NEGOTIABLE INSTRUMENTS LAW KINDS OF NEGOTIABLE INSTRUMENTS AND PARTIES THERETO
The Negotiable Instruments Law | Atty. Renato R. Pasimio
Block 2C | Atty. Francis Joseph H. Ampil
DISCLAIMER
This document shall not be used as primary reference in
lieu of the annotated books and reviewers it is based on.
GENERAL PRINCIPLES
Ø Negotiable instrument – a bank check, promissory note, bill of exchange, or any other
written security document that can be transferred by delivery and/or indorsement. The
effect of this transfer is to vest legal ownership, giving the new owner the right to demand
payment of the face value of the instrument, along with any interest that may be due.
NATURE OF NEGOTIABLE INSTRUMENT
Ø As provisional payment valid to extinguish obligations only upon encashment.
o Used to facilitate business transactions and contracts for which negotiable
instruments are provisionally accepted in place of actual cash.
Ø As contracts.
o Upon the issuance of a negotiable instrument, there already exists a contract
between the parties. There will be as many accumulated secondary contracts as
there are indorsements made in a single negotiable instrument.
PRINCIPAL FUNCTIONS OF NEGOTIABLE INSTRUMENTS
Ø As a substitute for money.
o A person can acquire goods or things or make other business transactions
involving money even if he does not have the required cash by issuing instead a
negotiable instrument.
Ø For accumulation of secondary contracts.
o Through negotiation, contractual relationships are established between the
parties to a negotiable instrument.
KINDS OF NEGOTIABLE INSTRUMENTS AS TO DELIVERY
Ø Bearer instrument.
o “To bearer,” “to holder,” “to cash,” etc.
o Negotiated by mere delivery (ie., no indorsement required for valid negotiation).
Ø Order instrument.
o “To the order of,” etc.
o Negotiated by delivery and indorsement.
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Ø Promissory note (PN) – an unconditional promise in writing made by one person to another,
signed by the maker, engaging to pay on demand, or at a fixed or determinable future time,
a sum certain in money to order or to bearer.
o Parties:
§ Maker – party primarily liable (PPL) / principal debtor – the one who
makes the unconditional promise to pay a sum certain in money on
maturity date.
§ Payee – creditor – the party to whom the maker must make payment
on maturity.
• Becomes a party secondarily liable when he negotiates an
instrument further – he becomes a general indorser.
§ Indorser – party secondarily liable (PSL) – the payee and subsequent
parties who negotiate the instrument further.
Ø Bill of exchange (BOE) – an unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed to pay
on demand or at a fixed or determinable future time a sum certain in money to order or to
bearer.
o Parties:
§ Drawer – party secondarily liable – the debtor who draws the bill of
exchange requiring the drawee to extend him credit by asking the latter
to pay the bill to the payee first from the drawee’s own pocket and later
recover from the drawer the amount paid.
§ Payee – creditor – the party to whom the maker must make payment
on maturity.
• Becomes a party secondarily liable when he negotiates an
instrument further – he becomes a general indorser.
§ Drawee – party primarily liable (when accepted) – the person to whom
the BOE is addressed, since he is required by the drawer to pay first
from his own pocket and recover such from the drawer thereafter.
• Acceptance is necessary in order to hold the drawee liable –
he becomes an “acceptor.”
§ Indorser – party secondarily liable – the payee and subsequent parties
who negotiate the instrument further.
Ø Other parties:
o Holder – the person in custody of the negotiable instrument. Generally, the
instrument shall be in the hands of the creditor.
§ However, when payment has been made, the creditor shall exhibit the
instrument to the debtor – the instrument becomes a proof of payment
when surrendered to the debtor upon payment thereof.
o Holder for value (HV) – a holder who gives valuable consideration in exchange
for the instrument. (Sec. 26)
o Holder in due course (HDC) – if proven as such, only real defenses may be used
against the holder in due course.
§ A holder is in due course if he takes the instrument under the following
conditions:
1. That it is complete and regular upon its face;
2. That he became the holder of it before it was overdue, and
without notice that it has been previously dishonored, if such
was the fact;
 3. That he took it in good faith and for value;
4. That at the time it was negotiated to him, he had no notice of
any infirmity in the instrument or defect in the title of the
person negotiating it. (Sec. 52)
DEFENSES IN NEGOTIABLE INSTRUMENTS
Ø Defenses – grounds available to the payor to refuse payment to or escape liability from the
holder.
Ø Kinds of defenses:
1. Personal defenses – equitable defenses – defenses which arise out of the relation
of the parties to the contract. Cannot be set up against a holder in due course.
§ Some examples:
1. Absence or failure of consideration;
2. Want of delivery of a complete instrument;
3. Filling up of a wrong date of instrument, where it is payable
at affixed period after date, or it is issued undated;
4. Filling up of blanks contrary to the authority given, or not
within a reasonable time;
5. Fraud in inducement;
6. Duress (unless extreme in nature);
7. Illegality of consideration;
8. Undue influence, intimidation or violence;
9. Negotiation in breach of faith;
10. Acquisition by unlawful means.
2. Real defenses – defenses which go to the existence or validity of the instrument
as a contract or to the capacity of the parties. They are attached to the instrument
itself and can be set up against all holders.
§ Exclusive list of real defenses: (F2EU ADM2 WIWI)
1. Forgery;
2. Fraud in factum;
3. Execution of instrument between public (foreign) enemies;
4. Ultra vires act of corporations;
5. Material alteration;
6. Duress amounting to forgery;
7. Marital consent;
8. Minority – minor may negotiate, but cannot be held liable;
9. Want of authority of the agent;
10. Incapacity to contract;
11. Want of delivery of incomplete instrument; and
12. Illegality of contract.
STAGES IN THE LIFE OF A NEGOTIABLE INSTRUMENT
Ø The following are the different stages which a negotiable instrument undergoes from the
time of its preparation to the time of its discharge.
1. Issue – covers the period from the preparation of the instrument, either by the
maker who makes the promissory note, or the drawer who draws the bill of
exchange or check, up to the issue or delivery of the instrument to the payee.
2. Negotiation – starts when the payee of the negotiable instrument transfers the
instrument to another person by way of negotiation through indorsement, as to
constitute the transferee the holder of the instrument.
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§ Bearer instrument may be negotiated by:
1. Mere delivery; or
2. By blank indorsement plus delivery (if originally an order
instrument).
§ Order instrument may be negotiated by proper indorsement plus
delivery.
• However, if the payee or indorser makes a blank
indorsement and delivers the instrument to an indorsee, the
former has converted the instrument into a bearer instrument
and the holder may further negotiate it by mere delivery.
3. Presentment for acceptance – applies only to a BOE when it is payable:
1. At a fixed period or after sight;
2. At a place different from the domicile of the drawee; or
3. When the bill of exchange expressly requires that presentment for
acceptance is required. (Sec. 143)
4. Acceptance – when the drawee accepts the instrument, he becomes liable thereon
as an acceptor, and his liability retroacts to the date of the first presentment, and
according to the tenor of his acceptance. (Secs. 62 and 136)
5. Dishonor by non-acceptance – applies only to a BOE. When the drawee refuses
to accept the bill, he is said to have “dishonored” the bill by non-acceptance, and
the holder then acquires the right of recourse against the parties secondarily liable
after giving them a notice of dishonor by non-acceptance.
6. Presentment for payment – applies to both PN and BOE.
§ In PN, the holder makes presentment for payment to the maker, the
party primarily liable, on maturity date in order to collect.
§ In BOE, the holder makes a presentment for payment to the
drawee/acceptor, the party primarily liable in a bill, on maturity date.
(Sec. 71)
§ When payable on demand:
• If PN, presentment for payment must be made within a
reasonable time after issue.
• If BOE, presentment for payment must be made within a
reasonable time after the last indorsement.
7. Dishonor by non-payment – applies to both PN and BOE.
§ If the maker of a PN or the drawer of a BOE refuses to pay the
instrument on maturity date for whatever reason, the instrument is
“dishonored” by non-payment, and the holder has the right of recourse
against the parties secondarily liable by giving them a notice of
dishonor by non-payment.
8. Discharge – the instrument is discharged by:
1. Payment in due course by or on behalf of the principal party;
2. Payment in due course by the party accommodated, where the
instrument is made or accepted for accommodation;
3. Intentional cancellation thereof by the holder;
4. Any other act which will discharge a simple contract for payment of
money; or
5. Merger or confusion. (Sec. 119)
 THE NEGOTIABLE INSTRUMENTS LAW Example
Act No. 2031 | February 3, 1911 I promise to pay to the order of B P5,000.00 on June 30,
1995.
I. FORM AND INTERPRETATION (Sgd.) A

SEC. 1. FORM OF NEGOTIABLE INSTRUMENTS. - AN INSTRUMENT TO BE NEGOTIABLE MUST Ø Explanation: Suppose A is 17 years old, the promissory note is still negotiable because it
CONFORM TO THE FOLLOWING REQUIREMENTS: has all the requisites of negotiability.
o However, B cannot collect from A on maturity because the contract between
(A) IT MUST BE IN WRITING AND SIGNED BY THE MAKER OR DRAWER; them is voidable, A being a minor.
(B) MUST CONTAIN AN UNCONDITIONAL PROMISE OR ORDER TO PAY A SUM CERTAIN IN o B can negotiate to C for value, and such would be valid. However, C cannot
MONEY; collect from A on maturity because A has the real defense of minority.
(C) MUST BE PAYABLE ON DEMAND, OR AT A FIXED OR DETERMINABLE FUTURE TIME; § C can collect from B, after complying with certain formalities (ie.,
(D) MUST BE PAYABLE TO ORDER OR TO BEARER; AND notice of dishonor, etc.)
(E) WHERE THE INSTRUMENT IS ADDRESSED TO A DRAWEE, HE MUST BE NAMED OR
OTHERWISE INDICATED THEREIN WITH REASONABLE CERTAINTY.
Requisite Notes
(1) It must be in writing Ø The law merely requires that it must be in writing.
Ø Requisites of negotiable instruments: WUPOA and signed by the o There is no particular form or type of writing
maker or drawer; required – it may be typewritten, printed or
Negotiable Instrument Promissory Note Bill of Exchange handwritten.
o Likewise, no particular writing material is
(1) It must be in writing and (1) It must be in writing and (1) It must be in writing and
required – it may be written on a bond paper, pad
signed by the maker or signed by the maker; signed by the drawer;
paper, tissue paper, parchment, or any other
drawer;
writing material.
(2) Must contain an (2) Must contain an
Ø The signature may be in any form, but preferably in his
(2) Must contain an unconditional promise to unconditional order to pay a
regularly accepted signature. What is important is the intent
unconditional promise or pay a sum certain in money; sum certain in money;
to be bound by such signature.
order to pay a sum certain
o Hence, if the maker or drawer is an illiterate, his
in money; (3) Must be payable on (3) Must be payable on
signature may be by mark, such as a thumb mark.
demand, or at a fixed or demand, or at a fixed or
(3) Must be payable on determinable future time; determinable future time; (2) Must contain an Ø If the payment is subject to the happening of a contingency
demand, or at a fixed or unconditional promise or the fulfillment of a condition, the instrument becomes
determinable future time; (4) Must be payable to (4) Must be payable to or order to pay a sum non-negotiable.
bearer; order; and certain in money; o Ex. “Pay to the order of B P5,000.00 if he passes
(4) Must be payable to the CPA Board this coming November, 1995.”
order or to bearer; and (5) Where the instrument is (invalid promise to pay)
addressed to a drawee, he Ø In a promissory note, a mere acknowledgment of a debt
(5) Where the instrument is must be named or otherwise does not constitute a promise. There must be an indication
addressed to a drawee, he indicated therein with as to when the debt will be paid.
must be named or otherwise reasonable certainty. o Ex. “I.O.U. P500.00.” (invalid promise to pay)
indicated therein with Ø In a bill of exchange, there must be a definite order to pay.
reasonable certainty. A request, supplication, or a plea to pay will not be valid.
Ø Sum certain in money – means that the amount must be
Ø Negotiability does not equate to validity. It is a mere matter of form. fixed, definite or liquidated.
o Hence, as long as the instrument conforms to the aforementioned requisites, it is o It is important that the amount must be clearly
negotiable even though it may be void, voidable, unenforceable or uncollectible. stated so that when it is paid on maturity, it will
Ø If an instrument is negotiable, then the provisions of the Negotiable Instruments Law are discharge the instrument.
applicable. Otherwise, the general provisions on Contracts will determine the rights and Ø It must be in money or legal tender only.
liabilities of the parties.

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(3) Must be payable on Ø It is important to clearly establish time of payment so:
demand, or at a fixed or 1. The parties primarily liable will know when they
determinable future are expected to pay when called upon to pay;
time; 2. The holder will know when to collect on the
instrument; and
3. The parties secondarily liable will have an idea
when they may be called upon to pay the
instrument.
Ø When payable on demand –
1. When expressly stated to be so;
2. When time of payment is “at sight or on
presentation;”
3. When no time of payment is stated in the
instrument; or
4. When the instrument is issued, accepted or
indorsed when already overdue. (Sec. 7)
Ø Fixed time – when the definite calendar date is expressed in
the instrument.
Ø When payable at a determinable future time –
1. When payable “at” a fixed period after date or
sight;
2. When payable “on or before” a fixed or
determinable future time specified therein; or
3. When payable on or at a fixed period after the
occurrence of a specified event which is certain to
happen, although the time of happening is
uncertain. (Sec. 4)
§ Do not confuse this with a condition
that makes an instrument non-
negotiable. Here, it is certain to occur,
but not known when.
(4) Must be payable to Ø The person issuing the instrument must intend it to be
order or to bearer; and negotiable.
o The common words indicating negotiability are
“Order” and “Bearer” although synonymous
words of the same import may be used.
Ø When instrument payable to order –
1. When payable to the order of a specified person;
or
2. When payable to a specified person or order.
Ø When instrument payable to bearer –
1. When payable to bearer; or
2. When payable to a specified person or bearer.
(5) Where the Ø Applies only to a bill of exchange.
instrument is addressed Ø Drawee – person primarily liable on BOE (when accepted)
to a drawee, he must be – required by the drawer to pay first from his own pocket
named or otherwise and then recover thereafter from the drawer.
indicated therein with o Upon acceptance, the drawee is called either the
reasonable certainty. acceptor or drawee-acceptor.
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Ø Reasonable certainty in identifying the drawee is necessary
to make sure that the person named is the real person
intended to be the drawee.
o Likewise ensures that the holder of the instrument
is making his presentment for acceptance or for
payment to the right person.
Ø A BOE may be addressed to 2 or more drawees jointly or
solidarily, but not in the alternative or in succession.
o “To A and B” – valid because joint.
o “To A or B” – invalid because alternative.
o “To A, or in his absence, B” – invalid because in
succession.
SEC. 2. WHAT CONSTITUTES CERTAINTY AS TO SUM. - THE SUM PAYABLE IS A SUM CERTAIN
WITHIN THE MEANING OF THIS ACT, ALTHOUGH IT IS TO BE PAID:
(A) WITH INTEREST; OR
(B) BY STATED INSTALLMENTS; OR
(C) BY STATED INSTALLMENTS, WITH A PROVISION THAT, UPON DEFAULT IN PAYMENT OF ANY
INSTALLMENT OR OF INTEREST, THE WHOLE SHALL BECOME DUE; OR
(D) WITH EXCHANGE, WHETHER AT A FIXED RATE OR AT THE CURRENT RATE; OR
(E) WITH COSTS OF COLLECTION OR AN ATTORNEY'S FEE, IN CASE PAYMENT SHALL NOT BE
MADE AT MATURITY.
Sum Payable,
Notes
Although To Be Paid -
(1) With interest. Ø While amount of interest may increase the total amount to
be paid by the payor on maturity date, still considered as the
sum certain – is the principal sum payable.
o The sum is still “determinable.”
(2) By stated Ø Requisite – amount and the maturity date of each
installments. installment are expressly established or can be ascertained
from the instrument.
(3) By stated Ø Acceleration/Escalation clause – the whole indebtedness
installments, with a automatically becomes due and demandable upon default of
provision that upon one or two successive installments or of the interest.
default in payment of o The principal amount herein is still a sum certain
any installment or of in money.
interest, the whole shall
become due.
(4) With exchange, Ø R.A. 529 – prohibits any stipulation in the instrument that
whether at a fixed rate the sum certain will be payable in foreign currency.
or at the current rate. Ø Obligation, however, remains valid and enforceable but
payable only in Philippine currency computed at the
prevailing rate of exchange between the foreign currency
and the Philippine Peso at the time the obligation was
constituted.
 (5) With costs of Ø Costs of collection and attorney’s fees are merely added to SEC. 4. DETERMINABLE FUTURE TIME; WHAT CONSTITUTES. - AN INSTRUMENT IS PAYABLE AT
collection or an the principal obligation and does not alter the amount of the A DETERMINABLE FUTURE TIME, WITHIN THE MEANING OF THIS ACT, WHICH IS EXPRESSED TO
attorney’s fee, in case sum certain payable. BE PAYABLE:
payment shall not be o These are merely incidents in the collection of the
made at maturity. principal obligation. (A) AT A FIXED PERIOD AFTER DATE OR SIGHT; OR
(B) ON OR BEFORE A FIXED OR DETERMINABLE FUTURE TIME SPECIFIED THEREIN; OR
(C) ON OR AT A FIXED PERIOD AFTER THE OCCURRENCE OF A SPECIFIED EVENT WHICH IS
SEC. 3. WHEN PROMISE IS UNCONDITIONAL. - AN UNQUALIFIED ORDER OR PROMISE TO PAY IS CERTAIN TO HAPPEN, THOUGH THE TIME OF HAPPENING BE UNCERTAIN.
UNCONDITIONAL WITHIN THE MEANING OF THIS ACT THOUGH COUPLED WITH:
AN INSTRUMENT PAYABLE UPON A CONTINGENCY IS NOT NEGOTIABLE, AND THE HAPPENING
(A) AN INDICATION OF A PARTICULAR FUND OUT OF WHICH REIMBURSEMENT IS TO BE MADE OF THE EVENT DOES NOT CURE THE DEFECT.
OR A PARTICULAR ACCOUNT TO BE DEBITED WITH THE AMOUNT; OR
(B) A STATEMENT OF THE TRANSACTION WHICH GIVES RISE TO THE INSTRUMENT.
Determinable Future
Notes
BUT AN ORDER OR PROMISE TO PAY OUT OF A PARTICULAR FUND IS NOT UNCONDITIONAL. Time
(1) At a fixed period Ø “After date” – promissory note.
Unconditional after date or sight. o Counted from the date of the instrument.
promise, though Notes Ø “After sight” – bill of exchange.
coupled with - o Counted form the date of the first presentment for
acceptance to be made by the holder to the
(1) Reimbursement Ø Process: drawee.
from a particular fund 1. The party primarily liable (drawee/acceptor) pays
or debit a particular the sum certain first out of his own funds; (2) On or before a fixed Examples
account. 2. Then the party primarily liable may either: or determinable future
a. Reimburse himself from a particular time specified therein. Pay to the order of B P1,000.00 on or before June 30,
fund belonging to the drawer which is 1995.
in his possession; or (Sgd.) A
b. Debit the particular account of the
drawer with the same amount he paid to Pay to the order of B P1,000.00 on or before Christmas
the holder. this year.
Ø Direct payment from a particular fund v. Reimbursement (Sgd.) A
from a particular fund:
o Direct payment from a particular fund – only one (3) On or at a fixed Ø This is usually called a “period.”
act is involved and that is the drawee pays the period after the o It should not be a condition – where the event
payee from the particular fund which is indicated occurrence of a itself is uncertain to happen.
in the instrument specified event which is Ø “10 days after B’s father dies.”
o Reimbursement from a particular fund – there are certain to happen,
two acts – (1) drawee pays the payee from his own though the time of
funds, and (2) reimburses himself form the happening be uncertain.
particular fund stated in the instrument.
Ø Contingency – condition – an event uncertain to happen. Conditions will make the
Example negotiable instrument non-negotiable, and even though such event eventually occurs, the
defect (non-negotiability) is not cured.
Pay to the order of B P1,000.00 on June 30, 1995, and
you may reimburse yourself from the sale of my car.
(Sgd.) A

(2) Statement of the Ø Such statement merely explains the nature of the transaction
transaction. which gave rise to the instrument and does not affect its
negotiability.

