannot be renegotiated where it is payable to order of a 3rd person and has been paid
by the drawer
– and instrument cannot be renegotiated where is was made or accepted for accommodation and it
has been paid by the party accommodated.

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78. Renunciation by a holder discharges an instrument when:
1. it is absolute and unconditional

2. made in favor of a person primarily liable
3. made at or after maturity of the instrument
4. in writing or the instrument is delivered up to the person primarily liable (Sec. 122 NIL)
– if renounced in favor of a party secondarily liable, only he is exonerated from liability and all parties
subsequent to him
– discharge by novation is allowed
79. General rule: When materially altered, without the consent of all parties liable, the instrument is
avoided except as against:
1. the party who has made the alteration

2. the party who authorized or assented to the alteration.
3. subsequent indorsers
Exception:
– if in the hands of a HDC, may be enforced according to its original tenor
– there is no distinction between fraudulent and innocent alteration
80. Material Alteration – an alternation is said to be material if it alters the effect of the instrument.
Under Section 125 the following changes are considered material alterations:
1. dates
2. the sum payable
3. time and place of payment
4. number or relations of the parties
5. medium or currency for payment
6. adding a place of payment where no place is specified
7. any other which alters the affect of the instrument
81. Instances where a BOE may be treated as a PN:
1. where the drawer and the drawee are one and the same
2. where the drawee is a fictitious person
3. where the drawee has no capacity to contract (Sec. 130 NIL)

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The holder has the option to treat it as a BOE or a PN
82. Acceptance is the signification by the drawee of his assent to the order of the drawer. It is an act by
which a person on whom the BOE is drawn assents to the request of the drawer to pay it. (Sec. 132 NIL)
Acceptance may be:
1. actual
2. constructive
3. general (Sec. 140)
4. qualified (Sec. 141)
Requisites of actual acceptance:
– in writing
– signed by the drawee
– must not express the drawee will perform his promise by any other means than payment of money
– communicated or delivered to the holder
7. A holder has the right:
1. require that acceptance be written on the bill and if refused, treat it as if dishonored (Sec. 133)
2. refuse to accept a qualified acceptance and may treat it as dishonored (Sec. 142)
8. Constructive Acceptance:
1. where the drawee to whom the bill has been delivered destroys it
2. the drawee refuses within 24 hrs after such delivery or within such time as is given, to return the bill
accepted or not. (Sec. 137 NIL)
– drawee becomes primarily liable as an acceptor.
– mere retention is equivalent to acceptance
9. When presentment for acceptance is necessary:
1. if necessary to fix the maturity of the bill

2. if it is expressly stipulated that it shall be presented for acceptance
3. if the bill is drawn payable elsewhere than the residence or place of business of the drawee (Sec. 143

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NIL)
– Presentment is the production of a BOE to the drawee for his acceptance
– in on order case is presentment necessary to make parties liable.
90. Summary on presentment for acceptance of Bills of Exchange:
a. to make the drawee primarily liable and for the accrual of secondary liability (Sec. 144)
b. necessary to fix maturity date, where bill expressly stipulates presentment, bill payable other than
place of drawee (Sec. 143)
c. when presentment is excused: drawee is dead, hides, is fictitious, incapacitated person, after due
diligence presentment cannot be made, presentment is refused on another ground although presentment is
irregular (Sec. 148)
1. General rule: Protest is required only for foreign bills
Exception:
– inland bills and notes may also be protested if desired
Protest is required:
1. where the foreign bill is dishonored by non acceptance

2. where the foreign bill is dishonored by non-payment
3. where the bill has been accepted for honor, it must be protested for non-payment before it is
presented for payment to the acceptor for honor
4. where the bill contains a referee in case of need, it must be protested for non payment before
presentment for payment to the referee in case of need (Sec. 152)
– Protest – formal statement in writing made by a notary under his seal of office at the request of the
holder, in which it is declare that the some was presented for payment or acceptance (as the case may be)
and such was refused.
– it means all steps or acts accompanying the dishonor of a bill or note necessary to charge an
indorser
– required when the instrument is a foreign bill of exchange.
– it must be made on the same date of dishonor, by a notary/respectable citizen of the place in the
presence of 2 credible witnesses so recourse to secondary parties