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 SEC. 5. ADDITIONAL PROVISIONS NOT AFFECTING NEGOTIABILITY. - AN INSTRUMENT WHICH (4) Give the holder an Example
CONTAINS AN ORDER OR PROMISE TO DO ANY ACT IN ADDITION TO THE PAYMENT OF MONEY IS election to require
NOT NEGOTIABLE. BUT THE NEGOTIABLE CHARACTER OF AN INSTRUMENT OTHERWISE something to be done in I promise to pay B or order P500.00 or 50 sacks of rice
NEGOTIABLE IS NOT AFFECTED BY A PROVISION WHICH: lieu of payment of worth P5,000.00
money. (Sgd.) A
(A) AUTHORIZES THE SALE OF COLLATERAL SECURITIES IN CASE THE INSTRUMENT BE NOT
PAID AT MATURITY; OR
(B) AUTHORIZES A CONFESSION OF JUDGMENT IF THE INSTRUMENT BE NOT PAID AT MATURITY; Ø A promise or order to perform an act in addition to the payment of money is non-negotiable
OR as it runs counter to the above general rule.
(C) WAIVES THE BENEFIT OF ANY LAW INTENDED FOR THE ADVANTAGE OR PROTECTION OF Ø All illegal provisions/stipulations are invalid.
THE OBLIGOR; OR
(D) GIVES THE HOLDER AN ELECTION TO REQUIRE SOMETHING TO BE DONE IN LIEU
OF PAYMENT OF MONEY.
SEC. 6. OMISSIONS; SEAL; PARTICULAR MONEY. - THE VALIDITY AND NEGOTIABLE
CHARACTER OF AN INSTRUMENT ARE NOT AFFECTED BY THE FACT THAT:

BUT NOTHING IN THIS SECTION SHALL VALIDATE ANY PROVISION OR STIPULATION OTHERWISE
ILLEGAL.
(A) IT IS NOT DATED; OR
(B) DOES NOT SPECIFY THE VALUE GIVEN, OR THAT ANY VALUE HAD BEEN GIVEN THEREFOR;
OR
Sum Certain In Money; General Rule (C) DOES NOT SPECIFY THE PLACE WHERE IT IS DRAWN OR THE PLACE WHERE IT IS PAYABLE;
OR
The party primarily liable shall be required to pay the negotiable instrument in a “sum (D) BEARS A SEAL; OR
certain in money” only. (E) DESIGNATES A PARTICULAR KIND OF CURRENT MONEY IN WHICH PAYMENT IS TO BE MADE.
Exceptions;
Notes BUT NOTHING IN THIS SECTION SHALL ALTER OR REPEAL ANY STATUTE REQUIRING IN CERTAIN
Provisions which -
CASES THE NATURE OF THE CONSIDERATION TO BE STATED IN THE INSTRUMENT.
(1) Authorize the sale Example
of collateral securities
in case the instrument I promise to pay B or order P500.00 on December 31, Omissions; Seal;
be not paid at maturity. 1995, and in case I am unable to pay, he may sell the
Notes
Particular Money
diamond ring which I pledged to him as collateral, and
the proceeds thereof to be applied to the payment of this (1) It is not dated. Ø The date of the instrument is important:
note. 1. To determine the maturity date of the instrument
(Sgd.) A if it is payable at a fixed period after date; or
2. To determine when the interest, if provided in the
(2) Authorize a Example instrument, will start to run.
confession of judgment
(2) Does not specify the Ø Usually “For Value Received.”
if the instrument be not I promise to pay B or order P500.00 on December 31, value given, or that any Ø Omission of these words does not render the instrument
paid at maturity. 1995, and in case I am unable to pay, I authorize any
value had been given non-negotiable because it is presumed that the contract
attorney or a competent court to declare confession of
judgment against me for the same amount of this note, therefor. between the maker or drawer and the payee is for a
including interests, costs and attorney’s fees. consideration.
(Sgd.) A o In absence of consideration, the contract is null
and void.
(3) Waive the benefit of Ø Voluntary waiver, by the maker or drawer, of any legal (3) Does not specify the Ø The law presumes that payment shall be made at the
any law intended for requirements intended for the benefit of the debtor or place where it is drawn domicile of the maker.
the advantage or obligor will be valid. or the place where it is
protection of the Example payable.
obligor.
(4) Bears a seal. Ø Sec. 1 of the NIL does not require a seal to make an
I promise to pay B or order P500.00 on December 31,
1995. Notice of Dishonor is hereby waived. instrument negotiable.
(Sgd.) A Ø It may or may not be used – it is usually used in an
instrument as a sign of authenticity.

6 YAP, K. | ATENEO LAW

 (5) Designates a Ø R.A. 529 – prohibits any stipulation in the instrument that SEC. 8. WHEN PAYABLE TO ORDER. - THE INSTRUMENT IS PAYABLE TO ORDER WHERE IT IS
particular kind of the sum certain will be payable in foreign currency. DRAWN PAYABLE TO THE ORDER OF A SPECIFIED PERSON OR TO HIM OR HIS ORDER. IT MAY BE
current money in which Ø Even if the instrument stipulates that payment is in foreign DRAWN PAYABLE TO THE ORDER OF:
payment is to be made. currency, the instrument will be paid only in Philippine
currency. (A) A PAYEE WHO IS NOT MAKER, DRAWER, OR DRAWEE; OR
(B) THE DRAWER OR MAKER; OR
(C) THE DRAWEE; OR
SEC. 7. WHEN PAYABLE ON DEMAND. - AN INSTRUMENT IS PAYABLE ON DEMAND:
(D) TWO OR MORE PAYEES JOINTLY; OR
(E) ONE OR SOME OF SEVERAL PAYEES; OR
(A) WHEN IT IS SO EXPRESSED TO BE PAYABLE ON DEMAND, OR AT SIGHT, OR ON
(F) THE HOLDER OF AN OFFICE FOR THE TIME BEING.
PRESENTATION; OR
(B) IN WHICH NO TIME FOR PAYMENT IS EXPRESSED.
WHERE THE INSTRUMENT IS PAYABLE TO ORDER, THE PAYEE MUST BE NAMED OR OTHERWISE
INDICATED THEREIN WITH REASONABLE CERTAINTY.
(C) WHERE AN INSTRUMENT IS ISSUED, ACCEPTED, OR INDORSED WHEN OVERDUE, IT IS, AS
REGARDS THE PERSON SO ISSUING, ACCEPTING, OR INDORSING IT, PAYABLE ON DEMAND.
Example
1. Payable to the order of a specified person.
Payable on Demand Notes
(1) When it is so Example I promise to pay to the order of B P500.00 on June 30,
expressed to be payable 1995.
on demand, or at sight, (Sgd.) A
I promise to pay B or order P500.00 on demand.
or on presentation. (Sgd.) A
2. Payable to a specified person or his order.
I promise to pay B or order P500.00 at sight.
(Sgd.) A I promise to pay B or order P500.00 on June 30, 1995.
(Sgd.) A

I promise to pay B or order P500.00 on presentation.

(Sgd.) A Payable to Order of - Notes

(2) In which no time for Example (1) A payee who is not Example
payment is expressed. maker, drawer, or
drawee. I promise to pay to the order of Krystoffer Yap the sum of
I promise to pay B or order P500.00.
(Sgd.) A Five Hundred Pesos (P500.00).
(Sgd.) Patrick Balisong

On __________, I promise to pay to the order of B the

sum of One Thousand Pesos (P1,000.00). Pay to the order of Krystoffer Yap the sum of Five
(Sgd.) A Hundred Pesos (P500.00).
(Sgd.) Patrick Balisong
To: Hanna Soriano
(3) Where an Example
instrument is issued,
accepted, or indorsed (2) The drawer or Example
Pay to the order of B the sum of Five Thousand Pesos maker.
when overdue, it is, as (P5,000.00) on March 20, 1995.
regards to the person so (Sgd.) A I promise to pay to the order of myself the sum of Five
issuing, accepting, or Hundred Pesos (P500.00).
indorsing it, payable on (Sgd.) A.
demand. Ø Explanation: If X accepts the bill of exchange on March
25, 1995, after it was already overdue, the bill becomes
payable on demand.

7 YAP, K. | ATENEO LAW

 (3) The drawee. Example (3) When it is payable Example
to the order of a
Pay to the order of yourself the sum of Five Hundred fictitious or non- I promise to pay to the order of Winnie The Pooh the sum
Pesos (P500.00). existing person, and of Five Hundred Pesos (P500.00).
(Sgd.) A. such fact was known to (Sgd.) A
To: X the person making it so
payable.
(4) Two or more payees Example
jointly. (4) When the name of Example
the payee does not
I promise to the order of B and C the sum of Five Hundred
Pesos (P500.00).
purport to be the name I promise to pay to CASH the sum of Five Hundred Pesos
(Sgd.) A. of any person. (P500.00).
(Sgd.) A
(5) One or some of Example
several payees. (5) When the only or Example
I promise to pay to the order of B or C the sum of Five last indorsement is an
Hundred Pesos (P500.00). indorsement in blank. I promise to pay to the order of Liezel Sabaupan the sum
(Sgd.) A. of Five Hundred Pesos (P500.00).
(Sgd.) A
(6) The holder of an Example
office for the time
being. Ø Explanation: If Liezel merely signs her name at the back
I promise to the order of The City Treasurer of Manila the
of the promissory note, then she has made a blank
sum of Five Hundred Pesos (P500.00).
(Sgd.) A. indorsement and the instrument becomes payable to bearer.
o Whoever receives the negotiable instrument from
Liezel becomes the bearer, and may further
negotiate it by mere delivery.
SEC. 9. WHEN PAYABLE TO BEARER. - THE INSTRUMENT IS PAYABLE TO BEARER:
(A) WHEN IT IS EXPRESSED TO BE SO PAYABLE; OR
(B) WHEN IT IS PAYABLE TO A PERSON NAMED THEREIN OR BEARER; OR SEC. 10. TERMS, WHEN SUFFICIENT. - THE INSTRUMENT NEED NOT FOLLOW THE LANGUAGE OF
(C) WHEN IT IS PAYABLE TO THE ORDER OF A FICTITIOUS OR NON-EXISTING PERSON, AND THIS ACT, BUT ANY TERMS ARE SUFFICIENT WHICH CLEARLY INDICATE AN INTENTION TO
SUCH FACT WAS KNOWN TO THE PERSON MAKING IT SO PAYABLE; OR CONFORM TO THE REQUIREMENTS HEREOF.
(D) WHEN THE NAME OF THE PAYEE DOES NOT PURPORT TO BE THE NAME OF ANY
PERSON; OR
(E) WHEN THE ONLY OR LAST INDORSEMENT IS AN INDORSEMENT IN BLANK. Ø No particular form is required in the preparation of negotiable instruments and words
synonymous to “promise” or “order” may be used.

Payable to Bearer Notes o Examples:

§ “Pay to bearer” – “Pay to the possessor of this instrument.”
(1) When it is Example § “I promise” – “I agree or undertake to pay.”
expressed to be so
payable. I promise to pay to bearer the sum of Five Hundred Pesos SEC. 11. DATE, PRESUMPTION AS TO. - WHERE THE INSTRUMENT OR AN ACCEPTANCE OR ANY
(P500.00).
INDORSEMENT THEREON IS DATED, SUCH DATE IS DEEMED PRIMA FACIE TO BE THE TRUE DATE
(Sgd.) A
OF THE MAKING, DRAWING, ACCEPTANCE, OR INDORSEMENT, AS THE CASE MAY BE.

(2) When it is payable Example

to a person named I promise to pay to B or bearer the sum of Five Hundred Ø The date appearing on the instrument as the date of the making, drawing, acceptance, or
therein or bearer. Pesos (P500.00). indorsement is prima facie to be the correct date.
(Sgd.) A o However, this is a mere disputable presumption and evidence may be presented
to prove that there was a mistake in the date.

8 YAP, K. | ATENEO LAW

 SEC. 12. ANTE-DATED AND POST-DATED. - THE INSTRUMENT IS NOT INVALID FOR THE REASON
ONLY THAT IT IS ANTE-DATED OR POST-DATED, PROVIDED THIS IS NOT DONE FOR AN ILLEGAL
OR FRAUDULENT PURPOSE. THE PERSON TO WHOM AN INSTRUMENT SO DATED IS DELIVERED
ACQUIRES THE TITLE THERETO AS OF THE DATE OF DELIVERY.
Ø General rule: Ante-dating or post-dating the instrument is not illegal.
o Exception: When it is done for a fraudulent or illegal purpose.
Ø The person to whom the ante-dated or post-dated instrument is delivered, acquires title
thereto as of the date of delivery, and not as of the written date.
Ø Ante-dating:
1. Changing the date of an instrument to a much earlier date than it was made; or
2. If the instrument is undated, by placing on the instrument a date earlier than when
it was actually made or issued.
Ø Post-dating – changing the date of the instrument to a much later time.
o The drawer may be merely asking for an extension of time within which to pay
his obligation.
SEC. 13. WHEN DATE MAY BE INSERTED. - WHERE AN INSTRUMENT EXPRESSED TO BE
PAYABLE AT A FIXED PERIOD AFTER DATE IS ISSUED UNDATED, OR WHERE THE ACCEPTANCE
OF AN INSTRUMENT PAYABLE AT A FIXED PERIOD AFTER SIGHT IS UNDATED, ANY HOLDER MAY
INSERT THEREIN THE TRUE DATE OF ISSUE OR ACCEPTANCE, AND THE INSTRUMENT SHALL BE
PAYABLE ACCORDINGLY. THE INSERTION OF A WRONG DATE DOES NOT AVOID THE
INSTRUMENT IN THE HANDS OF A SUBSEQUENT HOLDER IN DUE COURSE ; BUT AS TO HIM, THE
DATE SO INSERTED IS TO BE REGARDED AS THE TRUE DATE.
Ø The holder of an undated promissory note which is payable at a fixed period after date, has
the right to insert the correct date of issue which shall be the basis for the computation of
the actual date of maturity.
Ø Effects of wrong insertion of date:
o If the holder fraudulently inserts the wrong date of issue in the undated
instrument, the instrument is:
1. Void as to him; and
2. Prior indorsers are discharged.
3. Valid as to a holder in due course to whom the instrument may be
negotiated.
SEC. 14. BLANKS; WHEN MAY BE FILLED. - WHERE THE INSTRUMENT IS WANTING IN ANY
MATERIAL PARTICULAR, THE PERSON IN POSSESSION THEREOF HAS A PRIMA FACIE AUTHORITY
TO COMPLETE IT BY FILLING UP THE BLANKS THEREIN. AND A SIGNATURE ON A BLANK PAPER
DELIVERED BY THE PERSON MAKING THE SIGNATURE IN ORDER THAT THE PAPER MAY BE
CONVERTED INTO A NEGOTIABLE INSTRUMENT OPERATES AS A PRIMA FACIE AUTHORITY TO
FILL IT UP AS SUCH FOR ANY AMOUNT. IN ORDER, HOWEVER, THAT ANY SUCH INSTRUMENT
WHEN COMPLETED MAY BE ENFORCED AGAINST ANY PERSON WHO BECAME A PARTY THERETO
PRIOR TO ITS COMPLETION, IT MUST BE FILLED UP STRICTLY IN ACCORDANCE WITH THE
AUTHORITY GIVEN AND WITHIN A REASONABLE TIME. BUT IF ANY SUCH INSTRUMENT, AFTER
COMPLETION, IS NEGOTIATED TO A HOLDER IN DUE COURSE, IT IS VALID AND EFFECTUAL FOR
ALL PURPOSES IN HIS HANDS, AND HE MAY ENFORCE IT AS IF IT HAD BEEN FILLED UP STRICTLY
IN ACCORDANCE WITH THE AUTHORITY GIVEN AND WITHIN A REASONABLE TIME.
9 YAP, K. | ATENEO LAW
Ø Blank document – an instrument lacking in any material particular.
o Material particular – an item needed to make the instrument complete.
Ø This provision may be an exception to the “issuance” of a negotiable instrument because it
considers an instrument still negotiable although it is made or drawn incomplete as to some
material particulars.
Ø Requisites of incomplete negotiable instrument:
1. Instrument is incomplete as to date, amount or sum payable;
2. Signed by the maker or drawer;
3. Voluntarily delivered to the payee; and
4. Payee must fill up the blanks strictly in accordance with such authority, and
within a reasonable time after receipt.
Ø Reasonable time – based on:
1. Nature of the instrument;
2. Usage of trade or business, if any, with respect to such instruments; and
3. Facts of the particular case.
Ø Effects of fraudulent or wrongful insertion:
1. The holder who makes the fraudulent or wrongful insertion cannot collect on the
instrument;
2. The parties prior to the fraudulent or wrongful insertion will not be liable to
subsequent holders not in due course;
3. The holder not in due course can collect from the party who made the fraudulent
insertion and from all indorsers subsequent thereto; and
4. HDC can collect whatever amount has been filled in from:
a. Party primarily liable; and
b. All parties secondarily liable.
Example
Manila, _________
I promise to pay to the order of B the sum of ________ 30
days after date.
(Sgd.) A
Ø Explanation: A issued it to B on March 1, 1995, with specific instructions that B will fill
up the amount only up to P1,000.00. On receipt, B inserted the correct date of March 1,
1995 and the amount of P10,000.00 instead. B then indorsed it to C, C to D, D to E, who
is not a HDC.
o B correctly inserted the date of the instrument.
o The maturity of the instrument will be March 31, 1995 because 30 days will be
counted from the date of issue.
o On maturity, E cannot collect from A because all parties prior to the fraudulent
insertion will not be liable to a holder not in due course. E can, however, collect
P10,000.00 from B (made the fraudulent insertion), C, or D (parties secondarily
liable subsequent to B).
o If E is a HDC, he can collect P10,000.00 from A because the rule says that
whatever date and amount appear on the instrument at the time of indorsement
will be valid as to a HDC.
 SEC. 15. INCOMPLETE INSTRUMENT NOT DELIVERED. - 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, AS AGAINST ANY PERSON
WHOSE SIGNATURE WAS PLACED THEREON BEFORE DELIVERY.
Ø As a rule, an incomplete instrument in the hands of the maker without delivery to any
person is not negotiable.
o But once the incomplete instrument is subsequently completed and negotiated
without authority of the maker or drawer, the holder can enforce the instrument
against persons who become parties to the instrument after its unauthorized
completion and negotiation.
o However, parties prior to the unauthorized negotiation, including the maker, will
not be liable even to a HDC.
SEC. 16. DELIVERY; WHEN EFFECTUAL; WHEN PRESUMED. - EVERY CONTRACT ON A
NEGOTIABLE INSTRUMENT IS INCOMPLETE AND REVOCABLE UNTIL DELIVERY OF THE
INSTRUMENT FOR THE PURPOSE OF GIVING EFFECT THERETO. AS BETWEEN IMMEDIATE
PARTIES AND AS REGARDS A REMOTE PARTY OTHER THAN A HOLDER IN DUE COURSE, THE
DELIVERY, IN ORDER TO BE EFFECTUAL, MUST BE MADE EITHER BY OR UNDER THE AUTHORITY
OF THE PARTY MAKING, DRAWING, ACCEPTING, OR INDORSING, AS THE CASE MAY BE; AND, IN
SUCH CASE, THE DELIVERY MAY BE SHOWN TO HAVE BEEN CONDITIONAL, OR FOR A SPECIAL
PURPOSE ONLY, AND NOT FOR THE PURPOSE OF TRANSFERRING THE PROPERTY IN THE
INSTRUMENT. BUT WHERE THE INSTRUMENT IS IN THE HANDS OF A HOLDER IN DUE COURSE, A
VALID DELIVERY THEREOF BY ALL PARTIES PRIOR TO HIM SO AS TO MAKE THEM LIABLE TO
HIM IS CONCLUSIVELY PRESUMED. AND WHERE THE INSTRUMENT IS NO LONGER IN THE
POSSESSION OF A PARTY WHOSE SIGNATURE APPEARS THEREON, A VALID AND INTENTIONAL
DELIVERY BY HIM IS PRESUMED UNTIL THE CONTRARY IS PROVED.
insertion will not be parties prior to him so
liable to a HV, but as to make them liable
liable to a HDC, for to him is conclusively
whatever amount has presumed.
been wrongfully
inserted.
SEC. 17. CONSTRUCTION WHERE INSTRUMENT IS AMBIGUOUS. - WHERE THE LANGUAGE OF
THE INSTRUMENT IS AMBIGUOUS OR THERE ARE OMISSIONS THEREIN, THE FOLLOWING RULES
OF CONSTRUCTION APPLY:
(A) WHERE THE SUM PAYABLE IS EXPRESSED IN WORDS AND ALSO IN FIGURES AND THERE IS A
DISCREPANCY BETWEEN THE TWO, THE SUM DENOTED BY THE WORDS IS THE SUM PAYABLE;
BUT IF THE WORDS ARE AMBIGUOUS OR UNCERTAIN, REFERENCE MAY BE HAD TO THE FIGURES
TO FIX THE AMOUNT;
(B) WHERE THE INSTRUMENT PROVIDES FOR THE PAYMENT OF INTEREST, WITHOUT
SPECIFYING THE DATE FROM WHICH INTEREST IS TO RUN, THE INTEREST RUNS FROM THE DATE
OF THE INSTRUMENT, AND IF THE INSTRUMENT IS UNDATED, FROM THE ISSUE THEREOF;
(C) WHERE THE INSTRUMENT IS NOT DATED, IT WILL BE CONSIDERED TO BE DATED AS OF THE
TIME IT WAS ISSUED;
(D) WHERE THERE IS A CONFLICT BETWEEN THE WRITTEN AND PRINTED PROVISIONS OF THE
INSTRUMENT, THE WRITTEN PROVISIONS PREVAIL;
(E) WHERE THE INSTRUMENT IS SO AMBIGUOUS THAT THERE IS DOUBT WHETHER IT IS A BILL
OR NOTE, THE HOLDER MAY TREAT IT AS EITHER AT HIS ELECTION;
(F) WHERE A SIGNATURE IS SO PLACED UPON THE INSTRUMENT THAT IT IS NOT CLEAR IN
WHAT CAPACITY THE PERSON MAKING THE SAME INTENDED TO SIGN, HE IS TO BE DEEMED AN
INDORSER;
(G) WHERE AN INSTRUMENT CONTAINING THE WORD "I PROMISE TO PAY" IS SIGNED BY TWO
OR MORE PERSONS, THEY ARE DEEMED TO BE JOINTLY AND SEVERALLY LIABLE THEREON.

Ø Delivery – the transfer of possession of the instrument, whether actual or constructive, from
one person to another, with the intent to transfer title to the instrument. Rules on Construction Notes
Ø Before delivery, the instrument is inoperative and revocable.
(1) Where the sum payable is Ø Discrepancy in the sum payable as expressed in
Sec. 14 Sec. 15 Sec. 16 expressed in words and also in words and figures, shall be:
Complete X X ✓ figures and there is a 1. Construed in favor of the written amount
discrepancy between the two, in words.
Delivered ✓ X X
the sum denoted by the words is 2. If the words are ambiguous or uncertain,
The rule presumes that The maker or drawer If the instrument is the sum payable; but if the reference may be had to the figures to fix
the maker or drawer and all parties prior to taken from the maker words are ambiguous or the amount.
gave the authority to the unauthorized without his knowledge uncertain, reference may be had
fill up the incomplete completion and and consent, and to the figures to fix the amount.
instrument with negotiation of the subsequently
correct date and incomplete and negotiated to a HV, (2) Where the instrument Ø Computation of the interest shall be:
amount. undelivered the maker will not be provides for the payment of 1. From the date specified in the
Effect interest, without specifying the instrument;
instrument will not be liable – “want of
If the instrument is liable to all holders, delivery.” date from which interest is to 2. In the absence of specific date, interest
subsequently filled up including HDC. run, the interest runs from the shall run from the date of the instrument;
with the unauthorized However, this does date of the instrument, and if the 3. If the instrument is undated, interest shall
date and amount, the not apply to HDC instrument is undated, from the be computed from the date of issue of the
PPL and all parties because a valid issuance thereof. instrument;
prior to the wrongful delivery thereof by all 4. At the rate stipulated in the instrument;

10 YAP, K. | ATENEO LAW

 5. If no rate is stipulated, the legal rate, o Cases where a person’s signature appears on the instrument, but he is not liable:
(which at present is at 12%). 1. A person whose forged signature appears on the instrument.
2. The maker and all parties prior to the unauthorized delivery and
(3) Where the instrument is not Ø The date of issue shall be considered the date of the fraudulent completion of an undelivered and incomplete instrument.
dated, it will be considered to be instrument. 3. A minor who negotiates the instrument.
dated as of the time it was
issued.
SEC. 19. SIGNATURE BY AGENT; AUTHORITY; HOW SHOWN. - THE SIGNATURE OF ANY PARTY
(4) Where there is a conflict Ø The handwritten will prevail over the printed. MAY BE MADE BY A DULY AUTHORIZED AGENT. NO PARTICULAR FORM OF APPOINTMENT IS
between the written and printed NECESSARY FOR THIS PURPOSE; AND THE AUTHORITY OF THE AGENT MAY BE ESTABLISHED AS
provisions of the instrument, the IN OTHER CASES OF AGENCY.
written provisions prevail.
(5) Where the instrument is so Ø When an instrument, as written, is ambiguous as to Ø As a rule, contract of agency may be created expressly or impliedly, and an agent may
ambiguous that there is doubt its kind, the holder may, at his option, consider the validly bind his principal subject to the following requisites:
whether it is a bill or note, the instrument as either a promissory note or a bill of 1. He is duly authorized by his principal;
holder may treat it as either at exchange. 2. He is acting within the scope of the authority given by the principal; and
his election. 3. He is disclosing his principal.
(6) Where a signature is so Ø This rule will apply only when a person affixes his
placed upon the instrument that signature in any part of the instrument other than SEC. 20. LIABILITY OF PERSON SIGNING AS AGENT, AND SO FORTH. - WHERE THE INSTRUMENT
it is not clear in what capacity the place generally recognized and intended for a CONTAINS OR A PERSON ADDS TO HIS SIGNATURE WORDS INDICATING THAT HE SIGNS FOR OR
the person making the same maker, a drawer or an acceptor. ON BEHALF OF A PRINCIPAL OR IN A REPRESENTATIVE CAPACITY, HE IS NOT LIABLE ON THE
intended to sign, he is deemed to INSTRUMENT IF HE WAS DULY AUTHORIZED; BUT THE MERE ADDITION OF WORDS DESCRIBING
be an indorser. HIM AS AN AGENT, OR AS FILLING A REPRESENTATIVE CHARACTER, WITHOUT DISCLOSING HIS
(7) Where an instrument Example PRINCIPAL, DOES NOT EXEMPT HIM FROM PERSONAL LIABILITY.
containing the words “I promise
to pay” is signed by two or more I promise to pay to bearer the sum of Five Hundred Pesos Ø To bind the principal in a negotiable instrument, the agent may sign in any of the following
persons, they are deemed to be (P500.00). manner:
jointly and severally liable (Sgd.) A and B 1. (Principal) by (agent);
thereof. 2. (Agent) for (principal); or
3. (Agent) for and on behalf of (principal).
SEC. 18. LIABILITY OF PERSON SIGNING IN TRADE OR ASSUMED NAME. - NO PERSON IS LIABLE Ø A person signing as agent may be personally liable if:
ON THE INSTRUMENT WHOSE SIGNATURE DOES NOT APPEAR THEREON, EXCEPT AS HEREIN 1. He signs as agent without disclosing his principal; or
OTHERWISE EXPRESSLY PROVIDED. BUT ONE WHO SIGNS IN A TRADE OR ASSUMED NAME WILL 2. He acts beyond the scope of his authority without giving notice to the other party
BE LIABLE TO THE SAME EXTENT AS IF HE HAD SIGNED IN HIS OWN NAME. of his authority.

SEC. 21. SIGNATURE BY PROCURATION; EFFECT OF. - A SIGNATURE BY "PROCURATION"

Ø Other names that may be used:
OPERATES AS NOTICE THAT THE AGENT HAS BUT A LIMITED AUTHORITY TO SIGN, AND THE
1. Assumed name – pen name; alias; palayao. (Ex. Stefani Joanne Angelina
PRINCIPAL IS BOUND ONLY IN CASE THE AGENT IN SO SIGNING ACTED WITHIN THE ACTUAL
Germanotta – Lady Gaga)
LIMITS OF HIS AUTHORITY.
2. Trade name – business name. (Ex. Jollibee Food Corporation – Jollibee; Mang
Inasal; Chic-Boy)
Ø General rule: A person whose signature does not appear in the instrument is not liable. Ø Procuration – agency; proxy; power of attorney – one person gives power to another to act
o Exceptions: in his place.
1. If an authorized agent signs for and on behalf of his principal, the latter o Signing by procuration – he is acting for another with a very limited authority,
will be liable. and it is important that the party dealing with the agent must delve deeper into
2. A person who signs a trade or assumed name will be liable. the extent of the agent’s authority.
3. A person who forges the signature of another. § The principal will be liable only if the agent by procuration acts within
4. A person who signs on an allonge – a separate paper used for additional the scope of his authority.
indorsements.
5. A person who negotiates by mere delivery an instrument payable to
bearer.

11 YAP, K. | ATENEO LAW

Ø Examples:
Patrick Balisong Liezel Sabaupan
By: Krystoffer Yap, per proc. Per Procurtaion – Hanna Soriano
Patrick Balisong Liezel Sabaupan
P.P. Krystoffer Yap Hanna Soriano, Attorney-in-fact.
SEC. 22. EFFECT OF INDORSEMENT BY INFANT OR CORPORATION. - THE INDORSEMENT OR
ASSIGNMENT OF THE INSTRUMENT BY A CORPORATION OR BY AN INFANT PASSES THE
PROPERTY THEREIN, NOTWITHSTANDING THAT FROM WANT OF CAPACITY, THE CORPORATION
OR INFANT MAY INCUR NO LIABILITY THEREON.
Ø Infant herein refers to a minor who is incapacitated to enter into a contract.
o The minor can pass valid title to the indorsee, but he cannot be held liable on the
instrument as he can interpose a real defense of minority.
Ø This provision likewise applies to an insane, demented, or other incapacitated person.
SEC. 23. FORGED SIGNATURE; EFFECT OF. - WHEN A SIGNATURE IS FORGED OR MADE
WITHOUT THE AUTHORITY OF THE PERSON WHOSE SIGNATURE IT PURPORTS TO BE, IT IS
WHOLLY INOPERATIVE, AND NO RIGHT TO RETAIN THE INSTRUMENT, OR TO GIVE A DISCHARGE
THEREFOR, OR TO ENFORCE PAYMENT THEREOF AGAINST ANY PARTY THERETO, CAN BE
ACQUIRED THROUGH OR UNDER SUCH SIGNATURE, UNLESS THE PARTY AGAINST WHOM IT IS
SOUGHT TO ENFORCE SUCH RIGHT IS PRECLUDED FROM SETTING UP THE FORGERY OR WANT OF
AUTHORITY.
Ø Forgery – the counterfeit (made to look like an exact copy) making or fraudulent alteration
of any writing.
o This section covers only forgery of the signature of the parties to the instrument.
Fraudulent alteration in the amount, etc. of the instrument is covered by (Sec.
124).
Ø Note the ONLY the forged signature is wholly inoperative, not the instrument itself.
Ø The following persons concerned cannot be held liable under the following circumstances:
1. If a person’s signature is forged as MAKER of a promissory note, he cannot be
held liable because he never made the promise to pay.
2. If a person’s signature is forged as DRAWER of a check, the drawee bank cannot
charge the amount thereof against the drawer’s account because he never gave
the bank the order to pay.
3. If a person’s signature is forged as PAYEE or INDORSEE, parties after the
forged indorsement cannot acquire any right against any party whose name
appears prior to the forgery.
12
II. CONSIDERATION
SEC. 24. PRESUMPTION OF CONSIDERATION. - EVERY NEGOTIABLE INSTRUMENT IS DEEMED
PRIMA FACIE TO HAVE BEEN ISSUED FOR A VALUABLE CONSIDERATION; AND EVERY PERSON
WHOSE SIGNATURE APPEARS THEREON TO HAVE BECOME A PARTY THERETO FOR VALUE.
Ø Consideration – the essential or proximate purpose which the parties had in mind when
they entered into the transaction.
o An essential element of a contract, without which the contract is rendered void.
Ø For negotiable instruments, there is presumed to be an existing valuable consideration
between them to make the instrument valid.
o Such presumption is disputable/rebuttable.
o The burden of proof is on the party asserting the absence or failure of
consideration.
Example
I promise to pay to the order of B P5,000.00 on June 30,
1995.
(Sgd.) A
Ø Explanation: The presumption is that A received from B a valuable consideration at least
equivalent to the amount of P5,000.00 which he promises to pay for.
o Likewise, if B indorses it to C, a second contract is entered into between B and
C and it is presumed that B received valuable consideration from C in exchange
for the indorsement.
SEC. 25. VALUE, WHAT CONSTITUTES. — VALUE IS ANY CONSIDERATION SUFFICIENT TO
SUPPORT A SIMPLE CONTRACT. AN ANTECEDENT OR PRE-EXISTING DEBT CONSTITUTES VALUE;
AND IS DEEMED SUCH WHETHER THE INSTRUMENT IS PAYABLE ON DEMAND OR AT A FUTURE
TIME.
Ø Valuable consideration – some right, interest, profit or benefit accruing to a party who
makes the contract, such as the maker or drawer. It may likewise be some forbearance,
detriment, loss, labor or service given, suffered or undertaken by the other party, such as
the payee.
Ø Consideration not capable of pecuniary estimation are not considered valuable
consideration, such as:
1. Love and affection;
2. Mere moral obligations;
3. Gratitude;
4. Service rendered out of kindness, without expectation of reward; or
5. Etc.
SEC. 26. WHAT CONSTITUTES HOLDER FOR VALUE. - 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.
YAP, K. | ATENEO LAW
Ø Holder for value – one who gives valuable consideration for an instrument issued or
negotiated to him in respect to all parties who became such prior to that time.
o Ex. A issued a PN to B without receiving value for it. B indorses to C who did
not give any valuable consideration for the indorsement to him. C indorses to D
who gave C valuable consideration for the indorsement.
§ D, therefore, becomes a holder for value with respect to A, B and C.
SEC. 27. WHEN LIEN ON INSTRUMENT CONSTITUTES HOLDER FOR VALUE. — WHERE THE
HOLDER HAS A LIEN ON THE INSTRUMENT ARISING EITHER FROM CONTRACT OR BY
IMPLICATION OF LAW, HE IS DEEMED A HOLDER FOR VALUE TO THE EXTENT OF HIS LIEN.
Ø Lien – a legal claim someone has on the property of another person until a debt has been
paid back.
Example
I promise to pay to the order of B P5,000.00 on June 30,
1995.
(Sgd.) A
Ø Explanation: A executes the PN favor of B. B then borrowed P3,000.00 from C, and as
collateral for the loan, B indorsed the PN to C – “Pay to C for P3,000.00 only.”
o The indorsement is invalid because the rule says that all indorsements must be
full indorsements – the full amount payable in the instrument must be indorsed
so as to avoid multiplicity of suits.
o “Pay to C for P5,000.00” – C now becomes a HV to the extent of his lien of
P3,000.00 because B indorsed the PN to C as security for the loan. B gets the
P2,000.00.
o If there is no consideration between A and B, C can collect from A if A has no
other defense against B, but C can only collect P3,000.00 – the amount of his
lien.
SEC. 28. EFFECT OF WANT OF CONSIDERATION. - ABSENCE OR FAILURE OF CONSIDERATION IS
A MATTER OF DEFENSE AS AGAINST ANY PERSON NOT A HOLDER IN DUE COURSE; AND PARTIAL
FAILURE OF CONSIDERATION IS A DEFENSE PRO TANTO, WHETHER THE FAILURE IS AN
ASCERTAINED AND LIQUIDATED AMOUNT OR OTHERWISE.
Defense of
Notes
Consideration
(1) Absence or lack of Ø This situation occurs when there is a total lack of
consideration. consideration, or when such consideration is not valid.
Ø Ex. A issued a PN to B for payment of stock certificates
which turned out to be fake.
o B cannot collect from A – the latter has a personal
defense of absence of consideration.
o If B indorses to C – C can collect if he is a HDC
because A’s defense is personal.
13
(2) Failure of Ø It is the neglect, inability or failure to give or perform the
consideration. consideration agreed upon by the parties.
o Ex. B fails to deliver the stock certificates to A. B
cannot collect from A because A has a personal
defense of failure of consideration.
(3) Partial failure of Ø Pro tanto – to such extent.
consideration. Ø If the maker has a defense pro tanto, the holder not in due
course can collect on the instrument only to the extent of the
valid consideration. HDC can collect the full amount.
o Ex. B delivered 10 stock certificates, but then 5
were fake, and the instrument was indorsed to C
– C can collect only half of the amount if he is not
a HDC, otherwise he can collect the full amount.
SEC. 29. LIABILITY OF ACCOMMODATION PARTY. - AN ACCOMMODATION PARTY IS ONE WHO
HAS SIGNED THE INSTRUMENT AS MAKER, DRAWER, ACCEPTOR, OR INDORSER, WITHOUT
RECEIVING VALUE THEREFOR, AND FOR THE PURPOSE OF LENDING HIS NAME TO SOME OTHER
PERSON. SUCH A PERSON IS LIABLE ON THE INSTRUMENT TO A HOLDER FOR VALUE,
NOTWITHSTANDING SUCH HOLDER, AT THE TIME OF TAKING THE INSTRUMENT, KNEW HIM TO
BE ONLY AN ACCOMMODATION PARTY.
Ø Accommodation instrument – made for the purpose of enabling the payee to obtain credit,
and as such, it has no validity until it passes into the hands of a holder for value.
Ø Accommodation party – signs the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, for the purpose of “lending his name and credit” to some
other person.
o Requisites of an accommodation party:
1. Signs the instrument as maker, drawer, acceptor, or indorser;
2. Does not receive any part of the consideration;
3. Merely lending his name and credit to another person known as the
accommodated party; and
4. Becomes liable solidarily as surety, and can be held directly liable by
the holder of the instrument.
Ø Since the accommodation party acts as a surety, he shall be held solidarily liable on the
instrument although the holder thereof knows that he is only an accommodation party.
o A person who signs as an accommodation maker or drawer becomes a PPL to
the instrument.
Ø Effects of payment of the instrument –
o By an accommodated party:
1. Payment in due course by the accommodated party discharges the
instrument; and
2. Accommodated party is discharged.
o By an accommodation party:
1. Accommodation party has the right to recover from the accommodated
party.
2. If the accommodated party gives the instrument as a security to a
holder who knows of the accommodation, the accommodation party
has the right to receive the security from the holder and keep it until
the accommodated party reimburses him.
YAP, K. | ATENEO LAW
3. If holder knows that the PPL is an accommodation party, and he III. NEGOTIATION
surrenders the security to the accommodated party without receiving
payment from the latter, the accommodation party will be discharged SEC. 30. WHAT CONSTITUTES NEGOTIATION. - AN INSTRUMENT IS NEGOTIATED WHEN IT IS
from his liability to the extent of the value of the security. TRANSFERRED FROM ONE PERSON TO ANOTHER IN SUCH MANNER AS TO CONSTITUTE THE
TRANSFEREE THE HOLDER THEREOF. IF PAYABLE TO BEARER, IT IS NEGOTIATED BY DELIVERY;
IF PAYABLE TO ORDER, IT IS NEGOTIATED BY THE INDORSEMENT OF THE HOLDER AND
COMPLETED BY DELIVERY.

Ø Modes of transfer of instrument:

1. Assignment – merely puts the assignee in the place of the assignor and acquires
no greater rights than the assignor has, and he is subject to all defenses that can
be set up against the assignor.
§ When the holder of an instrument payable to order transfers it to
another person without proper indorsement, such transfer operates as
an “equitable assignment,” and not a negotiation.
2. By operation of law:
a. By death of the holder – his right to collect is passed to his estate or
personal representative or heirs.
b. By bankruptcy of the holder – his right to collect is passed to his trustee
or assignee.
3. By negotiation:
a. Payable to order – may be negotiated by (1) proper indorsement and
(2) delivery.
b. Payable to bearer – may be negotiated by (1) mere delivery or (2) blank
indorsement plus delivery, if originally payable to order.

SEC. 31. INDORSEMENT; HOW MADE. - THE INDORSEMENT MUST BE WRITTEN ON THE
INSTRUMENT ITSELF OR UPON A PAPER ATTACHED THERETO. THE SIGNATURE OF THE
INDORSER, WITHOUT ADDITIONAL WORDS, IS A SUFFICIENT INDORSEMENT.

Ø Indorsement – a legal transaction between the indorser and the indorsee effected by writing
the indorser’s signature at the back of the instrument or in a separate paper by which he:
1. Transfers title of the instrument to the indorsee; and
2. Enters into an implied guaranty that the note will be paid.
Ø Negotiation of the instrument starts from the indorsement by the payee to the first indorsee.
Ø Indorsement may be written on any part of the instrument provided there is the intention to
make the signature an indorsement.

SEC. 32. INDORSEMENT MUST BE OF ENTIRE INSTRUMENT. - THE INDORSEMENT MUST BE AN

INDORSEMENT OF THE ENTIRE INSTRUMENT. AN INDORSEMENT WHICH PURPORTS TO
TRANSFER TO THE INDORSEE A PART ONLY OF THE AMOUNT PAYABLE, OR WHICH PURPORTS TO
TRANSFER THE INSTRUMENT TO TWO OR MORE INDORSEES SEVERALLY, DOES NOT OPERATE AS
A NEGOTIATION OF THE INSTRUMENT. BUT WHERE THE INSTRUMENT HAS BEEN PAID IN PART,
IT MAY BE INDORSED AS TO THE RESIDUE.

Ø Indorsement does not constitute a valid negotiation if such indorsement:

1. Transfers to the indorsee only a part of the sum payable; or
2. Transfers the instrument to two or more indorsees severally.

14 YAP, K. | ATENEO LAW

SEC. 33. KINDS OF INDORSEMENT. - AN INDORSEMENT MAY BE EITHER SPECIAL OR IN BLANK; Ø Refer to previous section.
AND IT MAY ALSO BE EITHER RESTRICTIVE OR QUALIFIED OR CONDITIONAL.
Ø Rules:
1. If an order instrument is indorsed in blank, the instrument is converted into a
bearer instrument and may further be negotiated by mere delivery.
Kinds of Indorsement Notes § (Sec. 35) allows that the holder may convert a blank indorsement into
a special indorsement by writing the appropriate words over the
(1) Special indorsement Ø When the instrument is indorsed to a specific person. (Ex. signature of the blank indorser.
“Pay to B”) 2. If an instrument originally payable to order is indorsed in blank and the blank
(2) Blank indorsement Ø When the indorser merely signs his name in blank without indorsement is followed by a special indorsement, the instrument is converted
additional words. again into an order instrument.
§ Another indorsement plus delivery will be required to negotiate it
(3) Restrictive Ø Kinds of restrictive indorsement: again.
indorsement 1. Prohibits further negotiation; 3. When the instrument is originally payable to bearer and it is subsequently
2. Constitutes the indorsee as a mere agent of the indorsed by special indorsement, the instrument is not converted into an order
indorser; or instrument and remains payable to bearer.
3. Makes the indorsee a trustee for a third person.
(4) Qualified Ø When the indorser becomes a mere assignor of the title of SEC. 36. WHEN INDORSEMENT RESTRICTIVE. - AN INDORSEMENT IS RESTRICTIVE WHICH
indorsement the instrument. EITHER:
Ø “Without recourse” – the holder does not have “recourse”
against the qualified indorser, except for breach of (A) PROHIBITS THE FURTHER NEGOTIATION OF THE INSTRUMENT; OR
guarantees – gives rise to damages under the general law on (B) CONSTITUTES THE INDORSEE THE AGENT OF THE INDORSER; OR
obligations and contracts. (C) VESTS THE TITLE IN THE INDORSEE IN TRUST FOR OR TO THE USE OF SOME
(5) Conditional Ø When the indorsement is subject to a suspensive condition. OTHER PERSONS.
indorsement (Ex. “Pay to B when he graduates from Ateneo Law School)
BUT THE MERE ABSENCE OF WORDS IMPLYING POWER TO NEGOTIATE DOES NOT MAKE AN
Other Forms of Indorsement INDORSEMENT RESTRICTIVE.
(1) Joint indorsement Ø When the instrument is indorsed by two or more joint
indorsers or payees.
o If they want to negotiate the instrument again, Kinds of Restrictive
Notes
both of them must indorse it, unless one gives the Indorsement
other the authority to indorse on behalf of both of (1) Prohibits the further Ø The restrictive indorsee can no longer negotiate the
them. negotiation of the instrument to other persons. Negotiability ceases up to him
(2) Facultative Ø When an indorser enlarges his liability by waiving instrument. only.
indorsement presentment, notice or protest. Ø The restrictive indorsee has the right to receive payment and
bring any action thereon as any indorser.
(3) Irregular or Ø When a person who is not a party to the instrument affixes
anomalous indorsement thereon his signature in blank before delivery. (2) Constitutes the Ø The restrictive indorsee is holding the instrument merely as
indorsee the agent of an agent, for his principal, the restrictive indorser, what he
the indorser. is required to do under the restrictive indorsement.
SEC. 34. SPECIAL INDORSEMENT; INDORSEMENT IN BLANK. - A SPECIAL INDORSEMENT
SPECIFIES THE PERSON TO WHOM, OR TO WHOSE ORDER, THE INSTRUMENT IS TO BE PAYABLE,
(3) Vests the title in the Ø The restrictive indorsee acquires title to the instrument not
AND THE INDORSEMENT OF SUCH INDORSEE IS NECESSARY TO THE FURTHER NEGOTIATION OF
indorsee in trust for or for himself, but in trust for the benefit of another person
THE INSTRUMENT. AN INDORSEMENT IN BLANK SPECIFIES NO INDORSEE, AND AN INSTRUMENT
to the use of some other (beneficiary).
SO INDORSED IS PAYABLE TO BEARER, AND MAY BE NEGOTIATED BY DELIVERY.
person.