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1. Acceptance for Honor (Sec. 161 NIL)– an acceptance of a bill made by a stranger to it before
maturirty, where the drawee of the bill has:
1. refused to accept it
2. and the bill has been protested for non-acceptance
3. or where the bill has been protested for better security
Requisites for acceptance for honor:
– the bill must have been previously protested a) for non-acceptance b) or for better security
– the bill is not overdue at the time of the acceptance for honor
– the acceptor for honor must be a stranger to the bill
– the holder must give his consent
Notes on Acceptance for Honor
– Purpose: to save the credit of the parties to the instrument or some party to it as the drawer,
drawee, or indorser or somebody else.
– Acceptor for honor is liable to the holder and to all the parties to the bill subsequent to the party for
whose honor he has accepted (Sec. 164)
2. How acceptance for honor is made:
1. in writing and indicated that it is an acceptance for honor

2. signed by the person making the acceptance (Sec. 162 NIL)
3. Payment for Honor – payment made through a notarial act of honor of a party liable/stranger to the
bill after bill has been dishonored by non-payment by the acceptor and protested for non-payment by
the holder
Requisites:
a. protest for non-payment
b. any person may pay supra protest
Form for payment of honor:
1. payment must be attested by notarial act appended to the protest, or form an extension to it.
2. notarial act of honor must be based on a declaration by the payer for honor

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4. Bills in Set – bill of exchange drawn in several parts, each part of the set being numbered and
containing a reference to the other parts, the whole of the parts just constituting one bill (Sec 178 NIL)
Source:
Commercial Law Memory Aid
Negotiable Instruments Law
Ateneo Central Bar Operations 2001
June 28, 2014  4 Replies

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Negotiable Instruments Law – Discharge
NEGOTIABLE INSTRUMENTS LAW
Memory Aid
Based on the Outline of the 1994 Edition of Campos & Campos

Page 31 of 47
DISCHARGE
1. Of the Instrument
2. payment in due course by or on behalf of principal debtor
Payment in due course:
1. made at or after maturity

2. to the holder thereof
3. in good faith and without notice that his title is defective
4. payment in due course by party accommodated where party is made/ accepted for accommodation
5. intentional cancellation by holder
if unintentional or under mistake or without authority of holder, inoperative. Burden of proof on party
which alleges it was unintentional, etc.
1. any other act which discharges a simple contract

2. principal debtor becomes holder of instrument at or after maturity in his own right
3. renunciation of holder:
holder may expressly renounce his rights vs. any party to the instrument, before or after its maturity
absolute and unconditional renunciation of his rights vs. principal debtor made at or after maturity
discharges the instrument
renunciation does not affect rights of HDC w/o notice.
Renunciation must be in writing unless instrument delivered up to person primarily liable thereon
1. material alteration (sec. 124: material alteration w/o assent of all parties liable avoids instrument
except as against party to alteration and subsequent indorsers)
1.Of secondary parties

2.any act which discharges the instrument
3.intentional cancellation of signature by holder
4.discharge of prior party
5.valid tender of payment made by prior party
6.release of principal debtor, unless holder’s right of recourse vs. 2ndary party reserved
7.any agreement binding upon holder to extend time of payment, or to postpone holder’s right to
enforce instrument, unless made with assent of party secondarily liable, or unless right of recourse
reserved.
8. Failure to make due presentment (sec. 70, 144)
9. failure to give notice of dishonor
10. certification of check at instance of holder

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11. reacquisition by prior party
where instrument negotiated back to a prior party, such party may reissue and further negotiate, but
not entitled to enforce payment vs. any intervening party to whom he was personally liable
where instrument is paid by party secondarily liable, it’s not discharged, but
1. the party so paying it is remitted to his former rights as regard to all prior parties
2. and he may strike out his own and all subsequent indorsements, and again negotiate instrument,
except
where it’s payable to order of 3rd party and has been paid by drawer
where it’s made/accepted for accommodation and has been paid by party accommodated.
Reference: University of the Philippines
BarOps ’99
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel Ramos
December 19, 2011  Leave a Reply

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Negotiable Instruments Law – Liabilities of Parties