SEC. 35. BLANK INDORSEMENT; HOW CHANGED TO SPECIAL INDORSEMENT. - THE HOLDER
MAY CONVERT A BLANK INDORSEMENT INTO A SPECIAL INDORSEMENT BY WRITING OVER THE
SIGNATURE OF THE INDORSER IN BLANK ANY CONTRACT CONSISTENT WITH THE CHARACTER
OF THE INDORSEMENT.

15 YAP, K. | ATENEO LAW

 SEC. 37. EFFECT OF RESTRICTIVE INDORSEMENT; RIGHTS OF INDORSEE. - A RESTRICTIVE 3. “Pay to Lindon Bacquel, at indorsee’s own risk.”
INDORSEMENT CONFERS UPON THE INDORSEE THE RIGHT:
4. “Pay to Lindon Bacquel, indorser not liable.”

(A) TO RECEIVE PAYMENT OF THE INSTRUMENT;
(B) TO BRING ANY ACTION THEREON THAT THE INDORSER COULD BRING;
(C) TO TRANSFER HIS RIGHTS AS SUCH INDORSEE, WHERE THE FORM OF THE
INDORSEMENT AUTHORIZES HIM TO DO SO.
BUT ALL SUBSEQUENT INDORSEES ACQUIRE ONLY THE TITLE OF THE FIRST INDORSEE UNDER
THE RESTRICTIVE INDORSEMENT.
SEC. 39. CONDITIONAL INDORSEMENT. - WHERE AN INDORSEMENT IS CONDITIONAL, THE
PARTY REQUIRED TO PAY THE INSTRUMENT MAY DISREGARD THE CONDITION AND MAKE
PAYMENT TO THE INDORSEE OR HIS TRANSFEREE WHETHER THE CONDITION HAS BEEN
FULFILLED OR NOT. BUT ANY PERSON TO WHOM AN INSTRUMENT SO INDORSED IS NEGOTIATED
WILL HOLD THE SAME, OR THE PROCEEDS THEREOF, SUBJECT TO THE RIGHTS OF THE PERSON
INDORSING CONDITIONALLY.

Ø As a rule, a condition placed on the face of the instrument renders it non-negotiable.

Rights of Restrictive o A conditional indorsement, however, is valid and does not affect the negotiability
Notes of an instrument.
Indorsee
Ø Conditional indorsement – when, by its terms, it qualifies the conditional indorsee’s right
(1) Receive payment of Ø The right to collect is subject to the disposition of the against the conditional indorser.
the instrument. amount collected, depending on the restrictive indorsement o The PPL cannot be compelled to pay the instrument until the conditional indorsee
he is receiving or enforcing payment. or holder fulfills the condition imposed on him by the conditional indorser.
o Ex. When one is a restrictive indorsee #2 (agent), Ø Rules regarding conditional indorsement:
he has the right to collect from the party primarily 1. The maker or PPL may refuse to pay the instrument until the condition is
liable and once paid, he must return the amount to fulfilled.
the indorser or deposit it to the account of the 2. The PPL may disregard the condition and pay the holder even if the condition is
indorser. not fulfilled.
(2) Bring any action Ø A restrictive indorsee can file in his own name any action 3. The conditional indorsee shall hold the amount paid by the party primarily liable
thereon that the the indorser may bring, but because of his restrictive in trust for the conditional indorser.
indorser could bring. capacity under the indorsement, the indorsee is subject to all § If he fails to fulfill the condition, he must return the amount paid to
the defenses the maker may have against the indorser. him to the conditional indorser.
§ If he is able to fulfill the condition, he acquires the right to own the
(3) Transfer his rights Ø Under restrictive indorsement #’s 2 and 3, the indorsee can amount paid.
as such indorsee, where transfer his rights, where the form of the indorsement 4. Suppose the PPL dishonors the instrument, the conditional indorsee can collect
the form of the authorizes him to do so. from the conditional indorser if the former has fulfilled the condition. Otherwise,
indorsement authorizes o Such transfer, however, acquires no greater rights the conditional indorser is not liable to the conditional indorsee.
him to do so. than what the first restrictive indorsee has on the
instrument, subject to the same defenses the
maker may have against the first restrictive SEC. 40. INDORSEMENT OF INSTRUMENT PAYABLE TO BEARER. - WHERE AN INSTRUMENT,
indorser. PAYABLE TO BEARER, IS INDORSED SPECIALLY, IT MAY NEVERTHELESS BE FURTHER
NEGOTIATED BY DELIVERY; BUT THE PERSON INDORSING SPECIALLY IS LIABLE AS INDORSER
TO ONLY SUCH HOLDERS AS MAKE TITLE THROUGH HIS INDORSEMENT.
SEC. 38. QUALIFIED INDORSEMENT. - A QUALIFIED INDORSEMENT CONSTITUTES THE
INDORSER A MERE ASSIGNOR OF THE TITLE TO THE INSTRUMENT. IT MAY BE MADE BY ADDING
TO THE INDORSER'S SIGNATURE THE WORDS "WITHOUT RECOURSE" OR ANY WORDS OF Ø A bearer instrument may be negotiated by a special indorsement, and further negotiated
SIMILAR IMPORT. SUCH AN INDORSEMENT DOES NOT IMPAIR THE NEGOTIABLE CHARACTER OF by mere delivery, thus making the instrument still payable to bearer.
THE INSTRUMENT. o The special indorser becomes liable as an indorser only to the holder who
derived his title thru the special indorser’s indorsement.
Ø This section does not apply to instruments originally order instruments.
Ø Does not impair the negotiability of the instrument. It constitutes the qualified indorser as
a mere assignor of the title to the instrument, but does not, as a rule, make him liable on
the instrument.
o He becomes liable to the holder as a PSL only in case he violates any of his
warranties under (Sec. 65).
Ø Forms:
1. “Pay to Lindon Bacquel, without recourse.”
2. “Pay to Lindon Bacquel, sans recour or recourse.”
16 YAP, K. | ATENEO LAW
Example
I promise to pay to B or bearer P10,000 30 days after
date.
(Sgd.) A
Ø Explanation: Suppose B negotiates to C by special indorsement. C negotiates to D by mere
delivery.
o The note remains payable to bearer.
o In case D elects to present the note for payment to A on maturity and A dishonors
it, D can collect only from C, from whom he “derived his title.”
o D cannot collect from B because he did not get his title from B. B will only be
liable to C who derived his title from the indorsement of B.
SEC. 41. INDORSEMENT WHERE PAYABLE TO TWO OR MORE PERSONS. - WHERE AN
INSTRUMENT IS PAYABLE TO THE ORDER OF TWO OR MORE PAYEES OR INDORSEES WHO ARE
NOT PARTNERS, ALL MUST INDORSE UNLESS THE ONE INDORSING HAS AUTHORITY TO INDORSE
FOR THE OTHERS.
Ø General rule: When an instrument is payable to joint payees, all the joint payees must sign
the indorsement.
o Exceptions:
1. If the joint payees or indorsees are partners; or
2. If one of them is authorized by the others to sign on their behalf.
Ø If one payee makes the indorsement alone, he will pass only his share of the instrument
and this will cause multiplicity of suits.
SEC. 42. EFFECT OF INSTRUMENT DRAWN OR INDORSED TO A PERSON AS
CASHIER. - WHERE AN INSTRUMENT IS DRAWN OR INDORSED TO A PERSON AS "CASHIER" OR
OTHER FISCAL OFFICER OF A BANK OR CORPORATION, IT IS DEEMED PRIMA FACIE TO BE
PAYABLE TO THE BANK OR CORPORATION OF WHICH HE IS SUCH OFFICER, AND MAY BE
NEGOTIATED BY EITHER THE INDORSEMENT OF THE BANK OR CORPORATION OR THE
INDORSEMENT OF THE OFFICER.
Ø This section applies to an instrument payable to the holder of an office in a bank or
corporation.
o The presumption of law is that the instrument is intended to be payable to the
bank or corporation where the payee is an officer.
SEC. 43. INDORSEMENT WHERE NAME IS MISSPELLED, AND SO FORTH. - WHERE THE NAME OF
A PAYEE OR INDORSEE IS WRONGLY DESIGNATED OR MISSPELLED, HE MAY INDORSE THE
INSTRUMENT AS THEREIN DESCRIBED ADDING, IF HE THINKS FIT, HIS PROPER SIGNATURE.
Example
I promise to pay to the order of Hennah Soriano
P3,000.00 30 days after date.
(Sgd.) A
17
Ø Explanation: Under the above rule, Hanna Soriano, which is the correct name of the payee,
may make the indorsement by:
1. Signing the indorsement as misspelled, “Hennah Soriano;” and
2. Signing again underneath the misspelled name, her true name, “Hanna Soriano.”
SEC. 44. INDORSEMENT IN REPRESENTATIVE CAPACITY. - WHERE ANY PERSON IS UNDER
OBLIGATION TO INDORSE IN A REPRESENTATIVE CAPACITY, HE MAY INDORSE IN SUCH TERMS
AS TO NEGATIVE PERSONAL LIABILITY.
Example
I promise to pay to the order of B P10,000.00
(Sgd.) A
Ø Explanation: The PN is subsequently indorsed “Pay to C (Sgd.) B by X.”
o This indorsement indicates that X is acting as an authorized agent of B.
o B, as the principal, will be liable on the instrument, provided X has complied
with the rules on agency.
SEC. 45. TIME OF INDORSEMENT; PRESUMPTION. - EXCEPT WHERE AN INDORSEMENT BEARS
DATE AFTER THE MATURITY OF THE INSTRUMENT, EVERY NEGOTIATION IS DEEMED PRIMA
FACIE TO HAVE BEEN EFFECTED BEFORE THE INSTRUMENT WAS OVERDUE.
Ø The disputable presumption is that the instrument was signed and indorsed before maturity
date or before it was overdue, unless the indorsement clearly shows that the instrument was
indorsed after the maturity date.
Ø Effects of indorsement after maturity:
1. The promissory note is not payable on demand; and
2. The holder is not a HDC.
SEC. 46. PLACE OF INDORSEMENT; PRESUMPTION. - EXCEPT WHERE THE CONTRARY APPEARS,
EVERY INDORSEMENT IS PRESUMED PRIMA FACIE TO HAVE BEEN MADE AT THE PLACE WHERE
THE INSTRUMENT IS DATED.
Ø Except as clearly indicated, every indorsement is prima facie deemed to have been made
at the place where the instrument is dated.
SEC. 47. CONTINUATION OF NEGOTIABLE CHARACTER. - AN INSTRUMENT NEGOTIABLE IN ITS
ORIGIN CONTINUES TO BE NEGOTIABLE UNTIL IT HAS BEEN RESTRICTIVELY INDORSED OR
DISCHARGED BY PAYMENT OR OTHERWISE.
Ø As a rule, negotiability of an instrument is not impaired by an indorsement made after
maturity. The instrument remains negotiable after its maturity and until it is fully paid.
Ø Under the above section, negotiability of an originally negotiable instrument ceases when:
1. It is restrictively indorsed; or
2. It is discharged by payment or otherwise.
YAP, K. | ATENEO LAW
 SEC. 48. STRIKING OUT INDORSEMENT. – THE HOLDER MAY AT ANY TIME STRIKE OUT ANY o The transferor of the instrument is called the assignor and the transferee, the
INDORSEMENT WHICH IS NOT NECESSARY TO HIS TITLE. THE INDORSER WHOSE INDORSEMENT
assignee.
IS STRUCK OUT, AND ALL INDORSERS SUBSEQUENT TO HIM, ARE THEREBY RELIEVED FROM
Ø The assignee acquires the following rights:
LIABILITY ON THE INSTRUMENT.
1. Whatever rights the assignor may have on the instrument;
2. Subject to all defenses available against the assignor; and
3. Right to compel the assignor to make the proper indorsement.
Ø Effects of striking out indorsements:
SEC. 50. WHEN PRIOR PARTY MAY NEGOTIATE INSTRUMENT. - WHERE AN INSTRUMENT IS
Examples NEGOTIATED BACK TO A PRIOR PARTY, SUCH PARTY MAY, SUBJECT TO THE PROVISIONS OF
1. Bearer instrument THIS ACT, REISSUE AND FURTHER NEGOTIABLE THE SAME. BUT HE IS NOT ENTITLED TO
ENFORCE PAYMENT THEREOF AGAINST ANY INTERVENING PARTY TO WHOM HE WAS
I promise to pay to B or bearer P10,000.00 30 days after PERSONALLY LIABLE.
date.
(Sgd.) A
Ø A negotiable instrument may be negotiated back to a prior party who shall have the
following rights:
Ø Explanation: Suppose after issue to B, B negotiates it to C by mere delivery. C to D by
1. Re-negotiate the instrument to new parties but not to subsequent parties to whom
mere delivery. D to E by special indorsement. E to F also by special indorsement. F
he is personally liable;
negotiates it to G by blank indorsement.
2. Re-negotiate the instrument to parties prior to him; or
o G, as holder, can strike out the special indorsement of D to E and E to F because
3. Collect from prior parties in the event the PPL dishonors the instrument in his
the instrument is originally payable to bearer and the special indorsements of D
hands after re-acquisition.
and E are not necessary to G’s title.
o D and E are discharged from liability because it was their indorsements which
were stricken out by G.
o Subsequent indorser F is also discharged from liablity because his right of
recourse has been cut off by the discharge of D and E.

2. Order instrument

I promise to pay to the order of B P10,000.00 30 days

after date.
(Sgd.) A

Ø Explanation: Suppose B makes a blank indorsement to C. C indorses it to D by special

indorsement.
o D can strike out the indorsement of C because the blank indorsement of B
converts the instrument “payable to bearer” which may be negotiated by mere
delivery.

SEC. 49. TRANSFER WITHOUT INDORSEMENT; EFFECT OF. - WHERE THE HOLDER OF AN
INSTRUMENT PAYABLE TO HIS ORDER TRANSFERS IT FOR VALUE WITHOUT INDORSING IT, THE
TRANSFER VESTS IN THE TRANSFEREE SUCH TITLE AS THE TRANSFEROR HAD THEREIN, AND
THE TRANSFEREE ACQUIRES IN ADDITION, THE RIGHT TO HAVE THE INDORSEMENT OF THE
TRANSFEROR. BUT FOR THE PURPOSE OF DETERMINING WHETHER THE TRANSFEREE IS A
HOLDER IN DUE COURSE, THE NEGOTIATION TAKES EFFECT AS OF THE TIME WHEN THE
INDORSEMENT IS ACTUALLY MADE.

Ø When a negotiable instrument originally payable to order is transferred to another person

for value but without the proper indorsement, the transaction is deemed not a negotiation
but a mere equitable assignment.

18 YAP, K. | ATENEO LAW

 IV. RIGHTS OF THE HOLDER
SEC. 51. RIGHT OF HOLDER TO SUE; PAYMENT. - THE HOLDER OF A NEGOTIABLE INSTRUMENT
MAY SUE THEREON IN HIS OWN NAME; AND PAYMENT TO HIM IN DUE COURSE DISCHARGES THE
INSTRUMENT.
Rights of Holder Notes
(1) Right to sue. Ø The holder who is both the indorsee and possessor of the
instrument and has the right to sue on the instrument in his
own name.
(2) Right to receive Ø The holder has the right to receive payment either for
payment. himself or for the benefit of a third person for whom he is
acting as agent, trustee or pledgee.
Ø Payment in due course discharges the instrument.
SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE. - A HOLDER IN DUE COURSE IS A
HOLDER WHO HAS TAKEN THE INSTRUMENT UNDER THE FOLLOWING CONDITIONS:
(A) THAT IT IS COMPLETE AND REGULAR UPON ITS FACE;
(B) THAT HE BECAME THE HOLDER OF IT BEFORE IT WAS OVERDUE, AND WITHOUT NOTICE
THAT IT HAS BEEN PREVIOUSLY DISHONORED, IF SUCH WAS THE FACT;
(C) THAT HE TOOK IT IN GOOD FAITH AND FOR VALUE;
(D) THAT AT THE TIME IT WAS NEGOTIATED TO HIM, HE HAD NO NOTICE OF ANY INFIRMITY IN
THE INSTRUMENT OR DEFECT IN THE TITLE OF THE PERSON NEGOTIATING IT.
Holder in Due Course Notes
(1) Complete and regular Ø An instrument is not complete upon its face if:
upon its face. 1. The instrument contains blanks as to some
material terms; or
2. Material alterations clearly evident on the face
of the instrument render it irregular, and the
holder is not HDC.
(2) Received before it Ø When overdue:
was overdue, and 1. When payable at a fixed date – after such fixed
without notice that it had date.
been previously 2. As to instrument payable on installment, a
dishonored if such was person who takes the instrument with notice that
the fact. the first installment has not been paid, is not a
HDC.
3. If the instrument is payable on or before a certain
date – it is overdue after such date. However, if
the person taking the instrument knows that the
PPL has dishonored the instrument before
maturity date, then the party taking the
instrument is not a HDC.
19
(3) Took it in good faith Ø Good faith – due honesty with regards to the rights of the
and for value. parties liable on the instrument, and at the time of
negotiation he had no knowledge of any defect or
infirmity.
Ø Value – any consideration sufficient to support a simple
contract.
(4) No notice of any Ø Infirmity in the instrument – connotes a thing wrong with
infirmity in the the instrument itself. (Ex. “Payable 30 days after date” but
instrument or defect in bears no date)
the title of the person Ø Defect in title – a person who obtains the instrument or any
negotiating it. signature by fraud, duress, violation or intimidation, or by
any unlawful means, shall have a defective title.
o If he indorses the instrument to another person,
who takes it with notice of such, the indorsee is
not a HDC.
SEC. 53. WHEN PERSON NOT DEEMED HOLDER IN DUE COURSE. - WHERE AN INSTRUMENT
PAYABLE ON DEMAND IS NEGOTIATED ON AN UNREASONABLE LENGTH OF TIME AFTER ITS
ISSUE, THE HOLDER IS NOT DEEMED A HOLDER IN DUE COURSE.
Ø No definite rule has been established as to reasonable time.
Ø (Sec. 193) provides the following considerations for reasonable time:
1. Nature of the instrument;
2. Usage of business or trade, if any, with respect to such instrument; and
3. Facts of the particular case.
SEC. 54. NOTICE BEFORE FULL AMOUNT IS PAID. - WHERE THE TRANSFEREE RECEIVES NOTICE
OF ANY INFIRMITY IN THE INSTRUMENT OR DEFECT IN THE TITLE OF THE PERSON NEGOTIATING
THE SAME BEFORE HE HAS PAID THE FULL AMOUNT AGREED TO BE PAID THEREFOR, HE WILL BE
DEEMED A HOLDER IN DUE COURSE ONLY TO THE EXTENT OF THE AMOUNT THEREFORE PAID
BY HIM.
Ø This is a situation where a person takes the instrument under circumstances which would
make him a HDC and makes a partial payment for the negotiation of the instrument to him.
But before he makes full payment, he learns of the defect in the title of the person who
negotiated to him.
o Hence, the indorsee or holder becomes a HDC only to the extent of what he has
paid prior to his knowledge of the defect.
SEC. 55. WHEN TITLE DEFECTIVE. - THE TITLE OF A PERSON WHO NEGOTIATES AN
INSTRUMENT IS DEFECTIVE WITHIN THE MEANING OF THIS ACT WHEN HE OBTAINED THE
INSTRUMENT, OR ANY SIGNATURE THERETO, BY FRAUD, DURESS, OR FORCE AND FEAR, OR
OTHER UNLAWFUL MEANS, OR FOR AN ILLEGAL CONSIDERATION, OR WHEN HE NEGOTIATES IT
IN BREACH OF FAITH, OR UNDER SUCH CIRCUMSTANCES AS AMOUNT TO A FRAUD.
YAP, K. | ATENEO LAW
Ø Defect in title may be: SEC. 59. WHO IS DEEMED HOLDER IN DUE COURSE. - EVERY HOLDER IS DEEMED PRIMA FACIE
1. By acquisition – when the instrument or any signature thereto is obtained by TO BE A HOLDER IN DUE COURSE; BUT WHEN IT IS SHOWN THAT THE TITLE OF ANY PERSON
fraud, duress, force, fear, or other unlawful means or for an illegal consideration; WHO HAS NEGOTIATED THE INSTRUMENT WAS DEFECTIVE, THE BURDEN IS ON THE HOLDER TO
or PROVE THAT HE OR SOME PERSON UNDER WHOM HE CLAIMS ACQUIRED THE TITLE AS HOLDER
2. By negotiation – through breach of faith or under such circumstances tantamount IN DUE COURSE. BUT THE LAST-MENTIONED RULE DOES NOT APPLY IN FAVOR OF A PARTY
to fraud. WHO BECAME BOUND ON THE INSTRUMENT PRIOR TO THE ACQUISITION OF SUCH DEFECTIVE
TITLE.
SEC. 56. WHAT CONSTITUTES NOTICE OF DEFECT. - TO CONSTITUTES NOTICE OF AN INFIRMITY
IN THE INSTRUMENT OR DEFECT IN THE TITLE OF THE PERSON NEGOTIATING THE SAME, THE
PERSON TO WHOM IT IS NEGOTIATED MUST HAVE HAD ACTUAL KNOWLEDGE OF THE INFIRMITY
Ø Every holder is deemed prima facie a HDC.
OR DEFECT, OR KNOWLEDGE OF SUCH FACTS THAT HIS ACTION IN TAKING THE INSTRUMENT
Ø The burden of proof varies:
AMOUNTED TO BAD FAITH.
1. When the title of the person negotiating the instrument is defective, the person to
whom the instrument has been negotiated, shall have the burden of proving that
he acquired it under circumstances that would make him a HDC.
Ø It must be ACTUAL knowledge of the infirmity or defect. 2. The above rule will not apply in favor of a party who became bound on the
o A suspicion of defect of title or knowledge circumstances which would excite instrument prior to the acquisition of such defective title.
suspicion in the mind of a prudent man, or of circumstances sufficient to put
holder on inquiry is not such notice as to make one not a HDC.
Ø Knowledge of facts that his action in taking the instrument would amount to bad faith on
his part will not make a person a HDC.