Page 33 of 47
Memory Aid
LIABILITIES OF PARTIES
1. PRIMARY PARTIES
Person primarily liable: person who by the terms of the instrument is absolutely required to pay the
same.
Sec. 70 (effect of want of demand on principal debtor)
1. Liability of Maker
2. Promises to pay it according to its tenor
3. admits existence of payee and his then capacity to indorse
1. Status of drawee prior to acceptance or payment
sec. 127 (bill not an assignment of funds in hands of drawee)

sec. 189 (when check operates as assignment)
1. Liability of Acceptor
Promises to pay inst according to its tenor

Admits the following:
1. existence of drawer
2. genuineness of his signature
3. his capacity and authority to draw the instrument
4. existence of payee and his then capacity to endorse
sec. 191, 132, 133, 138 — formal requisites of acceptance

sec. 136, 137, 150 — constructive acceptance

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sec. 134, 135 — acceptance on a separate instrument
Kinds of Acceptance:
1. general
2. qualified
1. conditional
2. partial
3. local
4. qualified as to time
5. not all drawees
* sec. 142 (rights of parties as to qualified acceptance)
Certification: Principles
1. when check certified by bank on which it’s drawn, equivalent to acceptance

2. where holder of check procures it to be accepted/certified, drawer and all indorsers discharged from
al liability
3. check not operate as assignment of any part of funds to credit of drawer with bank, and bank is not
liable to holder, unless and until it accepts or certifies check
4. certification obtained at request of drawer: secondary parties not released
5. bank which certifies liable as an acceptor
6. checks cannot be certified before payable
1. SECONDARY PARTIES
2. Liability of Drawer
3. Admits existence of payee and his then capacity to endorse
4. Engages that on due presentment instrument will be accepted, or paid, or both, according to its tenor
and that
5. If it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder or to an subsequent indorser who may be compelled to pay it
drawer may insert in the instrument an express stipulation negativing / limiting his own liability to
holder
1. Liability of Indorsers:

Page 35 of 47
Qualified Indorser and one Negotiating by Delivery
1. Instrument genuine, in all respects what it purports to be

2. good title
3. all prior parties had capacity to contract
4. he had no knowledge of any fact w/c would impair validity of instrument or render it valueless
in case of negotiation by delivery only, warranty only extends in favor of immediate transferee
Liability of a General or Unqualified Indorser
1. instrument genuine, good title, capacity of prior parties

2. instrument is at time of indorsement valid and subsisting
3. on due presentment, it shall be accepted or paid, or both, according to tenor
4. if it be dishonored, and necessary proceedings on dishonor be duly taken, he will pay the amt. To
holder, or to any subsequent indorser who may be compelled to pay it
Order of Liability among Indorsers
1. among themselves: liable prima facie in the order they indorse, but proof of another agreement
admissible
2. but holder may sue any of the indorsers, regardless of order of indorsement
3. joint payees/indorsees deemed to indorse jointly and severally
1. Liability of Accomodation Party
Definition: one who signed instrument as maker/drawer/acceptor/ indorser w/o receiving value
thereof, for the purpose of lending his name to some other person
AP liable on the instrument to holder for value even if holder, at time of taking instrument, knew he
was only an AP
Liability of Irregular Indorser
Where a person not otherwise a party to an instrument, places thereon his signature in blank
before delivery, he’s liable as an indorser, in accordance w/ these rules:
1. Instrument payable to order of 3rd person: liable to payee and to all subsequent parties
2. Instrument payable to the order of maker/drawer, or payable to bearer: liable to all parties subsequent
to maker/drawer

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3. Signs for accommodation of payee, liable to all parties subsequent to payee
Sadaya v Sevilla Rules:
1. a joint and several accommodation maker of a negotiable promissory note may demand from the
principal debtor reimbursement for the amt. That he paid to the payee
2. a joint and several accommodation maker who pays on the said promissory note may directly
demand reimbursement from his co-accommodation maker without first directing his action vs. the
principal debtor provided:
1. he made the payment by virtue of a judicial demand
2. or the principal debtor is insolvent
1. Liability of an Agent
Signature of any party may be made by duly authorized agent, establish as in ordinary agency
Where instrument contains or a person adds to his signature words indicating that he signs for or on
behalf of a principal, he is not liable on the instrument if he was duly authorized, but the mere addition
of words describing him as an agent without disclosing his principal, does not exempt from personal
liability.
Signature per procuration operates as notice that the agent has but a limited authority to sign, and the
principal is bound on ly in case the agent in so signing acted within the actual limits of his authority
Where a broker or agent negotiates an instrument without indorsement, he incurs all liabilities in Sec.
65, unless he discloses name of principal and fact that he’s only acting as agent
I. Presentment For Acceptance
When presentment for acceptance must be made
1. bill payable after sight, or in other cases where presentment for acceptance necessary to fix maturity
2. where bill expressly stipulates that it shall be presented for acceptance
3. where bill is drawn payable elsewhere than at residence / place of business of drawee
When failure to present releases drawer/indorser
Failure to present for acceptance of negotiate bill of exchange within reasonable time
Reasonable Time
Must consider
1. nature of instrument