SEC. 57. RIGHTS OF HOLDER IN DUE COURSE. - A HOLDER IN DUE COURSE HOLDS THE
INSTRUMENT FREE FROM ANY DEFECT OF TITLE OF PRIOR PARTIES, AND FREE FROM DEFENSES
AVAILABLE TO PRIOR PARTIES AMONG THEMSELVES, AND MAY ENFORCE PAYMENT OF THE
INSTRUMENT FOR THE FULL AMOUNT THEREOF AGAINST ALL PARTIES LIABLE THEREON.

Ø Rights of HDC:
1. Sue on the instrument in his own name;
2. Receive payment;
3. Hold the instrument free from (personal) defenses available to prior parties
among themselves; and
4. Enforce payment for the full amount of the instrument against all parties liable
thereon.

SEC. 58. WHEN SUBJECT TO ORIGINAL DEFENSE. - IN THE HANDS OF ANY HOLDER OTHER THAN
A HOLDER IN DUE COURSE, A NEGOTIABLE INSTRUMENT IS SUBJECT TO THE SAME DEFENSES AS
IF IT WERE NON-NEGOTIABLE. BUT A HOLDER WHO DERIVES HIS TITLE THROUGH A HOLDER IN
DUE COURSE, AND WHO IS NOT HIMSELF A PARTY TO ANY FRAUD OR ILLEGALITY AFFECTING
THE INSTRUMENT, HAS ALL THE RIGHTS OF SUCH FORMER HOLDER IN RESPECT OF ALL PARTIES
PRIOR TO THE LATTER.

Ø Any defense, real or personal, which is available to an obligor of a simple contract, either
against the obligee or creditor or against the assignee of the obligee, will also be available
to the parties on a negotiable instrument against holders who are not HDC’s.
Ø This is called the “Shelter Rule/Doctrine” – because the holder who derives title through
the HDC takes “shelter” in the rights available to the latter.

o Requisites:
1. Derives title through a HDC; and
2. Not a party to any fraud or illegality affecting the instrument.
20 YAP, K. | ATENEO LAW
 V. LIABILITIES OF PARTIES
(COMPILED ENUMERATION OF WARRANTIES ON NEXT PAGE)
SEC. 60. LIABILITY OF MAKER. - THE MAKER OF A NEGOTIABLE INSTRUMENT, BY MAKING IT,
ENGAGES THAT HE WILL PAY IT ACCORDING TO ITS TENOR, AND ADMITS THE EXISTENCE OF
THE PAYEE AND HIS THEN CAPACITY TO INDORSE.
SEC. 61. LIABILITY OF DRAWER. - THE DRAWER BY DRAWING THE INSTRUMENT ADMITS THE
EXISTENCE OF THE PAYEE AND HIS THEN CAPACITY TO INDORSE; AND ENGAGES THAT, ON DUE
PRESENTMENT, THE INSTRUMENT WILL BE ACCEPTED OR PAID, OR BOTH, ACCORDING TO ITS
TENOR, AND THAT IF IT BE DISHONORED AND THE NECESSARY PROCEEDINGS ON DISHONOR BE
DULY TAKEN, HE WILL PAY THE AMOUNT THEREOF TO THE HOLDER OR TO ANY SUBSEQUENT
INDORSER WHO MAY BE COMPELLED TO PAY IT. BUT THE DRAWER MAY INSERT IN THE
INSTRUMENT AN EXPRESS STIPULATION NEGATIVING OR LIMITING HIS OWN LIABILITY TO THE
HOLDER.
SEC. 62. LIABILITY OF ACCEPTOR. - THE ACCEPTOR, BY ACCEPTING THE INSTRUMENT,
ENGAGES THAT HE WILL PAY IT ACCORDING TO THE TENOR OF HIS ACCEPTANCE AND ADMITS:
(A) THE EXISTENCE OF THE DRAWER, THE GENUINENESS OF HIS SIGNATURE, AND HIS
CAPACITY AND AUTHORITY TO DRAW THE INSTRUMENT; AND
(B) THE EXISTENCE OF THE PAYEE AND HIS THEN CAPACITY TO INDORSE.
SEC. 63. WHEN A PERSON DEEMED INDORSER. - A PERSON PLACING HIS SIGNATURE UPON AN
INSTRUMENT OTHERWISE THAN AS MAKER, DRAWER, OR ACCEPTOR, IS DEEMED TO BE
INDORSER UNLESS HE CLEARLY INDICATES BY APPROPRIATE WORDS HIS INTENTION TO BE
BOUND IN SOME OTHER CAPACITY.
Ø When a person wants to be party to an instrument, he must clearly indicate in what capacity
he intends to be bound by his signature. Otherwise, he will be considered an indorser.
SEC. 64. LIABILITY OF IRREGULAR INDORSER. - WHERE A PERSON, NOT OTHERWISE A PARTY
TO AN INSTRUMENT, PLACES THEREON HIS SIGNATURE IN BLANK BEFORE DELIVERY, HE IS
LIABLE AS INDORSER, IN ACCORDANCE WITH THE FOLLOWING RULES:
(A) IF THE INSTRUMENT IS PAYABLE TO THE ORDER OF A THIRD PERSON, HE IS LIABLE TO THE
PAYEE AND TO ALL SUBSEQUENT PARTIES.
(B) IF THE INSTRUMENT IS PAYABLE TO THE ORDER OF THE MAKER OR DRAWER, OR IS
PAYABLE TO BEARER, HE IS LIABLE TO ALL PARTIES SUBSEQUENT TO THE MAKER OR DRAWER.
Ø As a rule, all indorsers are liable in the order of their indorsement.
(C) IF HE SIGNS FOR THE ACCOMMODATION OF THE PAYEE, HE IS LIABLE TO ALL PARTIES
SUBSEQUENT TO THE PAYEE.
Ø All indorsers may have an agreement among themselves as to the priority or sequence of
21
SEC. 65. WARRANTY WHERE NEGOTIATION BY DELIVERY AND SO FORTH. — EVERY PERSON
NEGOTIATING AN INSTRUMENT BY DELIVERY OR BY A QUALIFIED INDORSEMENT WARRANTS:
(A) THAT THE INSTRUMENT IS GENUINE AND IN ALL RESPECTS WHAT IT PURPORTS TO BE;
(B) THAT HE HAS A GOOD TITLE TO IT;
(C) THAT ALL PRIOR PARTIES HAD CAPACITY TO CONTRACT;
(D) THAT HE HAS NO KNOWLEDGE OF ANY FACT WHICH WOULD IMPAIR THE
VALIDITY OF THE INSTRUMENT OR RENDER IT VALUELESS.
BUT WHEN THE NEGOTIATION IS BY DELIVERY ONLY, THE WARRANTY EXTENDS IN FAVOR OF
NO HOLDER OTHER THAN THE IMMEDIATE TRANSFEREE.
THE PROVISIONS OF SUBDIVISION (C) OF THIS SECTION DO NOT APPLY TO A PERSON
NEGOTIATING PUBLIC OR CORPORATION SECURITIES OTHER THAN BILLS AND NOTES.
SEC. 66. LIABILITY OF GENERAL INDORSER. - EVERY INDORSER WHO INDORSES WITHOUT
QUALIFICATION, WARRANTS TO ALL SUBSEQUENT HOLDERS IN DUE COURSE:
(A) THE MATTERS AND THINGS MENTIONED IN SUBDIVISIONS (A), (B), AND (C) OF THE NEXT
PRECEDING SECTION; AND
(B) THAT THE INSTRUMENT IS, AT THE TIME OF HIS INDORSEMENT, VALID AND
SUBSISTING;
AND, IN ADDITION, HE ENGAGES THAT, ON DUE PRESENTMENT, IT SHALL BE ACCEPTED OR
PAID, OR BOTH, AS THE CASE MAY BE, ACCORDING TO ITS TENOR, AND THAT IF IT BE
DISHONORED AND THE NECESSARY PROCEEDINGS ON DISHONOR BE DULY TAKEN, HE WILL PAY
THE AMOUNT THEREOF TO THE HOLDER, OR TO ANY SUBSEQUENT INDORSER WHO MAY BE
COMPELLED TO PAY IT.
SEC. 67. LIABILITY OF INDORSER WHERE PAPER NEGOTIABLE BY DELIVERY. — WHERE A
PERSON PLACES HIS INDORSEMENT ON AN INSTRUMENT NEGOTIABLE BY DELIVERY, HE INCURS
ALL THE LIABILITY OF AN INDORSER.
SEC. 68. ORDER IN WHICH INDORSERS ARE LIABLE. - AS RESPECT ONE ANOTHER, INDORSERS
ARE LIABLE PRIMA FACIE IN THE ORDER IN WHICH THEY INDORSE; BUT EVIDENCE IS
ADMISSIBLE TO SHOW THAT, AS BETWEEN OR AMONG THEMSELVES, THEY HAVE AGREED
OTHERWISE. JOINT PAYEES OR JOINT INDORSEES WHO INDORSE ARE DEEMED TO INDORSE
JOINTLY AND SEVERALLY.
o An indorser is liable to all indorsers subsequent to him, but not to prior indorsers.
their liability which can be proved by parol evidence.
o But such agreement, if there really is one, will not be binding on the holder. The
holder has the right to collect from any of them at random.
YAP, K. | ATENEO LAW
 SEC. 69. LIABILITY OF AN AGENT OR BROKER. - WHERE A BROKER OR OTHER AGENT (4) Irregular indorser 1. If the instrument is payable to the order of a third person,
NEGOTIATES AN INSTRUMENT WITHOUT INDORSEMENT, HE INCURS ALL THE LIABILITIES he is liable to the payee and to all subsequent parties;
PRESCRIBED BY SECTION SIXTY-FIVE OF THIS ACT, UNLESS HE DISCLOSES THE NAME OF HIS 2. If the instrument is payable to the order of the maker, or
PRINCIPAL AND THE FACT THAT HE IS ACTING ONLY AS AGENT. drawer, or is payable to bearer, he is liable to all parties
subsequent to the maker or drawer; or
3. If he signs for accommodation of the payee, he is liable to
Ø To prevent personal liability as an indorser in a negotiable instrument, an agent must: all parties subsequent to the payee.
1. Act with authority;
2. Act within the scope of his authority; and (5) Qualified indorser 1. Instrument is genuine and in all respects what it purports
3. Disclose his principal. to be;
2. He has good title to it;
3. All prior parties had capacity to contract; and
Warranties Notes
4. He has no knowledge of any fact which would impair the
(1) Maker 1. That he will pay the note according to its original tenor to validity of the instrument or render it valueless.
the payee, or to the holder, or to any subsequent indorser
(6) General indorser 1. Instrument is genuine and in all respects what it purports
who may be called upon to pay the holder thereof;
to be;
2. That he admits the existence of the payee and his then
2. He has good title to it;
capacity to indorse.
3. All prior parties had capacity to contract;
(2) Drawer 1. That he admits the existence of the payee and his then 4. Instrument is, at the time of his indorsement, valid and
capacity to indorse; subsisting; and
2. That when the instrument: 5. That on due presentment, it shall be accepted or paid, or
a. Is presented for acceptance or payment to the both, as the case may be according to its tenor; and that if
drawee, it will be accepted or paid according to it be dishonored, and the necessary proceedings for
its tenor; dishonor be duly taken, he will pay the amount thereof to
b. If the drawee does not accept, then the drawer the holder, or to any subsequent indorser who may be
undertakes to pay the instrument to the holder compelled to pay it.
himself or to any subsequent indorser who may
be compelled to pay the holder thereof;
c. If after the drawee-acceptor has accepted the
bill, but subsequently refuses to pay the bill on
maturity date, the drawer will be liable on the
instrument, together with the other indorsers,
after notice of dishonor by non-payment is given
to them; and
d. Failure on the part of the holder to give notice of
dishonor by non-acceptance or non-payment to
the drawer and other indorsers, who are all
considered PSL, will discharge them from
liability on the instrument.
(3) Acceptor 1. Admits the existence of the drawer;
2. Genuineness of the drawer’s signature;
3. Drawer’s capacity and authority to draw the instrument;
4. Existence of the payee and his then capacity to indorse;
and
5. That he will pay according to the tenor of his acceptance.

22 YAP, K. | ATENEO LAW

 VI. PRESENTMENT FOR PAYMENT SEC. 71. PRESENTMENT WHERE INSTRUMENT IS NOT PAYABLE ON DEMAND AND WHERE
PAYABLE ON DEMAND. - WHERE THE INSTRUMENT IS NOT PAYABLE ON DEMAND,
Ø Presentment for payment – the formal demand for payment of the instrument made – PRESENTMENT MUST BE MADE ON THE DAY IT FALLS DUE. WHERE IT IS PAYABLE ON DEMAND,
o BY the holder or his authorized representative; PRESENTMENT MUST BE MADE WITHIN A REASONABLE TIME AFTER ITS ISSUE, EXCEPT THAT IN
o TO the PPL on the instrument; THE CASE OF A BILL OF EXCHANGE, PRESENTMENT FOR PAYMENT WILL BE SUFFICIENT IF MADE
§ PN – maker. WITHIN A REASONABLE TIME AFTER THE LAST NEGOTIATION THEREOF.
§ BOE – drawee-acceptor.
o ON the date of maturity. If payable on demand:
§ PN – within a reasonable time after issue. Ø When presentment for payment must be made:
§ BOE – within a reasonable time after the last indorsement or o Presentment for payment to the PPL must be made by the holder on maturity date
negotiation. of the instrument.
o AT the address or place of payment given in the instrument. § Presentment made before the maturity date will not be valid – If the
§ In the absence of such address, at the usual place of business or PPL refuses to make payment, it will not constitute a dishonor by non-
residence of the PPL. payment, and the PSL will not be liable yet.
§ If the PPL expresses his ability and willingness to pay the instrument o PN payable on demand – within a reasonable time after issue.
at the special place specified in the instrument, such is deemed a tender o BOE payable on demand – within a reasonable time after the last indorsement or
of payment. negotiation.
o AND includes the exhibition of the instrument to the PPL for verification
purposes. SEC. 72. WHAT CONSTITUTES A SUFFICIENT PRESENTMENT. - PRESENTMENT FOR PAYMENT,
§ If the PPL pays, the instrument is discharged and must be surrendered TO BE SUFFICIENT, MUST BE MADE:
to the PPL.
Ø Through this, it is determined whether a PPL will pay the instrument or whether it will be (A) BY THE HOLDER, OR BY SOME PERSON AUTHORIZED TO RECEIVE PAYMENT ON HIS BEHALF;
necessary to resort for payment to PSL. So in order that the holder may have a right of (B) AT A REASONABLE HOUR ON A BUSINESS DAY;
recourse against the PSL, there must still be a presentment for payment to the PPL. (C) AT A PROPER PLACE AS HEREIN DEFINED;
(D) TO THE PERSON PRIMARILY LIABLE ON THE INSTRUMENT, OR IF HE IS ABSENT OR
SEC. 70. EFFECT OF WANT OF DEMAND ON PRINCIPAL DEBTOR. - PRESENTMENT FOR PAYMENT INACCESSIBLE, TO ANY PERSON FOUND AT THE PLACE WHERE THE PRESENTMENT IS MADE.
IS NOT NECESSARY IN ORDER TO CHARGE THE PERSON PRIMARILY LIABLE ON THE
INSTRUMENT; BUT IF THE INSTRUMENT IS, BY ITS TERMS, PAYABLE AT A SPECIAL PLACE, AND
HE IS ABLE AND WILLING TO PAY IT THERE AT MATURITY, SUCH ABILITY AND WILLINGNESS Presentment for
Notes
ARE EQUIVALENT TO A TENDER OF PAYMENT UPON HIS PART. BUT EXCEPT AS HEREIN Payment
OTHERWISE PROVIDED, PRESENTMENT FOR PAYMENT IS NECESSARY IN ORDER TO CHARGE THE (1) By whom 1. The holder; or
DRAWER AND INDORSERS. 2. His authorized representative.
(2) When 1. At a reasonable hour on a business day;
Ø Effects of presentment for payment: 2. If maturity falls on a Saturday, Sunday or a holiday, within
1. The holder need not make a presentment for payment to charge the PPL because a reasonable hour on the next following business day.
he can sue the latter directly in case of non-payment. o If payable on demand, until 12nn Saturday, at
§ However, non-presentment for payment will discharge all the PSL the option of the holder.
inasmuch as their liability is premised on the dishonor of the
instrument by non-payment and the corresponding notice of dishonor (3) Where 1. At a place of payment specified in the instrument;
given to them. 2. Where no place of payment specified, but the address of
2. If the instrument is payable at a special place and the PPL has expressed ability the person to make payment is given, present there;
and willingness to pay at such special place, he is deemed to have made a tender 3. Where no place specified and no address given, present at
of payment. the usual place of business or residence of the person to
§ If the holder fails to do so and the PPL is ready to pay at the special make payment;
place, the PPL is liable for the principal debt but not for damages. 4. In any other case, wherever he can be found or at his last
§ If the holder makes a presentment and the PPL was not at the special known address.
place and failed to pay, he would be liable for damages and costs. (4) To whom 1. The party primarily liable; or
2. If he is absent or inaccessible, any person found at the
place where the presentment is made.