Page 37 of 47
2. usage of trade or business with respect to instrument
3. facts of each case
How and When Made Sec. 145, 146, 147
When Excused Sec. 148
Dishonor and Effects
sec. 149 (when dishonored by non-acceptance)

sec. 150 (duty of holder where bill not accepted)
sec. 151 (rights of holder where bill not accepted)
sec. 89 (to whom notice of dishonor must be given)
sec. 117 (effect of omission to give notice of non-acceptance)
II. For Payment
Where necessary Sec. 70
Where not necessary Sec. 79, 80, 82, 151, 111
Date and time of presentment of instrument bearing fixed maturity Sec. 71, 85, 86, 194
Date of presentment
Where instrument not payable on demand: presentment must be made on date it falls due
Where payable on demand: presentment must be made within reasonable time after issue, except
that in case of a bill of exchange, presentment for payment will be sufficient if made within a
reasonable time after last negotiation (but note: though reasonable time from last negotiation, it may
be unreasonable time from issuance thus holder may not be HDC under sec. 71)
Check must be presented for payment within reasonable time after its issue or drawer will be
discharged from liability thereon to extent of loss caused by delay
Delay excused Sec. 81
Manner Sec. 74, 72, 75
Place Sec. 73

Page 38 of 47
To Whom Sec. 72, 76, 77, 78
Dishonor by nonpayment Sec. 83, 84
Notice of Dishonor
General rule: to drawer and to each indorser, and any drawer or indorser to whom such notice is not given
is discharged
Form, Contents, Time Sec. 95, 96, 102, 103, 104, 105, 106, 108, 113
By Whom Given
By or on behalf of the holder or any party to the instrument who may be compelled to pay it to the
holder, and who, upon taking it up, would have a right to reimbursement from the party to whom the
notice is given
Notice of dishonor may be given by an agent either in his own name or in the name of any party
entitled to give notice, whether that party be his principal or not
Where instrument has been dishonored in hands of agent, he may either himself give notice to
the parties liable thereon, or he may give notice to his principal (as if agent an independent
holder)
In whose favor notice operates
1. when given by/on behalf of holder: insures to benefit of

1. all subsequent holders and
2. all prior parties who have a right of recourse vs. the party to whom it’s given
2. where notice given by/on behalf of a party entitled to give notice: insures for benefit of a. holder , and
b. all parties subsequent to party to whom notice given
Waiver Sec. 109, 110
Where not necessary to charge drawer
1. drawer/drawee same person

2. drawee fictitious, incapacitated

Page 39 of 47
3. drawer is person to whom instrument is presented for payment
4. drawer has no right to expect/require that drawee/acceptor will honor instrument
5. drawer countermanded payment
Where not necessary to charge indorser
1. drawee fictitious, incapacitated, and indorser aware of the fact at time of indorsement
2. indorser is person to whom instrument presented for paymt
3. instrument made/accepted for his accommodation
Protest
Definition: testimony of some proper person that the regular legal steps to fix the liability of drawer and
indorsers have been taken
When necessary: sec. 152,
Form and contents: sec. 153
By whom made: sec. 154
Time and Place: sec. 155, 156
For better security: sec. 158
Excused: sec. 159
Waiver: sec. 111
Acceptance for Honor
Sec. 161, 131, 171
Bills in Set: 178-183

Page 40 of 47
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Negotiable Instruments Law – Defenses and Equities
Memory Aid
DEFENSES AND EQUITIES
KINDS OF DEFENSES
1. real defense – attaches to instrument; on the principle that the right sought to be enforced never
existed/there was no contract at all
2. personal defense – growing out of agreement; renders it inequitable to be enforced vs. defendant
DEFENSES