23 YAP, K. | ATENEO LAW

 SEC. 73. PLACE OF PRESENTMENT. - PRESENTMENT FOR PAYMENT IS MADE AT THE PROPER Ø A mere formal demand for payment by the holder without presenting or exhibiting the
PLACE:
instrument to the PPL is not a valid presentment for payment and will not constitute a
dishonor of the instrument if payment is refused.
(A) WHERE A PLACE OF PAYMENT IS SPECIFIED IN THE INSTRUMENT AND IT IS THERE o Exhibition of the instrument is necessary to give the payor the opportunity to
PRESENTED;
verify its validity or genuineness, check the series of indorsements, etc. before
(B) WHERE NO PLACE OF PAYMENT IS SPECIFIED BUT THE ADDRESS OF THE PERSON TO MAKE payment is made.
PAYMENT IS GIVEN IN THE INSTRUMENT AND IT IS THERE PRESENTED;
Ø If the holder receives full payment, he must surrender the instrument to the payor or the
(C) WHERE NO PLACE OF PAYMENT IS SPECIFIED AND NO ADDRESS IS GIVEN AND THE party primarily liable.
INSTRUMENT IS PRESENTED AT THE USUAL PLACE OF BUSINESS OR RESIDENCE OF THE PERSON
TO MAKE PAYMENT; SEC. 75. PRESENTMENT WHERE INSTRUMENT PAYABLE AT BANK. - WHERE THE INSTRUMENT
(D) IN ANY OTHER CASE IF PRESENTED TO THE PERSON TO MAKE PAYMENT WHEREVER HE CAN IS PAYABLE AT A BANK, PRESENTMENT FOR PAYMENT MUST BE MADE DURING BANKING
BE FOUND, OR IF PRESENTED AT HIS LAST KNOWN PLACE OF BUSINESS OR RESIDENCE. HOURS, UNLESS THE PERSON TO MAKE PAYMENT HAS NO FUNDS THERE TO MEET IT AT ANY
TIME DURING THE DAY, IN WHICH CASE PRESENTMENT AT ANY HOUR BEFORE THE BANK IS
CLOSED ON THAT DAY IS SUFFICIENT.
Ø Opinion of Atty. Ampil: Where a place of payment is specified in the instrument (A), such
place of payment must be followed. In the absence of such specified place for payment,
presentment for payment may be made at either of the alternatives (B to D). Ø Holder of an instrument must, where the presentment for payment is at a bank, make a
presentment for payment during banking hours.
Proper Places Notes o The holder must wait for the last banking hour in order to give the person making
the instrument the opportunity to make his deposit.
(1) Where a place of Ø Failure of the holder to appear at the place of payment at o If the payor makes the deposit before closing time, there is deemed no dishonor
payment is specified in maturity date will not discharge the PPL, but merely of the instrument even if the holder has made an earlier demand.
the instrument and it is relieve him from damages and costs. Ø If a payor has no funds at the bank to meet it any time during the day, the holder may make
there presented. Ø If a BOE is payable at a specified place of payment, and presentment for payment at any time before the bank is closed and it will be a valid
the place of payment is different from the domicile or presentment.
business address of the drawee – it is important that a o This is because the payor will not be able to pay anyway, so at least make a
presentment for acceptance must first be made by the proper presentment for payment in order to be able to have a right of recourse
holder to the drawee to find out if the drawee is willing to against the PSL.
accept and pay the bill at the specified place. Ø If the holder goes to the bank after it has close for the day, he cannot make a valid demand
Ø If at a bank, it must be presented for payment within and the indorser will be discharged.
regular banking hours.
(2) Where no place of Ø If no place is indicated but the address of the maker or SEC. 76. PRESENTMENT WHERE PRINCIPAL DEBTOR IS DEAD. - WHERE THE PERSON PRIMARILY
payment is specified but payor is shown on the instrument, then presentment for LIABLE ON THE INSTRUMENT IS DEAD AND NO PLACE OF PAYMENT IS SPECIFIED, PRESENTMENT
the address of the person payment must be made at such address. FOR PAYMENT MUST BE MADE TO HIS PERSONAL REPRESENTATIVE, IF SUCH THERE BE, AND IF,
to make payment is WITH THE EXERCISE OF REASONABLE DILIGENCE, HE CAN BE FOUND.
given in the instrument
and it is there presented.
Ø If the PPL dies before maturity of the instrument and place of payment is specified, the
(3) At the usual place of Ø Presentment may be at either: holder must make presentment at the specified place.
business or residence of 1. Usual place of business; or o If no place of payment is specified, presentment must be made to the personal
the person to make 2. Residence of the payor. representative of the deceased PPL.
payment; § If after reasonable diligence to locate the personal representative and
(4) Wherever he can be Ø Presentment may be at either: he cannot be found, presentment for payment is excused.
found or at his last 1. Where payor can be found; or o In the absence of a personal representative, the holder may present the instrument
known address. 2. At his last known business address or residence. for payment to the estate of the deceased party (particularly to the administrator
thereof).
SEC. 74. INSTRUMENT MUST BE EXHIBITED. - THE INSTRUMENT MUST BE EXHIBITED TO THE
PERSON FROM WHOM PAYMENT IS DEMANDED, AND WHEN IT IS PAID, MUST BE DELIVERED UP
SEC. 77. PRESENTMENT TO PERSONS LIABLE AS PARTNERS. - WHERE THE PERSONS PRIMARILY
LIABLE ON THE INSTRUMENT ARE LIABLE AS PARTNERS AND NO PLACE OF PAYMENT IS
TO THE PARTY PAYING IT.
SPECIFIED, PRESENTMENT FOR PAYMENT MAY BE MADE TO ANY ONE OF THEM, EVEN THOUGH
THERE HAS BEEN A DISSOLUTION OF THE FIRM.

24 YAP, K. | ATENEO LAW

Ø If the PPL are partners, presentment for payment may be made:
1. To any one of the partners;
2. If there is a dissolution of the partnership before maturity date, still any one of
the partners;
3. If one of the partners dies before maturity date, to the surviving partner – not the
legal representative of the deceased partner; or
4. If a place of payment is specified, at such specified place to any one of the
partners present thereat.
SEC. 78. PRESENTMENT TO JOINT DEBTORS. - WHERE THERE ARE SEVERAL PERSONS, NOT
PARTNERS, PRIMARILY LIABLE ON THE INSTRUMENT AND NO PLACE OF PAYMENT IS SPECIFIED,
PRESENTMENT MUST BE MADE TO THEM ALL.
Ø If the PPL are joint debtors, presentment for payment may be made:
1. To all the joint debtors;
2. If one joint debtor dies before maturity, to all the surviving joint debtors – not to
the legal representative of the deceased joint debtor;
3. If there is a place of payment specified, to all joint debtors at such place specified;
except
4. When one joint debtor is duly authorized to accept the presentment on behalf of
all the joint debtors, to him.
SEC. 79. WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE DRAWER. - PRESENTMENT FOR
PAYMENT IS NOT REQUIRED IN ORDER TO CHARGE THE DRAWER WHERE HE HAS NO RIGHT TO
EXPECT OR REQUIRE THAT THE DRAWEE OR ACCEPTOR WILL PAY THE INSTRUMENT.
Ø Instances when the drawer, through his acts, cannot expect or require the drawee or
acceptor to pay the instrument:
1. Drawer stops payment of the check he issued;
2. Drawer’s bank balance is less than the amount of the check issued; or
3. Drawer commits fraud by issuing a check knowing that he has no funds in the
bank to meet it.
Ø In the above circumstances, the drawer becomes liable and there is no need to make a
presentment to charge him.
SEC. 80. WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE INDORSER. - PRESENTMENT IS
NOT REQUIRED IN ORDER TO CHARGE AN INDORSER WHERE THE INSTRUMENT WAS MADE OR
ACCEPTED FOR HIS ACCOMMODATION AND HE HAS NO REASON TO EXPECT THAT THE
INSTRUMENT WILL BE PAID IF PRESENTED.
Ø This refers to an accommodated payee or indorser who does not expect the accommodation
party to pay the instrument on maturity date.
o The accommodated party therefore becomes the PPL. In this case, presentment
for payment is not required to make him liable on the instrument.
Example
I promise to pay to the order of B P5,000.00 30 days
after date.
(Sgd.) A
25
Ø Explanation: Suppose B indorses the note to C. D to D. D to E. A signed for
accommodation of B.
o If B has no reason to expect or require that A will pay the instrument, B will
become the PPL.
o E can collect directly from B without presenting the note to A.
§ However, C and D will be discharged because of non-presentment to
the PPL.
§ If B dishonors, the proper notice of dishonor can be presented to C and
D in order to collect from them.
SEC. 81. WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED. - DELAY IN MAKING
PRESENTMENT FOR PAYMENT IS EXCUSED WHEN THE DELAY IS CAUSED BY CIRCUMSTANCES
BEYOND THE CONTROL OF THE HOLDER AND NOT IMPUTABLE TO HIS DEFAULT, MISCONDUCT,
OR NEGLIGENCE. WHEN THE CAUSE OF DELAY CEASES TO OPERATE, PRESENTMENT MUST BE
MADE WITH REASONABLE DILIGENCE.
Ø This section refers to cases when due to fortuitous events or force majeure or events not
imputable to the fault, misconduct or negligence of the holder, presentment for payment
to the PPL cannot be made on maturity date.
o The holder is excused for his failure to make the presentment on due date, but
he is obliged to make the presentment immediately as soon as the cause of the
delay ceases.
o Otherwise, the PSL will be discharged.
Ø Fortuitous events – an event happening by chance or accident. It is an occurrence or failure
to occur which is, or is assumed by the parties to be adversely affected by the happening
of such event.
Ø Force majeure – unforeseeable circumstances that prevent someone from fulfilling a
contract.
Example
I promise to pay to the order of B P5,000.00 30 days
after date.
(Sgd.) A
Ø Explanation: This PN made by A is payable in Baguio City. B (payee) indorsed it to C. C
to D. D to E. Suppose due to a severe typhoon all approaches to Baguio City are closed due
to landslides. PAL flights to Baguio are cancelled on maturity date of the note.
o E is therefore excused from making presentment.
o As soon as Baguio becomes accessible again, E must immediately make
presentment to A. Failure to do so will discharge the PSL.
SEC. 82. WHEN PRESENTMENT FOR PAYMENT IS EXCUSED. - PRESENTMENT FOR PAYMENT IS
EXCUSED:
(A) WHERE, AFTER THE EXERCISE OF REASONABLE DILIGENCE, PRESENTMENT, AS REQUIRED
BY THIS ACT, CANNOT BE MADE;
(B) WHERE THE DRAWEE IS A FICTITIOUS PERSON;
(C) BY WAIVER OF PRESENTMENT, EXPRESS OR IMPLIED.
YAP, K. | ATENEO LAW
 Presentment for o Failure to give notice of dishonor within the said prescribed period will
Notes automatically discharge the PSL.
Payment Excused
Ø The holder can proceed against the PSL after due notice of dishonor:
(1) When it is not 1. When the legal representative of a deceased maker or 1. Even without first suing the PPL; and
possible to do so. acceptor cannot, with reasonable diligence, be found; or 2. Even without first availing himself of the collateral or security given by the PPL
2. When the drawee bank was closed by state officials. on the instrument.
(2) Where the drawee is Ø If the drawee is a fictitious person, the drawee becomes
a fictitious person. liable. SEC. 85. TIME OF MATURITY. - EVERY NEGOTIABLE INSTRUMENT IS PAYABLE AT THE TIME
o The holder of the BOE may treat the instrument FIXED THEREIN WITHOUT GRACE. WHEN THE DAY OF MATURITY FALLS UPON SUNDAY OR A
as either a PN or a BOE. HOLIDAY, THE INSTRUMENTS FALLING DUE OR BECOMING PAYABLE ON SATURDAY ARE TO BE
(3) Waiver of 1. An indorsement which waives presentment makes the PRESENTED FOR PAYMENT ON THE NEXT SUCCEEDING BUSINESS DAY EXCEPT THAT
presentment, express or indorser liable on the instrument even if the holder fails to INSTRUMENTS PAYABLE ON DEMAND MAY, AT THE OPTION OF THE HOLDER, BE PRESENTED
implied. make a presentment to the PPL on maturity. FOR PAYMENT BEFORE TWELVE O'CLOCK NOON ON SATURDAY WHEN THAT ENTIRE DAY IS NOT
2. An indorser’s promise to pay when called upon to do so A HOLIDAY.
after the holder fails to make a presentment on maturity to
the PPL will constitute a waiver. Ø As a rule, presentment for payment must be made on maturity date without a grace period
or extension.
SEC. 83. WHEN INSTRUMENT DISHONORED BY NON-PAYMENT. - THE INSTRUMENT IS o If the holder grants the payor an extension of time for payment without due
DISHONORED BY NON-PAYMENT WHEN: notice and consent of the PSL, the latter are deemed discharged.
(A) IT IS DULY PRESENTED FOR PAYMENT AND PAYMENT IS REFUSED OR CANNOT BE Ø If the maturity date falls on:
OBTAINED; OR o Sundays or holidays – presentment for payment may be made on the next
(B) PRESENTMENT IS EXCUSED AND THE INSTRUMENT IS OVERDUE AND UNPAID. following business day.
o Saturdays – General rule: Presentment for payment may be made on the
following business day.
Dishonor by Non- § Exception: When the instrument is payable on demand, the holder
Notes may, at his option, present the instrument for payment before 12nn on
payment
Saturday if the entire day is not a holiday.
(1) When duly presented 1. When the PPL actually refuses to pay;
for payment and 2. When the PPL expresses willingness to pay but does not
payment is refused or have the funds or money to pay; or SEC. 86. TIME; HOW COMPUTED. - WHEN THE INSTRUMENT IS PAYABLE AT A FIXED PERIOD
cannot be obtained. 3. When the PPL fails to pay on maturity date, but promises AFTER DATE, AFTER SIGHT, OR AFTER THAT HAPPENING OF A SPECIFIED EVENT, THE TIME OF
to pay 5 days later. PAYMENT IS DETERMINED BY EXCLUDING THE DAY FROM WHICH THE TIME IS TO BEGIN TO
o The instrument is deemed dishonored by non- RUN, AND BY INCLUDING THE DATE OF PAYMENT.
payment, and holder must give notice of
dishonor by non-payment to all the PSL. Ø Sec. 13 of the Civil Code provides that the first day shall be excluded and the last day
Otherwise, they will be discharged. included in computing the period.
(2) When presentment is Ø The instrument is deemed dishonored and therefore a
excused and the notice of dishonor to all PSL is proper. SEC. 87. RULE WHERE INSTRUMENT PAYABLE AT BANK. - WHERE THE INSTRUMENT IS MADE
instrument is overdue PAYABLE AT A BANK, IT IS EQUIVALENT TO AN ORDER TO THE BANK TO PAY THE SAME FOR
and unpaid. THE ACCOUNT OF THE PRINCIPAL DEBTOR THEREON.

SEC. 84. LIABILITY OF PERSON SECONDARILY LIABLE, WHEN INSTRUMENT DISHONORED. -
SUBJECT TO THE PROVISIONS OF THIS ACT, WHEN THE INSTRUMENT IS DISHONORED BY NON-
PAYMENT, AN IMMEDIATE RIGHT OF RECOURSE TO ALL PARTIES SECONDARILY LIABLE
THEREON ACCRUES TO THE HOLDER.
Ø The holder acquires the right of recourse against PSL only after he has given notice of
dishonor, either by non-acceptance or by non-payment to the PSL within 24hrs after the
dishonor by the PPL.
Ø When a particular or specific bank is designated in the instrument as the place of payment,
the bank becomes the agent of the maker and must pay the holder, debiting afterwards the
account of the maker.
Ø If it says, for example, “any bank in Manila,” and the holder presented it for payment in a
bank where the maker has a deposit, such bank may refuse to pay the PN as the instrument
does not constitute an authority for that particular bank to pay the note chargeable from
such deposit.