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1. INCAPACITY: real; indorsement/assign by corp/infant: passes property but corp/infant no liability
1. ILLEGALITY: personal, even if no K because void under CC 1409
1. FORGERY: real (lack of consent):

1. forged
2. made without authority of person whose signature it purports to be.
General Rule:
1. wholly inoperative
2. no right to retain instrument, or give discharge, or enforce payment vs. any party, can be acquired
through or under such signature (unless forged signature unnecessary to holder’s title)
Exception:
unless the party against whom it is sought to enforce such right is precluded from setting up forgery/want
of authority
precluded:
1. parties who make certain warranties, like a general indorser or acceptor

2. estopped/negligent parties
* note rules on Acceptance/Payment Under Mistake as applied to:
1. 1. overdraft
2. 2. stop payment order
3. 3. forged indorsements
1. MATERIAL ALTERATION
Where NI materially altered w/o assent of all parties liable thereon, avoided, except as vs. a
1. party who has himself made, authorized or assented to alteration

2. and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a HDC not a party to the
alteration, HDC may enforce payment thereof according to orig. tenor
Material Alteration
1. change date

Page 42 of 47
2. sum payable, either for principal or interest
3. time of payment
4. number/relations of parties
5. medium/currency of payment, adds place of payment where none specified, other change/addition
altering effect of instrument in any respect.
*material alteration a personal defense when used to deny liability according to org. tenor of instrument, but
real defense when relied on to deny liability according to altered terms.
1. FRAUD
2. fraud in execution: real defense (didn’t know it was NI)
3. fraud in inducement: personal defense (knows it’s NI but deceived as to value/terms)
1. DURESS
Personal, unless so serious as to give rise to a real defense for lack of contractual intent
1. COMPLETE, UNDELIVERED INSTRUMENT
Personal defense (sec. 16)

If instrument not in poss. Of party who signed, delivery prima facie presumed
If holder is HDC, delivery conclusively presumed
1. INCOMPLETE, UNDELIVERED INSTRUMENT
Real defense (sec. 15)

Instrument will not, if completed and negotiated without authority, be a valid contract in the hands of
any holder, as against any person whose signature was placed thereon before delivery
10. INCOMPLETE, DELIVERED
Personal defense (sec. 14)

2 Kinds of Writings:
1. Where instrument is wanting in any material particular: person in possession has prima facie authority
to complete it by filing up blanks therein
2. Signature on blank paper delivered by person making the signature in order that the paper may be
converted into a NI: prima facie authority to fill up as such for any amount
In order that any such instrument, when completed, ma be enforced vs. any person who became a
party thereto prior to its completion:

Page 43 of 47
1. must be filled up strictly in accordance w/ authority given
2. within a reasonable time
but if any such instrument after completion is negotiated to HDC, it’s valid for all purposes in his
hands, he may enforce it as if it had been filled up properly.
BarOps ’99

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Negotiable Instruments Law – Holder in Due Course
Memory Aid
HOLDER IN DUE COURSE

Page 44 of 47
HOLDER
Sec. 191
RIGHTS OF HOLDER
1. sue thereon in his own name

2. payment to him in due course discharges instrument
HOLDER IN DUE COURSE: REQUISITIES
1. complete and regular upon its face
sec. 124 (effect of alteration)

sec. 125 (what constitute material alterations)
1. holder became such before it was overdue, without notice of any previous dishonor
sec. 53 (demand inst. nego after unreasonable length of time: not HDC)
sec. 12 (effect antedating/postdating)
1. taken in good faith and for value
sec. 24 (presumption of consideration)

sec 25 (definition. of value)
sec. 26 (definition. holder for value)
sec. 27 (lien as value)
1. at time negotiated to him, he had no notice (sec. 56-def; 54-notice before full amt. paid) of —
1. infirmity in instrument
2. defect in title of person negotiating
1. instrument/signature obtained through fraud, etc., illegal consideration/means, or
2. instrument negotiated in breach of faith, or fraudulent circumstances
RIGHTS OF HOLDER IN DUE COURSE:
1. holds instrument free of any defect of title of prior parties

2. free from defenses available to prior parties among themselves
3. may enforce payment of instrument for full amount, against all parties liable

Page 45 of 47
* if in the hand of any holder (note definition of holder) other than a HDC, vulnerable to same defenses as if
non-negotiable
RIGHTS OF PURCHASER FROM HOLDER IN DUE COURSE:
General Rule: in the hands of any holder other than a HDC, NI is subject to same defenses as if it were non-
negotiable.
Exception: holder who derives title through HDC and who is not himself a party to any fraud or illegality has
all rights of such former holder in respect to all parties prior to the latter.
WHO DEEMED HDC
prima facie presumption in favor of holder

but when shown that title of any person who has negotiated instrument was defective (sec. 55—when
title defective): burden reversed (now with holder)
but no reversal if party being made liable became bound prior to acquisition of defective title (i.e.,
where defense is not his own)
BarOps ’99

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Philippine Law Reviewers: Commercial Law - Negotiable Instruments Law

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Philippine Law Reviewers

P O STE D IN NE GOT IA BL E I NS TRU M EN TS L AW

Commercial Law – Negotiable Instruments Law

2. Characteristics of Negotiable Instruments:

b. accumulation of secondary contracts – instrument is negotiated from person to person

3. Diﬀerence between Negotiable Instruments from Non-Negotiable Instruments:

Negotiable Instruments Non-negotiable Instruments

https://lawphilreviewer.wordpress.com/category/negotiable-instruments-law/ 12/03/2019, 8A26 PM

Transferee has right of recourse against transferee has no right of recourse

4. Diﬀerence between Negotiable Instruments and Negotiable Documents of Title

Negotiable Instruments Negotiable Documents of Title

Subject is money subject is goods

Instrument itself is property of value instrument is merely evidence of title; thing of

https://lawphilreviewer.wordpress.com/category/negotiable-instruments-law/ 12/03/2019, 8A26 PM

8. Diﬀerence between Promissory Note and Bill of Exchange

Promissory Note Bill of Exchange

Unconditional promise unconditional order

Involves 2 parties involves 3 parties

Maker primarily liable drawer only secondarily liable

9. Distinctions between a Check and Bill of Exchange

– always payable on demand – may be payable on demand or at a fixed or

– drawn on a deposit – not drawn on a deposit

https://lawphilreviewer.wordpress.com/category/negotiable-instruments-law/ 12/03/2019, 8A26 PM

– may be payable on demand or at a fixed or -always payable on demand

– a promise to pay – an order to pay

11. Other Forms of Negotiable Instruments:

c. bonds in the nature of promissory notes

d. drafts which are bills of exchange drawn by 1 bank to another

13. Requisites of a Negotiable Note (PN): (SUDO)

a. be in writing signed by the drawer

b. contains an unconditional promise or order to pay a sum certain in money

c. be payable on demand or at a fixed determinable future time

d. be payable to order or to bearer (Sec. 1 NIL)

14. Requisites of a Negotiable Bill (BOE): (SUDOC)

https://lawphilreviewer.wordpress.com/category/negotiable-instruments-law/ 12/03/2019, 8A26 PM

– A drawee’s name may be filled in under Section 14 of the NIL

15. Determination of negotiability

1. by the provisions of the Negotiable Instrument Law, particularly Section 1 thereof

16. Sum is certain even if it is to be paid with:

c. in installments with acceleration clause

e. costs of collection or attorney’s fees (Sec. 2 NIL)

https://lawphilreviewer.wordpress.com/category/negotiable-instruments-law/ 12/03/2019, 8A26 PM

But an order or promise to pay out of a particular fund is not unconditional

18. Instrument is payable upon a determinable future time if:

a. there is a fixed period after sight/date

b. on or before a specified date/fixed determinable future time

a. sale of collateral securities

c. waives benefit of law

– Limitation on the provision, it cannot require something illegal.

https://lawphilreviewer.wordpress.com/category/negotiable-instruments-law/ 12/03/2019, 8A26 PM

21. Instrument is payable upon demand if:

a. it is expressed to be so payable on sight or upon presentation

b. no period of payment is stipulated

c. issued, accepted, or endorsed after maturity (Sec. 7 NIL)

22. Instrument is payable to order:

– where it is drawn payable to the order of a specified person or

– to a specified person or his order