26 YAP, K. | ATENEO LAW

Example
I promise to pay to the order of B the amount of
P1,000.00 on December 10, 1995 at PNB, Escolta
Branch.
(Sgd.) A
Ø Explanation: B or any subsequent holder may present the above PN to PNB, Escolta
Branch, for payment on maturity.
o PNB may pay the amount of P1,000.00 and debit it against A’s ccount.
SEC. 88. WHAT CONSTITUTES PAYMENT IN DUE COURSE. - PAYMENT IS MADE IN DUE COURSE
WHEN IT IS MADE AT OR AFTER THE MATURITY OF THE PAYMENT TO THE HOLDER THEREOF IN
GOOD FAITH AND WITHOUT NOTICE THAT HIS TITLE IS DEFECTIVE.
Ø Payment in due course will discharge the negotiable instrument.
Payment in Due Course Notes
(1) Must be made at or Ø Payment before maturity is not a payment in due course
after maturity of the and consequently will not discharge the instrument.
instrument. o It is deemed a re-negotiation of the instrument to
the PPL who may choose to negotiate it to new
parties, but not to those already subsequent to
him.
(2) To the holder thereof Ø Payment to a person other than the holder is at the risk of
or his authorized the party so paying if the person was not authorized by the
representative. holder to receive payment.
o Banks, by reason of public policy, are required
to be on inquiry as to the signatures of their
clients.
o Persons dealing with agents must be on inquiry
as to the authority of the principal and the extent
of such authority.
(3) Made in good faith Ø The PPL or the payor must be in good faith when paying
and without notice that the instrument, otherwise he remains liable if he pays the
the title of the holder is instrument with knowledge that the holder has defective
defective. title.
27
VII. NOTICE OF DISHONOR
SEC. 89. TO WHOM NOTICE OF DISHONOR MUST BE GIVEN. - EXCEPT AS HEREIN OTHERWISE
PROVIDED, WHEN A NEGOTIABLE INSTRUMENT HAS BEEN DISHONORED BY NON-ACCEPTANCE
OR NON-PAYMENT, NOTICE OF DISHONOR MUST BE GIVEN TO THE DRAWER AND TO EACH
INDORSER, AND ANY DRAWER OR INDORSER TO WHOM SUCH NOTICE IS NOT GIVEN IS
DISCHARGED.
Ø Notice of dishonor – gives the holder a right of recourse against all the parties secondarily
liable in the event that the PPL dishonors the instrument either by non-acceptance or non-
payment.
o Kinds:
1. Notice of dishonor by non-acceptance; and
2. Notice of dishonor by non-payment.
Ø Notice of dishonor by non-acceptance is applicable only to bills of exchange where
presentment for acceptance is necessary.
o Instances when payment for acceptance is necessary: (Sec. 143)
1. Where the bill is payable after sight, or in any other case, where a
presentment for acceptance is necessary in order to fix the maturity of
the instrument;
2. Where the bill expressly stipulates that it shall be presented for
acceptance; or
3. Where the bill is drawn payable elsewhere than at the residence or
place of business of the drawee.
Ø Notice of dishonor by non-payment applies to all negotiable instruments.
Example
Pay to the order of B P5,000.00 30 days after sight.
(Sgd.) A
TO: X
Ø Explanation: Subsequent indorsements: B-C-D-E-F.
o F must first make a presentment for acceptance because the bill is payable at a
fixed period after sight.
o Suppose F makes the first presentment for acceptance on October 1, 1995 and X
refuses to accept it.
§ F must therefore give a notice of dishonor by non-acceptance to A, B,
C, D and E (PSL) or else they will be discharged from laiblity.
o Suppose before maturity at the request of A (drawer), F makes a second
presentment for acceptance to X on October 5, 1995, and this time X accepts the
bill.
§ The date of the bill is based on the first presentment for acceptance
(first sight) which was on October 1, 1995. The maturity date will
therefore be October 31, 1995.
§ Suppose F, on maturity date, makes presentment for payment on X,
and X refuses to pay. Will the first dishonor by non-acceptance given
by F to PSL be sufficient to hold them liable?
• No. The first notice of dishonor by non-acceptance is
nullified by the subsequent acceptance by X.
YAP, K. | ATENEO LAW
 SEC. 90. BY WHOM GIVEN. - THE NOTICE MAY BE GIVEN BY OR ON BEHALF OF THE HOLDER,
OR BY OR ON BEHALF OF ANY PARTY TO THE INSTRUMENT WHO MIGHT 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.
Ø Parties who may give a notice of dishonor:
1. Holder;
2. Another party on behalf of the holder;
3. Any of the PSL who may be compelled to pay the holder; or
4. Another party in behalf of the PSL.
SEC. 91. NOTICE GIVEN BY AGENT. - NOTICE OF DISHONOR MAY BE GIVEN BY ANY AGENT
EITHER IN HIS OWN NAME OR IN THE NAME OF ANY PARTY ENTITLED TO GIVEN NOTICE,
WHETHER THAT PARTY BE HIS PRINCIPAL OR NOT.
Ø The agent may give notice to the PSL either in his own name or in the name of his principal
or other party entitled to give a notice.
SEC. 92. EFFECT OF NOTICE ON BEHALF OF HOLDER. - WHERE NOTICE IS GIVEN BY OR ON
BEHALF OF THE HOLDER, IT INURES TO THE BENEFIT OF ALL SUBSEQUENT HOLDERS AND ALL
PRIOR PARTIES WHO HAVE A RIGHT OF RECOURSE AGAINST THE PARTY TO WHOM IT IS GIVEN.
Example
October 1, 1995
I promise to pay to the order of B P5,000.00 30 days
after date.
(Sgd.) A
Ø Explanation: Subsequent indorsements: B-C-D-E-F. Suppose F authorizes X to collect
from A on his behalf and A dishonors the note by non-payment.
o X may either:
1. Give notice of dishonor to all PSL in his own name or on behalf of F;
or
2. He may inform F of the dishonor and F himself may give the notice of
dishonor to all PSL.
o In either case, the notice of dishonor inures to the benefit of:
1. Subsequent holders.
• If notice of dishonor is given to B, C, D and E by F or by X,
and F subsequently negotiated to G.
• G can collect from anyone of the PSL without giving them
notice of dishonor because the notice given to them by F
inures to the benefit of G.
2. All prior parties who have a right of recourse against such party given.
• If F gives notice of dishonor to all PSL, the effect will be:
o E can collect from D without giving notice of
dishonor because notice was given F to D.
o D from C; C from B.
28
SEC. 93. EFFECT WHERE NOTICE IS GIVEN BY PARTY ENTITLED THERETO. - WHERE NOTICE IS
GIVEN BY OR ON BEHALF OF A PARTY ENTITLED TO GIVE NOTICE, IT INURES TO THE BENEFIT OF
THE HOLDER AND ALL PARTIES SUBSEQUENT TO THE PARTY TO WHOM NOTICE IS GIVEN.
Example
October 1, 1995
I promise to pay to the order of B P5,000.00 30 days
after date.
(Sgd.) A
Ø Explanation: Subsequent indorsements: B-C-D-E-F. A dishonors the instrument by non-
payment, and F gives notice of dishonor by non-payment to D only.
o D may in turn give notice of dishonor to parties prior to him – C and B – within
24hrs after he received the notice from F. The effects are:
1. Notice of D to C and B inures to the benefit of F who may hold B and
C liable to him without his giving notice to them.
2. If C is compelled to pay D, C can collect from B without giving notice
because the notice of D to B inures to the benefit of C.
3. E, party subsequent to D, is discharged from liability because D cannot
give him a notice as he is liable to E.
SEC. 94. WHEN AGENT MAY GIVE NOTICE. - WHERE THE INSTRUMENT HAS BEEN DISHONORED
IN THE HANDS OF AN AGENT, HE MAY EITHER HIMSELF GIVE NOTICE TO THE PARTIES LIABLE
THEREON, OR HE MAY GIVE NOTICE TO HIS PRINCIPAL. IF HE GIVES NOTICE TO HIS PRINCIPAL,
HE MUST DO SO WITHIN THE SAME TIME AS IF HE WERE THE HOLDER, AND THE PRINCIPAL,
UPON THE RECEIPT OF SUCH NOTICE, HAS HIMSELF THE SAME TIME FOR GIVING NOTICE AS IF
THE AGENT HAD BEEN AN INDEPENDENT HOLDER.
Ø If the instrument is dishonored in the hands of an agent, the latter may give notice of
dishonor to:
1. All the PSL in his own name, or on behalf of his principal; or
2. His principal, as if the agent had been an independent holder.
SEC. 95. WHEN NOTICE SUFFICIENT. - A WRITTEN NOTICE NEED NOT BE SIGNED AND AN
INSUFFICIENT WRITTEN NOTICE MAY BE SUPPLEMENTED AND VALIDATED BY VERBAL
COMMUNICATION. A MISDESCRIPTION OF THE INSTRUMENT DOES NOT VITIATE THE NOTICE
UNLESS THE PARTY TO WHOM THE NOTICE IS GIVEN IS IN FACT MISLED THEREBY.
SEC. 96. FORM OF NOTICE. - THE NOTICE MAY BE IN WRITING OR MERELY ORAL AND MAY BE
GIVEN IN ANY TERMS WHICH SUFFICIENTLY IDENTIFY THE INSTRUMENT, AND INDICATE THAT
IT HAS BEEN DISHONORED BY NON-ACCEPTANCE OR NON-PAYMENT. IT MAY IN ALL CASES BE
GIVEN BY DELIVERING IT PERSONALLY OR THROUGH THE MAILS.
Ø The above sections must be correlated.
Ø To be valid and binding on the PSL, a notice of dishonor, either by non-acceptance or non-
payment, must conform with the following requirements.
YAP, K. | ATENEO LAW
Ø Requisites for notice of dishonor in order to bind PSL:
1. It may be made orally or in writing;
§ It may be unsigned by the party giving the notice. It may be by
electronic devices/applications.
2. Sufficiently describes and identifies the instrument;
3. States that the instrument has been presented for acceptance or payment, and was
subsequently dishonored;
§ A mere statement that the instrument was payable but due without
indicating that it was presented for payment and dishonored is not a
sufficient notice.
4. States that the holder is looking forward to the PSL addressed to pay the
instrument.
Ø Notice of dishonor may be delivered personally or by mail or electronic
devices/applications.
SEC. 97. TO WHOM NOTICE MAY BE GIVEN. - NOTICE OF DISHONOR MAY BE GIVEN EITHER TO
THE PARTY HIMSELF OR TO HIS AGENT IN THAT BEHALF.
Ø Notice of dishonor may be given either to:
1. PSL; or
2. His authorized representative.
§ Ex. At place of business – to the secretary.
At place of residence – to wife or children or any other member
of his household.
SEC. 98. NOTICE WHERE PARTY IS DEAD. - WHEN ANY PARTY IS DEAD AND HIS DEATH IS
KNOWN TO THE PARTY GIVING NOTICE, THE NOTICE MUST BE GIVEN TO A PERSONAL
REPRESENTATIVE, IF THERE BE ONE, AND IF WITH REASONABLE DILIGENCE, HE CAN BE FOUND.
IF THERE BE NO PERSONAL REPRESENTATIVE, NOTICE MAY BE SENT TO THE LAST RESIDENCE
OR LAST PLACE OF BUSINESS OF THE DECEASED.
Ø When the holder or the party giving notice knows that a PSL is dead, he must give notice
of dishonor to:
1. The legal representative of the deceased PSL, if there is one and can be found;
or
2. The last known residence or place of business of the deceased PSL, if there is no
legal representative.
Ø When the holder or the party giving notice has no knowledge of the death of the PSL, notice
of dishonor sent to the deceased PSL’s last known residence or place of business is
sufficient.
SEC. 99. NOTICE TO PARTNERS. - WHERE THE PARTIES TO BE NOTIFIED ARE PARTNERS, NOTICE
TO ANY ONE PARTNER IS NOTICE TO THE FIRM, EVEN THOUGH THERE HAS BEEN A
DISSOLUTION.
Ø If the instrument is a partnership liability, the holder or the party giving notice of dishonor
may under the principle that partners are mutual agents of each other, give notice to:
1. Any one of the partners even though there has been a dissolution; or
2. Any of the surviving partners if one partner is dead.
29
Ø Notice to one partner is sufficient notice to the partnership even if the notified partner fails
to inform the partnership.
SEC. 100. NOTICE TO PERSONS JOINTLY LIABLE. - NOTICE TO JOINT PERSONS WHO ARE NOT
PARTNERS MUST BE GIVEN TO EACH OF THEM UNLESS ONE OF THEM HAS AUTHORITY TO
RECEIVE SUCH NOTICE FOR THE OTHERS.
Ø If the parties secondarily liable are joint parties, notice of dishonor must be given to all of
them unless one is authorized by all the others to receive the notice on their behalf.
SEC. 101. NOTICE TO BANKRUPT. - WHERE A PARTY HAS BEEN ADJUDGED A BANKRUPT OR AN
INSOLVENT, OR HAS MADE AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS, NOTICE MAY BE
GIVEN EITHER TO THE PARTY HIMSELF OR TO HIS TRUSTEE OR ASSIGNEE.
Ø Notice of dishonor to a PPL who is judicially adjudged insolvent or who may have made
an assignment for the benefit of his creditors, may be given to:
1. The insolvent party secondarily liable himself; or
2. His trustee.
SEC. 102. TIME WITHIN WHICH NOTICE MUST BE GIVEN. - NOTICE MAY BE GIVEN AS SOON AS
THE INSTRUMENT IS DISHONORED AND, UNLESS DELAY IS EXCUSED AS HEREINAFTER
PROVIDED, MUST BE GIVEN WITHIN THE TIME FIXED BY THIS ACT.
Ø Rules:
1. Notice of dishonor must be given on the following day after the instrument is
dishonored – construed as within 24hrs after the date of dishonor.
2. Notice of dishonor to all PSL made before the maturity date of the instrument is
improper notice and is not valid to hold them liable.
3. BOE which requires presentment for acceptance – notice of dishonor by non-
acceptance must be sent to all the PSL, including the drawer, within 24hrs after
the drawee refused to accept the bill.
4. PN and duly accepted BOE – notice of dishonor by non-payment must be given
to all the PSL within 24hrs after the instrument is dishonored by non-payment.
5. If presentment for payment is excused, the instrument is deemed dishonored only
when the note or bill remains overdue and unpaid after its maturity date, in which
case notice may properly be given to the PSL.
6. General rule: If the holder gives notice of dishonor to only one PSL, all the other
PSL are discharged from liability.
§ Exception: When that one PSL gives another notice to all prior parties
within 24hrs after his receipt of the holder’s notice.
YAP, K. | ATENEO LAW
 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:
(A) IF GIVEN AT THE PLACE OF BUSINESS OF THE PERSON TO RECEIVE NOTICE, IT MUST BE
GIVEN BEFORE THE CLOSE OF BUSINESS HOURS ON THE DAY FOLLOWING.
(B) IF GIVEN AT HIS RESIDENCE, IT MUST BE GIVEN BEFORE THE USUAL HOURS OF REST ON THE
DAY FOLLOWING.
(C) IF SENT BY MAIL, IT MUST BE DEPOSITED IN THE POST OFFICE IN TIME TO
REACH HIM IN USUAL COURSE ON THE DAY FOLLOWING.
Ø Rules when parties reside in the same place:
1. If given at the place of business of the person to receive notice – must be before
the close of business hours on the day following.
2. If given at his residence – must be given before the usual hours of rest on the
day following.
3. If sent by mail – must be deposited in the post office in time to reach him in
usual course on the day following.
SEC. 104. WHERE PARTIES RESIDE IN DIFFERENT PLACES. - WHERE THE PERSON GIVING AND
THE PERSON TO RECEIVE NOTICE RESIDE IN DIFFERENT PLACES, THE NOTICE MUST BE GIVEN
WITHIN THE FOLLOWING TIMES:
(A) IF SENT BY MAIL, IT MUST BE DEPOSITED IN THE POST OFFICE IN TIME TO GO BY MAIL THE
DAY FOLLOWING THE DAY OF DISHONOR, OR IF THERE BE NO MAIL AT A CONVENIENT HOUR ON
LAST DAY, BY THE NEXT MAIL THEREAFTER.
(B) IF GIVEN OTHERWISE THAN THROUGH THE POST OFFICE, THEN WITHIN THE TIME THAT
NOTICE WOULD HAVE BEEN RECEIVED IN DUE COURSE OF MAIL, IF IT HAD BEEN DEPOSITED IN
THE POST OFFICE WITHIN THE TIME SPECIFIED IN THE LAST SUBDIVISION.
Ø Rules when parties reside in different places:
1. By mail – the notice must be deposited or posted in the post office in time to go
by mail the day following the day of dishonor.
2. By any other means other than through the post office – notice must be given to
PSL at such a time following the dishonor as to ensure that the latter will receive
it at the same time had the notice been sent by mail as provided for in the
preceding number.
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 NOTICE, NOTWITHSTANDING ANY MISCARRIAGE IN THE MAILS.
Ø Notice of dishonor must be:
1. Duly addressed; and
2. Properly deposited in the post office in accordance with the preceding sections
to bind the PSL, irrespective of any miscarriage in the mails.
30
SEC. 106. DEPOSIT IN POST OFFICE; WHAT CONSTITUTES. - NOTICE IS DEEMED TO HAVE BEEN
DEPOSITED IN THE POST-OFFICE WHEN DEPOSITED IN ANY BRANCH POST OFFICE OR IN ANY
LETTER BOX UNDER THE CONTROL OF THE POST-OFFICE DEPARTMENT.
Ø Notice of dishonor may be deposited at:
1. Central Post Office;
2. Any branch of the post office;
3. Any mail box under the control of the post office; or
4. Any mail chute under the control of the post office.
5. Opinion of Atty. Ampil: Any other electronic device/application.
SEC. 107. NOTICE TO SUBSEQUENT PARTY; TIME OF. - WHERE A PARTY RECEIVES NOTICE OF
DISHONOR, HE HAS, AFTER THE RECEIPT OF SUCH NOTICE, THE SAME TIME FOR GIVING NOTICE
TO ANTECEDENT PARTIES THAT THE HOLDER HAS AFTER THE DISHONOR.
Ø When the holder gives notice of dishonor to only one PSL, the general effect is that all
other parties are automatically discharged.
o However, such PSL can protect his right of reimbursement by giving a separate
notice of dishonor to all prior parties within 24hrs after his receipt of the notice
given him by the holder.
o All parties subsequent to him are deemed discharged.
SEC. 108. WHERE NOTICE MUST BE SENT. - WHERE A PARTY HAS ADDED AN ADDRESS TO HIS
SIGNATURE, NOTICE OF DISHONOR MUST BE SENT TO THAT ADDRESS; BUT IF HE HAS NOT
GIVEN SUCH ADDRESS, THEN THE NOTICE MUST BE SENT AS FOLLOWS:
(A) EITHER TO THE POST-OFFICE NEAREST TO HIS PLACE OF RESIDENCE OR TO THE POST-
OFFICE WHERE HE IS ACCUSTOMED TO RECEIVE HIS LETTERS; OR
(B) IF HE LIVES IN ONE PLACE AND HAS HIS PLACE OF BUSINESS IN ANOTHER, NOTICE MAY BE
SENT TO EITHER PLACE; OR
(C) IF HE IS SOJOURNING IN ANOTHER PLACE, NOTICE MAY BE SENT TO THE PLACE
WHERE HE IS SO SOJOURNING.
BUT WHERE THE NOTICE IS ACTUALLY RECEIVED BY THE PARTY WITHIN THE TIME SPECIFIED
IN THIS ACT, IT WILL BE SUFFICIENT, THOUGH NOT SENT IN ACCORDANCE WITH THE
REQUIREMENT OF THIS SECTION.
Ø Rules on where to send the notice of dishonor:
1. If a party adds an address to his signature, the notice must be sent there;
2. If there is none, must be sent either to:
a. Post office nearest his place of residence, or the post office where he
is accustomed to receive his letters;
b. His residence or place of business; or
c. Place where he is sojourning.
SEC. 109. WAIVER OF NOTICE. - NOTICE OF DISHONOR MAY BE WAIVED EITHER BEFORE THE
TIME OF GIVING NOTICE HAS ARRIVED OR AFTER THE OMISSION TO GIVE DUE NOTICE, AND THE
WAIVER MAY BE EXPRESSED OR IMPLIED.
YAP, K. | ATENEO LAW
 Ø Delay in giving notice of dishonor will not discharge the PSL:
SEC. 110. WHOM AFFECTED BY WAIVER. - WHERE THE WAIVER IS EMBODIED IN THE 1. If such delay is excused due to circumstances beyond the control of the holder;
INSTRUMENT ITSELF, IT IS BINDING UPON ALL PARTIES; BUT, WHERE IT IS WRITTEN ABOVE THE
or
SIGNATURE OF AN INDORSER, IT BINDS HIM ONLY.
2. If such delay is not imputable to holder’s default, misconduct or negligence.
Ø However, the holder must give the required notice as soon as the cause of delay ceases to
operate.
Ø Waiver – the voluntary giving up of a known or established right. It may be expressed or Ø Failure to give such notice will discharge the PSL.
implied.
o Kinds of waiver: SEC. 114. WHEN NOTICE NEED NOT BE GIVEN TO DRAWER. - NOTICE OF DISHONOR IS NOT
1. Express waiver – made on the face of the instrument at the time it was REQUIRED TO BE GIVEN TO THE DRAWER IN EITHER OF THE FOLLOWING CASES:
made or indorsed.
2. Implied waiver – inferred from the acts, declarations or silence of the (A) WHERE THE DRAWER AND DRAWEE ARE THE SAME PERSON;
persons bound to receive notice. (B) WHEN THE DRAWEE IS FICTITIOUS PERSON OR A PERSON NOT HAVING CAPACITY TO
o When made: CONTRACT;
1. Before the time of giving notice; or (C) WHEN THE DRAWER IS THE PERSON TO WHOM THE INSTRUMENT IS PRESENTED FOR
2. After the omission to give due notice. PAYMENT;
(D) WHERE THE DRAWER HAS NO RIGHT TO EXPECT OR REQUIRE THAT THE DRAWEE OR
SEC. 111. WAIVER OF PROTEST. - A WAIVER OF PROTEST, WHETHER IN THE CASE OF A ACCEPTOR WILL HONOR THE INSTRUMENT;
FOREIGN BILL OF EXCHANGE OR OTHER NEGOTIABLE INSTRUMENT, IS DEEMED TO BE A (E) WHERE THE DRAWER HAS COUNTERMANDED PAYMENT.
WAIVER NOT ONLY OF A FORMAL PROTEST BUT ALSO OF PRESENTMENT AND NOTICE OF
DISHONOR.
Ø This section applies only to a BOE. The drawer who is considered a PSL need not be given
notice of dishonor by the holder under the following circumstances.
Ø This section refers to a facultative indorsement – an indorsement embodying a waiver of
protest, presentment and notice of dishonor. When Drawer Need
Ø Protest – a formal statement of the presentment and dishonor of the bill made under oath. Not Be Given Notice Notes
o Generally, applies to a foreign BOE – if dishonored, it must be protested in of Dishonor
addition to presentment and notice of dishonor.
o Made under the hand and seal of a notary public and must contain all the (1) Where the drawer Ø Confusion or merger into one person of the debtor and the
necessary facts to: and drawee are the creditor. (Ex. Father is the debtor of his son, when the father
1. Identify the instrument; and same person. dies, the son inherits the debt from the father. Son is now
2. Show that the bill was duly presented and dishonored. both debtor and creditor of himself.)
Ø Waiver of protest deemed a waiver of: Ø There is no need to give notice herein because it is he
1. Formal protest; himself who dishonors the bill.
2. Presentment; and (2) When the drawee is Ø The holder has the option to treat the BOE as a PN.
3. Notice of dishonor. a fictitious person or a o If PN, the drawer then becomes the maker, and as
person not having such, no notice is needed to be presented to him
SEC. 112. WHEN NOTICE IS DISPENSED WITH. - NOTICE OF DISHONOR IS DISPENSED WITH capacity to contract. as he becomes the PPL.
WHEN, AFTER THE EXERCISE OF REASONABLE DILIGENCE, IT CANNOT BE GIVEN TO OR DOES
(3) When the drawer is Ø When the drawer and drawee share the same office together,
NOT REACH THE PARTIES SOUGHT TO BE CHARGED.
the person to whom the and when the holder of the BOE makes a presentment on
instrument is presented maturity, the drawee is not there at the office.
Ø Notice of dishonor is dispensed with when, after the exercise of reasonable diligence: for payment.
1. It cannot be given to the PSL; or (4) Where the drawer Ø Notice of dishonor need not be given to the drawer of a
2. It does not reach the parties sought to be charged. has no right to expect or check if he does not have sufficient funds in the drawee
require that the drawee bank.
SEC. 113. DELAY IN GIVING NOTICE; HOW EXCUSED. - DELAY IN GIVING NOTICE OF DISHONOR or acceptor will honor
IS EXCUSED WHEN THE DELAY IS CAUSED BY CIRCUMSTANCES BEYOND THE CONTROL OF THE the instrument.
HOLDER AND NOT IMPUTABLE TO HIS DEFAULT, MISCONDUCT, OR NEGLIGENCE. WHEN THE (5) Where the drawer Ø When the drawer of a check notifies the drawee bank to stop
CAUSE OF DELAY CEASES TO OPERATE, NOTICE MUST BE GIVEN WITH REASONABLE DILIGENCE. has countermanded payment, he himself is the cause of the dishonor and
payment. therefore requires no notice to hold him liable.

31 YAP, K. | ATENEO LAW

 SEC. 115. WHEN NOTICE NEED NOT BE GIVEN TO INDORSER. — NOTICE OF DISHONOR IS NOT o After notice of dishonor by non-acceptance, C may collect either from A or B.
REQUIRED TO BE GIVEN TO AN INDORSER IN EITHER OF THE FOLLOWING CASES:
o If, however, after the above notice of dishonor by non-acceptance is given to A
and B, and before C collects from either A or B, X subsequently accepts the bill
(A) WHEN THE DRAWEE IS A FICTITIOUS PERSON OR PERSON NOT HAVING CAPACITY TO before maturity:
CONTRACT, AND THE INDORSER WAS AWARE OF THAT FACT AT THE TIME HE INDORSED THE
§ The first notice of dishonor by non-acceptance given to A and B is
INSTRUMENT;
nullified; and
(B) WHERE THE INDORSER IS THE PERSON TO WHOM THE INSTRUMENT IS PRESENTED FOR § X becomes liable on the instrument.
PAYMENT;
o C must make a presentment for payment on X on maturity date.
(C) WHERE THE INSTRUMENT WAS MADE OR ACCEPTED FOR HIS ACCOMMODATION. § If X this time refuses to pay, C must again give a notice of dishonor to
A and B.
o After such second notice of dishonor, C can collect from A and B.
When Drawer Need
Not Be Given Notice Notes SEC. 117. EFFECT OF OMISSION TO GIVE NOTICE OF NON-ACCEPTANCE. - AN OMISSION TO
of Dishonor GIVE NOTICE OF DISHONOR BY NON-ACCEPTANCE DOES NOT PREJUDICE THE RIGHTS OF A
(1) When the drawee is Ø Confusion or merger into one person of the debtor and the HOLDER IN DUE COURSE SUBSEQUENT TO THE OMISSION.
a fictitious person or creditor. (Ex. Father is the debtor of his son, when the father
person not having dies, the son inherits the debt from the father. Son is now Ø This applies only if the holder who fails to give notice of dishonor by non-acceptance to
capacity to contract. both debtor and creditor of himself.) PSL, later negotiates the bill to a HDC.
Ø There is no need to give notice herein because it is he o In this case, the HDC may give the required notice of dishonor by non-acceptance
himself who dishonors the bill. to the PSL as to hold them liable on the instrument.
(2) Where the indorser Ø When the indorsee and indorser share the same office
is the person to whom together, and when the holder of the BOE makes a SEC. 118. WHEN PROTEST NEED NOT BE MADE; WHEN MUST BE MADE. - WHERE ANY
the instrument is presentment on maturity, the drawee is not there at the NEGOTIABLE INSTRUMENT HAS BEEN DISHONORED, IT MAY BE PROTESTED FOR NON-
presented for payment. office. ACCEPTANCE OR NON-PAYMENT, AS THE CASE MAY BE; BUT PROTEST IS NOT REQUIRED
(3) Where the Ø Because the indorser has no right to expect or require the EXCEPT IN THE CASE OF FOREIGN BILLS OF EXCHANGE. ROBLES VIRTUAL LAW LIBRARY
instrument was made or accommodation party to pay the instrument.
accepted for his Ø Protest applies only to foreign BOE, and must be made if the instrument is dishonored
accommodation. either by non-acceptance or non-payment.

SEC. 116. NOTICE OF NON-PAYMENT WHERE ACCEPTANCE REFUSED. - WHERE DUE NOTICE OF
DISHONOR BY NON-ACCEPTANCE HAS BEEN GIVEN, NOTICE OF A SUBSEQUENT DISHONOR BY
NON-PAYMENT IS NOT NECESSARY UNLESS IN THE MEANTIME THE INSTRUMENT HAS BEEN
ACCEPTED.

Example
Pay to the order of B the sum of P5,000.00 30 days after
sight.
(Sgd.) A
To: X
B indorses the bill to C

Ø Explanation: Rule: Presentment for acceptance is necessary in this bill because it is

payable at a fixed period after sight. Maturity date of the bill is determined from the date
of first presentment.
o If C makes presentment for acceptance to X and X refuses to accept the bill –
there is no need to make a presentment for payment because X has refused to
accept it and therefor not liable on the instrument.
§ Instead, the holder must give notice of dishonor by non-acceptance to
A and B who are considered the only PSL.
32 YAP, K. | ATENEO LAW
 VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS
SEC. 120. WHEN PERSONS SECONDARILY LIABLE ON THE INSTRUMENT ARE DISCHARGED. - A
PERSON SECONDARILY LIABLE ON THE INSTRUMENT IS DISCHARGED:
SEC. 119. INSTRUMENT; HOW DISCHARGED. - A NEGOTIABLE INSTRUMENT IS DISCHARGED:

(A) BY PAYMENT IN DUE COURSE BY OR ON BEHALF OF THE PRINCIPAL DEBTOR; (A) BY ANY ACT WHICH DISCHARGES THE INSTRUMENT;
(B) BY PAYMENT IN DUE COURSE BY THE PARTY ACCOMMODATED, WHERE THE INSTRUMENT (B) BY THE INTENTIONAL CANCELLATION OF HIS SIGNATURE BY THE HOLDER;
IS MADE OR ACCEPTED FOR HIS ACCOMMODATION; (C) BY THE DISCHARGE OF A PRIOR PARTY;
(C) BY THE INTENTIONAL CANCELLATION THEREOF BY THE HOLDER; (D) BY A VALID TENDER OF PAYMENT MADE BY A PRIOR PARTY;
(D) BY ANY OTHER ACT WHICH WILL DISCHARGE A SIMPLE CONTRACT FOR THE PAYMENT OF (E) BY A RELEASE OF THE PRINCIPAL DEBTOR UNLESS THE HOLDER'S RIGHT OF RECOURSE
AGAINST THE PARTY SECONDARILY LIABLE IS EXPRESSLY RESERVED;
MONEY;
(E) WHEN THE PRINCIPAL DEBTOR BECOMES THE HOLDER OF THE INSTRUMENT AT OR AFTER (F) BY ANY AGREEMENT BINDING UPON THE HOLDER TO EXTEND THE TIME OF PAYMENT OR TO
POSTPONE THE HOLDER'S RIGHT TO ENFORCE THE INSTRUMENT UNLESS MADE WITH THE
MATURITY IN HIS OWN RIGHT.
ASSENT OF THE PARTY SECONDARILY LIABLE OR UNLESS THE RIGHT OF RECOURSE AGAINST
SUCH PARTY IS EXPRESSLY RESERVED.
Discharge of
Notes
Instrument
When PSL
(1) By payment in due Ø Payment in due course: Notes
Discharged
course by or on behalf 1. Made at or after the maturity date of the
of the principal debtor. instrument; (1) By any act which Ø Refer to previous section.
2. To the holder thereof; and discharges the Ø Because the basis to hold the PSL liable is the dishonor by
(2) By payment in due instrument. non-acceptance or non-payment made by the PPL on the
3. In good faith and without notice that the title of
course by the party instrument which was, however, cancelled.
the holder is defective.
accommodated, where
the instrument is made (2) By the intentional Ø Effects when the holder intentionally cancels the signature
or accepted for his cancellation of his of an indorser:
accommodation. signature by the holder. 1. Indorser is discharged; and
2. All PSL and subsequent to the indorser whose
(3) By the intentional Ø As long as the clear intent of the holder to cancel the signature is cancelled are also discharged. (Sec.
cancellation thereof by instrument can be established, cancellation may be made in 48)
the holder. several ways:
1. Writing across the face of the instrument the word (3) By the discharge of Ø If the holder discharges an indorser by some act, other than
“cancelled.” a prior party. by operation of law, its effects are:
2. Making a big cross or “X” across the face of the 1. Indorser is discharged; and
note; or 2. All subsequent indorsers are discharged –
3. Intentionally destroying the instrument, such as because their right of recourse to collect from the
tearing or burning it. party first discharged has been cut off.

(4) By any other act Ø Other modes of extinguishment as from Art. 1231 of (4) By a valid tender of Ø If, after the holder gives notice of dishonor to all PSL, one
which will discharge a Obligations and Contracts: payment made by a of the indorsers makes a valid tender of payment to the
simple contract for the 1. Remission or condonation – voluntary surrender prior party. holder, and the holder unjustifiably refuses to accept such
payment of money. of the instrument by the holder to the maker or tender – its effects:
PPL without collecting on the note; 1. Indorser making the tender is discharged; and
2. Rescission of the contract of sale or whatever for 2. All indorsers subsequent to him are discharged.
which an instrument has been issued; or (5) By a release of the Ø Rules:
3. Renunciation, compensation, novation and principal debtor unless 1. If the holder releases the principal debtor or PPL
prescription. the holder’s right of unqualifiedly – all PSL are discharged.
recourse against the 2. If the holder wishes to release the principal debtor
(5) When the principal Ø Merger or confusion – whereby the person of the principal PSL is expressly and still retain liability of the PSL – he must
debtor becomes the debtor and that of the principal creditor are blended in one reserved. either:
holder of the instrument and the same person. a. Make a reservation of his right to
at or after maturity in collect from them before he makes the
his own right. release; or

33 YAP, K. | ATENEO LAW

 b. First get the consent of the PSL prior to SEC. 122. RENUNCIATION BY HOLDER. - THE HOLDER MAY EXPRESSLY RENOUNCE HIS RIGHTS
the actual release. AGAINST ANY PARTY TO THE INSTRUMENT BEFORE, AT, OR AFTER ITS MATURITY. AN
3. Holder’s reservation of his right of recourse ABSOLUTE AND UNCONDITIONAL RENUNCIATION OF HIS RIGHTS AGAINST THE PRINCIPAL
against PSL cannot be implied from acts and DEBTOR MADE AT OR AFTER THE MATURITY OF THE INSTRUMENT DISCHARGES THE
conduct but must be expressed. INSTRUMENT. BUT A RENUNCIATION DOES NOT AFFECT THE RIGHTS OF A HOLDER IN DUE
COURSE WITHOUT NOTICE. A RENUNCIATION MUST BE IN WRITING UNLESS THE INSTRUMENT IS
(6) By any agreement Ø (Sec. 85) – an instrument is payable at maturity, without
DELIVERED UP TO THE PERSON PRIMARILY LIABLE THEREON.
binding upon the holder grace.
to extend the time of Ø General rule: When the holder grants the PPL extension of
payment or to postpone time within which to pay the instrument, the PSL are Ø Renunciation – the act of an individual or corporation in giving up or abandoning a right
the holder’s right to discharged from liability. without transferring the right to another.
enforce the instrument o Exceptions: Ø May be:
unless made with the 1. When the indorsers give their consent 1. Expressed, oral or written;
assent of the PSL or to the extension of time of payment; or 2. Made before, at or after maturity date;
unless the right of 2. When the holder reserves his right of 3. Made in favor of any party to the instrument; and
recourse against such recourse – granting of extension – § If made in favor of PPL:
party is expressly against the PSL. a. It must be absolute and unconditional;
reserved. b. Made at or after maturity date; and
c. Instrument is discharged.
SEC. 121. RIGHT OF PARTY WHO DISCHARGES INSTRUMENT. - WHERE THE INSTRUMENT IS § If made in favor of PSL:
PAID BY A PARTY SECONDARILY LIABLE THEREON, IT IS NOT DISCHARGED; BUT THE PARTY SO
a. It must be made before, at or after maturity date; and
PAYING IT IS REMITTED TO HIS FORMER RIGHTS AS REGARD ALL PRIOR PARTIES, AND HE MAY
b. Party in whose favor the renunciation is made and all parties
STRIKE OUT HIS OWN AND ALL SUBSEQUENT INDORSEMENTS AND AGAINST NEGOTIATE THE
subsequent to him are discharged from liability.
INSTRUMENT, EXCEPT:
4. Made with or without consideration.
Ø Renunciation will not affect the rights of a HDC.
(A) WHERE IT IS PAYABLE TO THE ORDER OF A THIRD PERSON AND HAS BEEN PAID BY THE
DRAWER; AND SEC. 123. CANCELLATION; UNINTENTIONAL; BURDEN OF PROOF. - A CANCELLATION MADE
(B) WHERE IT WAS MADE OR ACCEPTED FOR ACCOMMODATION AND HAS BEEN PAID BY THE UNINTENTIONALLY OR UNDER A MISTAKE OR WITHOUT THE AUTHORITY OF THE HOLDER, IS
PARTY ACCOMMODATED. INOPERATIVE BUT WHERE AN INSTRUMENT OR ANY SIGNATURE THEREON APPEARS TO HAVE
BEEN CANCELLED, THE BURDEN OF PROOF LIES ON THE PARTY WHO ALLEGES THAT THE
CANCELLATION WAS MADE UNINTENTIONALLY OR UNDER A MISTAKE OR WITHOUT
Ø A PSL who pays the instrument does not discharge it, but instead acquires the following AUTHORITY.
rights:
1. Collect from prior parties; or
2. Negotiate the instrument to new parties – but not to subsequent parties. Ø The instrument is not discharged when the cancellation is made:
1. Unintentionally; or
Example 2. Through a mistake or fraud; or
I promise to pay to the order of B P5,000.00 30 days 3. Without the authority of the holder.
after date. Ø The cancellation of the instrument under any of the above circumstances is inoperative.
(Sgd.) A o The party who alleges such inoperative cancellation has the burden of proof.
Subsequent indorsements: B-C-D-E-F.
SEC. 124. ALTERATION OF INSTRUMENT; EFFECT OF. - WHERE A NEGOTIABLE INSTRUMENT IS
MATERIALLY ALTERED WITHOUT THE ASSENT OF ALL PARTIES LIABLE THEREON, IT IS
Ø Explanation: Suppose A dishonors the instrument on maturity date by non-payment and AVOIDED, EXCEPT AS AGAINST A PARTY WHO HAS HIMSELF MADE, AUTHORIZED, OR ASSENTED
F, after giving notice of dishonor by non-payment to B, C, D and E, collects from D who TO THE ALTERATION AND SUBSEQUENT INDORSERS.
pays F. D is therefore remitted to his former status and acquires the right to: BUT WHEN AN INSTRUMENT HAS BEEN MATERIALLY ALTERED AND IS IN THE HANDS OF A
o Collect from C, and if C pays, C may collect from B, and if B pays, B may collect HOLDER IN DUE COURSE NOT A PARTY TO THE ALTERATION, HE MAY ENFORCE PAYMENT
from A; or THEREOF ACCORDING TO ITS ORIGINAL TENOR.
o D may further negotiate the instrument to an entirely new party, but not to E, a
subsequent party to whom D is liable.
Ø Material alteration – alters or affects the liability of the parties to the instrument in any
respect.
34 YAP, K. | ATENEO LAW
 o Such as the change in the date of the instrument, sum payable, rate of interest, Material Alteration Notes
number or relation of the parties, or a change in the time or manner or place of
payment. (1) Date. Ø A change in the date is a material alteration if it:
Ø General rule: Any material alteration of the instrument without the assent of all parties 1. Affects the maturity date of the instrument; or
liable on the instrument discharges the instrument. 2. Affects the date from which interest, if charged,
o Exceptions: is to run.
1. As against a party who has made, assented to, or authorized the (2) Sum payable, either Ø General rule: A change in the principal amount or rate of
material alteration; and for principal or interest. interest, either by increasing or decreasing the same, is a
2. All parties subsequent to such party who are considered regular material alteration.
indorsers who warrant that the instrument is genuine and is what it o Exception: An alteration of the marginal figures
purports to be at the time of their indorsement. of the instrument is not material if the sum
Ø An immaterial alteration will not destroy the negotiability of the instrument. payable stated in words in the body of the
Ø Spoilation (the intentional destruction of evidence that is presumed to be unfavorable to instrument remains unchanged.
the party responsible for its destruction) made by a stranger to an instrument is not material Ø The adding of “with interest” with or without a fixed rate is
alteration. a material alteration.

Example (3) Time or place of Ø It will affect the liability of the parties to the instrument.
payment. (Particularly where a specific place of payment is specified)
I promise to pay to the order of B P5,000.00 30 days
after date. (4) Number or relation Ø Some examples:
(Sgd.) A of the parties. 1. Changing the name of the payee;
2. Adding a co-maker in the note without maker’s
Ø Explanation: Suppose A issued the note to B and B negotiates to C. With the consent of consent;
B, C alters the mount from P5,000.00 to P15,000.00 and negotiates the note to D-E-F-G. 3. Erasing the words “Agent fo X” in a check
o If G is not HDC: payable to “M, agent for X.”
§ G cannot collect from A who is a party prior to the fraudulent 4. Inserting the word “trustee” after the name of the
alteration. payee.
§ G can collect from B P15,000.00 because B consented. (5) Medium or currency Ø R.A. 529 – prohibits any stipulation in the instrument that
§ G can collect from C P15,000.00 because C made the alteration. in which payment is to the sum certain will be payable in foreign currency.
§ G can collect P15,000.00 from D, E or F because they are regular be made.
indorsers.
(6) Adds a place of Ø Changes the liability of the parties.
payment where no
o If G is HDC:
§ G can collect from A P5,000.00, the original tenor. place of payment is
specified.
§ G can collect from B, C, D and E (PSL) P15,000.00 because of the
reasons above. (7) Any other change or Ø Like changing the nature of the indorsements. (Ex. Erasing
addition which alters “Pay to X” thereby converting the special indorsement into
SEC. 125. WHAT CONSTITUTES A MATERIAL ALTERATION. - ANY ALTERATION WHICH the effect of the a general indorsement.
CHANGES: instrument in any
respect.
(A) THE DATE;
(B) THE SUM PAYABLE, EITHER FOR PRINCIPAL OR INTEREST;
(C) THE TIME OR PLACE OF PAYMENT:
(D) THE NUMBER OR THE RELATIONS OF THE PARTIES;
(E) THE MEDIUM OR CURRENCY IN WHICH PAYMENT IS TO BE MADE;
(F) OR WHICH ADDS A PLACE OF PAYMENT WHERE NO PLACE OF PAYMENT IS SPECIFIED, OR
ANY OTHER CHANGE OR ADDITION WHICH ALTERS THE EFFECT OF THE INSTRUMENT IN ANY
RESPECT, IS A MATERIAL ALTERATION.

35 YAP, K. | ATENEO LAW

NEGOTIABLE INSTRUMENTS QUICK LIST
By: Hanna Soriano
Section 1:
5 Requisites for an instrument to be considered negotiable
1. It must be in writing and signed by the maker or drawer
2. Must contain an unconditional promise or order to pay sum certain in money
3. Must be payable on demand, or at a fixed and determinable future time
4. Must be payable to order or to bearer
5. Where an instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty
5 requisites for a bill of exchange to be considered negotiable
1. It must be in writing and signed by the drawer
2. Must contain an unconditional order to pay sum certain in money
3. Must be payable on demand, or at fixed and determinable future time
4. Must be payable to order or bearer
5. When the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty
3. To give discharge therefor, or
4. To enforce payment thereof against any party thereto
Can be acquired through or under such signature unless the party against whom it is
sought to enforce such right is precluded from setting up forgery or want of authority.
Section 52: 4 requisites to be considered a holder in due course
The holder has taken the instrument under the ff conditions
1. That it is complete and regular upon its face
2. That he became the holder of it before it was overdue, and without notice that it has been
dishonored if such was the fact
3. That he took it in good faith and for value
4. That at the time it was negotiated to him, he had no notice of infirmity in the instrument
or defect in the title of the person negotiating it
Effects of a crossed check
1. Check may not be encashed but only deposited in the bank
2. The checks may be negotiated only once to one who has account with a bank
3. The act of crossing the check serves as a warning that he must in inquire if he has received
the check pursuant to that purpose; otherwise, he is not a holder in due course

4 requisites for a promissory note to be negotiable Section 60: Liability of maker

1. It must be in writing and signed by the maker (by making the instrument)
2. Must contain unconditional promise to pay sum certain in money 1. Engages that he will pay it according to its tenor
3. Must be payable on demand or at a fixed and determinable time 2. Admits the existence of the payee and his then capacity to indorse
4. Must be payable to order or to bearer
Section 61: Liability of drawer
12 kinds of REAL defenses (F2EU ADM2 WIWI) (by drawing the instrument)
1. Forgery 1. Admits the existence of the payee and his then capacity to indorse
2. Fraud in Factum 2. Engages that, on due presentment, the instrument will be accepted or paid or both,
3. Execution of an instrument between public enemies according to its tenor, and
4. Ultra Vires acts of a corporation 3. That if it be dishonored and the necessary proceedings on dishonor be duly taken, he will
5. Alteration pay the amount thereof to the holder or to any subsequent indorser who may be compelled
6. Duress amounting to Forgery to pay it
7. Marriage [But the drawer may insert in the instrument a stipulation limiting his own liability to the
8. Minority holder]
9. Want of delivery of an incomplete instrument
10. Incapacity to contract Section 62: Liability of the acceptor
(by accepting the instrument)
11. Want of authority of an agent
1. Engages that he will pay it according to the tenor of his acceptance
12. Illegality of contract
2. Admits the existence of the drawer, the genuineness of his signature, and his then
capacity and authority to draw the instrument
Section 19: Requisites for an agent to avoid personal responsibility
1. He must be duly authorized 3. Admits the existence of the payee and his then capacity to indorse
2. He must duly indicate that he is signing as an agent
3. He must disclose his principal
Section 65: 4 warranties of a person who negotiates by mere delivery or by qualified indorsement
Section 23: Effect of Forgery
1. That the instrument is genuine in all respects what it purports to be
(when a signature is forged or made without the authority it purports to be)
2. That he has good title to it
1. It is wholly inoperative
3. That all prior parties had capacity to contract
2. No right to retain the instrument, or

36 YAP, K. | ATENEO LAW

 4. That he has no knowledge of any fact which would impair the validity of the instrument
or render it valueless Must be presented for acceptance in certain
[but when the negotiation is by delivery only, the warranty extends in favor of no holder other cases, and drawee is not liable There is no need of presentment for
than the immediate transferee unless and until he accepts acceptance
the same
The provisions in (3) do not apply to a person negotiating public or corporation securities
other than bills and notes]
Note payable on demand
Section 66: 4 warranties of a general indorser Bill payable on demand must be presented
must be presented for
1. That the instrument is genuine in all respects it purports to be for payment within a reasonable time from its
payment with reasonable
2. That he has good title to it last negotiation
time from its issue
3. That all prior parties had capacity to contract
4. That the instrument is, at the time of his indorsement, valid and subsisting

Section 114: 5 instances when a notice of dishonor need not be given to drawer
1. Where the drawer and drawee are the same person Primarily Liable: Acceptor PL: Maker
2. When the drawer is fictitious person or a person not having capacity to contract Secondarily Liable: Maker, Indorser SL: Indorser
3. When the drawer is the person to whom the instrument is presented for payment
4. Where the drawer has no right to expect or require that the drawee or acceptor honors the
instrument
5. Where the drawer countermanded payment Section 119: How nego instrument is discharged
1. By payment in due course or on behalf of the principal debtor
Section 115: 3 instances when notice of dishonor need not be given to indorser 2. By payment in due course by the party accommodated, where the instrument is made or
1. When the drawee is a fictitious person or a person not having capacity to contract and accepted for his accommodation
the indorser was aware of that fact at the time he indorsed the instrument 3. By the intentional cancellation thereof by the holder
2. When the indorser is the person to whom the instrument is presented for payment 4. By any other act which will discharge a simple contract for the payment of money
3. Where the instrument was made or accepted for his accommodation 5. When the principal debtor becomes the holder of the instrument at or after the maturity
in his own right (merger or confusion(
Difference between B/E and PN
Bills of Exchange Promissory note Section 120: Instances when persons secondarily liable are discharged
1. By any act which discharges the instrument
2. By the intentional cancellation of his signature by the holder
3. By the discharge of a prior party
Contains unconditional 4. By a valid tender of payment made by a prior party
order addressed by one 5. By a release of the principal debtor unless the holder’s right of recourse against the party
Contains unconditional promise made by one
person to another requiring secondarily liable is expressly reversed
person to another to pay it
the latter to pay the 6. By any agreement binding upon the holder to extend the tine of payment to postpone the
instrument holder’s right to enforce the instrument unless made with the assent of the party
secondarily liable or unless the right of recourse against such party is reserved
3 parties: Drawer, Drawee,
2 parties: Maker; Payee/Bearer
Payee
Section 124: Effect of alteration of instrument
(When a nego instrument is materially altered without the assent of all the primary parties liable
Drawer, the one who issues Maker, the one who issues thereon,)
the instrument, is only secondarily liable. the instrument, is primarily liable. 1. It is avoided
A bill drawn payable to the drawer’s own 2. Except as against the party who has himself made, authorized, or assented to the
Note drawn payable to the maker’s own order alteration and subsequent indosers
order is complete without indorsement,
is not complete until endorsed by him. [But if in the hands of Ahidc Not a party to the alteration, he may enforce payment thereof
provided it has been accepted by the drawee.
according to its original tenor]

37 YAP, K. | ATENEO LAW

Section 125: What constitutes material alteration
Any alteration which changes:
1. Date
2. Sum payable either for the principal or interest
3. Time or place of payment
4. Number or the relations of the parties
5. Medium or currency in which payment is to be made
6. Or which adds a place of payment if no place of payment is specified, or any other change
or addition which alters the effect of the instrument

38 YAP, K. | ATENEO LAW